Transparency in Insurance Contract Law 9783030311988, 3030311988

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AIDA Europe Research Series on Insurance Law and Regulation 2

Pierpaolo Marano Kyriaki Noussia Editors

Transparency in Insurance Contract Law

AIDA Europe Research Series on Insurance Law and Regulation Volume 2

Series Editor Pierpaolo Marano, Catholic University of the Sacred Heart, Milano, Italy Editorial Board Members Juan Bataller Grau, Polytechnic University of Valencia, Valencia, Spain Johnny Chang, National Chengchi University, Taipei, Taiwan Christos S Chrissanthis, University of Athens, Athens, Greece Herman Cousy, KU Leuven, Leuven, Belgium Simon Grima , University of Malta, Msida, Malta Ozlem Gurses, King’s College London, London, UK Helmut Heiss, University of Zurich, Zurich, Switzerland Peter Kochenburger, University of Connecticut, Hartford, CT, USA Tadao Koezuka, Kagawa University, Takamatsu, Japan Jérôme Kullmann, Paris Dauphine University, Paris, France Birgit Kursche, University of Pretoria, Pretoria, South Africa W. Jean J. Kwon, St. John’s University, New York, NY, USA Sara Landini, University of Florence, Florence, Italy Margarida Lima Rego, NOVA University Lisbon, Lisbon, Portugal JJ Lin, National Chengchi University, Taipei, Taiwan Katarzyna Malinowska, Kozminski University, Warsaw, Poland Leo P. Martinez, University of California - Hastings, San Francisco, CA, USA Patricia McCoy, Boston College, Newton, MA, USA Gary Meggit, University of Hong Kong, Hong Kong, Hong Kong Robert Merkin, University of Exeter, Exeter, UK Daleen Millard, University of Johannesburg, Johannesburg, South Africa Satoshi Nakaide, Waseda University, Tokyo, Japan Jaana Norio, University of Helsinki, Helsinki, Finland Kyriaki Noussia, University of Exeter, Exeter, UK Laura Núñez, IE Business School, Madrid, Spain Stefan Perner, University of Linz, Linz, Austria Ioannis Rokas, Athens University of Economics and Business, Athens, Greece Michele Siri, University of Genoa, Genoa, Italy Caroline Van Schoubroeck, KU Leuven, Leuven, The Netherlands Wouter Verheyen, University of Antwerp, Antwerp, Belgium Manfred Wandt, Goethe University Frankfurt, Frankfurt am Main, Germany Hsin-Chun Wang, National Taiwan University, Taipei, Taiwan

Ecehan Yeşilova Aras, Izmir Democracy University, Izmir, Turkey Ling Zhu, Hong Kong Polytechnic University, Hong Kong, Hong Kong

The AIDA Europe Research Series on Insurance Law and Regulation is the first book series of its kind and area of specialization. It comprises volumes on topics researched and written with an international, comparative or European perspective. The regulatory response to the financial crisis in 2008 has pushed towards the adoption of transnational principles and rules also in the field of insurance by encouraging the convergence of national regulations to common regulatory framework. The need for a common legal language emerges to fully understand the process of transnational convergence in place and its impact on national legislation. On the other hand, persisting national peculiarities must be examined in the light of the transnational convergence of rules and concepts. Moreover, new risks, business practices and customers’ issues are emerging worldwide, so requiring increasingly global responses. The scope of the series is to bring together academics, practitioners and policy makers in order to exchange views and approaches to the topics concerned, which are based on the new transnational dimension of insurance law, business and regulation.

More information about this series at http://www.springer.com/series/16331

Pierpaolo Marano  Kyriaki Noussia Editors

Transparency in Insurance Contract Law

Editors Pierpaolo Marano Department of Legal Studies Catholic University of the Sacred Heart Milano, Italy

Kyriaki Noussia School of Law University of Exeter Exeter, United Kingdom

ISSN 2662-1770 ISSN 2662-1789 (electronic) AIDA Europe Research Series on Insurance Law and Regulation ISBN 978-3-030-31197-1 ISBN 978-3-030-31198-8 (eBook) https://doi.org/10.1007/978-3-030-31198-8 © Springer Nature Switzerland AG 2019 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors, and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, expressed or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Springer imprint is published by the registered company Springer Nature Switzerland AG. The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland

Foreword

The concept of “transparency” in insurance is potentially exceedingly wide. Virtually all jurisdictions recognise a duty on the assured to make a fair presentation of the risk when submitting a proposal for cover to the insurers, although there is little consensus on the scope of that duty. Disputed matters as to the duty include: whether it is satisfied by honest answers to express questions or whether there is a spontaneous duty of disclosure; whether facts relating to the assured’s character (moral hazard), as opposed to the nature of the risk itself, are to be presented to the insurers; the role of brokers in the placement process; and the remedy for breach of duty. Transparency is, however, a much wider concept. Potential policyholders are in principle entitled to be made aware of the key terms of coverage and to be warned of hidden traps (such as conditions precedent, average clauses and excess provisions), but there is a range of different approaches. Some jurisdictions have adopted a “soft law” approach, using codes of practice for pre-contract disclosure: since 2018, the EU has introduced minimum standards for marketing and selling policies; Australia has a detailed regime demanding the provision of Key Fact Sheets; yet other jurisdictions rest upon the rather nebulous duty of utmost good faith. The outcome is that unclear or disguised restrictions may not be enforceable. Leaving aside placement, transparency is also demanded after the policy has incepted. The assured is required to be transparent in the claims process. There is less consistency in national laws as to the operation of transparency by insurers in handling claims. For example, is an insurer required to be open about the various reports commissioned by it into the circumstances of the claim and the amount of the loss? The present work consists of a series of reports on transparency from a range of civil and common law jurisdictions, along with overview chapters from the editors. The chapter authors are leaders in their respective fields, and all have strong links with the International Association of Insurance Law (AIDA). Each chapter reviews the transparency principles applicable in the jurisdiction covered by it. The difference in approach between nations is a fascinating study of how universally shared problems can be addressed in entirely different ways and with varying solutions. v

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Foreword

The two editors, Pierpaolo Marano and Kyriaki Noussia, are both leading lights in AIDA and also highly respected authors and speakers nationally and internationally. They have done a superb job in collating these chapters. Academics, legal and insurance practitioners, researchers, regulators and law reform bodies will find a wealth of valuable—and otherwise inaccessible—information in this volume. Demystifying the differences between the civil and common law approaches is a key theme. Anyone with an interest in insurance law and regulation will benefit hugely from the efforts of the editors and the contributors. All involved are to be congratulated. University of Exeter, Exeter, UK

Rob Merkin QC

Preface

The role of transparency in insurance is multi-faceted, with its importance being undoubtedly critical. In an age where transparency has arisen to a widely acknowledged “maxim” and whereby every aspect of our everyday life—insofar that it entails both private and business interactions—falls under strict regulation to abide with the transparency requirements that legislation imposes, it has become, more than ever before, imperative to look into the subject of transparency in insurance law. The current work is the first of two parts of an edited and comparative work, which is looking into the topic of transparency in insurance law and regulation in various common law and civil/continental law jurisdictions. The book, which forms Volume I, effectively discusses transparency in insurance contract law in the major common law and civil/continental law jurisdictions. Volume II focuses on the equally important aspect of transparency in insurance regulation in the various common law and civil/continental law jurisdictions. The jurisdictions selected form some of the major players worldwide in insurance law and in the insurance market; however it has been felt that small jurisdictions must be also inserted, in an effort to provide a varied picture of the different declinations assumed by transparency. In effect, identifying and critically discussing transparency in insurance contract law will help better assess the contemporary challenges imposed in the various legal systems. In the common law world, transparency is of great importance to the eyes of both the common law legislator and the common law judge. Transparency in common law is depicted within the requirement for the standard terms to be drafted in “plain, intelligible language” and within the notion of utmost good faith. In the more recent years, jurisprudence in some common law jurisdictions (for example, the case of Tay Eng Chuan v Ace Insurance Ltd [2008] SGCA 26, [2008] 4 SLR(R) 95 in Singapore) has started depicting a tendency to accept the application of the duty of utmost good faith in a broader manner. Transparency is important in the field of insurance law because insurance is a complex legal product, accompanied by a complex legal framework, which is often supplemented by a seller’s market focused on a relatively few insurance companies. This is, even more than elsewhere, apparent in the civil/ vii

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Preface

continental law jurisdictions, whereby transparency predominantly relates to fairness and is often embedded as a requirement codified within the civil code provisions on good faith. Hence, it follows that any sort of autonomy or relevance of the notion of transparency with respect to the long established concepts of fairness and good faith is variably understood in the civil/continental law jurisdictions. Notwithstanding the differences that exist in the various legal systems, the overarching aim behind the regulation of transparency is to promote fairness and protect both the assured and the insurer. The discussion of the notion of transparency in the various regimes has allowed us to recognise that further steps, which would allow the concept to broaden itself, would be highly beneficial. This is even so due to the fact that transparency is not systematically and uniformly enshrined in all legislations; hence the level of shield that it can offer to the assured varies. In effect, transparency helps into making accessible, to insurance customers, all the necessary data and better protect them. It follows from the above that an improved regime of transparency is likely to lead to less litigation. It also follows that transparency should not be applied universally and without limitations or “at all costs”. Voices raised against it have argued that the diversity that characterises transparency is more problematic than beneficial. Against this background, with regard to transparency in insurance law, it has been argued that the pre-existing standardisation of the insurance contracts made ground for a common knowledge of parties to an insurance contract and that the current need for total immersion to transparency requirements merely creates havoc, rather than assist the assured to make an informed decision for an insurance product “fit for purpose”. It is accepted that the fragmentation that exists at the level of legislation worldwide, which has been enacted to safeguard transparency, should not hinder further efforts to ameliorate its level of existence in insurance contract law. The above arguments apart, it is also admitted that—at the same time—a balance needs to be sought, so that the necessary limits are set and transparency exists only in cases where its application is deemed as absolutely necessary to impose a yardstick and a threshold for the better protection—and not for the detriment—of the parties to an insurance contract. Milano, Italy Exeter, UK

Pierpaolo Marano Kyriaki Noussia

Contents

Part I

Civil Law: European Union

Transparency in the Insurance Contract Law of Austria . . . . . . . . . . . . Sebastian Wöss

3

Transparency in the Insurance Contract Law of Croatia . . . . . . . . . . . . Loris Belanić and Dionis Jurić

33

Transparency in the Insurance Contract Law of Germany . . . . . . . . . . . Manfred Wandt

63

Transparency in the Insurance Contract Law of Greece . . . . . . . . . . . . Christos S. Chrissanthis

95

Transparency in the Insurance Contract Law of Italy . . . . . . . . . . . . . . 131 Sara Landini Transparency in the Insurance Contract Law in the Netherlands . . . . . . 163 Joasia Luzak Transparency in the Insurance Contract Law of Poland . . . . . . . . . . . . 183 Katarzyna Malinowska and Anna Tarasiuk Transparency in the Insurance Contract Law of Portugal . . . . . . . . . . . 211 Margarida Lima Rego Transparency in the Insurance Contract Law of Spain . . . . . . . . . . . . . 241 Rafael Lara Transparency in the Insurance Contract Law of Sweden . . . . . . . . . . . . 257 Jessika van der Sluijs

ix

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Contents

Transparency in the Insurance Contract Law: A Comparative Analysis Between the Principles of European Insurance Contract Law (PEICL) and Selected European Legal Regimes . . . . . . . . . . . . . . . . . . . 279 Marta Ostrowska Part II

Civil Law: Other Jurisdictions

Transparency in the Insurance Contract Law of Chile . . . . . . . . . . . . . . 295 Roberto Ríos Ossa Transparency in the Insurance Contract Law of China . . . . . . . . . . . . . 315 Zhen Jing Transparency in the Insurance Contract Law of Colombia . . . . . . . . . . 351 Rebeca Herrera Díaz Transparency in the Insurance Contract Law of Georgia . . . . . . . . . . . . 369 Ketevan Iremashvili Transparency in the Insurance Contract Law of Japan . . . . . . . . . . . . . 389 Tadao Koezuka Transparency in the Insurance Contract Law of Peru . . . . . . . . . . . . . . 409 Alonso Núñez del Prado Simons Transparency in the Insurance Contract Law of Russia . . . . . . . . . . . . . 431 Zubarev Leonid Vladimirovich Transparency in the Insurance Contract Law of Turkey . . . . . . . . . . . . 459 Ecehan Yesilova Aras Transparency in the Insurance Contract Law of the Western Balkans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 485 Nikola Filipović Comparative Analysis of Transparency in the Insurance Contract Law of Colombia, Chile, Peru, and Spain . . . . . . . . . . . . . . . . . . . . . . . . 517 Rafael Lara and Iñaki Zurutuza Comparative Analysis of Transparency in Insurance Law in the Civil/Continental Law Jurisdictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 535 Kyriaki Noussia Part III

Common Law

Transparency in the Insurance Contract Law of Australia . . . . . . . . . . . 549 Robin Bowley Transparency in the Insurance Contract Law of England . . . . . . . . . . . 573 Kyriaki Noussia

Contents

xi

Transparency in the Insurance Contract Law of Israel . . . . . . . . . . . . . 591 Peggy Sharon Transparency of the Insurance Contract Law of Singapore . . . . . . . . . . 633 Christopher Chen Transparency in the Insurance Contract Law of South Africa . . . . . . . . 655 Birgit Kuschke and Daleen Millard Transparency in the Insurance Contract Law in the United States . . . . . 683 Aviva Abramovsky and Peter Kochenburger Comparative Analysis of Transparency in the Insurance Contract Law of the Common Law Jurisdictions . . . . . . . . . . . . . . . . . . . . . . . . . 705 Kyriaki Noussia

Contributors

Aviva Abramovsky University at Buffalo School of Law, The State University of New York, Buffalo, NY, USA Ecehan Yesilova Aras Izmir Democracy University, Izmir, Turkey Loris Belanić University of Rijeka, Rijeka, Croatia Robin Bowley University of Technology Sydney, NSW, Australia Christopher Chen Singapore Management University, Singapore, Singapore Christos S. Chrissanthis University of Athens, Athens, Greece Nikola Filipović University of Graz, Graz, Austria Rebeca Herrera Díaz Rebeca Herrera Abogados SAS, Bogotá, Colombia Ketevan Iremashvili Tbilisi Open University, Tbilisi, Georgia Zhen Jing Bangor University, Bangor, UK Dionis Jurić University of Rijeka, Rijeka, Croatia Peter Kochenburger University of Connecticut School of Law, Storrs, CT, USA Tadao Koezuka National University Corporation – Kagawa University, Kagawa, Japan Birgit Kuschke University of Pretoria, Pretoria, South Africa Sara Landini University of Florence, Florence, Italy Rafael Lara Public University of Navarra, Pamplona, Spain Joasia Luzak University of Exeter, Exeter, UK Katarzyna Malinowska Kozminski University, Warszawa, Poland Daleen Millard University of Johannesburg, Johannesburg, South Africa xiii

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Contributors

Kyriaki Noussia University of Exeter, Exeter, UK Marta Ostrowska Warsaw University, Warsaw, Poland Alonso Núñez del Prado Simons Catholic University of Peru, Lima, Peru Roberto Ríos Ossa Pontificia Universidad Católica de Chile, Santiago, Chile Margarida Lima Rego NOVA University School of Law, Lisbon, Portugal Peggy Sharon Tel Aviv, Israel Jessika van der Sluijs Stockholm University, Stockholm, Sweden Anna Tarasiuk Kozminski University, Warsaw, Poland Lyszkiewicz Tarasiuk Kancelaria Radcow Prawnych Sp.p., Warsaw, Poland Zubarev Leonid Vladimirovich Moscow, Russia Sebastian Wöss University of Vienna, Wien, Austria Manfred Wandt Goethe University Frankfurt, Frankfurt, Germany Iñaki Zurutuza Public University of Navarra, Navarra, Spain

Abbreviations

1990 Act 2003 Act ABGB

Act nº 1480 Act nº 20,667 Act nº 29,946 Act on Unfair Practices ACT AGB AGBG AGBG

