Basic knowledge about the pecuniary loss liability insurance of the StB/WP

The “knowing breach of duty” coverage gap.


It is estimated that every fifth (1) liability case ends with the finding that the tax consultant/auditor (StB/ WP) has no insurance cover at all or insufficient insurance cover in terms of the amount in the pecuniary loss liability insurance (VSH) for the relevant loss.

German insurers regularly offer the statutory minimum cover only with a serious gap in cover, namely the exclusion of the knowing breach of duty. It is not the legal admissibility(2) that is at issue. In fact, most honorary professionals as policyholders (VN) only become aware of the mode of action and significance in the event of a claim – not infrequently, the professional still provides the insurer with the “ammunition” to deny cover completely.


Usual clause in the insurance conditions

Typically, the relevant clause reads:

“The insurance cover does not apply to liability claims” (5)for causing damage by knowingly deviating from the law, regulation, instruction or condition of the party giving the power (entitled party) or by otherwise knowingly breaching a duty.

This exclusion of risk (3) suggests that the StB/WP should operate a quality management system with certification in accordance with DIN-EN-ISO 9001:2000, in line with the long-standing recommendations of the DStV. In this way, the risk of this coverage gap can be effectively mitigated. In addition, it is advisable to obtain at least the insurance cover that goes beyond the statutory minimum insurance from foreign companies. The opportunities offered by the internal market and the cartel proceedings against the Wiesbaden insurance office are also bringing foreign providers into focus.


Intentional as distinct from deliberate breach of duty

According to the legal rule of § 152 VVG a.F., § 81 I VVG no insurer is liable for (e.g. conditional) intent. Whereby the intention must dogmatically also refer to the damaging success. There are two requirements for “knowing breach of duty”:

a) the positive knowledge of the insured person (CP) of the breach of duty (i.e. the deviation from e.g. legal norms, order or instruction of the client) and

(b) the awareness of being in breach of duty. It is not the damaging act or the omission in breach of duty which is important, but only the specific breach of duty which is the connecting factor.

The policyholder cannot, for example, excuse himself by saying that he was “actually” aware of the duty, but that a loss seemed impossible or very unlikely. The Federal Court of Justice(6) (BGH) describes the knowing breach of duty as a subjective exclusion of risk which deviates in two respects from the dispositive provision of § 152 VVG (old version, today § 81 VVG):

“On the one hand, § AVB only focuses on more detailed violations of specific professional duties in favour of the policyholder and does not allow conditional intent to suffice in this respect, but requires direct intent. Secondly, the policyholder does not have to have foreseen the damaging outcome as possible and to have accepted it”(7).


Positive knowledge of the breach of duty

The subjective knowledge of the breached duty(ies) is sufficient, i.e. a “knowledge ” without a “will “: this can be proved by the insurer (VR) more easily than an intent. In the event of a claim, it is decisive to examine whether there was a mistake about factual circumstances and/or a mistake of law with regard to the breached duty – because only ignorance due to the particularities of the individual case eliminates awareness (8). In principle, the insurer must succeed in proving that the policyholder had “awareness of duty” on the one hand and “awareness of breach of duty” on the other hand9. “Thus, the more serious a breach of duty is, the more difficult it becomes – to show comprehensibly that he was not aware of the duty.” (10)


Obligations of explanation and proof

Despite the burden of proof on the BoD (11), and despite the lack of the possibility of prima facie evidence (12), it may come down to crucial little details in the professional’s files: Already unanswered “factual inquiries” of a client might have given rise to a substantive examination of the factual and legal situation. When proving “knowledge” of the breach of duty, i.e. an “internal fact”, the BoD will rely on auxiliary facts as circumstantial evidence. The nature and seriousness of the breach of duty, generally known rules and unwritten rules may lead to an accusation of breach of core duties known to “everyone” (“primitive knowledge”(13)).

This includes, in particular, the established case law of the BGH to point out the dangers of indeterminate legal terms and to recommend to the client to obtain binding information (14).


Examples of knowing breaches of duty

The fact that the StB/WP quite often works in the “uninsured area” is shown by various judgements. The exclusion of coverage due to knowledge “of the incompatibility with a proper exercise of the profession” (15) comes into play above all in the case of a permanent mandate due to omitted instructions in the context of an all-round service: “an objective infringement of fundamental basic rules of professional activity leads to the conclusion of knowing action” (16).


Work overload

A tax accountant will take over the preparation of financial statements despite work overload. This declaration by the consultant costs him his VSH cover in the event of a claim (17). “What may be humanly understandable as an explanation can be fatal under insurance law.” In the “steel route trader case”, a cheque bounces after the annual accounts were not submitted to the house bank in time to substantiate the creditworthiness – the affected firm from northern Germany did not survive the double-digit million loss.


Lack of employee monitoring

Practices that do not control staff drafts – especially in “branch offices” without on-site professionals – tend in the same direction. The situation also becomes precarious when former employees make missing work instructions in the office management on file with the VR in claims processing.


Asset managers without liquidity planning

It is not only insolvency administrators who have to draw up a liquidity plan in order to avoid being accused of a knowing breach of duty (19 ). The OLG Karlsruhe argues without further ado: “In such cases, the objective violation of a fundamental rule of the insured person’s professional activity leads to the conclusion that the insured person acted knowingly (OLG Köln, RuS 1997, 496)”, which also applies to the plan of transfer to a rescue company. Similar constellations also offer compatible activities as executor of an estate, executor of a will, guardian and custodian. In this field, however, quite different gaps in coverage await the professional.


Capital release by trustee without bank collateral

A tax advisor acted as trustee for capital investors. In doing so, he had deviated from the contractual conditions – probably at the request of the client, which he had found to be in order as a ‘change of investment strategy’ (20 ). Thus, it was clear to the individual “that the [neue] security was not what was contractually agreed upon.

