Optimal revocation for credit, capital investment and insurance
When legal representation without an expert opinion is giving away pure money
No one would accuse financial institutions, i.e. banks and insurers, of unlawful or dishonest behaviour if affected customers do not receive what they are actually entitled to after a revocation of credit and investment or insurance contracts. Without an expert examination of the matter, weighty items are often simply overlooked by both sides in the dispute about the legal consequences of a revocation – as many court decisions show.
Why errors often remain undetected
If, for example, a private health insurance company (PKV) invokes the Calculation Ordinance and wants to enforce a premium increase, it regularly bears the full burden of proof. The PKV then brings forward calculations and expert opinions, the correctness of which could not infrequently already be brought down with possible serious doubts about the interpretation and application. This is because in many cases the legislature has only provided incomplete guidelines, for example by using indeterminate legal terms whose content and interpretation have not yet been conclusively clarified by the courts.
It is not uncommon for court experts to ignore these doubts and – without being authorized to do so – base their decisions on their own legal opinion, which they hardly ever disclose, but rather present as an expert assessment. In most cases, only a private expert opinion of an actuarial expert helps to uncover the weak points of a court expert opinion and to bring the underlying legal questions, which are often not clarified by the supreme court, to the person who is actually only allowed to decide on them: the judge.
Success in court after over a hundred dismissed claims
Experts refer to the financing with successively switched building society contracts as the “Dortmund model”. A plaintiff advised by a private expert came for the first time to the idea to recalculate financial-mathematically and to show that his loan residual debt and the instalments foreseeable according to plan with successively nested building society contracts after X years was higher than at the beginning. Only this qualified presentation convinced the court for the first time, after hundreds of previously dismissed claims.
Finally, the complex, confusing financing model was also condemned by the Federal Court of Justice (decisions of 13.07.2010 (Ref. XI ZR 71/09, 72/09 and 73/09)). An advance loan and a further building society savings should be sufficient for repayment after about 27 years – in fact, calculations later showed about 34 years as the duration. Not only the long term, but also the short fixed interest rate could become an investor trap. Without a private expert, a lawyer would hardly have been able to present the consultancy damages.
Many lawyers, however, trust that a court expert will make up for this – often an expensive mistake, because the court expert will only submit the concrete evidentiary questions arising from the disputed statement of claim to the court expert for answering, and only this may he answer in contrast to the private expert, if he does not want to expose himself to the suspicion of bias. The lawyer has an advantage, he knows where it is better to call in an expert.
Reversal of case law only through proper presentation and research
The OLG Celle (Az. 16 U 127/04, judgement of 07.12.2004) decided then for the first time: “Although the senate a substantial number of decisions (also in the context of PKH complaints) for the back completion of sales contracts, predominantly with participation of the deplored one, in addition, with other salesmen issued, is so far never also only rudimentarily the selling structure, which is represented in the facts, the D.er model and the associated consequences was submitted. This D.er model and in particular the calculation model intended only for internal service use over the duration of the financing of approx. 30 years was so far unknown to the senate. The Senate takes this as an opportunity to make modifications to its case law, which will be discussed in detail.”
No reversal of the burden of proof without a duty to document or to take minutes
If it is a matter of financial products, i.e. mediation by bank advisors and insurance agents, the customers are in a much better position than the real estate buyer.
The Federal Court of Justice (BGH) ruled on this (Ref. V ZR 114/07, judgment of 13.06.2008) in the case of two building society contracts and only the indication of a payment charge in the first month by the intermediary:
“The buyer bears the burden of presentation and proof that the seller has breached his obligations under a consultancy agreement, even if the seller has provided him with an incomplete and insofar incorrect calculation example for the determination of the monthly own expenditure. The written advice document does not carry the presumption that no further information beyond the written calculation was given to the prospective buyer. …“
A shift in the burden of proof requires a legal or factual basis, in particular the duty of documentation. However, there is no documentation requirement for the sale of real estate or for legal advice from lawyers and tax advisors. The situation is different today with regard to investment advice provided by banks, as well as with regard to the brokerage of financial investments by independent intermediaries – including those with prospectus requirements, as well as with regard to insurance brokerage.