AGCM AID AIRA ALI ALRC ANZ APECOSE APESEG APLA ASF ASIC Act

Insurance Activity Act Act on Insurance Activity dated 22 May 2003 Austrian General Civil Code (JGS 1811/946) (österreichisches Allgemeines Bürgerliches Gesetzbuch – ABGB) Act nº 1480 of 2011 Act concerning the insurance contract nº 20,667 of 2013 Act nº 29,946 Insurance Contract Act Act dated 23 August 2007 on counteracting unfair market practices Australian Capital Territory General terms and conditions (Allgmeine Geschäftsbedingungen – AGB) Croatia and Slovenia Austrian Civil Code of 1811 Unfair Terms and Conditions Act (Gesetz zur Regelung des Rechts der Allgemeinen Geschäftsbedingungen – AGBG) Italian Competition Authority Polish Act on Insurance Distribution Act on Insurance and Reinsurance Activity American Law Institute Australian Law Reform Commission Australia and New Zealand Peruvian Association of Insurance Brokers Peruvian Association of Insurance Companies Application of English Law Act Portuguese Insurance and Pension Funds Supervisory Authority Australian Securities and Investments Commission Act 2001 xv

xvi

AtomHG AVB B2B B2C BaFin

BGB BGB BGB-InfoV BGH C.Com. CBIRC CC CCC CE CEIOPS CG CIDRA CIDRA CIRC CMVM Compact Cons. Cod. Consob CPA CPC DFL 251 dVAG 1901 dVVG 1908

EBA EGBGB

Abbreviations

Nuclear Liability Act (BGBl 1998/170) (Atomhaftungsgesetz 1999 – AtomHG). General policy conditions (Allgemeine Versicherungsbedingungen – AVB) Business to business Business to consumer German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) Bürgerliches Gesetzbuch (German Civil Code) German Civil Code (Bürgerliches Gesetzbuch – BGB) BGB-Information Duty Regulation (BGB-Informationspflichtenverordnung – BGB-InfoV) German Supreme Court (Bundesgerichtshof – BGH) Colombian Commercial Code China Bank and Insurance Regulatory Commission Civil Code Colombian Civil Code Spanish Constitution Committee of European Insurance and Occupational Pensions Supervisors General Conditions of Insurance Consumer Insurance (Disclosure and Representations) Act (CIDRA) 2012 Consumer Insurance (Disclosure and Representations) Act 2012 China Insurance Regulatory Commission Portuguese Securities Market Commission Interstate Insurance Product Regulation Compact Consumer Code Italian Commission responsible for regulating financial markets Consumer Protection Act Consumer Protection Code Decree in Force of Law number 251 about Insurance Companies German Insurance Supervisory Act 1901 (deutsches Versicherungsaufsichtsgesetz 1901 – dVAG 1901) German Insurance Contract Act 1908 (dRGBl S 263) (deutsches Versicherungsvertragsgesetz 1908 – dVVG 1908). European Banking Authority Introductory Act of the German Civil Code (Einführungsgesetz zum Bürgerlichen Gesetzbuch – EGBGB)

Abbreviations

EIOPA ESMA FAA FAIS Act FCA FernFinG

FFFS

FIDReC Financial Services ADR FSA FSA FSB FSBA FSC FSCA FSOC FSRA GCI GCI GIA GIA GTC control GTC HANFA HCA HPC IA IAC IBA IBA IBIPs ICA ICA ICA ICA ICAA

xvii

European Insurance and Occupational Pensions Authority European Securities and Markets Authority Financial Advisers Act Financial Advisory and Intermediary Services Act Financial Conduct Authority Austrian Distance Financial Services Act (BGBl I 2004/ 62) (österreichisches Fernfinanzdienstleistungsgesetz – FernFinG) Rules and general recommendations on information concerning insurance and occupational retirement pension Financial Industry Disputes Resolution Centre Financial Services Alternative Dispute Resolution Financial Service Agency Financial Services Authority Financial Services Board Financial Services Board Act The Financial System Council Financial Services Conduct Authority Financial Stability Oversight Council Financial Sector Regulation Act (German) General Conditions of Insurance (Allgemeine Versicherungsbedingungen) General Conditions of Insurance (Allgemeine Versicherungsbedingungen – AVB) General Insurance Association of Japan General Insurance Association of Singapore General terms and conditions control (AGB-Kontrolle) General insurance terms and conditions Act on the Croatian Agency for Supervision of Financial Services High Court of Australia High People’s Courts Insurance Act Insurance Activities Code (Swedish) Insurance Business Act Swedish Insurance Business Act Insurance-based investment products (Australian) Insurance Contract Act (Swedish) Insurance Contract Act of 2005 Australian Insurance Contract Act Swedish Insurance Contract Act of 2005 Insurance Contracts Amendments Act 2013

xviii

Abbreviations

IDA IDD

(Swedish) Insurance Distribution Act 2018 Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution (IDD) Insurance Distribution Directive Insurance Mediation Directive National Institute for the Defense of Competition and the Protection of Intellectual Property Insurance Code Insurance Product Information Document Italian Institute for the Supervision on Insurance Motor Vehicles Act (Kraftfahrzeug-Haftpflichtgesetz – KHVG) Key Information Document Austrian Consumer Protection Act (BGBl 1979/140) (österreichisches Konsumentenschutzgesetz – KSchG) General Conditions of Contract General Contracting Conditions 29,946 Insurance Contract Act Insurance Contract Law Act 26/1984, General Act for Defense of Consumers and Users Life Insurance Advisory Form Policyholder Protection Rules for long-term insurance Commerce Code and Law number 19.496 Act 19.496 on the Protection of the Rights of Consumers of 1994 Consumer Protection Law number 19.496 of 1994 Long-Term Insurance Act Monetary Authority of Singapore Marine Insurance Act National Association of Insurance Commissioners Natural Disaster Insurance Review New South Wales New South Wales Court of Appeal Polish Civil Code Principles of European Insurance Contract Law Polish Financial Services Authority Professional Indemnity Portuguese Insurance Contract Act Portuguese Insurance Contract Act of 2008 Portuguese Insurance Distribution Act Portuguese Insurance Supervision Act 2018 Policyholder Protection Rules for long-term insurance

IDD IMD INDECOPI Ins. Code IPID IVASS KHVG KID KSchG LCGC LCGC LCS LCS LGDCU or TRLGDCU LIA form Long Term PPR LPC LPC/1994 LPC/1994 LTIA MAS MIA NAIC NDIR NSW NSWCA PCC PEICL PFSA PI PICA PICA PIDA PISA PPRs

Abbreviations

PRIIPs RTIC SBS SERFF SFSA Short Term PPR SMEs SOKik SPC STA STIA SVS TCC The Act The Control Law The Insurance Law The Maritime Code The SPC Interpretations TIA TPD TRLGDCU TUF Unespa UPKiK VAG 1978 VAG 2016

VAG VAG-Novelle 1994 VersVG

VersVG-Novelle 1994

xix

Packaged retail and insurance-based investment products Regulation on Transparency of Information and Insurance Contracts Supervisory Authority (Superintendencia de Banca, Seguros y Administradoras de Fondos de Pensiones) System for Electronic Rates & Form Filing Swedish Financial Supervisory Authority Policyholder Protection Rules for short-term insurance Small and medium-sized enterprises Court of Competition and Consumer Protection The Supreme People’s Court Standard Terms Act Short-Term Insurance Act Superintendency of Securities and Insurance Turkish Commercial Code Consumer Rights Act 2015 Control Law over Financial Services (Insurance) Law, 1981 The Insurance Law of the People’s Republic of China The Maritime Code of the People’s Republic of China The SPC on Certain Issues Concerning the Application of the Insurance Law Transparency in Insurance Act Total and Permanent Disability Revised Text of the General Act for the Defense of Consumers and Users of 2007 Legislative Decree 58/1998 Spanish Insurance Business Association Office for Consumer and Competition Protection Insurance Supervisory Act 1978 (BGBl 1979/568) (Versicherungsaufsichtsgesetz 1978 – VAG 1978) Austrian Insurance Supervision Act 2016 (österreichisches Versicherungsaufsichtsgesetz 2016 – VAG 2016) German Insurance Supervisory Act (Versicherungsaufsichtsgesetz – VAG) Amendment of the Insurance Supervisory Act in 1994 (VAG-Novelle 1994) Austrian Insurance Contract Act (BGBl 1959/2) (österreichisches Versicherungsvertragsgesetz – VersVG) Amendment of the Insurance Contract Act in 1994 (VersVG-Novelle 1994)

xx

VVG WG WG

Abbreviations

Insurance Contract Act (Versicherungsvertragsgesetz – VVG) The Working Group on the Status of Insurance Products, Service, etc. Working Group

Part I

Civil Law: European Union

Transparency in the Insurance Contract Law of Austria Sebastian Wöss

1 Introduction Transparency plays an important role in insurance law. However, this does not mean that transparency as a legal requirement only exists in this field. On the contrary, considerations and efforts to create (more) transparency are made in almost all fields of law. For example, legislation should be drafted transparently1; state processes, e.g. the award of public contracts, should be designed in a transparent way.2 In general, the administration should act transparently.3 However, transparency has to be applied not only between the legislator respectively the public authorities and the legal subject respectively the citizens and taxpayers but also between private individuals: the customer should be provided with adequate information, depending on the specific situation.4 In addition, contracts or contractual clauses in particular shall be formulated in such a way that they are understandable and comprehensible to the parties involved.5 Transparency therefore serves to make processes comprehensible for the individual. As a rule, it is about compensating a gap between the parties involved in a concrete legal relationship. There may be several reasons for this gap: e.g. a knowledge or information advantage on one side, an unequal distribution of

1

Bdylinski (2015), p. 140 seqq. Cf. the materials on the Austrian Federal Procurement Act 2006, BGBl. I 2006/17 (österreichisches Bundesvergabegesetz—BvergG 2006), 1171 BlgNR 22 GP. 5. 3 Cf. Art 15 TFEU. 4 See only the ‘information model’ pursued by the EU legislator to protect the consumer. 5 Cf. Art 5 para 1 Directive 93/13/EEC. 2

S. Wöss (*) University of Vienna, Wien, Austria e-mail: [email protected] © Springer Nature Switzerland AG 2019 P. Marano, K. Noussia (eds.), Transparency in Insurance Contract Law, AIDA Europe Research Series on Insurance Law and Regulation 2, https://doi.org/10.1007/978-3-030-31198-8_1

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S. Wöss

the available (financial) resources or an unequal position on the market.6 Frequently, a combination of several factors occurs. Adequate transparency is intended to compensate or at least to mitigate these discrepancies. Whether and how much transparency is necessary depends, in particular, on two factors: on the one hand, it depends on the level of complexity of the concrete matter. Thus, transparency considerations and efforts are always focused on circumstances or legal issues that are not necessarily self-evident for the individual and therefore require a corresponding presentation. On the other hand, it strongly depends on the specific market situation. State-imposed and state-regulated transparency is always necessary when there is no competitive market balanced between the supplier and the customer, which guarantees transparency out of itself.7 This is particularly the case when there is not enough competition between the market participants (whether on the offeror’s side or on the customer’s side), which allows one party an unfavourable contract design, which leads to an unwanted conclusion of the contract on the other hand.8 Keeping that initial situation in mind, transparency must also be seen in the perspective of insurance law. The particular importance of transparency in the field of insurance law already indicated above is now given by the fact that both of the factors outlined before are more pronounced in comparison to other fields of law. Thus, on the one hand, insurance is a complex legal product.9 It is characterised by a risk description, exceptions from this risk description, counter-exceptions and other ‘small print’.10 In the absence of physically existing contract items, it is less comprehending for the contract parties—in particular but not only for the purchaser of an insurance product—than a contract respectively the content of a contract on the exchange of goods.11 Above that, the complex legal product is accompanied by a complex legal framework. It consists of European as well as national legal provisions, inaccessible formulations, technical terms, exceptions and counter-exceptions.12 This interplay of complex legal product on the one hand and a complicated legal framework on the other, supplemented by a seller’s market focused on relatively few insurance companies, requires a high level of transparency. If now one considers transparency more closely from the perspective of insurance law, it must be noted at the outset that the subject is not limited to the insurance contract. On the contrary, it is a topic that concerns insurance law as a whole respectively all of its sub-sectors. The objective is basically the same in each case: it is about keeping the power and/or information gap between the actors involved as

6

Leverenz (2008), para 3/55. Stagl (2006), p. 4. 8 Schimikowski (2007), p. 135. 9 Dreher (1991), p. 148. 10 Cf. Wandt (2012), p. 343. 11 Wandt (2012), p. 343. 12 Wandt (2012), p. 343. 7

Transparency in the Insurance Contract Law of Austria

5

low as possible.13 However, the methods with which the legislator tries to achieve transparency, as well as the addressees of the provisions creating transparency, are different. When it comes to transparency in the context of insurance mediation, mostly the relationship between the insurance intermediaries and the policyholder is meant. In terms of content, it is usually about a transparent disclosure of the relationship between the insurance agent and the insurance company towards the policyholder. In particular, it is about his legal and economic dependence on specific insurance companies, his professional qualifications and possible conflicts of interest.14 If one is, on the other hand, looking at insurance supervisory law under the aspect of transparency, it is primarily a question of transparent rules of procedure, as well as transparent business activities and financing (see Art 268 para 1 and Art 268a (österreichisches Austrian Insurance Supervision Act 201615 16 Versicherungsaufsichtsgesetz 2016—VAG 2016)). Finally, transparency in the context of insurance contract law is commonly equated with the requirement for the legislator to create a most possible transparent relationship between insurers and policyholders. In this chapter, the importance of transparency in Austrian insurance contract law will be illustrated. Subsequently, legislator's efforts to create (adequate) transparency are to be shown.

2 The Importance and Definition of Transparency in Austrian Insurance Contract Law If transparency is discussed in the context of insurance contract law, it often refers to the requirement of transparency (Art 5 para 1 Directive 93/13/EEC,17 implemented into Austrian law by Art 6 para 3 Austrian Consumer Protection Act18 (österreichisches Konsumentenschutzgesetz – KSchG). The first thing that one would think of is the relationship between the insurer and the policyholder. It is characterised by an information and knowledge gap; hence the insurer has to draft the contractual components containing the general policy conditions in a clear and comprehensible way (see below Sect. 3.3.3.4). This is obvious. Thus, the value of Art 5 para 1 Directive 93/13/EEC and Art 6 para 3 Consumer Protection Act, which are, in general, intended to ensure a transparent business relationship between

13 See e.g. the Solvency II Directive, of which the primary objective is—despite the fact that most of the standards are concerned with the regulation and supervision of the insurance and reinsurance industry—the protection of policyholders (recital no○ 16 Solvency II Directive). 14 Wandt (2012), p. 341. 15 BGBl I 2015/44. 16 Wandt (2012), p. 343. 17 Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts, OJ n○ L 095 of 21.04.1993. 18 BGBl 1979/140.

