Insurance brokers are liable for missing documentation even if they have given correct advice

– As the broker also has duties of protection against third parties –


A recent ruling of the Higher Regional Court of Cologne of 26.02.2016 (Case No. 20 U 102/15) underlines the “obligation of the broker to inform the policyholder that the intended change to private health insurance (PKV) may affect the insurance cover of his or her spouse and the financial burdens associated with it”. The spouse is often involved when changing from statutory health insurance (GKV) to private health insurance through the legal institution of the (broker) contract with protective effect in favour of third parties.


Principles of the contract with protective effect in favour of third parties

For married persons, it is regularly apparent to the insurance broker that the change from statutory to private health insurance also affects the spouse, which means that the spouse is also owed protection and care. “When advising a change of insurance, the broker must inform the policyholder of all possible consequences of the change of insurance”; naturally also with regard to the third party or spouse affected by the protective effect.


Possible financial disadvantages of switching to private health insurance for spouses as well

For example, the option of non-contributory family insurance can be waived for a spouse and (also future) children. For the (self-employed) spouse, the SHI contribution can increase if the income of both spouses is taken as the basis for the contribution in accordance with § 240 IV SGB V – the private health insurance that initially appears to be cheaper for one spouse then leads to an additional contribution for the person still insured with SHI. This, however, will also harm the future private health insurance policyholder himself, as he would owe his spouse, who is still insured with the statutory health insurance, an increased (health care) maintenance (§ 1578 II of the German Civil Code – BGB).


Depending on the tariff, sooner or later the private health insurance policyholder will have to bear additional burdens in comparison to compulsory health insurance: Pensioners often pay up to more than €1,000 per month in private health insurance, regardless of their income, while those who are compulsorily insured in health insurance for pensioners (KVdR) only have to pay around half of the contribution rate on the pension itself, as well as the full contributions from company pensions.


Duty of the broker to clarify the facts and provide advice?

The Higher Regional Court of Cologne has the following to say about the brokerage obligations: “Before changing from statutory to private health insurance, the insured person must also point out the advantages and disadvantages of such a change of system. In this context, “the extent of the obligation to provide information and advice shall be based on the specific circumstances of the individual case, in particular on the broker’s knowledge of the existing insurance relationships of his contractual partner and the third parties indirectly affected by a change”.

According to the OLG Cologne, the broker “does not, however, owe of his own accord an explanation of the system of statutory health insurance funds and the calculation of the contributions to be paid there”. The Federal Court of Justice, however, has already stipulated in its judgement on trustees (BGH, judgement of 22.5.1985, ref. IV a ZR 190/83) that the broker is obliged to carry out a risk assessment and to examine the property. A broker who is not capable of risk analysis because of the difficulties and complexity of the matter may not accept a brokerage contract.


Burden of proof on the victim of wrong advice

In principle, third parties, as victims of false advice, also bear the burden of proof for false, incomplete or incorrect advice. The Higher Regional Court of Cologne states: “The statutory documentation obligation is limited to advising the policyholder on his insurance relationship and does not extend to safeguarding the interests of third parties”. The third party or spouse can therefore not hope to obtain relief from the burden of proof if he or she had not received documentation of the advice in accordance with § 61 of the Insurance Contract Act (VVG). Perhaps it would have been better for the UN to sue as a broker instead of the wife as the third party, since he may owe his wife the higher health care maintenance later on?


Therefore (future) private health insurance policyholders should make sure that they have complete documentation for consultation before signing the application for private health insurance, § 62 VVG. This is because the Federal Court of Justice (BGH, ruling of 13.11.2014, Ref. III ZR 544/13) has already ruled that inadequate documentation required by law leads to a reversal of the burden of proof.


Duty to document the consultation – even without subsequent mediation

However, the Higher Regional Court probably violated the law of reasoning, because in the present case, the wife (who is self-employed) insured with the statutory health insurance scheme (GKV) had also asked for a private health insurance scheme herself, which did not materialise, so that she remained in the GKV. At the latest, this meant that there was a direct duty to advise the wife, including a duty of documentation – even without the conclusion of an insurance contract in the private health insurance. Advising against a private health insurance and advising to remain in the GKV is also advice for which the broker is liable. Without documentation as to why a contract did not come about, it is assumed, for the sake of evidence, that this is a mistake on the part of the broker, and so the broker may provide the (additional) services – for the completely missing contract. In the present case, it is possible that the plaintiff’s attorney failed to “present the factual and legal aspects in favor of his party as comprehensively as possible” and would now be liable as the party liable to recourse (BGH, judgment of 10 December 2015, file no. IX ZR 272/14).


