– Why nothing is ever insured against every conceivable risk –
When an insurer describes its product as “all-risk insurance”, this sometimes resembles the advertising promise of so-called “guarantee certificates”: a close examination of the policy terms and conditions may reveal it to be “marketing cheese with massive holes” in the insurance cover.
Coverage gaps in home contents and residential buildings insurance
The (fictional) Pfefferminzia insurer promises perfect protection for the home – everything included – so that the customer feels reassured and places trust in the intermediary and the insurer.
This is followed, in a subordinate clause, by a reference to all-round protection against every peril, unless such peril is expressly excluded. In Germany there is, in principle, freedom to build, meaning that anyone may build anything anywhere unless a provision prohibits it – whether this makes building law any clearer remains to be seen.
In the event of a claim, the policyholder’s lawyer reads the fine print for the first time. The policy conditions, however, exclude gradual damage and damage caused by contamination – wording that is difficult to decipher. At best a specialist can explain to the customer that this also excludes sudden damage where it results from prolonged exposure to precipitation (smoke, soot, dust), temperatures, gases, vapours or humidity. As to the duration of exposure required, there are decisions holding that a few days suffice, and others where years of exposure are at issue. Since no customer could foresee such distinctions, every insurer and broker would have to make a point of advising on them separately.
Free lunch: alternative cover from abroad as well?
Some industrial and commercial brokers, for instance, have suggested that the self-employed open a second office abroad and thereby cut insurance premiums by up to two thirds – perhaps moving closer to the all-risk ideal. Yet such “sales advice” carries risks and side effects, so that from this perspective the term “all-risk” may well be apt. In the United States, an actor was once advised to buy shares before the stock-market crash because he ought to do something for his old age. After the crash he remarked that this had not been a lie – he had indeed aged twenty years through the loss of his fortune.
Insurance from abroad is one thing; foreign law is another. EU rules on the international law of insurance contracts may point to a different legal culture than one might assume, which means costly legal opinions may later have to be obtained and greater litigation-cost risks accepted.
Enabling insurance cover to be purchased across borders within the EU, in all cases under only greatly simplified conditions, is, in the first instance, the very aim of the EU regulations. In reality, however, many insurers will be reluctant to do so because they cannot assess the legal and insurance risks – and, conversely, uncertainties also remain on the customer’s side.
Surprises with foreign insurance policies
Further surprises are possible – for example, a US insurer does not investigate the claim itself (it is for the insurer to decide whether to investigate anything at all; where fraud is suspected it will certainly wish to do so), but instead expects to be furnished with proof of loss in such a manner that it can ultimately satisfy itself, on the basis of those documents, of its obligation to pay. The German branch of one foreign insurer never settles five-figure euro claims itself, but always lets a court decide once the customer has filed suit.
Such differences certainly exist internationally between court systems: namely, the principle that the claimant must adduce everything necessary to prove the claim, as opposed to the more rarely encountered Amtsermittlungsgrundsatz (the principle of official investigation by the court or authority), found above all in German social law. Abroad, one must also, in part, attend to the enforcement of judgments oneself – meaning that, if it is adjudged that a person is to be stoned, there are no officially appointed stone-throwers; instead one must ensure oneself that there are enough willing participants and stones, and someone to pay the lorry driver who delivers the required paving stones. In return, however, even in Saudi Arabia no convicted offender is beheaded with a sabre in the marketplace if the victim’s family declares that it has reached a settlement with the offender’s family.
Insurance brokers on the slippery slope when arranging foreign cover?
The gateway to direct insurance or private health cover outside the EU could likewise be the broker, if one heeds certain voices from the academic community. For they take the view that a broker who acts solely for the client is therefore not an intermediary through whom the insurer conducts insurance business in Germany, so that the broker would otherwise need to be authorised here as an insurer. The Insurance Supervision Act (VAG, German Insurance Supervision Act), however, does not employ the term “intermediary of the insurer” in the way some read it. For just as the insurance broker may not only be the “fiduciary trustee” of the insurance customer, but may also act as the insurer’s appointed vicarious agent – for the brokerage itself, for portfolio management, for contract administration, for the collection of premiums, and likewise for claims settlement and other marketing tasks.
Advice for customers and insurance brokers
Since there is never all-encompassing insurance cover in life, the gaps in cover must be painstakingly extracted from the policy conditions and the offers on the market compared. It ought to give pause for thought that many insurers, when asked, are unable to say precisely what their policy conditions actually insure. As an insurer, one is therefore grateful, in such cases, when customers sue and at some point a supreme court tells the insurer what it must have meant – on the maxim: “How should I know what I think before I read what others make of what I have written?”
The next step will be to tailor the insurance cover by having the broker enter into negotiations with insurers in order to resolve and clarify any ambiguities as far as possible and to make matters absolutely clear. In so far as the insurance broker relies on widespread ratings or rankings from “the day before yesterday and yesterday” and, for want of understanding, fails to explain them, he will lose the liability suit at the latest. For he must report on coverage gaps that cannot be closed – that is, he must give an account of them rather than draw a cloak of silence over them – and he must not airily claim that, in comparing policies, he merely uses software without reading the small print or seeking individual solutions. Later, an expert will determine that the undisclosed gap could indeed have been closed, that the damage could therefore have been avoided, and that the broker must consequently make good the loss.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
