I. Liability in the event of delegation of tasks
II. Particular gaps in cover for voluntary guardians
III Further questions regarding adequate insurance cover arise for the professional guardian:
- Consequences of partnership, cooperation and office sharing
- No pecuniary loss insurance for lawyers and tax advisors in the case of commercial activity as guardian
- Coverage gap in corporate governance for assisted persons
- The “knowing breach of duty” exclusion.
Legal guardians in the sense of 1896 ff. BGB (German Civil Code) often have no idea that their insurance coverage is incomplete compared to their comprehensive personal liability. The reason for this is not only legislative deficits in the regulation of statutory minimum insurance, for example for lawyers, tax consultants and auditors working as guardians.
Often, typical insurance intermediaries (insurance agents and brokers) are technically overwhelmed to recognize the risks of a caregiver. This becomes clear on the basis a recent decision of the regional court (LG) Waldshut Tiengen to the care taker adhesion.
I. Liability for delegation of tasks
The LG Waldshut-Tiengen decided by judgement of 30.10.2007(1) (Az. 1 O 336/06) that the guardian is liable for the fault of an investment intermediary when investing money for a person in care: The investment intermediary was the guardian’s vicarious agent.
Whether the guardian is liable for third parties whom he uses in the context of a delegation of tasks according to § 831 BGB or § 278 BGB is extremely controversial – the case law is by no means uniform. (2)
What does this mean:
Ultimately, there is imputation for the caregiver so that he or she is liable for the third party’s breach of duty. From the point of view of insurance coverage, this means that the supervisor must not only insure the employees of his office, but also, in case of doubt, external third parties that he uses in the context of a delegation of tasks:
The caregiver should also have this documented in writing by the insurer. For example, the professional legal adviser will consider whether to take out an additional policy covering the arrangement of and advice on financial products. This then also provides protection for liability in the case of property management activities. If the advisor is a tax advisor or auditor, the “safeguarding of third party interests in economic matters” would only be covered by the insurance in close internal connection with an activity as a tax advisor. (3)
However, this professional group can also have standardised supplementary cover for financial planning, investment recommendation and brokerage included. (4)
II. Specific gaps in cover for the voluntary guardian(5)
It is often a prerequisite for insurance coverage for the voluntary guardian via the collective property damage liability insurance concluded by the federal state that the guardian has been assigned the task of “care of property”.
In addition, the typical official bulletins also point out that
(a) damage resulting from a calculating, speculative or organisational activity;
(b) damage caused by the failure to conclude, perform or continue insurance contracts properly or at all; and
(c) knowingly breaches of duty by the guardian (e.g. failure to apply for social assistance in good time knowing that he or she was in need of assistance), are also excluded from cover.
The usual sums insured here range between 26,000 and 100,000 euros maximum per claim. In case of doubt, such coverage will be far too low.
III Further questions regarding adequate insurance cover arise for the professional guardian:
Consequences of partnership, cooperation and office sharing
Honorary guardians who are not honorary professionals – i.e. lawyers, tax advisors or auditors – are often insured through the federal state for financial losses with an insurance sum of 50,000 euros(7). If, for example, a lawyer insured with a statutory sum insured of 250,000 Euros decides to advertise a cooperation with the voluntary guardian on the Internet, or if an office partnership is announced on the letterhead, this usually results in the so-called averaging:
Co-operations with professions that are not qualified to practise law are permissible, but in the event of a claim, the insurer will, for example, only provide the “joint average sum insured” (in this case 150,000 euros).
Excessive damage would not be covered, because office communities and cooperations are liable in the same way as partners – they must have the same amount of insurance coverage in order to maintain the amount.
No pecuniary loss insurance for lawyers and tax advisors in the case of commercial activity as guardian
Another trap awaits tax consultants and lawyers according to their insurance conditions:
There, the activity as a caregiver (but not, for example, as a health care proxy) is included free of charge, but with some insurers(8) only if it is freelance care.
In its judgment of 4 November 2004 (9 ), the Bundesfinanzhof (Federal Fiscal Court) established that professional advisors have commercial income. This ambiguity can be a disadvantage for the supposedly well-insured honorary professional in a possibly necessary coverage suit against the insurer at a later date. It has not yet been decided whether a lack of IHK membership or registration of a trade up to the time of the claim is sufficient to assume that the person is a freelancer under insurance law.
Coverage gap in corporate governance for assisted persons
The continuation of a business of the person being cared for is particularly fraught with liability. Here, as in the case of other managerial trustee activities, “liability claims for damages arising from commercial calculation or organisational activities” are regularly excluded from insurance cover.
This gap can only be closed by negotiation, as these risks are usually covered by the liquidator, insolvency trustee or receiver. If necessary, additional insurance against managerial liability(10) must be taken out.
The “knowing breach of duty” exclusion.
A standard clause of every pecuniary loss liability insurance excludes the insurance coverage if a loss is caused “by knowingly deviating from a law, regulation, resolution, power of attorney or instruction or by other knowingly violating a duty”.
In theory, this means that only the person who has deliberately (dolus directus of the second degree) disregarded binding instructions to act or to refrain from acting, by which a certain conduct was prescribed to him, has to accept this exclusion of risk. (11) On the other hand, the subjective idea need not refer to a pecuniary loss.
However, case law has concluded in a variety of cases from circumstantial evidence of the liability case that the policyholder must have had “subjective knowledge” with the result that the insurer did not provide coverage in the claim. Examples include work overload(12) or other serious breaches of substantive and/or professional law, such as, in the case of a notary, the obligation to check personally the conditions for disbursement under a trust deed. (13)
Similarly, there was the case of a bankruptcy trustee who continued a business for reorganization without first preparing a liquidity plan – so he did not know whether he would have sufficient cash available to pay for all orders later. The prevailing view is that this exclusion clause is valid(14) – and permissible by law in the case of the minimum compulsory insurance for honorary professionals. (15)
In this respect, it is crucial to recognise that conventional financial loss cover, even for honorary professionals, is by no means sufficient to adequately insure all conceivable tasks of a guardian.
