How an insurer’s release can lead to the thwarting of evidence and a denial of benefits

Thwarting of evidence by the policyholder in the event of a claim

Anyone who begins repairing the damage after a so-called release by the insurer bears the risk of subsequently being unable to prove the amount of the loss – for example, once the damaged household contents have been disposed of or the damaged components have been removed. This is referred to as the thwarting of evidence (Beweisvereitelung) by the policyholder.

Policyholders with their own risk management take precautions regardless, by maintaining an annual inventory that records the assets at their acquisition cost and current value (not their tax book value). It is fatal for insurance intermediaries to rely on (incorrect) tax balance sheets – for example, where assets that have already been written off are missing altogether.

The insurer’s approval to repair does not yet mean the insurer will assume the costs

The so-called release merely means that the insurer raises no objection to the policyholder starting the repair. By granting the release, the insurer cannot later rely on a breach of obligation arising from the altered loss picture – and the resulting difficulty in determining the loss – to refuse its benefit entirely on that ground alone. As a rule, however, the release is not coupled with a binding declaration that the costs will be assumed (OLG Frankfurt am Main (Frankfurt Higher Regional Court), judgment of 18 April 2001, ref. 7 U 97/00).

Does the insurer provoke the thwarting of evidence by releasing the repair?

Because the insurer’s release effectively provokes this thwarting of evidence, the OLG Saarbrücken (Saarbrücken Higher Regional Court) held, in its judgment of 19 September 2012 (5 U 68/12-9), that following the release it was no longer reasonable to require the policyholder to provide proof of the loss. This was a consequence of the incorrect information supplied by the insurer.

The insurer’s duty to advise where the policyholder’s need for advice is recognisable

Because insurers are obliged to provide advice under Section 6 of the VVG (German Insurance Contract Act) where the insured recognisably requires it, the release – given without any further explanation – constituted a breach of this duty to advise. This would therefore amount to a thwarting of evidence by the insurer instead. That does not mean, however, that the insured is deemed to have proved every alleged loss. It does mean that the policyholder could no longer reasonably be expected to furnish full proof of the loss. Otherwise, any insurer could escape its obligation to pay benefits simply by giving faulty advice at the time of the release.

No thwarting of evidence where evidence could be secured by independent proceedings for the taking of evidence

The BGH (Federal Court of Justice), in its judgment of 11 June 2015 (Case No. I ZR 226/13), held that where one party has thwarted the presentation of evidence, the taking of evidence cannot be dispensed with entirely. Rather, the evidence offered by the party bearing the burden of proof must first be taken (supplemented where necessary). “If such evidence is unavailable, or if the party bearing the burden of proof remains without proof after the outcome of the evidentiary hearing, a reversal of the burden of proof must be considered and the offers of proof made by the litigant must be pursued.”

The insurer’s claims adjuster as a potential trap for the insurance customer?

Insurance companies engage claims adjusters (including freelancers). Their objective may be to keep the customer’s compensation within limits – in case of doubt, perhaps combined with a success-based commission tied to the insurer’s savings. Where agents are used to settle claims, the same result can be achieved through their well-intentioned message that the insurer has declared a release.

As a preventive measure, insured persons can be supported by a private assessor they instruct themselves – although the cost of this may, at first, merely add to the loss. A precise photographic record of the damage and of all damaged objects, as recommended by some insurers, is of doubtful value given the capabilities of modern image-processing software – witnesses help, so far as they can then recall the facts.

An opportunity for insurers to save themselves considerable expense in settling claims

Insurers can, however, successfully declare a release only to customers of insurance brokers (Versicherungsmakler), leaving the advice to the broker. If the broker’s client then begins repairing the damage, the insurer – which is accordingly under no duty to advise – can always effectively invoke the thwarting of evidence and refuse benefits, to the extent the injured party can now no longer prove the loss. Yet the broker’s liability for the erroneous advice that caused this is then also of no avail, for want of a provable loss.

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