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entrepreneurs and consumers, is undisputed. However, it should be noted that the issue of transparency—especially in insurance law—cannot be reduced to the requirement of transparency of the terms and conditions of the insurance contract alone. Rather, apart from the general requirement of transparency, the legislator tries by a multitude of measures to assure the transparency of the product insurance in general respectively in the individual insurance contracts. Apart from information duties, which are specific to the insurer prior to the conclusion of the contract (Art 128 et seqq Insurance Supervisory Act 2016), the specific requirement of transparency for these duties can be mentioned here (Art 128 para 2 Insurance Supervisory Act 2016). Also, the information duties are based on the nature of the conclusion of the contract (Art 5 et seqq Austrian Distance Financial Services Act19 (österreichisches Fernfinanzdienstleistungsgesetz— FernFinG)),20 which therefore occasionally also apply to an insurance contract. In addition to these information duties, the legislator tries to achieve transparency through a tight network of substantive and formal requirements to the contract, which is, even though it is of great importance, not limited to the transparency requirement alone. An example is Art 864a Austrian General Civil Code21 (österreichisches Allgemeines Bürgerliches Gesetzbuch—ABGB). The provision states that unusual, surprising and disadvantageous provisions in general terms of contract are invalid. Furthermore, one should point out that transparency in insurance law is not only one directional (the direction of the insurer to the policyholder). Basically, the before-mentioned aspects in insurance contracts, in particular the requirements of transparency, are higher than in other types of contracts.22 However, this applies not only to the policyholder but also to the insurer. Thus, the insurer has to insure an initially unknown and uncertain risk (see Sect. 3.3.2).23 The legislator also attempts to deal with this need for transparency by imposing pre-contractual and ongoing disclosure duties on the policyholder (Art 16 et seqq Austrian Insurance Contract Act24 (österreichisches Versicherungsvertragsgesetz—VersVG)). If finally the term ‘transparency’ shall be defined, one can start with the fact that transparency is a state. Something is transparent when it is comprehensible (in German durchschaubar or nachvollziehbar).25 Transferred to insurance contract law, transparency can therefore, in general, best be described as a condition that makes the insurance product as such, and thus the insurance contract, its content and its consequences, comprehensible to the parties involved. Specifically on the

19

BGBl I 2004/62. With the Distance Financial Service Act the Directive 2002/65/EC had been implemented into Austrian Law. 21 JGS 1811/946. 22 Wandt (2012), p. 343. 23 Heiss and Lorenz (2014) pre Article 16–22, para 4 seqq. 24 BGBl 1959/2. 25 Cf. Korinek (2016), p. 26. 20

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insurance contract, its form and content, transparency can be understood as comprehensibility supplemented by certainty, clarity and completeness.26 The insurance contract respectively its parts (in particular the general terms and conditions) must meet these requirements in order to be sufficiently transparent and valid (as a whole). If transparency is meant to be described with the words ‘comprehensibility’, ‘certainty’, ‘clarity’ and ‘completeness’, there is again much room for interpretation. In brief, and in accordance with the principles developed by the Austrian jurisprudence for the requirement of transparency (Art 5 para 1 Directive 93/13/EEC and Art 6 para 3 Consumer Protection Act) (see Sect. 3.3.3.4), the following may be said about the individual points, i.e. that a legal norm is comprehensible if it is understandable to the legal user with regard to its purpose and the legal consequences resulting from it.27 A legal norm is certain if it does not offer an unjustified margin of discretion and thus, although it is possible to prevent it by a more precise wording, would make it impossible to foresee (interpret) results from the policyholder’s point of view.28 A norm is sufficiently clear if it does not try to conceal the rights that the legal user derives from it or deceive his rights at all.29 Finally, completeness means that the effects of a legal norm must not be obscured by omitting certain parts.30

3 Transparency in Austrian Insurance Contract Law 3.1

Preliminary Remarks

Before the provisions that shall guarantee transparency are described in detail, a few preliminary remarks are beneficial. Like other European jurisdictions, the Austrian jurisdiction is also broadly defined by European legal standards. This applies in particular to insurance law.31 At the same time, European directives that are not specifically designed for insurance law are also emanating from this. The European influence makes obvious in several respects: on the one hand, it is clear that information duties of the insurer, as well as the insurance agent, towards the policyholder are becoming more and more extensive according to the ‘information model’. These information duties may be directly

26

See also the explanation of the Austrian Supreme Court (Oberster Gerichtshof—OGH)—in turn, however, to the transparency requirement of Art 6 para 3 Consumer Protection Act—to OGH 4 Ob 28/01y. 27 Wandt (2012), p. 343. 28 Fenyves (2007), p. 37. 29 Faber (2003), p. 51. 30 Fenyves (2014a) pre Article 1, para 106. 31 See only Baran and Peschetz (2015), p. 4.

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linked to the insurance contracts (see Art 17 et seqq, Art 29 Directive 16/97/EU32) or to b2c contracts (see Art 3 et seqq Directive 93/13/EEC). On the other hand, the European legislator also places far-reaching substantive and formal criteria on the (insurance) contract. However, the modern Austrian insurance law is founded not on European law but rather on German insurance law. This is because both the Insurance Supervisory Act 197833 (Versicherungsaufsichtsgesetz 1978—VAG 1978), replaced in 2016 by the Insurance Supervisory Act 2016, and the original Insurance Contract Act from 1958, which is still in force, have taken over the German Insurance Supervisory Act 190134 (deutsches Versicherungsaufsichtsgesetz 1901—dVAG 1901) respectively the German Insurance Contract Act 190835 (deutsches Versicherungsvertragsgesetz 1908— dVVG 1908).36 The Insurance Contract Act 1958 is therefore still the primary source of the Austrian insurance contract law. In addition, some types of insurance are regulated by special acts (for example, the motor vehicle liability insurance, regulated by Liability Against Motor Vehicles Act37 (Kraftfahrzeug-Haftpflichtgesetz—KHVG). Since the Insurance Contract Act (and other acts regulating special branches of insurances) only provides for certain aspects of the insurance contract, the Civil Code applies whenever there is no provision or no more specific provision in the Insurance Contract Act (or the other concerning act).38 If the contract is to be classified as a b2c contract, the Consumer Protection Act also applies. Finally, if the insurance contract, which is a b2c contract at the same time, is concluded exclusively by means of distant communications, the Distance Financial Services Act applies. With regard to transparency in insurance contract law, the Insurance Contract Act plays only a subordinate role. Its role is essentially limited to how information has to be passed on to the policyholder (e.g. in the case of an agreement to provide the information by electronic means, see also Art 5a para 7 Insurance Contract Act), as well as the legal consequences, which are linked to a non-disclosure of the necessary information (e.g. the right of withdrawal of the policyholder under Art 5b para 2 Insurance Contract Act). The information duties imposed on the policyholder are,

32

Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution (recast), OJ n○ L 26/19 of 02.02.2016 (IDD). 33 BGBl 1979/568. 34 dRGBl S 139. 35 dRGBl S 263. 36 This has historical reasons. Thus, both the German Insurance Supervisory Act 1901 and the German Insurance Contract Act 1908 were introduced in Austria in the course of the ‘Anschluss’ of Austria to the German Reich. After the war, both remained in force under different names and with slight changes. The fact is also worth to be mentioned because it can explain the still existing influence of German literature and jurisprudence on the Austrian insurance law (see also Fenyves 1997, p. 296). 37 BGBl 1994/651. 38 Cf. Schauer (2010), p. 195.

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however, in the supervisory law. The Insurance Supervisory law is therefore of particular importance. The same applies for the general civil law, which sets out the substantive and formal requirements of a contract, thus also of an insurance contract, and sanctions its non-compliance. If, however, transparency in insurance contract law is understood in a broad sense, the Insurance Contract Act also plays an important role: thus, the customer is obliged to make special disclosures before the conclusion and during the existence of an insurance contract (Art 16 et seqq Insurance Contract Act), which shall prevent the insurer from taking incalculable risks. With this framework, the legislator tries to ensure the necessary transparency in insurance contract law. The system, as well as the interplay of the respective provisions, will be presented in sequence. In the first place, an overview of the previous legal situation shall be given. Therefore, one element is to be emphasised, namely the amendment of the Insurance Supervisory Act in 1994 (VAG-Novelle 199439), which, together with the amendment of the Insurance Contract Act in 1994 (VersVG-Novelle 199440), both enacted on 1 January 1995, caused a departure from the ex ante control of the insurance conditions by the supervisory authority to a (deeper) ex post control by the common courts.

3.2

The Previous Regime

Until the amendment of the Insurance Supervisory Act in 1994, transparency, at least in the relationship between the insurer and the policyholder, was mainly based on insurance supervision law.41 The majority of the information duties addressed to the insurer were found there. Moreover, the pre-control respectively approval of the general policy conditions, which was also found in insurance supervision law, made the application of the general provisions (Arts 864a and 897 para 3 Civil Code) to the content and formal control of the insurance contract and the general policy conditions largely obsolete. Only the departure from this ex ante control by the supervisory authority led to far-reaching changes. This is evidenced by the upcoming activities of the courts concerned about the question of the admissibility of general policy since the amendment.

39

BGBl 1994/652. BGBl 1994/509. 41 However, in the Austrian insurance supervisory law, provisions aimed at providing transparency in the relationship between the insurer and the policyholder are already based on the year 1939 and on the German Supervisory Act 1901 respectively (after the war) the (Austrian) Insurance Supervisory Act 1978. Thus, the German Supervisory Act 1901already contained the first requirements on the transparency of the insurance contract (Art 9 para 1 leg cit). The provision had listed some essential elements that the general policy conditions had to contain; e.g. a compulsory risk description, provisions on the duration of the insurance contract, the cases in which compulsory performance should be excluded or abolished etc.). 40

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Formerly, the central provisions regarding the relationship between the insurer and the policyholder were found in Artt 4 para 6, 10 para 1 and 8 para 5 of the Insurance Supervisory Act 1978. Article 8 para 5 of the Insurance Supervisory Act 197842 stipulated that the general policy conditions should be submitted to the supervisory authority43 as part of their business plan before its admission. The supervisory authority had to examine and approve the general policy conditions. Only then were insurers permitted to use them in their insurance contracts. The aim of the statutory pre-control of the general policy conditions was customer protection.44 This should have been achieved by creating market transparency. The general policy conditions were, however, reviewed in a quite non-transparent way.45 Thus, the negotiation of the insurance conditions between the insurance companies and the supervisory authority took place on a small scale and behind closed doors. The approved general policy conditions, specimen conditions and business plans had finally been published, if at all, only in the VersVVers,46 a journal hardly known outside the insurance industry. If the policyholder wanted to check his insurance contract to determine whether his conditions corresponded to the model conditions, special inquiries had to be made—largely without the current possibilities of the electronic data processing, as well as the Internet. However, the co-operation between the supervisory authority and the insurers could largely prevent serious social injustices. In the daily insurance business, the pre-control and authorisation of the policy conditions led to a standardisation and limitation of the insurance products available on the market. This was, however, certainly intended by the national legislator at that time.47 The pre-control of the general insurance condition was, however, not compatible with the European legislator’s efforts to create a European single market for insurance products. Thus, it was, and still is, the aim of the European legislators, by means of deregulation of the market, to create the largest possible market for insurance products from which the policyholder could choose the appropriate product. This aim should have been achieved, in particular, by the three generations of life and non-life directives,48 whereas the pre-control and approval of the general policy conditions had been specifically the victim of the implementation of the third

42

The provision was situated in Art 4 para 2 of the original version of the Insurance Supervisory Act 1978. 43 Until 1.4.2002, this was the Federal Ministry of Finance, since then the Financial Market Supervisory Authority (Finanzmarktaufsicht—FMA) (Art 1 para 1 Financial Market Supervisory Act, BGBl 2001/97 [Finanzmarktaufsichtsgesetz—FMAG] in conjunction with Art 268 para 1 and 2 Insurance Supervisory Act 2016). 44 Cf. Evermann (2002), p. 4. 45 To the following: Ertl (1997), p. 2 seqq. 46 ‘Veröffentlichungen des BMF betreffend den Versicherungsvertrag’. 47 Evermann (2002), p. 4. 48 First directive 73/239/EEC, second directive RL 88/357/ EEC, third directive 92/49/ EEC (non-life insurance); first directive 79/267/ EEC, second directive 90/619/ EEC, third directive 92/96/EWG (life insurance).

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generation of the directives into national law. This was, however, also in the interests of the Austrian legislator: he mentioned in the materials49 of the amendment that the ‘prudent’ handling of the supervisory law would have led to the fact that insurance protection could not keep pace with the realities of the insurance market. Furthermore, he pointed out that the legal regulation of the relationship between the insurer and the policyholder would no longer meet modern requirements. The implementation of the third generation of policies also led to a system change from a regulated but clear market for insurance products to a wider range of insurance products at the price of a certain market intransparency.50 At the same time, it represents a partial relocation of ‘transparency’ from insurance supervisory law to (insurance) contract law. The legislator has attempted to compensate the legal protection deficit of the policyholder resulting therefrom by increased transparency, both with regard to the content of the insurance contract and its representation. In particular, the system had been replaced by extended information duties of the insurer (in particular the general notification duties in Art 9a Insurance Supervisory Act 1978, as well as the information duties for the life insurances in Art 18b Insurance Supervisory Act 1978, both then relocated to Art 252 et seqq Insurance Supervisory Act 2016 and – the in implementation of the Insurance Distribution Directive ([EU] 2016/97)51—now situated in Art 128 et seqq Insurance Supervisory Act 2016). With the entry into force of the Insurance Supervisory Act 2016, the prohibition of a general preliminary examination and approval of the general policy condition has been standardised in Art 272 Insurance Supervisory Act 2016 (see also Art 181 et seqq Solvency II Directive52). The partial duty of the insurer to notify the supervisory authority of the general policy conditions only remained in certain types of compulsory insurances, for example in the motor vehicle liability insurance (Art 18 para 1 Motor Vehicle Liability Act).53 The same applies to the nuclear liability insurance (Art 8 para 1 Nuclear Liability Act54 (Atomhaftungsgesetz 1999— AtomHG)).

49

EB 11. For the comparable German situation Wandt (2012), p. 346. 51 The IDD has meanwhile, in relation to information requirements contained in the directive (Artt 17 seqq IDD), been partly implemented to the Insurance Supervisory Act 2016. Namely by the Insurance Distribution Law Amendment Act 2018 (Versicherungsvertriebsrechts-Änderungsgesetz 2018—VersVertrRÄG 2018), enacted on 1.10.2018. 52 Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II), OJ n○ L 335/1 of 17.12.2009. 53 Based on Art 30 para 2 directive 92/49/ECC. 54 BGBl 1998/170. 50

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The Current Regime

In addition to this system change described, further European specifications have a major influence on the transparency of the insurance contract. They are essentially limited to the expansion of the information duties, either by extending the information duties, which apply specifically to the insurer (see Art 183 et seqq Solvency II, which, however, only required minor modifications in Austria55), or by extending the general information duties in consumer law, which occasionally also apply to the insurance contract (see Directive 2011/83/EU56). The IDD ([EU] 2016/97), which—although primarily addressed to the insurance intermediary – also introduced new information duties for the insurer, sets the end point at this time (Art 17 et seqq leg cit). In addition to this continuous expansion of the information duties, Directive 93/12/ECC57 is of particular importance. With this directive, the general requirement of transparency for all general terms and conditions used in b2c contracts has been defined (Art 5 para 1 leg cit). The directives mentioned here also constitute the main framework in which the national legislator has to ensure transparency. How this framework has been achieved in Austria will be presented in the following. The system of ‘transparency’ in today’s insurance contract law (in the relationship between the insurer and the policyholder) is therefore essentially based on two pillars: the first pillar is the extensive and close meshed network of information duties, sanctioned by extended rights of withdrawal, claims for damages and fines.58 The second pillar is based on legally standardised requirements on the insurance contract respectively its general policy conditions, which are based on high substantive and formal criteria controlled by the courts and sanctioned usually by the invalidity of the contractual component that does not fulfil these criteria, exceptionally also by the invalidity of the entire insurance contract. At the same time, the use of such clauses may lead to claims for damages, as well as to the right to contest or adjust the contract due to error. In both cases, it must be differentiated between b2b insurance contracts and b2c insurance contracts since in the latter case, both the pre-contractual information and the substantive and formal criteria are significantly increased to the insurance contract.

55

See the materials of the Insurance Supervisory Act 2016 354 BlgNr 25 GP. 55 seqq. Directive 2011/83/EU of the European Parliament and of the Council of 25 October on consumer rights, amending Council Directive 93/13/EEC and Directive 1999/44/EC of the European Parliament and of the Council and repealing Council Directive 85/577/EEC and Directive 97/7/EC of the European Parliament and of the Council (Consumer Protection Directive), OJ n○ L 304/64 of 22.11.2011. 57 Directive 93/13/EEC of the European Parliament and of the Council of 5 April 1993 on unfair terms in consumer contracts, OJ n○ L 95/29 of 24.04.1993. 58 See also Korinek (2016), p. 25. 56

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In the reversed ratio, the relationship between the policyholder and the insurer is characterised by pre-contractual and current disclosure duties of the policyholder. They are proven by a right of withdrawal by the insurer in the event of failure or incorrect information.

