The Federal Supreme Court (BGH, ruling of 27 June 2018, file no. IV ZR 222/16) decided that to insure the life of another (the insured person, CP), the consent of this CP is also required at a later date. This applies not only to the original conclusion of the contract, but also if only the death benefit is to be transferred, or (in the case of preferential treatment in the event of death of the policyholder, UN) the UN is to change, e.g. in the case of sale on the secondary market.
Death benefit from life insurance for funeral expenses not affected
If the amount of the insurer’s (VR) promise of benefits is only ordinary funeral expenses, the Merchant’s consent is not required. If only death benefits have been agreed, insured sums up to EUR 3,579 are exempt from seizure and insolvency-proof, § 850b ZPO.
No consent of the insured person when transferring the survival benefit
From section 150 subsection 2 sentence 1 half-sentence 1 of the German Insurance Contract Act (VVG), according to the Federal Court of Justice: “In the case of a life insurance policy taken out on the death of another person, the transfer of the policyholder position or the entitlement to benefits in the event of survival – unlike a change in the beneficiary in the event of death – does not require the consent of the insured person in corresponding application of § 150 para. 2 sentence 1 half-sentence 1 of the German Insurance Contract Act (VVG).
Life insurer ignores policyholder’s amendment
The BoD may simply ignore such (ineffective) amendments with respect to death benefits without incurring liability for damages. In the specific case, the alleged new beneficiary of the death benefit had received a formally invalid promise of gift. The ineffective attempt to change the subscription right resulted in the gift not being fulfilled and thus also remained ineffective. This also applies to sales with assignment of a life insurance policy (LV) to a buyer, if the UN is entitled to the death benefit in the event of the death of another CP – the buyer then goes away empty-handed.
Of course there would have been reason to advise the UN, § 6 VVG. This then leads to the BoD’s liability for damages – but if the plaintiff does not bring it forward, the limitation period expires.
Changes in subscription rights require hedges within and outside the will
Investors are surprised if the “life insurance secondary market investment fund” has not yet recognised or examined such legal traps according to a query. The investor’s money is then lost for the time being due to a legal error by the fund company.
In the same way, it is possible that the heirs later revoke the subscription right granted, whereby specially favoured extramarital partners or expressly one child of several may “look into the mountains with the stovepipe”. Even those testators who had tried to design the compulsory portion of life insurance policies (often advertised as an option abroad) would still be turning over in their graves – if they had known that this move had failed due to “private international law” or an ineffective choice of law of the foreign law – usually unnecessary, since it could be designed.
The aim of the case law is to prevent speculation with the lives of others
The BGH applies § 150 II 1 Hs.1 VVG beyond the wording, so that Merchant is further protected. After all, the buyer of death benefits could belong to the circle of unscrupulous people, who then order chocolates poisoned for the VP via Darknet.
A change of UN may be effected as such without the consent of Merchant if the new UN does not become the beneficiary of the death benefit. Dispositions regarding the death benefit shall require the consent of Merchant, regardless of whether this is due to a change in the subscription right or, for example, to a change of the UN due to the purchase of a life insurance policy or a gift.
The Federal Court of Justice considers the consent of the CP to be required only in the event of a change in the subscription right in the event of death, because the CP trusted that the original beneficiary had no increased interest in her death. If the latter was also eligible for the survival benefit, this could change, however, if he learns that he will not receive any more in the survival benefit of the VP, or even only if the VP dies quickly enough before the new UN can terminate the contract and collect the surrender value.
Obstruction of disposal by (Berlin) will
Unlucky can also be the heir whose testator had culpably disregarded a legacy (by joint will). Bequests are to be fulfilled, in terms of amount, to the limit where nothing at all remains for the heir. If the (second) testator had disregarded a bequest by disposing of death and/or survival benefits, the claim for damages also falls within the estate, §§ 1922, 2174, 283 p. 1, 280 of the Civil Code.
Ineffectiveness in the purchase or sale of life insurance policies
The simple sale of a contract in the secondary market can fail due to the lack of consent of the CP, without this having been noticed. On the other hand, the UN change would probably be effective through legal succession in the context of an inheritance; perhaps even just in the case of the inheritance contract.