30% compensation given away due to incorrect calculation – despite winning the lawsuit
Many a divorce lawyer is pleased about the settlement in the context of a pension equalization, according to which, for example, half of a benefit from direct insurance is to be paid to the ex-spouse. For this purpose, a sample wage calculation was submitted by the directly insured husband, and half was calculated from the net amount, after deduction of health and nursing care insurance (KV/PV) and after reduction by the wage tax (without using the 1/5th regulation of § 34 EStG).
The recipient, the wife, thought that there was a 1/5th rule, but did not realize that the husband could deduct the payment and that she herself still had to pay tax on it. On the other hand, he alone pays the KV/PV and is therefore entitled to deduct it in full. Still at the very end, those who are initially successful in court thus deprive themselves of the reward for their previous efforts through negligence if they forego the final examination by experts in order to save costs.
Any court will nevertheless regard such a settlement as incontestable, because, after all, lawyers are compulsory in divorce proceedings. Because business advice is not part of the legal profession, the use of experts will predominantly be advisable.
Negligence in the implementation phase of judgments or settlements is the rule
When concluding settlements, also out of court, but also when reversing financial transactions, as well as when it comes to compensation and the settlement of enrichment after revocation of credits, loans, investments and insurances, but also in the case of inheritance disputes, it is not uncommon for quite essential items to be simply forgotten or incorrectly calculated and assessed – and this then usually with very expensive consequences for those affected.
Consequences of revocation without observing the legal consequences
If an insurance contract is revoked, this is also referred to as an objection. This right, also with credit contracts of the existence founders and consumer loans, remains to the customer for ever and ever – thus for example opposite insurers, banks, product offerers of investments – if not or insufficiently or incorrectly one instructed. The risk of errors on the part of the financial houses is practically very high – because the burden of proof does not lie with the customer. However, case law may not draw the correct conclusions because the client fails to present what is necessary.
Insurance customers know at the latest from their lawyer that the insurer must refund the premiums after a revocation and may keep neither conclusion nor administration costs or a calculated profit. Even benefits derived are to be surrendered – one would only have to know how these arise. What then remains for the insurer is only that part of the premium paid, as one of many settlement items, which corresponds to the risk actually realistically borne – not the higher calculated risk. Revocation therefore does not result in the risk cover being free of charge. Even the benefits after insurance claims can be kept by the customer in the end, because he also has to pay the risk premiums for them, as the BGH has stated.
The “exit by revocation” nevertheless often turns out to be a bad deal for the customer, because without an expert he regularly does not succeed in court in actually presenting his claims in the full amount in a way that is comprehensible to the judge. The consequence are judgements where the judge calculates that with the surrender value he has already received everything that he had demanded with the lawsuit – after he or the lawyer there simply presented too little as a claim.
Similarly it looks so far with bank customers, who put up with it after a revocation that presumably because of missing integration of experts or misjudged legal situation, the revocation of loans and/or credits ended in the fact that higher courts meant more than isolated, the customer would owe then the “usual market interest”. This is hardly because there are thousands of wrongful convictions by judges to answer for.
In fact, after a revocation (e.g. due to a doorstep situation, with a visit by the intermediary at the workplace or at home), bank customers often did not have a suitable private expert involved who could explain to them and to the courts how banks calculate their interest margins in individual cases. In many cases, it is not known that banks like to borrow money at short notice and at extremely low interest rates, which is then lent out to loan customers by the credit institution for a multiple.
This profit margin has widened significantly in recent years, and not just because of the ECB’s low interest rates. It therefore represents the benefits which the Bank must also surrender when calculating the market interest rate in the event of reversal due to revocation.
The bank, on the other hand, only has to state which market interest rate it wants to charge – because the burden of presentation and proof of the benefits derived in the form of the profit margin contained therein is borne by the revoking customer, who, however, regularly remains silent on this even in court. The Court of First Instance may not then, in view of the lack of submissions, carry out its own investigation, as it were, of its own motion.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
by courtesy of
www.dzw.de (The Dentist Week, Issue 17/15)
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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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