The right to withdraw from a (life) insurance contract
Three decisions have been issued by the Third Instance Princely Court of Liechtenstein1 and, as far as we are aware, one decision by the Second Instance Princely Court of Liechtenstein2 on the right of withdrawal of life insurance contracts. This means that the withdrawal of life insurance contracts is less prevalent in Liechtenstein case law than in Austria or Germany, for example. In the latter countries there have been many decisions on this topic in recent years.
Moreover, the rulings issued in Liechtenstein on this topic all date from the recent past.
However, the far-reaching consequences of a withdrawal of a life insurance contract in Liechtenstein - namely the mutual reversal of the benefits provided back to the time of conclusion of the contract, even if the contract was terminated a long time ago - are reason enough for an update on the legal framework of this right of withdrawal.
A glimpse at the ECJ
In a series of ECJ cases, including ECJ Endress3 , ECJ Rust-Hackner4 , ECJ kunsthaus muerz gmbh5 , the ECJ has formed the legal basis for the right of withdrawal in the EU member states as part of preliminary ruling proceedings6 . As these ECJ rulings also have an impact on Liechtenstein case law, it makes sense to start with a brief insight into these most relevant rulings.
ECJ C-209/12 Endress
In 1992, the German Federal Court of Justice referred the question to the ECJ for a preliminary ruling in Endress v Allianz as to whether a provision of the German Insurance Contract Act violates Art 15 (1) sentence 1 of the Second Life Directive7 , taking into account Art 31 (1) of the Third Life Directive8 , according to which a policyholder's right of withdrawal or objection expires at the latest one year after payment of the first insurance premium, even if the policyholder has not been informed of the right of withdrawal or objection. The ECJ ruled that the German regulation violates applicable EU law. A national provision such as the one in question renders the realisation of a fundamental objective of the Second and Third Life Directives impossible and thus threatens their practical effectiveness.
ECJ C-355/18 to C-357/18 and C-479/18 Rust Hackner
Question 1 sought clarification as to whether the relevant provisions of the Second and Third Life Directives must be interpreted as meaning that the withdrawal period for a life insurance contract begins to run from the time when the policyholder is informed that the contract has been concluded, even if the information provided by the insurer either does not state that the declaration of withdrawal does not require a particular form under the national law applicable to the contract or requires a form which is not prescribed by the law applicable to the contract.
The ECJ ruled that not every incorrect information on the form of the declaration of withdrawal that is contained in the insurer's instructions should be regarded as incorrect information endangering one party's right of withdrawal. If this did not deprive the policyholder of the possibility of exercising the right of withdrawal under essentially the same conditions as if he had been correctly informed, it would be disproportionate to allow him to escape from the obligations arising from a contract concluded in good faith. By conducting an overall assessment, the referring courts would have to assess - taking the national legal framework and the circumstances of the case into account in particular - whether that possibility had been taken away from the contracting party by the error contained in the information provided.
The preliminary ruling sought to answer Question 2, this one relating to the significance of the policyholder's otherwise acquired knowledge of his right of withdrawal. In this regard, the ECJ recalled that it had already ruled in Endress that the insurer was obliged, under EU law, to provide the policyholder with certain information, including information about the policyholder's right to withdraw from the contract. The hypothesis in which the policyholder had received the information that he should have received from the insurer through other means could not have the same legal effect regarding the withdrawal period as the notification of this information by the insurer in discharge of the debt. A different view is not compatible with the aim of the Directive, namely that the policyholder is properly informed of his right of withdrawal.
Question 3 dealt with the policyholder's possibility to exercise the right of withdrawal even after termination and fulfilment of all obligations contained in the contract, including the payment of the surrender value by the insurer if the law applicable to the contract does not regulate the legal effects for the cases in which no information at all was provided about the right of withdrawal or if the information provided was incorrect. The possibility for the policyholder to withdraw after termination and fulfilment of all obligations was affirmed by the ECJ.
Question 4 asked whether the policyholder was only entitled to the surrender value after his withdrawal, or whether a reversal under unjust enrichment law was to take place. The ECJ ruled in favour of reversal under unjust enrichment law.
