Building insurance: When the policyholder and owner are not the same – Minimise risks, provide clarity
5 Apr 2025
9
Minutes
Katrin Straub
CEO at nextsure
Is the policyholder of your building insurance not the owner of the property? This situation often harbors unforeseen pitfalls and can lead to significant financial disadvantages in case of damage. Learn how to avoid traps and ensure comprehensive protection.
The topic in brief and concise terms
If the policyholder of the building insurance is not the owner, the responsibilities and rights must be clearly contractually defined to avoid coverage gaps.
The "insurance for account of a third party" according to §§ 43 ff. VVG allows a person (policyholder) to take out insurance for the interest of another person (owner/insured).
A ruling by the Federal Court of Justice (Case No. IV ZR 201/06) highlights that the person who submits the application in their own name becomes the policyholder, even if they are acting on behalf of others, such as a property manager.
Understanding the Basics: Policyholder versus Owner
The owner of a building is typically also the policyholder of the building insurance. German law, in particular § 90 of the Civil Code (BGB), generally holds the property owner responsible for their property and any resulting damages. Building insurance serves to protect the owner from the often existential financial consequences of damage caused by fire, storm, or water leakage. However, there are instances where the property owner is not the policyholder. This may occur, for example, when responsibility is transferred to a tenant through a lease agreement or when the administrator of a condominium owners' association (WEG) takes out the insurance. Such deviations require careful examination of the contractual and legal details to ensure that in the event of a claim, insurance coverage is available to at least one party involved.
Risk analysis: Potential pitfalls in separated roles
If the building owner is not the policyholder, various problems can arise. A major risk is that with unclear agreements or the failure of another party to assume insurance obligations, uncovered damages can occur. The owner could then remain liable for repair costs despite perceived insurance coverage, which can quickly reach six-figure sums. Additionally, third-party liability claims can financially burden the owner if effective insurance coverage does not apply. Such ambiguities often lead to lengthy and costly legal disputes between the owner, tenant, leaseholder, or manager. A well-known example is the case where a property manager took out insurance in their own name and was classified as the actual policyholder by the Federal Court of Justice (BGH), with all obligations for premium payment. This illustrates how important precise contract design is to ensure the appropriate residential building insurance.
Quick Facts: Key Points at a Glance
The key points when the policyholder in building insurance is not the owner can be summarised as follows:
Owner's responsibility: As a rule, the owner is responsible for insuring their building (§ 90 BGB).
Deviation possible: The role of the policyholder can be transferred to tenants, leaseholders, or condominium administrators.
Risk of coverage gap: Without clear regulations and effective insurance cover, the owner bears the full financial risk for damages and liability claims.
Contractual clarity: Clear contractual agreements are essential to determine responsibilities and cost-bearing.
Insurance for the account of another: The German Insurance Contract Act (VVG) allows for insurance to be taken out in the interest of a third party (§§ 43 ff. VVG).
Obligations to inform: All parties should be informed about the existing insurance coverage and its details; often this is not the case.
Special case of ownership change: Upon sale, the insurance usually transfers to the new owner, who then becomes the policyholder and has a special right of termination.
This overview illustrates the complexity and the necessity for careful handling of this situation.
Practical Examples: Typical Scenarios and Their Solutions
The theory is made tangible through concrete cases. Let us consider two common situations where the policyholder of buildings insurance is not the owner.
Case 1: The Tenant as Policyholder
An owner lets their commercial property and agrees in the lease that the tenant is responsible for the buildings insurance and pays the premiums. It is crucial here that the lease clearly and legally secures this transfer of insurance duty. The owner should regularly be provided with evidence of the status and extent of the insurance. Otherwise, they risk the tenant not taking out insurance or taking out insufficient insurance, and in the event of a claim, such as a fire costing €250,000, no cover exists. A clear regulation should have established the duty of the tenant to inform and the right of the owner to control.
Case 2: Usufruct – The Usufructuary Secures the Building
In usufruct, a person (usufructuary) uses a property that belongs to another person (owner). According to § 1045 BGB, the usufructuary is obliged to at least take out fire insurance for the building. However, it is often more sensible if the owner remains the policyholder of comprehensive residential building insurance to optimally protect their property. If the usufructuary is the policyholder, the assignment of insurance claims to the owner in the event of damage should be considered to ensure that the compensation benefits the preservation of the property's value. An unclear arrangement can lead to disputes about the use of the insurance payout after a storm damage of €50,000.
These examples highlight the necessity of acting proactively and not waiting until a claim occurs to discuss responsibilities.
Expert knowledge: Legal foundations and current judgments
For a deeper understanding of the issue "Building Insurance Policyholder Not Owner," it is essential to look at the law and current case law. The Insurance Contract Act (VVG) forms a key basis here. Particularly relevant are the sections on "Insurance for the Account of Another" (§§ 43-48 VVG). According to § 43 VVG, the policyholder can enter into a contract in their own name for the interest of another (the insured, such as the owner). The rights from the contract then belong to the insured, even though the policyholder can exercise these rights. § 47 VVG is important, as it states that the knowledge and conduct of the insured are also considered.
