Extract from. Études et Dossiers No th International Liability Regimes Conference of The Geneva Association

Transcription

1 International Association for the Study of Insurance Economics Études et Dossiers Extract from Études et Dossiers No th International Liability Regimes Conference of The Geneva Association Economic Loss A Breeding Ground for Liability Risks October 2011 Munich This document is free to download from The Geneva Association website, January 2012 Working Paper Series of The Geneva Association Association Internationale pour l'etude de l'economie de l'assurance The Geneva Association - General Secretariat - 53, route de Malagnou - CH-1208 Geneva Tel.: Fax: secretariat@genevaassociation.org -

2 The Geneva Association Working Paper Series Études et Dossiers appear at irregular intervals about times per year. Distribution is limited. The Études et Dossiers are the working paper series of The Geneva Association. These documents present intermediary or final results of conference proceedings, special reports and research done by The Geneva Association. Where they contain work in progress or summaries of conference presentations, the material must not be cited without the express consent of the author in question. The opinions expressed in Geneva Association newsletters and publications are the responsibility of the authors. We therefore disclaim all liability and responsibility arising from such materials by any third parties. This document is free to download from The Geneva Association website, please visit:. Layout & Distribution: Valéria Pacella The Geneva Association Association Internationale pour l'etude de l'economie de l'assurance

3 Pure Economic Loss and Liability Insurance Hermann Kramer Agenda 1. In what areas of liability insurance does pure economic loss play a role? 2. Liability and first-party cover for pure economic loss 3. Time-related aspects of pure economic loss 4. How do the borders of liability for pure economic loss relate to limits of insurability? 5. Conclusion 5-1

4 In what areas of liability insurance does pure economic loss play a role? Professional liability of legal / financial professions D&O; Corporate liability of financial/service sector Mainly pure financial loss cover All other corporate liability insurance - public liability - product liability Bodily injury cover incl. consequential economic loss Property damage cover incl. consequential economic loss Pure financial loss cover 01/02/ Increasing impact of the service sector Service sector Service sector Production sector Financial service sector Agricultural sector /02/

5 Increasing impact of pure economic loss also in manufacturing industry The precautionary principle forces public bodies and companies alike to make quick ad hoc decisions, for example to recall products. They create pure economic loss to prevent future health or environmental impact. The sophisticated division of labor leads to multiple interdependencies and domino or ripple effects in business interruption situations. 01/02/ Liability and first-party cover for pure economic loss Also Property first-party insurance covers consequential economic loss (see importance of Business Interruption-cover in the 9/11-settlements) Only restrictive ti extensions of this concept in CBI-policies i to cover pure economic loss in some supply-chain scenarios. Conclusion: Pure economic loss caused by the multiple interdependencies and domino effects in business interruption situations can not be fully compensated, neither under tort law nor under first-party property insurance. -> better risk management of the corporate To find convincing definitions of both borderlines - the limits of liability law and of property insurance in the compensation of pure economic loss remains a challenge. Limited risk appetite: Property Insurance: driven by accumulation scenarios with CBI/BI Liability Insurance: driven by uncertainty in definition of liability and loss 01/02/

6 Time related aspects of pure economic loss Latency period Pay-out period time Act committed Occurrence? Manifestation? Claims made Money is invisible, financial losses are not tangible ( fictitious ). Advantage: relatively short payout period of pure financial losses. 01/02/ How do the borders of liability for pure economic loss relate to limits of insurability? Variety of contract performance exclusions Cover of pure financial loss Variety of intentional act exclusions Entrepreneurial risk / Conflict of interests More extensive cover of contractual liabilities in professional liability covers Limits of insurance cover Broad exclusions ( conscious deviation from law or regulation ) Narrow exclusions (intent in regard to the loss itself) Reputational aspects 01/02/

7 Conclusion: three main limitations of insurance cover Endless ripple effects of pure economic loss 1. Borders of liability law 2. Contract Performance excluded Liability cover for pure economic loss 3. Intentional act excluded 01/02/