Increase of Risk (Gefahrerhöhung)

Concept

Under Section 23 of the German Insurance Contract Act (VVG), an increase of risk is a change, occurring after the contract is concluded, in the circumstances relevant to underwriting the risk, which increases the insured risk so significantly that the insurer, had it known of these circumstances at the time the contract was concluded, would not have concluded the contract or would have concluded it only on different terms.

The Policyholder’s Disclosure Duty

The policyholder is obligated to notify the insurer without delay of any increase of risk known to it; if the policyholder itself causes the increase of risk or permits a third party to do so, the disclosure duty already exists before the increase of risk occurs, whereas for an increase of risk occurring without the policyholder’s knowledge or intent, notice must be given without delay after becoming aware of it.

Legal Consequences of a Breach

If the policyholder culpably breaches its disclosure duty, the insurer, depending on the degree of fault, can terminate the contract or, in the event of a later insured event, be wholly or partially released from its obligation to pay benefits; the law provides for a graduated system in this regard, based on the policyholder’s degree of fault and the causal link between the increase of risk and the occurrence of the insured event. The Austrian Insurance Contract Act (VersVG) regulates the same legal concept under the term Gefahrenerhöhung (Sections 23 ff. VersVG), with comparable disclosure and termination rights.