Court ruling flags up ‘softer’ disclosure rules in Germany
The judgement applies the new ‘softer’ rules concerning disclosure that were introduced with Germany’s 2008 insurance contract law for industrial insurance.
The decision is being widely debated in the industry. Lawyer Theo Langheid of law firm Bach Langheid Dallmayr believes that insurers will have to use their own questionnaires in future—which would create additional costs—or will have to find another way ‘to bring the brokers’ questionnaires into their own legal sphere’.
In its judgement 20U 38/10 the higher regional court in Hamm, North Rhine Westphalia, ordered the German branch office of Chartis Europe, formerly AIG, to pay a loss of around €25m for a major fire in a factory in Iserlohn.
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“This decision will have far-reaching effects for industrial insurance,” said lawyer Stefan Galla of Luther Rechtsanwaltsgesellschaft, who represented Dornbracht, the industrial company that suffered the loss.
Chartis did not appeal the decision, which has now become legally binding for this case. The company was not prepared to fight the issue at Germany’s highest court Bundesgerichtshof, which would have been a very costly affair.
The ruling followed an explosion that took place in a chemical plant in Iserlohn on July 22, 2009. The fire spread to the neighbouring Dornbracht factory, which produces kitchen and bathroom fittings, and destroyed part of the premises.
Dornbracht had taken out fire insurance worth €125m with a consortium led by the UK-based RSA which carried 45% of the risk; Chartis covered 25%, Allianz 20% and Helvetia 10%.
The other three insurers paid their part of the damage, which amounted to more than €100m. Chartis refused to pay up arguing that the customer had supplied false information.
The questionnaire presented by Dornbracht’s broker claimed there were no industrial plants in the vicinity. Chartis had also made it very clear when it quoted for the business that the cover was only valid if no styrofoam had been used during construction of the plant. However, the material had in fact been used.
The court decided that Chartis had to pay its share of the damage since the insurer had not asked the customer directly about nearby industrial plants, as the broker’s questionnaire that Chartis and the other insurance companies were in receipt of could not be considered the insurers’ questionnaire, the court ruled.
When asking about the styrofoam, Chartis should have specifically warned the company that the presence of such construction materials could impinge on insurance cover, the court said.
