Variants of immoral insurance contracts

Insurance products supervised by the Federal Financial Supervisory Authority (BaFin) may also be null and void on the grounds of immorality. This then also applies to the contract with consultants and agents. The investor therefore has no claim to be protected from receiving false advice: A release from liability without any financial loss liability (VSH).


Investments whose return depends on the death of fellow human beings are immoral

It is sufficient if one of several funds of a unit-linked life insurance (FLV) is immoral for the entire contract to fall under it, i.e. in case of doubt it is null and void as a whole, § 139 BGB. The Regional Court of Frankfurt/Main judged a (US) fund to be immoral if it wanted to earn its return by betting on the early mortality of insured persons when buying used life insurance policies (judgement of 28.02.2013, file no. 2-10 O 265/12; 2/10 O 265/12) – the OLG then saw things differently.

Anyone who sells immoral products or provides advice on them, together with the person giving the advice, places himself outside the protected legal system and cannot therefore be held liable for providing incorrect advice. The adviser, policyholder and investor cannot enforce a reversal of the transaction. So even the most inclined tax evader cannot hold his advisor liable: Many a criminal defence lawyer first lets his client confess a premeditation in order to then assist in money laundering and tax evasion without any liability under private law.

Another unpleasant consequence is that the policyholder (UN) is unable to enforce a claim for benefits despite paying contributions – at least not legally by using the state monopoly of power. His money never comes back, § 817 p.2 BGB – except with the help of specialists “by breaking a thumb” and “concreting the feet into buckets with subsequent sinking into the harbour basin”. The OLG Frankfurt/Main (judgement of 19.07.2012, Az. 3 U 24/12) came to the same result of a dismissal of action by the investor, tended to agree with the concerns of immorality, and dismissed the action because of indecisive presentation as well as limitation of the consultant liability.


Is it immoral for a life insurance shell to invest in Greek government bonds?

In 2007, the debts of South American Ecuador were classified as immoral and partially cancelled. Since 2010, the term troika (EU Commission, ECB, IMF) has been used to describe an organisation that perhaps negotiates with EU states about debt without any power or legitimacy? In Greece in 2015 a “Special Commission of the Greek Parliament” judged its own national debt (allegedly 80 percent with the Troika) to be immoral because of violations of human rights and fundamental freedoms in particular.

Empirical researchers see a connection between increasing suicides and austerity policies (tax increases, wage and pension cuts, government spending cuts): in addition, there are privatisations via a trust fund, under the supervision of an informal intergovernmental Eurogroup. This means that bets by hedge funds on state bankruptcies could perhaps once be judged immoral?


Mass mediation of invalid insurance contracts for old-age provision

Dead persons whose personal details have been copied from gravestones cannot give their consent pursuant to § 159 II VVG (old version) to become an insured person (VP). In the case of fictitious CPs, corresponding insurance contracts are null and void. This was because the contracts were aimed at an initial, objective and permanent impossibility and were therefore void under § 306 BGB (BGH, judgement of 04.03.1999, Az. 5 StR 355/98).

An insured event (due to death or reaching retirement age) had no longer been possible. The brokerage service aimed at brokering void insurance contracts was economically worthless. This was a case of fraud against the insurer, with measurable financial loss.


Improper use of the manager liability policy (D&O insurance)

Section 257 I of the German Criminal Code (StGB) states

“Anyone who assists another person who has committed an unlawful act with the intention of securing for him the benefits of that act shall be punished by imprisonment for a term not exceeding five years or by a fine”.

If such policies now promise to “reimburse fines for future criminal acts” in individual cases, the illegality and criminal liability of the insurer and its intermediaries is obvious. It becomes a delicacy when professors psychologically aid circumvention by arguing that in the case of corporate penalties under antitrust law, the insurer may after all give the manager the money to secure the benefits, so that the manager can then compensate the company for the penalty imposed: Just a dream?


Buying up policies – sometimes immoral, sometimes not?

You can cheat by omission. For instance, by exploiting UN mistakes. Such as, for example, that the BoD, with a surrender value of EUR 140,000 available, only states the 100,000 that will be paid back immediately in the amount of the contributions paid in, but not the part that will be converted into a non-contributory pension and would result in a further EUR 45,000 being paid out in two years. Then the buyer might pay 115,000 euros. In addition, there are also cancellation deductions from the surrender value – then a purchase price that is only half the cancellation deduction below the RKW is still perhaps apparently advantageous.

There are – apart from the above – also cases where less than the gross amount paid out on termination is paid by the purchaser because the UN saves the deduction of capital gains tax. This model works particularly well if the buyer is located abroad, for example in Switzerland. It reminds rather strongly of the sporty design of so-called Cum-Ex shops. Brokers and investors do not go then “not to the prince” to the own legal security over a binding information of the tax office – with it everything could be questioned. It is better to hope that one is spared the accusation of overly creative design and the threat of imprisonment.

For example, the German buyers of life insurance policies do not retain any death benefit, but ensure that they receive it after deducting appropriate interest on the UN’s investment – perhaps to prevent accusations of immorality? It could be immoral to bet that Greece or any other company will become insolvent – including anything where Lehman papers were involved. Arms trade, speculation with food prices, even if only mixed in, also.


