Insurance Law Alert

An insurance contract must set out transparently, in plain, intelligible language, the functioning of the insurance arrangements

The Unfair Terms in Consumer Contracts Directive (see Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts) provides that consumers are not bound by unfair clauses that are set out in a contract concluded with a seller or supplier. However, according to that directive, the assessment of the unfair nature of the terms concerns neither the definition of the main subject-matter of the contract nor the adequacy of the price and remuneration, on the one hand, as against the services or goods supplied in exchange, on the other, provided that those terms are drafted in plain, intelligible language.

In 1998, Jean-Claude Van Hove concluded two mortgage loan contracts with a bank. At the time of concluding those loan contracts, he signed a “group insurance contract” with CNP Assurances in order to guarantee, in particular, 75% cover of the loan repayments in the event of total incapacity for work. Following an accident at work, Mr Van Hove was found to have a permanent partial incapacity rate of 72% within the meaning of French social security law. The doctor appointed by the insurance company concluded that Mr Van Hove’s state of health, although no longer compatible with him returning to his former post, allowed him to carry on appropriate employment on a part-time basis. The company therefore refused to continue to cover the loan repayments in respect of Mr Van Hove’s incapacity.

Mr Van Hove brought legal proceedings seeking recognition that the terms of the contract are unfair as regards the definition of total incapacity for work and the conditions under which repayments are covered by the insurance. According to Mr Van Hove, the term relating to total incapacity for work causes a significant imbalance to the detriment of the consumer, especially as its definition is worded in such a way as to be unintelligible to a lay consumer. CNP Assurances considers that the term at issue cannot constitute an unfair term because it concerns the very subject-matter of the contract. Moreover, it contends that the definition of total incapacity for work is clear and precise, even if the criteria which are taken into account for the purposes of fixing the functional incapacity rate are different to those used by the social security authorities. In those circumstances, the French court seised of the dispute (the tribunal de grande instance de Nîmes) asks the Court of Justice if it is possible to assess whether the term in question is unfair

In Judgment in Case C-96/14 Jean-Claude Van Hove v CNP Assurances SA, the Court states, referring to the nineteenth recital in the preamble to the directive, that, in insurance contracts, terms which clearly define or circumscribe the insured risk and the insurer’s liability shall not be subject to an assessment of unfair character, since those restrictions are taken into account in calculating the premium paid by the consumer. Thus, it cannot be ruled out that the term at issue concerns the very subject-matter of the contract, in so far as it seems to circumscribe the insured risk and the insurer’s liability while laying down the essential obligations of the insurance contract. The Court leaves it to the national court to determine this point, indicating that it falls to that court, having regard to the nature, general scheme and the terms of the contract taken as a whole, as well as its legal and factual context, to determine whether the term lays down an essential component of the contractual framework of which it forms part.

As regards the question whether the term at issue is drafted in plain, intelligible language, the Court points out that the requirement of transparency of contractual terms, laid down by the directive, cannot be reduced merely to their being formally and grammatically intelligible, but that that requirement is to be interpreted broadly. In the present case, the Court does not rule out that the scope of the term defining the concept of total incapacity for work was not understood by the consumer. Thus, it may be that, in the absence of a transparent explanation of the specific functioning of the insurance arrangements relating to the cover of loan payments in the context of the contract as a whole, Mr Van Hove was not in a position to evaluate, on the basis of precise, intelligible criteria, the economic consequences for him which derive from it. It is again is for the national court to make a finding on that point.

According to the Court, the fact that the insurance contract forms part of a contractual framework with the loan contracts could be also relevant in that context. Thus, the consumer cannot be required to have the same vigilance regarding the extent of the risks covered by that insurance contract as he would if he had concluded the insurance contract and the loan contracts separately.

The Court therefore declares that terms that relate to the main subject-matter of an insurance contract may be regarded as being drafted in plain, intelligible language if they are not only grammatically intelligible to the consumer, but also set out transparently the specific functioning of the insurance arrangements, taking into account the contractual framework of which they form part, so that that consumer is in a position to evaluate, on the basis of precise, intelligible criteria, the economic consequences for him which derive from it. If not, the national court may assess the possible unfairness of the term at issue.

Court of Milan: misrepresentations under the proposal form on the security measures in place at inception entail a gross negligence

The Court of Milan, in its Judgement n. 4959/2015, published on 20 April 2015, R.G. n. 46086/2010, ruled that the misrepresentations of the assured on the security measures in place at inception of the policy, as represented under the proposal form, entail a gross negligence of the jeweller pursuant to art. 1892 of the Italian Civil Code (“codice civile”) and accordingly the insurer is not bound to pay the sum insured under the policy.

