Revocation is possible for life insurance policies (LV) for an eternal period. In the main, this may affect around 40% of life and pension insurance policies from the years 1995-2007 alone. This is based on rulings by the European Court of Justice (ECJ, ruling of 19 December 2013, Case C-209/12) and the Federal Court of Justice (BGH, ruling of 19 November 2014, Case IV ZR 329/14). Revocation is very often also possible in the case of occupational pension schemes (bAV). Revocation leads to immediate payment claims for employers, but also sometimes for employees and their creditors.
Incorrect contract documents enable revocation and reversal
Particularly affected are those insurance contracts in which the policyholder (UN, employer) did not receive complete contractual documents – or in which the instruction about the right of objection was incorrectly formulated, incomplete, unclear or completely missing. The insurer must prove access – this alone is often the only reason why it fails. For property insurance contracts concluded before 01.01.2008, the right of revocation expired after one year – but not for life insurance. Pension funds are not affected by this.
Right of withdrawal also affects employers – i.e. freelancers and tradesmen
The right of withdrawal according to § 5a VVG old version (old version until 2007) is also valid for non-consumers. Consumer information pursuant to § 10a VAG (old version) must be provided to all natural persons (perhaps not to legal entities), which also includes a large proportion of non-consumers. However, § 5a VVG also mentions the General Terms and Conditions of Insurance (AVB), and § 5a VVG is basically aimed at all VN – i.e. also individual companies, GbR, OHG, GmbH & Co.KG. Particularly in small and medium-sized companies, the affected designs of the occupational pension scheme predominate over insurance solutions with such a possibility of withdrawal.
Since a right of revocation still exists in large numbers today, an employer can still object to the life insurance policies taken out, both in the case of reinsurance (for pension commitments or direct commitments) and other occupational pension schemes (such as direct insurance and deferred compensation) and unwind the contracts. Insolvency administrators and creditors also have this option in the event of complete seizure, including all ancillary rights.
Also affected are contracts that have already been terminated, expired, already cancelled and repurchased not only because of earlier attachment, and contracts that are already in the retirement phase, as this does not prevent later revocation.
Economic advantage through revocation
The revocation would then also mean that all other agreements such as subscription rights, pledges and assignments of contractual insurance benefits would initially be deprived of their basis. At least if these refer to insurance benefits or surrender benefits, because these are not (no longer) available at all in the case of revocation and reversal. So the employee may initially go away empty-handed and the employer or insolvency administrator receives everything.
However, the (possibly former) employee will sometimes want to claim damages, for example if the revocation violates the employment contract or the occupational pension promise, which may not always be the case. Nevertheless, the benefit paid by the insurer (VR) to the employer after a revocation will regularly be significantly higher than the employee’s loss.
This also applies if the employee has left the company in the meantime or is drawing a pension from, for example, a direct insurance policy or deferred compensation – which then simply ends upon revocation. Where applicable, the employer must obtain credit for any amounts paid by the BoD.
This also applies if the BoD has already paid out the direct insurance to the employee as a lump-sum settlement. Also in this case, an actuary can calculate the additional payment to be expected from the BoD after revocation, when the full benefit is credited to the employee, as a further revocation benefit to the employer.
The same applies if the contract has been terminated and any surrender value has been paid out. Creditors and insolvency administrators can often obtain an even higher premium for life insurance policies that have already been sold by revoking them.
Revocation after transfer of direct insurance to employees who have left the company?
If the employee later became a policyholder (UN), who is the right of withdrawal?
In the case of an assignment by the employer to the employee as the new UN (e.g. for private continuation and contract payment), only individual claims are transferred – e.g. the contractual payment claim, which does not include the payment claim after revocation. Unless otherwise expressly agreed, the so-called ancillary rights (e.g. rights of structuring such as termination, rescission, revocation, cancellation opposition) remain with the original policyholder as contract-related rights of structuring:
As a rule, this also applies in the event that the employee has been granted a subscription right or a lien. Only the security and preferential rights are then transferred, § 401 BGB.
Rarely will it be agreed that not individual claims but the entire obligation in the broadest sense will be transferred to the employee. In the case of a complete transfer of the obligation (assumption of contract), the (former) employee is also given the rights to form the contract, which generally also includes the legal rights after revocation (change of party).
This requires contract interpretation and examination in individual cases (§§ 133, 157 BGB), because the usual forms for changing the policyholder transfer various (contractual) legal claims – the legal ones after revocation or objection, however, are not usually explicitly transferred in addition, because the form designer at the insurer had not even thought of this. Employers, creditors or insolvency administrators can thus deprive the employee of his occupational pension scheme before or after the start of his pension.
