– Insurance Companies Owe Half of “Unzillmerized” Fund Balance on Unit-Linked Endowment Policies- Many people are too well-bred to speak with their mouths full; but they have no qualms about doing so with their heads empty. (Orson Welles)
Billions in additional claims for life insurance customers
The Federal Supreme Court (BGH) decided by its new judgement of 26.09.2007 (Az. IV ZR 321/05) that policyholders can be entitled to a minimum surrender value after termination – also in the case of unit-linked life insurance. Experts estimate that insurance customers are entitled to several billion euros from terminated unit-linked and other endowment life insurance policies.
Minimum surrender value for policyholders
The BGH points out that contract clauses on the charging of acquisition costs may also be invalid in the case of unit-linked contracts due to lack of transparency. In the event of premature termination, the insurance customer is entitled to a minimum surrender value from the insurer. Legal grounds are non-transparent or ineffective clauses in the insurance conditions, in the contract in question in §§ 12 III and 24 I GCI.
The insurance companies should have already informed the customers “at the conclusion of the contract” about the economic disadvantages of a premature termination in a transparent manner. The clause on the offsetting of the acquisition costs (including the commission for the brokerage) by way of Zillmerisation is also non-transparent and thus ineffective if the insurance customer “cannot see the extent of the disadvantage associated with the offsetting”.
Deficit in the legal department at the insurer?
The BGH refers to earlier decisions, according to which the “supplementation of the contract by clauses with the same content” made by the insurer, if applicable, is also invalid. The insurer had apparently assumed itself that its old clauses were ineffective – the replaced new clauses, however, had not even been validly concluded in the trustee procedure according to the ruling of the BGH.
Actuarial reserves and fund assets equated
Insurers have so far not considered the preceding BGH rulings of 12 October 2004 to be relevant for unit-linked life insurance because they relate the minimum surrender value to the unzillmerised actuarial reserve. In unit-linked life insurance, however, there is no such un-committed actuarial reserve, only a fund account. However, the court now decided in a clarifying manner that in the case of unit-linked life insurance the “unzillmerized fund assets” instead of the unzillmerized actuarial reserve represented the starting point for the customer’s claim for subsequent payment.
Cancellation deductions not directly affected
The ruling does not mention cancellation deductions – these were originally only invalid because their calculation was based on the “current value”, a term which the BGH also considered to be non-transparent. However, there is also no non-transparent current value in the case of unit-linked contracts, as the fund account takes its place. So if cancellation deductions are provided for at all in unit-linked contracts, these at least cannot be challenged with the preceding BGH rulings.
Further liability approaches at the expense of insurers and intermediaries
Only a fraction of endowment policies are “held out” until expiry – the cause is often massive errors in advice by brokers. The Federal Court of Justice (BGH) also commented on this this year (ruling of 14.06.2007): Agents or insurers are liable if the brokered life insurance does not meet the needs of the customer, for example, does not meet his financial capacity. In this respect, claims for damages from terminated life insurance policies of the last 30 years are addressed.
Ambiguous clauses open to interpretation
The ambiguity of contractual clauses (which are not completely non-transparent) results in the interpretation which is more favourable to the policyholder. In its judgement of 18 August 2006, the Local Court of Heidelberg (AZ: 30 C 122/06) ruled against MLP AG that around 90 % of the acquisition costs in certain contracts must be reimbursed. In the opinion of the court, the insurer had not made it sufficiently clear in its clauses that the acquisition costs were incurred in each of the first 10 years and was therefore only allowed to charge the costs calculated annually for the first 10 years in total.
Case-by-case assessment required
Beyond the aforementioned BGH rulings, further-reaching claims by insured persons can arise for quite different reasons. Often it is only an actuarial appraisal that reveals how the insurer has actually calculated – on the basis of the clauses it has used or even without any such clauses at all. Only in this way do the disadvantages become discernible at all and accessible to further legal review. Insurers usually do not offer this transparency for good reasons.
*by Dr. Johannes Fiala, Attorney at Law (Munich), MBA Financial Services (Univ.), Certified Financial and Investment Advisor (A.F.A.), Lecturer for Civil and Insurance Law (BA-Heidenheim, Univ. of Cooperative Education), Bank- Kfm.(www.fiala.de) und Dipl.- Math.Math. Peter A. Schramm, expert for actuarial mathematics (Diethardt), actuary DAV, publicly appointed and sworn by the IHK Frankfurt am Main for actuarial mathematics in private health insurance (www.pkvgutachter. de).
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About the author
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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