The main drivers of coverage disputes in Germany are large-scale and mass loss events resulting from human error, technical failures and natural catastrophes. External factors act as catalysts, and include the following:

• climate change in the NatCat insurance and reinsurance market, particularly against the current backdrop of increasingly frequent wildfires and floods in Germany;
• the deteriorating climate fuels financial lines, D&O disputes and post-M&A/W&I disputes as the economic crisis ushers in a particularly error-prone phase for directors and officers, and the emergency sell-off of parts of businesses repeatedly result in irregularities;
• digitalisation and the AI revolution, which have led to cyber-insurance policies becoming more widespread in the German market; this increase in underwriting has also resulted in a greater number of coverage disputes under these still-evolving wordings; the technological development is also expected to have far-reaching implications for the liability insurance segment; and
• the German courts’ far-reaching authority to declare insurance terms invalid under the law on general terms and conditions (Sections 305 et seq of the German Civil Code (BGB)), particularly in the mass/consumer business segment – this is of key importance, especially in conjunction with the relatively recent introduction of collective redress into German civil procedure pursuant to the Consumer Rights Enforcement Act of 2023.

Procedural Framework

As insurance disputes in Germany are typically resolved in public proceedings before state courts, a rapid adaptation of market standards to legal developments tends to be observed. Under German law, the courts have comparatively far-reaching powers to review insurance terms and conditions. Notably, insurance terms, even in B2B and financial lines business, are subject to the law governing general terms and conditions (Sections 305 et seq of the BGB), which authorises courts to examine and overrule policy clauses for the unreasonable disadvantage of the insured. Additionally, the case authorities of the German Federal Supreme Court (Bundesgerichtshof) interpret coverage exclusions restrictively in favour of insured parties.

Recent Developments

Against this backdrop, insurance lines that have recently emerged in the market and for which no underwriting standard has yet been established in Germany are particularly prone to disputes. This currently concerns cyber- and W&I (Warranty & Indemnity) insurance. In the D&O market, on the other hand, a settled body of case law has now developed, making decisions more predictable, although certain issues persist that have repeatedly led to litigation, such as the interpretation of exclusions for deliberate breach of duties and the allocation of insufficient policy limits (recently decided, for example, in a series of judgments concerning the collapse of the Wirecard group).

Additionally, policy wordings regularly come under scrutiny in collective action proceedings, as seen recently with premium adjustments in private health insurance or surrender clauses in life insurance, which were ultimately decided by the German Federal Supreme Court.

Dispute Resolution Before State Courts and Arbitral Tribunals

In major loss scenarios, parties in the German market will frequently seek to reach an amicable solution by way of settlement, with deal-orientation and negotiation practices differing significantly between the individual lines of business. Where a settlement is not possible, insurer vs insured disputes are typically resolved before the state courts. Arbitration proceedings are relatively rare in the German primary insurance market, but are standard practice in the reinsurance market and in connection with transactions between insurers.

Costs of Dispute Resolution

In litigation before the state courts, court fees tend to be relatively low and German civil procedure law caps cost reimbursement claims against the unsuccessful party at the statutory fee rates. Proceedings before the state courts typically take well over a year to reach a first-instance judgment. This can make lawyers’ fees – usually billed on an hourly-rate basis – a material factor, while at the same time providing an incentive for settlement.

Commercial Courts

To mitigate the traditional weaknesses of the state court system in resolving disputes, such as lengthy proceedings and the comparatively low degree of specialisation of the courts, Germany introduced “Commercial Courts” in 2024 through the Justice Location Strengthening Act (Justizstandort Stärkungsgesetz) for disputes with a case-value of EUR500,000 or more. These courts provide direct access to the Appeal Courts (Oberlandesgerichte) as courts of first instance with the Federal Supreme Court as the first and only court of appeal. In particular, Commercial Courts for insurance disputes have been established at the Appeal Courts of Düsseldorf and Hamburg, where complex major loss cases can be adjudicated by highly specialised panels within shorter timeframes.

Where the parties to an insurance contract act in commercial or professional settings, German law, in accordance with EU law, respects party autonomy to a very high degree, while stricter requirements apply when the policyholder is a consumer.

“Rome I” Regulation

The governing law of insurance contracts is primarily determined by EU Regulation (EC) 593/2008 or “Rome I”. Article 7 of Rome I contains a dedicated legal framework for insurance contracts, differentiating between categories of risks and focusing on the protection of policyholders. Thus, a blanket clause defining German law as the governing law for an insurance contract is only valid to the extent allowed by Article 7 of Rome I.

In general, for contracts that insure mass risks situated in the European Economic Area (EEA), Article 7of Rome I allows the parties to choose the contract’s governing law. However, their options are limited and include, most prominently:

• the law of the member state in which the insured risk is situated; or
• the law of the policyholder’s habitual residence or seat.

Where an EU or EEA member state mandates compulsory insurance and prescribes the application of its own law, the contract is governed by that member state’s law.

If the parties do not agree on a governing law, it is determined by the law of the state in which the risk is situated.

Large Risks Insurance

The above restrictions do not apply to contracts insuring what are known as “Large Risks”, regardless of where they are situated. Large Risks insurance is defined as:

• specific types of insurance (eg, transport and marine insurance); or
• insurance taken out by policyholders exceeding the limits of at least two of the following criteria: (i) a balance-sheet total of EUR6.2 million; (ii) net turnover of EUR12.8 million; or (iii) an average number of employees of 250 during the financial year.

