Software without quality management as a liability trap !
“The hardest part of having an idea is not having it, but knowing if it’s good.” (Chris Howland)
In the advertisement of some software manufacturer it is said: “Of course with liability-safe consulting protocol after the current legal changes. However, on closer examination, it may turn out that the use of software literally means that the intermediary is “quite safe” from liability. This often also includes the liability of the software manufacturer, because he is liable according to § 434 Abs.1 S.3 BGB for its advertising statements, as if it were a warranted characteristic. The law states: “The quality according to sentence 2 No. 2 also includes characteristics which the buyer can expect according to the public statements of the seller, the manufacturer … or his assistant, in particular in advertising or in the labelling about certain characteristics of the item …”. In this context, the new judgement of the Regional Court of Augsburg (Case No. 10 O 1933/05) of 29.06.2006 is particularly interesting in several respects for intermediaries and distributors, but also for pools and product providers as well as software manufacturers.
Detachment strategy for intermediaries in the event of liability:
usually the entire damage from a wrong consultation remains with the mediator – in addition often also criminal accusations come. But this does not have to be the case, because in the vast majority of cases, product providers, software manufacturers, pools and distributors have comprehensively contributed to the damage. In such cases, it is enough to first ask, what is the most valuable thing about my business? A correct answer would be: My customer! So it is obvious that intermediary and customer together take on the incorrectly training or incompletely informing sales, pool or (software) – product provider. The 100% success of the intermediary with this strategy is clearly proven by the judgement won before the LG Augsburg. In the specific case, the lawyer of the intermediary and the lawyer of the aggrieved customer had jointly prepared the way for this.
Software as a liability trap:
In the specific case, X-Vertrieb Deutschland AG had supplied a wonderful software in which the annual increase in value of a British insurance policy could only be set to a minimum of 6%. This “wrongly knitted” sales aid turned out to be a liability trap, because the reality was different – British policies could have “0.00%” as an increase in value instead of the advertised “12.9% increase in value”, minus the “market price adjustment” in the case of premature termination of the contract. This can lead to the total loss of all deposited funds, not only in the case of loan financing. Whoever makes software available is also responsible for it: And this applies not only to sales and pools, but also to software houses and intermediary associations. The Regional Court of Augsburg succinctly stated that, above all, the software was not suitable for providing the customer with comprehensive information. The fact that the sales training courses also failed to provide comprehensive information was also noted at the same time.
Quality management as a solution approach:
An intermediary will consider whether he is able to check the function of the software for plausibility. Are the formulas, calculation and decision steps disclosed, or is it (including the customer and intermediary documentation) an incomprehensible “black box” ? The Regional Court of Augsburg established a self-evident fact: Defects in the software lead directly and immediately to the liability of the manufacturer or the distributor distributing the software. The existence of an ISO certification and a quality management system for the software can be seen as a clear indication of the level of development. The expert Klaus Seiler, MSc (www.qmhandbuch.de) describes the management duty, among others according to § 91 II AktG: “With a quality management system, the developer would have systematically recorded the possible risks at the outset, involved interested parties in the verification process, and conducted a test of the software through its “paces”. The problem could have been easily identified.” Classic errors in consulting software are content-related errors in the sense of gaps regarding the description of product features. It is also typical that a consultation protocol can be printed out afterwards, which contains neither a recording of the actual situation nor a professional analysis of it. This is then followed by “wishes, needs, results” of a consultation, which do not show any connection with a course of conversation – and also thereby the liability of the software manufacturer and its partners is as it were surely pre-programmed. Such software products are based on the misconception that it is possible to consult in an unstructured way and only record the results without disclosing the basic principles and without ensuring structured work as a whole in advance. Only at the very end is the consideration of whether the partner from whom the intermediary has received the software is sufficiently solid and sufficiently insured to be able to survive liability cases. Incidentally, the software manufacturer is seldom liable alone; intermediaries, pools, distributors and product providers are also regularly held responsible. The decisive question is then who bears the damage in the end and to what extent? Seiler advises insurance brokers on quality management, among other things, and knows the problems from practical experience: “With a structured development, its consistent documentation and a market analysis, the problem would not have arisen. In any case, the company would then only have acted negligently, which would have been advantageous for settlement by a liability insurer. Quality management should also make risks controllable.” Examples of questions to ask the manufacturer – first steps to assessment: 1. does your company have a quality management system for software development? Is it certified according to the “Industry Standard DIN EN ISO 9001:2000”? 2. which old and new legal principles on intermediary liability have been implemented in the creation of the software? Are these within the scope of a correct instruction for the use of the software with references (e.g. liability judgements) in the manual? 3. is the software VSH-insured by the user/agent due to conceivable financial losses (fault in instructions, faulty programming, etc.)? 4. does the software ensure that the following common liability risks are safely avoided? – Deadlines and systematic processing (e.g. old contract cancelled, new application forgotten to be submitted, therefore a gap in coverage in terms of time) are taken into account? – Conditions/tariffs of different providers are transparent in detail for the user, and always up to date? – Is there a requirement to back up versions and data? 5. why do you use an advertising letter of the “Ehrenberufler-Kanzlei- XY”, although this usually means a negligent uninsurable prospect liability in the narrow sense? Is there a real professional quality assessment instead? 6. are there “hidden switches”, for example to have the sample calculation cancelled in 2008 (so that the customer does not see the effect of the discontinuation of the social security exemption)? Thus, in case of doubt, the intermediary would not have insurance coverage “because of a knowing breach of duty or lack of transparency.” 7. was the customer’s “waiver of consultation” “hidden” somewhere in the customer forms, which practically entails a legal ineffectiveness? 8. by what decades of case law can it be demonstrated that the software actually provides a “liability-proof advice record”?
(expert report 9 – 04/2007, 2)
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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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