Waiver of consulting without documentation – even at the expense of third parties?

Already the study “Evaluation of the documentation of advice in the investment and insurance sector” of 18.02.2014 commissioned by the Federal Minister of Justice showed that in insurance mediation, around 85% of the advice given is not documented – contrary to the legal obligation which has existed since 22.05.2007. If (possibly further) consultation were to be waived in individual cases, this would also have to be documented with the reasons for this.


If one nevertheless follows the OLG Cologne, then a broker without documentation would be better protected against the third party than one with documentation, because the latter could not prove any errors with the help of the (omitted) documentation, and would also not have any evidence facilitation. The Federal Court of Justice (BGH) and the European Court of Justice (ECJ) could well take a different view if there is a contract with a protective effect in favour of third parties.


Contract with protective effect in favour of third parties

It is worth considering that the (possibly future) policyholder (UN) himself can waive the consultation without asking the third party. The third party can nevertheless remain included in the scope of protection of an obligation to provide advice to a broker if the broker recognises or must recognise that the (future) UN has its own personal care or duty of care towards the third party (Federal Court of Justice, ruling of 17.09.2002, ref. X ZR 237/01), § 311 BGB. The broker often has no idea that he is literally caught between two stools when the interests of the future UN are contrary to those of the third party or spouse.


Broker liability towards third parties

A waiver of advice or even a waiver of documentation is usually worthless if a third party is included in the scope of protection. The third party can then sue the broker himself, arguing that the documentation is a legal obligation. If it had been done, then one could have read it again in peace and quiet, and then either noticed the problem, or would have come across the gap in the consultation, whereby one’s own wrong decision would not have been made.


It does not even have to be claimed that the advice given was wrong, but possibly correct – rather that the duty to document was violated, so that the advice missed its purpose. After all, the documentation does not (only) serve the purpose of later having evidence of what was said, but also to recapitulate the reasons for the decision in peace and quiet and to revise them if necessary. She is definitely a duty. Therefore, this breach of duty may also in itself give rise to liability for damage.


Lack of documentation as a double liability trap

A lack of documentation already leads to the courts deciding to the detriment of the insurance broker, even reversing the burden of proof. This problem may still have to be compensated in individual cases by a constantly uncertain witness evidence.


A major problem is the so-called secondary burden of proof, which has been required by courts for decades even in the case of incorrect brokerage of capital investments. If a customer claims that he or she was given incorrect advice or even misunderstood the advice, it is up to the intermediary to explain in concrete terms how he or she gave the advice – and why he or she could be sure that the customer had understood it correctly.


This is the case when the UN simply did not understand the correct advice, overheard something, perhaps misunderstood or forgotten. However, the documentation would then have enabled the UN to re-examine the reasons after the oral consultation, which would have saved it from making a wrong decision. Since this is based on the breach of duty that the documentation was not prepared, liability for the damage caused by the conclusion of the contract is frequently raised – despite even objectively verifiable correct “oral” advice.


Despite correct advice, lack of documentation leads to liability

This is exacerbated by the fact that the UN’s waiver of documentation (or even advice) can hardly have any effect on a third party included in the scope of protection – especially if the broker had agreed to provide even minimal advice. It probably won’t help to first garnish the pizza with rat poison and then say “I wouldn’t eat this pizza because I think it’s unhealthy! And when the customer with “Jo moi, woas hobbens gsocht?” indicates that he has not understood: “Eat the pizza slowly – it’s hot!”


The documentation not only serves as proof of the (correct) advice – but also to avoid a wrong decision in view of the complex matter, which would have been noticed in time in the case of documentation: Thus, the damage is directly attributable only to a violation of the duty of documentation, for which the broker is then liable despite otherwise correct verbal advice. The customer’s misunderstanding is sometimes intentional – so that the customer decides on a product without a feeling of risk.


Therefore, the legislator demands that everything be given to the UN in text form, because it should not rely on its memory. In the liability process, the UN only explains what should have been in the documentation and that it would not have made the mistake because it would have recognized it calmly when looking through the documentation, but overlooked it during the oral consultation. The fixation on verbal consultation as a substitute for documentation proves to be an aberration.

According to the motto: He did not get a written accusation or a verdict as to why we hung him, but we have witnesses that we explained it to him, and he had the opportunity to speak, before and after the verdict.


Legal error of the insurance industry about the will of the EU legislator?