In these cases, Article 7 (2) of Rome I determines that the parties may choose the governing law as desired. If the parties fail to make a choice, the law of the country in which the insurer has their habitual residence generally applies. As an exception, the law of another country applies if all circumstances clearly show that it is more closely connected to the contract.

Reinsurance Contracts

Reinsurance contracts are exempt from both Article 7 of Rome I and from the Insurance Contract Act (VVG). As a result, the parties to a reinsurance contract may freely choose its governing law pursuant to Article 3 of Rome 1. In the absence of a choice of law, the governing law is determined according to Article 4 of Rome I. Either the law of the country of the habitual residence of the party required to effect performance or the law of the country to which the reinsurance has the closest connection will apply.

Restrictions Under the VVG

Jurisdiction clauses in insurance contracts governed by German law are subject to strict limitations. The VVG contains a protective framework for policyholders, while the intensity of that protection varies by line of business and category of risk.

Section 215 VVG is a mandatory provision containing a policyholder-friendly venue rule: actions arising from the insurance contract may always be brought before the court in whose district the policyholder has their residence (failing that, their habitual residence) or statutory seat. For actions against the policyholder, that court is exclusively competent. Clauses in general terms and conditions (Allgemeine Versicherungsbedingungen (AVB)) that deviate from this rule to the detriment of the policyholder are considered void.

Parties may alter jurisdiction only under certain circumstances, in particular:

• by express and written agreement concluded after a dispute has arisen; or
• by providing the policyholder with additional fora.

Large Risk and Reinsurance Contracts

Similar to the legal framework governing choice of law, parties to Large Risks insurance contracts and to reinsurance contracts are offered greater autonomy and may choose the place of jurisdiction freely.

For that reason, jurisdiction clauses appear most commonly in transport, marine and aviation insurance, which are always treated as Large Risk insurance and reinsurance contracts, as those are exempted from most of the statutory restrictions regarding jurisdiction.

Brussels I

Generally, cross-border insurance disputes in Germany are subject to Regulation (EU) 1215/2012, or “Brussels I”, which dedicates its Section 3 specifically to insurance disputes, favouring policyholders and insureds over insurers. In principle, jurisdiction lies with the court in the member state of the defendant, defined by their habitual or ordinary residence. A policyholder may also bring proceedings against an EU-based insurer before the courts of their own domicile. Co-insurers may be sued in the same court as the leading insurer. For claims brought against an insurer, it is sufficient for the insurer to maintain a branch office in the respective member state.

In particular for liability, product liability and immovable property insurance, the insurer may also be sued at the place where the harmful event occurred or be joined to the proceedings the third party initiated against the policyholder.

Insurers, on the other hand, may not choose between jurisdictions as freely when bringing a claim. They may initiate proceedings only before the courts of the member states in which the policyholder, insured or beneficiary is domiciled.

Exceptions

The parties may only deviate from these general rules in specific exceptions, for example, by agreements:

• entered into after the dispute has arisen;
• which provide the policyholder with an additional forum; or
• which relate to the insurance contract of a specific line (such as transportation, marine, ships and aircraft) or to Large Risks insurance.

Considering these restrictions, disputes may commonly arise with regard to the validity of jurisdiction clauses and the situation of a risk – particularly in the context of global programmes that are comprised of interwoven master and local policies in different states.

Admissibility Rulings Instead of Coercive Remedies

Exclusive jurisdiction and arbitration clauses are generally enforced before German courts via jurisdictional objections and, as a result, by admissibility rulings. The concept of enforcing its own jurisdiction externally, on the other hand, is alien to German procedural law. Consequently, it does not provide for coercive remedies such as anti-suit injunctions.

When an action is brought before a German court despite a valid clause assigning jurisdiction to a foreign court, it will dismiss the claim as inadmissible. Likewise, a valid arbitration clause, including one providing for arbitration seated outside of Germany, will, pursuant to Section 1032 paragraph 1 of the German Civil Procedural Code (ZPO), render an action inadmissible – but only if the defendant raises an objection to that effect in time, namely before the beginning of the oral hearing on the merits. If the defendant fails to object in a timely manner, the German court becomes competent, meaning that a defendant must be careful about preserving their rights.

Anti-Anti-Injunctions

German courts have allowed “anti-anti-injunction suits”, issuing interim orders which are aimed at preventing anti-injunctions in foreign courts. However, they are limited to very specific cases (namely patent proceedings), and it is not to be expected that German courts will apply them to insurance disputes. However, German courts do recognise damages as a remedy for breaches of exclusive jurisdiction clauses. Where a party brings an action before a foreign court despite the agreed-upon exclusive jurisdiction being Germany, that party must reimburse the costs caused by the foreign proceedings under the German damages regime of Sections 249 and 280 of the BGB.

Anti-Arbitration Relief

The mechanism of German law coming closest to anti-arbitration relief would be the right to request a state court to determine the admissibility or inadmissibility of arbitral proceedings prior to the forming of the tribunal. However, in line with the general understanding of German law pointed out above, this request does not hinder a party from proceeding with arbitration. Still, if a court determines the inadmissibility of arbitral proceedings, any arbitration award issued in spite of that is considered null and void, or annullable at the very least.

