Insurance brokers liable for gaps in insurance contracts

– How insurance agents and brokers are liable for incorrect fact finding and other errors -.

The Federal Court of Justice (BGH, judgment of 12 March 2014, Case No. IV ZR 306/13) dismissed the claim of a policyholder against his insurer for damages due to insufficient information. The insured person or his insurance broker had fraudulently provided incorrect information when applying for insurance cover, whereupon the insurer later declared its withdrawal, was exempt from paying benefits in the event of a claim, but was allowed to keep the pro rata insurance premiums until then. This constellation occurs – as here – particularly frequently in private health insurance (PKV). In case of doubt, the insurance broker is liable for arbitrarily incorrectly answered application questions, who may then also have to provide the benefits instead of the PKV, or not, as we will see.


Quasi-coverage by the own insurance broker

In another ruling of the BGH (dated 26.03.2014, Ref. IV ZR 422/12), such liability of the insurance broker is confirmed. If the insurance broker fails to cover a certain risk, the policyholder can demand that he be placed in the same position as if he had obtained the necessary insurance cover (“quasi-coverage”). In this case, the broker had procured business/professional liability insurance, which, however, did not provide coverage for all of the self-employed person’s activities. The advice given by the insurance broker proved to be insufficient, §§ 63, 61 I VVG.

In doing so, the BGH concretized the two obligations “to investigate the risk and to inspect the object on its own initiative”. Accordingly, it is the broker’s task to determine the insurance needs by questioning in order to find out about all the concrete activities of the policyholder to be insured. In fact, the BGH has thus clearly rejected the widespread broker practice of merely sending questionnaires to future policyholders in the case of business and professional liability insurance.


Liability brokerage requires precise industry and professional knowledge

Special allegedly tailor-made “coverage concepts” are readily offered via industry associations. These can be particularly dangerous because they are directed towards a supposed view of a professional activity, rather than being made to measure.

Brokers must also be able to correctly classify a professional activity – without knowledge of the respective job description and its limits, it is not possible at all. Otherwise the insurance broker will end up paying the widow’s alimony if the pizza maker accidentally shoots the wrong guy. If one looks at the usual professional training courses for brokers, it is not surprising that in many cases only a very superficial knowledge of their customers can be expected. You first have to know how to classify what the customer is doing exactly.


Insurance broker as guarantor for unambiguous insurance conditions

While typical insurance agents are the insurer’s sidekicks much like a salesperson, the insurance broker is in the client’s camp with a responsibility for the fine print. The BGH expects the insurance broker to make an effort to obtain special insurance coverage, which may have to be specifically agreed upon, on the basis of risk investigation and object examination, even if the otherwise customary standard terms and conditions of the German Insurance Association (Gesamtverband der Versicherungswirtschaft) would not provide coverage for a certain activity.

If such efforts to obtain individual insurance coverage are neither included in the documentation that has been mandatory since 2007, nor has an account of such efforts ever been dutifully rendered in accordance with the case law, this speaks in favour of a liability responsibility of the insurance broker in the sense of a reversal of the burden of proof.

Insurance agents can also be subject to these duties, based on the duty to advise of the insurer and its insurance agents as assistants, after the legislator has provided for a duty to advise in case of objectively recognisable need, § 6 VVG.



Broker is not always liable to perform himself in case of withdrawal due to his false statements

If, for example in private health insurance or occupational disability insurance, the insurer withdraws from the contract because of false statements made by the broker, the loss ultimately depends on what the situation would have been if the broker had fulfilled his duties correctly.

When the occupational disability occurs, the occupational disability insurer discovers that the application details were false and withdraws from the contract because it would never have concluded it if the details had been true. As damage the customer would like to have paid now the occupational disability pension by the broker – however in addition he would have to prove that he would have received this pension with correct application data. However, this is already not the case with the insurer, because the insurer would have rejected the application if the information had been correct, so that no occupational disability pension would be paid even then.

However, the customer could still try to prove that another insurer would have taken him despite the pre-existing conditions, if necessary also with surcharges or exclusions, or perhaps in a disability or basic disability insurance, and there the pension would then have been paid. If he does not succeed in doing so – if necessary with the help of an expert opinion – he can still demand the premiums paid in vain from the broker as damages, because he would at least have saved these if the application had been rejected immediately on the basis of correct application details.


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


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About the author

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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