If flood victims have no natural hazards insurance in place, they may be able to hold their insurance intermediary liable. Brokers and agents alike must identify coverage risks, advise accordingly, and document this in full. A lack of documentation can put intermediaries in a precarious position, because it reverses the burden of proof. So argue attorney Johannes Fiala and actuary Peter A. Schramm in a guest contribution.
Up to 99 percent of all buildings, even in flood-prone areas, would have been insurable. Yet only around 45 percent of buildings are actually insured against natural hazards such as heavy rain, flooding or earthquakes. The insurance intermediary owes a comprehensive duty to advise. Where no natural-hazards cover has been arranged, but perhaps other customary building cover exists (e.g. liability, windstorm, fire, hail, legal expenses, or tap-water insurance), every judge will ask whether the policyholder was advised correctly before deciding against a natural-hazards policy. Tick-box questionnaires – including those used online – cannot deliver qualified, complete advice (BGH (Federal Court of Justice), judgment of 10.03.2016, ref. I ZR 147/14). A further variant of intermediary liability arising from such questionnaires would be underinsurance.
Intermediary liability: not spending much on cover despite the client’s wishes
A client’s thriftiness is not, in itself, a reason to rule out natural-hazards cover. Rather, the broker must look for alternatives – for example, by agreeing a correspondingly higher deductible across all building-insurance modules. The resulting premium reduction – just as with motor cover and the like – could be redeployed to fund the additional protection.
Anyone who failed to take out an available natural-hazards policy must even reckon with state aid being cut by half as a result – itself a recoverable loss.
Insurance brokers must also offer coverage concepts and foreign insurers
The operations of many insurance brokers are so small that they obtain no direct agreement to place business with every insurer. They then turn to the proverbial insurance wholesale markets, in particular so-called pools and purchasing cooperatives. Yet these, too, offer only a limited range of insurers or tariffs. Some brokers also shy away from offering cheaper insurers from abroad, for instance.
The broker must disclose this limited advisory basis from the outset – in accordance with § 60 para. 2 VVG (German Insurance Contract Act), with precise reference to its restricted market coverage. There may well have been more suitable and/or cheaper cover elsewhere; for the absence of which the broker is now liable. The poorly insured client would, after proper explanation, often have sought advice elsewhere.
Even where no cover was available, the intermediary or broker may be liable
If no natural-hazards cover could have been procured at all, the faulty advice does not in itself give rise to a loss from the absence of cover, because the client could not have insured the risk anywhere, even with correct advice. However, the broker’s client still derives a loss from the fact that – had the broker drawn his attention to this gap that was uninsurable on account of the excessive risk – he would not have invested anything further in his property, or would have sold it in order to acquire a new one on a safe plot of land.
A broker’s clarification and advice cover what should be insured, and how
It is not sufficient merely to point out gaps in the existing contract when advising, nor is the bare advice to insure all risks enough. Rather, the insurance broker must inspect the property to be insured himself – the internet and questionnaires cannot replace an inspection.
In general, the broker must not accept any improper instruction from the client – whether because the client has misunderstood him, or because the client does not yet have an adequate basis for decision-making for want of sufficient consultation. Even for the (more far-reaching) waiver of (possibly partial) advice, the average policyholder needs a qualified basis on which to decide – otherwise the broker engages in unlawful conduct, and is thus liable on the merits as well.
A one-off consultation is likewise insufficient, because the insurance broker must keep the insured object in view and, where circumstances change, work towards risk-appropriate adjustments (BGH, judgment of 5 April 1967 – Ib ZR 56/65, VersR 1967, 686). Advice is also owed about insurability that becomes available only later. It goes without saying that a change of cover – for example from a previously compulsory natural-hazards policy to building insurance without such protection – will trigger liability.
Many agents are personally liable for insurance gaps
Clients repeatedly find that their “adviser” in insurance matters has never studied the small print – that is, the policy terms and conditions – in any depth. Legal subtleties arise when, after a flood for example, the insurer takes the view that only heavy rainfall is covered – and announces it will not pay without first being sued. How is a lay policyholder supposed to grasp, in legal terms and without advice, the conceptual difference between heavy rain, flood, inundation and backwater?
The insurance intermediary’s duty to provide legal guidance
Anyone who believes himself harmed by a missing early storm warning from the state, or by a reservoir or dam operator’s failure to drain water in time, will learn that state liability generally presupposes that no one else is liable.
Up to 85 percent of insurance intermediaries are personally liable for cover gaps
A former Minister of Justice had a specialist institute determine that, at the time, around 85 percent of insurance intermediaries (brokers and agents) had not provided the client with advisory documentation before the client made his decision.
The purpose of this obligation under the so-called EU Insurance Mediation Directive (in force since 21.05.2007) is to enable the customer, before concluding the insurance, to examine carefully all the grounds and recommendations before deciding. It is therefore of no use if such documents are supplied only afterwards: the content of the documentation and its timely delivery are decisive.
Brokers carry appropriate professional indemnity insurance for such advisory errors. For agents, the insurer they represent is regularly jointly liable; the VVG (German Insurance Contract Act) also provides that, where a need for advice is apparent – for instance from the absence of natural-hazards cover – the insurer owes its own duty to advise under § 6 VVG (§ 6 VVG).
The Federal Court of Justice goes as far as reversing the burden of proof
The documentation is later the best evidence of an advisory gap – that is, of faulty advice and intermediary liability – if, as is so often the case, it is formulaic and meaningless. Where the documentation is entirely missing, or where the intermediary cannot prove timely delivery to the policyholder, this can go as far as a reversal of the burden of proof (BGH, judgment of 13.11.2014, ref. III ZR 544/13).
The failure to document is not yet proof in itself – it merely means that the policyholder need only allege the specific misadvice in the first instance, whereupon the broker or agent bears the burden of proving that correct advice was given. For this it is not enough that he offered the natural-hazards policy, nor even that he strongly recommended it. Rather, he must have demonstrated the consequences of going without it in drastic terms, and genuinely examined and explained in detail every possibility of somehow securing cover.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
by courtesy of
www.handwerker-magazin.de (published on 10.08.2021 under the headline: Natural hazard damage and no insurance: When the broker is liable)
Link: www.www.handwerk-magazin.de/elementarschaden-wann-der-makler-haftet/150/19816/415042
and
www.nfh-online.de (published Aug. 12, 2021, under the heading: Lack of Elemental Damage Insurance)
Link: www.nfh-online.de/2929-fehlende-elementarschadenversicherung
and
www.versicherungsbote.de (published Aug. 16, 2021, under the headline: Natural hazard damage: when injured parties can seek compensation from insurance brokers and agencies)
and
www.experten.de (published on 19.08.2021 under the heading: Heavy rain and flood damage: compensation in the absence of natural hazard insurance)
Link: www.experten.de/2021/08/19/schadenersatz-bei-fehlender-elementarschadenversicherung/
and
www.submissions.de (published in Submissions Anzeiger No. 166 of 27.08.2021, pages 20-21 under the heading: Heavy rain and flood damage: compensation in the absence of natural hazard insurance)
and
www.dzw.de (published in Die ZahnarztWoche 41/21, page 26 under the heading: Damages in the absence of insurance against natural hazards)
and
www.channelpartner.de (Published 05/11/2021)
Link: www.channelpartner.de/a/schadenersatz-bei-fehlender-elementarschadenversicherung,3339792
