Out of sight, out of mind?

Many insurance brokers work with sales representatives.

But what happens in terms of liability if representatives have given wrong advice but this only becomes known years after the separation?

When brokers have sales representatives working for them, they should protect themselves from the liability consequences of giving false advice. There are several promising ways to do this,
says Johannes Fiala of the law firm Fiala, Freiesleben & Weber.


Commercial agents had worked in a brokerage office and had also brokered closed-end funds. Six years later, the broker was faced with a claim for damages due to misadvice and was unable to seek recourse against the agent, who no longer worked for the brokerage. Now the broker feared further late consequences, particularly since its pecuniary damage liability insurance did not cover the damage because of the exclusion of closed funds.
Do what? Let the claim be assigned Attorney Fiala first draws attention to the differences under the old and new law of obligations that apply to liability between distributors (see box). “If the time limit has passed to take direct recourse against the commercial agent, the broker still has the recourse of including him in the action for damages, thereby extending the time limit up to 30 years,” Fiala advises. Practical way: The broker writes to the court that he “announces the dispute to the commercial agent”, says the expert.

The court then serves the letter on the representative, who is thus compulsorily involved in the proceedings.

“All the broker has to do is have the customer’s claim against the agent assigned to him – if he acknowledges it at all – so that he, in turn, can seek recourse against the agent,” Fiala says.

Or encourage the customer to take legal action against the commercial agent – the broker and the commercial agent are jointly and severally liable to the outside world. This route is always successful if the intermediary is a vicarious agent of the broker. For the consulting duty of the broker the judgement of the BGH of 10 May 2000 is decisive (Az.: IV ZR 297 / 98), says Fiala.
Increased monitoring Many intermediaries failed to comply with the documentation requirement.

“This is particularly dramatic in the case of missing advice sheets in connection with fund policies, because the customer bears the investor risk there,” explains the lawyer. The courts then presumed that no advice was given at all. Background: In the event of incorrect advice, not only the intermediary is liable, but also the sales company without its own customer contact. The most important way out of the broker’s liability trap for “his” commercial agents is therefore professional sales controlling, says Fiala.

This includes having a copy of each advisory document and only then paying commissions. It is also advantageous to require the commercial agent to have his own pecuniary loss liability insurance.

A good broker can help with the procurement, possibly even via a policy with backward coverage. Fiala admits that both ways do not meet with the approval of commercial agents, as they cost money and there are still enough “clients” with a more lax approach. In the event of a dispute, however, such distributors would have a bad hand, since the customer would probably stick to the better-funded distributor, even if the latter had had no contact at all with the end customer. If the child has already fallen into the well, the broker’s financial loss liability policy can serve as a shield.


The commercial agent is included. However, the inclusion does not protect against recourse by the insurer. Most insurers only waive recourse against commercial agents within the framework of a separate clause. Such offers were recently made by BCA, Charta Börse, Swiss Life and VDH.

Detlef Pohl
(portfolio-international 7/2005, 46)
Courtesy of www.portfolio-international.de.



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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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