The European Court of Justice (CJEU) was recently asked to rule on the EU's Solvency II Directive (and all earlier legislations regulating life insurance) regarding the cancellation rights of insurance policyholders.
The CJEU ruled that the failure of life insurers to inform policyholders of their right to cancel their life insurance policies or the communication of incorrect information that limits a policyholder's cancellation rights entitles a customer to receive the repayment of all paid insurance premiums, including capitalised interest. Such entitlements will remain in place even after the conclusion of the policy and in certain circumstances after its termination.
In their opinion, the CJEU stated that the right of life insurance policyholders to cancel their policy exists even if their life insurers have not informed them of this right. (This also applies if policyholders were made aware of their cancellation right by other means). Once the policy is terminated, policyholders remain entitled to exercise their right of cancellation provided that the governing law of the policy does not govern the legal effects of the failure of an insurer to inform them of the cancellation right or for the provision of incorrect information by the life insurer.
As a result, life insurers are advised to investigate any potential deficiencies in the information given to policyholders over cancellation rights and ways to rectify any deficiencies in order to avoid future client claims, which could create significant exposure for the insurer. Moving forward, life insurers have an interest in providing clear and accurate information regarding the cancellation rights of policyholders.
Benoît Vandervelde, Associate Partner, Brussels benoit.vandervelde@cms-db.com
Florence Berchem, Junior Associate, Brussels Florence.Berchem@cms-db.com
