False billing by life insurer? Around 10 million customers affected

New billion-dollar surcharge for insureds due to incorrect implementation of BGH rulings

Current judgement of the OLG Cologne: Insurers have to recalculate benefits in case of termination and premium exemption.

A recent ruling by the Cologne Higher Regional Court dated 5 February 2010 (Case No. 20 U 80/08) establishes that life insurers have so far incorrectly implemented the BGH rulings on the minimum surrender value and the invalidity of the cancellation deduction in their favour.

In an impressive and particularly clear manner, the ruling shows that customers are entitled to billions more in recoveries from contracts concluded between 1995 and mid-2001 and terminated or non-contributory in the meantime or in the future on the basis of the relevant BGH rulings. The Cologne Higher Regional Court thus confirms the view of consumer protection, lawyers and actuarial experts on the calculation of minimum surrender values and the inadmissibility of lapse deductions, which had previously been disputed by insurers.

Insurers have withheld billions from customers

The insurers thought they were allowed to make the lapse deduction as long as they paid at least the minimum surrender value according to the BGH. Now the OLG Cologne says that the cancellation deduction is inadmissible in any case.

However, most insurers have not adhered to this so far. Customers who have already received a claim for repayment of the minimum surrender value in the past should therefore make a further claim if only the minimum surrender value was paid at the time but the cancellation deduction was not taken into account.

This also affects customers for whom the insurer did not make a subsequent payment because it determined that the minimum surrender value had already been reached by the surrender value paid out.

This means that even in contracts that have already been in existence for a very long time and were terminated shortly before expiry, the inadmissible cancellation deductions must be paid in arrears. Since the insurers have often retained the cancellation deduction in this case up to now, these customers should now also specifically demand the reimbursement of the cancellation deduction with reference to the ruling.

Additional claim also for non-contributory contracts

Customers with life insurance policies that have been non-contributory in the past – even until shortly before expiry – can also demand a recalculation. Even if the insurer has already made a correction in the meantime on account of the minimum surrender value and determined a higher premium-free sum, the customer can now demand a further increase in this sum and the resulting surrender values as a result of the inadmissibility of lapse deductions made in the event of premium exemption.

Minimum surrender values regularly too low

In addition, the Cologne Higher Regional Court stated that the calculation of the minimum surrender value from half of the unzillmerised actuarial reserve, which had been common practice throughout the industry in the past, was not compatible with the case law of the Federal Court of Justice. The insurers had the wrong idea of what the unzillmerised actuarial reserve actually was.

Up to now, they have not completely eliminated the acquisition costs charged at the beginning of the contract through zillmerisation in their incorrect calculation of the unzillmerised actuarial reserve, as would have been necessary according to the Higher Regional Court of Cologne on the basis of the BGH rulings on the minimum surrender value.

Rather, they merely spread them out over the term. In this respect, acquisition costs were inadmissibly deducted in advance on a pro rata temporis basis when calculating the minimum surrender value. According to the Cologne Higher Regional Court, this is not compatible with the rulings of the Federal Court of Justice (BGH): the acquisition costs must be deducted in full.

Request recalculation and additional payment

Up to 10 million affected customers can therefore also demand a further supplement because of these requirements for the implementation of the BGH rulings on the minimum surrender value, even if they have already received a – usually incorrectly calculated – minimum surrender value in the past.

Customers for whom the insurer had already refused a subsequent payment because the minimum surrender value had allegedly already been reached should also demand a recalculation in accordance with the ruling of the Cologne Higher Regional Court.

Recalculation also for non-contributory contracts

Due to this error on the part of the insurers, this also affects policies for which the minimum surrender value relevant for the premium waiver was regularly calculated incorrectly. In view of the requirements of the Higher Regional Court of Cologne, these customers should also demand a further recalculation of the premium-free sum and the premium-free surrender values.

