Comments on the liability of the insurance broker

by Johannes Fiala, lawyer
Some brokers or investment advisors may hardly believe it: The BGH has in the last ten years practically fixed that these mentioned occupational groups are just as strictly responsible for handling errors, as for instance tax advisors and chartered accountants. The reform of the law of obligations since 01.01.2002 indicates that in the future the consumer may consider himself even ?more stupid? than he generally is. The insurance broker is the custodian of the insurance relationship of the policyholder for whom he is responsible; therefore, he bears the burden of proof that the damage would have occurred even if he had fulfilled his duties to inform and advise in accordance with the contract. BGH, judgement of 22.05.1985 – IV a ZR 190/83. Numerous insurance brokers are also active in the area of the mediation of capital investments ? here the comprehensive advisor liability comes into play. It would be too short-sighted, if the insurance broker and/or investment consultant simply closes any property damage liability insurance. An optimal protection of the business and above all also the private fortune of the insurance broker/investment consultant can be reached only by a bundle of measures:
Documentation: Due to the reversal of the burden of proof in brokerage law, documentation of every consultation is indispensable. Those who cannot prove correct advice often have little chance of winning a lawsuit ? even if the advice was completely correct. For the investment adviser it looks somewhat better: With the four-eyes discussion in such a way specified the court will have to hear if necessary both parties, BVerfGE 21.02.2001 ? 2 BvR 140/00: The risk remains, whom the court believes then at the end. The professional lawyer then formulates ?the exit of the thing is open? Typically, such a protocol should contain the following: customer requirements, customer ideas, broker questions about risks, coverage concepts, customer reactions, content of advice and instructions, content and scope of coverage or reasons for not providing coverage, signature of the customer, etc. The protocol should also contain the following information: the customer’s needs, customer ideas, broker questions about risks, coverage concepts, customer reactions, content of advice and instructions, content and scope of coverage or reasons for not providing coverage, customer signature, etc. In the case of investment advice, the requirements for advice appropriate to the investor and the object should be mapped in accordance with the WpHG and the Bond ruling. To document the advice, it is advisable, for example, to “work through” the following list of questions in the advisory meeting for self-monitoring purposes:
a) The client’s personal situation: – Was there any knowledge of investments prior to the advice? – Does the invested capital make up a large part of the total assets? – Should the capital be invested speculatively or conservatively? b) During the investment meeting: – Is it real advice or is it just an order? – If only one investment is intensively recommended by the broker, have several variants been gone through, can the customer choose? – Does the initiative come from the client or from the broker? – Are there any witnesses present? – How long did the conversation last? c) on information and advice: – Is detailed information provided on the nature and risks of the transaction? – Is the investment decision recognisably made dependent solely on advice? – Is it agreed that the customer will be informed immediately of certain events, such as changes in interest rates? Requiring the client to return a confirmation letter later (instead of signing a protocol) has proven to be unsuccessful in practice.
2. company law: Many investment advisors or insurance brokers operate in the legal form of a ?sole proprietorship? A carelessness as a broker or consultant ? for example as a serial loss ? can mean personal bankruptcy (e.g. due to own underinsurance). The insurance conditions regularly provide that in the case of a ?similar breach of duty? in several cases it is one and the same ?insured event? so that for all cases of damage the sum insured is only available once. The only way out is the corporation, for example an AG, GmbH or GmbH & Co.KG. Since also foreign European company forms are to be recognized inland, also the English Limited is not to be forgotten here. In the individual case must be considered with the organization and choice of legal form, which subsequent expenditure with the administration is thereby released. A typical so-called “consultant error” in the design of a company is that the “liability to pass through” is not taken into account: If the managing director or his employees act negligently, or if this person has a position of trust in business dealings or a supervisory duty, then this person (management) is personally liable with his private assets for the breach of his own duty. Especially those managing directors who are themselves shareholders of the corporation (GmbH) are often liable ? without knowing it ? personally and without limitation despite the GmbH solution. The limitation of liability at company level must be implemented correctly and completely: It would be a mistake to believe that the later deletion or liquidation of the GmbH changes anything about the (subsequent) liability for a (former) ?holey? GmbH changes. The limitation of liability through the use of corporations is approved by our legal system. If necessary, the formation can be implemented in practice within a few days by means of a shell purchase.
3) Limitation of orders: The advisor and broker is advised to limit his orders to what he is certainly able to do. Numerous brokers offer anything and everything instead of referring to specialized colleagues for specialized problems. This can come the concerning just as expensively to stand, as for instance an investment advisor, who does not clearly express and evidentially secure that he was not able to examine the mediated investment concept comprehensively for plausibility. Occasionally, so-called general terms and conditions are praised, which are supposed to limit liability: Often, however, the liability has been limited in such a way that the cardinal performance obligations of the broker or consultant would thereby run empty. Thus, such overly liability-limiting GTCs do not stand up in court. By using such ineffective disclaimer clauses, the user (broker, financial advisor) provokes that the court thereby imputes bad faith to him. Moreover, due to the reform of the law of obligations as of 01.01.2002, all AGB�s must be reviewed and revised.
4. pecuniary loss liability: Here, “only” the remaining ( ! ) risk should be insured. There is no reason why you should not seek advice from a specialist insurance broker ? after all, the broker is the administrator. It will be a matter of comparing the terms and conditions ? and as is well known, there are considerable differences in these (keywords: best advice, claims-made, deductible, retroactive insurance, serial damage clause, financial planning, gaps that could be closed, for example, by legal protection or management consultant VH). What many brokers and consultants like to overlook is vicarious liability: In the case of property damage liability, for example, it is argued that any commercial agents and freelancers would have to insure themselves. If the insurance cover does not exist or does not exist to a sufficient extent with the commercial agent or freelancer, the broker is personally liable as the ?principal? of his employee. The ?principal? who does not have any agreement with his VH insurance about ?inclusion of employees, part-time employees, freelancers, agents and tipsters? is then unlucky: The ?principal? is left sitting on a claim. Tipsters, especially those who receive a subcommission, can also be vicarious agents: If there are many of these or they are active on a small scale, it is worth negotiating a flat premium surcharge. Finally, a practical tip: Be warned of VH contracts in which the insurer specifies which consultation forms are to be used. If this is forgotten or another one is used, there is regularly no insurance cover.

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About the author

Dr. Johannes Fiala
PhD, MBA, MM

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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