– Why do you lose your insurance cover without paying protection money? –
The Federal Court of Justice (BGH, ruling of 16.06.2010, file no. IV ZR 229/09) decided on the case of a restaurant owner who was threatened with damage or destruction of his premises that burglary and/or vandalism risks are to be reported to the insurer as an objective increase in risk through protection money extortion. This applies at the latest when the first damage has occurred, because there is no experience that blackmailers will make their threat come true. Depending on the federal state, the annual loss is expected to be in the more than double-digit million range.
As an innkeeper, you could tell the blackmailer that he will never get money, that the police will be informed immediately and that security measures will be tightened immediately, and that he is a braggart anyway, who won’t do anything because he is much too cowardly to do so. The BoD is then notified in the hope that the damage will occur in a few weeks’ time before the end of the notice period.
Terrorism insurance is no longer free in building insurance since 9/11
Since the attacks of 11.09.2001, the homeowner has had to cover the insurance cover against terrorism separately – and can apportion the costs, if the danger is proven by an analysis of the situation, with the incidental costs as property insurance costs (BGH, judgement of 13.10.2010, Az. XII ZR 129/09).
Terror according to § 1 No. 2 of the General Insurance Conditions for Terror Insurance
“Acts of terrorism are defined as any act by persons or groups of persons to achieve political, religious, ethnic or ideological goals, which is likely to spread fear or terror among the population or parts of the population and thereby influence a government or state institutions.”
At best, the perpetrator leaves a letter of confession on site so that the damage is recognizably insured by his motives. Normal protection racketeers only want money without any other ambitions, for which they generally show more understanding.
On the other hand, war events are not covered by the war clause, even in the case of terrorism insurance, but are excluded:
“An event of war is understood to be any conflict between two or more states conducted by force of arms, whether with or without a formal declaration of war.
Refusal to perform, premium increase or extraordinary termination
If the insurer (BoD) fails to report the increase in risk due to breach of obligation in the event of a claim, it may reduce or completely refuse to pay benefits. If he is informed of the increase in risk, he may increase the premium or terminate the contract with one month’s notice (§§ 23 (3), 24 (3), 25 (1), 26 (2) VVG).
Depending on the insurance conditions, the increase in risk could already be a claim.
A typical increase in risk is when the house is given scaffolding because of a construction project. Or if it stands empty for a longer period of time – which does not always have to be a misuse.
Dangers for insurance brokers?
Asking the broker for advice is a good idea to make him liable later?
A policyholder (UN) might wonder what the situation would be like if, for example, IT was paralysed by hackers wanting EUR 100,000, when EUR 10 million in loss of business is insured? Is there a mitigation obligation? And will the 100 TEUR be refunded? The insured event has already occurred here, and it is only a question of how expensive it will be if the IT does not function again for a year.
Even correct advice from the broker can lead to liability in such a case, if guiltlessly forbidden legal advice was given by regulatory accompaniment in a difficult area – and a court does not follow the legal opinion of the broker later, i.e. there is a misjudgement. At best, the court of recourse would have to recognize the misjudgement and reject broker liability.
to waive brokerage duties of reporting risks or the obligation to report to the BoD
Unfortunately, it is often completely unclear when a hazard situation has changed to such an extent that it must be reported. It must have been a change since the beginning of the insurance: So if astronomical calculations have only now revealed that the orbit of an asteroid, which has been fixed for ages, leads right through the middle of Cologne and will leave a 30 km crater there, no new danger situation has arisen.
Or the bomb has been lying under your basement for 75 years and is only now being discovered. But one could say: If it had not been discovered, nothing would happen for the next 75 years, but where one wants to defuse it now, it might go off.
Then there is insignificance and if, despite insignificance, it is to be assumed that the danger is to be co-insured, such as kidnapping in a ransom insurance policy, § 27 VVG, which gives rise to the expectation that a ransom demand will soon be made.
As a precautionary measure, one should probably report everything and then argue about it. The broker must know that § 32 VVG exists, which says about “deviating agreements”:
“It is not possible to deviate from §§ 19 to 28 Para. 4 and § 31 Para. 1 Clause 2 to the detriment of the policyholder”.
It is therefore possible to deviate from these rules in favour of the UN. This would allow the broker to take advantage of this and agree to protection racketing as a circumstance where these risk aggravation rules are not applied.
Alternatively for brokers: he avoids corresponding districts and terminates the brokerage contract without notice as soon as he learns of the protection money extortion. Just as some doctors still determine that a patient is pregnant and then ask the patient to find another doctor for everything else.
Vandalism risks, vandalism risks, vandalism risks Vandalism risks
Protection payment as a cheaper solution for the policyholder?
Of course, the question then arises whether the payment of protection money is not the cheaper option. Or the prospect of the BoD terminating the contract or increasing the premium means that a payment option can then be chosen.
