Practical rule: No liability-proof consulting protocol software?
“The hardest part of having an idea is not having it, but knowing if it’s good.” (Chris Howland)
The advertising of many a software manufacturer says:
“Of course, with a liability-proof consultation protocol in accordance with the current legal changes.”
However, a close examination may reveal 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 qualities which the buyer can expect according to the public statements of the seller, the manufacturer” or “his assistant, in particular in advertising or labelling about certain qualities of the item”.
In this context, the new ruling of the Augsburg Regional Court (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.
Liability strategy for intermediaries in the event of liability: usually the entire loss from incorrect advice is borne by the intermediary – in addition, there are often criminal charges. 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 ask first of all, what is the most valuable thing in 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 concrete case, X-Vertrieb Deutschland AG had delivered 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 agent 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 it.
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 in place, the developer would have systematically recorded the potential risks at the outset, involved interested parties in the verification process, and put 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 consulting 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 agent has obtained the software is sufficiently bonafide 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:
- Does your company have a quality management system for software development” Is it certified according to the “Industry Standard DIN EN ISO 9001:2000″”.
- Which old and new legal principles regarding the liability of intermediaries have been implemented in the creation of the software? Are these principles included in the manual as part of a correct instruction for the use of the software with references (e.g. liability judgements)?
- Is the software VSH-insured by the user/agent due to conceivable financial losses (fault in instructions, faulty programming, etc.)?
- 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/rates of different providers are transparent in detail for the user, and always up to date” Is there a compulsion for version and data backup”.
- Why do you use an advertising letter from the “honorary professional law firm-XY”, although this usually means negligent uninsurable prospect liability in the narrow sense” Is there a real professional quality opinion instead?
- Are there “hidden switches” to have, for example, the sample calculation cancelled in 2008 (so that the customer does not see what the effect of the discontinuation of the social security exemption is)” This would mean that the intermediary would not have any insurance cover in case of doubt “due to a knowing breach of duty or non-transparency”.
- Was the client’s “waiver of advice” “hidden” somewhere in the client forms, effectively rendering it legally ineffective?
- By what decades of case law can it be proven that the software actually provides a “liability-proof advice record”?
by Dr. Johannes Fiala
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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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