If the UN and VP are now identical, the first sale to the buyer can be effective. However, if the purchaser continues to transfer “his LV” to an investor or investment company, this transfer may – in the absence of renewed approval by Merchant – fail as ineffective as far as the death benefit is concerned.
It is equally ineffective in such cases if a credit institution to which the LV has been pledged as loan collateral realizes it on the secondary market. It would be safer to seize the rights in the context of enforcement by the state – including subsequent exploitation.
Pledge of the death benefit to the Mafia
However, the pledge for gambling debts or drug purchase to the mafia of a LV with a repurchase value of 5 TEUR and a death benefit of 100 TEUR for 60 TEUR debts increases the risk of VP. In case of doubt, e.g. in case of irrevocable preferential treatment of the same, the Merchant shall have to give its consent. In case of doubt, invalidity shall be assumed not only in the event of transfer of death benefits without the Merchant’s consent, but also in the event of pledging such benefits.
Massive ineffective pledges of life insurance policies to banks?
Credit institutions would therefore also have to question securities if these could not be realized at all or not in the event of the Merchant’s death as a third party, or if the pledge is already completely ineffective. This will also be a problem in the secondary market for life insurance policies, as its financing is based on pledged surrender values and – in the event of death – death benefits up to the surrender value.
The form “Pledge of rights under life insurance policies”, which is formulated by bank publishers and is usually used in a standardised manner, does not yet regularly take into account the distinction between death and survival benefits. It is hardly ever thought of obtaining the necessary approval from Merchant again for the changes. Thus, borrowers and beneficiaries of the death benefit would still have corresponding legal claims at a later date, whether against the credit institutions or also against the affected insurers; § 139 BGB.
Credit protection can be prioritised – Credit sale with credit protection ineffective
The Federal Supreme Court (ruling of 27.10.2010, Case IV ZR 22/09) already ruled that in the event of a revocable subscription right of the UN, who is also VP, the death benefit can be assigned to the Bank, with the consequence that the Bank is entitled to priority. This means that the beneficiary must be patient with the death benefit if the bank first collects the death benefit and then uses an uncanceled loan for the installments for years until maturity in accordance with the contract. However, for this to be effective, the assignment of the death benefit by way of security to the credit institution must first be effective, which requires the Merchant’s consent, if it is not identical to the UN, as in this case of the BGH.
If credit institutions bundle numerous loan agreements to strengthen their equity capital and sell them as a portfolio to an investor, the question arises again whether the death benefit could have been transferred to the loan buyer without the consent of the CP, and thus in the end the entire agreement might not have been invalid. The sale of credit claims also fails if this has been contractually waived vis-à-vis a natural person. Since 18 August 2008, the Risk Limitation Act has been in force, which requires the Bank to issue a warning notice.
Massive ineffective benefits for widows and orphans in the bAV ?
In occupational pension schemes (bAV), the UN is (initially) the sole employer. In terms of death benefits, VP is regularly an employee. If widows and orphans (including unborn children) are also to be granted a subscription right with the suspensive condition “in the event of death”, the Merchant’s consent is required: this is not always taken into account by the forms from insurance sales that are customary for this purpose.
If widows and orphans are to be even better protected, e.g. by assignment or pledging of the death benefit, the prior consent of Merchant is therefore also required. If minors and unborn children are affected, it may – in individual cases – even be necessary to appoint a supplementary guardian and then obtain approval from the guardianship court in order for the legal transaction to take effect.
The death benefit for widows and orphans may later prove to be non-existent if corresponding changes in subscription rights cannot be found in the BoD’s files – possibly left lying around in the insurance sales office. The security provided by liens can later also unintentionally be completely cancelled if the future heir does not have a claim to be secured.
Nowadays, even Nero would have to be patient – unless the insured person agrees
So far, contrary to the Federal Court of Justice’s arguments, nothing really seemed to speak against the new UN or the beneficiary being able to benefit from no more than this in the event of survival, even in the event of death, without the consent of the CP, which he would also receive in the event of repurchase. This would leave the banks and the secondary endowment policy market in the pink – but the Federal Court of Justice did not see it that way.
As Nero said to his soldiers when he was told that the patricians favoured him in their wills as joint heirs with large sums of money: “I cannot wait that long!
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
by courtesy of
www.experten.de (Published on 08.03.2019)
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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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