Underwriting of life insurance policies

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The BGH has decided that – completely independent of the revocation – a claim for damages can also be sufficient for the reversal of a life insurance policy – oh for contracts concluded from 2008 onwards.

 

In its current ruling of 28 June 2017 (Case No. IV ZR 440/14), the Federal Court of Justice (BGH) decided that – completely independently of revocation – a claim for damages can also suffice for the reversal of a life insurance policy – even for contracts concluded from 2008 onwards. This is the case, for example, if the policyholder (UN) was culpably not provided with the insurance terms and conditions prior to the conclusion of the contract and therefore suffered a loss or would not have concluded the contract if the insurance terms and conditions had been provided on time. Misleading information, for example in the form of excessive sample calculations, is another reason.

More often the UN can invoke the presumption of conduct in line with the right to information (BGH, Ref. IV ZR 164/11). Rescissions are also possible in the case of void or pending ineffective contracts, for example, if the insured person did not consent or if the guardianship requirements were not met in the case of minors. An actuarial appraisal will usually be necessary for the claim for reversal, the amount of compensation and proof of the cause of the loss.

 

High economic potential through revocation

After a revocation of life insurance contracts concluded from 1995 to 2007 – the insurer (VR) may only retain the usually relatively low risk costs consumed. Otherwise he must pay back the premiums in full. Even with otherwise non-terminable basic pensions, the capital and more can be disposed of again. In addition, all uses actually drawn by the insurer must be surrendered without deductions (BGH, ref. IV ZR 201/14 and IV ZR 384/14). This must be presented to the UN with reference to the insurer’s concrete earnings situation – without an actuarial appraisal including an evaluation of all the insurer’s annual reports over the term of the contract, this will hardly be possible.

 

Reversal of the pension commitment or occupational pension scheme at almost any time

The reversal of a pension commitment – pension commitment for employees (AN) or GmbH shareholder-managing director (GGF) – is another issue. Reasons for the challenge, invalidity or other claims for reversal of the pension commitment can usually be found, especially if the employee and employer agree on a mutually beneficial arrangement. Well done, reversal can be a tax-saving model – including roughly halving social security contributions for employers and employees when paid out early as wages; rather than at retirement age.

In the case of direct insurance, deferred compensation and pension reinsurance, there is also a life insurance policy on board, against which one’s own named claims for reversal or compensation may exist. In many cases, their revocation then offers the employer the chance to receive more money from the insurer than was promised to the employee in the occupational pension promise. Without revocation, the undercoverage that is common today, i.e. an insurance benefit that is not sufficient to fully meet the benefits of the pension promise, leads to an obligation on the part of the employer to assume liability, i.e. subsequent and usually unplanned costs.

The insurance broker usually does not provide information about such risks – for example, using a scenario technique suitable for the employer’s occupational pension forms for the personnel department or wage files. However, precisely this can then serve as a reason for the claim for rescission, because the Contractor would never have agreed to the conversion of remuneration, for example, if it had been correctly clarified.

 

Rare protection against revocation by insolvency administrators

The usual advice from the insurance sales department, for example by granting a subscription right or a pledge to protect the assets saved for old age from insolvency, usually proves to be only a semblance of protection. If the employer or later his insolvency administrator cancels the life insurance, such safeguards are useless, because the insurance contract itself is destroyed. Employees may then register their legal claims from the occupational pension commitment in the insolvency table, with a good prospect of an average of perhaps less than 3% of the hoped-for benefit as the insolvency rate. In any case, this is not the business of the Pensionssicherungsverein.

Even the transfer of legal claims to insurance benefits to the employee – including the policyholder status – upon leaving the company usually cannot prevent the former employer or his insolvency administrator from revoking the agreement, because rights of structuring such as the right of revocation regularly remain with him. The insolvency administrator would rather be reproached if he did not increase the insolvency assets by revocation and left the incomplete contractual protection of the employees unused. The employee may well consider whether the employer or his former insurance intermediary, for example, had not or incorrectly clarified the gaps in insolvency protection? However, claims for damages for this reason will then often already be time-barred.

 

Hopeless expert opinions on life insurance revocation

Expert opinions still appear in which, for example, the previously paid insurance premiums are extrapolated using a flat rate of “base interest rate plus 5%” in order to show the amount of the claim against the BoD. The BGH senate responsible for insurance law has long since rejected this view – although it is widespread in banking law, i.e. in another BGH senate. Such often “free” party opinions then prove to be free in a double sense: free of charge as well as in vain. However, legal expenses insurers (RSV) do not pay the actuary regularly required by the UN as a private expert because this is not covered by the RSV.

 

Time spent by companies on revocation processing is eligible for compensation

A serious lawyer would nevertheless have to explain the necessity of a professional expert opinion, instead of uselessly harassing the courts with “cheap milkmaid bills”. The “treasure” that has to be raised after a revocation or reversal for other reasons is unfortunately not risk-free and free of charge. Although many insurers voluntarily accept a justified revocation and even submit a revocation invoice – but whether this is acceptable can hardly be determined without an expert examination. Better chances for the cancellation settlement also require subsequent above-average efforts for legal enforcement.