“In any event, he knew full well that under the contract with the investors he could not declare a release of the investment funds on the basis of such security.” If he nonetheless released the investment funds, “he knowingly disregarded his fiduciary duties.” The real delicacy of the case, however, lies in the fact that the StB had “talked his head off” as a witness – the Cologne Higher Regional Court confirmed the VR’s exemption from benefits due to a knowing breach of duty. Humanly understandable if the policyholder wants to give the VR an “excuse” for his breach of duty. But only if he did not notice the breach of duty for inexplicable reasons, he does not give the VR an easy way to deny insurance coverage – since the VR has to prove the knowing breach of duty.


Investment advice with concealed commission prospect

In this not quite untypical constellation (21), a commission prospect had been concealed from the client – later the client demanded compensation. The BGH (22) ordered the lower court (remittal) to examine causality in more detail, because it had not yet been established whether the client would not have participated in the investment in question if the promise of commission had been disclosed. The decisive question is therefore whether the client would not have been prepared to follow the recommendation if he had known about the commission:

Only then would the tax adviser be liable to compensate the client for a loss of the investment on the one hand – even without errors in advice or independently of them – solely because of the concealed acceptance of commission (23) and on the other hand the facts of the exclusion of risk of the knowing breach of duty would be fulfilled.


Disbursement of third-party money via escrow account without qualified verification

One would think that it goes without saying that an honorary professional (in this case: a notary) should first check whether the conditions for disbursement are met before disposing of outside money. Failure even to instruct an experienced professional to carry out a prior examination of the file constitutes a knowing breach of duty (24 ).

The court still states that it was a matter of an experienced notary and: “The highly personal obligation to check the disbursement prerequisites is part of the compulsory subject matter of the notary’s training”. The case would be different only if an accidental disbursement of third-party funds were based on an error of law (25 ).


Damage often not provable

Irrespective of the question of fault, it is first worthwhile to examine more closely whether damage has occurred at all. On closer inspection, calculations and justifications of the alleged amount of damage often prove to be wrong or even adventurous, because they contradict basic methods of financial mathematics.

A determination of damages will regularly have to be made on the basis of a comparison of assets – however, it is not uncommon for the assets of the “injured party” to have increased despite the fault of the tax advisor. However, if the “injured party” cannot plausibly present and prove the damage, any further discussion of fault is superfluous. For example, it is not automatically the case that paying taxes is always a detriment and a “tax-saving” investment always increases wealth.


1 Ehlers, Harald, Necessary liability prevention for tax advisors, in: DStR 2008, 578 ff.
2 Cf. §§ 42 BOStB in conjunction with 53a I No.1 DVStB, 4 I No.1 WPBHV.
3 Higher Regional Court Hamm, judgement of 22.9.1995 (Ref. 20 U 38/95), in: VersR 1996, p. 1006.
4 See BGH, judgement of 17.12.1986 (Ref. IV a ZR 166/85), VersR 1987, 174; of 26.9.1990 (Ref. IV ZR 147/89), VersR 1991, 176; of 20.6.2001 (Ref. IV ZR 101/00), VersR 2001, 1103.
5 OLG Karlsruhe, judgement of 20.2.2003 (Az. 12 U 202/02), ZfS 2003, 247.
6 BGH judgment of 20.6.2001 (Ref. IV ZR 101/00).
7 BGH judgement of 17.12.1986 (Ref. IVa ZR 166/95), in: VersR 1987, 174.
8 OLG Saarbrücken, judgement of 8.5.1991 (Ref. 5 U 69/90), VersR 1992, 994.
9 Lange, Oliver, op. cit.
10 Lange, Oliver, op. cit.
11 BGH, judgement of 26.9.1990, in: VersR 1991, 176.
12 BGH, judgment of 5.3.1986 (Ref. IV a ZR 179/84), in: VersR 1986, 647.
13 OLG Saarbrücken, judgment of 8.5.1991 (Ref. 5 U 68/90) in: VersR 1992, 994.
14 BGH judgement of 15.11.2007 (Ref. IX ZR 34/04). 15 Ehlers, Harald, Necessary liability prevention for tax advisors, in: DStR 2008, 578 ff.
16 Rehfeldt, Torsten, Asset Damage Liability Insurance – Effects of a knowing breach of duty, in: AssCompact 10/2007, p. 174 f.
17 OLG Düsseldorf, judgment of 30.10.1979 (Ref. 4 U 82/79), in: VersR 1981, 621.
18 Brieske, Rembert, Die Berufshaftpflichtversicherung, in: AnwBl. 5/1995, p. 225 ff.
19 OLG Karlsruhe, judgement of 4.2.2005 (file no. 72 U 227/04), in GI 3/2006, p. 91 ff.
20 OLG Cologne, judgment of 14.5.2002, loc. cit.
21 Gerlach, Heinz, 20% of tax advisors cash in on commissions, in:
22 BGH, judgement of 26.9.1990 (Az. IV ZR 147/89), in: NJW-RR 1991, 145 ff.
23 BGH NJW-RR 1987, 1381 = LM § 675 BGB No. 127 = VersR 1987, 1095.
24 OLG Hamm, judgement of 22.9.1995 (file no. 20 U 30/95), in: VersR 1996, p. 1006; OLG Munich, judgement of 14.12.1999 (file no. 25 U 2854/99), in: GI 8/2001, p. 201 ff.
25 BGH, judgement of 5.8.1986 (Az. IVa ZR 179/84), in: VersR 1986, 647 ff.

by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm

by courtesy of (published in LSWB info 5/2008)

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Dr. Johannes Fiala Dr. Johannes Fiala

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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