Utilization of the right of withdrawal in the sale of used LV
Buyers of used LV can often actually transfer all their rights in order to exercise the right of withdrawal later. In the purchase phase, e.g. 10 years ago, the seller was a trustee bound by instructions until the purchase was settled and the UN property was transferred.
Even if the buyer is a legal person, he can even rely on the fact that the old UN as a natural person did not receive the consumer information – he can rely on not received GTCs or incorrect or omitted information on the right of withdrawal anyway, even if the old UN was a legal person.
However, this must be distinguished from the transfer of UN status from the employer to the (retired) employee, where the rights of withdrawal may remain with the old UN (the employer). Moreover, such a transition of the UN has often not taken place at all and the employer remains UN.
But even where the current employee could already exercise the right of withdrawal as a UN employee, this will often be interesting. Provided he gets the money. Otherwise he would have to come to an agreement with his former AG. However, this problem does not arise at all in the case of reinsurance of pensions for shareholder-managers (GGF).
Need for tax and actuarial calculations
Reverse transactions must be calculated using financial mathematics and checked from a legal and tax perspective. However, there may be major advantages in terms of social security law and wage tax, because in the event of a reversal of the transaction only capital gains tax (which can be credited at a later date) may have to be paid, and social security contributions may not be levied at all in some cases – for example, unemployment and pension insurance contributions in the case of a company pension scheme severance payment (LSG Baden-Württemberg, 24.03.2015, Ref. L 11 R 1130/14).
For persons with direct insurance policies that are due to be paid out, this would be a current reason to consider legal evasion of tax and social security contribution obligations. For example, even in the case of disbursed direct insurance policies, a reversal after revocation can result in the obligation to pay income tax and social security contributions being waived for 10 years.
All employees should be nervous if they notice that their insurance claims assigned to them (possibly even if they have become UN members themselves or are already receiving a pension from them) become worthless at the request of their employer or by force in the event of his insolvency. The prospect of being able to file one’s own claims for damages or those for (further) occupational pension payments with the insolvency administrator “zur Tabelle” is not very encouraging.
In the case of direct insurance policies, protection by the Pensionssicherungsverein aG (PSVaG) does not usually apply in such cases, because the PSVaG would offer (often only partial) protection if the direct insurance were to be lent on, pledged or assigned, § 7 para. 1 sentence 2 no. 1 BetrAVG.
Revocation to remedy cases of employer liability
The legal entitlement to occupational pension payments is based on the commitment under labor law, the content of which an actuary can precisely calculate. The “cover” is provided – sometimes only partially – by life insurance policies, whose contractual benefits, including pensions already paid, have often been reduced by the insurer – sometimes and quite legally, except for the guaranteed values.
Insurers have more than a dozen legal options available to them for this purpose, with the help of BaFin, if necessary even under guarantees already promised. In such cases, revocation is an option to increase the assets of the employer or employee.
For example, around EUR 35 thousand was paid into an LV 2002-2015. The actuary calculated, among other things, the risk costs for this fund policy, the interest on equity (individually for each BoD), and the benefits drawn. On the revocation date in 12/2015, the capital uses to be compensated amounted to a good EUR 40 thousand, plus EUR 35 thousand in paid premiums, and a deduction for risk costs of around EUR 8 thousand; this means that the subsequent payment after revocation was over EUR 67 thousand, or EUR 25 thousand more than the surrender value of only EUR 42 thousand.
Whoever revokes bears the burden of proof and demonstration for the actual use of the VR (BGH, judgement of 11.11.2015, ref. IV ZR 513/14). It remains to be seen whether it is against EU law (the so-called effectiveness requirement) if more than minimal investment fund losses are credited to the BoD as negative benefits.
This also applies analogously to LV contracts since 01.01.2008, because today’s § 152 VVG nullifies the compensation for use of § 818 III BGB, because the VN does not receive more in case of revocation after one year than in case of termination and repurchase.
Even heirs – including those of the employer – can, pursuant to § 1922 of the German Civil Code (Bürgerliches Gesetzbuch – BGB), remember to still use a perpetual right of revocation for themselves, for example, to improve a widow’s and orphan’s pension. Other beneficiaries – even those who already have pensions in place – will then be left with nothing for the future.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
by courtesy of
www.gt-worldwide.com (published on 07.01.2016)
and
www.innovationundtechnik.de (publishes issue 2, February 2016 under the heading: Rückabwicklung, Widerruf und Vollstreckung bei betrieblicher Altersversorgung (bAV))
and
www.fondsprofessionell.de (Published on
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About the author
Dr. Johannes FialaPhD, MBA, MM
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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