Legal advice by insurance intermediaries: solutions for the broker’s practice

Liability for time value account models, fiduciary models, social security exemption and bAV fee advice


Prohibited legal advice leads to invalidity of contract

In its judgment of 26 August 2010 (Case No. 2 C 995/09), the AG Schwäbisch Gmünd ordered a “consulting company for working time accounts” to repay the remuneration paid, as the consulting contract was null and void due to a violation of the Legal Services Act (RDG). The ruling of the OLG Karlsruhe of 8 October 2009 (Case No. 4 U 113/09), which prohibits an insurance broker from representing a social insurance agency with the aim of obtaining exemption from social insurance (and reimbursement of contributions) as prohibited legal advice, is in line with this. The situation is no better for tax advisors (StB) who were prohibited from participating in the status determination procedure (SG Aachen, ruling of 27.11.2009). The consequences are draconian: No remuneration is owed by the customer – yet providers and intermediaries are liable for damages of all kinds. Alone only because of the forbidden legal advice they are liable even if otherwise no consulting error can be proven to them. The pecuniary loss liability (VSH) company will then claim lack of VSH coverage due to a “knowing breach of duty.” Besides a prosecution threatens because of entrance fraud, because already that “to get involved in a legal consultation without admission” deceives the customer about alleged qualification and presumed authority. Already with it some “bAVHonorarberater” appear, despite FH-study, as commercial or gang-like fraudsters in the sense of the penal code. It is only a matter of time before the licence is withdrawn.


Incitement to break the law through forms from marketing

When it comes to company pension schemes, working time accounts or trust models, financial houses are happy to supply “forms”. The authors of these “samples” are often business economists from marketing or tax consultants/auditors with limited consulting authority. In any case, they are not licensed to provide legal advice in areas such as employment and insolvency law. If the model provider has a StB initially draw up a trust agreement and later that very StB is to take on the role of trustee for the provider’s clients, it is already in a collision. If the intermediary individualises the forms by filling them in, the trap snaps shut: he is then already mostly in the area of individual legal advice or design, because his customer (in the case of occupational pension schemes and in the case of working time accounts also the employees) expects legal examination and information about risks. VSH will refuse to pay for such damages. Those who only broker support funds (U-Kasse), for example, often have no VSH cover at all, have lost their broker’s licence or have long been completely insolvent themselves. The insurers, as the operators of U-cash funds, care little about this to some extent, the main thing is to have “fresh money” in the house.


Criminal sales models through the use of legal and tax advisors

For the “one-stop solution”, the Legal Services Act has offered the possibility of cooperation between legal advisors and financial service providers since 01.07.2008; however, there is no standardised VSH cover for this on the market. On the part of the chamber professional as a cooperation partner, this inevitably leads to coverage gaps in the VSH and thus to the danger that the professional police will punish him. Now the model provider or distributor wants to keep the strings in their hands, and hires lawyers and tax advisors. However, this is not a solution, because it means that the model provider itself still does not have a licence. If then the lawyer of the “Bundes-U-Kassen-Vertriebs” (name changed) also advises the customers, he gets into collision – in case of doubt a case for the public prosecutor’s office (BGH judgement of 29.07.2009, Az. I ZR 166/06). In addition, such U-cash funds have at times been adorned by university professors on the supervisory board – after all, we are talking about a “more than EUR 400 billion” market. The intermediary is well advised if the lawyers or accountants involved have not previously worked or are not working for the model provider – and if the client also commissions these advisors directly. From that moment on, you can legally cooperate on a case-by-case basis. Otherwise, if an investment risk later materialises, even if the intermediary has otherwise done everything right, the client’s lawyer will try to get the transaction reversed at the intermediary’s expense. The RDG is a very good hook for this.


The permitted ancillary service under the RDG: a solution option?

The focus of a consultation or mediation in the economic area is not yet sufficient to judge the legal matters as permitted. If legal matters “of not quite insignificant weight” are to be regulated, qualified legal advice will be required or expected by the client. This is also due to the fact that customers themselves are regularly not in a position to assess the advantages and legal feasibility of the models offered. Most recently, the Higher Labor Court (LAG) of Hesse ruled on March 3, 2010 (Case No. 8 Sa 187/09) that the employer is liable if the benefits of a pension fund are reduced. Virtually no intermediary knows the legal background or has given sufficient advice on this.


Communities of interest in the event of damage?

Resourceful “victim associations” and law firms have been instrumental in bringing together, for example, investors in closed investments or life insurance customers with claims for back payments. Unfortunately, such associations cannot then go to court, because this also violates the RDG (OLG Düsseldorf judgment of 14.04.2010, Case No. I-15 U 1/9 and 8/09). However, the BGH has not objected to the way in which an investor has claims of other investors assigned to him in order to then sue for them jointly in court. It is also illegal for an enterprising association of shareholders to have claims assigned to it (BGH, decision of 08.11.1993 – Ref. II ZR 249/92).


Permitted fee-based consulting by insurance brokers in accordance with § 34d GewO (German Trade Regulation Act)

This permission refers only to the insurance right, similarly, but not even fully as with an insurance advisor (OLG Stuttgart, judgement of 28.12.1990, Az. 2 U121/90), under no circumstances however for instance to the industrial law, in order to accomplish bVA-employee consultation. Employer advice on insolvency protection or trust models in occupational pension schemes has thus not been permitted by law either. Who would like to agree upon an additional remuneration for the permitted consultation in the insurance right apart from the brokerage, “the double incomes” will have to disclose to the customer, will acquire however over form contracts no requirements with success suable. Some courts hold that the insurance broker is in any case obliged to represent the client out of court vis-à-vis the insurer in the event of a claim. The intermediary is well advised to safeguard himself in each case by means of an individual agreement. However, if § 169 V 2 VVG is circumvented in this way, the agreement is invalid (Rostock Regional Court ruling of 30.07.2010, Ref. 10 O 137/10).


Prohibited legal advice through out-sourcing by insurers

It is one of the secrets of at least one insurer to bring in a “loss adjuster” as a claims adjuster. Such experts then receive from an insurer a, let’s call it “fraud letter” as a guarantee: “Of everything you save us, you get 30% as an additional fee” (quote mutatis mutandis). That’s no secret either. DVRAG has had “chance finds” of this kind for years. A data collection that shows the parties involved in each case. In its ruling of 15 June 2010 (Case No. I-20 U 175/09), the Higher Regional Court of Düsseldorf found that claims adjusters commissioned by insurers violate the Legal Advice Act if they act like a lawyer. For the customer, it is not easy to see whether he is still being advised correctly or whether the insurer’s representative is only representing his legal interests unilaterally. Is it apparently part of some insurers’ business practice to “run red lights all the time”? Intermediaries who are involved in this are often liable themselves, because this is regulated in the BGB; cf. § 840 BGB.

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


by courtesy of (Published in Expert Report 01/2011, pages 68-69)


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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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