Personal injury firms and the prohibition under Section 3:5 of the Wft

Q&A

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Question:

Does the prohibition under Section 3:5 of the Financial Supervision Act (Wet op het financieel toezicht – Wft) also apply to personal injury firms?

Published: 22 February 2011

Answer:

What does a personal injury firm do?

If someone has suffered a personal injury, they can try to recover damages from the liable party, which will in most cases be the insurer of the person who caused the injury. The person who suffered the injury can engage the services of a personal injury firm for this. The personal injury firm will then collect the damages from the insurer. In such a case, the insurer will generally pay the damages through the personal injury firm.

Does this construction involve repayable funds?

In other words, does the personal injury firm retain repayable funds, in which case the prohibition under Section 3:5 of the Wft applies? No, this is generally not the case.

The insurer’s payment to the personal injury firm means it has fulfilled its payment obligation with respect to the person who suffered the injury and is discharged from this obligation. They cannot claim reimbursement from the person who suffered the injury or the personal injury firm. Therefore, there is no question of repayable funds and the prohibition under Section 3:5 of the Wft does not apply.

The personal injury firm will usually be required to transfer the collected compensation to the person who suffered the injury. Again, this situation does not involve repayable funds, since it does not concern repayments from the personal injury firm to the person who suffered the injury.

Customer accounts foundation

Many personal injury firms use a separate customer accounts foundation. By receiving payments from insurers on such an account, the personal injury firm ensures that the funds payable to the person who suffered the injury are segregated from its own funds.

The use of a customer accounts foundation does not matter for answering the question of whether payments through a personal injury firm involve repayable funds. In such a case, we look through this construction and determine on the basis of the actual underlying activities of the personal injury firm whether or not repayable funds are involved.

Exception

Only in the event that an insurer has paid the personal injury firm and is still able to claim repayment – in whatever form – for as long as the personal injury firm has not yet passed on the insurer’s payment to the person who suffered the injury, there may be a situation involving repayable funds. In such a case, the rules for onward payment described here apply.

If, in the case of onward payment, the payer is an insurer, there is no question of non-compliance with the prohibition under Section 3:5 of the Wft since insurers are regarded as professional market parties to which this prohibition does not apply. However, if the payer is another type of liable party, the situation is different.

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