Finally, in Question 5, the referring court wanted to know whether the provisions of the Second and Third Life Directives must be interpreted as precluding national legislation according to which interest on sums which the policyholder reclaims after his withdrawal of the contract on the grounds of unjust enrichment is time-barred after three years. In this regard, the ECJ passed the ball back to the national courts, as it had done with Question 1: the courts would have to examine whether such a limitation period for the claim to interest was likely to impair the effectiveness of the right of withdrawal granted to the policyholder under EU law. When assessing the needs of the policyholder, the time of the conclusion of the contract should be taken into account. Advantages that the policyholder could derive from a delayed withdrawal must be disregarded. Such a withdrawal would not serve to protect the policyholder's freedom of choice, but rather to enable him to achieve a higher return or even to speculate on the difference between the effective return on the contract and the rate of interest.
ECJ C-20/19 kunsthaus muerz gmbh
In this ruling, the ECJ clarified that the right of withdrawal applies not only to consumers, but also to companies. The main argument was that the relevant provisions of European law are not based on the consumer status of the contracting party. Furthermore, the aim of the Directive was not to protect consumers, but in particular to provide adequate protection for all contracting parties.
Back to Liechtenstein
The above-mentioned decisions from Liechtenstein all concerned unit-linked life insurance products from Liechtenstein insurance companies where the policyholders had declared their withdrawal from the contract. The reasons for the withdrawal were mostly excessive costs and poor performance of the insurance products.
Judgement of the Third Instance Princely Court file no 09 CG.2020.97 of 04/03/2022
In this ruling, the Princely Supreme Court ruled for the first time and with legally binding effect that the policyholder is entitled to an unlimited right of withdrawal in accordance with Art. 65 Insurance Contract Act if the policyholder was not properly informed of the right of withdrawal. It thus endorsed the legal opinion of the Austrian Supreme Court, which in turn is based on the judgement of the ECJ in case C209/12 (Endress). The Princely Supreme Court also clearly indicated with numerous references to the ruling of the Austrian Supreme Court that the latter's case law can be predominantly relied upon to deal with the legal issues relevant to the proceedings.
The subject of the proceedings was an insurance policy concluded in 2005, from which the policyholder withdrew in 2020. The Princely Supreme Court ruled that this declaration of withdrawal - 15 years after the insurance policy was concluded - was still admissible because the insurance company had incorrectly informed the policyholder about the deadline for submitting the declaration of withdrawal. In accordance with the provision in the policy, the policyholder could withdraw from the insurance contract within 30 days of becoming aware of the conclusion of the contract. However, the insurance company's instructions only referred to a 14-day withdrawal period.
In the appeal proceedings, the Princely Court of Appeal (Second Instance Court) still held the legal opinion that the right of withdrawal pursuant to Art. 65 Insurance Contract Act had been conclusively waived. This was because the policyholder had assigned his claims under the insurance contract, including the right of withdrawal, to the claimant in June 2020 and the claimant had only exercised his right of withdrawal three months later. In the opinion of the court, the plaintiff's insistence on his "perpetual" right of withdrawal under the given circumstances was tantamount to a "venire contra factum proprium", which was to be qualified as an abuse of rights within the meaning of Art 2 para 2 Persons and Companies Act and therefore did not merit legal protection.
On the other hand, the Supreme Court did not consider the declaration of withdrawal to be an abuse of rights on the part of the policyholder. There was no reason for the policyholder to exercise his right of withdrawal earlier. Conversely, the insurance company could not rely on the fact that the policyholder had given up his right of withdrawal due to the policyholder's behaviour.
Regarding the amount of the claim, the plaintiff claimed that he was entitled to the premiums paid plus interest less the risk costs. However, the plaintiff initially only claimed a partial amount of CHF 10,000.00 including interest, which was also awarded to him by the Princely Supreme Court.
Judgement of the Third Instance Princely Court file no 08CG.2021.57 of 03/03/2023
In the case in question, the court had to base its decision on German substantive law in order to determine whether the policyholder had been informed properly.