With larger private life insurance policies and the usual size of occupational pension contracts, however, the costs are usually economically reasonable. Management consultants have also recognised this and process financiers – up to 50% profit sharing is then called for; in the end, it is purely a matter of negotiation – even when it comes to the contents of their contracts. In addition, employers can document the time spent from the time of revocation and later demand reimbursement of the proportionate costs from the BoD. This is roughly the same as when a lawyer sues for his claim himself and then also includes his usual costs.

 

Doubtful advice from consumer protectors on occupational disability insurance

With the revocation of life insurance, supplementary insurance policies, for example for occupational disability, are also no longer applicable. When revoking a life insurance policy that may have been cancelled years ago, this is no longer of any importance.

If the life insurance includes a supplementary insurance against occupational disability, this usually only serves to exempt the premium for the main insurance – then it is unnecessary if the revocation is implemented.

The Federal Court of Justice holds that used risk costs may be deducted by the BoD and retained after a revocation because the UN would have claimed the BoD’s benefit if the insured event had occurred. The Federal Court of Justice has not yet decided whether this then leads to the UN being allowed to retain all benefits from an insured event that has already occurred after revocation, which are paid with the deducted risk premiums, or whether it must return them. Among other circumstances (LG Heidelberg, judgement of 24.03.2017, Az. 3 O 286/16), the claiming of insurance benefits could exceptionally lead to the forfeiture of the right of revocation, because it presupposes the existence of the contract and the insurer could therefore rely on the unconditional will of the UN to continue the contract.

 

Risk with initially free revocation service providers

For many service providers – such as process financiers and debt collection companies – the collection of revocation cases is a business concept. However, some of them do not have the necessary authorisation for collection transactions, which may mean that the service contract and the associated power of attorney are null and void. Often, however, young financial services service companies lack the financial strength to pay the costs of legal action – so cases could be dropped and become statute-barred despite being commissioned.

In any case, if the lack of creditworthiness is recognisable to everyone because a more or less financially weak foreign company is supposed to fight through the reversal, this indicates a violation of moral standards, which also leads to the invalidity of contracts, assignments and powers of attorney (see Federal Court of Justice, decision of 07.04.2009, file no. KZR 42/08).

Also usurious offers can be void, with which about 30-50% profit sharing is promised by the UN – for the collection of the documents, and passing them on to a lawyer, without own process cost financing. Sometimes the free choice of lawyer is restricted to a few cooperation partners, which in itself can be unconstitutional (BGH, judgement of 26.10.1989, Az. I ZR 242/87).

 

Rarely used defence strategies of insurers

BoD is increasingly aware that there is a risk of double service for them if factoring or collection companies would receive a payment despite void agreements with VN – this is why few have so far defended themselves with repeated success (BGH, ruling of 11.01.2017, ref. IV ZR 340/13). Some VR law firms do not seem to be aware of this issue – in the event of a claim, they may be liable for incorrect litigation. However, not all law firms may include the cost-effective shortcut of a lengthy process in their business concept.

By issuing a third party notice to the UN, the BoD has the opportunity not only to disclose the objection of the alleged nullity of the collection agreement to the UN, but also to provide detailed reasons for this objection. This is garnished with appropriate references to inadequate solvency, for example, which would hardly allow the pro rata costs of the proceedings to be borne in the event of excessive claims calculations, if only for this reason, after partial failure. If the court then judges the revocation by the service provider to be effective, the UN as the third party can not later claim the opposite and again now effectively revoke the contract and demand payment from the BoD.

Some collection or factoring agreements may also be null and void as a legal service because there could be a conflict of interests to the detriment of the UN between rapid cost-effective realisation of profits for the service provider and optimum results for the UN and therefore an unfavourable settlement, Section 4 RDG.

And finally, the UN is unlikely to be enthusiastic about the risk of having the payment made to it – after a (partial) success case – later claimed back by an insolvency administrator of the factoring or collection company.

 

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

 

by courtesy of

 

www. channelpartner.de (published on 25.10.2017)

Link: https://www.channelpartner.de/a/rueckabwicklung-von-lebensversicherungen,3050661

and

www. deutsche-molkerei-zeitung.de (published in issue 21, October 2017, pages 40-41 under the heading: Reversal or compensation for damages in life insurance)

and

www.pt-magazin.de (published on 29.07.2017 under the heading: Federal Supreme Court facilitates reversal or compensation for damages in the case of life insurance policies)

Link: http://www.pt-magazin.de/de/wirtschaft/unternehmen/bundesgerichtshof-erleichtert-r%C3%BCckabwicklung-oder-_j5nnlote.html

and

published on www.Fachanwalt.de on 27.07.2017 (under the heading: Federal Supreme Court facilitates reversal or compensation for damages in the case of life insurance policies)

Link: http://www.fachanwalt.de/ratgeber/bundesgerichtshof-erleichtert-rueckabwicklung-oder-schadenersatz-bei-lebensversicherungen

and

www.experten.de (published on 21.08.2017 under the heading BGH facilitates reversal of LV contracts)

Link: https://www.experten.de/2017/08/21/bgh-erleichtert-rueckabwicklung-von-lv-vertraegen/

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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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