Dutch Supreme court rules that insurance portfolio cannot be pledged

Written on 7 Jan 2020

A recent decision by the highest court in the Netherlands on a case involving ING Bank N.V. and an insurance broker has demonstrated once more the strict adherence to rules in Dutch property law.

On 6 December 2019, the Dutch Supreme Court (DSC) ruled that an insurance portfolio as a whole cannot be pledged. According to the DSC, an insurance portfolio does not qualify as property (goed), as set out in section 3:1 of the Dutch Civil Code.

This may seem strange from an economical perspective since insurance portfolios can have significant value in the ordinary course of business and are often the (specific) object of purchase agreements. This decision is, however, not surprising from a legal point of view – and shows again that rules in Dutch property law are applied very strictly.

Case facts

In 2007, ING Bank N.V. provided a loan of EUR 20,000 to a general partnership (vennootschap onder firma) that operated an insurance brokerage (assurantiekantoor) (the borrower). A general right of pledge was granted by the borrower over its assets, which along with rights, movables and stock, included the client database (as well as data carriers and their data) and goodwill.

In 2013, the borrower was declared bankrupt, following which the bankruptcy trustee (curator) sold the insurance portfolio for EUR 80,000. On the basis of its right of pledge, ING requested the trustee to turn over the proceeds and filed a claim with the court after the trustee refused to comply with this request. The court in the first instance denied the claim of ING. Parties then agreed to pass the court of appeal and to bring the case directly to the DSC (sprongcassatie).

The two key questions were:

(a)           Should an insurance portfolio be qualified as property as set out in section 3:1 of the Dutch Civil Code? The short answer is no.

(b)           Does section 4:103 sub 4 of the Dutch Financial Supervision Act (DFSA) – which includes a provision that insurers in principle need to cooperate with the transfer of insurance portfolios by insurance brokers – deal with contractual rights and obligations only or does it also have effect under property law? The short answer is that it is contractual only. The mere fact that the DFSA includes provisions regarding the transfer of an insurance portfolio does not make such portfolios a(n) (independent) property right.

Legal analysis

There is no definition of an insurance portfolio under Dutch law. The court ruled that an insurance portfolio consists of: (i) cooperation agreements between the insurer and the broker; (ii) agreements for services between the broker and the insured (the client); and (iii) the goodwill consisting of the expectation that clients will come back to the broker for future services and insurances.

Under section 3:228 and 3:227 sub 1 of the Dutch Civil Code, a right of pledge can be created over a property, excluding any registered assets (real estate, ships and planes), if the property can be transferred.

Under Dutch law, property (een goed) is qualified as: (i) all things that are corporeal objects which can be subject to human control (zaken) (section 3:2 Dutch Civil Code); and (ii) property rights and interests (vermogensrechten). Property rights and interests are rights that are transferable, either individually or together with another right, or that are intended to provide the beneficiary with a material benefit, or that have been obtained in exchange for a material benefit provided or to be provided (section 3:6 Dutch Civil Code).

The DSC ruled that property rights can only be individual things or property rights (and interests). This means that a bundle or a combination of rights, such as an insurance portfolio, cannot itself be considered as a property right, notwithstanding that in the ordinary course of business an insurance portfolio is deemed to be one package. The fact that (i) it has value, (ii) it can be the subject of a purchase agreement or (iii) that it (in part) consists of property rights is not relevant, according to the DSC. The consequence of this under Dutch property law is that an insurance portfolio (as a whole) cannot be transferred or pledged.

The fact that the DFSA includes some provisions with regard to the transferability of an insurance portfolio does also not make an insurance portfolio a property right. According to the DSC, the intention of the DFSA was not to qualify an insurance portfolio as a property right but to include arrangements for the transfer of the position of the broker in each of the three legal aspects of an insurance portfolio.

Osborne Clarke comment

In our view this outcome is not surprising. Dutch property law is based on rules that are applied rigidly for the purpose of enhancing legal certainty. This creates a firm legal structure, but the downside is that it is not always possible to capture all aspects of the economic reality. It is therefore always useful to make a legal analysis, when assets and/or rights are to be transferred or when security is to be created, so that it is clear whether such actions have the desired effect under Dutch property law.