The area of additional services is a mined field for brokers. In an exclusive article for FONDS professionell ONLINE, attorney Johannes Fiala and actuary Peter Schramm cut some aisles for brokers.
It is well known that brokers work on behalf of customers and are therefore also trustees who are supposed to represent customer interests. However, brokers often offer ancillary services, with which they cross the border and place themselves in the warehouse of the insurance company. In an exclusive multi-part article for FONDS professionell ONLINE, attorney Johannes Fiala and actuary Peter A. Schramm explain the obstacles and problems brokers face when offering certain additional services. (jb)
In its ruling of 14 January 2016 (Case No. I ZR 107/14), the Federal Court of Justice (BGH) rejected the allegedly legal settlement of claims by insurance brokers on behalf of insurers as an alleged ancillary service, citing Section 5 of the Legal Services Act (RDG). In addition, in the opinion of the Federal Court of Justice, the insurance broker is strictly acting as a custodian in the camp of the policyholder, which indicates a conflict of interest according to section 4 RDG and thus prohibits a legal service for the other party from the outset: This paragraph prohibits the “loyal trustee of the policyholder” from sitting between the chairs in any way, i.e. from even representing the legal interests of the insurer.
However, the prohibition of the settlement of claims by insurance brokers is only the tip of the iceberg when one examines the liability risks caused by various services provided by insurance brokers for one or both sides of the insurance contract: The insurance broker is threatened with liability for consulting errors without coverage by a pecuniary loss liability policy (VSH) as well as loss of fees due to prohibited activities. For example, powers of attorney that are too comprehensive – including inadmissible legal services – and thus void, may result in personal liability for the payment of insurance premiums – up to the accusation of embezzlement, forfeiture of brokerage fees due to double brokerage and the accusation of evasion, e.g. of value added tax. Liability then even occurs because of the nullity for every damage, irrespective of whether further fault contributed to the damage, i.e. even if the agent did everything else correctly.
Mediation, collection, support, contract management, claims settlement – for whom in detail?
Clause 4 RDG prohibits, as mentioned above, also representing the interests of the insurer. Nor should he do so indirectly – for example, by weighing the interests of the clients he represents against each other instead of seeing the interests of each individual strictly for himself. For example, by regarding it as a portfolio collective that could be endangered by an excessively high loss ratio, because the insurer could then terminate its contracts in their entirety. In doing so, he makes the interests of society his own, or puts his own interests above those of the individual. This would be like the doctor neglecting to treat a patient and letting him die because he causes too much effort and otherwise he could care less for the other patients.
Furthermore, the commissioning by the insurer (for example for the settlement of claims) is a violation of section 5 RDG, because it is then (in the event of a claim) no longer a permitted “ancillary service” – because there can no longer be any conceivable main service for the insurer or the customer in connection with an already existing cover, such as an earlier “examination, amendment, consultation” (section 34d GewO) or a current mediation (section 93 HGB).
If, however, the insurance broker’s claims settlement is not an ancillary or auxiliary business to a tax-free main service, this will inevitably result in a tax liability under the German Value Added Tax Act (UStG).
Advice on tariff changes and other consulting services
In addition, experts (BRAK-Mitteilungen 2015, pages 266 et seq.) believe that the agreement of a remuneration with the tariff change broker in the private health insurance (§ 204 VVG) is always illegal vis-à-vis private customers (§ 34d I 4 GewO, § 5 RDG). A licence as an insurance consultant eliminates the future risk of reclaiming fees for changing tariffs, with the managing directors being personally liable for the costs.
If the agreement with the tariff change broker is therefore ineffective, it is also the granted power of attorney for the tariff change application. This means that the insurance customer can later demand the benefits of the tariff that existed before the change, but does not have to pay premiums that have already lapsed.
While the pure insurance brokerage – including related advice on insurance law – is VAT-exempt, insurance and other fee-based advice is subject to VAT, as is the case with insurance consultants. Without a close connection to an intermediary service that has taken place, regardless of whether it is illegal legal services, VAT is regularly payable.
Therefore, in case of doubt, tariff change brokers will charge VAT on their services – just like insurance consultants, but usually without the necessary licence (§ 34e GewO). In doing so, they show that they themselves do not believe that it can be a real mediation activity as a broker.
The Federal Ministry of Finance (BMF, letter dated 23 June 2009, ref. IV B 9 – S 7160-f/08/10004) is of the opinion that mere (fee) consultancy services do not fulfil the definition of a broker and are therefore subject to VAT. This also applies in particular to pools without proven direct influence on the conclusion of the contract (Federal Court of Finance, ruling of 14 May 2014, ref. XI R 13/11), or the cases of a management commission in the case of open coinsurance (Federal Court of Finance, ruling of 24 April 2013, ref. XI R 7/11), so that invoices pursuant to section 14 of the VAT Act must also be prepared more frequently within the scope of the accountability.
Claims settling BU experts, such as licensed brokers, correctly charge statutory value added tax to customers for their activities – checking the obligation to enter into a contract, in the verification procedure, in the event of cessation of services – even if the complete remuneration could later be reclaimed in full pursuant to Sections 4 and 5 RDG and 134 BGB.
Claims settlement on behalf of the policyholder?
Up to now, the broker has only been allowed to carry out a settlement on behalf of the insurance customer – and then only in the case of such legal claims which are completely undisputed in terms of the reason for liability – as a “mere application of the law” in the simplest cases of damage.
However, this is also limited to cases in which no influence is exerted on more difficult legal decisions of the customer or, for example, accident victims, and it is ensured that the activity in no way affects the broker’s own economic interests. A classic example of this prohibition used to be the legal advice hotline of the legal expenses insurers (RSV), because the advice can have an economic impact on the cost interest of the RSV (BGH, judgement of 20 February 1961, NJW 61, 1113).
Obtaining the cover note for UN as a legal service?
While the broker, like everyone else, is allowed to assist the customer at any time as a typing assistant or secretary, he has left the permitted area when it comes to obtaining a cover note. Detailed legal knowledge is already required for this, because “for the determination of the breach of duty characterising the insured event, only the statement of facts with which the policyholder justifies the breach of his opponent is decisive” (BGH, judgement of 25 February 2015, ref. IV ZR 214/14).
The well-intentioned service indicates a violation of § 134 BGB – the broker’s pecuniary damage liability (VSH) does not provide anything later, because legal advice is excluded from the broker’s VSH coverage. Even if the occupational pension broker is not instructed to draft a pension scheme, obtain cover notes or settle claims, unlimited liability for damages is regularly incurred (see BGH, ruling of 20 March 2008, Case No. IX ZR 238/06), even if a mistake cannot be proven and the damage occurs quite independently of this.
Sometimes, however, cooperation with, for example, an insurance advisor may be appropriate. Recently, the Federal Constitutional Court (BVerfG, decision of 12 January 2016, ref. 1 BvL 6/13) has not only permitted cooperation but also partnerships between traders (brokers, insurance consultants) or between chamber professions (doctors, lawyers, tax and pension consultants): In addition to the cooperation that has been permitted for years, there is hardly any VSH standard cover on the market.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
with friendly permission of www.fondsprofessionell.de, published on 04.04.2016
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About the author
Dr. Johannes FialaPhD, 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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