Due to the above conceivable (not exhaustive) gaps in coverage, the caregiver should consider or implement the following actions with respect to his or her insurance coverage:
Requirement of adequate insurance cover
A common saying among specialist brokers for financial loss insurance is that over 95% of those affected are incapable of discussing their own risk. As a mirror image, it is then repeatedly pointed out in the specialist press(16) that around one in five insurance cases is not adequately insured – in practice this then means personal over-indebtedness for the person concerned. The sum insured should be based on the so-called case-typical or contract-typical risk, plus interest and an inflation surcharge: after all, liability cases usually only come to light after years.
Liability reduction through quality and risk management
Probably the most famous case of successful quality management is the acquittal in the Kaprun railway criminal proceedings, (17) whose justification (no fault due to lack of recognisability or foreseeability of the damaging event and otherwise sufficient precautionary measures) can also be used in Germany.
Basically, each supervisor would have to lay down working instructions for his office, including the supervisor himself, which help to avoid as far as possible the conceivable liability traps or those described in the specialist literature(18). In practice, such a system provides information on the following questions: “What do I have to do?, when do I have to do it?, who has to do it?, how do I have to do it? and with what do I have to do it?
To certify such quality management, (20) could then still serve to better convince the court in a liability case that on the subjective side there was always an effort to effectively prevent any sin of omission. Risk management can be seen as a sub-case or sub-area of quality management: In the example of the Waldshut-Tiengen Regional Court, a conscientious advisor would first of all have checked the creditworthiness of the investment advisor or broker, and then the latter’s and his own insurance cover in the event of incorrect advice, because at that time there was no statutory minimum insurance against financial loss even in some areas of financial brokerage and advice. Because of the often incomplete or missing insurance coverage, the creditworthiness of both the advisor/intermediary and the caregiver will matter from the perspective of the person being cared for.
Liability reduction through financial planning
Particularly when dealing with banks and insurance companies, but also with independent brokers of financial products, it can be seen time and again that unsuitable products are sold or that high hidden costs and fees are included. This starts with life insurance policies, the surrender value of which often only reaches the sum of the premiums paid in after more than 10 years without interest due to the offsetting of acquisition costs.
Martin Dilg, private expert and court-appointed expert for capital investments and securities, is increasingly finding in the course of his expert work that the complexity of financial products is increasingly overwhelming both clients and advisors, and thus also the advisors: “Money market funds that are commonly praised as -safe- can be affected by the “subprime crisis” unrecognized because no one has examined the investment conditions of the fund. Fashionable derivatives and certificates in the custody account of the person being advised are usually a sure sign that only one partner is profiting from them – the credit institution. Within the range of closed participation (as KG or GbR arranged) the experience shows that only approximately one third of the offers develops in accordance with the folder.” In this respect, it is advisable to call in an expert(21) on a fee basis, preferably when taking over support with larger assets. In case of doubt, the proverbial “greedy heirs” will later examine the activity of the guardian for possible liability.
Reduction of liability due to legal form and other insurance conditions
As a rule, more effective insurance cover can only be obtained abroad. Not even the most common insurance broker will be able to do this – rather a lawyer or insurance consultant with the appropriate connections. Alternatively, or as a supplementary measure, it is possible to limit the personal liability by interposing a small corporation or an association, which is completely legal and has a considerable effect.
by Dr. Johannes Fiala and Horst Deinert
by courtesy of
www.bundesanzeiger-verlag.de (published in BtPax on 08.10.2008)
(1 ) BtPrax 2008, p 87 et seq.
(2) Deinert, Horst et al, Die Haftung des Betreuers, Cologne 2004, p.94 ff, with further references.
(3) Rütter, Hans-Jürgen, Steuerberater müssen zusätzliche Risiken besonders versichern, in: Vermögen & Steuern, Heft 04/08, S 18 f.
(4 ) For example, Allianz Versicherungs- AG ‘Special conditions WT4233/04’.
(5) The focus here is on voluntary guardians who are also not admitted as lawyers, tax advisors or auditors or insured as such.
(6 ) Bavarian ‘Information sheet on liability insurance for voluntary guardians and custodians’ (as at 03/2002).
(7 ) Leaflet on liability insurance cover for voluntary carers, Versicherungskammer Bayern, as at 05/2008.
(8 ) E.g. Allianz HV 60/02.
(9 ) BFH, judgment of 4.11.2004, ref. IV R 26/03.
(10) In practice, such insurance is referred to as “D&O” insurance.
(12) OLG Düsseldorf, judgement of 30.10.1979, Az. 4 U 82/79.
(13) OLG Munich, judgement of 14.12.1999, Az. 25 U 2854/99.
(14) OLG Karlsruhe, judgement of 20.02.2003, Az. 12 U 202/02.
(15) Cf. for example § 51 para. 3 BRAO.
(16) Ehlers, Harald, Necessary liability check prevention at the tax consultant, DStR 2008, 578 ff.
(17) Salzburg Regional Court, judgment of 19.02.2004, Ref. 37 Hv 60/02 d.
(18) Deinert, (fn.2), p 94 ff.
(19) Ehlers, (fn. 16), 578 ff.
(20) So-called DIN-EN-IS 9001:2000 certification.
(21 ) See Stenger, Peter, et al, Geldanlagen für Mündel und Betreute, Cologne 2004.
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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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