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First Favorable Court Decision on Immediate Annuities

2020.09.30

Kim & Chang successfully represented a major domestic insurer (the “Defendant”) in a lawsuit where a policyholder (the “Plaintiff”) claimed additional amount of monthly annuity payment based on an assertion that the policyholder was not provided with proper explanation on the product (Suwon District Court Decision 2019GaHap10937 September 23, 2020).  The court decision is expected to have an impact on several other pending lawsuits in Korea on immediate annuity claims.

The Plaintiff subscribed to the Defendant’s inheritance-type immediate annuity plan (the “Policy”) amounting to approximately KRW 7.9 billion.  The Plaintiff argued that at the time of initial subscription, the Defendant merely explained that “the Plaintiff will be paid, on a monthly basis, an amount calculated by multiplying the net premium by the insurer’s published interest rate,” and failed to clarify that during the first few years, “a certain portion of such amount will be deposited into an annuity policy reserve to match the aggregate amount of premium paid, and only the balance after deducting such reserve will be disbursed as monthly income.”  Accordingly, the Plaintiff argued that the Policy should be interpreted not to have included any provision relating to policy reserves, and claimed compensation of KRW 240 million, which is the amount of difference between the “amount calculated by multiplying the net premium by the insurer’s interest rate” and the actual monthly income paid to the Plaintiff.

The key issues in the case were, among others: (i) whether the Defendant could argue that the Policy could be interpreted as it had been drafted (including the clauses on the policy reserve), and (ii) whether the Defendant sufficiently explained about the payment method through the drafted terms of the Policy to the Plaintiff.  We focused on the contents of the insurance policy quotation, which had been overlooked in its evidentiary value compared to the actual terms of the Policy.  Further, we emphasized that a customer could easily understand the meaning of the Policy terms while comparing and selecting the desired insurance annuity plan, as the policy quotation contained a table that clearly showed examples of how the annuity payment would be calculated during the term of the policy for each plan.

Based on the foregoing, we successfully argued before the Court that the policyholder was sufficiently informed of the intent of the key policy terms by examining and comparing different products via review of the policy quotations and product disclosure statements that contained sufficient level of details on the amount of monthly payment.  Finally, we believe that the Court’s ruling that “an average customer subscribing to a principal-protected, non-dividend type insurance like the Policy can understand that a portion of the income calculated by applying the insurer’s published interest rate on net premium may be deposited into the annuity policy reserves for principal protection” would likely have a substantial impact on other pending litigations on immediate annuity claims. 

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