Laws and professional codes of conduct require many professions to take out liability insurance for financial loss, but also sometimes for personal injury and damage to property. The content and scope of the minimum insurance is regulated differently depending on the profession.
If a GmbH provides tax advice, financial losses amounting to € 250,000 must be insured, whereas € 2.5 million must be insured if legal representation is provided by a GmbH. Architects are obliged to insure 1.5 million for personal injury.
Nor is there a uniform line when comparing the compulsory insurance of patent attorneys, auditors or engineers. Since 2008 §§ 113, 114 VVG regulate a minimum coverage of 250.000 €, which are modified by scattered legal regulations. For the layman it is astonishing that there is no statutory insurance obligation for the medical profession, but rather an obligation under the professional codes of conduct.
Framework contract with insurance broker or insurance company
Insurance premiums vary between around 0.4 per mille and around 2.0 per mille depending on the profession and insurer. The insurance broker receives a brokerage fee of 15% up to more than 26% of the premium. In this respect, there is great interest in collecting customers en masse via chambers, clubs or associations. It is not uncommon for the decision-makers to be first of all well-disposed towards the moose or bear hunt by inviting them. There is also talk of other grants, such as tipster commissions for organisations or decision-makers.
Questionnaires instead of consultation
Typically, insurance brokers do not determine insurance values for professional liability insurance. The obligations for risk assessment and object inspection according to the so-called “Sachwalterurteil” (administrator’s judgement) of the Federal Court of Justice are ignored (BGH, judgement of 22.05.1985, ref. IVa ZR 190/83). Instead, the need for insurance is allegedly determined via questionnaires. This is reminiscent of a doctor who asks the patient by remote diagnosis what is missing, without any physical examination, according to the motto “What kind of pig would you like? – or immediately by commuting, with purely random results depending on the respondent’s imagination.
Legal obligation to document often disregarded
The fact that the insurance agent or insurance broker often does not work in accordance with his duties can be seen by the customer in most cases by the fact that he does not receive any documentation about the advice given when taking out or changing his compulsory insurance. If the documentation of the insurance broker is missing, as required by law since 22.05.2007, this leads to a reversal of the burden of proof – if the customer then claims that he has received false advice, the broker must prove that he has given proper advice (OLG Saarbrücken, judgements of 27.01.2010, file no. 5 U337/09 and of 04.05.2011, file no.: 5 U 502/10). The same applies if there is no record of the counselling interviews (BGH, ruling of 04.06.1996, Az. IX ZR 246/95).
Hardly sufficient advice
Even in the case of compulsory professional insurance, a conscientious insurance intermediary will ask himself the question of which contracts and terms and conditions the customer works with. The contents can be damaging to the cover, for example if certain promises or guarantees are given.
If one compares the staffing of the broker’s office with the number of customers serviced, it is easy to see that up to far less than one hour per insurance customer and year is possible as time commitment – adequate advice and risk investigation is simply impossible. Some insurance brokers take the view that it is up to the customer to inform the broker about his risk and how it changes.
The broker will then be happy to formulate this contractually as customer care – later he will have the judge tell him what his duties would have been and what it will cost him now. The court is then readily scolded because it is clear that he could never have achieved what he is supposed to have promised in writing and therefore could not have meant it.
Illegal promise of settlement of claims
Not only since the beginning of 2008 has the legislator assigned the comprehensive settlement of disputed claims to the insurance advisor in addition to lawyers, § 59 VVG. Even more blatant, namely as prohibited legal advice, is the situation when the insurance company outsources the settlement of claims by power of attorney to the insurance broker, if this is not based on a function outsourcing agreement approved by the supervisory authority – as an outsourced claims settlement department of the insurer, so to speak, including its right to issue instructions as required by the supervisory authority.
The insurance broker thus changes sides, because first of all he is a fiduciary trustee in the camp of the policyholder – with lawyers one would speak here of party treason with the consequence of the withdrawal of the license.
Ineffective limitation of the broker’s liability in the framework agreement
Normally, insurance brokers in the field of professional liability should be experts in liability law. That this is repeatedly not the case can be seen from the fact that the framework agreement or brokerage agreement states that “liability for claims for damages is limited to intent and gross negligence – the amount is approximately € 10 million”. Such clauses are then at best an expression of a non-serious responsibility for hundreds or thousands of members of chambers, clubs or associations.
Free insurance modules as liability trap
Professional liability insurances often contain, in addition to cover for financial losses, an allegedly free public liability insurance. It is quite often observed that with such standard covers the actual risk is not determined in terms of the amount as the necessary insurance value.
Own insurance not always available
Clients of an architect can insure themselves against the risk of a mistake at their own expense and in their own interest by taking out an insurance policy (self-insurance). Many other compulsory professional members of professional chambers do not have such insurance offers in Germany. In the small print, the minimum compulsory insurance often contains astonishing gaps in coverage, which the legislator has only partially allowed. It is not uncommon for existential risks to be insured additionally and more cheaply through offers from abroad.
False security through publication
Serious and straightforward officials in chambers of commerce, clubs or associations publish the framework agreements with the broker about his obligations, for example on the Internet. However, this is rarely sufficient to avoid own liability if it is simply overlooked to control the insurance broker’s compliance with the contract by means of audits. Such an organizational fault should not be discovered only after a member has suffered damage.
Confirmation of conformity and correspondence
Insurance brokers are burdened with the obligations of each contractor in the sense of civil law. This includes giving the customer all transcripts of correspondence with the insurer without delay, especially in the case of invitations to tender – and of course forwarding all information about talks and negotiations with risk carriers.
How sure the insurance broker is of his business can be determined by a so-called confirmation of conformity, in which the broker confirms that the dangers and risks of the policyholder are covered in conformity. Alternatively, the policyholder would have to ask the insurance intermediary for written documentation on what residual risks the existing or proposed insurance contract still contains, such as exclusions from cover and uninsured areas.
Broker, underwriter/cover concept provider or predefined group contract?
It is not uncommon for tenders for brokerage services to be issued on the basis that offers of insurance conditions are requested first. However, since the broker should have a sufficiently broad range of insurers, such an undertaking – without prior risk assessment in detail – is highly questionable. There is a great danger that providers of so-called (standardised) coverage concepts, also known as underwriting agents, who work more like insurers if they also have a broker’s licence, will come forward.
For the coverage concept there is then usually only one cooperation with a single insurer. The risks are then fitted into the pre-fabricated cover concept as well as possible – even if cover with another insurer or even abroad would have been more suitable and thus typical expectations of the obligations of a broker are not fulfilled at all. This can be seen, for example, from the fact that the insurer and specially negotiated terms and conditions are mentioned, and claims settlement powers of attorney exist.
However, it can also be based on a framework contract/group contract of a professional chamber with an insurer – also involving the “broker” – which excludes individual solutions with other insurers from the outset when using the “broker service provider”.
by Dr. Johannes Fiala and Dipl. Math. Peter A. Schramm
by courtesy of
www.experten.de (published on 18.09.2017)
and in the Expert Report, issue 5/2013, pages 66+67
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About the author
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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