The intermediary must “give advice and state the reasons for any advice given on a particular insurance. He has to document this, taking into account the complexity of the insurance contract offered, according to § 62 [VVG], § 61 VVG: Not only that he advised, but also the concrete content with all reasons. The UN then says (if it receives documentation): “I could not recognize the problem when I read through it – and you cannot ask me to remember every detail of the conversation, because that’s what the documentation is for.

EU regulation of the insurance intermediary is based on the assumption that he exists and is needed, but that the customer must be protected from him. Some insurers or lobbying associations were wrong to believe that the documentation would only serve to assert compensation rights. But this is not the law, §§ 62, 63 VVG. The explanations in the Bundestag printed matter also generally speak of the assertion of rights and of the fact that the documentation for (i.e. before) the conclusion of the contract must be available or available for this purpose, which then also includes a right of revocation.


Daniel Paluka correctly writes in his work “Die Informations-, Beratungs- und Dokumentationspflichten im neuen Recht der Versicherungsvermittler” (The information, advice and documentation obligations in the new law of insurance intermediaries) (Regensburg 2007):

“Through documentation, the customer can

– verify that the information provided was correct and complete

– supplement or correct its information as necessary

– recognise that the product is an appropriate choice for him in his situation”.


According to the EU’s conception, the reasons for any advice given are therefore information to be given on paper or data carriers. This is the documentation of the consultation.

The EU is only aware of this in writing and before the contract is concluded. The EU has no idea that it depends on the oral consultation and that this is then only documented for third parties (according to the lawyer) for reading for reasons of preservation of evidence. The EU rather wants the customer decision itself to be based on written/textual information, including documentation.

The EU wanted good advice to avert damage from the UN, not improved evidence of bad advice when the damage has already occurred.

This is like when the judge orally announces and justifies his sentence to the delinquent, and then asks him if there are any comments on it, and he only gets the written copy put into his jacket pocket when he is already sitting on the horse with his hands tied behind his back under the branch with the noose around his neck. For a later rehabilitation procedure, there is still enough time to preserve evidence, even after 400 years, as the Giordano Bruno case has already shown.


Lobbying by insurers leads intermediaries directly into the liability trap

It is clear that insurers can hardly live with the fact that the verbal consultation is only a preliminary discussion to prepare a written, well-founded basis for a decision.

Consequence: If the written document contains an error, the intermediary can no longer rely on the fact that he or she gave correct oral advice. The documentation then appears to be the best proof of a misadvice for every customer. The verifiably correct oral consultation no longer cures the faulty documentation, but rather devalues the previously correct consultation itself.

This could make the advisory processes so difficult for most intermediaries that they would have to give up. The documentation obligation is also becoming the cause of increased liability, without any chance of being able to prove correct oral advice. The lack of documentation as a self-permitted facilitation of work for intermediaries turns out to be a boomerang.


Form consulting documentation with text modules or to tick?

The OLG Hamm (judgement of 24.06.2015, Az. I-20 U 116/13) explained among other things “It should be possible to extract the essential discussion and consultation content from the consultation documentation. From the consultation documents submitted by the defendants to the files (Annex K1), on the other hand, it cannot even be inferred to some extent how the plaintiff was advised by the defendant’s employee in 1). Only some of the given topics are ticked off, without the content of the discussions or the questions that were clarified being apparent.


This ruling by the Higher Regional Court of Hamm addresses numerous obligations to provide advice when changing from statutory to private health insurance, such as income in old age in order to still be able to afford private health insurance, the dependency of the contribution amount in private health insurance – also over the course of the contract, the income-independent contributions also in the basic private health insurance tariff. Reference should also have been made to the necessary consumption of assets (except for the bona fide assets) as a prerequisite for halving the premium in the basic tariff (§ 12.1c VAG) and the concept of need of assistance within the meaning of SGB II or XII. Anyone who cannot afford private health insurance in old age but would like better health care in old age should note that the basic private health insurance tariff offers roughly the same benefits as the statutory health insurance tariff, as well as the different costs. Information would also need to be provided about the different contribution subsidies of the statutory pension insurance.


If, in the decision of the Higher Regional Court of Cologne, a professional journal entitled “Mediators do not have to provide information about the SHI system”, then according to consistent case law the exact opposite is true if a corresponding need for advice becomes apparent.


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


by courtesy of (published in ExpertenReport 07/2016, pages 68-71)





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Dr. Johannes Fiala Dr. Johannes Fiala

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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