The subject of the proceedings was a life insurance product conclude by a German policyholder in 2005 and terminated in 2017, which had suffered considerable losses over the years. The withdrawal of the insurance contract was then declared in 2021.
Applying German substantive law, court ruled that a subsequent invocation of the right of withdrawal by the policyholder was still possible because he had not been correctly informed by the insurer about the right of withdrawal. The objection instruction was not clearly emphasised in print, in addition to being late and to the instruction lacking a specific indication that its timely dispatch would fulfil the objection deadline.
The court then also rejected the insurer's objection of abuse of rights. The established facts did not contain any indications that the earlier behaviour of the policyholder was objectively incompatible with the later behaviour. Since the insurer had failed to properly inform the policyholder of his right of withdrawal, the policyholder could not claim priority protection.
Regarding the amount of the claims, the defendant insurance company criticised the lower courts' calculation because it was still based on Liechtenstein law. However, the court rejected this criticism. According to the court, the objection raised by the defendant insurance company was late because it should have been raised during the appeal proceedings. The policyholder was therefore awarded the difference between the premiums paid in and the remaining premiums paid out after withdrawal, including interest of 5%.
Judgement of the Third Instance Court file no 05 CG.2022.270 of 09/02/2024
In this ruling, the court had to deal with the question of whether the claim for repayment in the case of unjust enrichment after exercising the right of withdrawal is subject to the short 5-year or the long 30- year limitation period. As a result, the court ruled that the asserted claim for restitution is subject to the long limitation period of Art 1478 Civil Code. The short limitation period of five years only applies to fulfilment claims arising from the insurance contract.
Judgement of Second Instance Court file no 03 CG.2018.189 of 09.07.2020
Firstly, it should be noted that this ruling was not contested by the defendant insurance company, meaning that it has become legally binding.
The court considered that there were two independent rights of withdrawal for life insurance contracts, about which the insurer had to provide separate information, namely under Art. 3 Insurance Contract Act VersVG and under Art. 65 Insurance Contract Act. The latter is not a special provision replacing the right of withdrawal according to of Art. 3 Insurance Contract Act (old version), but a special right of withdrawal (additionally) granted to the policyholder in the case of an individual life insurance policy. This right had not expired because the policyholders had never been legally informed of this right.
This is the first time that Liechtenstein law has established that the policyholder has two separate rights of withdrawal for life insurance contracts. This has already been ruled by the Austrian Supreme Court on the comparable legal situation in Austria.
Conclusion
Overall, the development in Liechtenstein insurance law related case law can be described as in favour of the policyholder. If the policyholder was incorrectly informed of his right of withdrawal, it is generally still possible to withdraw from the insurance contract even years after having terminated the insurance policy and then receive back at least the amount that was originally paid into the policy from the insurance company. The objection relative to the abuse of rights - which has repeatedly led to negative decisions for policyholders, particularly in German case law - has always been rejected by the courts to date.
Footnotes
1. File no. 09 CG.2020.97 dated 04/03/2022; file no. 08 CG.2021.57 dated 03/03/2023; file no. 05 CG.2022.270 dated 09/02/2024; file no. 05 CG.2022.270 dated 09/02/2024.
2. File-no 03 CG.2018.189 dated 09/07/2020.
3. ECJ C-209/12 Endress.
4. ECJ C-355/18 to C-357/18 and C-479/18 Rust-Hackner.
5. ECJ C-20/19 kunsthaus muerz gmbh.
6. National courts of last instance must submit questions of interpretation to the ECJ in the context of preliminary ruling proceedings if they have doubts about the interpretation of EU law relevant to the decision.
7. Council Directive 90/619/EEC of 8 November 1990 on the coordination of laws, regulations and administrative provisions relating to direct life assurance and laying down provisions to facilitate the effective exercise of freedom to provide services and amending Directive 79/267/EEC (Second Life Assurance Directive).
8. Council Directive 92/96/EEC of 10 November 1992 on the coordination of laws, regulations and administrative provisions relating to direct life assurance and amending Directives 79/267/EEC and 90/619/EEC (Third Life Assurance Directive).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.