You could reveal the blackmail to the BoD and announce that you will pay to avert the risk before the BoD resigns, because then the risk is no longer increased.
Or the BoD is asked whether it agrees that the UN should not pay and the insurance should remain unchanged. So return the ball to VR and ask for instructions. They will do everything that is required to avert the danger.
Subsequently, one asks for the consent of the BoD to be allowed to stop payment to the criminal extortionists, which in itself would be an increase in risk, § 23 (1) VVG.
The policyholder may not increase the risk or allow a third party to increase the risk after submitting his policy declaration without the consent of the insurer.
Now the question is how the VR will react. Does he insist that the protection money continues to be paid? At least there is a chance that the BoD will agree to the suspension of such payments.
Insurance coverage replaces neither equity nor war chest
Some claims can drag on for months or years, for example because the UN does not request immediate preservation of evidence in court. The BoD hopes to find an insolvency administrator with whom it would be easier to compare. The BoD will always advise the UN that it is not responsible for a lack of equity or over-indebtedness following a loss event. The wise agent or broker will recommend a suitable RSV cover, combined with the remark that this does not make an own war chest superfluous, because RSV is not an all-risk cover. Whether she pays without a cover charge is still unknown.
Kidnapping insurance covers the payment to the blackmailer
In the normal case of protection money extortion, this money payment is not insured – but burglary, fire, vandalism, business interruption. However, there was the case of the owner of a drugstore who insured his children for 10 million DM in case of kidnapping, and later justamentament exactly this amount was demanded by the kidnapper as a ransom, § 27 VVG.
No tax deduction as “extraordinary charges” (AgB)
The Düsseldorf Finance Court (FG, judgement of September 9, 2008, file no. 3 K3072/06) already decided that AgBs are already not present if the damage is not inevitable – one could insure against it. A subsequent lawsuit against the own BoD is always reasonable, including the associated cost risk, and thus the loss for dismissal as a general partner “not necessarily”.
The same result follows if the sum insured had not been adjusted sufficiently and carefully in a timely manner. A broker would be liable for the tax damage. But: Brokers should not be liable (OLG Frankfurt/Main, judgement of 08.06.2016, Az. 4 U 223/15) if they have not been approached by the customer or informed about changes in risk – there would be no obligation for an “annual meeting”: What is then probably promised “care”?
The Federal Court of Finance (BFH, judgement of 18.03.2004, file no. III R 31/02) also denied the blackmailed husband – after his cheating – the approach as a general partner. Cheating is voluntary and not inevitable. Alternatively, he could have confessed it to his wife or denounced the blackmailer. A wife with a heart condition can be assisted by a doctor.
Even those who pay their own health costs because of a private health insurance contribution refund cannot deduct them from their taxes (FG Berlin-Brandenburg, judgement of 19.04.2017, Az. 11 K 11327/16).
This is different in the case of payment of compensation, imposed by the criminal court (BFH, VI R 37/06).
Likewise, (mother) protection money can be tax-free for recipients (§ 3 No.1d EStG), but can be deductible for employers – a real tax-saving model.
Exclusive offer: The protection money policy from Palermo
Recently, an offer for insurance against protection racketing was seen here with an Italian broker, who covers this with an insurance company in Palermo. The premium is somewhat expensive, namely 7% of the turnover plus VAT, but it is deductible as a business expense. If you are insured, you have to hang a plaque with a Koi carp with a red rose in its mouth in the shop window: The koi carp symbolises luck, the red rose also means something.
The customers are very loyal. The broker points out that very often something happens exactly when you think that you do not (no longer) need the insurance.
Protection money instead of insurance cover?
The aquarium in a Chinese restaurant is supposed to signal to competing protection money extortionists that there is nothing more to be gained here. Not always when first the fish basin and then an employee disappears from a restaurant, it becomes a case for the “Special Commission Slit Eye”.
But you can also hack computers and spread viruses by selling antivirus software that is always up to date.
Recently, an intrusive insurance agent escaped liability for misrepresentation. Indeed, the hearing of evidence revealed that the customer had not signed the contract in order to obtain insurance cover, but only to get rid of the representative. Thus, the payment of the policy offers protection against intrusive visits by representatives. Some Insurtech brokers promise similar things.
A German operator of an exchange office visited Lake Garda – and parked with an open roof, whereupon a camera was missing. This was followed by a visit to a padrone – who first bought a drink. After half an hour, the thief arrived and returned what he had stolen – with due apology, for the visitor had been a friend of the large family. Protection is sometimes available without any protection payments at all.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
by courtesy of
www.experten.de (published in ExpertenReport 11/2018, pages 53-56)
www.experten.de (published on 28.11.2018)
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About the author
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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