Milan Court of First Instance, Decision No. 4340, 7 May 2019
Co-insurance is where several insurers share in a risk when the risk hazard is significant and the property insured values are high. With this type of arrangement, an error on the part of the insurance intermediary may have serious consequences and may result in loss or damage not being covered by one or more co-insurers.
The management of a company belonging to a larger group decided to purchase its insurance separately from the group policy and approached the group’s insurance broker for a new policy. The broker provided the company with a separate policy but with the same co-insurers. However, the broker carried out this transaction without the prior consent of all co-insurers, and without involving all of them in the negotiations. Sometime later, a fire broke out on the company’s premises, which caused considerable damage. Two co-insurers denied cover, claiming that they had never agreed to insure this company separately from the group, and that they would in any event not have agreed to insure this risk. Because the co-insurers denied cover, the company sued both co-insurers and the broker, requesting firstly, that the co-insurers compensate it for the amount they should have paid it under the policy it had taken out and, secondly, that the broker pay it the amount not covered by the co-insurers.
The Milan Court of First Instance rejected the customer’s claim against the co-insurers, but accepted its claim against the broker. The court held that the intermediary should have entered into negotiations with all co-insurers and was in breach of its obligations by issuing an insurance policy without their consent, and which was therefore invalid. It therefore held that the insured company was entitled to damages for the amount it would have received had it been insured correctly.
This decision highlights the need for insurance intermediaries to ensure the validity of the policies they offer their customers, and to ensure they contact all stakeholders in cases of co-insurance, and particularly so in the event of a change to or increase in the level of risk hazard of a risk. In this case, the court was severely critical of the failure to obtain the explicit consent of all co-insurers as the customer’s claim against the co-insurers was denied, resulting in the insurance intermediary being required to pay a portion of the claim.