Covid 19 Act: Policyholders can refuse premiums

The legislative package to mitigate the effects of the pandemic, which was adopted by politicians in record time, also includes a temporary right to refuse benefits for policyholders who are unable to continue paying their premiums. The lawyer Francesca Visnovic from the law firm Wolter Hoppenberg explains what this largely unknown right is about.

Covid 19 Act: Policyholders can refuse premiums
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The legislative package to mitigate the effects of the pandemic, which was adopted by politicians in record time, also includes a temporary right to refuse benefits for policyholders who are unable to continue paying their premiums. The lawyer Francesca Visnovic from the law firm Wolter Hoppenberg explains what this largely unknown right is about.

Covid 19 Act: Policyholders can refuse premiums
The corona crisis is not only a health crisis, but increasingly also a financial one. The economy is already clearly feeling the consequences of the ordered shutdown. The measures that politicians have taken to contain the risk of infection have led to short-time work or even a completely lack of income, for example because their own business has been closed. This ensures that many consumers and entrepreneurs are faced with the daily challenge of how to still pay the due bills.

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Legislative projects implemented in record time
Politicians recognized this challenge and put together a legislative package in record time. With the "Law to Mitigate the Consequences of the Covid-19 Pandemic in Civil, Bankruptcy and Criminal Procedure Law" of March 25th, 2020, which came into force on April 1st, 2020, the legislator made extensive changes in civil, bankruptcy and Criminal procedural law was implemented to mitigate the economic consequences of the corona crisis. For this purpose, he created special disruption rights for various areas such as tenancy and loan law. With the creation of Art. 240 § 1 EGBGB and the moratorium contained therein, the following is of particular relevance for policyholders and thus for insurance sales: Under certain conditions, policyholders can now suspend their insurance premiums if they are no longer economically viable due to the corona pandemic Are able to do this.

Refusal to pay applies to compulsory insurance
If a consumer or a small entrepreneur, i.e. a company with up to 9 employees and an annual turnover of up to EUR 2 million, has concluded an insurance contract before March 8th, 2020 and this is a statutory insurance, i.e. a so-called compulsory insurance , these policyholders have a temporary right to refuse benefits if they are no longer able to meet their obligations under this long-term debt obligation due to the Covid 19 pandemic, without endangering a reasonable livelihood or that of dependent persons or without the benefit of a small business more could be provided or the economic basis of the business would be at risk.

Compulsory insurance is a general service of general interest
The law grants in Art. 240 § 1 Paragraph 1 and Paragraph 2 EGBGB a right to refuse performance only in the case of significant long-term obligations, including all those obligations that are necessary to cover with services of "adequate general interest". These include contracts for the supply of electricity and gas or telecommunications services, and contracts for water supply and disposal. It is often overlooked that this also includes a large number of insurance contracts. The legislature also understands the concept of general services of general interest, as evidenced by the justification of the law, to compulsory insurance contracts. This applies to compulsory insurance contracts for both consumers and micro-entrepreneurs.

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Motor vehicle, liability, KV
This means that payments of the insurance premiums, for example for motor vehicle liability insurance, health insurance or professional or business liability insurance, can be refused if the policyholder is obliged to do so. Substitutive health insurance premiums are also included. So far it has not been conclusively clarified whether this also applies to other insurances that are not compulsory insurances, but are of existential importance for the policyholders.

"Objection" is mandatory
It is important that the right to refuse performance must be asserted in good faith. This means that the policyholder, as the debtor of the benefit, must expressly invoke this right to refuse performance and, in principle, also have to prove that he cannot afford because of the Covid 19 pandemic.

Claims cannot be enforced at times
The right to refuse performance prevents the enforceability of the agreed performance and thus also the development of secondary claims that are linked to the non-performance of performance obligations. Delay, damages and reimbursement of expenses or the possibility of withdrawal do not exist. A right of termination, which the insurer acc. Paragraph 38 of the VVG does not arise from the assertion of an objection. Rather, it remains with the basic obligation to provide benefits, which must be met after June 30, 2020 at the latest or if the company becomes solvent again. Accordingly, the claims do not expire, but the enforceability of the claim is prevented. This is intended to give consumers and micro-entrepreneurs the opportunity to suspend these premiums for the period mentioned in order to have greater financial scope in times of crisis. It should be noted here that the legislature has taken into account that the period of the effects of the Covid 19 pandemic could possibly extend beyond June 30, 2020 and has therefore already promised a possible extension of the measure. It remains to be seen whether, given the easing now granted, the legislator continues to assume that the financial situation of consumers and micro-entrepreneurs is so at risk that they are to be granted a statutory right to refuse performance over a longer period of time.

Exclusion unreasonable
In order to protect creditors as well, the debtor cannot invoke the right to refuse performance if this would lead to the same results for the creditor, ie the assertion of the right to refuse performance would therefore be unreasonable for the creditor, Art. 240 § 1 Paragraph 3 EGBGB. This is to be assumed if the creditor of the premium is also in financial emergency due to the non-payment. In this case, however, the law provides that the debtor is then entitled to a right of termination. However, such a situation is not to be expected when a compulsory insurance premium is refused. In any case, the assumption that an insurance company is unreasonable as a creditor of the benefit due to a possible risk to the business is very unlikely.

Conversation for mediators
In practice, intermediaries should discuss the possibility of an objection with customers. This is even more the case if there are signs that the corona crisis is pushing them to the limits of their financial capacity. From a sales perspective, it is particularly important to take into account the fact that a large number of compulsory insurance policies exist, but many policyholders either have no knowledge of the newly created right to refuse benefits or that this relates to compulsory insurance policies.