AI disputes are starting to gain traction in German courts but are still in their early stages, with no distinct regime yet applied to them. Instead, to determine jurisdiction and choice of law, courts will take a close look at the nature of the specific claim in question rather than at the underlying technology. As AI systems’ operations often span borders, scattering service components across different states, it appears advisable to claimants to anchor proceedings in fora that may be reliably determined. In cases where contractual jurisdiction clauses do not come into play, the defendant AI provider’s seat may prove to be the most reliable forum. Jurisdiction may also be determined by place of performance, although this may be difficult to pinpoint, depending on the circumstances. Determining jurisdiction may be more complicated with regard to tort and the violation of personality rights via generative AI, which are generally subject to domestic regulations rather than the EU framework.

Against this backdrop, choice-of-law clauses will prove to be highly relevant, with disputes before German courts revolving around whether the claim in question is covered.

Germany is a highly developed venue for arbitration proceedings. The German legal framework for arbitration reflects the UNCITRAL Model Law. Accordingly, German courts generally recognise and uphold arbitration clauses in both insurance and reinsurance contracts. The prerequisites are stipulated under Sections 1030 and 1031 of the ZPO, according to which the parties essentially must have entered into an arbitration agreement that may also be established through consensual reference to (re)insurance terms and conditions. Strict formal requirements apply only in the case of private consumer insurance, meaning that arbitration plays virtually no role in this area.

Both domestic and foreign arbitral awards are enforced in Germany following a declaration of enforceability or recognition by a state court. In this process, governed by Section 1059 of the ZPO, there is generally no substantive review of the arbitral award; rather, only a review for certain fundamental legal violations – such as the absence of a valid arbitration clause, a lack of impartiality on the part of arbitrators, or violations of public policy (ordre public) – takes place. The recognition of foreign arbitral awards is governed by the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and implemented into German statutory law by section 1061 ZPO.

Arbitration proceedings are generally conducted confidentially, and arbitral awards are not published. For this reason, there are no official statistics on the frequency of arbitration in insurance matters.

While the statutory legal framework in Germany does not provide for a general confidentiality obligation in arbitration proceedings, confidentiality obligations regularly arise from the (re)insurance contracts themselves or from the arbitration and arbitrator agreements.

The ability to challenge arbitral awards before the state courts is, in turn, limited to the rare cases of fundamental legal violations (see 3.2 Enforcement of Arbitral Awards in the context of enforceability), meaning that arbitration proceedings in insurance matters rarely become publicly known through this avenue either.

General market observation nevertheless shows that disputes arising from reinsurance contracts, if not resolved amicably, are almost without exception settled by way of arbitration. In direct insurance, the opposite is true: arbitration is the exception, and tends to be found in modern lines of business, such as W&I or D&O insurance, rather than in traditional lines such as property or business and product liability insurance.

Following an intensive phase of coverage disputes in the aftermath of the COVID-19 pandemic that has now significantly subsided, the young insurance lines of cyber insurance before state courts and W&I insurance before arbitral tribunals play a particularly prominent role. Given continuing economic challenges, the same applies to coverage disputes in D&O insurance, especially in insolvency scenarios. In addition, coverage disputes within the context of natural catastrophes are also increasingly arising, particularly with regard to the perils of storm, hail, and floods/heavy rainfall.

As a matter of principle, Germany subscribes to the subjective theory of contract interpretation according to which regard must be given to the true intentions of the parties when they entered into a contract. Consequently, beyond the wording and structure of a contract and its terms, extrinsic circumstances – eg, pre-contractual negotiations – are also relevant for contract interpretation.

However, when it comes to insurers’ standard policy wordings, whether or not used in relation to consumers or businesses, German courts apply different, more objective standards. Such insurance terms and conditions must be interpreted from the perspective of an average policyholder seeking to understand the specific type of insurance, without specialist knowledge of insurance law. German courts, therefore, tend to construe exclusion clauses in a restrictive manner. Even though not a general principle of German law, in the particular context of standard terms and conditions, including insurers’ standard policy wordings, a contra proferentem rule of interpretation also applies.

If policyholders use insurance brokers for arranging coverage based on broker wordings, as is increasingly common nowadays, German courts may deviate from their general tendency to interpret insurance terms in the policyholder’s favour.

Cyber insurance is a young line of insurance. The subject matter of coverage is technically complex and dynamic. While model terms were published by the industry association, in practice insurers and brokers frequently use their own proprietary wordings. Against this background, it is hardly surprising that cyber-insurance is still having teething problems. Typical points of dispute relate, for instance, to ambiguities in the definitional framework of triggers for coverage or exclusions. Several court proceedings have also concerned questions of policyholders’ pre-contractual duty of disclosure with respect to the structure and security of their IT systems. In particular, within the context of systemic losses, war and terrorism exclusions, as well as delineation from other lines of insurance, such as fidelity insurance, are also discussed.

Aggregation, batch and serial loss clauses have long been, and remain, frequent sources of dispute in both direct insurance and reinsurance. This is largely because such clauses are often ambiguous and the issue can be economically decisive: it may determine whether cover is available in a particular case.

In the context of direct insurance, batch or serial clauses are regularly meant to operate as a means of limiting the insurer’s liability by restricting the available coverage to one limit amount. Consequently, German courts, in line with the rather policyholder-friendly principles of contract interpretation (see 4.2 Policy Wordings and Interpretation Developments), have ruled in various cases against insurers by curtailing excessive aggregation.

In reinsurance, by contrast, a broad approach to aggregation is often crucial. It may allow the cedant to combine multiple losses so that their total exceeds the attachment point under an excess-of-loss programme, thereby triggering reinsurance cover. This issue became especially contentious in the aftermath of the COVID-19 pandemic, when parties disputed whether numerous business interruption losses could be aggregated and treated as a single “event” or otherwise meet the applicable aggregation criteria.

