Pursuant to § 7 Para. 1 of the German Insurance Contract Act (VVG 2008), insurance companies must inform their customers in text form of the “contractual provisions, including the general terms and conditions of insurance, as well as the information specified in a statutory instrument pursuant to Para. 2” before concluding a contract.
This already applied pursuant to § 5a VVG (old version) for life insurance policies taken out before 1 January 2008. Only in the case of the latter, the right of revocation pursuant to § 10a of the Insurance Supervision Act (VAG) was not provided for legal persons only. The limitation of the right of revocation to one year in the event of incorrect revocation instructions is contrary to European law for life insurance policies.
In view of the low surrender values in cases of cancellation of a life or pension insurance policy, policyholders (VN) regularly receive little from the insurer even now, so that the regulation on the consequences of cancellation in § 9 VVG for life insurance contracts concluded since 1 January 2008 could also be contrary to European law. This is because the UN does not receive more in the event of revocation after one year than it is entitled to in the form of the surrender value anyway in the event of termination.
Burden of proof for revocation instruction with the financial house
The burden of proof for the notification, its completeness and correct design (optical and textual) regularly lies with the insurer. However, if a court correctly states that full proof must be provided for access, this only means that there is no facilitation of evidence, e.g. certain presumptions of access. The full proof is to be furnished here regularly by means of circumstantial evidence, for judicial conviction, § 286 of the Code of Civil Procedure (ZPO). Even in the case of “full proof”, no 100% absolutely doubtless security is required. “Access must be proven” therefore does not make any impossible claims against the insurer. In general terms and conditions of business and insurance, however, the burden of proof cannot be changed to the disadvantage of the customer, § 309 No.12 BGB.
It may happen that the revocation instruction, which should have been given, has been reproduced. It then struck the UN that at the date of the submitted revocation instruction the company had not even existed in its head.
This data was not saved; at most the date on which a revocation instruction was created. This is then stored centrally, and you know which one it is at the time. This way it is then reproduced if necessary. The texts of the revocation instruction are historicized, if necessary still with a version number. The same applies to the board of directors, because they change frequently. In mass business, the insurer knows that it has applied the same texts and the same procedures to all its clients at one time. But unfortunately, the technology is not enough to also historicize the company in question with its respective name.
So a reproduction actually only means: The customer got this because at that time all customers (should) have got this. One then reproduces the document as it should have looked like according to the available data, in the firm conviction that it corresponds to real ones in form and content. Courts hardly deal with this, but believe the reproduced appearance. Embarrassing, when you realize that there’s no way it could have looked like that. This is about the same as if you want to sell an original painting from 1815 of Blücher and Wellington’s invasion of Paris, on which correctly the Arc de Triomphe, but unfortunately in the background also (already) the Eifel Tower is visible. Therefore: Also for scans of originals the following applies: Do not believe any scan that you have not faked yourself.
Perpetual right of revocation to reverse transaction
Also the case that the UN has received incomplete consumer information (since 2008 only concerning consumers, according to InfoPflV a product information sheet) allows a (perpetual) revocation also for fund policies (BGH, decision 04.02.2015, Az. IV ZR 460/14) – for example if – how often – the surrender value table is missing. Only after the revocation or objection does the limitation period expire within three years at the following turn of the year, §§ 195 ff. BGB (BGH, judgement of 08.04.2014, Az. IV ZR 103/15).
The legal claim to rescission (§ 812 I 1 Alt.1 BGB) arises only through the revocation. In this case, however, the UN does not get back all the premiums paid, but must have the value of the risk actually borne by the insurer (VR) credited to it (BGH, ruling of 07.05.2014, Az. IV ZR 76/11) – perhaps not more than what it actually costs the insurer net.
In return, the UN can – despite revocation – also retain benefits already provided by the BoD without deduction or crediting (Federal Court of Justice, ruling of 17 June 2015, ref. IV ZR 170/14), or even after the objection, report a new claim, e.g. in supplementary occupational disability insurance, and demand settlement from the BoD.
Up to more than double the benefit of the insurer after revocation?
The insurer must also disclose the actual (capital) use of the premiums paid, so that in most cases the objection is still economically advantageous and legally possible, especially after termination or expiry of the contract, § 818 III BGB (BGH, ruling of 11.11.2015, Az. IV ZR 513/14).
