Guest article by Dr. Fiala on the topic of Ltd. We have received the following guest article from Dr. Fiala. The already topical subject of Limited will be dealt with, as well as further possibilities of how intermediaries can optimally protect themselves.
Optimizing protection against liability – a suggestion for intermediaries *
*by Dr. Johannes Fiala, Lawyer (Munich), Mediator (Univ.), MBA Financial Services (Univ.Wales), MM (Univ.), Certified Financial and Investment Advisor (A.F.A.), EC Expert (C.I.F.E.), Lecturer in Civil and Insurance Law (Univ. of Cooperative Education), Banker (www.fiala.de)
“There are three ways of learning: by reflection, which is the noblest; by imitation, which is the easiest; by experience, which is the bitterest.” (Confucius) Strict liability, for example with insurance brokers, has been around for decades. Here are some time-honored approaches to professional implementation:
1. documentation and burden of proof Note: “The prudent businessman has his file ready for trial at every stage of his business”. Documentation has been important not only since the implementation of the “EU Insurance Mediation Directive”, but for decades because of the partial reversal of the burden of proof in court practice. However, documentation can also provide evidence of incorrect advice.
2. interview protocol and correspondence Numerous “sample protocols” on the market turn out in reality to be checklists, moreover often unsuitable if the products/rates/terms and conditions of one’s own offer are “incompletely” represented. A protocol, on the other hand, must depict the consultation in detail. Prompt information of the own customer can contribute to the quality management, clarify misunderstandings as soon as possible and thus avoid liability errors.
3. data backup and archiving An own archive, especially for email correspondence, is an important means of evidence and in many areas has been a legal obligation since 2002. (cf. elektronische-steuerpruefung.de) Otherwise there is the threat of a tax estimate, § 162 AO. The use of electronic signatures can offer itself (see awv-net.de). Keeping the training and sales information can also be decisive for the outcome of the proceedings and the strategy in later criminal or civil proceedings. The transparency of product providers/distributors should be questioned (cf. experten.de).
4. contract management and terms and conditions Numerous “model contracts”, mostly offered free of charge, contain “general terms and conditions” which turn out to be ineffective. In the event of liability, such “homespun” content “often leads to more – rather than less” liability. Experts estimate that over 90% of all brokerage contracts contain unfavorable or invalid clauses. In the end, this proves to be particularly expensive in the liability process.
It is advisable to conclude individual agreements, for example, to determine which tasks the intermediary is to handle and which are not. Insofar as there is no VSH cover for tax and legal advice, this would have to be delegated to other advisors. This also applies analogously to typical tasks for an expert (cf. pkv-gutachter.de).
6. corporate arrangements The corporation is a legal arrangement to seek additional limitation of liability. In addition, there is the potential to significantly reduce the tax burden in this way. (For an overview, see “Advantages of a Limited”, Bundesanzeigerverlag 2007). However, design errors can lead to pass-through liability – a seemingly inexpensive “off-the-shelf” solution can later result in umpteen times the cost. D&O insurance and risk management are also advisable.
7 VSH insurance Only the residual risk should be insured via VSH cover. Insofar as insurance cover would not be possible (e.g. due to lack of cover in the event of a breach of obligations or a knowing breach of duty), additional design measures must be used. Examples may include statements about “returns, forecasts, equal value, guarantees, performance,” etc.
8. quality management and certification The most frequent causes of damage include the lack of a resubmission system and other quality assurance measures for administration and management. A quality management (QM) system can even “push criminal liability down to zero” (On QM manuals for financial service providers, see erfolgsdorf.de).
9. outlook: The Federal Court of Justice regularly requires financial service providers to examine the plausibility of the products and concepts they broker “from a legal, tax and economic point of view”. This applies all the more, as even formerly renowned providers or products have later become the subject of court decisions. To all readers, instead of bitter experiences, as long a liability-free time as possible. Dr. Johannes Fiala commentary from the point of view of the VSAV e. V.: We think that it makes sense for all entrepreneurs in the insurance and financial services industry to think about your current and future orientation and design of the work. In doing so, the intermediaries also have to think about what goes beyond the usual coverage of the pecuniary damage liability insurance. There are experienced lawyers in the ranks of the VSAV e. V. with whom you can have constructive discussions on these topics.
(vsav.de (07-03-30 Newsticker))
Courtesy ofwww.vsav.de.
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About the author
Dr. Johannes FialaPhD, MBA, MM
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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