Coverage of Fines and Penalties Is Prohibited

Under German law, the insurance of fines or criminal penalties is prohibited, and corresponding payment transactions are void under Section 134 of the BGB. Systematic violations of these prohibitions by insurance undertakings can be sanctioned by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) as part of its ongoing supervision of deficiencies pursuant to Section 294 paragraph 2 of the German Insurance Supervisory Act (VAG).

Economic Sanctions

With regard to economic sanctions, German insurers are primarily subject to the sanctions regime of the European Union, which, for example, imposes extensive insurance prohibitions in the Russia sanctions Regulation (EU) No 833/2014 (and subsequent or supplementary regulations). While compensation for own losses connected to sanctioned countries is, in many cases, likely to remain permissible for EU-based companies, EU sanctions can, for instance, result in the freezing of guarantees in export credit and surety insurance or prevent indemnity payments being made in liability insurance.

In addition, German insurers are at least factually affected by the extraterritorial application of US sanctions.

The statutory provisions of German insurance contract law require insurers to pay out the insurance without undue delay once the claims assessment has been completed (Section 14 of the VVG). If the insurer’s investigations are not completed within one month after the loss notification, the insured may demand interim payments in the amount for which insurance coverage is expected to exist at a minimum. If the insurer is in default on the payment of benefits due, the default interest per annum is 5% above the base interest rate (Section 288 of the BGB).

Regulatory Focus on the Claims Handling Process

In 2025, after particular insurers had attracted attention for extensive claims assessment, BaFin addressed the acceleration of claims handling by insurers as a priority in its ongoing supervision practice (Section 294 paragraph 2 of the VAG), as set out in BaFin’s supervisory notice dated 11 April 2025.

Substantive and Procedural Law

This focus by German regulatory authorities has not yet been reflected in developments at the level of insurance contract law. However, the legislature has taken action to accelerate litigation of major losses at the level of procedural law by introducing Commercial Courts with special jurisdiction for insurance disputes (see 1.3 Dispute Resolution Strategy and Outcomes).

Climate Change

According to the German Insurance Association (Gesamtverband der Deutschen Versicherungswirtschaft – GDV), climate change has led to a significant increase in the annual costs of natural hazard losses such as floods and wildfires, from EUR1.4 billion in 2009 to EUR2.4 billion in 2025. This has resulted in more restrictive claims handling and an expansion of the catalogue of duties and obligations in insurance conditions, which, in turn, has increased the number of coverage disputes.

PFAS

Comparably, insurers operating in the German market have increasingly moved to exclude potential loss drivers such as PFAS from the scope of covered risks altogether, as illustrated, for example, by the GDV’s clause recommendations for general liability, product liability and environmental impairment liability insurance.

Disruptive Liability Cases

As regards liability insurance, the trend observable in other jurisdictions, namely that claimants argue for an extensive interpretation of liability law in ESG related matters (for instance in the UK Supreme Court’s decision in Okpabi v Shell and the judgment of the Gerechtshof Den Haag of 12 November 2024, Milieudefensie v Royal Dutch Shell), is still in its early stages in Germany. However, the first comparable cases can already be seen in German courts – eg, a case before the Appeal Court of Hamm, in which a Peruvian farmer brought a claim for damages against a German energy supplier for environmental harm in Peru based on the latter’s contribution to global CO₂ emissions; and an action brought by German environmental associations against a German OEM seeking to prohibit the sale of vehicles with combustion engines. The latter claim was dismissed by the Federal Supreme Court (Bundesgerichtshof) in 2023.

Widespread Delegation in Mass Risk Insurance

Against the backdrop of a continuing skilled labour shortage and increasing costs, German insurers are commonly delegating underwriting and claims handling in mass risk insurance to third parties. Still, the BaFin received more than 14,000 consumer complaints about insurers in 2025 – an increase of about 60 % compared to the previous year. Complaints were mostly due to the processing times of claims. Considering increasing customer dissatisfaction and regulatory requirements, German insurers are examining hybrid approaches that combine external channelling as a first step and subsequent internal claims handling for final decision.

Limited Delegation in Large Risk Insurance

Complex and high-value claims, however, are still handled in-house, with insurers tapping into their own teams’ experience and knowledge. Both the nuance required in decision-making and the expectations of policyholders diminish the usefulness of delegation in this area. As customer relationships and customer retention are especially important in this setting, this approach may not be expected to change in the future.

Having digested the aftershocks of COVID-19, the economy is now dealing with the fallout of military and trade conflicts. Inflation rates in 2025/2026 may not reach the levels of 2022/2023, but are still slightly increased, with energy prices and costs being a massive driver in Germany.

Coverage of Insolvency-Related Liability

One of the results is an increase in insolvency proceedings which, in turn, fuel claims against officers and directors by insolvency administrators. While it had been a long-standing point of debate under German D&O insurance as to whether claims for refunds of payments made despite insolvency and overindebtedness were covered, this discussion has since been put to rest by the Federal Supreme Court. Such claims are considered to be, in principle, covered by D&O insurance. In fact, many insurers have now amended their wordings by expressly covering claims pursuant to Section 15b of the Insolvency Code (Insolvenzordnung (InsO)).

However, a number of questions in connection with insolvency claims remain. These include, by way of example, the coverage exclusion for knowing breaches of duty and when and to what extent a breach of duty may automatically infer knowledge. This plays a key role in determining insurers’ burden of proof in coverage proceedings.

