This year we have been asked by new clients to provide expert assistance in the settlement of three major claims. These losses were calculated for the first time on the basis of the new regulations of the VVG, which came into force on 01.01.2008. The insurers have raised various objections in the settlement of these claims, which should also give you reason to review your insurance contracts or those of your clients on the following points:
1.) When concluding New value insurance for property insurance, such as fire and fire business interruption insurance, the policy should specifically agree and document the clause that, in the event of a loss, reimbursement will be “exclusively” on the new value basis is taken. The declaration of the insurer to waive the objection of underinsurance in the event of a claim is not sufficient, because it presupposes the usual provision in the insurance conditions of the time value and common value rule not override. If, for example, a residual value of 40% is determined for a plant or machine at the time of the loss, the insurer will only reimburse the residual value of the plant or machine in the event of a loss if a conventional replacement value clause has been agreed. Time value. This does not correspond to the interests of the policyholder, as a new or replacement machine cannot be procured with this reimbursement amount without additional own funds.
2.) When determining the insurance values within the framework of property insurance (e.g. fire insurance or machinery insurance), it is imperative that the indices of the respective base year be used as a basis. If the indices cannot be researched when determining the sum insured, or if machinery and equipment cannot be assigned to certain index categories, it is urgently advisable to make a manufacturer’s enquiry for a “machine to be procured again” (replacement machine). This requested value is to be used as the basis for determining the base value. In this context, it is also imperative that the clause “technological progress” expressly be included in the insurance contract. The agreement of such a clause has the consequence that no deduction is made for the replacement of a new machine.
3.) The basis for calculating the amount of business interruption damages has changed in some respects. For possession companies, either loss of rent insurance should be agreed or, under the fire business interruption, the rent recognition clause should be fully included in the FBU calculation. The latter option is considered to be the lower contribution option. In the case of large risks, we advise agreeing on facultative reinsurance and a ban on securitising assumed risks for the capital market.
4.) In property insurance contracts, we are once again increasingly reading formulations such as “if agreed” or “unforeseen”. These formulations generally lead to difficulties in interpreting which conditions have been contractually agreed between the policyholder and the insurer. This uncertainty exists in particular in cases where the cover sheet of the insurance policy does not explicitly document the agreed additional conditions. We therefore strongly advise that, if the wordings provide for such texts, clarifications should be agreed with the insurance companies. Otherwise, there is a risk of quasi-exclusion in the event of a claim. With the help of supplements, individual inconsistencies in the insurance contracts can be corrected. In many cases, it is sufficient to contact the insurer for this purpose.
5.) The insurers try to expert costs to be excluded. Inform yourself or inform your clients that these costs are still insurable free of charge. In the case of fire and business interruption insurance policies with a volume of € 100 million or more, the expert for the claim in the insurance contract must be designated by name by the policyholder.
6.) Producing companies have in many cases now to comply with strict regulations and requirements of both the device and product safety law as well as the Machinery Directive to be observed. The completeness and correctness of the operating instructions has now reached the same level of importance as the technical safety of the machine itself. In this context, we urgently point out that the manufacturer of a machine is generally subject to a product monitoring and risk notification obligation. Before placing the machine on the market, the manufacturer should have demonstrably evaluated, by means of documentation, the purpose for which the purchaser or a third party will use his machine and the hazards which it may present in the intended field of application. Careful documentation of this action may provide necessary exculpatory evidence in potential liability litigation.
7.) There are partly considerable deficiencies in the certification and auditing procedures and their documentation, in terms of legal effect, which are not usually recognized even by auditors. We strongly recommend that only that which is binding and can be implemented in the company in the long term should be made obligatory in a certification procedure. In this respect, a company should also be aware of the legal significance of a certification, as this also contains quality assurance measures which the customer assumes with regard to compliance. However, this does not remove the need for a works agreement. Certification is voluntary in most business areas. Despite successful certification, the risk of product liability exist.
8.) On 1.7.2008 the VVG Info Regulation in force. According to this requirement, an insurer must, among other things, explain the insurance cover in brief and show the policyholder how the insurance premium is calculated. In a sub-sector, insurance brokerage costs are to be published.
The legislator has failed to define individual sub-aspects more precisely. This means that, as things stand, an insurer is not obliged to explain the exclusions in more detail, i.e. the areas that are not covered by the insurance. In this respect, the policyholder remains dependent on informing himself about the content of these abstract exclusions.
Practice shows that individual insurance companies distribute CD ́s or larger quantities of paper via their distribution channels “intermediaries and brokers”, with the discreet indication that the information obligation has thus been fulfilled and that the policyholder is welcome to ask questions after studying this information.
We strongly recommend that you have the explanations of the texts relevant to the conclusion of a corresponding contract documented and confirmed not only by an agent or broker, but also by the insurer.
8.) Another development is also worrying. Contracts or supplements to fire and business interruption insurance policies contain to a greater extent Safety instructions, which are designed as obligations and are intended to constitute essential parts of the contract. The testing of electrical systems in accordance with BGV A3 and explosion protection are of particular importance.
After consultation with some brand insurers and from claims, it can be reported that insurers assume compliance with these standards. This increased scrutiny of compliance with obligations and safety rules suggests that the removal of the “All-or-nothing principle” of the new VVG’s the insurance industry adjusts to a larger wave of coverage processes and also consciously accepts.
It can be assumed that the insurance industry is tending in the direction that weighty arguments for a reduction of the compensation claim can be found by checking compliance with these obligations in claims. Since there is still no reliable experience and knowledge about the amount of the percentage reduction of reimbursement claims, there is a risk of a considerable increase in coverage litigation in the future.
9.) The Intermediary Directive has been in place since 22/05/2007. The transitional periods for registration will end on 31.12.2008. intermediaries and insurance brokers who, up to that date, have do not have official registration , are therefore no longer allowed to practice their profession. In this context, it should be noted that the rights of individual professionals are limited in connection with the amendments to the Trade Regulation Act. In this context, it should be noted that intermediaries are not allowed to generate commission from concluded contracts in addition to a fee. The provision of assistance by insurance brokers in the event of claims is also largely restricted and is not generally covered by the licence.
*from Dr. Johannes Fiala, Lawyer (Munich), MBA Financial Services (Univ.), MM (Univ.), Certified Financial and Investment Advisor (A.F.A.), Banker (www.fiala.de),
ex Member of the examination board of the Munich Chamber of Industry and Commerce for the expert examination of financial advisors for financial services and financial services specialists, lecturer for civil law and insurance law (BA-Heidenheim, Univ.),
Mathematics graduate Peter A. Schramm, Actuary DAV (Diethardt), Actuarial Expert (www.pkv-gutachter.de)
Department: Press and Public Relations Ms.. C. Weiler
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About the author
PhD, MBA, MM
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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