# Codification of Insurance Contract Law in Europe and Estonia

URL: https://insurancelawestonia.ee/history-of-insurance/codification-of-insurance-contract-law/
Author: Dr Olavi-Jüri Luik, Partner, Head of Insurance Law, attorney at law (Advokaadibüroo WIDEN OÜ)
Last updated: 2026-11-09

> German and Swiss VVG 1908, Nordic acts, French law, Marine Insurance Act 1906, VVG reform 2008, Insurance Act 2015.

**In brief.** Until the late 19th century the insurance contract was governed mainly by commercial custom, policy wordings and case law. In 1908 Germany and Switzerland enacted dedicated insurance contract acts, followed by Austria, the Nordic countries and France. Their common purpose was to protect the policyholder against standard terms drafted by insurers, chiefly by making many provisions semi-mandatory. The Estonian Law of Obligations Act (võlaõigusseadus, VÕS), in force since 1 July 2002, follows this continental model, drawing particularly on German law. English law took a different path and reformed its strict disclosure and warranty rules only in 2012–2015. EU law has harmonised insurance supervision but not insurance contract law; the Principles of European Insurance Contract Law (PEICL) remain a model.

## Why codification was needed

Nineteenth-century civil codes said little about insurance. The French Civil Code of 1804 mentioned it among aleatory contracts, and the German BGB (1900) left it to a special statute. As insurance became a mass product, insurers relied on standard terms that released them entirely from liability for any breach of a policy condition, regardless of its significance or its connection to the loss.

States responded on two levels. First, they introduced supervision of insurers' formation and solvency. Two models developed in Europe: the German model, which supervised policy conditions and tariffs as well as financial standing, and the British model, which confined supervision to solvency.[^1] Second, they codified insurance contract law to curb the harshest consequences of standard terms.

## Germany and Switzerland, 1908

The German Insurance Contract Act (*Gesetz über den Versicherungsvertrag*, VVG) was adopted on 30 May 1908.[^2] It contained a general part, rules on indemnity insurance and rules for particular classes. Its key innovations were semi-mandatory provisions, a system in which the consequences of the policyholder's breach depend on fault and causation, and a distinction between pre-contractual disclosure, increase of risk and post-loss obligations (*Obliegenheiten*). The same structure is visible in VÕS §§ 440–452.[^3] Switzerland adopted its own insurance contract act on 2 April 1908, in force from 1 January 1910 ([SR 221.229.1](https://www.fedlex.admin.ch/eli/cc/24/719_735_717/de)).

Germany replaced the 1908 Act with a new VVG of 23 November 2007, in force from 1 January 2008.[^4] The reform abolished the "all or nothing" principle: for grossly negligent breaches of contractual obligations (Obliegenheiten) the indemnity is reduced in proportion to the degree of fault, simple negligence no longer releases the insurer, and an intentional breach may still release it fully, but in each case the insurer remains liable where the breach had no causal effect, except for fraudulent breaches (VVG § 28(2)–(3)); this German rule is not Estonian law. The reform also limited the policyholder's pre-contractual duty to answering the insurer's questions in text form, and introduced a right of withdrawal. The VÕS predates this reform and does not apply proportionality as consistently, but Estonian Supreme Court (Riigikohus) case law has moved in a similar direction in several respects.[^5]

## Nordic countries, France and others

The Nordic countries developed a common model of insurance contract law in the 1920s and 1930s: Sweden adopted its act in 1927 (SFS 1927:77, repealed on 1 January 2006 by the current [Försäkringsavtalslag (2005:104)](https://www.riksdagen.se/sv/dokument-och-lagar/dokument/svensk-forfattningssamling/forsakringsavtalslag-2005104_sfs-2005-104/)), Norway on 6 June 1930 (LOV-1930-06-06-20, replaced by the current [forsikringsavtaleloven of 16 June 1989 No 69](https://lovdata.no/dokument/NL/lov/1989-06-16-69), in force since 1 July 1990) and Finland in 1933 ([Vakuutussopimuslaki 132/1933](https://www.finlex.fi/fi/lainsaadanto/1933/132), in force from 1 January 1934 until 30 June 1995). Nordic cooperation also produced the mutual recognition of motor insurance from 1926, which became the basis of the green card system.[^6] Finland's [Insurance Contracts Act 543/1994 (Vakuutussopimuslaki)](https://www.finlex.fi/fi/lainsaadanto/1994/543) was an important point of reference in Estonia, and Finnish law was expressly used as the model for the Estonian motor insurance acts.[^7]

French insurance contract law, later incorporated in the *Code des assurances*, developed the *règle proportionnelle*: where non-disclosure was innocent, the indemnity was reduced in the proportion of the premium paid to the correct premium. Proportionate reduction has since become the general European trend and is the approach of the PEICL.