Claims also with unit-linked and UK insurers

Furthermore, the Higher Regional Court of Cologne clarified that also contracts for which a part of the premiums has always been used for investment from the beginning – e.g. because only 45% of the premiums of the first years were charged for acquisition costs – fall under the BGH case law on minimum surrender values for zillmerized contracts.

Here, too, a minimum surrender value is to be paid in accordance with BGH case law or non-contributory sums are to be increased accordingly and, incidentally, any lapse deduction made is also to be refunded. In the case of unit-linked insurance and British policies, insurers have wrongly claimed that there is no zillmerisation at all and that the BGH case law on minimum surrender values is therefore not applicable. Customers of such insurers can now demand an additional payment with reference to the ruling of the Cologne Higher Regional Court.

Up to more than E10 billion additional back payment

All in all, customers are entitled to an additional double-digit billion sum in additional payments due to incorrect calculation of the minimum surrender values and incorrect legal assessment of the insurers regarding the lapse deduction. In addition, there are possible clawbacks due to missing effective interest rate information for contracts with instalment surcharges for half/quarter-yearly or monthly payments, because these contracts are to be regarded as consumer credits. This means that consumers can regularly claim back the majority of their instalment surcharges.

Statute of limitations question open for revision

Although the OLG Cologne is of the opinion that in the case of terminated contracts the 5-year limitation period begins at the end of the year of the original payment of the surrender value, it is not the case that the limitation period begins at the end of the year of the original payment of the surrender value. However, it expressly allowed the appeal to the BGH. There, however, the insurers have so far not even risked an oral hearing and preferred to pay voluntarily beforehand.

In the case of non-contributory policies, on the other hand, no limitation period begins at all with the premium waiver – in this case, therefore, a recalculation of the non-contributory benefits can be demanded in any case – in accordance with the BGH-compliant minimum surrender value according to the Higher Regional Court of Cologne and omission of the inadmissible lapse deduction in the case of premium waiver.

Complete revocation

Customers with contracts concluded since 2002, for which instalment surcharges for payments during the year were agreed, can now still revoke their already terminated or expired contracts due to the lack of information about the right of revocation in the case of consumer loans and demand the return of all premiums plus standard capital market interest.

This offers consumers the chance to retroactively turn their life insurance policy – even if it has already been cancelled and “paid out” – into a decent interest-bearing savings account. And this without the burden of acquisition and administration costs, because the insurer then has to properly compensate his use of the capital saved by the customer. For the contracts from these years alone, which have been terminated to date, the additional claim can amount to more than 40 billion euros.

Right of withdrawal also for instalment surcharges

The German legislator had implemented the EC Consumer Credit Directive (87/102/EEC of 22.12.1986) with effect from 01.01.1991. However, this transposition did not include an unlimited right of withdrawal in the event of incorrect information on withdrawal.

However, the ECJ (Case C-481/99, judgment of 13.12.2001) has ruled in relation to another consumer protection EC Directive that a consumer who “has not been informed of his right of withdrawal does not lose this right through the passage of time”, even if the German legislator has regulated it differently. Further rulings of the ECJ (Ref. C- 177/88 and C-473/00) prove that any limitation of a right of withdrawal contradicts the requirement of effective consumer protection.

This is also the reason why the Council of the EU decided on 07.04.2008 to amend the Consumer Credit Directive. There is much to suggest that not only insurance policies concluded since 2002, but even all insurance policies concluded since 1991, which provided for instalment surcharges for the deferred annual premium, can still be revoked today because the revocation instruction for consumer loans was regularly omitted. Then the customer receives a still far higher additional charge than it already results because of the judgement of the OLG Cologne.


by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm


by courtesy of

www.handwerke.de (published in Computern im Handwerk, issue 04/2010, pages 5-6)


www.Tabakzeitung.de (published in Die Tabakzeitung, issue 13/2010)


www.handwerkermarkt.de (Published on28/02/2010)

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Dr. Johannes Fiala Dr. Johannes Fiala

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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