If your broker makes a mistake, who is liable? Broker liability and professional indemnity insurance

What does the law say about a broker's liability?

Under Section 398 of Act LXXXVIII of 2014 on the Business of Insurance (the Insurance Act, Bit.), a broker acts on the basis of a contract concluded with the client and on the client's behalf – in other words, the broker is not the insurer's representative but is on your side. This also determines where liability lies: under Section 402 of the Bit., a broker must comply with the professional rules of insurance at all times in the course of their activity, and is liable for any failure to do so – in particular for wrong advice, incorrect information, irregular handling of premiums, and incorrect or late forwarding of declarations. The Act also states that the broker is liable for the conduct of the persons acting on the broker's behalf. There is one important exception: the broker is released from liability if the broker proves that the incorrect information resulted from an error in a form or document introduced by the insurer and used when the contract was concluded – in that case, liability rests with the insurer. The legal basis of this liability is the breach-of-contract rules of the Hungarian Civil Code (Ptk.): the loss must be compensated by whoever breached the obligation arising from the mandate.

What counts as a broker error – and what does not?

A broker error is typically something that happens within the broker's remit: the broker fails to forward the proposal or the cancellation, or forwards it late; enters data on the proposal that differs from what you provided; fails to draw your attention to a material exclusion or waiting period that, based on the needs assessment, should have been pointed out; recommends a product that clearly does not meet the needs identified; or accepts premium without authorisation. It is not a broker error, however, if the insurer does not pay because the event is not an insured event under the policy conditions – the insurer pays only for what is an insured event under your contract, and the broker cannot assume this risk. Nor is it a broker error if the information you provided to the insurer was incorrect or incomplete: the duty of disclosure and the duty to report changes under Section 6:452 of the Civil Code (Ptk.) lie with the policyholder, and the broker cannot take them over. Likewise, signing and keeping track of deadlines remain your responsibility: if you hand over your cancellation for the renewal date after the 30-day deadline, the broker cannot make it valid retroactively either. I have written about exactly what a broker undertakes in a claim in the article on the broker's role in claims: the primary route for reporting a claim is the insurer's claims line; if a case gets stuck or disputed, I help where I can – I do not undertake legal representation.

Is there insurance behind it?

Yes, and not on a voluntary basis. Under Section 403 of the Bit., a broker must hold professional indemnity insurance or financial security to cover losses arising from its activity; according to the authorisation guide of the MNB (Hungary's central bank and financial supervisor), the minimum is EUR 1,564,610 per insured event and at least EUR 2,315,610 per year in aggregate – these are the amounts in force since October 2024, following the EU rules. This cover is a condition for obtaining and keeping authorisation to operate – without it, a broker cannot operate. From the client's point of view, this means that a well-founded claim for compensation is backed not by a firm's solvency at a given moment but by insurance cover. You receive information about the existence of the liability insurance and about the broking firm behind the adviser in the pre-contract information document; if someone cannot tell you whether they have such cover, that is odd, to say the least. The order of things matters, however: the liability insurer does not pay you automatically, but only where the broker's liability is established, and according to its own policy conditions – so the claim must be pursued against the broker, with the cover standing in the background.

What should you do if you feel I have made a mistake?

The first step: raise it in writing, specifically – what happened, when, and what loss you suffered. Under the complaints-handling rules, you must receive a written, reasoned reply to your complaint, and the deadline for replying is 30 days. Many misunderstandings are cleared up at this stage: it turns out that the declaration was sent in time after all, or that the insurer's decision was not the result of a broker error. If the reply does not reassure you, three routes remain. The MNB's consumer protection procedure examines whether the intermediary has breached consumer protection rules – but the MNB does not decide individual claims disputes and does not award compensation. The Financial Arbitration Board (PBT) tries to bring about a settlement in disputes between consumers and financial institutions, and this may also extend to a claim for compensation; the procedure is free of charge. The third route is the courts. Whichever you choose, the evidence rests on the written record: emails, the mandate form, the needs assessment form, a copy of the proposal and the insurer's confirmation. If your trust has been shaken, you should also know that you can change broker at any time – your policies do not end as a result.

How can most disputes be prevented?

Most errors are not intentional but a matter of communication: a request made verbally that left no record, a declaration for which no confirmation was requested. That is why putting things in writing is key: you sign the proposal, you can ask for written material on the needs assessment and the recommendation, and it is worth seeing the material exclusions and waiting periods in writing before you decide – you can expect this from any broker, as I have also described in the article on how I work. This is where you can do the most: read what you sign, check your details on the proposal, and keep the confirmations. That way, if an error does occur, it can be established readily and clearly where it lay – and under the law, that party must bear it.

What to do in practice: before taking out a policy, ask for the information document that names the principal broking firm and sets out the complaints procedure; submit every request and declaration in writing and ask for confirmation; if you suspect an error, report it in writing without delay – a complaint, followed by the Financial Arbitration Board or the courts, is the legal route, and the MNB is the supervisory route.