Neither liability umbrellas nor structured distributors protect intermediaries from personal liability

– When sellers, intermediaries and advisors are themselves in the fire in the case of insolvent investments –


A well-known structural distributor was ordered to pay damages by judgment of 31.07.2014 (LG Frankfurt/Main, Case No. 2-32 O 154/13) because an investment advisor insufficiently informed about risks
of a real estate fund. Structural distributors and liability umbrellas are regularly liable for their advisors and intermediaries, so-called vicarious agents,
§ 278 BGB.


Experts and pseudo-brokers are liable like real insurance brokers

Time and again, policyholders discover in the event of a claim that the insurance cover arranged for them was unsuitable or incomplete, so that the broker is liable for the gaps in cover (BGH, judgement of 26.03.2014, ref. IV ZR 422/12). Nothing else applies if it is a pseudo-broker, i.e. in reality a sales connection as agent
is available from one or very few insurers.


The fairy tale of freedom from liability through structured sales and liability umbrellas

Numerous sales employees, for example of insolvent providers of capital investments (e.g. Prokon, Infinus, S&K), mistakenly believe by their cooperation for example under a
Liability umbrella to be protected. As a rule, they do not even know the insurance conditions and coverage gaps when the liability umbrella takes out a liability insurance policy for them.
has. How, for example, is €2 million of pecuniary loss liability supposed to be sufficient for up to more than €630 million of investor losses?


Typical allegations leading to personal liability

A common case is that the intermediary, advisor or seller of financial products does not disclose the internal and external commission, which leads to the accusation of fraud or breach of trust.
can pull. If the financial service provider could have recognized the business model of the capital investment as dubious, he is accused of his carelessness as immoral damage, § 826 BGB. A lack of BaFin approval of the distribution, liability umbrella or financial product can also lead to criminal liability. In the case of so-called tortious acts, no intermediary or advisor can hide behind a brokerage limited liability company or a liability umbrella company. Moreover, such cases of conditional intent or criminal negligence are regularly not insured at all.


Personal liability despite insurance cover via liability umbrella and structural distribution

Salespeople, agents and consultants, are blindsided when they get mail from the liability insurance company of your liability umbrella or structural distributor. The insurer writes
then kindly why now have to reimburse the costs of settling an investor’s claim. This request to hold the structural distributor or the liability umbrella harmless after all can
adviser or intermediary even before the client takes his case to court. In a separate, personal liability insurance, such cases are often even
not insured in the first place.



So-called “tied agents” are often advertised as employees with the words: “As a freelance financial advisor, your independent appearance – also and especially towards your clients – is important to you”. This already leads to the ice, because by a missing subordination opposite the liability roof or structure selling, connected with an all too “independent appearance” for example on a visiting card, the capital investor or insurance customer does not get at first at all that the advisor, salesman or mediator
is not independent at all. The customer may only find out later that a liability umbrella or structural sales company is involved.


The independence of the self-employment can also result from the customer consultation itself, if for example in the customer discussion was to be heard “There in the brochure stands indeed 12 times something
about total risk of loss, but that’s for formal legal reasons, because the legislature doesn’t want them to take out such a safe and high-yielding investment – in effect
it’s as safe as a savings account, but you’re only allowed to do that if you sign in three places to confirm that you would be aware of the alleged total risk of loss.”


Lack of or incomplete documentation facilitates litigation

Up to more than two out of three bank meetings and up to more than 85% of meetings with insurance professionals, are not or insufficiently documented. This leads to a lightening of the burden of proof for the customer, up to the reversal of the burden of proof for consulting errors. In this way, the salesperson, intermediary or consultant regularly provides the best proof of
for failure to provide advice.

Claims for damages brought by bank and insurance customers before numerous Higher Regional Courts (e.g. OLG Frankfurt/Main, judgement of 30.01.2014, Az. 12 U 146/12; OLG Munich, judgment of
22.06.2012, Az. 25 U 3343/11) were successful due to incomplete or proven inaccurate documentation. For example, there was a lack of concrete information on the content of the conversation, on the customer’s motivation as the reason for the advice, and on the main reasons for the advice given to the customer.


Bogus security for advisors, sellers, intermediaries through liability umbrella or structured distribution

When using software with text modules for an alleged consultation protocol, the printed paper has the defectiveness written on its forehead, so to speak. Because every
Richter recognizes that the advice could not possibly have been given as according to the text modules, or that these only contain generalities without reference to the concrete customer, e.g. if
there simply uncommented says “wish of the customer”. A typical trap is the forgotten handing over of an objection or revocation instruction, which regularly leads to the possibility of a reversal in the case of bank and insurance products. The advantages of a liability umbrella or structural distribution often turn out to be a sham on closer examination.
If the structured sales company or the liability umbrella becomes insolvent, it often turns out that the liability insurance has not been paid for a long time and, in addition, the
“own” holdings are gone, and are now being liquidated by the insolvency administrator.


Damage assessment by expert opinion is often neglected

In concentrating on the question of consulting errors and the question of fault, it is often completely forgotten to examine the amount of damages. In many cases, the presentation of the customer or
of his lawyer on the amount of damages is technically – especially in the case of health and life insurance actuarially – contestable and, on closer inspection, untenable. Actuarial expert reports not infrequently show that a loss has not been incurred at all or is far below the amounts claimed. Occasionally, even with the appropriate actuarial background, it becomes apparent that the specific advice was wrong, but that if the advice had been correct, exactly the same recommendation would have been made.
need to be. Therefore, the amount of the loss should always be assessed actuarially, irrespective of the consulting error. Many liability insurers cover the costs for
an appropriate expert opinion. Without damage, there is also no longer any interest in a declaratory judgment – some plaintiffs have already been advised by the court to withdraw their claim, which then abruptly ended the liability proceedings.

One should not expect the court to commission an expert opinion itself – many courts simply reproduce, in a more or less amateurish manner, a plaintiff’s calculation of damages that has not been sufficiently questioned from a technical point of view, and thus render a judgment.


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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