In a recent judgment dated September 1, 2010, the Austrian Supreme Court (Österreichischer Oberster Gerichtshof, (OGH)) ruled that in “timely stepped” insurance cases the insured is at least obligated to file a declaratory lawsuit in time to avoid a limitation of the insurance claim at hand.
The decision at issue involved a liability insurance agreement. Due to the occurrence of an insured event, the insured applied for insurance coverage with the insurance company on an unreserved basis, in time and in full compliance with the provisions of the insurance contract.
However, according to the ruling, if an injured third party files a claim against the insured party, even if only for a part of the damage, and the insured party is aware that the injured party might file a claim for the rest of the damage in the future, the insured party must file a declaratory lawsuit against the insurance company. This will avoid any limitation because the insurance claim was caused by one single insured event.
The Case (1)
The claimant was the operator of a gas station and was the insured party of a public liability insurance contract. The contamination of earth and water resulting from oil tanks was an insured event under the relevant policy.
In May 1994, the claimant discovered some contamination and informed the competent public authority thereof on December 13, 1994. In addition, the insurance company was informed about the contamination and the duty of the claimant to clean it up. With official notification dated June 13, 1995, the competent public authority instructed the claimant to clean up the contamination and remove the relevant tank.
The polluted area was partly improved and partly cleaned up. Subsequently, the claimant’s insurance company paid for most of the clean-up invoices dated in 1995. Both parties – the insurance company and the claimant – had knowledge of the fact that pollution remained an issue in the area.
Nine years later, in 2006, the claimant sold the property and agreed to cover costs related to removing the remaining contamination. Because of a new instruction from the competent public authority, certain decontamination measures were undertaken in 2006 and 2007. In that respect, the claimant lodged a claim with the insurance company in 2006. However, the insurance company denied coverage under the policy based on the argument of limitation of the claim.
Underlying Austrian Legal Background
With regard to the absolute limitation period of insurance claims, Section 12 para. 2 of the Austrian Insurance Contract Act (Versicherungsvertragsgesetz, VersVG) provides that if an insurance company has been notified of an insured event, any limitation does not occur until receipt of a written reasonable denial of coverage by the insurance company. In addition, Section 12 para. 2 VersVG stipulates that after 10 years insurance claims are time-barred in any case.
In summary, 10 years is the absolute limitation period set out in the VersVG. In addition to this absolute limitation period, the VersVG sets out a general three-year limitation period. It includes a rather short period of only one year for filing a lawsuit after the insurance company justifies its denial of coverage towards the insured in writing and informs the insured party of such legal consequence (Cf Section 12 para. 3 VersVG).
Decision of the Supreme Court
Initial Legal Remarks in the Ruling
Initially, the Supreme Court noted that the decontamination measures from the insurance coverage at hand are included and that the instruction of the public authority dated June 13, 1995, can be qualified as a claim by a third party under third- party liability insurance law principles.
Since the legal question at hand was whether the claim for a cost exemption for the decontamination measures ordered by the authority in December 2006 is time-barred or not, the Austrian Supreme Court initially summarized the limitation scheme of the VersVG as follows:
- According to Section 12 para. 1 VersVG, insurance claims become time-barred within three years starting from the time at which one’s right can be exercised for the first time. With regard to third-party liability insurance, the time at which a third party files its claim against the insured is relevant.
- According to Section 12 para. 2 VersVG, the notification of the insurance company about the insured event leads to the suspension of the limitation period until the insured receives a written reasonable decision from the insurance company about coverage.
- If the insurance company does not substantiate its decision sufficiently, makes no decision at all or does not issue a written decision, the suspension of the limitation period is still considered active. However, a suspension does not create an endless limitation period; claims are time-barred after 10 years in any case.
Ruling with Regard to the Facts at Hand
With regard to the circumstances at hand, the Austrian Supreme Court ruled that the claimant’s first notification to the insurance company years ago already qualifies as a notification leading to the suspension of the limitation period according to Section 12 para. 2 VersVG.
The official instruction by the competent public authority dated June 13, 1995, represents a third-party claim and, therefore, caused the maturity of the insurance claim. Since the notification of the insurance company at hand took place before the official instruction by the competent public authority, the start of the limitation period was avoided.
According to the Supreme Court, the fact that the insurance company paid for the invoices dated 1995 is not a decision according to Section 12 para. 2 VersVG. Rather, the insurance company at no time issued a decision in writing. Therefore, the limitation period of 10 years applies starting from the time of maturity of the insurance claim.
As mentioned, the Supreme Court ruled that maturity was caused by the official instruction of the competent public authority, more precisely at the time of its legal effectiveness, which the court set at October 17, 1995, at the latest. Whereas, the limitation period of 10 years ended on October 17, 2005.
The fact that the competent public authority passed a second notification instruction for the claimant to take further clean-up measures does not cause the start of a second limitation period. Moreover, since it was obvious to the claimant that the injured party might submit a claim for the rest of the damage in the future, the claimant was obligated to file a declaratory lawsuit within the absolute limitation period of 10 years in order to prevent the insurance claims from becoming time-barred.
The decision at hand reminds those handling insurance claims of the importance of statutes of limitation. In particular, with respect to insurance law, correctly identifying the time at which a limitation period starts and ends can be a complicated matter. Therefore, we are all well advised to keep an eye on monitoring the development of an insured event.
Furthermore, Austrian insurance law sets out two different limitation periods (i.e., three and 10 years, respectively). It specifies the notification of the insurer as a reason for suspending the limitation period until the written decision has been issued, and a one-year period for filing a lawsuit after the insurance company justifies its denial of coverage in writing. Finally, the maturity of the insurance claim is relevant for the limitation period, which is set out in Section 11 VersVG and is often not easy to determine on its own, given the various forms of insurance contracts and claims.
In conclusion, the decision at hand meaningfully illustrates that the Austrian Supreme Court – allegedly for reasons of legal certainty – solves limitation cases quite formally and without any room for interpretation.
 OGH September 1, 2010, 7 Ob 91/10y.
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