Advisory duties, liability, gaps in cover using the example of natural hazard insurance

– When insurance brokers and agents are liable for the uninsured like insurers -.


The German Insurance Association (GDV) puts the insured losses from the flood disaster in July at around €7bn. However, for damages that are not insured in whole or in part, the liability of the insurance intermediary, who often provides “support”, could also be considered. While 99% of buildings are insurable accordingly, insurance cover against elementary natural hazards such as floods, torrential rain, landslides or avalanches exists for at most 46% in Germany – in the last flood area even for only 37%.


Underinsurance waiver as a liability trap for intermediaries

Insurance intermediaries must satisfy themselves that the policyholder has understood the insurance conditions, including any foreseeable gaps. A typical example is the waiver of underinsurance if the sum insured has a certain relation to the size of the apartment. For example, after consultation, a policyholder thought that the sum insured should be increased because of the larger living space after the move, as his household contents were not worth any more after the move. The mediator accepted that, and documented the rejection that way. The fact that the insured value was significantly lower than the actual (new) value and therefore only the proportional value would be reimbursed even in the event of a partial loss (in the absence of a waiver of underinsurance) had probably not been forcefully made clear by the broker, who instead left the customer in his documented error.

One vet said he strongly recommends taking the sick horse to the vet clinic. The owner refused – whereupon the horse died. The veterinarian was liable because he should have made it clear that if the horse was not taken to the clinic, it was very likely to die.


Unnamed dangers in the cover

Insurance cover is based on the directly named peril. If, for example, there is insurance cover against heavy rain or landslides but not against flooding, the insurance company will not pay anything if, for example, a heavy rain falls only above the river or a landslide destroys the dam and the resulting flood floods the building. Floods sometimes cause heavy objects such as containers to move, destroying houses in the process – not a natural hazard loss covered under the terms of the policy, but losses due to so-called unnamed perils. If floating motor vehicles, construction machinery or truck trailers turn into polluters, no liability insurance will cover them because of their operating risk – because nobody “operated” them. The owner of the vehicle – if he is at fault – or the owner of the house will hardly pay attention to it – but the agent must know it before the insurer refuses to pay benefits in the event of a claim.


Who bears whose insolvency risk?

A water main burst on the first floor in a doctor’s office during the cold weather. The main damage occurred on the ground floor, and was hastily settled by the building insurer of the surgery premises. The insurer later claimed back part of the compensation from the owner of the practice premises. However, the Federal Court of Justice (BGH) (ruling of 18.12.2020, Ref. V ZR 193/19) decided that the owner of the practice may not be liable at all – but rather its tenant. If the tenant is uninsured in this regard, the question immediately arises as to whether this gap was overlooked by the practice landlord’s and/or practice tenant’s insurance agent.


The presumption of correctness of advice

The regular “presumption of correct advice” makes it easier to prove that the intermediary was at fault in giving advice, which gives rise to liability, because it is simply assumed by the courts. Namely: The advised person would have behaved correctly if he had received the right advice. And therefore as a conclusion: If he behaves wrongly, he must therefore have been wrongly advised.


Such rule conjectures can also be refuted by counter-evidence. However, the broker must document and explain very well why someone has taken out no or insufficient insurance against natural hazards, or – because this insurance does not cover damage caused by natural hazards – has waived all-risk cover.


All insurance cover applies to the immediate occurrence of the loss – but the reverse also applies to exclusions. So an against landslide also pays if this is the result of heavy rain. Or if a flood did not inundate the property, but caused the landslide by erosion. If storm surge is excluded, flood insurance will still pay if the storm surge only causes a river to back up and flood the property rather than drain into the ocean.


Even flood protectors can be incompletely insured

A security company had taken it upon itself to close flood gates in time – which was not done. The owner’s building insurer settled over 5 million euros in damages, and recovered from the security company. The company’s liability insurance did not pay a cent because “flood protection” was not insured as an activity. The security company then asked the broker to pay – after all, the broker had to provide “individual insurance cover adapted to the risk, investigate the risk on its own initiative and inform it of its efforts without being asked”. The broker is likely to be underinsured, as his AGB liability limitation to 2.5 million euros proved to be ineffective for the court. LG Hamburg, judgment of 09.09.2021, Az. 413 HKO 27/20. If it had been an agent, its insurance company would have to (co-)indemnify.


All-risk cover

The insurance intermediary will always have to ask himself whether there is more comprehensive cover available on the market – including direct insurers as well as foreign providers who are legally allowed to offer their rates on the German market through notification to BaFin.

A look at the insurance coverage of his client, the insured, would also be helpful to optimize coverage at all levels – ultimately a caring sales approach, even for the inexperienced. Liability may also arise if limited market access has not been indicated as required by law.


by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm


by courtesy of (Published in ExpertenReport 11/2021, pages 9-11)

and (veröffentlicht am 13.01.2022 unter der Überschrift: Beratungspflichten, Haftung, Deckungslücken am Beispiel der Elementarschaden-Versicherung)



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About the author

Dr. Johannes Fiala Dr. Johannes Fiala

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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