3.3.1

Information Duties of the Insurer

As already mentioned, the Insurance Supervisory Act 2016 primarily regulates the state supervision of the activities of insurance companies. However, the Act also radiates to insurance contract—also and in particular when it is considered under transparency aspects. The essential ‘general’ information duties of the insurer are found in in the Insurance Supervisory Act 2016 (Art 128 et seqq). The purpose of these extensive information duties is—also in the case of insurance law—seen in providing the addressee of the information, in this case the policyholder, with all the information he needs in order to make a well-informed and therefore—from his subjective perspective—a correct decision.59 In consequence, the policyholder is enabled to conclude a need-oriented contract, which corresponds to his ideas and motives.60 Brought to the point, the policyholder should receive a contract that is appropriate to his needs. Due to the circumstances already described at the outset, these goals are—without correspondingly directing legislative influence—difficult to achieve in insurance law in particular. Beyond doubt, however, the path taken by the legislator can also be questioned critically. The Insurance Contract Act, on the other hand, (only) sanctions the non-compliance of these duties (Art 5b et seqq). Additional information duties are found in the Distance Financial Services Act (Art 5 et seqq). The latter are not always to be complied, but only if the contracting party of the insurer is a consumer and the insurance contract has also been concluded in a special form. However, the information duties pursuant to Art 128 et seqq Insurance Supervisory Act 2016 are often in line with those of Art 5 et seqq Distance Financial Services Act. In addition, general civil law, as an outflow of the contractual relationship, is aware of certain (pre-contractual) information duties, whose non-fulfilment may result in claims of damages and in the right to contest or adjust the contract due to an error.

The Information Duties of the Insurance Supervisory Act 2016 The core elements of the information duties and now also of the advisory duties of the insurer can be found in the 6th main section of the Insurance Supervisory Act 2016. In Art 128 leg cit, the key elements of the IDD’s advisory and information

59 60

Cf. Rudy (2015), Art 7, para 2. Cf. Schauer (2005), p. 158.

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duties has been transposed into national law. While Art 128 et seqq leg cit contain duties of a general nature, Art 135 et seqq leg cit contain special advisory and information duties for life insurance, insurance investment products and health and accident insurance according to the type of life insurance (Kranken- und Unfallversicherungen nach Art der Lebensversicherung). They go beyond Art 128 et seqq leg cit and have to be provided in addition to the general information for specific types of insurances. The content of these information duties takes the peculiarities and complexity of the respective types of insurance into account. It would be beyond the scope of this article to discuss all the provisions in detail, especially since the provisions—as stated—are often based on the implementation of the IDD.61 Therefore, only an overview of the essential provisions shall be given, which relates to transparency of the insurance contract. Art 135 et seqq leg cit will not be discussed. Pre-contractual Advisory Duties Before the implementation of the IDD into the Insurance Supervisory Act 2016, the latter only contained advisory duties to a limited extent.62 In accordance with Art 132 para 1 Insurance Supervisory Act 2016, however, the insurer now has to make a personal recommendation to the policyholder for the conclusion of an insurance contract. In this recommendation, the insurer has to explain why the recommended contract meets the requirements of the policyholder in the best way. The intensity of this advisory duty depends on the complexity of the recommended insurance product. The more complex the recommended insurance product is, the more accurate and clear it must be explained by the insurer why exactly that contract seems to be the most suitable for the insurance company.63 Only a few areas are exempted from this general advisory duty: in particular, the advisory duty can be dispensed if major risks shall be insured (Art 132 para 1 leg cit). There are also exceptions if the contract is distributed by a third party entitled to do so, i.e. an insurance intermediary or an insurance company, unless the insurance company has reason to believe that the insurer is not properly advised by them (Art 132 para 3 leg cit). The advisory duty also lapses if the policyholder waives the advice after a prior warning by the insurer (Art 132 para 2 leg cit). In order to be able to comply with the advisory duties, Art 132 leg cit provides for a mandatory demand analysis. Thus, before concluding an insurance contract, the insurer must obtain from the policyholder the information needed to ascertain his needs (para 1 leg cit). The aim is to determine that the contract offered by the insurer 61

Cf. also the materials on the Insurance Distribution Law Amendment Act 2018, 26 BlgNR 26 GP. 4 seqq. 62 Before, advisory duties existed only according Art 254 Insurance Supervisory Act 2016, which required insurance undertakings to provide investor and property-specific advice on the sale of unitlinked and index-linked life insurance contracts. In addition, there were and still are situationdependent information and advisory duties under general civil law (see below Sect. 3.3.1.3). 63 Cf. Böhm (2018), p. 1068.

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meets the needs of the policyholder (para 2 leg cit). As with the advisory duty, the obligation does not exist if the contract is distributed through a third party entitled to do so unless the insurer has reason to believe that the policyholder will not be offered contracts that meet his needs (para 2 leg cit). Pre-contractual Information Duties The general information duties addressed to the insurer can be found especially in Artt 128, 128a, 130, 133 Insurance Supervisory Act 2016. Article 134 Insurance Supervisory Act 2016 contains special information duties for ‘cross-selling’ (Querverkäufe), i.e. insurance products offered together with an ancillary product or service that is not insurance, as part of a package or the same agreement. Article 128 Insurance Supervisory Act 2016 contains general principles for insurance distribution, especially para 2 leg cit, which contains a general prohibition of misleading statements (Irreführungsverbot).64 Thus, all information that the insurer has to address to policyholders or disseminated in such a way that policyholder is likely to be aware of has to be given in a clear, non-misleading way. The provision is to be understood comprehensively, which means that all information must be provided in a clear and comprehensible way. A piece of information is ‘clear’ or ‘comprehensible’ when it can be understood by an average insurance customer.65 Article 128a Insurance Supervisory Act 2016 contains details on how the information according to the 6th main section of the Insurance Supervisory Act 2016 has to be provided. With regard to the transparency of the product ‘insurance’, it should be emphasised that all information must be provided in a clear, precise and understandable form for the policyholder (para 2 no○ 2 leg cit). In addition, they must in principle be issued in German unless the policyholder agrees to a different language (para 2 no○ 3 leg cit).66 The general information requirements are to be found in Art 130 and Art 133 Insurance Supervisory Act 2016. The articles specify what the policyholder has to be informed about. Pursuant to Art 130 para 1 leg cit, the policyholder must be provided with the essential information about the offering insurer (no○ 1),67 the name and address of the supervisory authority responsible for the insurer (n○ 2) and the legal protection

64

The provision shows systematic similarities with the transparency requirement of Art 6 para 3 Consumer Protection Act (Kronthaler 2016a, p. 166). Both are about representation. The difference is however that Art 252 para 8 Insurance Supervisory Act 2016 means the representation of information, while Art 6 para 3 Consumer Protection Act means the representation of contact terms. (For the different legal consequences, see below respectively point Sect. 3.3.3.4). 65 Leitner (2005), p. 52. 66 Art 128a para 2 no○ 2 and 3 Insurance Supervisory Act 2016 also apply if the information is not provided on paper but on a durable medium or on a website. 67 The information must be provided to the policyholder before the demand analysis (see above Sect. Pre-contractual Information Duties).

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options available to the policyholder in addition to the general court procedure (n○ 3).68 For the insurance of major risks, there are certain easements with regard to the duties to provide information, especially if the policyholder is a legal person. Article 133 leg cit specifies what the policyholder has to be informed about the insurance product. With regard to the individual minimum information to be provided (para 2 leg cit), reference shall be made to the text of the IDD, which has been largely adopted (Art 20 IDD). In general, however, the insurer must provide—in an understandable form—the objective information about each insurance product offered to the policyholder and the relevant information about each insurance contract offered to the policyholder, in order allow him to make well-informed decision. Again, the complexity of the insurance product must be considered (para 1 leg cit). The information has to be given prior to the conclusion of the insurance contract. The obligation to provide the mentioned information, however, also affects the insurer during the entire duration of the upright contractual relationship (Art 133 para 4 Insurance Supervisory Act 2016). This ongoing information duty is intended to ensure that the policyholder has the necessary information not only before but also during the entire duration of the contractual conditions. The information requirements must always be fulfilled. Each policyholder should—in any case be—provided with the information relevant to his decision making. An alleged specific need for information is not necessary. Concerning Art 34 ‘ cross-selling’, it is also referred to the IDD (Art 24). From a civil law perspective, it is first to say that an infringement of Art 128 et seqq Insurance Supervisory Act 2016 does not lead to the invalidity of the contract.69 The policyholder is, however, granted special right of withdrawal in case of infringement of Art 130 Insurance Supervisory Act 2016 (Art 5b para 2 no○ 3 Insurance Contract Act). The policyholder may withdraw from the contract within 14 days. This applies not only to an already concluded contract but also to an application by the policyholder. As set out in Art 5b para 4 Insurance Contract Act, the period for withdrawal shall only begin to run if the policyholder has been provided with all information, the insurance policy and the general policy conditions. Furthermore, he needs to be informed about his right of withdrawal. The right of withdrawal expires 1 month after receipt of the insurance policy and the information of the right of withdrawal at the latest (Art 5b para 5 Insurance Contract Act). If the insurer fails to provide information about the possibility of the withdrawal, the policyholder’s right to withdraw is not subject to the statute of limitations. The withdrawal itself has to be given in writing and is on time, when it is sent within the deadline. Therefore it is sufficient, if it is departed in time, see Art 5b para 5 sentence 1 Insurance Contract Act. Finally, it is worth saying that the insurer has to prove that

68 69

This information must be provided before submitting policyholder's declaration of the contract. Cf. Kronthaler (2016b), p. 231.

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he has complied with his statutory information duties in accordance with the Insurance Supervisory Act 2016 (Art 5b para 3 Insurance Contract Act).70 In addition to this ‘indirect’ sanction, the infringement of the information duties may also give rise to claims of damages and may entitle the customer to contest or adjust the contract due to error.71

The Information Duties of the Consumer Protection Law Insurers are naturally entrepreneurs (see Art 8 Insurance Supervisory Act 2016).72 For this reason, in addition to the general information duties of the Insurance Supervisory Act 2016, the information duties of consumer protection law may also apply. Since all types of insurance contracts subject to Insurance Supervisory Act 2016 are to be classified as financial services73 within the scope of the Distance Financial Services Act, (only)74 the information requirements of the Distance Financial Services Act can be considered. In case the policyholder is a consumer within the meaning of the Consumer Protection Act and if the respective contract is concluded by only using remote communication, the information duties of the Insurance Supervisory Act 2016 also have to be complied by them of the Distance Financial Services Act (see Art 5 para 3 Distance Financial Services Act).75 The content of the information duties of the Distance Financial Services Act is essentially the same as those of Art 130 Insurance Supervisory Act 2016. However, the duties in the case of a ‘financial service’ are not specifically tailored to the insurance contract. A detailed description is therefore omitted here.76 Still it is necessary to mention that in case the information duties are not identical, both

70

Insofar as the policyholder is a consumer, the Insurance Contract Act allows him to withdraw from the insurance contract or his contract declaration without any reason within 14 days (Art 5c para 1 Insurance Contract Act). Also in this case, too, an in time transmission shall be sufficient— despite the fact that no explicit mention is made in Art 5c Insurance Contract Act (Fenyves 2014b, Art 5c, para 6). The right to withdraw the contract pursuant to Art 5c Insurance Contract Act expires 1 month after the receipt of the insurance policy and the information on the right of the withdrawal at the latest. As long as the insurer does not inform the policyholder of his right of withdrawal, the withdrawal period is not subject to the statute of limitations. In this respect, a right of withdrawal is also conceivable here (Kronthaler 2016b, p. 227). 71 This is the ruling, though not undisputed, view, cf. Kronthaler (2016b), p. 227. 72 Cf. Kronthaler (2016a), p. 167. 73 Cf. only Graf 2015a, Art 3, para 8. 74 Thus, Art 5a of the Consumer Protection Act as well as Artt 4 seqq of the Remote and External Business Act (Fern- und Auswärtsgeschäfte Gesetz—FAGG [BGBl I 2014/33]) which stipulate certain information duties for each b2c-contract respectively for that one concluded in the distance or in the case of a foreign business, are expressis verbis not applicable (Art 5a para 2 no○ 6 Consumer Protection Act or Art 1 para 2 no○ 5 Remote and External Business Act). 75 Cf. Kronthaler (2016a), p. 167. 76 See Graf (2015a), Art 3, para 1 seqq.

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must be provided (Art 5 para 3 Distance Financial Services Act). The stricter scale must be applied. The insurer has to fulfil the more detailed information duty. Article 5 Distance Financial Services Act states not only which information is to be provided but also—as in the case of Art 128 para 2 Insurance Supervisory Act 2016 (or Art 6 para 3 Consumer Protection Act)—in which form the information has to be provided. Under Art 5 para 1 Distance Financial Services Act, the information must be made available to the consumer in a clear and comprehensible way adapted to the nature of the used remote communication. The information moreover has to be given in such a way that its purpose is clearly recognizable. It has to be provided in such a way that the consumer can understand and process it without further effort.77 With regard to the infringement of the mentioned information duties, the following applies: Art 8 para 1 Distance Financial Services Act provides for a general right of withdrawal. This is not subject to special reasons. The only requirement is that the b2c contract has been concluded exclusively by means of a remote communication. The withdrawal period is 2 weeks78 after conclusion of the contract (Art 8 para 2 Distance Financial Services Act). The limitation period doesn’t start running when the insurer does not provide the information, does not provide it at the right time (until the conclusion of the contract) or is in a proper form (i.e. in a clear and comprehensible manner). The right to withdraw the contract pursuant to Art 8 Distance Financial Services Act exists in addition to the general right of withdrawal in Art 5c Insurance Contract Act, but the exercise of the one excludes, of course, the other. Provided as information duties respectively as a transparency duty to the insurer, an infringement of this provision described here may also be followed by claims of damages, as well as by contesting or adjusting the contract due to error.

Pre-contractual Information Duties of General Civil Law As shown, the insurer is subject to extensive information requirements. These will be intensified furthermore if it is a b2c contract. Therefore, the policyholder is no doubt, at least theoretically, given all the information necessary to get a comprehensive picture of the insurer, the insurance contract and the resulting rights and obligations. The general information requirement of the policyholder is therefore largely met. However, the extensive list of duties cannot hide the fact that this is a rigid system that does not take the concrete circumstances of the individual insurance business and the actual situation of the policyholder in account sufficiently. In Austria, this deficit is mitigated by the legal institution of culpa in contrahendo. The legal institution of the culpa in contrahendo, which is alien to written Austrian law but derived from Artt 866, 869, 874 ABGB, lays down specific duties

77

Graf (2015a, b), Art 5, para 4 seqq. For life insurances as defined in Directive 2002/83/EC on life assurance, OJ no○ L 345 v 19.12.2002 it is 30 days (Art 8 para 2 Distance Financial Services Act). 78

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of care, in particular information duties, as well as protection duties, to those who seek to establish a legal relationship. The question of whether, and to what extent, the additional information requirements exists with respect to the insurer, besides the general duties in the Insurance Supervisory Act 2016, as well as the Financial Distance Service Act, depends on the respective concrete situation.79 It is always to question with which information the (future) contract partner, the policyholder, could reasonably have reckoned.80 The insurer’s (or the insurance broker’s) obligation to provide information exists if the policyholder asks questions,81 a misrepresentation occurs to the policyholder82 or the insurer otherwise becomes aware of the policyholder’s need of information.83 But the insurer’s duty to provide information or advice may not be overstretched. As a consequence, the ruling opinion rejects a ‘spontaneous’ advisory duty of the insurer.84 In particular, in general, the policyholders themselves have to take care of the insurance cover they need and have to provide themselves with the necessary knowledge.85 The Austrian case law, for example, agrees to the duty of the insurer to provide comprehensive information on the amount and limits of the cover in the case that the insurer is aware that the policyholder wishes a ‘comprehensive’ insurance protection (in the specific case, a doctor with regard to any kinds of treatment errors).86 Also, the insurer has to inform the policyholder of the beginning of the insurance cover or the possibilities of a provisional cover if the policyholder is mistaken and supposes that the risk to be insured is already covered by the submission of the application.87 Finally, the insurer has to point out to a new insurance product when the policyholder is not aware of this variant and the insurer is able to realise that this product could fit to the policyholder (in the specific case about a new variant of the group health insurance for civil servants, as the insurer was aware that the policyholders were civil servants).88 The sanctions of the infringement of these pre-contractual information duties are claims for damages.89 In addition, a contestation or adjustment of the contract due to error is also conceivable.90 However, the policyholder is not entitled to withdraw the contract unless the insurer (also) infringes his information duties standardised in the

79

OGH 2 Ob 151/02y. OGH 5 Ob 524/79. 81 Fenyves (2009), p. 19. 82 OGH 7 Ob 9/94, OGH 7 Ob 20/14p. 83 Fenyves (2009), p. 20. 84 See only Fenyves (2009), p. 20, following OGH 7 Ob 20/14p. 85 Fenyves (2009), p. 19. 86 OGH 7 Ob 72/11f. 87 SZ 62/157. 88 OGH 7 Ob 9/94. 89 Wiebe (2015), Art 861, para 31. 90 Cf Wiebe (2015), Art 861, para 50. 80

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Insurance Supervisory Act 2016 respectively the Financial Distance Act or the policyholder has a general right of withdrawal due to his status as a consumer.

