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Residential building insurance
building insurance policyholder not owner
Building Insurance: Minimising Risks and Creating Clarity When the Policyholder and Owner Are Not the Same
Is the policyholder of your building insurance not the owner of the property? This scenario often holds unforeseen pitfalls and can lead to significant financial disadvantages in the event of a claim. Learn how to avoid pitfalls and ensure comprehensive protection.
The topic in brief and concise terms
If the policyholder of the building insurance is not the owner, responsibilities and rights must be clearly stipulated contractually to avoid coverage gaps.
The "insurance for account of a third party" under §§ 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) emphasizes that the policyholder is the person who submits the application in their own name, even if they are acting, for example, as a property manager for others.
Understanding the Basics: Policyholder versus Owner
Typically, the owner of a building is also the policyholder of the building insurance. German law, particularly § 90 of the Bürgerliches Gesetzbuch (BGB), generally holds the property owner responsible for their property and any resulting damages. Building insurance serves to protect the owner against the often existential financial consequences of damage caused by fire, storm, or water. However, there are circumstances where the property owner is not the policyholder. This can occur, for instance, if the responsibility is transferred to a tenant through a lease agreement or if the administrator of a homeowners' association (WEG) takes out the insurance. Such deviations require careful consideration of the contractual and legal details to ensure that insurance coverage exists for at least one party in the event of damage.
Risk analysis: Potential pitfalls with separated roles
If the property owner is not the policyholder, various issues can arise. One major risk is that unclear agreements or the absence of insurance obligations being assumed by another party can result in uncovered damages. In such a scenario, the owner might find themselves bearing the cost of repairs despite assumed coverage, which can quickly amount to six figures. Additionally, third-party liability claims can financially burden the owner if no effective insurance coverage is available. Such ambiguities not infrequently lead to protracted 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 deemed the actual policyholder by the Federal Court of Justice (BGH), with all the obligations for paying premiums. This highlights the importance of precise contract design to ensure the appropriate residential building insurance.
Quick Facts: Key insights at a glance
The key points to note when the policyholder in a building insurance is not the owner are as follows:
Owner's Responsibility: Generally, the owner is responsible for insuring their building (§ 90 BGB).
Possible Deviations: The role of the policyholder can be transferred to tenants, leaseholders, or WEG administrators.
Risk of Coverage Gap: Without clear regulations and functioning insurance coverage, the owner bears the full financial risk for damages and liability claims.
Contractual Clarity: Clear contractual agreements are essential to define responsibilities and cost allocation.
Insurance for Third Party Account: The Insurance Contract Act (VVG) allows for taking out insurance for the interest of a third party (§§ 43 ff. VVG).
Duty to Inform: All parties should be informed about the existing insurance coverage and its details; this is often not the case.
Special Case of Ownership Transfer: Upon sale, the insurance usually passes to the new owner, who then becomes the policyholder and has a special right of cancellation.
This overview demonstrates the complexity and necessity of careful handling of this situation.
Practical Examples: Typical Scenarios and Their Solutions
The theory becomes tangible through concrete cases. Let's consider two common situations where the policyholder of the building insurance is not the owner.
Case 1: The Tenant as Policyholder
An owner rents out their commercial property and agrees in the rental contract that the tenant is responsible for the building insurance and pays the premiums. Here, it is crucial that the rental contract clearly and legally regulates this transfer of insurance liability. The owner should regularly request proof of the existence and scope of the insurance. Otherwise, they risk that the tenant does not take out any insurance or inadequate cover and in the event of damage, for example after a fire costing 250,000 euros, there is no coverage. A clear regulation should have stated the tenant’s duty to inform and the owner’s right 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 building fire insurance. However, it is often more sensible for the owner to remain the policyholder of a comprehensive residential building insurance to optimally protect their property. If the usufructuary is the policyholder, the assignment of insurance claims to the owner should be considered in case of damage, to ensure that the compensation benefits the preservation of the property's value. An unclear regulation can lead to disputes over the use of the insurance sum after a storm damage of 50,000 euros.
