Legal expenses insurance is designed to ensure that policyholders can protect their legal interests and to help cover the associated costs.
Legal expenses insurance covers the following costs in particular: statutory fees of the policyholder’s lawyer, fees for the opponent’s lawyer if the case is lost at trial, court fees, witness expenses or expert fees, to the extent required.
However, legal expenses insurance does not offer general coverage. It is subject to the principle of speciality: it is provided as a bundle of services linked to certain characteristics or activities that are specific to the policyholder (e.g. self-employed or not; owner or registered keeper of a vehicle), for which certain risks (i.e. certain types of activities) can be insured in a number of legal areas (e.g. legal expenses insurance for claiming damages or in the case of employment, housing and property or tax disputes in court). If an insured event occurs, your insurer will only cover the costs for the legal areas, characteristics or activities that are covered by your insurance. This is why it is important to carefully think about what you need to insure before taking out insurance.
What are “pre-contractual events” and "waiting periods" in the context of legal expenses insurance?
Legal expenses insurance policies offer coverage for future disputes only. Insurance coverage cannot be provided for legal disputes caused before the policy inception date or occurring during a waiting period. For example, the terms and conditions of legal expenses insurance contracts typically stipulate that the insurer is not required to provide coverage for pre-contractual events (Vorvertraglichkeit) or events that occur during an agreed waiting period (usually lasting three to six months) after the policy inception date.
This allows insurers to protect themselves against claims made by clients who take out legal expenses insurance only when a conflict is to be expected or has already arisen.
Can my insurer terminate the contract at the end of the policy period even though only few or no insured events have occurred?
Yes. Legal expenses insurance contracts may be terminated at the end of the policy year on three months’ notice without stating any reasons. In such cases, the contract is terminated on the normal expiry date of the policy.
My previous insurance company terminated the contract because I frequently submitted claims. I contacted another insurer to request legal expenses insurance, and they asked my previous insurer about my claims history. Now, they are refusing to grant me coverage. Are insurers allowed to share data in this way?
Yes. When taking out insurance, policyholders are provided with the terms and conditions of insurance and a leaflet on how data is processed. This leaflet states that insurers may pass on data to the Notification and Information System of the German Insurance Industry (Hinweis- und Informationssystem der Versicherungswirtschaft – HIS) when a contract is terminated. This data comprises information that you are legally required to disclose when signing a new contract.
Under what circ*mstances can a policyholder or insurer terminate a legal expenses insurance contract following a claim?
Both the policyholder and the insurer may terminate the insurance contract early after a claim under certain conditions. The German Insurance Association (Gesamtverband der Deutschen Versicherungswirtschaft e.V. – GDV) has set out non-binding sample terms and conditions for legal expenses insurance (Allgemeine Bedingungen für die Rechtsschutzversicherung – ARB 2012). These terms and conditions lay down the ways in which a contract may be terminated after an insured event has occurred. Most insurers have incorporated the German Insurance Association’s terms and conditions as they stand into their own sets of terms and conditions. However, insurers are still free to impose terms and conditions that differ from those stated above. It is therefore impossible to give a general answer to the above question, as it always depends on what has been agreed with your insurer in your specific case. For this reason, please consult the terms and conditions provided by your insurer.
Here, you will also find a clause on the insurance premium amount you must pay if the contract is terminated early.
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