3.3.2

The Information Duties of the Policyholder (Art 16 et Seqq Insurance Contract Act)

Not only the policyholder has a need for transparency but also the insurer. However, this is less a matter of a transparent presentation of the content of the insurance contract and of its legal consequences (which the insurer is usually aware of anyway) but rather a matter of the assessment of the profitability of the contract to be concluded. In order to be successful in the long term, the insurer must, in particular, be able to calculate a risk-adequate premium.91 To achieve this goal, the insurer needs sufficient knowledge of the individual risk situation of the policyholder. Article 16 et seqq of the Insurance Contract Act are intended to ensure this by arranging disclosure duties of the policyholder and, at the same time, regulating the consequences of an infringement of these duties. In accordance with Art 16 para 1 Insurance Contract Act, the policyholder must notify the insurer of any significant circumstances that are known to him and suitable to influence the risk calculation of the insurer. The duty to notify is independent of whether the insurer asks for it or not (spontaneous disclosure duty (spontane Anzeigpflicht)).92 Significant are those circumstances that are likely to have an influence on the insurer’s decision to conclude an insurance contract or to conclude it at the underlying conditions (sentence 2 leg cit).93 That is regularly the case when a circumstance is (objectively) suitable to alter the insurer’s decision regarding the conclusion of the contract.94 Those circumstances that could cause the insured event or that could influence the nature and the extent of the insurance performance to be provided shall be, in any event, perilous,95 such as illness symptoms96 or a failed suicide attempt.97 If the parties agree to exclude a risk, the excluded risk shall be a non-significant circumstance.98 Finally, Art 16 para 1 sentence 2 Insurance Contract Act provides for a (rebuttable)99 presumption rule for the significance of a circumstance. A circumstance shall in no doubt always be significant if the insurer expressly and in written form asks for information about a circumstance.

91

Heiss and Lorenz (2014) pre Article 16–22, para 4. Cf. Heiss and Lorenz (2014) pre Article 16–22, para 13. 93 See also OGH 7 Ob 266/02x. 94 OGH 7 Ob 250/06z. 95 OGH 7 Ob 18/91. 96 OGH 7 Ob 170/13w. 97 OGH 7 Ob 17/86. 98 See Heiss and Lorenz (2014) Article 16–17, para 8. 99 OGH 7 Ob 60/87. 92

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The duty of disclosure applies to the policyholder only insofar as he knows about a circumstance. This means positive knowledge. Need to know shall be not enough.100 The policyholder also has no obligation to investigate.101 However, he must not act fraudulently (see Art 16 para 2 sentence 2 Insurance Contract Act).102 The disclosure must be given by the time of the conclusion of the contract at the latest (Art 16 para 1 Insurance Contract Act). The consequences of an infringement of the disclosure duties are explicitly and complexly regulated in Artt 16, para 2, and 17 et seqq Insurance Contract Act. Only the principles can be described here. In principle, the insurer has a 1-month right of withdrawal, both in the case of non-disclosure and in the case of misinformation. Article 16 para 2 sentence 1 Insurance Contract Act regulates the non-disclosure of significant circumstances. The 1-month right of withdrawal also applies if the disclosure of a significant circumstance is omitted because the policyholder has deliberately deprived himself of the knowledge of the circumstance (para 2 sentence 2 leg cit). However, a withdrawal is excluded if the insurer obtains knowledge of the indicated circumstance in another way (para 3 sentence 1 leg cit). A withdrawal is also excluded if the information is not given but the policyholder’s acts without fault (para 3 sentence 2 leg cit).103 If the policyholder has not disclosed a circumstance that the insurer has not asked expressly and precisely, the insurer can only withdraw if the non-disclosure is intentionally or grossly negligent (para 3 sentence 3 leg cit). Pursuant to Art 17 para 1 of the Insurance Contract Act, the insurer can also withdraw from the contract if an incorrect disclosure has been made concerning a significant circumstance. Here, too, the withdrawal is excluded if the incorrectness was known to the insurer or the disclosure was made incorrect without fault of the policyholder (para 2 leg cit). This, for example, shall be the case when the insurer formulates his questions unclearly or the policyholder follows an instruction from an intermediary.104 Under Art 20 para 1 Insurance Contract Act, the right of withdrawal is only permitted within 1 month. The period begins with the date on which the insurer becomes aware of the infringement of the duty of disclosure. The withdrawal is to be explained to the policyholder. In the event of a withdrawal, both parties are obliged to return the received services to each other (para 2 leg cit). If, however, the insurer withdraws only after the occurrence of the insured event, his obligation to perform shall remain in force. That should be the case if the circumstance that should have been disclosed (but had not been disclosed) has not affected the occurrence of the insured event (Art 21 Insurance Contract Act).

100

OGH 7 Ob 52/86. Schauer (1995), p. 108 102 Heiss and Lorenz (2014) Article 16–17, para 20. 103 However, in this case the insurer has an exceptional right to increase the premium (Art 41 para 1 Insurance Contract Act). 104 See Heiss and Lorenz (2014) Article 16–17, para 59. 101

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Article 16 et seqq Insurance Contract Act are only compulsory to the insurer. The policyholder’s disclosure duties can therefore be restricted by contract. Also, the legal consequences could be weakened. The policyholder has to provide information not only before concluding the contract but also if a significant circumstance changes during the contractual relationship, as well as in the case of an increase of the insured risk by the policyholder himself (for the subjective increase of the insured risk, see Art 23 para 2 Insurance Contract Act) and in the case of an increase of the insured risk by other circumstances that cannot be influenced by the policyholder (objective increase of the insured risk, Art 27 para 2 Insurance Contract Act). Both cases can exceptionally lead to a right of withdrawal of the insurer (Artt 24 para 1 and 27 para 1 Insurance Contract Act).

3.3.3

The Judicial Review of Insurance Contracts and General Policy Conditions

The second pillar, with which the European and the national legislators try to ensure sufficient transparency in the insurance contract, is the judicial review of the insurance contract in terms of its content, as well as its formal aspects. In contrast to the information duties, the insurer is not actively obliged to act transparently due to the case-by-case review of the court. However, if he uses an unlawful, in particular non-transparent contract formulation, he bears the risk of its invalidity. Furthermore, he exposes himself to the risk of claims of damages and a contention or an adjusting of the contract due to an error. The possible judicial review and the resulting risk of invalidity of the clauses, which have been determined to be unlawful, are intended to lead the insurer to a transparent contract.105 The countless publications on the topic testify to the importance and at the same time to the complexity of the subject. Subsequently, the principles are to be outlined from the Austrian perspective.

Preliminary Remarks In principle, the Austrian legal system does not have any special control over insurance contracts or their clauses. Hence, they should rather be measured against the requirements that apply to contracts in general. Thus, an insurance contract is also subject to a general review against unlawfulness (Gesetzwidrigkeit) and violation of moral principles (Sittenwidrigkeit).106 If the court detects a violation of a mandatory law or moral principles, it usually declares invalid the reviewed contract or at least parts thereof. In particular, with respect to the use of general terms and conditions (Allgmeine Geschäftsbedingungen—AGB) or contract forms

105 106

Cf. Stagl (2006), p. 4 seqq. Graf (2015b), Art 879 para 14 seqq.

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(Vertragsformblätter), the legal system places specific requirements in terms of content and form.107 The general terms and conditions play a special role in insurance contracts. As a rule, these pre-formulated parts of contracts, which in insurance contracts are usually referred to as general policy conditions (Allgemeine Versicherungsbedingungen— AVB), often not only include ancillary clauses—unlike other contracts. Rather, they generally (also) include the risk description (as well as their exceptions) and thus, besides the premium to be paid, the essential component of an insurance contract. This fact also explains the special importance of the GTC control (AGB-Kontrolle) for insurance contract law. From the perspective of transparency, the transparency requirement (Transparenzgebot) standardised in Art 6 para 3 Consumer Protection Act plays a special role, as well as the so-called validity control (Geltungskontrolle) standardised in Art 864a Civil Code and the ‘content review’ (Inhaltskontrolle) standardised in Art 879 para 3 Civil Code. The ‘Validity’ of General Policy Conditions According to Art 864a Civil Code According to Art 864a Civil Code, clauses in general terms and conditions (or other contract forms) that contain unusual content and are used by one contracting party are not going to be part of the contract if they disadvantage the other part and the latter, especially according to the external appearance of the document, did not have to reckon with them, unless the party using the clause would have specifically pointed out the clause that is disadvantageous. The purpose of the provision is to prevent the contractual partner, who does not lead the negotiations, from being taken by surprise.108 The scope of the provision is expanded, compared to Art 879 para 3 Civil Code and to Art 6 Abs 3 Consumer Protection Act. Thus, Art 864a Civil Code—due to the fact that it is situated in the Civil Code—is used in every contract, whether it is a b2b contract or a b2c contract. Moreover, it is not limited to ancillary clauses of a contract (like Art 879 para 3 Civil Code). But the condition in question must be used in general terms and conditions. That means it must not be negotiated individually. Due to those facts, insurance contracts are largely covered by the scope of Art 864a Civil Code. To the invalidation of a term pursuant to the quoted provision, all legal requirements must be fulfilled cumulatively. Therefore, a term used in the GTC must be unusual, surprising and disadvantageous. Whether a term is ‘unusual’ is to be judged according to objective criteria.109 This can be done in two ways: on the one hand, objective unusualness can result from the outward appearance of the contract. Thereby, it is sufficient that a clause is hidden and the average policyholder does not have to anticipate it, irrespective of whether it

107

To the legal policy justification of the special requirements related to Austrian insurance law Stagl (2006), p. 6 seqq. 108 Riedler (2015), Art 864a, para 32. 109 To the following Fenyves (2014a), pre Art 1, para 48 seqq.

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is (also) unusual.110 On the other hand, a clause is objectively unusual if it is formally in the right place but the policyholder does not have to reckon a clause with such content.111 This is especially the case if a clause is not customary. The question to be put is what expectations the average policyholder has in the content of the concrete contract.112 In addition to the requirement of objective unusualness, it is required that the clause is disadvantageous. The disadvantage does not have to be a ‘gross disadvantage’ within the meaning of Art 879 para 3 Civil Code.113 However, according to the case law, the clause must clearly differ from the usual legal standard.114 With regard to insurance contract law, it is provided that objective unusualness is not presumed from the fact that a clause rules the restriction of risks. On the contrary, the policyholder cannot expect every risk to be covered.115 Conventional risk restrictions are therefore regularly considered ordinary.116 The same applies to clauses that are linked to circumstances associated with the increase in the risk to the insurer.117 In addition to this objective ‘unusualness’, the legal consequences of Art 864a Civil Code shall also apply when a clause is subjectively unusual.118 This is the case if—by negotiations—specific expectations of the policyholder in terms the content of the contract are awoken, which have been finally disappointed by the formulation used by the insurer.119 The standard for the assessment is the average policyholder. Again, the legitimated expectation of the policyholder shall be taken into account.120 Once again it has to be pointed out that Art 864a Civil Code is only applicable if the policyholder has not been particularly pointed to the clause in question. The more unusual a clause is, the more clearly it must be pointed out.121 The legal consequence of using a term against Art 864a Civil Code lies in its nullity. But the policyholder must explicitly invoke the invalidity pursuant to Art 864a Civil Code (relative nullity [relative Nichtigkeit]).122 He also bears the burden of proof.123

110

Riedler (2015), Art 864a, para 35. Fenyves (2014a), pre Art 1, para 49. 112 Cf. OGH 7 Ob 201/12b. 113 OGH 7 Ob 216/11f. 114 OGH 7 Ob 194/11x. 115 OGH 7 Ob 250/07a. 116 OGH 7 Ob 18/00y. 117 OGH 7 Ob 12/90. 118 To the following Fenyves (2014a), pre Art 1, para 52 seqq. 119 Schauer (1995), p. 86. 120 Riedler (2015), Art 864a, para 35. 121 Fenyves (2014a), pre Art 1, para 54; OGH 7 Ob 22/10a. 122 OGH 8 Ob 85/13b. 123 OGH 8 Ob 85/13b. 111

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The Content Control of General Policy Conditions According to Art 879 Para 3 Civil Code Like other general terms and conditions, general policy conditions are also subject to the so-called content control pursuant to Art 879 para 3 Civil Code. A clause contained in general terms and conditions and that does not specify the main services of a contract shall be invalid if it is—considering all the circumstance of a case— grossly disadvantageous (gröblich benachteiligend). This provision is applicable not only to b2c contracts. However, unlike Art 864a ABGB, the provision is—at least according to the wording—limited to ancillary clauses of the provision. However, as the Austrian jurisprudence broadly understands the concept of the main services of a contract, it shall also be possible to apply the provision to the risk descriptions, which are regularly to be found in the general policy conditions.124 In the meaning of Art 879 para 3 Civil Code, a major disadvantage shall exist, on the one hand, if a clause deviates significantly from non-mandatory law.125 Since, however, the Insurance Contract Act mainly stipulates the rights of the policyholder in a non-mandatory way, the assessment of whether a term is grossly disadvantageous must be carried out in other ways. Thus, according to Austrian jurisprudence, gross disadvantage is given if the formulation of a clause would thwart the purpose of the contract for the other contractual party.126 The insurer’s risk description therefore is already grossly disadvantageous if this would jeopardise the achievement of the contractual purpose.127 The benchmark is the expected covering of the policyholder.128 At the same time, the Supreme Court also uses the principles developed in general whereby in the absence of corresponding non-mandatory provisions, a weighing of interests has to be made and the legal position of the contracting parties has to be compared.129 If a weighing of interests results in the inadequate protection of the legitimate interests of the contracting parties, the clause shall be ineffective. The legitimate interests must be formulated in each case individually. The insurer’s legitimate interests therefore usually lie in offering an insurance product for which the risk can be calculated and that allows the insurer to generate profits through an appropriate premium calculation.130 The policyholder’s legitimate interest, in return, lies in an adequate covering.131 If a term is grossly disadvantageous, it is ineffective (unwirksam). This means relative nullity, which again means that the court only takes it up if it is claimed.132

124

See only Fenyves (2014a), pre Art 1, para 62 seqq. Graf (2015b), Art 879 para 279. 126 Fenyves (1998), p. 364. 127 Fenyves (2014a), pre Art 1, para 69. 128 Fenyves (2014a), pre Art 1, para 71. 129 Fenyves (2014a), pre Art 1, para 73. 130 OGH 7 Ob 2137/96g. 131 Fenyves (2014a), pre Art 1, para 73. 132 Cf. OGH 7 Ob 15/92. 125

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Only in b2c business that the court examines ex officio if there is gross disadvantage, but only in the event that the disadvantage is evident.133 In b2b business, a majorly disadvantageous term shall be allowed to be reduced.134 This means that the clause is reduced to the permissible core and is applied (geltungserhaltende Reduktion). If a reduction is not allowed—as in the case of b2c contracts135—the contract becomes incomplete. In this case, the missing clause must be replaced by non-mandatory provisions. If there is no such provision or if the contractual parties reveal that both of them do not want to use existing provisions, a supplementary interpretation of the contract is to be performed (ergänzende Vertragsauslegung). It is thereby necessary to ask which clause would have been agreed upon by reasonable contractual parties who have knowledge of the incomplete nature of the contract (hypothetischer Parteiwillen).136

The Transparency Requirement According to Art 6 Para 3 Consumer Protection Act Finally, one of the major elements to achieve transparency is the transparency requirement of Art 6 Abs 3 Consumer Protection Act. It again is not a special feature of insurance law. According to the provision, a clause situated in general terms and conditions (or contract forms) is invalid if it is ‘unclear’ (unklar) or ‘incomprehensible’ (unverständlich). Article 6 Abs 3 Consumer Protection Act has been enacted in the course of the implementation of Art 5 para 1 Directive 93/13/EEC. The provision is not only limited to ancillary conditions. This circumstance distinguishes Art 6 Abs 3 Consumer Protection Act from Art 864a Civil Code. Also its scope is broader. In particular, the provision does not presuppose any substantive disadvantage.137 According to the Austrian case law,138 the transparency requirement is met if the clause was formulated in a comprehensible way. Furthermore, it is necessary that the content and scope of the clause is transparent. The relevant clause must reliably inform the consumer of his rights and obligations under the contract. The clause must enable the policyholder to enforce his rights and must not impose unauthorised duties on him. Furthermore, the policyholder must not be deceived or left in uncertainty about the legal consequences of the specific clause. In accordance with this definition, transparency requirements are made up of certain criteria: comprehensibility, certainty, clarity and completeness (regarding the content of these

133

OGH 6 Ob 507/95. Fenyves (2014a), pre Art 1, para 90. 135 ECJ C-618/10, (Banco Español de Crédito SA/Joaquin Calderon Camino); OGH 2 Ob 22/12 t. 136 Rummel (2014), Art 914, para 20. 137 Cf. Faber (2003), p. 37. 138 See the leading decision OGH 4 Ob 28/01y; see also EuGH C-96/14 (Jean-Claude Van Hove/ CNP Assurances SA). 134

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criteria, see Sect. 2). The criteria are measured by an average policyholder.139 In general, however, the requirements for the transparency of the general policy terms shall not be seen as too high. This shall all the more apply to the insurance contract where the product insurance can hardly be provided without using pre-formulated contract components.140 This fact is also taken into account in the definition of the average policyholder. Thus, the general policy conditions—as they contain essential elements of the insurance contract—require increased attention of the policyholder compared to other GTC.141 The policyholder has to read the insurance contract and its general policy terms in a careful way.142 The requirements to transparency subject to Art 6 para 3 Consumer Protection Act finally find their limits where the insurer would have to refrain using a clause only because of its complexity. On the premise that they are necessary, legal language, specialist terminology (such as illness pictures) or cross-references to other clauses or legal provisions shall also be allowed. If a term is non-transparent, it is invalid (unwirksam). It is again a matter of relative nullity.143 A reduction of the clause to its permissible core is ruled out according to the case law.144 It therefore comes to the application of non-mandatory law or to a supplementary interpretation of the contract.

