By answering important practical questions on broker liability, we continue our series on common or typical advisory errors in the brokerage of private health insurance.

Resourceful brokerage advisors recommend not documenting advice at all. This is harmful because malicious lawyers will find a reason for the broker’s liability in any documentation, no matter how well-intentioned. Loosely based on the Inquisition’s motto, “Give me seven words from the most righteous man and I will find a reason in them to burn him at the stake.” However, the practice is different and can be summarised as follows:

Reversal of burden of proof through waiver of documentation

The Saarland Higher Regional Court (judgement of 27.1.2011, ref. 5 U 337/09) ruled that insurance brokers who are unable to provide any or only incomplete documentation bear the full burden of proof for correct advice. The advice and the reasons must therefore be recorded because courts will otherwise accommodate the customer by easing the burden of proof up to and including the reversal of the burden of proof.

Duty to document – but not to record

Insurance brokers cannot avoid the statutory duty of documentation by regularly using pre-printed forms concerning a waiver of documentation by their clients. Because documentation is a legal obligation for the broker as a guiding principle of the legislator. In case of doubt, the broker will have to justify and prove that a waiver by the customer was only made in an individual case. An effective waiver of documentation – as well as a waiver of advice – does not come about simply by stating in a note to the client that no advice or documentation was provided. Rather, this only documents the breach of duty itself. Possibly the liability of the broker does not bear a cent, because the violation of the documentation obligation would also be punishable. Liability insurance does not cover intentional and/or criminal acts.

Minutes of the interview as evidence

It has been known for decades that the insurance broker has at least the secondary burden of proof. So if a customer substantiates his claim that he was given incorrect advice, the broker will have to explain the course of the consultation in detail – even if the customer only sues after almost ten years, i.e. shortly before the expiry of the absolute limitation period. Many insurance brokers think they can get by just fine with legal half-knowledge and shy away from the cost of continuing education and professional contracts. By doing so, they end up risking their license and a perhaps deserved assetlessness before that.

Liability even without brokerage: Example of tariff conversion in private health insurance

Even for favors, you can be held liable as a private citizen. This applies all the more if the object in question is insurance cover, i.e. an object with recognisably great economic significance for the customer. In the case decided, the broker had in particular cancelled the daily sickness allowance supplementary insurance for the future – instead of extending the waiting period by several weeks with a similar effect of a considerable reduction in premiums. Few brokers have specialised in tariff conversions according to § 204 VVG with the same insurer – in this case a brokerage fee can be agreed with the client or the client can be referred to the insurer, surveyor or insurance adviser for advice. This is because even insurers, when not acting as brokers, are legally obliged to provide advice to their own customers at any time if required.

Tariff change brokers: Illegal business model?

§ Section 59 of the Insurance Contract Act (VVG) stipulates that “an insurance adviser within the meaning of this Act is anyone who advises third parties on a professional basis on the agreement, amendment or review of insurance contracts �” – whereas insurance brokers undertake the “brokering or conclusion” of insurance contracts. With the insurance broker there is an exception, namely § 34 d Abs.1 Sentence 4 GewO: According to this, the broker may advise non-consumers in particular on the amendment of insurance contracts (in terms of insurance law). Thus, since the introduction of the new VVG in 2008, the insurance broker is allowed to give (also) legal advice to a consumer, detached from the brokerage of a policy, “in the … amendment … of insurance contracts” is in principle not permitted or not covered by the broker’s licence. Rather, in the present constellation, it must be assumed that the provisions applicable in this respect (§ 34 d GewO, § 5 RDG, 11, 14 VermVersV) have been circumvented. The examination of benefits and premiums, which is also to be carried out in the context of a change of tariff, necessarily also requires a legal consideration and thus advice. However, an insurance broker is not permitted to do this to a consumer for a separate fee. The situation is likely to be different if the customer only owes a brokerage fee in the event of success for the brokerage of the new policy with the same insurer – with omission of the old one and crediting of the ageing provision.

Usurious fee with the tariff change broker?

If one compares the frequently demanded fees for the private health insurance tariff change with the usual brokerage fee in the private health insurance switching, one would not come on the idea that a usury could be present. However, it should be borne in mind that the brokerage fee relates to the total premium and not to the “savings”. If the customer changes from a tariff with extensive reimbursements to one with limited benefits, the “value of the service” of the broker is precisely not (only) in the premium savings, since this is “paid” for the policyholder with considerable restrictions in the insurance cover. In this respect, the relationship between performance and consideration must always be considered. Thus, a merely superficial (premium) saving is offset by possible additional burdens due to uninsured medical costs. At least the increase in the deductible should therefore be deducted from the premium saving in the case of brokerage.

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

by courtesy of

www.performance-online.de (published in Performance 7+8/2011, page 46-47)