Article 1892 of the Italian Civil Code (“codice civile”) – named Misrepresentations or fraudulent or grossly negligent failure in disclose – provides that “If the contracting party, fraudulently or through gross negligence, misrepresents or fails to disclose circumstances which, if known to the insurer, would have caused him to withhold his consent to the contract, or to withhold his consent on the same conditions, the insurer can annul the contract. The insurer is entitled to the premiums covering the period of insurance running at the time when he petitioned for annulment of the contract, and in all cases to the premiums agreed upon for the first year. If the loss occurs before the expiration of the period indicated in the preceding paragraph, the insurer is not bound to pay the sum insured.

The Court further ruled that the fact that the security measures were not in place also at the time of the loss entails autonomously a loss caused by gross negligence of the assured pursuant to art. 1900 of the Italian Civil Code (“codice civile”) – named Loss caused by fraud or gross negligence of the Insured – which provides that “The insurer is not liable for losses caused by the fraud or gross negligence of the contracting party, of the insured, or of the beneficiary, unless there is an agreement to the contrary for cases of gross negligence.

The rule of unisex premiums and benefits will apply with effect from 21 December 2012

Directive 2004/113/EC prohibits all discrimination based on sex in the access to and supply of goods and services. Thus, in principle, the Directive prohibits the use of gender as a factor in the calculation of insurance premiums and benefits in relation to insurance contracts entered into after 21 December 2007.

By way of derogation, however, the Directive provides that Member States may, as from that date, permit exemptions from the rule of unisex premiums and benefits, so long as they can ensure that the underlying actuarial and statistical data on which the calculations are based are reliable, regularly updated and available to the public. Member States may allow such an exemption only if the unisex rule has not already been applied by national legislation. Five years after the transposition of the Directive into national law (i.e.: 21 December 2012) Member States must re-examine the justification for those exemptions, taking into account the most recent actuarial and statistical data and a report to be submitted by the Commission three years after the date of transposition of the Directive.

In its Judgment in Case C-236/09 Association belge des Consommateurs Test-Achats ASBL and Others v Conseil des ministres, the European Court of Justice first points out that equality between men and women is a fundamental principle of the European Union. Reference is made to Articles 21 and 23 of the Charter of Fundamental Rights of the European Union which prohibit any discrimination on grounds of sex and require equality between men and women to be ensured in all areas and to Article 2 of the Treaty establishing the European Community which provides that promoting such equality is one of the Community’s essential tasks. Similarly, Article 3(2) of the Treaty requires the Community to aim to eliminate inequalities and to promote equality between men and women in all its activities.

In the progressive achievement of that equality, it is for the EU legislature to determine, having regard to the development of economic and social conditions within the European Union, precisely when action must be taken. Thus it was – the Court states – that the EU legislature provided in the Directive that the differences in premiums and benefits arising from the use of sex as a factor in the calculation thereof must be abolished by 21 December 2007 at the latest. However, as the use of actuarial factors related to sex was widespread in the provision of insurance services at the time when the Directive was adopted, it was permissible for the legislature to implement the rule of unisex premiums and benefits gradually, with appropriate transitional periods.

In that regard, the Court notes that the Directive derogates from the general rule of unisex premiums and benefits established by the Directive, by granting Member States the option of deciding, before 21 December 2007, to permit proportionate differences in individuals’ premiums and benefits where, on the basis of relevant and accurate actuarial and statistical data, sex is used as a determining factor in the assessment of risks.

Any decision to make use of that option is to be reviewed five years after 21 December 2007, account being taken of a Commission report, but, ultimately, given that the Directive is silent as to the length of time during which those differences may continue to be applied, Member States which have made use of the option are permitted to allow insurers to apply the unequal treatment without any temporal limitation.

Accordingly, the Court states, there is a risk that EU law may permit the derogation from the equal treatment of men and women, provided for by the Directive, to persist indefinitely. A provision which thus enables the Member States in question to maintain without temporal limitation an exemption from the rule of unisex premiums and benefits works against the achievement of the objective of equal treatment between men and women and must be considered to be invalid upon the expiry of an appropriate transitional period.

Consequently, the Court rules that, in the insurance services sector, the derogation from the general rule of unisex premiums and benefits is invalid with effect from 21 December 2012.

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