Tightening Duties of Care

Apart from the above, there is a continuing trend among German courts to tighten the duties of care and oversight requirements for officers and directors. A critical question regarding manager liability is currently pending before the European Court of Justice (ECJ): could members of the executive board be held personally liable for fines imposed on the company? The Federal Supreme Court has tended towards the view that recourse for fines is permissible and that D&O coverage for such recourse claims is valid. If the ECJ permits companies to bring recourse claims against their managers, D&O insurers’ risk exposure is likely to increase significantly.

Cyber, environmental liability and losses that are influenced by geopolitics will likely play a significant role in future German casualty coverage litigation, as insurance policies are widespread and losses are steadily increasing in scope and frequency. Generally, the changing exposure due to new and increasing risks results in stricter scrutiny and adjustments to existing wordings by insurers.

Non-Affirmative Cyber Exposure

For example, as early as 2019, financial supervision authorities flagged non-affirmative cyber-exposures, with EIOPA calling them a “source of concern” in their “Cyber Risk for Insurers – Challenges and Opportunities” report: while insurers, on the one hand, may not be aware of their potential exposures to cyber-risk, policyholders, on the other, face uncertainty as to the scope of coverage. Non-affirmative cyber-risks exist where (non-cyber) policies do not expressly include or exclude cyber-exposure.

Insurers have already responded by amending and updating policy wordings to clearly differentiate between losses that are covered and those that are not, often using type of loss as the defining factor. These new wordings may turn out to be the subject of future insurance debate. The Federal Court of Justice has not yet ruled on specific cyber-insurance issues. For now, the relevant case law is developing in the lower courts.

As with cyber-risks, environmental liability claims and geopolitical tensions are likely to prompt new coverage exclusions and test their scope in practice. Future disputes can be expected to focus on the causal link between excluded risks and the losses claimed.

Finally, casualty coverage debates may also be driven up in frequency due to third-party litigation funding having gained traction in Germany.

Product Liability

In Germany, the Product Liability Act implements the European Product Liability Directive (Directive (EU) 2024/2853) and establishes strict, far-reaching liability for hazardous products, exposing the insured business sector in Germany to substantial liability risks and making product liability law a key exposure for Germany’s manufacturing industry.

Directors’ & Officers’ Liability

Unlike in most other jurisdictions, German corporate liability law provides that the directors and officers of a company are liable for damages to the company they manage if their decisions culpably cause losses to the company or give rise to third party claims for damages against it. According to the settled case law of the Federal Supreme Court, the company’s supervisory board is obliged to pursue such claims against the members of the management board. If it fails to do so, the members of the supervisory board themselves are exposed to a personal liability risk. This framework results in considerable D&O liability exposure for the members of a company’s management bodies.

Cyber, AI and Business Interruption Risks

By way of illustration, Allianz Group’s annual Risk Barometer 2026 identifies cyber-incidents as companies’ leading global risk, followed by AI-related risks and business interruption, including supply chain disruption. Each of these factors has the potential to translate into liability exposures for insureds.

Distress Disputes

The currently challenging economic environment in Germany has led to an increase in cases of director liability in connection with insolvency. In 2025 alone, almost 24,000 corporate insolvencies were recorded, marking the highest level in decades. Under German law, Section 15b of the InsO establishes personal liability for managing directors for payments made to third parties after the company has become insolvent. A landmark decision of the Federal Supreme Court in 2020 clarified that such claims are covered under D&O insurance – subject to specific exclusions in the individual case.

Energy Market Disputes and Political Risks

Further, since Russia’s invasion of Ukraine, Germany has been experiencing a volatile energy market, with sharp and closely sequenced price fluctuations creating an error-prone market environment, which, likewise leads to heightened liability exposure. The same is true for other interruptions of global distribution networks stemming from a declining level of global security.

Cyber-Risks and AI Risks

Additionally, in recent years the EU has begun to increase the density of regulation in the areas of IT security, digitalisation and AI use, for example through the NIS 2 Directive (EU) 2022/2555 and the AI Act (Regulation (EU) 2024/1689). This heightened level of regulation, combined with the omnipresence of digital technology in modern enterprises, is likely to be associated with increased liability risks.

In proceedings before the state courts, cost reimbursement is capped at a relatively low level by statutory fee schedules, whereas, for example, in arbitration proceedings under the DIS Rules, the successful party can generally recover a much broader range of costs.

In line with international trends, the hourly rates charged by counsel providing highly specialised services in complex insurance litigation in Germany are generally rising.

Legal Expenses Insurance

In the consumer segment, legal expenses insurance is widespread in Germany, but it is rarely offered for industrial or large-scale corporate losses.

Third-Party Litigation Funding (TPLF)

Historically, the prohibition of success-based fee arrangements for lawyers and the limited options for recourse in respect of litigation costs under German procedural law were regarded as significant structural barriers to the development of a robust litigation funding market. These constraints made it more difficult to aggregate and pursue claims, particularly where individual amounts in dispute were relatively low and did not justify the cost and complexity of standalone litigation.

This landscape has changed markedly in recent years. Litigation funding has gained considerable momentum, driven, in particular, by the introduction of the model declaratory action (Musterfeststellungsklage) and a series of landmark decisions by the Federal Supreme Court on the assignability of small value claims to special purpose vehicles (SPVs) which have provided legal clarity and practical pathways for bundling large numbers of individual claims. This has significantly improved the economics of pursuing mass litigation and collective redress, thereby making third party funding models commercially viable in practice.

Against this backdrop, the Third Party Litigation Funding market in Germany has recently experienced considerable growth.

