| Editorial staff
|
31.07.2024
The “Claim of the Month” series provides insights into exciting cases from a specialist insurer. These could happen to anyone, but you may not be adequately insured. The fifth case looks at why insurance companies refuse to pay out due to inaccurate job descriptions.
In the fourth part of the “Claim of the Month” series (click here for Part 1, Part 2, Part 3 and Part 4), readers will also gain insights into an exciting case involving the specialist insurer Allcura Versicherungsaktiengesellschaft. Such cases could happen to anyone at some point, and yet not everyone may be adequately insured.
Fall 4
Mr. A. is the managing director and founder of a small company. They specialize in converting drones “for security purposes.” Shortly after starting his business, he spoke to his brother Mr. B., who, as an experienced broker, was asked to check what kind of insurance the company needed. They quickly agreed that legal protection, including criminal protection, could be useful.
However, since Mr. B. does not want to do anything wrong and is not entirely sure how to describe the company’s activities, he invites Ms. X (from the legal protection insurer M.) to take a closer look at the company. In joint discussions, AB and X agree on which specific activities should be included here. The contract is concluded and everyone agrees that the protection has been adequately provided.
A few years later, A. hears of the increasing liability of managing directors and asks his brother to make him a few offers for D&O insurance. Mr. B. is not really familiar with this area and asks a broker friend (S-GmbH & Co KG) to take over customer A from now on. No sooner said than done, the employee of S-GmbH & Co KG first takes care of the new D&O contract and then checks the current coverage. The legal protection contract is also checked again, a discussion between A. B and S-GmbH & Co KG shows that there has been no change in activity since the cover was taken out and that the previous cover should therefore be sufficient.
Almost 18 months later, criminal proceedings were initiated against A. and his company. A. felt that these were unfounded and initially took the matter in his stride until he finally received notification that his legal expenses insurer was refusing to cover him. The reason: the activity in question was not included, and it was something other than what the insurer wanted to include.
Now good advice is hard to come by, because the defense costs are rising and at the same time Mr. A. does not appear to have any coverage. He is trying to have the coverage determined in court, but fails. Now he wants compensation from his brother and then from S-GmbH & Co KG, because someone should have known what was to be insured.
And so the case comes to our table, because S-GmbH is insured with us and the question now arises as to the extent to which the broker (the first, the second or both) can/must know which risk is to be insured. To what extent is the broker dependent on the details/information of the managing director? To what extent are there any further investigation obligations? Shouldn’t a managing director be the best judge of what he is doing and what he therefore needs insurance cover for? This very delicate case shows how important it is for a managing director to assess and name his activities as precisely as possible when trying to get adequate and full insurance with the help of a broker. After all, insurance is only as good as the policy that was taken out without a doubt.
Comment by lawyer Dr. Christian Wolf from the law firm ScherbaumSeebacher Attorneys at Law GmbH:
From a legal perspective, the question of whether the policyholder can be blamed if there is a gap in coverage in an insurance contract brokered by a broker is a tricky one and can only be answered on a case-by-case basis. Although the main task of the insurance broker is to use his knowledge and experience to provide his client with the best possible insurance cover that meets his needs and requirements, a broker is generally not obliged to carry out further investigations if he receives information from his client and there are no reasons for him to doubt the accuracy and completeness of the information.
Put quite simply, the policyholder – in our case the entrepreneur – must know what or which activities he would like to have insured. The broker’s job, in turn, is to correctly identify the activities that the entrepreneur would like to insure as the risk to be insured in the insurance application. In plain language, this means that the managing director of the company to be insured should not or may not rely “blindly” on the broker, but is encouraged to help with the correct formulation of the business object to be insured and, in particular, to document this, for example by sending an email to the insurance broker in which the entrepreneur first describes the business activity (to be insured) in detail, then asks the broker to obtain the best possible insurance cover for all of these activities and, at the end of the email, actively offers that he is of course available for a more detailed discussion of the business object to be insured and will also provide the broker with further information and documents if the broker is not clear about how the activity to be insured should be correctly formulated in the insurance application.
If the broker does not respond to such an email from the entrepreneur with a question, but instead immediately sends a completed insurance application, the entrepreneur is also recommended to check whether the insured activity stated by the broker in the application actually correctly describes the object of the company to be insured. If this is not done, the managing director of the insured company could well be accused of being partly responsible for a gap in coverage that later arises, because the incorrect or incomplete wording of the activity to be insured in the application could have been noticed and corrected (in good time).
