Now and again, comparative law allows researchers to be surprised. Even a mundane subject such as insurance contract law can become interesting when looked at from a comparative legal perspective. Here is an example.
Most legal systems somehow exclude the insurer’s contractual liability under the policy where the insured intentionally caused the covered loss. In the UK, for instance, s. 55 Marine Insurance Act 1906 provides that the insurer shall not be liable for losses attributable to the wilful misconduct of the insured. And according to the Principles of European Insurance Contract Law (PEICL), the insured is not entitled to compensation “if the loss was caused by an act or omission on his part with intent to cause the loss or recklessly and with knowledge that the loss would probably result.”
Now imagine a legal system which categorizes the behaviour of the insured according to the following categories: innocent, negligent, grossly negligent and intentional. Then imagine a case where the insured himself causes the damage covered under the policy. And then ask yourself in what category you would place the insured’s act.
Here they come:
· In car insurance, the insured allows his unleashed dwarf poodle to sit next to him on the passenger seat floor whilst he is driving the vehicle. When the dog unexpectedly climbs over to the driver’s part and interferes with the pedals (‘he never did that before!’), the vehicle crashes. The insurer refuses to cover on grounds of ‘gross negligence’.
· In car insurance, while smoking a cigarette, the driver of a vehicle approaches a traffic light. Suddenly, the cigarette falls and lands between the driver’s legs. This distracts the driver, who then causes an accident.
· In house insurance, the insured left her washing machine connected to the water mains while she went out to the hairdresser’s. In her absence, a cracked bolt in the inlet hose caused the hose to burst and damage the building. The damage could have been prevented if the insured had turned off the water or disconnect the hose before going out.
Personally, I would not categorize any of these under the heading of ‘intentionally caused loss’. More importantly, I would not file them under ‘gross negligence’ either. In fact, I would find this behaviour rather commonplace. At least, I wouldn’t think to unplug my washing machine each time I leave my house. And if I was a smoker, I think my car was just about the only place left where I could smoke….
However, German courts actually decided in each of the above cases that the insured was grossly negligent. What could explain this? Am I just an overly permissive Dutchman and are German courts rightly upholding high ethical standards (or at least legal standards) for insureds? Is this just a matter of difference in legal culture? Or is there something more subtle going on?
Well, if I was a bit cynical I could postulate the following proposition. Courts want to have something to decide on. And deciding that certain behaviour constitutes plain and simple negligence doesn’t give German courts much to decide: the insurer will just have to pay on the insurance… If, however, the court were to find gross negligence in the insured’s behaviour, it would authorize the court to ‘to reduce the payment due in proportion to the severity of the fault of the insured’ (§ 81 Versicherungsvertragsgesetz 2008).
So, by labelling the insured’s behaviour as ‘gross negligence’, the courts unlock a further power to their own benefit, namely the power to start considering all kinds of facts, circumstances and intricate considerations, to weigh all these and then reach a well-reasoned conclusion on a fair distribution (in percentages!) of the damage between insured and insurer. And since German insurance law definitely has developed a love for proportionality, it may just even make sense to label commonplace inadvertence and day-to-day negligence as ‘grossly negligent’.
Plausible as this proposition may sound, it is historically flawed nonetheless. The tradition of stretching ‘gross negligence’ to cover behaviour otherwise considered ‘normal negligence’ was not introduced with the 2008 Insurance Contract Act. It had already matured under the ‘old’ Insurance Contract Act 1908, which attached a complete vitiation of the claim on the insurer in case of gross negligence (§ 61 VVG 1908). So, it seems that the tradition has merely been extended into modernity. So, yes, German courts were in fact already upholding high standards for insureds. With the introduction of the 2008 Insurance Contract Act, the ‘percentage virus’ has just diluted the strong medicine of the all-or-nothing remedy into an instrument of the pervasive proportionality doctrine.
Yet, there may be some good news. Although German courts seem to be rather stern and strict on negligent insureds, a recent case shows that there may still be absolution for sinners:
A student turns on the oven, inserts a pizza, sets the alarm on his mobile phone on 10 minutes and leaves the kitchen. Accidentally, by turning on the oven he has inadvertently also turned on the ceramic stove top. Before the ten minutes are over, the kitchen catches fire due to items on the stove top. The court concludes that the student had not acted grossly negligent.
So, there is some room yet for ordinary human shortcomings ….
The court decisions referred to are the following:
- OLG Nürnberg 14 October 1993, docket no. 8 U 1482/93 (poodle)
- OLG Karlsruhe 30 April 1992, docket no. 12 U 16/92 (smoking & driving)
- LG Osnabrück 20 April 2012, VersR 2013/6, p. 233 (washing machine)
- Landgericht Magdeburg 20 June 2013, docket no. 10 O 1779/13 (pizza)