It is common understanding that the insured has to comply with the obligations as laid down in the policy conditions. The policy conditions also set out the consequences when these obligations are not complied with.
It is not always clear what is expected from an insured. For example in case the wording of the conditions is not clear or could be interpreted in more then one way.
In that case one must try to interpret what the insured and insurer both could and may have expected from the policy conditions based on what they both have said and done when concluding the insurance contract. All circumstances will be taken into account when interpreting the policy conditions. It depends on the policy conditions in which way these circumstances are measured out.
The wording itself of the insurance contract is always one of the main aspects to take into account. That is why a judgment of the Court of Rotterdam of 28 May 2014 - only published recently - caught attention.
The case concerns the claim of an insured thatcher under his liability insurance. The thatcher was held liable by a customer for causing damages during work on a roof.
The liability insurance contained general and specific clauses regarding preventive and safety measures in order to prevent and limit damages during work as much as possible. These general and specific clauses set out in detail what the thatcher had and had not to do regarding his work. The consequences of not complying or not sufficiently complying with these general and specific measures would lead, in case of repeated not (sufficiently) complying with these measures, to exclusion of cover for the next claim.
The way in which these consequences are written down can already lead to discussion. What is meant with sufficiently taken care of? And when will it be decided that there is a situation of repeatedly not complying with these measures? And most of all which claim will be regarded as the next claim ?
However, these consequences did not immediately lead to the discussion concerned between the insured and insurer. The insurer did not deny cover by stating that the insured did not comply with the general and specific measures in the policy conditions. Cover was denied by stating that the insured did not comply to the NEN-6050 standard. NEN standards are standards developed by the Netherlands Standardization Institute (NEN) which is a private, non-profit organization. The NEN develops NEN standards on different areas but are not a part of Dutch law. In the business areas concerned parties are free to apply or not to apply the NEN standards to their contracts. It is important to understand that NEN standards can be applied freely to contracts but in order to read and to know them one must order and buy them from the NEN. For example the NEN-6050 at this moment costs EUR 24,- and can be ordered on the internet.
This standard gives requirements to reduce the possibility of starting a fire around connections of roofing constructions with roof waterproofing sheets. It is important to understand that from the judgment it appears that the NEN-6050 were not mentioned in the policy conditions in any way. Nor did the policy conditions refer to the NEN-6050.
It goes without saying that the thatcher did not accept the decline of cover based on conditions which were not even mentioned in the policy conditions.
The insurer stated that since the thatcher applies the NEN-6050 to his contracts with his clients, the thatcher was also bound to the NEN-6050 towards the insurer.
The Court of Rotterdam held that the NEN standards in general intend to create a objectively verified situation of safety in the interest of the public doing business with a party seeking to rely on the standards (i.e. here the thatcher) and the final results of the work. By judging whether the thatcher did comply with all necessary preventive measures and precautions the NEN standards must therefore be taken into account even when they are no part of the policy conditions.
The Court also found that in case the NEN standards conflict with the policy conditions the policy conditions must prevail. However, here that was not the case so, the NEN-6050 standard were taken into account wholly.
This judgment results in the situation that the obligations of the insured under the contract of insurance are extended beyond the policy conditions by the NEN standards. Although the insured did apply these standards upon his contracts with his customers it cannot be said that this in itself should immediately result in also applying these standards on the liability insurance contract too. That could only be the case when the policy conditions apply the conditions of the contract between the insured and his clients to the insurance contract. That didn’t seem to be the case here.
Of course every insured, that is under Dutch insurance law, has to act as a prudent uninsured meaning that an insured must do everything to prevent and to limit possible damages as if there was no insurance contract in existence at all. In our it stretches too far to fulfill this general duty of care with standards such as the NEN standards which are not mentioned in the policy conditions at all. Besides, in this case the policy conditions contained a long list of general and specific preventive measures. This list could easily induce the insured to expect that in case he complied with these measures the insured could claim cover. Instead, the insured now was surprised by decline of cover based on standards which were not mentioned in the policy conditions.
The question now is where to draw the line? Should an insured also have to take into account that the conditions of the contracts with customers in whole could also apply to the insurance contract? Even in the case that the policy conditions do not refer to these contracts and even in the case that there is no reason to expect that these conditions of the contract also apply to the insurance contract?
If so, this will have serious consequences for the insurance cover. In case a customer can not claim from the insured based on the contract there will be no claim to cover under the liability insurance. Vice versa, in case the customer can successfully claim from the insured because the insured did not comply with the obligations under the contract, the insured can not claim for cover since the same obligations which are not complied with, apply to the insurance contract.
Furthermore one could wonder whether an insured is obliged to buy every NEN standard which could be applied to his area of work just to understand what in general could be expected from him by the liability insurer?
This judgment of the Court of Rotterdam causes a grey area of what can and can not be expected from an insured. One can only hope that this decision will not be an example that will be followed.