November 9th, 2011

Continental European Legislative and Judicial Trends: Austrian Civil Procedure Law and Insurance Matters

Posted at 1:00 AM ET

David Lewin, Managing Director

In Austria, a third party does not have a legal interest to join an action for insurance coverage by the insured against the third party liability insurer, even when the insured is bankrupt and its liquidator has filed a lawsuit (OGH 22.10.2010, 7 Ob 178/10t).

General Austrian Legal Background

The two party requirement (Zweiparteiensystem) - where each party is either a claimant or defendant - is, according to the Austrian Code of C ivil Procedure (ACC P, Zivilprozessordnung), one of the basic principles of civil lawsuits. A third party may join a pending civil action to support one of the two primary parties when the third party has a legal interest in one of the main parties’ success. I n addition, occupational standards require Austrian notary publics to purchase professional indemnity insurance (PI).

The relevant legal provisions are set forth in Section 17 et seqq. of the ACC P and in S ection 30 Paragraph 1 of the Austrian Notary Public Code of Professional Responsibility (Notariatsordnung).

Facts of the Case

In the case at hand, a former Austrian notary public (the insured) caused damages to several Austrian financial institutions (predominantly banks) in excess of EUR 100 million. He engaged in numerous, allegedly improper executions of property transactions where the purchase payment was held in escrow. This resulted in what may have been the largest PI matter caused by the actions of a notary public in Austria in decades - or perhaps even in history.

The Austrian notary public went bankrupt. The financial institutions affected by his actions filed a claim in  bankruptcy court with the expectation that they would receive payments from the PI. Representing the co-insurers, the lead carrier of the PI appropriately denied coverage. One of the banks affected by the scheme decided to fully  finance a civil lawsuit. On March 2, 2011, the former notary public’s liquidator filed a lawsuit seeking a declarative statement of coverage for the losses suffered by the bank.

The bank subsequently joined the liquidator in the civil lawsuit against the lead carrier. This was done on the premise that the court’s decision could adversely affect the bank’s legal interests if the liquidator’s claim was denied. The latter,according to the bank, constituted a legal interest to join the proceeding. The lead carrier promptly put forth reasons to reject the bank’s intervention.

The lead carrier’s arguments were rejected by the Vienna C ommercial C ourt, the court of first instance. This decision was reversed by the Court of Appeals. The bank then filed an appeal (Revisionsrekurs) with the Austrian Supreme  Court (ASC, Oberster Gerichtshof, O GH), which rejected the bank’s motion to intervene in the civil proceeding.

Considerations of the ASC

Due to a substantial amendment to the ACC P in 2009 (ACC P Amendment 2009, Zivilverfahrensnovelle 2009), the ASC initially analyzed the court of first instance’s decision as to whether the bank’s decision may have been separately appealed by the lead carrier, and whether this appeals process was two-sided, where both parties to a dispute may file an appeal.

Section 18 Paragraph 4 of the ACCP’s previous version stipulated that a court order granting an intervention may not be appealed by the other party. However, Section 18 Paragraph 4 of the ACC P was abrogated by the ACCP Amendment 2009 on April 1, 2009. The ASC needed to analyze whether the previous version of Section 18
Paragraph 4 should be applied to a civil lawsuit filed on March 11, 2009 - that is, prior to the abrogation taking effect. In line with relevant case law, the ASC concluded that a pending civil proceeding shall be adjudicated according to the most up-to-date version of applicable procedural prescriptions, provided that transitional provisions do not stipulate otherwise. C onsequently, the lead carrier was permitted to appeal the Vienna Commercial Court’s decision separately.