AI-generated and AI-assisted claims are beginning to reshape the claims landscape, but the development is still at an early stage.

Mass Claims

AI tools significantly facilitate the organisation of mass claims. Automated document generation, claim screening and workflow management allow claimant representatives to prepare, file and coordinate large numbers of near-identical claims with comparatively moderate marginal cost. This lowers entry barriers for collective redress and can result in sudden spikes in claims activity against insureds, particularly in consumer, financial services and product liability contexts. For insurers, this increases the pressure on claims handling departments, which must process and assess large volumes of structured but highly standardised submissions within tight timeframes.

Complex Disputes

In complex litigation, AI increasingly enables a level of factual analysis that would previously have been uneconomical, or practically impossible. Advanced tools can review vast data sets, unstructured correspondence and technical documentation to identify patterns, inconsistencies and evidentiary gaps. This can render cases justiciable that, due to their complexity or data volume, would historically never have reached the courtroom. For insureds, this raises the bar for internal documentation and compliance. For insurers, it expands the scope of potential liability scenarios and requires an upgrade of their own analytical capabilities to scrutinise AI assisted allegations effectively.

Under German law, an injured third party’s ability to bring a direct claim against the liable party’s liability insurer is, in principle, restricted to rare exceptions of compulsory liability insurance. Only in motor liability insurance is an unconditional direct claim available against the motor insurer. In other classes of compulsory liability insurance – eg, professional indemnity insurance of lawyers, tax advisors or certified accountants – the availability of a direct claim against the insurer only arises in cases of a policyholder’s insolvency or unknown whereabouts.

However, the insured under a liability insurance policy may assign its coverage claim to the injured third party, thereby enabling the latter to have both liability and coverage determined in a single set of proceedings against the liability insurer. Since the injured party would then have to contend not only with potential liability defences but also with coverage defences, this route is rarely taken.

An exception, in turn, is D&O insurance. In cases of internal liability of insured persons towards the policyholder company, it has become increasingly common for the coverage claim to be assigned to the company, thereby enabling it to sue the D&O insurer directly for its loss. The permissibility of this approach was long disputed, but has since been clarified. However, follow-up issues remain in dispute, for instance regarding the burden of proof and with respect to duties of disclosure and cooperation.

The dynamics of liability exposure for economic actors and their insurers are more challenging than ever.

• Climate-related claims originating from foreign circumstances are being brought before German courts – often with the support of NGOs – relying on novel legal theories, such as market share liability. These proceedings prompt, for instance, costly and high-profile site inspections in the Peruvian Andes (see 4.7 ESG and Climate-Related Coverage). Beyond damages, these cases also serve as vehicles for political appeals to the public.
• Regulators have become more active in investigating corporate conduct, which, in turn, generates follow-on civil litigation. Environmental, social, and governance (ESG) enforcement actions, data-privacy investigations, and antitrust inquiries frequently produce parallel civil claims which can trigger coverage obligations across multiple policy lines – D&O, E&O, cyber, and general liability.

Insurers must closely monitor these developments, ideally anticipate them, and be prepared. In addition to actuarial and underwriting instruments, such as the development of new products (eg, cyber-insurance, tech E&O) or exclusions (PFAS), and risk management tools (pre-coverage and ongoing auditing and consulting), the primary focus is on building in-house expertise and corresponding networks of specialised advisors, including technical experts and PR agencies. In times of a declining number of active risk carriers in certain lines of business, such as product liability insurance or D&O insurance, organisational challenges also arise more frequently, and multiple parties involved in the same group of cases hold coverage with the same insurer, potentially giving rise to conflicts of interest. In this regard, effective measures for the implementation of Chinese Walls or the outsourcing of claims handling must be in place, not least in view of regulatory requirements.

Geopolitical developments, such as miliary conflicts and trade tensions, continue to influence claims handling, coverage positions and insurance disputes. In a globalised world, with deglobalisation being a comparatively new countertrend, geopolitical events have global impact, especially considering how Great Powers are increasingly involved in conflicts with each other. Hardly any other risk factor is capable of causing damage on a comparable scale in one swoop, be it because of enormous individual losses or one geopolitical event triggering multiple losses in several lines of business at once. Risks spread faster and wider, driving up frequency and scope of insured losses on the primary market, ultimately translating into the reinsurance layer. And where significant loss occurs, disputes inevitably follow. Geopolitical instability thus leads to more disputes with potentially high volumes both in the primary and the reinsurance layers.

For example, sanctions following the Russian invasion of Ukraine remain a highly influential factor, with new sanctions continuously being added to the list. Only recently, in July 2026, the EU introduced its 21st package of sanctions against Russia. Consequences range from business interruption to failures of investment and a surge in cross-border disputes. On top of that, for directors and officers, the misjudgement of geopolitical developments may even threaten future liability.

Sanctions have proven to present a challenge for insurers when it comes to claims handling – not only with regard to payments made to policyholders across borders. As the EU has imposed sanctions following the attack on Ukraine that, inter alia, prohibit making funds available to designated persons and entities, insurers have to carefully consider whether payment for a claim may violate existing sanctions. Such an assessment may not only be necessary if the insured itself is a designated entity or may be connected to one, but also if the compensation could relate to sanctioned activities.

In insurance programmes comprised of insurers from different jurisdictions, whether specific domestic sanctions may apply to individual insurers needs to be considered. In the event of discrepances between jurisdictions, sanctions thus have the potential to also lead to internal disputes between co-insurers.