4 Conclusion The explanations given here show only an overview of the complex issue of the requirements on transparency of insurance contracts in Austria. However, the overview already shows a few things in a clear way: transparency is a topic in the entire insurance law and therefore also is of particular importance to insurance contract law. Furthermore, it is to say that transparency aspects play a greater role in insurance law than in other legal areas. The focus is clearly on the protection of the policyholder. Finally, the issue of transparency is, however—as shown—not to be restricted to the protection of the policyholder alone. The insurer is also faced with a serious need for transparency. The reasons why transparency plays such an important role in insurance contract law can be seen quickly: the complexity of the product insurance as an exclusively legal product on the one hand and the complexity of the legal framework on the other. This will not change in the future as both of them—the complexity of the insurance product and the resulting complex legal framework—are inherent in the

139

OGH 7 Ob 216/05y. See only Fenyves (2014a), pre Art 1, para 115. 141 OGH 10 Ob 67/06k. 142 Korinek (1999), p. 159. 143 Cf. only Faber (2003), p. 39. 144 ECJ C-618/10, (Banco Español de Crédito SA/Joaquin Calderon Camino); OGH 2 Ob 22/12 t. 140

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nature of things. They arise from the fact that the product insurance is abstract and non-tangible for both sides and has—apart from the obligation to pay premiums—no direct impact on the policyholder. The summary can finally be rounded off by stating that insurance is only rarely voluntarily concluded.145 On the contrary, insurance is usually concluded when it has to be, when it is mandatory by law or because it appears reasonable for the policyholder. Thus, unlike the purchase of consumer goods, for example, it is usually only a necessary evil, which is why the interest in product insurance is generally limited. This fact, too, will not change in the future. Before this initial situation, the efforts of the legislature to provide for (more) transparency are now to be appreciated. Looking at the first pillar with which the legislator tries to achieve transparency— as outlined above—the (preliminary) contractual information requirements, the following can be said: like the different directives and their implementation in national law show, the legislator attaches particular importance to this first pillar. The last issued—and meanwhile partly implemented—IDD shows that the end of the flagpole has not yet been reached. In general, a need for sufficient information to be provided by the policyholder cannot be denied. As is often emphasised, a transparent relationship between the insurer and the policyholder is to be established through the mandatory provision of information. In the best case, the insurer should—by providing all necessary information—be enabled by the policyholder to make an informed decision as to whether and, if so, with what content an insurance contract should be concluded. The fact that legislative efforts make a significant contribution to providing the policyholder with the information necessary for this decision is unquestionable, but as is often pointed out, too much information can also have disadvantages146: on the one hand, the administrative burden for the insurer increases. This, in turn, indirectly affects the premium payable by the policyholder.147 On the other hand, it is questionable whether the information provided to the policyholder is actually perceived by the policyholder.148 It is questionable whether the policyholder really read the content of the contract and also understood it. Already the first point is to be doubted in many cases. Thus, overkill of information can also have a deterrent effect on the policyholder. In the worst case, it prevents him from dealing more deeply with the insurance contract. This, although a great deal of information would have been available—theoretically. Too much information can therefore be detrimental to the aims of the legislator. An extension of the information requirements therefore should only take place gingerly, if at all. Looking at the second pillar, the judicial review of the general policy conditions, one can say that—apart from all the efforts of the legislator—still an imbalance between the insurer and the policyholder exists. This has two reasons: first, the 145

This is especially the case if the policyholder is a private individual. Cf. Kalss (2015), pp. 8 seqq. 11, 20 seqq. 147 Cf. Wandt (2012), p. 353. 148 Kalss (2015), p. 8. 146

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policyholder himself. The legislator can do hardly more than to make sure that the policyholder is provided with all necessary information. In the end, it is, however, up to the policyholder to read and to process this information, to compare the different insurance products and to decide based on well-grounded knowledge.149 The reality often looks different.150 Of course the policyholder cannot be blamed too much—a certain imbalance will remain anyway, independently of a well-informed policyholder. This already results from the generally unequal distribution of (financial) resources between the insurer and the policyholder, which allows the insurer to unilaterally set the terms of the contract. The policyholder has only the option to accept this fact, to renounce the insurance or to switch to another insurer whereby the last option bears, of course, the risk that the terms and conditions of the other insurance company are problematic in the same way. In front of this initial situation, Artt 864a and 879 para 3 Civil Code and Art 6 para 3 Consumer Protection Act, however, have turned out to be quite useful tools for the courts to compensate or at least mitigate this discrepancy. Over the years, a clear set of criteria has been developed, which must be met in order to comply with the transparency requirements both in substantive and in formal terms. The fact of the (now) clearly circumscribed criteria on the one hand, together with the legal consequence of the ineffectivity of the incriminated clause on the other hand (supplemented by the court decision that a reduction of the clause to its core is not permissible), is an important factor to encourage a transparent insurance contract. These effects are strengthened in Austria by the possibility of collective legal actions (Verbandsklagen). Thus, consumer protection law enables certain associations to let general terms and conditions be reviewed in court without being affected by these terms and conditions themselves (Art 28 et seqq Consumer Protection Act). Legitimate associations,151 above all the Association for Consumer Information (Verein für Konsumenteninformation—VKI), make use of this possibility quite frequently— also in insurance law.152 Finally, regarding the relationship between the policyholder and the insurer, it is to be said that, by means of Art 16 et seqq Insurance Contract Act, a high level of transparency is created for the insurer, achieved by the disclosure duties to the policyholder. According to Artt 16 and 17 Insurance Contract Act, the policyholder has to transmit information about all circumstances to the insurer that are significant for the calculation of the premiums of the insurer. The disclosure duties strictly sanctioned have to be complied with before the conclusion of the contract and—if there are significant changes—also during the existing insurance relationship. In general, the interplay of these provisions guarantees a high level of transparency for the insurer. However, the current system of spontaneous disclosure risks entails risks for the policyholder and—in general—legal uncertainty. Therefore, the Austrian

149

Cf. Korinek (2016), p. 25. Cf. also Kalss (2015), pp. 8 seqq. 11, 20 seqq. 151 See Art 29 para 1 Consumer Protection Act. 152 Cf e.g. OGH 7 Ob 131/06z; OGH 7 Ob 82/07w; OGH 7 Ob 201/12b; OGH 7 Ob 216/11g. 150

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legislator should – like it had happened in other countries—also be encouraged to take a (complete) turn from the current system of spontaneous disclosure duties to a questionnaire system—this also under the aspect of transparency. Such a system could in particular increase the legal certainty on the side of the policyholder as he would only have to answer questions posed to him. As long as he would have answered completely and truthfully, he would no longer be confronted with the question of which information, from the insurer's point of view, could be relevant and must therefore be communicated. At the same time, it could—if one looks at the complex regulations in Art 16 et seqq Insurance Contract Act—also help to simplify the law.153

References Baran B, Peschetz A (2015) Österreichisches Versicherungsrecht, 3rd edn. Manz, Wien Bdylinski F (2015) Fundamentale Rechtsgrundsätze. Verlag Österreich, Wien Böhm (2018) Informations- und Beratungspflichten für VU nach dem VersicherungsvertriebsrechtsÄnderungsgesetz 2018 (VersVertrRÄG 2018) (I) in: ecolex 2018, 1068 Dreher M (1991) Die Versicherung als Rechtsprodukt. Mohr Siebeck, Tübingen Ertl G (1997) Neuerungen im Versicherungsvertragsrecht. ZVR:2 seqq Evermann M (2002) Die Anforderungen des Transparenzgebotes an die Gestaltung von Allgemeinen Versicherungsbedingungen – Unter besonderer Berücksichtigung der Richtlinie 93/13/EWG. Verlag für Versicherungswirtschaft, Karlsuhe Faber I (2003) Inhaltskontrolle allgemeiner Versicherungsbedingungen und Transparenzgebot. ÖJZ:49 seqq Fenyves A (1997) Deutsches und österreichisches Versicherungsvertragsrecht – Gemeinsamkeiten und Unterschiede. ZVersWiss:295–323 Fenyves A (1998) Article 43. In: Fenyves A, Kronsteiner F, Schauer M (eds) Kommentar zu den Novellen zum VersVG. Springer, Wien Fenyves A (2007) Das Transparenzgebot aus der Sicht des Versicherers. VR:36–43 Fenyves A (2009) Die Konsequenzen der Intransparenz von “Kostenklauseln” in den AVB der Lebensversicherung. VR:20 seqq Fenyves A (2014a) pre Article 1. In: Fenyves A, Schauer M (eds) Kommentar zum VersVG. Verlag Österreich, Wien, pp 1–55 Fenyves A (2014b) Article 5c. In: Fenyves A, Schauer M (eds) Kommentar zum VersVG. Verlag Österreich, Wien, pp 81–84 Graf G (2015a) Article 3 FernFinG. In: Kodek G, Schwimann M (eds) ABGB Praxiskommentar, 4th edn. LexisNexis, Wien Graf G (2015b) Art 879. In: Kletečka A, Schauer M (eds) ABGB-ON - Kommentar zum Allgemeinen bürgerlichen Gesetzbuch. Manz, Wien Heiss H (2009) Die Informationspflichten des Versicherers. VR:25 seqq Heiss H, Lorenz B (2014) pre Article 16–22. In: Fenyves A, Schauer M (eds) Kommentar zum VersVG. Verlag Österreich, Wien, pp 1–38 Kalss S (2015) Das Scheitern des Informationsmodells gegenüber privaten Anlegern, 19. ÖJT II/1:9 seqq

153 Cf. Heiss (2009), p. 25, p. 27; see also Principles of European Insurance Contract Law Art 2:101 para 1.

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Korinek S (1999) Das Transparenzgebot des § 6 Abs 3 KSchG – Teil I. JBl:149 seqq Korinek S (2016) Information und Transparenz beim Vertragsschluss. VR:24 seqq Kronthaler Ch (2016a) Die Informationspflichten des Versicherers vor Vertragsabschluss nach dem VAG 2016 - Teil 1. ZFR:164 seqq Kronthaler Ch (2016b) Die Informationspflichten des Versicherers vor Vertragsabschluss nach dem VAG 2016 - Teil 2. ZFR:226 seqq Leitner M (2005) Das Transparenzgebot. Manz, Wien Leverenz E (2008) Vertragsschluss nach der VVG-Reform. VVW, Dresden Riedler A (2015) Article 864a ABGB. In: Kodek G, Schwimann M (eds) ABGB Praxiskommentar, 4th edn. LexisNexis, Wien Rudy M (2015) Article 7. In: Prölls J, Martin A (eds) Beck’scher Kurzkommentar zum Versicherungsvertragsgesetz, 29th edn. C.H. Beck, München Rummel P (2014) Article 914. In: Rummel P, Lukas M (eds) Kommentar zum ABGB, 4th edn. Manz, Wien Schauer M (1995) Das österreichsiche Versicherungsvertragsrecht, 3rd edn. Service-Fachverlag an der Wirtschaftsuniversität Wien, Wien Schauer M (2005), Die Informationspflichten im neuen Versicherungsvermittlerrecht, VR:158 seqq Schauer M (2010) Insurance business law between business law an consumer protection. In: Verschraegen B (ed) Austrian Law – an international perspective. Jan Sramek, Wien, pp 189–207 Schimikowski P (2007) VVG-Reform: Die vorvertragliche Informationspflicht des Versicherers und das Rechtszeitigkeitserfordernis. r+s:133–137 Stagl JF (2006) Geltung und Transparenz Allgemeiner Geschäfts- und Versicherungsbedingungen (nach österreichischem Recht). Verlag für Versicherungswirtschaft, Karlsruhe Wandt M (2012) Transparenz als allgemeines Prinzip des Versicherungsrechts. In: Beckmann RM, Mansel H-P, Matusche-Beckmann A (eds) Weitsicht in Versicherung und Wirtschaft, Gedenkschrift für Ulrich Hübner. C.F. Müller, Heidelberg, pp 341–353 Wiebe A (2015) Art 861. In: Kletečka A, Schauer M (eds) ABGB-ON - Kommentar zum Allgemeinen bürgerlichen Gesetzbuch. Manz, Wien

Transparency in the Insurance Contract Law of Croatia Loris Belanić and Dionis Jurić

1 Introduction: Legal Sources of the Insurance Law in Croatian Law Insurance law in Croatia is fully codified (regulated by law), but the provisions are found in several acts of legislation that are not in mutual subordination. In other words, the codification of Croatian insurance law was conducted by the method of a separate instead of a single codification in a single act.

1.1

Civil Obligations Act

The Civil Obligations Act1 (in force since January 1, 2006) is the principal legal source of civil law in the Republic of Croatia and is consequently the most important legal source of the Insurance Contract Law. The insurance contract is governed by section 27 of the Civil Obligations Act, Articles 921–989. The section on the insurance contract is divided into three parts. The first part (Arts. 931–947) contains common provisions on the insurance of property and insurance of people. The second part (Arts. 948–965) contains specific provisions concerning property insurance, and the third part (Arts. 966–989) contains provisions relating to the insurance of people. Given that individual insurance contracts have the character of long duration (especially the life insurance contract), the provisions of the old Civil

1

Official Gazette, n. 35/2005, 41/2008, 125/2011, 78/2015, 29/18.