The insurance company will hardly be able to counteract the very late revocation with a so-called forfeiture (LG Nürnberg-Fürth, judgement of 2004.2015, file no. 6 O 9499/14; OLG Hamburg, judgement of 26.02.2014, file no. 13 U 71/13; BGH Revisionsrücknahme, file no. XI ZR 154/14; a.A. OLG Köln, judgement of 25.01.2012, file no. 13 U 30/11). Only the EU unlawfulness of the policy model (until 31 December 2007) cannot be invoked on the grounds of revocation if one has been fully and accurately informed (BGH, ruling of 16 July 2014, ref. IV ZR 73/13).
Some insurers have a return on equity of more than 30% p.a. Certain premium components are only invested at lower rates of interest than investments with varying annual net returns, others may be invested as funds, and still others achieve no return at all. However, the burden of proof lies with the insurance customer, so it is a nice dream to believe that this can be done without the assistance of an actuarial expert or
private expert can be implemented by a lawyer. For this reason, too, legal expenses insurance will never bear the full costs of legal enforcement of the reversal. The RSV is simply not an “all-risk cover”.
Federal Court of Justice (BGH) on the calculation of the rescission after revocation
The Federal Court of Justice (BGH) has established some principles “for the unwinding of life and annuity insurance contracts under enrichment law following an objection” (BGH, ruling of 29 July 2015, ref. IV ZR 384/14). For example, the UN must allow the retained withholding tax on capital gains to be credited together with the solvency margin (BGH, ruling of 29.07.2015, ref. IV ZR 448/14). Profits from fund investments may challenge the UN as benefits, but must also bear losses of the funds compared to the invested savings capital, but possibly only within narrow limits of perhaps 10% (BGH, ruling of 11.11.2015, ref. IV ZR 513/14).
The question of whether the BoD may also retain safety margins in risk contributions should be considered. Without an actuary, it is not possible to calculate the proportions of the premium which are needed to cover the actual risk or the commissions paid to the intermediary and therefore do not bear interest. This is different for the other acquisition costs, the full administrative costs (including instalment surcharges) and the risk costs that are not required. These are not deposited as savings portions in the actuarial reserve and earn interest at the net return on investments, but remain in the insurer’s own capital or are saved there. It might therefore be logical to charge interest on them in the form of the return on equity per year of the insurer according to the annual report as uses.
If, instead, 5% above the base rate were to be applied, the BGH would find the complaint to be too lump sum. This approach results from banking case law on reversal and represents an assumption accepted by the courts as a blanket approach to the return on equity that a bank generates in any event. This has not been recognised by the courts for many years.
Returns on equity range from around minus 60 % in individual years to around plus 40 %, recently only around 2 % for some insurers, and regularly up to more than 30 % per year for others such as Allianz. If only 10% of the premiums of, for example, EUR 10,000, i.e. EUR 1,000, for a contract paid from 1998 to 2002 went into equity capital, then until the revocation in 2015, with a 20% return on equity capital, this will result in about 15 times the amount, i.e. EUR 15,000, i.e. uses to be issued of EUR 14,000 from equity capital alone. For some insurers this is a huge lever.
The Federal Court of Justice also states that the plaintiff is at least burdened with the burden of proof for the benefits drawn, which must relate to the concrete circumstances at the insurer. Of course, this cannot be achieved without expert opinions. You also need to know where to get the data for all insurers since 1995. Actuaries who have been recalculating life insurance policies for a long time and have needed and collected the complete annual reports including the annual surplus declarations are at an advantage.
By no means has everything already been clarified by the BGH. Until then, a lot of money is often unnecessarily waived if the calculations do not exhaust the possibilities. Without the prospect of advance payment by an RSV, there is no prospect of reimbursement of expert costs after the conclusion of legal proceedings. Some experienced service providers assume these and legal costs in return for an appropriate share of the profits.
An even higher reimbursement (e.g. complete risk costs) is to be expected in the case of insurance contracts that are void from the outset (and not only through revocation). For example, if the BoD failed to obtain the consent of the guardianship court in the case of underage children, or if the insured person did not consent to the contract, or if a reservation of consent was ordered by the guardianship court and therefore no fulfilment could occur in the case of deposit or repayment, § 362 BGB (BGH, ruling of 21.04.2015, ref. XI ZR 234/14).
