– Where are the dangers for insurance brokers in covering with cancellation ? –
The Federal Court of Justice (BGH, decision of 05.06.2013, ref. IX ZR 277/12) ruled that, according to settled case law, no insurer is obliged to reject an invalid termination of the insurance contract. The appeal was then withdrawn.
Even BaFin (reference VA 52-I 4209-2014/0001, 19.02.2014) now admits that an invalid notice remains effective even if it has not been rejected.
Also “otherwise” the ineffective notice cannot become effective, determines the Federal Social Court (BSG, judgement of 29.11.2006, Az. B 12 P 1/05 R).
A common myth among insurance brokers is: cancel and then invoke effectiveness simply because the insurer did not promptly reject it: This leads to the problem of double insurance because the new contract has already been made in reliance by the broker on the cancellation of the old one having taken place. Less common is unintentional cancellation – resulting in accidental failure to provide follow-up coverage in a timely manner. More common are gaps in coverage over time because the terminated coverage was in effect on 12/31. ends at midnight, and the new coverage, for example, does not end until 12:00 a.m. on 1.1. begins. This is embarrassing and leads to broker liability if perhaps the New Year’s Eve rocket sets fire to the thatched roof shortly after midnight.
No invocation of invalidity by the terminating party
The Federal Labor Court (BAG, ruling dated March 12, 2009, Case No. 2 AZR 894/07) had already previously ruled that the party giving notice of termination cannot itself invoke the invalidity of its (extraordinary, not timely) notice of termination if it thereby contradicts itself.
This also opens the door a crack for insurers (VR) to decide whether to treat an invalid notice as an effective notice. This legal view is underlined by the Constitutional Court of Berlin (decision of 24.01.2012, ref. 49/09), because “According to widespread, but not unanimous opinion, the unjustified termination of the policyholder also leads to the termination of the contractual relationship if it is not immediately rejected by the insurer.”
The broker who gives an invalid notice is therefore caught between two stools, because he may not know for a long time whether the notice will be accepted by the insurer, and he cannot simply invoke its invalidity at a later date. Thus, either way, he risks either double insurance, or lack of insurance coverage.
Appeal of invalidity by the policyholder
Reverse example: VR gives extraordinary notice of termination of a supplementary private health insurance policy due to late payment, then sues for the outstanding premium, whereby it turns out that the policyholder had already paid it in full, or more frequently only the reminder had not been properly issued, so that there was no extraordinary right of termination at all. However, this does not automatically render the termination ineffective, but the contracting party may invoke the ineffectiveness if he wishes, whereas the VR may not, and thus want to hold the contracting party to the contract, as this would be contrary to good faith (see the above-mentioned BAG decision).
On the other hand, the termination of a health insurance policy that fulfils the insurance obligation without proof of subsequent insurance does not become effective by law even without rejection, so that even the insured person who terminates the policy himself can later invoke the ineffectiveness. However, in the case of dental insurance tariffs or daily sickness allowances that have been cancelled, the cancellation remains in force, as these do not fulfil the insurance obligation.
Broker mistakes in dealing with his broker power of attorney
A common mistake in insurance brokerage offices is copying forms from the Internet or books written by supposed experts, for example, when the broker’s power of attorney and broker’s mandate are in the same document. This is because every insurance broker risks the immediate rejection of the cancellation of an insurance cover if he does not at the same time send an original power of attorney in evidence, § 174 BGB.
At best, a quality or risk management system can help to prevent this when it comes to the question of proof and access. What can the broker do if the insurer says, yes we received the registered letter – but without the original power of attorney that was only supposedly enclosed? With regard to fax transmission, the BGH (decision of 21 July 2011, ref. IX ZR 148/10) stated: “The “OK” note does not give the sender any certainty of receipt of the transmission, because it only proves the establishment of the connection, but not the successful transmission up to the readable printout.
But the trap of rejection also awaits the insurer: the rejection of the notice by the insurance company’s employee can also be rejected if the power of attorney is not proven. A fine trap is in any case then, the rejection of the rejection without, if necessary, but again with original power of attorney and moreover to terminate in due time. This legal mental exercise has been exhilarating lawyers for decades, especially in landlord-tenant and insurance law.
Incorrect power of attorney leads to the invalidity of insurance contracts concluded with it
But the insurance broker is in for another surprise of a special kind, namely the overly comprehensive power of attorney. If the content of the power of attorney is too comprehensive, as is often the case, it also includes claims settlements with settlement, portfolio management and contract administration, receipt of money and the like – or, for the sake of simplicity, representation in all insurance contract matters – this tends to violate the Legal Services Act. In the individual case, not only the power of attorney but also the brokerage contract – and with it all contained clause-like attempts of a limitation of liability – will be null and void – and with the power of attorney also all insurance contracts concluded with it.
This is – as judgments show – to be seen so strictly because such too far-reaching powers of attorney violate the Legal Services Act and thus a statutory prohibition. Thus, in the case of non-performing property insurance policies or poor performance of a unit-linked life insurance policy, the policyholder can still invoke the nullity of the insurance contract years later and demand the return of the premiums with interest. Unfortunately, however, also the insurer, e.g. in case of a claim, e.g. in case of occupational disability, refuses the benefit due to the lack of an effective contract, so that possibly the broker has to pay the occupational disability pension later.
The reverse case is also more frequently encountered with brokers, when the specialist broker offers the settlement of, for example, occupational disability claims or other fee-based advice to any private individual without special authorisation as a (fee-based) adviser. Remuneration for this would also have to be reimbursed, even if the work had in the end been to some extent partially successful.
Existence endangerment by brokerage contract contents
On average, insurance brokers have an income that can be twice as high as that of insurance agents. Witty experts – in the service of insurers or associations – spread the rumour that one can easily limit one’s own liability in the brokerage contract to the statutory minimum coverage level in the pecuniary damage liability insurance. A momentous error with built-in destruction of existence by ineffective attempt. Already the higher regional court Stuttgart (judgement of 07.12.1977, Az. 1 U 46/77) decided namely that one cannot limit the adhesion in its general trading conditions for example to resolution and rough negligence – then in this respect in unrestricted height. Insurance brokers in insolvency after a liability suit find naturally in alleged specialized magazines, which had promoted their existence destruction with, no forum for a technical correctness.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
by courtesy of
www.experten.de (published in expert report 12/2014)
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About the author
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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