## England

Outside marine insurance, codified in the [Marine Insurance Act 1906](https://www.legislation.gov.uk/ukpga/Edw7/6/41/contents), English insurance law remained judge-made. Non-disclosure allowed the insurer to avoid the contract *ab initio* whether or not the undisclosed fact had any bearing on the loss, and breach of warranty discharged the insurer automatically. Reform came with the [Consumer Insurance (Disclosure and Representations) Act 2012](https://www.legislation.gov.uk/ukpga/2012/6/contents) and the [Insurance Act 2015](https://www.legislation.gov.uk/ukpga/2015/4/contents), which introduced the duty of fair presentation and proportionate remedies for business insurance.

For foreign insurers working with Estonian law, the terminology matters. English *rescission*, *avoidance*, *termination*, *cancellation* and *repudiation* have no automatic one-word Estonian equivalents. Estonian law distinguishes nullity (tühisus), avoidance of a transaction for mistake or fraud under the General Part of the Civil Code Act (tsiviilseadustiku üldosa seadus, TsÜS) (tühistamine), withdrawal from the contract (taganemine), termination by notice (ülesütlemine), refusal to pay (hüvitamisest keeldumine), release from the obligation to perform (täitmiskohustusest vabanemine), reduction of the indemnity (hüvitise vähendamine) and absence of cover (katte puudumine). In each case the legal consequence must be explained rather than translated.

## The ideology of policyholder protection

The 20th-century acts share a common rationale: information asymmetry, unequal bargaining power, the policyholder's advance performance and the social function of insurance. The VÕS reflects it in § 427(1), which prohibits derogations to the detriment of the policyholder, the insured person or the beneficiary from a long list of provisions, while § 427(3) allows broader freedom of contract for large risks.[^8]

## PEICL

Because divergent national contract laws hinder cross-border insurance, an international group of scholars drafted the Principles of European Insurance Contract Law. The general part and the indemnity insurance part were presented to the European Commission in December 2007 and published in 2009; an expanded edition covering life and liability insurance followed in 2016.[^9] The Commission's 2010 Green Paper discussed an optional European contract law instrument, but no binding insurance contract law has been adopted.[^10]

The PEICL is more policyholder-friendly than the VÕS. The author's doctoral thesis compared the PEICL with Estonian, Latvian and Lithuanian insurance contract law and concluded that applying its principles would strengthen policyholder protection in the Baltic states, particularly regarding the consequences of breaching disclosure duties and precautionary measures.[^11] In Estonia the PEICL is not binding law, but it is a legitimate comparative argument and an aid to interpretation.

## Related pages

- [From antiquity to Lloyd's](https://insurancelawestonia.ee/history-of-insurance/from-antiquity-to-lloyds)
- [EU membership and modern Estonian insurance law](https://insurancelawestonia.ee/history-of-insurance/eu-era-and-motor-insurance)
- [Estonian insurance contract law](https://insurancelawestonia.ee/estonian-insurance-contract-law)
- [Policy wording review under Estonian law](https://insurancelawestonia.ee/guides/policy-wording-review-estonian-law)

## References

[^1]: J. Lahe, O.-J. Luik. Kindlustusõigus. Tallinn: Juura 2018, pp 50–51 and 58.
[^2]: See [Versicherungsvertragsgesetz (Deutschland)](https://de.wikipedia.org/wiki/Versicherungsvertragsgesetz_(Deutschland)).
[^3]: VÕS §§ 440–452 (RT I, 20.06.2026, 18), [Riigi Teataja](https://www.riigiteataja.ee/akt/V%C3%95S).
[^4]: [Gesetz über den Versicherungsvertrag](https://www.gesetze-im-internet.de/vvg_2008/BJNR263110007.html) of 23.11.2007 (BGBl. I S. 2631).
[^5]: See [Supreme Court case law](https://insurancelawestonia.ee/supreme-court).
[^6]: J. Lahe, O.-J. Luik, M. Merila. Liikluskindlustuse seadus. Kommenteeritud väljaanne. 2nd ed. Tallinn: Juura 2026, ch 2.2.
[^7]: Ibid, ch 2.1.
[^8]: VÕS § 427(1) and (3) (RT I, 20.06.2026, 18).
[^9]: J. Basedow, J. Birds, M. Clarke, H. Cousy, H. Heiss, L. D. Loacker (eds). Principles of European Insurance Contract Law (PEICL). 2nd Expanded Edition, 2016.
[^10]: European Commission. COM(2010)348 final.
[^11]: O.-J. Luik. The application of principles of European insurance contract law to policyholders of the Baltic States: A measure for the protection of policyholders. PhD thesis. University of Tartu 2016, [DSpace](https://dspace.ut.ee/items/6d4aaa77-f383-4459-bedf-2de079a2bf2a).