German commercial courts (so called: Kammern für Handelssachen, “Commercial Chambers”), their impact on insurance litigation, and arbitration as a suitable alternative to settle insurance disputes have been one of the main topics discussed on the yearly event of the German AIDA branch (Arias Europe e.V.) that BLD housed on 30 September 2015.

German Commercial Chambers

Insurance litigation is subject to ordinary jurisdiction. The ordinary courts – in contrast to the extraordinary courts such as financial and administrative jurisdiction as well as labour and social courts – provide for two different competencies under the same roof. Ordinary jurisdiction offers civil and criminal courts.

Among the civil courts of first instance, there are two kinds of chambers that can be chosen from. It is up to the parties of a commercial dispute to choose a civil or a Commercial Chamber as panel. This option is open to any civil litigation where there is a claim of more than 5,000 EUR value in dispute and where parties are merchants. It is in the hand of either party to request a Commercial Chamber at the beginning of the procedure.

Corporate bodies are deemed merchants by law. Thus, almost the entire SME and industrial insurance business has access to Commercial Chambers and it appears there is a growing tendency to turn to Commercial Chambers.

Difference between Civil and Commercial Chambers

The difference between a civil and a Commercial Chamber is the professional qualification of the judges.

Civil chambers are a panel of three professional judges, i.e. all three judges are jurists. In the Commercial Chamber there are three judges as well, but only the chairman is a professional one. The two assessors are lay judges appointed on recommendation of the local chamber of commerce (Industrie- und Handelskammern). They are merchants that bring to the court the commercial experience a professional judge might lack.

Despite the different background of the lay judges, all chambers decide based on a majority vote. It takes two identical out of the three votes for the judgment. The two lay judges in unison can overrule the professional judge’s opinion.

Benefits and Risks

There is a benefit to have a commercial view of things in disputes between merchants. Quite often the facts are more easily accessed if there is common background between parties and judges. Commercial customs and effects are effectively explained if such common ground can be established. Additionally, the different panel line-up comes along with a commitment for a speedy procedure.

Yet, “commerce” is a wide field. A number of different industries fall under that term.  Lay judges cannot cover all areas of commerce. They usually know insurance issues – if at all – from insureds’ point of view only.

Unlike civil chambers that have the opportunity to specialize on a certain area of law and thus produce intimate knowledge of and experience with insurance policies, losses, and premium issues, there is no such specialisation for insurance disputes amongst Commercial Chambers. The benefit of lay judges usually does not take effect in insurance disputes because they make out just a small number compared to the large amount of commercial disputes from other industries. It is quite likely to end up with a panel inexperienced with insurance issues if a party chooses the competence of a Commercial Chamber.

Insurance Litigation

There are high profile litigation examples – recent experiences as well as already reversed judgments – that raise doubts whether the benefits of Commercial Chambers can outweigh the risks. A quick but legally vulnerable judgment does not help either party. It only ensues appeal procedures.

Insurance disputes come along with the need to identify the facts and sometimes they are commercial (such as business interruption). Yet, the commercial view is not as important for insurance litigation. Insurers try to settle losses before disputes arise. Loss settlement and dispute avoidance is their daily claims business. The option of a compromise settlement for commercial reasons or in face of future business to write is usually explored before one of the parties decides to go to court. More likely than other commercial disputes, insurance disputes involve thorough contract interpretation, analysis of ensuing legal issues, distinction of burden of proof and subsequent assessment of the reliability of evidence.

All of the above fall within the primary competence of jurists.

Insurance Arbitration

With arbitration parties are free to choose the panel. The outcome quite often is just like a Commercial Chamber: An arbitrator with a law background takes the chair. Two additional arbitrators come from the involved industries.

Such a panel comes along with commercial as well as insurance experience. It is committed to an expeditious, highly concentrated procedure. It combines the benefits expected from Commercial Chambers but it is more focused on insurance (disputes).

Those aspects make arbitration a valid alternative.

Of course, there are always costs to be considered. The German civil procedure usually is less expensive if the value of a claim is rather small. Yet, the higher the claim, the more legal costs for stamp and attorney fees. These fees add up with every instance as does the time that passes before parties have a binding judgment.

Despite the benefits, practice shows that parties are still reluctant to agree arbitration clauses in industrial property insurance policies. Parties rarely settle their disputes with a German arbitration procedure. It is still more popular to turn to a Commercial Chamber.

Yet, on top of the named benefits parties can choose the language of the procedure when agreeing to arbitrate whilst even a Commercial Chamber – like any other chamber – will only work on German. The atmosphere is private and confidential, public will not participate in hearings and it is easier to limit the access to business records. With a growing number of cross border litigation it is worth reassessing and considering arbitration clauses.