L. Belanić (*) · D. Jurić Faculty of Law, University of Rijeka, Rijeka, Croatia e-mail: [email protected]; [email protected] © Springer Nature Switzerland AG 2019 P. Marano, K. Noussia (eds.), Transparency in Insurance Contract Law, AIDA Europe Research Series on Insurance Law and Regulation 2, https://doi.org/10.1007/978-3-030-31198-8_2

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Obligations Act of 1978,2 which was applied and will continue to be applied to insurance contracts that were concluded before January 1, 2006, will remain in force since the current Civil Obligations Act has been in effect since that date. Of course, in addition to the special provisions of the Civil Obligations Act, which regulate the insurance contract (section 27 of the Civil Obligations Act), other provisions of the Civil Obligations Act apply to the insurance contract, which also apply to other contracts, in particular the provisions of the general part of the Civil Obligations Act, such as the provisions on the conclusion of contracts, representation, interpretation of contracts, validity of contracts, statute of limitations, calculation of deadlines, etc. The Civil Obligations Act is a general act that applies to the insurance contract (lex generalis), and its provisions apply to the largest number of types of insurance contracts. However, there are some specific types of insurance contracts that are based on different principles of insurance; therefore, the provisions of section 27 of the Civil Obligations Act on the insurance contract are not applicable. Special regulations (lex specialis) are applied to such specific insurance contracts. The types of insurance that arise on the basis of these specific insurance contracts are defined by Article 923 of the Civil Obligations Act, which defines the so-called scope of application of the Civil Obligations Act regarding insurance contracts. According to this provision, the provisions of the Civil Obligations Act in the insurance contract shall not apply to (a) maritime insurance,3 (b) other insurance to which the rules on maritime insurance apply (insurance in inland, i.e., river navigation), (c) air transport insurance,4 (d) insurance of goods in land transport,5 (e) insurance of collaterals,6 (f) reinsurance relationships,7 (g) insurances regulated by a separate act.8

2 Official Gazette of the SFRY, n. 29/1978, Official Gazette, n. 53/1991, 73/1991, 111/1993, 2/1994, 7/1996, 112/1999 and 88/2001. 3 Maritime insurance is regulated by the Maritime Code (Official Gazette, br. 181/2004, 76/2007, 14/2008, 61/2011, 56/2013, 26/2015, 17/2019) and the provisions relating to the contract of maritime insurance (Art. 684-747d of the Maritime Code). 4 With regard to insurance contracts in air transport, provisions of the Act on Obligatory and Proprietary Rights in Air Transport are applied (Official Gazette no. 132/2008, 63/2008, 134/2009, 94/2013). This then excludes the application of the Civil Obligations Act provisions. Article 126 of the Act provides that the provisions of the Maritime Code are applied to the insurance contract in air transport for those insurance questions that are not specially regulated by this Act. 5 Rules of maritime security, therefore the rules of the Maritime Code (Art. 923 par. 3 of the Civil Obligations Act), are appropriately used in the insurance of goods in land transport. 6 Claims insurance in Croatia is not regulated by special regulations. This insurance is, by its legal nature, similar to bank guarantees; therefore, banking rules apply to such insurances. 7 Re-insurance is based on principles different from those underlying other types of insurance, while the content and form of re-insurance contracts is primarily developed in business practices between insurers and re-insurers. For these reasons, the Civil Obligations Act excludes the application of its provisions to the insurance contract in relations arising from re-insurance. 8 In accordance with the principle of lex specialis derogat legis generalis, if a special law regulates some questions with an obligations character with regard to insurance contracts, then the advantage in the application understandably lies with the provisions of the special law in relation to the Civil

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1.2

35

Insurance Act

The Insurance Act9 (applicable in its entirety as January 1, 2016) is the most important status-organizational legal regulation in the Croatian insurance law. This Act fully regulates the status of legal entities engaged in insurance business as their economic activity, in line with acquis communitaire, in particular with regard to the Solvency II Directive.10 This Insurance Act regulates the status position of the insurer (joint stock company for insurance and mutual insurance company), the conditions and manner of conducting insurance business in insurance companies (license to conduct transactions, appointed actuaries, transfer of insurance portfolio, transfer of selected tasks to a third party, performing work outside the country, free insurance work by companies in Croatia that are seated in the EU, risk management, business books and reports, audit and supervision of insurance companies), liquidation of insurance companies, insolvency of insurance companies, representation and intermediation in insurance, consumer protection in insurance, status of associations of insurance companies, insurance pools and the Croatian Insurance Bureau, as well as collision norms of the competent law applicable to the insurance contract. The Insurance Act, in addition to its status-organizational provisions, contains several provisions that are directly related to the insurance contract. These are Articles 380–382, referring to information that the insurer (insurance company) has the duty to communicate/deliver to the policyholder prior to the conclusion of an insurance contract or during the conclusion of an insurance contract. So the duty of the insurer to inform the policyholder (precontractual information or information for the duration of the insurance contract) is governed by the Insurance Act and not the Civil Obligations Act (the Civil Obligations Act stipulates only the (precontractual) obligation of the policyholder to declare to the insurer all circumstances relevant for risk assessment, as well as those circumstances that were applied throughout the duration of the insurance contract).

Obligations Act, which is expressly recognized in the Civil Obligations Act in Art. 923, sec. 3. For example, as a special regulation that would have the advantage in the application in relation to the Civil Obligations Act is the Act on Compulsory Insurance within the Transport Sector (Official Gazette no. 151/2005, 36/2009, 75/2009, 76/2013, 152/2014) regarding questions about the insurance contract against a third party that are regulated by this Act. 9 Official Gazette, n. 30/2015, 112/2018. 10 Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (Text with EEA relevance), OJ L 335, 17.12.2009, pp. 1–155.

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Consumer Protection Act

The Consumer Protection Act11 regulates the fundamental rights of consumers in the purchase and acquisition of goods and services on the market,12 and as many as seven EU directives relating to consumer protection in Croatian legislation (listed in Art. 3 of this Act) have been implemented with it. In view of the legal position of consumers, the Consumer Protection Act operates as lex specialis in relation to the Civil Obligations Act.13 The Consumer Protection Act specifically regulates the matter of conclusion of distance contracts for the sale of financial services (Arts. 80–94), which includes the insurance contract.14 Thus, the Consumer Protection Act applies to the insurance contract only if such a contract is concluded as a distance contract. The Consumer Protection Act does not regulate a specific type of insurance for which the provisions of this Act would have an advantage in the application in relation to the Civil Obligations Act. These are provisions that in part regulate the matter of insurance contracts (like the Civil Obligations Act) provided that the said provisions supplement or even change some provisions of the Civil Obligations Act regarding the insurance contract. For example, the consumer’s right to unilateral termination of the insurance contract, which was concluded with the means of distance communication,15 is not regulated by the Civil Obligations Act (or by the Insurance Act), so in that sense the given provision represents a supplement of Article 946 of the Civil Obligations Act, which generally refers to the duration and termination of the insurance contract.

1.4

Other Regulations

In addition to the above regulations, there are a number of regulations that also regulate the market and relationships in the insurance industry. This certainly incudes the Companies Act16 as the fundamental legislation governing the establishment and operation of companies and whose provisions also apply to the establishment and operation of insurance companies that can be founded as joint stock companies, European companies, or mutual insurance companies.17 Furthermore, the source of insurance law is also the Act on Licensing of Trades,18 which, as 11

Official Gazette, n. 41/2014, 110/2015, 14/2019. Art. 1 of the Consumer Protection Act. 13 Mišćenić (2014), p. 279. 14 Art. 80, sec. 2 of the Consumer Protection Act. 15 Art. 87 of the Consumer Protection Act. 16 Official Gazette, n. 111/1993, 34/1999, 121/1999, 52/2000, 118/2003, 107/2007, 146/2008, 137/2009, 125/2011, 152/2011, 111/2012, 68/2013, 110/2015. 17 Art. 19, sec. 1 of the Insurance Act. 18 Official Gazette, n. 143/2013. 12

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the basic regulation, governs the content, manner, and conditions for conducting business and is alternatively applied to the operation of the insurance agent who may perform his activity as a licensed trade for insurance representation.19 A special place among the insurance sources in Croatia occupies the Act on the Croatian Agency for Supervision of Financial Services (HANFA).20 This Act is not an immediate source of insurance law but is important for the supervision of insurance undertakings, and that includes the right of control over the fulfillment of obligations under the insurance contract.21 The HANFA adheres to the supervision of insurance companies, pension companies, as well as agents and insurance intermediaries. In performing delegated powers of control, it provides various implementing regulations of the Insurance Act, as well as a variety of decisions, issuing or revocation of licenses, permits and approvals, issuing opinions, keeping the register and other activities within its competence.22

2 Transparency Pursuant to the Regulation of the Insurance Contract in Croatia 2.1

Definition of Transparency in the Croatian Insurance Contract Law

The Croatian legislation does not expressly define the concept of transparency in insurance contract law. Transparency in insurance contracts in Croatian law is implemented through the statutory duty of contracting parties (insurer and policyholder) to notify (inform) about various circumstances (discussed in continuation of the text). Some information that must be provided to the other contracting party is prescribed by law, while for some information (circumstances), there is, in principle, a legal requirement for their provision, but the fulfillment of specific obligations depends on the knowledge of individual contracting parties (usually the policyholder) about specific information (circumstances). Precisely, transparency in the insurance contract has the effect of enabling the preservation of balance between the contracting parties, to protect their rights, as well as the true will of the parties themselves, the preservation of legal certainty and equality of the legal status of contracting parties, and the principle of good faith in dealing.23

19

Art. 402 of the Insurance Act. Act on the Croatian Agency for Supervision of Financial Services, Official Gazette, n. 140/2005, 154/2011, 12/2012. 21 Keglević (2016), p. 314. 22 Art. 15 of the Act on the Croatian Agency for Supervision of Financial Services. 23 Keglević (2016), p. 335. 20

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The Insurer’s Duty to Inform

The duty of the insurer (insurance company) to provide the policyholder and the insured party with information is, in the Croatian law, regulated by the Civil Obligations Act, the Insurance Act, and the Consumer Protection Act. A distinction is made between liability insurers to provide notification before the conclusion of insurance contracts, as well as for the duration of the insurance contract (from its conclusion to its termination). Generally speaking, the content of the insurer’s duty to inform the policyholder can be classified into three main groups: – providing information on contracting parties (including information on the legal personality and legal status of the insurer); – providing information on individual elements of the insurance contract (e.g., the duration of the contract, the amount of the premium, conditions of insurance, etc.); – providing information on the right to file complaints and available remedies with information on how to resolve disputes between the insurer and the policyholder/ insured.24

2.2.1

Precontractual Information Duty

The purpose of the insurer’s duty to provide precontractual information to policyholders is that the future policyholder is enabled with easy reference to and comparison of various insurance products in order to choose that insurance product that suits him best. It is thereby not necessary that the insurer provides direct information to the potential insured person, but he can obtain them through other sales channels (brokers, insurance agents) for the information duty to be considered fulfilled.25 Furthermore, the purpose of this duty is also to inform future policy holders on the terms of insurance because they will be binding to the future policyholder only if they were known or should have been known to him at the time of the conclusion of the insurance contract (i.e., before the contract was concluded).26 According to the Civil Obligations Act, the insurer is obliged to inform the policyholder that the general and/or special conditions of insurance are an integral part of the contract and hand him their text, if these conditions are not already printed on the insurance policy.27 This obligation can be fulfilled only in the way that the insurer familiarizes the policyholder with the insurance conditions before the conclusion of the insurance contract. It is not explicitly required that the policyholder

24

Keglević (2016), p. 341. Ćurković (2005), p. 30; Matijević (2006), p. 89. 26 Art. 295, sec. 5 of the Civil Obligations Act. 27 Art. 926, sec. 3 of the Civil Obligations Act. 25

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actually meets the conditions of insurance but that he is given the opportunity to be familiarized with them. The policyholder who is not familiar with the conditions of insurance but was given the opportunity for this cannot invoke his lack of familiarity. On the other hand, if the insurer violates the information duty toward the policyholders with regard to the insurance conditions, this has as a consequence the inability of calling on the conditions of insurance.28 In addition to the Civil Obligations Act, the Insurance Act also stipulates which information the insurance company shall submit prior to the conclusion of any insurance contract (whether it is a life or nonlife insurance). The insurance company shall submit regulated information to the policyholder in writing by way of (ordinary) post or e-mail. According to Article 380 par. 1 of the Insurance Act, the insurer is required to provide a list of information and data.29

Nonlife Insurance If the insurance company provides nonlife insurance, then it must provide the policyholder in the notification with some additional information. In this case, in addition to the information that the insurance company is obliged to specify when entering into any contract of insurance, according to Article 380 par. 2 of the Insurance Act, it must provide which governing law is applicable to the insurance contract when the policyholder is a natural person and the contracting parties do not have the freedom of choice of law. If the parties have the freedom of choice and the contractor is a natural person, then it must also state which law the insurance company proposes as relevant. When the nonlife insurance is offered under the right of establishment or freedom to provide services, the policyholder, before assuming any obligation, shall be informed in all documents issued to him on the Member State in which the head office is located or, if necessary, the branch office through which the contract will be

28

Belanić (2014), pp. 1455, 1490. In particular, (1) the company name and the registered office of the insurance company entering into a contract of insurance; (2) when the insurance contract is concluded through a branch office of the insurance company, in addition to the data from the previous point, it is necessary to state the company name and the registered branch office of the insurance company through which a contract of insurance is concluded; (3) the insurance requirements applicable to the insurance contract which is intended to be concluded; (4) the deadline within which the offer obliges the offeror, the right to recall an offer to conclude an insurance contract, and the right to cancellation of the insurance contract; (5) the conditions of termination and breach of contract; (6) the duration of the insurance contract; (7) the amount of the insurance premium, the means of payment of insurance premiums, amount of contributions, taxes and other costs and fees that will be charged in addition to the insurance premium and the total amount of payments; (8) the information on the procedure for resolving complaints regarding contracts, including the address to which complaints are received, and the competent body for resolving complaints; (9) the body responsible for overseeing of the insurance company. 29

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concluded, provided that this does not apply to large risks.30 In this case, the insurance company is obliged to specify in the information the name and address of the representative of the insurance company. If all this information to be provided the policyholder is contained in the conditions of insurance that the insurer had given to the policyholder before concluding the insurance contract, then it is considered that the insurer has fulfilled his obligation to inform the policyholder.31

Life Insurance If the insurance company provides life insurance services, then the policyholder shall be provided with required additional information in addition to information that otherwise should be provided at the conclusion of each insurance contract.32 In the contract of life insurance where the policyholder bears the investment risk (in investment funds), then, in addition to the aforementioned data, the insurer is obliged to provide precontract information about the following33: 1. In the case of insurance related to the share value of the UCITS fund, he should inform the policyholder of the data from the prospectus and the rules of the UCITS fund as defined by the law governing the establishment and operation of open-end investment funds with a public offering. 2. In the case of insurance related to the value of assets or shares of the internal fund, he should inform the policyholder of the data contained in the rules of internal funds (the investment policy fund, the method of calculating the net value of property of internal funds, the method of calculating the value of the share of domestic funds, the manner and time of publishing the value of the share of domestic funds, premium costs, the costs charged to the assets of the internal fund, the costs incurred in the event of termination of the insurance contract). 30

Art. 380, sec. 3 of the Insurance Act. Art. 380, sec. 7 of the Insurance Act. 32 According to Art. 380, sec. 5 of the Insurance Act, these additional information are: (1) the exact instruction where the policyholder can find the report on the solvency and financial condition of the insurance company, which provides the policyholder with easy access to this information; (2) the determination of every benefit and each option; (3) the base, criteria, and conditions for participation in the profits and the right to payment of accrued gain in all cases payments; (4) the tables of redemption value and tables of capitalized sums per insurance years; (5) the information that the policyholder may cancel the contract of life insurance no later than 30 days from the receipt of notification of the insusrance company, whereby the policyholder does not bear the obligations arising out of that contract; (6) other specific information needed to make the policyholder properly understand the risks underlying the contract and obligations of the parties; (7) the information on agreements for the application of the standstill period containing the conditions and consequences of entering into these agreements, where applicable; (8) the relevant law applicable to the insurance contract, when the parties do not have the freedom of choice of law; (9) the freedom of choice of applicable law and the law which the insurance company proposes to select as applicable. 33 Art. 380, sec. 6 of the Insurance Act. 31

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3. In the event of insurance-related equity index or other benchmark, the policyholder should be notified of the data relating to the core assets of the equity index, stock index, or other benchmark. As with nonlife insurance, in life insurance, the rule is that if all these data, which must be submitted to the policyholder, are contained in the conditions of insurance that the insurer gave to the policyholder before concluding the insurance contract, then it is considered that the insurer has fulfilled its obligation on informing the policyholder.34

Consumer Insurance Distance Contract Special provisions about the duty of the insurer to provide so-called prior notification to the consumer (the policyholder, the insured, the insurance beneficiary) when concluding an insurance contract by means of distance communication (Internet, e-mail, phone, etc.) are contained in the Consumer Protection Act (Arts. 80–94), which are the result of adopting the Directive 2002/65/EC on the sale of financial services.35 The insurer is required, prior to entering into an insurance contract, to deliver prior notice to the consumer by means of distance communication, which must include four categories of information to be transferred to potential contractors (the insured): (1) information about the supplier (insurer), (2) information about the financial service (i.e., insurance contract), (3) specific information on contract details, (4) information on the method of dispute resolution (Art. 81 par. 1 of the Consumer Protection Act). Supplier information is related to the type of legal entity, organization, registration (identification mark), the address of the headquarters, and data on the supplier representative if there is one in the Member State of the policyholder (Art. 82 of the Consumer Protection Act). Information on the financial service must clearly explain the main features of the financial service and the total price that includes taxes and other charges, specify additional costs and risks, and introduce a system of payment and the manner of execution and financial services.36 The specific information on the details of the contract has to include the minimum duration of the contract if the financial services are provided permanently and repeatedly; an indication of whether there is a right to unilateral termination of the contract; the deadline and the presumption establishing that right, indicating the amount that the consumer shall pay in the event of termination; the provisions of the applicable law; etc. (Art. 84 of the consumer protection). With regard to the information on the manner of resolving disputes, information should be provided on whether there is a mechanism of out-of-court settlement, the assumptions under 34

Art. 380. sec. 7 of the Insurance Act. Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer financial services and amending Council Directive 90/619/EEC and Directives 97/7/EC and 98/27/EC OJ L 271, 9 October 2002, pp. 16–24. 36 Art. 83 of the Consumer Protection Act. 35

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which the consumer can use this mechanism, and the information on the existence of guarantee funds or other means to compensate the consumer.37 However, the Insurance Act also specifically states that in the case of concluding an insurance contract through the Internet, all information that the insurer is obliged to provide the policyholders with before concluding an insurance contract (information relating to all insurance contracts, as well as information relating to nonlife and life insurance) must be available on the website and must be accepted prior to the conclusion of the insurance contract (Art. 380 par. 8 of the Insurance Act).