These examples highlight the need to act proactively and not wait until an incident to discuss responsibilities.
Recommended Actions: How to Ensure Optimal Protection
To ensure optimal protection in situations where the policyholder of the building insurance is not the owner, you should follow these steps:
Clear Contractual Arrangements: Ensure that there are clear written agreements (e.g. in the tenancy, lease or management contract) about who the policyholder is, who pays the premiums, and who receives the compensation in the event of a claim.
Regular Review: As the owner, regularly request proof of the existence and extent of the insurance cover when a third party is the policyholder. An annual submission of the policy is recommended.
Define Interest: Ensure that the policyholder has a legitimate interest in insuring the building, whether it's a personal or third-party interest (e.g. as a tenant with investments or as a manager for the condominium association).
Use Insurance for Account of Others: If a third party (e.g. manager) takes out the insurance, it should clearly be declared as "insurance for account of others" (in favour of the owner/condominium association). This ensures that the insurance benefit belongs to the owner.
Communication with the Insurer: Inform the insurer about the exact ownership structure and the role of the policyholder to avoid misunderstandings. This is particularly important if you are considering changing the policyholder.
Special Case: Condominium Associations: In condominium associations, the manager is usually the policyholder for the community. The exact duties should be specified in the management contract.
Seek Advice: If there are uncertainties, consult an insurance expert or a specialist solicitor 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.
Ownership change: What happens with the insurance?
An common scenario where the question of policyholder and owner becomes relevant is the change of ownership of a property. According to Section 95 of the Insurance Contract Act (VVG), the existing building insurance transfers to the buyer upon acquisition of ownership (entry in the land register). The buyer thus automatically becomes the new policyholder. This ensures seamless protection of the property. The seller and the buyer are jointly liable for the premium of the current insurance period. However, according to Section 96 VVG, the buyer has a special right of termination. They can cancel the contract within one month of the land registry entry either with immediate effect or at the end of the current insurance period. If the buyer is unaware of the existing insurance, the deadline starts 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 occur once a new contract has been concluded to avoid insurance gaps.
Conclusion: Proactive action protects against unpleasant surprises
The situation where the policyholder of a building insurance is not the owner carries various risks but can work with careful planning and clear agreements. Transparent contracts are crucial, alongside open communication among all parties and an understanding of the legal framework, especially the rules in the BGB and VVG. Whether it’s tenants, leaseholders, usufructuaries, or condominium managers – the role of the policyholder must be clearly defined and the owner's interests preserved. Regular reviews of insurance coverage and adjustments to changes, such as an ownership change, are essential. This is the only way to ensure comprehensive protection in the event of damage, which can quickly lead to costs of several tens of thousands of euros, and to avoid financial disadvantages. The complexity of this issue highlights the value of expert advice.
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More useful links
Wikipedia offers a comprehensive overview of property 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, property management, usufruct). Clear contractual agreements are important.
What Are the Risks if the Policyholder Is Not the Owner?
The main risks are uncovered damages in the event of a claim, liability claims against the owner, and legal disputes due to unclear responsibilities. Therefore, careful contract design is essential.
What Happens to the Building Insurance When a House Is Sold?
When a house is sold, the building insurance is transferred to the buyer according to § 95 VVG, who then becomes the new policyholder. The buyer has a special right of cancellation within one month after entry in the land register (§ 96 VVG).
What Is the Difference Between a Policyholder and an Insured Person?
The policyholder is the contract partner of the insurer and owes the premium. The insured person is the one whose interest is insured (e.g. the building owner). In "insurance for the account of a third party", these roles can diverge. More information can be found under Policyholder and Insured Person.
How Can I Ensure 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, seek legal or insurance advice.
What Role Does § 80 VVG (Lack of Insurable Interest) Play?
§ 80 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 later, the insurer is only entitled to the premium until they become aware of this. This is relevant, for example, if a non-owner with no legitimate interest takes out insurance.
