Pursuant to Article 186 of the EU Solvency II Directive (2009/138/EC), EU member states must grant life insurance policyholders a 14 to 30-day period to cancel their contract from the time when the policyholders were informed that the contract was concluded.
Until 2018, Austria had up to five different cancellation rights for insurance policyholders, plus the cancellation right pursuant to Section 8 of the Austrian Distance Financial Services Act. Thus, the legal situation was confusing, as the average customer was unable to distinguish between these six partly overlapping cancellation rights. Moreover, the level of detail required when informing policyholders about their cancellation rights prior to the conclusion of an insurance contract was unclear.
Further to the 2013 European Court of Justice (ECJ) decision in Endress/Allianz1 and the subsequent 2015 Austrian Supreme Court decision in Case 7 Ob 107/15h,2 this resulted in life insurance policyholders having an indefinite cancellation right if the information provided by the insurer was incorrect.
However, this has finally changed. Since 1 January 2019, a new Section 5c of the Austrian Insurance Contract Act provides for one unified cancellation right with a cancellation period of 14 days for non-life insurance contracts and 30 days for life insurance contracts. The corresponding 14 or 30-day withdrawal right pursuant to Article 6 of EU Directive 2002/65/EC, implemented in Section 8 of the Austrian Distance Financial Services Act, remains unchanged, thus resulting in one or, in the case of distance contracts, two cancellation rights. In addition, the new Austrian law aligns with Section 8(5) of the German Insurance Contract Act and provides sample information to the policyholder which, if used, is deemed correct and complete.
Clarified legal consequences of cancelling life insurance contracts
Since 1 January 2019, Section 176 of the Austrian Insurance Contract Act provides different legal consequences in two different cases:
if the insurer provides correct information, policyholders are entitled to the surrender value if they cancel the contract within the 30-day period; but
if the insurer provides incorrect information (eg, a shortened period or incomplete information) – which hopefully will no longer happen – Section 176(1a) of the Austrian Insurance Contract Act provides that policyholders are entitled to:
the paid premiums for the first contract year in case of cancellation within the first contract year;
the surrender value without acquisition costs and cancellation fees in case of cancellation within the second to fifth contract year; and
the surrender value after the fifth contract year.
The new unified cancellation right solves the problems triggered by the ECJ decision in Endress/Allianzand the pending ECJ Cases C-355/18, C-356/18, C-357/18 (combined), C-479/18 and C-20/19 will bring additional clarity on the content of the information and the consequences of providing incorrect information.
By Peter Konwitschka Partner and Johanna Bauer Associate, Schoenherr