In a 2018 decision, the Federal Court of Justice (BGH) clarified the requirements for valid and duly executed insurance risk exclusions for the export of goods, which are of significant practical relevance.(1)
The plaintiff, a furniture manufacturer, had sent exhibits by truck to a furniture trade fair in Moscow and the transport's organisation had been assigned to a freight forwarding company. The shipment was insured with the defendant on the basis of the General Terms and Conditions for Exhibition Insurance (1998, January 2009 version), which stipulated 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.
In the current case, the shipment was damaged during a customs inspection in Russia. According to the plaintiff, customs authorities had removed the exhibits and repacked them incorrectly – in particular, they had failed to use adequate packaging. The exhibits were significantly damaged and the plaintiff demanded compensation from the insurer as defendant. Such compensation out of the insurance policy was denied with reference to the abovementioned exclusions (customs authorities being a public authority and a packaging defect).
The Frankfurt Regional Court dismissed the claim action at first instance, while the Frankfurt Higher Regional Court granted leave to appeal.
The BGH ruled that the Frankfurt Higher Regional Court's appeal decision had to be upheld. The decision in favour of the plaintiff contained no false interpretation of the law and the underlying legal clauses contained in the insurance coverage. Hence, the appeal filed by the defendant against the Frankfurt Higher Regional Court's judgment had to be dismissed.
The BGH found that the general terms and conditions of insurance policies must be interpreted as being read by an average policyholder which tries to understand the conditions by assessing and reviewing them in a thorough manner and taking the context of the stipulation into account.
Further, the BGH found that the insurer could not reject a claim on the basis of the exclusion according to 'defective packaging'. According to the BGH, an average policyholder would read the exclusion of damage based on missing or defective packaging on the assumption that this refers solely to damages caused by improperly packing at the time when they were handed over for transport (initial packaging defect).
An average policyholder would not assume that a packaging defect, which occurs during the insured transport, would in fact lead to the exclusion of insurance coverage because the insurance was taken out precisely against those transport risks.
According to the reasons given by the BGH, the transport insurer could not 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 covers damage to shipped goods caused by the pure mishandling of the inspected goods during a customs inspection.
From the average policyholder's perspective, this reference to 'other intervention' besides confiscation and seizure must be interpreted 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 obligation to effect the customs inspection duly and with care. Any respective failure to do so may not being deemed as a measure by a public authority (indirect damage by public authorities).
The BGH's decision regarding the two coverage exclusions of "intervention by public authorities" and "damage caused by missing or defective packaging" is in accordance with the unanimous opinion in the legal commentary. The decision specifies the peculiarities of insurance law factors, which must be taken into consideration when reading the general terms and conditions of insurance policies and, in particular, when interpreting risk exclusions.
To sum up, the decisive factor for the interpretation of the general terms and conditions of insurance policies, if these are being issued by the insurer, is an objective standard relating to these – namely, the perspective of the average policyholder.
The BGH's decision sets strict requirements for the transparent and valid wording of risk exclusion clauses in insurance contracts. Those 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 respectively and do not explicitly specify economic disadvantages and burdens must be critically reviewed with respect to claims handling processes and coverage decisions.
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