Reversal also of the loan in the case of credit-financed life insurance
In so-called leveraged transactions, investors have taken out a (only supposedly) cheap loan (often in foreign currencies such as CHF or YEN) in order to finance the payment into a (often British or Liechtenstein) life insurance policy. Such credit-financed annuity or endowment insurance policies are so-called linked business, which means that the credit agreement may also be reversed.
In many cases, the insurance contracts then run longer than the life expectancy is sufficient (Methuselah policies), which may at best serve to multiply the commission. The case is different if the loan was used for other purposes, i.e. “if the insurance premium is not payable in the form of a one-off payment financed wholly or partly by the loan. In this case no analogous application of § 358 BGB is possible. (BGH, judgement of 05.05.2015, Az. XI ZR 406/13).
Revocation of credit agreements and loans
However, the revocation instructions of the credit institutions can also be completely missing in the loan agreement, or be incorrectly designed. Every word counts: For example, the withdrawal period may not begin “at the earliest upon receipt of the instruction” (LG Karlsruhe, judgement of 11.04.2014, Az. 4 O 395/13). Life also begins at the earliest with birth – or does not begin until the age of 66. Slight inaccuracies in the indication of the start of the period are sufficient for the instruction to be incorrect (BGH, ruling of 10 March 2009, ref. XI ZR 33/08; BGH, decision of 15 February 2011, ref. XI ZR 148/10).
For the borrower, this means the opportunity to be able to repay the loan at any time after revocation without an early repayment penalty (BGH, judgments of 10 March 2009, Ref.: XI ZR 33/08; 1 December 2010, Ref.: VIII ZR 82/10; 28 June 2011, Ref.: XI ZR 349/10; and 18 March 2014, Ref.: II ZR 109/13). The bank is then owed the “normal market” interest rate for the use of capital; this also applies in the event of revocation under the Doorstep Selling Revocation Act, for example because of a contract initiation at the workplace (OLG Dresden, judgment of 15 November 2002, file no. 8 U 2987/01).
However, an intended debt rescheduling to save interest should be planned and prepared legally and economically before the revocation. Some banks are said to have given their customers a bad credit rating with credit agencies due to the revocation in order to prevent the debt rescheduling or to make it more expensive for the customer. It is often worthwhile to involve an account auditor in order to detect incorrect interest statements for loans and overdrafts, because some banking software shows an interest rate on the account statement, but this is not actually taken into account when calculating the interest.
The right of withdrawal in the case of consumer loans is also available to self-employed persons as borrowers who, as natural persons, had received a loan from their bank with private or no specification of the purpose of use (ECJ, ruling of 03.09.2015, ref. C-110/14).
The strategic procedure for revocation is decisive for its success
Recently, the UN first informed the insurer after several years that it had never received an insurance certificate and asked it to send it to the insurer so that its insurance documents would be complete for the future, with the additional question of whether it was possible to determine when it was sent, since it must have been lost in the mail. The BoD then announced that this could happen, apologised and sent the insurance certificate with all the documents. Then the customer immediately recanted.
This avoids the possibility of subsequently submitting “inadvertently” documents in an action for revocation, where it can be proved that the documents whose access is disputed must also have been submitted. This would raise the suspicion of criminal deception of VR. Careful lawyers therefore check the customer’s documents carefully, because the customer often cannot see exactly what he has received – they sometimes like to confuse colourful advertising flyers with insurance conditions.
Insurers react to the revocation by making it a cancellation and surrender and, according to the law, demand that the insurance policy be sent to them. It is then better to make a “declaration of loss”, but not in such a way that it is confirmed that you once had it.
Alternatively, the BoD may accept the revocation and pay out something which may still be below the repurchase value not mentioned. After that, they refuse to provide the customer with any information whatsoever. Then the UN will have a hard time making a higher demand on the expert, because the expert needs documents or has to help himself with the time-consuming task of reconstructing the calculations.
It is advisable to ask for the current fund account before revoking a unit-linked insurance. An actuarial expert can otherwise also calculate this from published fund data and the contract history, if the considerable expense involved in view of up to five different invested funds is paid for this.
Some insurers will first reject the revocation in a lump sum with text modules and in the second attempt simply acknowledge it with a remainder of customers and often pay the UN less than the surrender value, with a calculation that the UN will hopefully believe, and then react to nothing as a BoD because there is no longer a customer relationship and (allegedly because of the objection) never existed. Here it is more skillful to think through the process in advance.
Some insurers also accept the revocation and do not pay out anything at all for an indefinite period of time, because even months later they do not know how to calculate a revocation. In this case, the only solution is to take legal action with the help of your own actuarial expert opinion.
