German Federal Court of Justice: Transport insurance risk exclusions
German Federal Court of Justice: Transport insurance risk exclusions
The German Federal Court of Justice (Bundesgerichtshof – BGH) has created clarity regarding two transport insurance risk exclusions of practical relevance to the export of goods, in two decisions dated 8 November 2017 (guidance decision) and 22 February 2018 (decision), case no. IV ZR 318/16.
Companies regularly take out transport insurance both for transport within Germany and for exports. It is, however, often the case particularly for cross-border transport that customs authorities open transport packaging and inspect the goods being transported. The BGH had to decide on a case here in which there was damage to the goods being transported after a customs inspection.
The plaintiff, a furniture manufacturer, had sent various exhibits by truck to a furniture trade fair in Moscow. It commissioned a transport company to organise the transport. The plaintiff took out transport insurance for this with the defendant. This insurance was based on the “General Terms and Conditions for Exhibition Insurance (GTC Exhibition 1998), version January 2009”, (hereinafter “GTCI”). The GTCI included two transport insurance risk exclusions concerning
- The risk of confiscation, seizure or other intervention by public authorities and
- Any damage caused by missing or defective packaging.
The furniture manufacturer claimed in the proceedings that the exhibits, which at the time of loading had been packed properly in crates specially manufactured for the transport, were damaged when they arrived in Moscow. Russian customer authorities had allegedly removed the exhibits from the crates and then just “threw” them back in the transport crates without securing them, therefore clearing them for further transport in inadequate packaging. This allegedly resulted in considerable damage which the furniture manufacturer which had filed the claim wanted compensation for.
However, the transport insurer against which action was taken, denied insurance coverage and referred to the grounds for exclusion cited above. It held the opinion that the damage incurred was not insured because it had been caused by intervention on the part of the Russian customs authorities (i.e. a public authority). It also held that the issue was a packaging defect, even if it had possibly been caused by the customs authorities.
Frankfurt Regional Court dismissed the action at first instance (decision of 19 March 2014, case no. 3-03 O 168/12), while Frankfurt Higher Regional Court allowed the action and granted leave to appeal (decision of 19 October 2016, case no. 7 U 61/14).
The BGH decision
The BGH ruled in favour of the insurance coverage being claimed and stated in its guidance decision of 8 November 2017 and its decision of 22 February 2018 (case no. IV ZR 318/16) that the appeal filed by the defendant against the judgment of Frankfurt Higher Regional Court was to be dismissed:
- The BGH found first of all that Frankfurt Higher Regional Court had interpreted the disputed clauses without any legal error and had correctly ruled in favour of the insurance coverage: according to the settled case law of the BGH, general terms and conditions of insurance are to be interpreted as they would be understood by an average policyholder who makes an effort to understand the conditions by circumspectly assessing and observantly reviewing them, taking the recognisable context into account.
- The transport insurer cannot therefore in this case invoke an exclusion based on “defective packaging”. This is because an average policyholder would assume that the exclusion of damage based on missing or defective packaging is only based on whether the insured goods were properly packed when they were handed over for transport (initial packaging defect). The policyholder would, on the other hand, not assume that a packaging defect that only arises during the insured transport would lead to the exclusion of insurance coverage because the insurance was taken out precisely against transport risks.
- According to the opinion of the BGH, the transport insurer cannot claim an exclusion based on “other intervention by public authorities” either. The BGH stated that the average policyholder did not assume that this exclusion also covered damage to transported goods caused by the inspected goods being mishandled merely during a customs inspection. From the average policyholder’s perspective, this reference to “other intervention” besides confiscation and seizure is in fact to be understood such that this exclusion covers only risks with respect to which the ordering of the official action itself was causal for the damage incurred, but not any breach of the duty to exercise due care while the customs measures were being carried out, which does not have any public authority character (indirect damage by public authorities).
Conclusion and outlook
The BGH’s interpretation of the two coverage exclusions relevant here of “intervention by public authorities” and “damage caused by missing or defective packaging” is in line with the unanimous opinion held on this in the literature. The decision makes clear the special insurance law factors which have to be taken into consideration when interpreting general terms and conditions of insurance and in particular when interpreting risk exclusions. After all, as shown by the BGH, the decisive factor for the interpretation of general terms and conditions of insurance, if these originate from the insurer, is an objective standard relating to these, namely the perspective of the “average policyholder”.
This means the following:
i. When interpreting general terms and conditions of insurance, options a policyholder has for understanding these without any special knowledge of insurance law and therefore also the policyholder’s interests are the only relevant factors.
ii. General terms and conditions of insurance are to be interpreted in isolation. The primary basis for this is the wording of the clause.
iii. The purpose pursued by the terms and conditions and the context of the clauses are also to be taken into account if they are identifiable by the policyholder.
iv. Where risk exclusion clauses are concerned, as in this case, they are to be interpreted narrowly. The policyholder’s interest with respect to such clauses is often that insurance cover is not reduced any further than the recognisable purpose of the clause requires. In accordance with the settled case law of the BGH, the average policyholder should not, in particular, have to anticipate gaps in insurance coverage without this being made sufficiently clear to the policyholder by a clause.
This case law of the BGH therefore sets relatively strict requirements for the transparent and valid formulation of risk exclusion clauses in insurance contracts. These principles which have been confirmed within the scope of transport insurance apply to all insurance sectors. In light of this, risk exclusion clauses that have not been formulated clearly and unambiguously or do not clearly specify economic disadvantages and burdens, should be critically reviewed with respect to claims adjustment practice and coverage decisions.
Mansur Pour Rafsendjani and Paul Malek regularly advise our clients on matters involving logistics, transport law and transport insurance law.