Another important section is § 80 VVG, which covers the "lack of an insured interest." If there is no insured interest (e.g., because the policyholder is neither the owner nor has any other recognized interest), they are not obliged to pay the premium. This underlines the need for a policyholder to insure either their own interest or a legitimate interest on behalf of another. In a ruling (Az. IV ZR 201/06), the Federal Court of Justice (BGH) clarified that a property manager who takes out a building insurance policy in their own name becomes the policyholder and is liable for the premiums. The insurer has a heightened interest in the identity of the policyholder. This shows that merely fulfilling an administrative function does not automatically make the owners' association the policyholder if the manager signs the contract in their own name. For clear allocation, it is crucial to know who is named as the policyholder in the insurance application and whether it is clearly indicated that they may be acting on behalf of another. Tenants or lessees can also have an insurable interest. Familiarity with these regulations helps to properly structure the distribution of costs for building insurance.
Our expert tip: Always have contracts, especially rental or management contracts that include provisions on building insurance, legally reviewed. Ensure that it is clearly defined who the policyholder is, who pays the premiums, and who is entitled to benefits in the event of a claim. Document all agreements in writing.
Recommendations: How to Ensure Optimal Coverage
To be optimally covered in a situation where the policyholder of the building insurance is not the owner, you should follow these steps:
Clear Contract Design: Ensure clear written agreements (e.g. in the rental, lease or management contract) about who is the policyholder, who pays the premiums, and who receives compensation in the event of a claim.
Regular Review: As an owner, regularly request proof of the existence and scope of insurance coverage when a third party is the policyholder. An annual presentation of the policy is recommended.
Define Interest: Make sure the policyholder has a legitimate interest in insuring the building, whether it's their own or someone else's interest (e.g. as a tenant with investments or as a manager for the homeowners’ association).
Use Insurance on Account of Others: If a third party (e.g. manager) takes out insurance, it should be clearly declared as "insurance on account of others" (in favour of the owner/the homeowners’ association). This ensures that the insurance benefits belong to the owner.
Communication with the Insurer: Inform the insurer about the exact ownership relationships and the role of the policyholder to avoid misunderstandings. This is especially important if you are considering changing the policyholder.
Special Case of Homeowners’ Association: In homeowners’ associations, the association manager is usually the policyholder for the community. The exact responsibilities should be recorded in the management contract.
Seek Guidance: If in doubt, consult an insurance expert or a specialist lawyer in insurance law. Professional advice can help avoid costly mistakes.
By taking these measures, you can significantly reduce the risk of coverage gaps and disputes.
The Change of Ownership: What Happens to the Insurance?
A common situation where the question of policyholder and owner becomes relevant is the change of ownership of a property. According to § 95 VVG, the existing building insurance is transferred to the buyer with the acquisition of ownership (entry in the land register). The buyer thus automatically becomes the new policyholder. This serves to provide seamless protection for the property. The seller and the buyer are jointly and severally liable for the premium of the current insurance period. However, the buyer has a special right of termination under § 96 VVG. They can terminate the contract within one month of the land register entry, either with immediate effect or at the end of the current insurance period. If the buyer is unaware of the existing insurance, the period only begins upon gaining knowledge. It is therefore advisable for the seller to inform the buyer about the existing insurance and hand over the documents. A cancellation of the residential building insurance after the purchase should only be carried out once a new contract has been concluded to avoid gaps in insurance coverage.
Conclusion: Being proactive protects against unpleasant surprises
More useful links
Wikipedia provides a comprehensive overview of building insurance, its fundamentals, and relevant aspects.
FAQ
Does the owner always have to be the policyholder of the building insurance?
No, not necessarily. Although the owner is primarily responsible, the role of the policyholder can be transferred to another person under certain circumstances (e.g., renting, condominium management, usufruct). Clear contractual arrangements are important.
What are the risks if the policyholder is not the owner?
The main risks are uncovered damages in the event of loss, liability claims against the owner, and legal disputes due to unclear responsibilities. Therefore, careful contract drafting is essential.
What happens to the building insurance when a house is sold?
When selling a house, the building insurance is transferred to the buyer in accordance with § 95 of the German Insurance Contract Act (VVG), making them the new policyholder. The buyer has a one-month special right of termination after registration in the land register (§ 96 VVG).
What is the difference between the policyholder and the insured person?
The policyholder is the contractual partner of the insurer and owes the premium. The insured person is the one whose interest is covered (e.g., the owner of the building). In the case of "insurance on account of a third party," these roles may differ. Find more information under <a href="/blog/versicherungsnehmer-versicherte-person">Policyholder and Insured Person</a>.
How can I ensure that my property is properly insured if I am not the policyholder myself?
As an owner, request clear contractual agreements and regular proof of insurance coverage (copy of the policy, premium payment receipts). In case of doubt, you should seek legal or insurance advice.
What role does § 80 VVG (Missing insured interest) play?
§ 80 of the VVG states that the policyholder is not obliged to pay the premium if there is no insurable interest at the start of the insurance. If it ceases to exist later, the insurer is only entitled to the premium up to the point of being informed. This is relevant, for example, if a non-owner without a legitimate interest takes out insurance.