Insured event in legal expenses insurance (RSV)
The decisive factor is what the insured person communicates to the RSV by reporting the damage: In this context, “only the statement of facts with which the UN justifies the breach of duty by its claimant is decisive for determining the breach of duty characterising the insured event. (BGH, judgement of 25.02.2015, file no. IV ZR 214/14).
If a life insurer, for example, refuses to reverse and recalculate the transaction, “this constitutes a material breach within the meaning of § 4 (1) sentence 1 letter. c) ARB 2004 lies in the refusal to recognise the right of objection and not in the alleged lack of information at the time of conclusion of the contract. (BGH, ruling of 24.04.2013, file no. IV ZR 23/12). It is therefore crucial that an RSV exists today before considering the revocation of a credit agreement or insurance. However, some RSV providers have excluded cover in cases of revocation since mid-2014 or later in their General Legal Protection Conditions.
As a rule, no exclusion of cover in the General Terms and Conditions of Legal Protection (ARB) Terms and conditions of insurance are “to be interpreted in such a way that an average policyholder must understand them, taking into account a reasonable assessment, attentive review and the recognisable context. In doing so, the understanding possibilities of an insured person without special knowledge of insurance law and thus – also – his interests are important” (BGH, judgement of 25.06.2003, Az. IV ZR 32/03).
At the time, an RSV had erred in law by stating that the exclusion (in ARB 75) “in the planning, financing and construction of (new) buildings” also applied to participation in a closed-end real estate fund (BGH, ruling of 19 February 2003, ref. IV ZR 318/02). No consumer has to reckon with the exclusion of actions for annulment of a decision concerning a WEG owner (AG Düsseldorf, judgement of 10.06.2015, Az. 23 C 17/15).
The BGH also considered the securities clause to be invalid: “The clause in general terms and conditions of legal expenses insurance “Legal protection does not exist for the protection of legal interests in causal connection with the acquisition or sale of securities (e.g. bonds, shares, investment units) and participation in capital investment models to which the principles of prospectus liability apply (e.g. depreciation companies, real estate funds)” is invalid due to a violation of the transparency requirement.
With regard to the interpretation of the ARB, he stated: “Technical terms which are not clearly defined terms in legal terminology cannot be used as objective guidelines for the interpretation of insurance conditions according to the understanding of an average policyholder”, § 307 I 2 BGB (BGH, judgement of 08.05.2013, Az. IV ZR 84/12).
RSV cover in case of competing legal claims
Even if a certain contractual claim were not covered by the ARC (94), there is often also a tort: ‘The exclusion of the assertion of contractual claims for damages does not extend to the assertion of competing tortious claims for damages’. (LG Hannover, judgement of 16.10.1998, Az. 13 O 158/98). This applies accordingly to ARB-RU95 (AG Mönchengladbach, judgement of 17.02.2004, ref. 29 C 496/03). Nonetheless, some of the claims department’s claim handlers in the RSV take the risk of whether the UN has a war chest, and in the end successfully claim the cover, because in most cases the insured would rather change the RSV.
Revocation as a business model for brokers, agents and other initiators?
A popular method used by intermediaries is to engage a tax advisor or lawyer to use funds from a revocation or the sale or cancellation of a life insurance policy later on for a new investment, i.e. to pass them on – bypassing the customer, combined with the promise of later (usually higher) fixed repayment.
This service is often judged to be prohibited deposit business, which means that the chamber professionals involved are liable to the UN for later losses, and the transaction is void; § 32 KWG, § 823 II BGB (BGH, judgement of 10.02.2015, Az. VI ZR 569/13).
Another more frequent variant is that the customer transfers his legal claims against the insurer to a life insurance expert, sometimes pays a service fee as a customer there, and then is to receive a percentage share of the proceeds. These contracts can also be null and void due to unsuitable design if their first name was not registered as a collection agency under the RDG.
Time and again “communities of interest” also work ineffectively in the case of failed closed participations (frequently KG shares), if, for example, errors in the prospectus become apparent.
It would then make more sense to think of a service provider working in the manner of litigation financing, which would assume the further costs for perhaps around 40% profit sharing after completion of a draft suit. However, with experienced service providers there is usually more left for the UN to do than to try to deal with the insurer itself.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
by courtesy of
www.pt-magazin.de (published on 16.02.2016)
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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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