Michael Eriksson's Blog

A Swede in Germany

Consumer rights and force majeure

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A major consumer problem in Germany (and likely large parts of the rest of the world) are “force majeure”-style* restrictions on performance and liability**.

*Some of these are related to actual “force majeure”, others merely follow a similar pattern of “what happened does not match my best case scenario; let the customer suck it up, then it is not my problem anymore”.

**It is often the case that the performance of a duty is legitimately hindered by an external event, but that does not automatically imply that the hindered party is legitimately free from liability, the duty to compensate others, whatnot.

In some cases, these restrictions can be seen as justifiable or necessary, e.g. in that an insurance company would not cover city-destroying bomb damage as seen in WWII: Chances are that an attempt to do so would simultaneously bankrupt the company and leave the claimants with only a fraction of the compensation they need. These will mostly be actual “force majeure” cases, but “force majeure” does not automatically make it such a case.

In many others, these restrictions are arbitrary, unfair, unexpected*, or otherwise customer hostile. Some cases can even be seen as borderline fraudulent, because the customer is mislead about what he can expect for his buck or what the true cost of a certain service is.

*In the sense that most customers and independent observers would have had a different expectation.

To look at a few examples:

  1. The events that can lead to a certain restriction are often under the close control of the business and entirely out of the control of the consumer.

    For instance, a few years ago I hired a storage unit—and was met with clauses that basically restricted the liability for any damage to my goods to nothing. This included water damage and theft.

    Now, who decides where water pipes are drawn and how they are maintained? Who what locks are used? What alarm system? Whether a guard will be present? To entirely avoid the risk of water damage and theft is impossible, but they can be reduced quite considerably—or made comparatively large. Notably, not making the business liable ensures that it has little incentive to actually invest in the security of the facilities, thereby increasing the risk that e.g. a break-in will occur…

    As an aside, the latter point includes a disturbance in the functioning of market forces: When the business is liable, it will (to the best of its ability) try to find a point where the overall expected cost from preventative measures, insurance, break-ins, … is minimized, leaving the overall economy a little bit better off. This especially with bulk insurance potentially being cheaper and definitely less effort than individual insurance (as discussed in the next item). When it is not, there is no-one in a position to balance these factors, the expected cost rises, and the overall economy is worse off.

  2. Scenarios like these hide and/or increase the true cost from/for the customer: He can either hope for the best, with an unknown risk/expected cost, or he can insure himself independently, which increases the cost not only through the amount to pay, but also through the extra effort to investigate alternatives* and going through the paperwork—assuming that there even is a reasonable insurance available… Far better would be for the business to be liable, with the business optionally taking out a corresponding insurance at a bulk rate, with a corresponding non-hidden increase of the rental fee, allowing customers to see what they actually pay.**

    *Particularly perfidious businesses are likely prepared to swoop in with an insurance-on-top-of-the-rent, where many customers will be willing to pay an over-the-market fee for the comfort of not having to do research and whatnot—for something that should have been included in the rental fee to begin with…

    **On the detail level, there are additional issues to resolve, e.g. where to cap the possible compensation and to what degree the customers must disclose the contents of their units in order to be covered. This, however, is unimportant for a big-picture discussion. (The same can apply to other points under discussion.)

  3. The events are often given a pseudo-“force majeure” aura or painted as unexpected when they are not (overlapping with the first item).

    For instance, in Germany it is common that just two centimeters of snow throws the railway system into chaos, while the railway companies virtually every single year are “surprised” by snow at some point in December. Sorry, at these latitudes, no-one has the right to act surprised when it snows during the winter, and corresponding measures to survive two centimeters of snow must be taken. (That this is not an impossibility is proved by Sweden, where problems of this size occur much later.) Sadly, the attitude seems to be that “because it snows on so few days of the year, we ignore the possibility of snow and let the passengers take the hit when it does snow—after all, we do not have to compensate them*”; something also seen in e.g. the lagging maintenance of the infrastructure, which causes many unnecessary problems and delays. (Here again, we also have a hidden cost issue: Would you rather pay 25 Euro and get where you want on time, or 20 Euro and be thirty minutes late on every second trip?)

    *A 60 (!) minute delay entitles the customer to a 25 (!) % refund of the ticket price. 120 (!) minutes gives 50 (!) %. For less than 60 minutes nothing is given; for more than 120 there is no further increase. Actually getting the refund is such a hassle that it often not worth the effort. Few provisions are made for other types of compensation and none for e.g. “I missed my flight” or “I missed two hours of work” scenarios. (Cf. official information from Deutsche Bahn.)

    For instance, strikes and the like regularly lead to service interruptions with no compensation—even when occurring so fast that customers have no reasonable chance to adapt their plans*. However: Firstly, strikes are a part of doing business and something that must be considered accordingly. Secondly, whether it comes to a strike is largely within the control of the business**, but not the customer, and the business*** should carry the responsibility vs. the customer.