Exclusions for war, terrorism and political risk are included without fail in almost all lines of German insurance – except for dedicated political risk insurance.

Despite regional conflicts, EU territory is considered to be enjoying a period of relative global stability – “the Long Peace” – following World War II. As such, war exclusions have played a fairly minor role in insurance disputes in the past. This has changed with the increasingly global fallout from conflicts and tensions rising in immediate geographical proximity. With the boundaries blurring between individual actions, such as state-linked cyber or drone attacks and the notion of “war”, insurance disputes may now start to lean more towards debates over the scope of this coverage exclusion and causal links.

Notably, the war exclusion has never been specifically tested before higher courts in Germany. Generally, exclusions represent general terms and conditions to which the general principles of interpretation apply. Most importantly, exclusions are to be interpreted narrowly, not beyond what their meaning requires by reference to their economic purpose and chosen wording (see 4.2 Policy Wordings and Interpretation Developments). This suggests that German courts are unlikely to interpret war exclusion clauses broadly.

Geopolitical disruptions are challenging the insurance sector but, rather than creating a new subcategory of insured losses, they emerge in the form of traditional risks. Geopolitical events follow a “transmission path”, morphing into losses under classic categories of business insurance. Political conflicts, for example, lead to trade embargos or impediments of global shipping routes, which turn into supply chain disruptions and then into material shortages and business interruption. Claims under marine, transportation and business interruption insurance follow suit. Military conflicts have also been shown to increase cyber-attacks – even outside the states directly involved.

In German insurance contracts, aggregation or “series-loss” clauses (Serienschadenklauseln) are common market practice, included in almost every line of insurance. Such clauses group multiple individual losses into one insured event if there is a common cause. This may lead to a combination of claims drawing from only one total policy limit or, to the benefit of the policyholder, reaching a self-insured retention threshold more easily (see 4.4 Aggregation and Limits of Liability). Obviously, there is room for debate around where such aggregation starts and where it ends. The answer will be heavily dependent on the underlying facts and, most importantly, the specific policy wording in question. Series-loss clauses are regularly under scrutiny by German courts, which assess whether the wording used complies with the German legal statutes governing general terms and conditions, mainly with regard to clarity and transparency (see 7.3 War, Political Risk and Exclusions).

Both BaFin and EIOPA acknowledge that geopolitical risks have “shifted from a tail risk” and now present a central concern for insurers. Military conflicts, trade tensions and subsequent supply chain disruptions are considered defining risks going forward.

A visible response by insurers is the tightening of exclusion clauses in the policy language. With regard to transport and marine insurance, for example, insurers increasingly refuse to cover war-related losses. Both primary insurers and reinsurers are further improving their underwriting screening risks more closely as well as strengthening disclosure and cooperation obligations.

The increase in risk exposure may also translate into changes to pricing, capacity and risk selection. While, for example, insuring risks connected with economic activities in Russia had not been a concern prior to the invasion of Ukraine, insurers’ appetite for such risks has vanished. Consequently, policies may shift to higher attachment points, lower sublimits and narrower territorial scope, while underwriting could rely on more detailed questionnaires directed at policyholders.

We are seeing a cluster of emerging risks that, taken together, are materially reshaping the disputes and advisory landscape for insurers and corporate policyholders in Germany.

• The difficult economic environment has caused a rise in insolvency-linked D&O liability and transaction risk. With respect to D&O cases, this is driven primarily by the personal liability of managing directors for payments made after insolvency. Regarding transactions, the development, inter alia, puts stress on W&I Insurance since the acquisition of a financially distressed business unit places high demands on a thorough due diligence process.
• Energy-market volatility and broader geopolitical instability are generating political risk and business interruption scenarios, with sharp price swings and disrupted distribution networks creating a highly error prone environment and corresponding liability exposure.
• Cyber and AI, together with associated compliance risks, are also increasingly important as the EU tightens regulation through instruments such as NIS 2 and the AI Act. The interplay between complex regulatory duties and pervasive digitalisation is a growing source of compliance, liability and coverage questions, particularly around regulatory fines, data breaches and algorithmic decision making.

The fragmented and highly complex nature of these issues cannot reasonably be covered completely by the in-house capacities of many companies. As a result, external expertise in complex coverage litigation, wording reviews and strategic risk advisory is increasingly being introduced, not least to ensure that business decisions taken by decision-makers are properly supported and defensible.

Climate change is driving both loss trends and coverage disputes. For example, according to GDV, annual natural hazard losses (eg, floods, wildfires) rose from EUR1.4 billion in 2009 to EUR2.4 billion in 2025. This claims pressure has translated into more restrictive claims handling and an expanded catalogue of duties andobligations in policy wordings. As insureds are confronted with stricter compliance requirements and more intensive scrutiny of their risk management, the number of coverage disputes over alleged breaches of obligations of NatCat coverage is noticeably increasing.

At the same time, insurers are reacting to emerging environmental loss drivers by tightening exclusions. PFAS is a prominent example: in the German market, carriers have increasingly moved to exclude PFAS-related risks from cover altogether, as reflected in GDV’s clause recommendations for general liability, product liability and environmental impairment liability insurance. This raises difficult questions around disclosure, risk presentation and the scope of residual cover, and is becoming a recurring topic in wording negotiations and advisory work.

Climate-change risks also significantly increase the risk exposure of reinsurers, and in contentious matters frequently trigger, for example, disputes over the interpretation and application of aggregation clauses in reinsurance contracts.

