angyan legal

By repealing section 12 para 3 of the Insurance Contracts Act (VersVG) as unconstitutional, the Constitutional Court (VfGH 28 April 2026, G176/2025) recently sounded the final bell for the qualified refusal of cover in insurance law. The Constitutional Court ruled that the provision contravened the principle of equality because it granted the insurer the unilateral right to shorten the limitation period at the creditor’s expense, without this entailing any disadvantage for the insurer.

The qualified refusal of cover

Under section 12 para 1 of the VersVG, claims arising from the insurance contract – whether made by the insurer or the policyholder – are subject to a limitation period of three years. This provision is a lex specialis in relation to section 1478 of the Austrian Civil Code (ABGB), which provides for an objective thirty-year limitation period for civil claims.

If the policyholder notifies the insurer of a claim, the progression of the limitation period is suspended until the insurer has issued a reasoned written decision (section 12 para 2 VersVG). If the insurer refuses cover, the suspension ends and the (remaining three-year) limitation period continues to progress. This is referred to as a simple refusal of cover.

Section 12 para 3 VersVG however also stipulates that the insurer is released from its obligation to pay if the claim for the insurance benefit is not challenged at court within one year. In order for this reduction of the time limit to take effect, the insurer must refuse cover in writing, stating reasons in accordance with section 12 para 2 VersVG, and expressly drawing attention to the legal consequences associated with the expiry of the time limit. In this case, it is referred to as a qualified refusal of cover.

It is important to note that the one year time limit triggered by section 12 para 3 VersVG starts regardless of whether the rejection is justified. Furthermore, the insurer may also add additional grounds for refusing cover as late as during the claims settlement process itself. The insurer is therefore not limited to the grounds set out in the notice of refusal of cover.

Repeal of section 12 para 3 VersVG by the Constitutional Court

In proceedings pending before it, the Supreme Court essentially raised the following concerns regarding the provision in section 12 para 3 VersVG:

• The insurer is, in the Court’s view, placed in a more favourable position vis-à-vis its contractual partner (the policyholder) because the reduction in the limitation period only affects the insurer’s obligation to pay benefits, whilst claims against the policyholder (premium payments) remain subject to the three-year limitation period.
• Section 12 para 3 VersVG confers a privilege on the insurer over other debtors, as the latter do not have the option of bringing about the preclusion or shortening of the limitation period for claims brought against them by means of a unilateral declaration.
• The shortened limitation period is considerably shorter than the usual limitation periods and makes it more difficult to pursue claims.

In response to these concerns, the insurer argued that the purpose of shortening the limitation period was to clarify as quickly as possible whether a refusal of cover was justified and to avoid evidentiary difficulties that tend to increase over time. Section 12 para 3 VersVG also serves to ensure that the insurer retains a clear view of its financial exposure and thus, indirectly, to protect the community of policyholders against the insurer’s insolvency.

However, the Constitutional Court concurred with the concerns raised by the Supreme Court and ruled that the provision in section 12 para 3 VersVG lacked any objective justification, because it granted the insurer the risk-free option of freely choosing between a longer and a shorter limitation period. The insurer would thus have the power to shorten the period for enforcement unilaterally and at will, without this entailing any disadvantage for it. The Court could identify no objective justification for such a risk-free shortening of the limitation period to the creditor’s detriment.

Consequences of the repeal of section 12 para 3 VersVG

The repeal of section 12 para 3 VersVG will take effect only on 01 June 2027. Until then, the provisions on qualified refusal of cover will still be applied, despite their unconstitutionality.

Accordingly, expert legal advice is crucial to ensuring that the policyholder’s interests are nevertheless adequately protected.

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