The ASC also had to determine whether the bank had the right to answer the lead carrier’s appeal against the court order issued by the Vienna Commercial Court. An appeal procedure against a court order was generally not two-sided prior to the enactment of the ACCP Amendment 2009, in the sense that an appeal could only be made by one of the parties. However, Austrian legislative authorities intended to affirm the general principle of equality of strength of the parties - in line with Article 6 of the Human Rights Convention - by implementing the ACCP Amendment 2009. Both parties to a dispute are now permitted to present arguments in the appellate process unless the law stipulates otherwise. Consequently, the former rule has been turned upside down. Since the order by the Vienna C ommercial Court appealed by the lead carrier was issued after March 31, 2009, the ASC found that the appeals process in this particular case must be two-sided. The bank was therefore permitted to answer the lead carrier’s appeal.

After resolving the procedural issue, the ASC proceeded to consider the merits of the case. S ection 17 Paragraph 1 of the ACCP stipulates that a person who has a legal interest in the success of a particular party to a lawsuit may join the action on the side of that party. The legal interest of the intervener must be precisely specified according to Section 18 Paragraph 1 of the ACCP. The party seeking to intervene must demonstrate an unambiguous legal interest. This is one of the formal requirements for joining a lawsuit. Attempts to intervene that fail to meet this standard are rejected during the court’s pre-trial evaluation.

According to case law, an economic interest does not constitute sufficient grounds for joining a civil action. In the past, for example, the legal interest of a creditor to join a recovery action by the liquidator was denied. Likewise, the ASC has also rejected arguments favoring the right of an insured third party to join another insured in a civil lawsuit against a professional liability insurer (OGH 6 Ob 201/09s, with further quotes).

The ASC in the case at hand found that the bank cannot be treated differently from an insured third party that joins an action for insurance coverage by an insured against the professional liability insurer. In both cases, the insured third party’s motion to join must be denied, even though a liquidator, as opposed to an insured, initiated the action for coverage as a claimant under the PI.


The ASC ’s reasoning in this particular case is in line with existing insurance case law regarding the sufficiency of an insured third party’s legal interest to join an action for coverage against an insurer.

Based on ASC case file no. 7 Ob 29/06z, the Court of Appeals maintained that a further appeal to the ASC was permissible. The Court of Appeals quoted from an ASC decision that stated that, under certain circumstances, an insured third party may seek a declarative statement of coverage. Such circumstances exist when it is expected that the insured third party may lose the claim for insurance coverage, which would serve to establish a settlement fund. Loss of a claim for coverage may result from failure to bring an action within the statute of limitations set forth in Section 12 Paragraph 3 of the Austrian Insurance Contract Act (Versicherungsvertragsgesetz, V ersVG). This may be suspended by a lawsuit of a third party or if an insurer denies coverage and the insured failed to act. The Court of Appeals based its decision to grant the bank’s appeal on the premise that the meaning of the term “legal interest” is the same in Section 17 of the ACCP as it is in Section 228 of the ACCP.

It was to be expected that the ASC would not follow the C ourt of Appeals’ reasoning in this case. An analysis of existing case law concerning the legal interest of a third party to join an insurance legal action revealed that third party liability insurers are generally permitted to join the vicarious liability lawsuit against the insured only as defendants. For example, they would be permitted to join in situations where the insured is not the claimant (OGH 8 O b 226/76). On the other hand, an insured third party was granted the right to join an action for insurance coverage on the side of the insured where execution proceedings had been initiated by the insured third party (OGH 7 Ob 19/82). In terms of intervention in insolvency proceedings, creditors have previously been denied the right to join the liquidator even when the insolvency claim contained the right to an exclusion (Aussonderungsrecht) or a right to separation (Absonderungsrecht)(1).

The line of argument made by the bank in this case could not possibly have been successful, given these precedents.  The bank maintained that no precedent exists regarding whether an insured third party seeking damages in the insolvncy proceeding, which would be covered by the assets of the insured, may also have a legal interest to join the insured’s action for insurance coverage against the insurer.

Given existing case law, it should be expected that the ASC will deny insured third parties the right to join an action for coverage by a liquidator against the insurer.


1 Klauser/Kodek, ZPO 16.01 ZPO § 17 E 17.

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