On the liability side, ESG-driven theories of responsibility are beginning to surface. While Germany has not yet seen the same volume of climate litigation as some other jurisdictions, the first “disruptive” cases are being heard before the German courts. These include a dismissed claim before the Appeal Court of Hamm by a Peruvian farmer against a German energy company for climate-related environmental damage in Peru, and litigation brought by environmental NGOs seeking to prohibit the sale of combustion-engine vehicles by a German OEM (dismissed by the Federal Supreme Court in 2023).

The GDPR has tightened the liability framework for companies that lose or improperly disclose personal data. The German Federal Supreme Court has ruled that even a brief loss of control over customer data can constitute compensable non-material damage under Article 82(1) of the GDPR without proof of actual misuse. Therefore, the lowered damage threshold shifts the defence focus from whether harm occurred to proving the absence of a GDPR violation and contesting the quantum of damages.

In light of rising cyber-attacks, insurers must increasingly account for the risk of mass damages whenever customer data is compromised. BaFin has emphasised the highly dynamic risk landscape and significant accumulation risk in the cyber-insurance market: a single cyber-event, such as an attack exploiting a widely used software vulnerability, can trigger simultaneous claims across numerous policyholders. BaFin therefore recommends prudent rate-making and adequate reinsurance protection.

Data centres are among the highest-value single-site risks in commercial insurance. Construction costs for a single next-generation facility can reach multi-billion amounts and even increase once GPUs and other technology are installed.

From an underwriting perspective, the key challenge is that power, cooling and backup systems are tightly interconnected. A failure in one can quickly cascade across the entire facility. Power supply is the largest single driver of outages. Novel technologies such as lithium-ion battery backup units creating new fire ignition sources are only adding hazards with limited loss history.

Risk selection is therefore critical. Insurers conduct facility-specific risk assessments, examining physical architecture and redundancy design as well as the day-to-day operational practices and safety protocols.

Risks connected with social media addiction and related mental health effects currently do not form a standalone insurance category in Germany, but an emerging liability cluster.

The EU is launching a strategy aimed at regulating the architecture of social media platforms and search engines, targeting both their designs and algorithms as well as the contents hosted. This interlocks with the EU Product Liability Directive (EU 2024/2853) adopted in October 2024 which integrates digital technologies, AI systems and software into the product liability regime. Its transformation into German national law is to be concluded by the end of 2026.

Recent developments in the US may serve as an instructive signpost for potential claims in Europe, such as the multi-billion-dollar settlement between Meta and several US states over claims that its platforms Instagram and Facebook were deliberately designed to be addictive and are causing mental harm.

Central questions will be to what extent the architecture of online platforms is part of the “product”, and to what extent the distribution of harmful content pushed by those platforms’ algorithms may result in product liability claims.

Against these growing liability risks, it is to be expected that insurers will scrutinise policyholders’ products more closely, asking tougher questions during the underwriting process before deciding which risks may be insured, to what extent, and against which premium.

Earlier this year, the European Commission adopted a strategy to accelerate the development and deployment of Small Modular Reactors (SMRs) and Advanced Modular Reactors (AMRs) in Europe, looking to establish first reactors by the early 2030s. Against this timeline, it is currently too early to reliably predict future market reactions to this new technology, much less its impact on insurance disputes.

While it seems plausible that SMRs and AMRs may be a source for high-volume insurance disputes, whether these will also be frequent occurrences will depend on the reactors’ prevalence, as well as their technical performance and stability. Due to the absence of historical data and experience, insurers will have to be the ones making the first move, being faced with the task of developing a contractual framework to be then tested against reality. As with any new line of insurance, it is to be expected that initial policy wordings will require adjustments and improvements over time, both in scope of coverage and precise wording. This “learning curve” can be expected to be particularly high in the beginning, easing with time and practical experience.

German regulatory authorities are currently focused on several key areas that directly shape insurer behaviour and dispute risk.

• Operational resilience and IT security are central. The EU’s Digital Operational Resilience Act (DORA, Regulation (EU) 2022/2554) imposes stringent requirements on insurers’ IT systems and cyber-risk management. In this context, BaFin has intensified its scrutiny of cyber-insurance, including the treatment of ransomware and ransom payments, which in turn drives closer review of wordings and increases the potential for coverage disputes.
• According to BaFin’s publication “Focus points of insurance regulatory 2025”, regulators are also paying closer attention to solvency in an environment of fragile supply chains and geopolitical risk. Insurers must reflect these stresses in their risk modelling and capital planning.
• Finally, conduct supervision pursuant to Section 294 paragraph 2 of the VAG and consumer protection remain. Elevated scrutiny and potential interventions increase both reputational and litigation risk where products are perceived as missold or inadequately explained.

The Corporate Sustainability Due Diligence Directive (CSDDD, Directive (EU) 2024/1760) and the ongoing adjustment of the German Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz – LkSG) have the potential to materially affect casualty and environmental liability. As German policyholders continue to become more directly exposed to liability for environmental and human rights violations committed by suppliers in third countries, claims handlers will need to analyse complex, cross-border causation chains in major losses. Valid, granular risk data on supply chains will become critical for both underwriting and claims prevention, and will increasingly determine how coverage is assessed and priced.

In addition, the ongoing implementation of the EU Product Liability Directive (PLD, Directive (EU) 2024/2853) could significantly broaden the product concept to cover software, AI systems and digital services that are essential to the functioning of physical products (see 8.5 Social Media Risk). For product liability and product recall covers, this blurs the boundaries between traditional bodily injury/property damage and pure cyber or software loss.