In a recent judgement the Supreme Court ruled on the legal question whether an insurance portfolio can be validly pledged. In the case at hand the lender and the borrower entered into a credit agreement, which also entailed a deed of pledge, relating to the borrower’s insurance portfolio (which was to include agreements that the borrower concluded with insurers, and with its clients, as well as goodwill consisting of expected insurance contracts).

At some point the borrower was declared bankrupt and the bankruptcy trustee sold, inter alia, the insurance portfolio and the related goodwill to a third party. In the following legal proceedings, the lender sought a declaratory ruling confirming that it had obtained a valid right of pledge on the insurance portfolio of the borrower and in addition claimed payment of the proceeds that the bankruptcy trustee had realized with the sale of that insurance portfolio, up to a maximum equal to the lender’s outstanding claim under the credit agreement.

The Supreme Court points out that the concept of an “insurance portfolio” as such is not defined in law. It has no fixed meaning. In addition, the Supreme Court states that such an insurance portfolio can only be pledged if the insurance portfolio can be regarded as an item of property (within the meaning of property law), i.e. being movable property or intangible property. According to the Supreme Court, the law on property rights assumes that only individual movable property or intangible property can qualify as an item of property and, as such, can be pledged. As the insurance portfolio is neither individual movable property nor individual intangible property, the insurance portfolio is not an item of property and therefore cannot be pledged. In short, if insurance portfolios are to be used as collateral, parties should pledge the individual items of property of which such an insurance portfolio consists.