Immorality as an exit opportunity for intermediaries?

Intermediaries who are held liable or providers who are supposed to pay for damages could come up with the idea of increasingly arguing that the customer’s intention, the contract including the consultancy contract for the customer was deliberately immoral and the customer thus placed himself outside our legal system and no longer has any claim to protection against the consequences of incorrect advice. This would remove the consultant from liability, for example, if his liability insurance did not even insure such transactions; even legal. Courts would have to examine it themselves anyway – so there is no need for one party to appeal against it.


When immoral transactions are financed

The cheapest way to get to a brothel used to be – with real pimping, buying in installments, along with transfer of ownership of the brothel after payment of the first installment. Then everything stays where it is, 817 p.2 BGB. The seller receives a first instalment as motivation for the transfer of ownership, nothing more. Today this is a standard case of training, in the trade of cocaine. Similar to the case of a property being leased to a brothel.

In the beginning the jurisdiction had difficulties with the question whether the tenant does not have to pay anything anymore – and (actually) is allowed to keep the real estate as a (immoral) tenant for ever and ever, § 817 p.2 BGB: The lawyers solved this riddle about “good faith” in individual cases; they are just capable of anything. More often, insurance customers receive a bundle of contracts from the Structured Property Sales organisation – for example, when selling a tax advisor’s or doctor’s practice together with financing through an insurer. If then the clients/patients did not grant a sufficient release from the obligation of confidentiality, the entire transaction may be null and void (see BGH, ruling of 10 February 2010 – VIII ZR 53/09).


Prohibition and invalidity of sanctions by the EU government

The EU can issue decrees which are then immediately applicable, such as the one with the number 36/2012 of 18.01.2012: This one concerned Syria – another similar one concerned Iran. Corresponding insurance contracts were therefore void. The Regional Court of Hamburg (judgement of 03.12.2014, Az. 401 HKO 7/14) saw it differently, where the transport damage insurer tried to make excuses that there were certain sanctions on the part of the USA. The court awarded the plaintiff the sum insured, because if foreign states impose any sanctions, this has nothing to do with EU embargoes:

“Foreign prohibition norms are not prohibition laws in the sense of § 134 BGB”.


Fraud through insurance transactions with Al Qaeda & Co. – still without a claim?

Prospective academics of Libyan descent studying in Germany (BVerfG, decision of 7 December 2011, ref. 2 BvR 2500/09, 2 BvR 1857/10) – there are such business people even in the guise of Russian contemporaries of alleged Jewish descent – wanted to obtain fresh money by taking out life insurance. Be it to finance terrorism, or to pay for the villa on Wörthsee that you have just bought. The plan is then to avoid a risk assessment on the living object – such as an immigrant who is certain to be deported – through lower insurance sums.

Then this person was to die “officially” abroad, which was to be proven by documents with lied content. The Federal Constitutional Court did not see any damage before the death and overturned the previous conviction of the BGH. Whether the conclusion of the insurance contract was already a fraud or perhaps not even an attempted fraud is disputed in the technical literature: For in this case there was neither a fictitious death, nor a notification of loss to the insurer.


Ransom insurance as a violation of “ordre public”?

There is a legal system within the country, and this system has inherent values and principles, which are then referred to as “ordre public”. Accordingly, contracts with foreign insurers for tax evasion (already as an accompanying aim) or those which are intended to cause the wife to receive too little maintenance and gain after the divorce or, for example, that a person entitled to a compulsory portion unlawfully goes away empty-handed. Insurers cannot solve such problems through their products – good mathematicians, lawyers and foundation trustees certainly can.

Until a circular (3/1998 (VA) of 21.07.1998, Ref. IV 2-41521-1/98) of the BaFin, ransom insurance policies were considered to be a violation of the ordre public; § 138 I BGB, Art. 6 EGBGB. The reason for this was that such insurances were thought to promote the extortionate kidnapping of people. Some tax advisors got away with their lives only by chance after visits to the local mafia, from the Ivory Coast or Nigeria, as was heard from the Foreign Office.


BaFin drives insurers into illegality

No intermediary may rely on such legal opinions of BaFin: It could have been a regrettable legal error if the public prosecutor and judges had a different opinion. On more than one occasion, courts up to the Federal Supreme Court have ruled that the conduct of insurers, which BaFin itself has imposed on them, is illegal. On the “recommendation” of BaFin, an insurer had amended an allegedly invalid clause with the approval of a trustee – the BGH itself then judged the trustee procedure to be invalid.

The insurer countered the accusation later made by customers at the OLG Frankfurt that the (ineffectively amended) clause was ineffective by saying that it had only been presented as ineffective to the trustee as a result of strong pressure from BaFin – in reality, however, it had always considered it effective. BaFin’s concern for the stability of insurers and the protection of the collective of all insured persons from a multitude of individual selfish insured persons sometimes produces strange blossoms, often legally untenable. Nevertheless, it is standard practice in court for insurers to claim that the insurance supervisory authority requires or at least permits certain conduct from them.


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


by courtesy of (published on 16.09.2016)



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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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