    *For instance, a few years back I was to fly from (for the first time) Düsseldorf Airport to Munich for an interview. To ensure that nothing went wrong, I went to the airport several days in advance, had a look around, found out where I needed to go, etc. On the day of the flight, I returned—and found that there were hundreds and hundreds of people queuing to reach the security checks, and eventually realized that I had no chance of catching my flight, despite being there several hours in advance of boarding. The reason: A strike by security personnel that had been announced just a day earlier… A very healthy regulation would require strikes to be announced sufficiently far in advance that customers and employers can react to reduce the damage to the customers as an innocent third party. (What time frame is involved will depend on the circumstances, but with air travel as much as two weeks might be reasonable; for the local library two days might be enough.)

    **No, an employer cannot unilaterally tell his staff not to strike; however, he can influence how negotiations go, he can judge the damage done by strikes vs. the damage done by agreeing to demands and act accordingly, he could possibly negotiate a way of striking that is less damaging to the customers, etc. As long as the customers carry the main consequences, however, he has lower incentives to avoid the strike.

    ***However, with the option to in turn make demands towards the strikers in at least some cases, notably when the strike was “wild”.

    As an aside, a major problem with strikes in Germany, from a union perspective, is that they often do more to turn the customers against the union than to convince the employers. Forcing businesses to compensate their customers for the effects of strikes could change this. (As could a more rational strike behavior, but that is another topic entirely.)

  4. Flood damage is usually excluded in a blanket manner from regular insurance policies, because the insurance companies are afraid of being stuck with thousands of large simultaneous claims in a river-rich country.

    However, this goes contrary to a layman’s expectation and likely leads to many not having the coverage they expect. Further, separate coverage is not always on offer, potentially forcing the customer to go to a second insurer, with the extra research and whatnot. I would also strongly suspect that the cost of separate coverage is higher than a built-in coverage for the costumer, because the overall fees and risks cannot neutralize each other and because a greater markup is added.

    A better solution would be to include flood damage, raise the fees for people in high-risk* areas (possibly with the option of a voluntary opt-out), and increase the re-insured amount. The raised fees ensure that the insurance company does not lose money; the re-insurance that it is not crippled by a major flooding.

    *Consistent with the idea that whoever controls the risk pays the additional cost; however, note that the control here is lower than for the storage rental above, e.g. because the likelihood and consequences of a flooding river is to some part controlled by (other) humans, not just nature, and because we cannot always choose where we live.

Notably, German businesses often have the attitude that they have no liability for anything, that it is always the customer’s (or someone elses) problem, or similar—even in the absence of a corresponding contractual clause, real or pseudo-“force majeure”, whatnot. (In addition to my own experiences and what I have heard from others, I have read a great number of articles dealing with consumer issues in a German context. The situation is horrifying.) Examples include retailers systematically sending the customers directly to the manufacturer when a product is defect*, (often for-charge) hot-lines that are staffed with incompetents, various hoops that have to be leaped through in order to get compensation**, pretending to be unaware of legal rights or deliberately telling customers something that does not match the legal situation***, …

*According to German law, the retailer, not the manufacturer, is obliged to correct problems. The retailer might later have the right to turn to the manufacturer for help or own compensation, but that is between him and the manufacturer—not the customer and the manufacturer.

**A scenario that I have encountered several times, myself, is that I write an email, detail what is wrong, and receive a form back that neither allows nor requires any information not already provided—together with the refusal to treat my complaint unless I spend five or ten minutes (redundantly!) filling out the form, another twenty running by the post office, whatnot. Other common problems include repeated requests for information already provided, requests for mandatory irrelevant information, refusal to handle anything by email, … It is quite common that the effort to receive compensation (see a problem solved, replace a defect product, whatnot) is so large that it exceeds the intended benefit—honi soit qui mal y pense…

***For instance, as I made my last order with Amazon Germany, possibly some fifteen years ago, my request to cancel a purchase was originally denied with the claim that Amazon’s help pages (!) ruled this out—never mind that German law gave a fourteen day return right, no questions asked, for any online purchase…

As an aside, expanding on a few items above, I am generally strongly in favour of whoever controls the risks/costs and who gains the benefit from a certain behavior or whatnot also carrying the costs/risks/consequences/… Above, we have e.g. the principle that whoever controls the risk of a break-in has the responsibility to reimburse others for not preventing a break-in. Other examples include e.g. that when someone performs an action to his own advantage and (negative) externalities occur, he should compensate others for these externalities*.

*Consider e.g. a factory that earns well while polluting (compensating efforts, some type of environmental tax, or similar, is called for) or a land-lord who performs extremely loud renovations over months in order to later increase rents (tenants should be compensated for reduced quality of life).

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Written by michaeleriksson

April 19, 2018 at 10:54 pm

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