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Withdrawal from life insurance policies

From the consumer's point of view

Withdrawal from life insurance policies

The following article deals with a highly topical and personally relevant issue for many policyholders: the right to withdraw from a life insurance policy for an indefinite period of time and the payments to consumers that are linked to them. 

It is clear that long-term and above all capital-intensive investments need to be well considered – which presupposes that investors have a minimum level of (truthful) information. To guarantee this, the legislator provides a series of consumer protection clauses in addition to comprehensive information obligations (e.g. sec 8 para 2 FAGG – this standard is, by the way, the reason for the now omnipresent button “order with obligation to pay”) and far-reaching rights of withdrawal (e.g. sec 8 FernFinG, 12 VKrG). These two instruments often go hand in hand insofar as consumers can assert the right of withdrawal particularly in the event of a breach or poor fulfilment of information duties. However, the terms of asserting the right of withdrawal raise a considerable number of legal questions, especially if the contract was concluded some time in the past – as is often the case with life insurance policies, which used to be very popular. 

Previous legal situation 

A law in force since the beginning of 2019 stipulates that customers can only claim the so-called “surrender value” instead of the premiums paid when withdrawing from their life insurance. In most cases, however, this is far lower than the sum of the premiums paid by the customer. This puts the customers at a clear disadvantage. The wave of lawsuits against affected insurance companies could also be stemmed considerably with the help of this law, which was very disadvantageous for consumers. Many of them were unwilling to accept this and appealed to the Supreme Court. The Supreme Court in turn submitted the explosive issue to the CJEU for a preliminary ruling. 

However, as a shared competence, answers to such consumer protection law questions can only be given upon consideration of Union law as well as the case law of the CJEU. The CJEU made some significant findings in its Rust-Hackner ruling as recently as 2019, which, among other things, made it necessary to amend the Austrian Insurance Contract Act (VersVG). The judges in Luxembourg first of all recognised the Austrian regulation, according to which policyholders were only reimbursed the surrender value after withdrawal, as being contrary to the Directive. 

In addition, it was found that policyholders would even be entitled to a perpetual right of withdrawal due to the European law principle of effectiveness (effet utile), if a restriction of the right of withdrawal would de facto result from a faulty instruction. However, the use of the term “perpetual” is certainly no imprecise exaggeration. The CJEU explicitly stated that the right of withdrawal could be exercised even after the termination of the contract and after all obligations arising from the contract had been fulfilled. 

However, not every previous incorrect instruction leads to a perpetual right of withdrawal; the prerequisite is that it was a serious error. In this context, the Supreme Court has already articulated a number of specific conditions that can be subsumed as serious and thus also entitle to a perpetual right of withdrawal, such as 

  • the insurer does not state the premium amount 
  • the insurer provides several instructions with different contents 
  • despite the applicability of Austrian law, the instruction is given according to foreign law 
  • there is an accumulation of several minor instruction errors, or 
  • a shorter withdrawal period than the legally standardised one is stated. 

Amendments to the VersVG 2022 should bring clarity 

According to a ruling of the Supreme Court issued in mid-February 2022, consumers who did not receive a copy of the insurance contract, the consultation protocol and, in particular, information about their right of withdrawal when taking out their life insurance policy have the unlimited right to withdraw from their contract. Furthermore, the insurance company is obliged to repay all premium payments made plus approx. 4% interest. Substitution with the substantially lower surrender value is inadmissible. Withdrawal from the contract could therefore mean a profit for the policyholder if all conditions are met. 

Due to the doubts mentioned so far, based on national, but primarily also on European Supreme Court rulings, in particular with regard to the conformity of the Austrian regulation with EU law, the legislator was now urgently required to amend the Insurance Contract Act (VersVG). The current draft of the VersVG Amendment 2022 fulfils its declared objective of “establishing a clear legal situation in conformity with the EU, [in] accordance with the case law of the Supreme Court”, as it is basically a positive amendment of the above-mentioned court decisions. 

Our team is at your disposal for the purpose of legal clarification if claims for repayment exist due to any omissions or errors in the course of life insurance instructions. 


AUTHORS:

Dr. Julia Andras, Attorney-at-Law and Managing Partner at LGP
Simon Weber, Legal Associate at LGP

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