2.2.2

Contractual Information Duty During the Insurance Contract Period

The duty of the insurer to inform the policyholder exists for the duration of the insurance contract, i.e., after its conclusion until its termination. In this period, which lasts for a particular longer period of time (possibly even for several years, especially in life insurance), it is possible that there is a change in certain circumstances, of which the insurer had informed the policyholder prior to the conclusion of insurance contracts (precontract). The meaning of the contractual duty of notification (informing) of the policyholder is to maintain the contract in force, with the simultaneous possibility of change or adjustment to the new circumstance of the contract, or breach of contract if the parties do not want to be further bound by such a contract.38 Precisely due to the notification about data change over the term of the insurance contract, the policyholder (the insured) can ask the questions to the insurer about his rights, can inform the insurer about the changes in the risk and about the occurrence of the insured event, and can make the claims (against the insurer) for the exercise of his rights.39

Nonlife Insurance With regard to nonlife insurance, according to Article 381 paragraph 1 of the Insurance Act, the insurer is obliged to notify the insurer in writing of the change of data referred to in Article 380 paragraph 1 of the Insurance Act, i.e., those data relating to all types of insurance (irrespective of whether it is life insurance or nonlife insurance). Therefore, the insurer will be obliged to notify the policyholder if changes have occurred in these data: details about the company and the head office of the insurance company or subsidiaries; insurance terms applicable to the insurance contract; deadline in which the offer is binding to the recall of the bid; right to cancel the contract; terms of termination and breach of contract; duration of the

37

Art. 85 of the Consumer Protection Act. Keglević (2016), pp. 343, 345. 39 Keglević (2016), p. 345. 38

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insurance contract, premium amount, method of payment of premiums, and amount of contributions, taxes, and other charges payable except for premiums; procedure for resolving a complaint; and details on the competent insurance supervisory body. There shall be no obligation of the insurer to notify the policyholder if there has been a change in the application of the relevant insurance contract law.

Life Insurance In terms of life assurance, the insurer is also obliged to notify the policyholder of changes in the data that, during the term of the insurance contract, refer to all types of insurance contracts (i.e., the same data as those relating to nonlife insurance). In addition to informing the policyholder of the change in these data, the life insurance insurer has the obligation to provide additional information to the policyholder for the duration of the insurance contract. This is due to the fact that life insurance contracts generally last longer than nonlife insurance contracts, and consequently there is a greater likelihood of changes in circumstances affecting the contract during its lifetime.40 Thus, in Article 381 paragraph 2 of the Insurance Act, it is stated that, with regard to an offer to conclude or conclusion of a life insurance contract, the insurance company shall provide information on the amounts of potential payments above and beyond agreed payments and the insurance company shall provide the policyholder with an example of the calculation of possible payment after the expiry of the insurance, applying the basis for calculating the premium with three different interest rates. The above does not apply to life insurance contracts in the event of death. The insurance company is obliged to inform the policyholder, in a clear and comprehensive manner, that the example is merely an assumption-based calculation model and that the contractor cannot make any contractual claims based on the calculation example. If the matter at hand is a life insurance policy, with profit participation, the insurer is obliged to inform the policyholder, once a year in writing, about the state of the total insured cover, including profit participation, during the insurance contract. Furthermore, when the insurance company has provided information on the prospective future development of profit participation, the insurance company shall inform the policyholder of the difference between the actual participation in the profits and the data given at the conclusion of the contract.41 In the event of insurance where the policyholder bears the risk of investment, the insurer is obliged to inform the policyholder of the value of the property by the insurance policy once a year.42

40

Keglević (2016), p. 344. Art. 381, sec. 3. of the Insurance Act. 42 Art. 381, sec. 4 of the Insurance Act. 41

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Policyholder’s Duty of Disclosure

Transparency in insurance is a two-sided process between the insurer on the one hand and the policyholder on the other. This means that the policyholder has the obligations to provide to the insurer certain information both before and after the conclusion of the insurance contract. Unlike the insurer, the policyholder’s obligations to report various circumstances to the insurer are regulated only by the Civil Obligations Act and not by other regulations.

2.3.1

Precontractual Disclosure Duty

The insurer’s precontractual disclosure duty is the duty or obligation of the insurer to report to the insurer all the circumstances relevant to risk assessment.43 The purpose of reporting a significant risk assessment circumstance is that the insured can make a proper decision whether or not he will conclude an insurance contract and under which conditions. The amount of premium or scope of the insurance cover is often dependent on certain circumstances (e.g., the insured’s age, his work, new purchase value of the motor vehicle, the power of the motor vehicle, the material from which the building was built, etc.), while at other times such circumstances exist that would make certain risks unacceptable to the insurer (e.g., the insured suffering from certain illnesses, extreme sports, a motor vehicle journey to a particular country). In other words, the insurer may reject the policyholder’s offer to conclude an insurance contract if such a contract would not be concluded under the circumstances provided by the policyholder. For this reason, the statutory norm stipulates the obligation of the policyholder to inform the insurer of the circumstances that were known to him, that is, that could not remain unknown to him when concluding the insurance contract, and that are significant for the risk assessment or the decision to conclude an insurance contract.44

Significant Circumstances Relevant for Risk Assessment The Civil Obligations Act states by general rule that the policyholder is obliged to report all circumstances relevant to risk assessment (Art. 931), i.e., to make a decision on the conclusion of the insurance contract. The Civil Obligations Act does not, however, specify what exactly this circumstance is. This means, in principle, that if the policyholder knew that a particular circumstance is significant for risk assessment, he is obliged to notify the insurer (the so-called active duty of reporting). However, it is a realistic fact that the policyholder (as he is not a security professional) cannot know which circumstances are important for the insurer to 43 44

Art. 931 of the Civil Obligaitons Act. Belanić (2014), p. 1501.

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assess the risk and decide whether to conclude the insurance coverage. Therefore, it may be considered that the policyholder has fulfilled his duty to report if he fully and accurately responded to all questions raised by the insurer (or his agent) when concluding the insurance contract (the so-called passive duty of reporting). However, in view of the generally established reporting duty, the insurer might argue that a particular circumstance, which the policyholder knew about or ought to have known about, caused the consequences to arise due to failure to report the circumstances (consequences of a deliberate incorrect application under Article 932 of the Civil Obligations Act, i.e., the consequence of unintentional inaccuracies or incompleteness of the application under Article 933 of the Civil Obligations Act) because the insurer failed to ask relevant questions for risk assessment and decision making on concluding the insurance contract. However, such a legal solution can be reasonably criticized because it allows the risk of a poor appraisal of the importance of some fact for the insurance contract, which affects the policyholder himself (so-called subjective principle of assessment of relevant circumstances), even though the insurer is professionally engaged in risk insurance. The objective principle of the assessment of circumstances in accordance with the existing provision on filing duties in Article 931 of the Civil Obligations Act would be possible if the insurer performed a review of the item that would be the subject of insurance (i.e., medical examination of the person who intended to be insured in the case of life insurance)45 so in that case he could not invoke that some circumstances were not reported if he could have established the same circumstances during the examination.46

Duty to Inform the Insurer About the Age When Concluding a Life Insurance Contract The insured person’s age is under the law considered to be a significant circumstance for assessing risks in a life insurance contract because it is apparent from actuarial laws that the older the person is the greater is the risk (e.g., there is a greater likelihood of death in elder than younger persons).47 Therefore, it is stipulated that the life insurance policy (apart from other elements that each insurance policy must contain)48 must state the name and surname, as well as the exact date of birth of the

Ćurković (2009), p. 100. Belanić (2014), p. 1502. 47 Belanić (2014), p. 1585. 48 The content of any kind of insurance policy, according to Article 926, paragraph 1 of the Civil Obligations Act, includes: contracting parties, the insured person, i.e. the insured event or other subject of insurance, risk covered by the insurance, duration of the insurance and duration of the coverage, amount of the insurance or unlimited insurance amount, premium or contribution (deposit), date of policy issuance, and signature of the contracting parties. 45 46

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insured person,49 i.e., special consequences must be stipulated in case of an incorrect age of the insured person,50 which will be discussed later (infra 2.6.2.1). In addition to the exact age of the insured person, general rules on the application of other circumstances relevant for risk assessment also apply to the life insurance contract.51 This is because the insurer’s decision whether to conclude a life insurance contract for a particular person and the decision on the premium amount depend on the application and such circumstances, in addition to the age of the insured person. This still means that general rules of Article 931 of the Civil Obligations Act still apply in the case of other significant circumstances in the life insurance contract; however, special rules of Article 968 of the Civil Obligations Act apply only regarding the application of age of the insured person.

2.3.2

The Contractual Disclosure Duty During the Insurance Contract Period

The insurance contract is concluded with respect to the circumstances that existed at the time of its conclusion. However, during its lifetime, it is possible that these circumstances changed, especially with regard to the circumstances for assessment. It is possible that an increase in the risk, its reduction, or even the complete termination of the insured risk may occur, which may affect the increase or decrease of the premium or the premature termination of the insurance contract. Therefore, the Civil Obligations Act prescribes the general obligation of the policyholder to notify the insurer of changes affecting risk assessment (Arts 938–940), except for precontractual arrangements and the period of the duration of the insurance contract. By imposing such a commitment, an attempt is made to adapt the insurance contract to new circumstances (clausula rebus sic stantibus), i.e., that the balance between the assumed risk and the paid premium is maintained throughout the duration of the insurance contract, if possible.52

Reporting the Risk Increase During the Insurance Contract Period During the term of the insurance contract, the policyholder has a statutory duty to notify the insurer of the changed circumstances after the conclusion of the insurance contract when such circumstances have an impact on the risk increase53 (increase in the possibility of an insured event, higher intensity of the damaging consequences of the insured event, etc.). In addition to the policyholder, such a duty exists on the side

49

Art. 967, sec. 1 of the Civil Obligations Act. Art. 968 of the Civil Obligations Act. 51 Art. 931 of the Civil Obligations Act. 52 Keglević (2016), p. 351. 53 Art. 938, sec. 1 of the Civil Obligations Act. 50

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of the insured person, as well as the insurance beneficiary, if such a change is known. This is because the insurer could lodge complaints against the insured and the insurance beneficiary, as well as against the insurer.54 The Civil Obligations Act also mentions circumstances relevant to the assessment of risks, i.e., for which there is a duty to notify if they are changed after the conclusion of the insurance contract. There is a difference between the insurance contract for property and the insurance contract for persons (which also includes the life insurance contract). In the case of an insurance contract for property, the circumstances relevant for risk assessment are those that, had they existed at the time of the conclusion of the contract, would have prevented the insurer from concluding the contract or would have led to the conclusion of a contract with a higher premium.55 In the case of an insurance contract for persons (life insurance contract), the policyholder is obliged to report an increase in the risk if the risk is increased only because the insured has changed his occupation.56 If the change of profession does not affect the risk increase, there is no obligation to report such a change. But there is also no duty to report any other circumstance (which does not relate to a change in occupation) that has led to an increased risk (e.g., health deterioration). The Act specifically regulates deadlines for reporting changed circumstances that affect the risk increase. There is a difference in whether the risk increase was caused by the policyholder’s (the insured’s) procedures or the risk was increased without the policyholder’s (the insured’s) participation. If there is an increase in the risk for the policyholder (the insured), he is obliged to notify the insurer immediately (as soon as the increase occurs). If the increase occurred without the policyholder’s (insured’s) participation, he is obliged to notify the insurer within 14 days of learning about the circumstances of the increased risk or potentially finding out about such circumstances. There are four possible consequences of increased risk after the conclusion of the insurance contract: (1) termination of the insurance contract, (2) maintenance of the insurance contract in force under the changed circumstances (increased risk) with payment of increased premium, (3) termination of the contract under the law, and (4) continuation (maintenance in effect) of the insurance contract irrespective of the changed circumstances. If the risk increase is such that the insurer would not have concluded the contract had such a condition existed at the time of its conclusion, the insurer may (or may not) terminate the contract by a unilateral statement.57 But if the risk increase is such that the insurer would have concluded a contract with a higher premium had such a condition existed at the time of the conclusion of the contract, then he may (or may not) propose to the policyholder a new (increased) premium

54

Belanić (2014), p. 1519. Art. 938, sec. 3 and 4. of the Civil Obligations Act. 56 Art. 938, sec. 1 of the Civil Obligations Act. 57 Art. 938, sec. 4 of the Civil Obligations Act. 55

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rate.58 In the latter case, the insurance contract will remain in effect if the premium increase is accepted by the policyholder. The policyholder must expressly accept the new (increased) premium rate (verbally, in writing, or through concluding actions, e.g., by paying a premium at a new rate). In the event that the policyholder fails to make a declaration within 14 days of the receipt of the proposal for a new premium rate, as well as in the event that he explicitly removes the possibility of giving consent to the proposed new premium rate, the insurance contract shall be terminated by law.59 In other words, a proposal for a new premium rate, if it has been made, binds the insurer to 14 days since it was received by the policyholder.60 It is primarily up to the will of the insurer whether he will terminate the insurance contract with a one-sided declaration (he is not obliged to leave any cancelation period) or whether he will increase the premium to the policyholder. However, in the case of a termination, he must return a part of the premium that is collected until the end of the insurance period. However, the insurer is not required to use any of these powers if he wishes to maintain the contract in force. Therefore, the law stipulates a preclusive one-month deadline in which the insurer must use his powers to unilaterally terminate or propose an increase in premium; otherwise, they cease to exist.61 The term is counted from the day he learned in any way about the risk increase. In addition to the expiration of the expiration date, the insurance contract remains in force even if the insurer has demonstrated, before the expiry of that period, that he agrees to extend the contract, which he may also make through various concluding actions (if he receives a premium, he pays for an insured event that occurred after the increase, etc.). The aforementioned is related to the situation where the insurer has been informed about changed circumstances (risk increase) after the insurance contract had been concluded but before the insured event has occurred. However, the Civil Obligations Act also prescribes the situation where an insurer has been informed about the changed circumstances (risk increase) after the insured event has occurred.62 Here the Act predicts two possibilities: (1) an insured event had occurred before the insurer was informed of the risk increase, (2) the insured event occurred after the insurer had been informed of the risk increase but before he could use the statutory power to terminate the contract (e.g., because the 14-day deadline has not yet expired in which the policyholder has the right to decide on the insurer’s proposal of a new premium rate referred to in Article 938 paragraph 5 of the Civil Obligations Act). In both possibilities, the insured event was the result of the realization of the risk for which a higher premium would have to be charged than the actually paid premium; i.e., the insurer’s high risk and the premium are disproportionate. The legal consequences of both situations are the same—reduction of

58

Art. 938, sec. 4 of the Civil Obligations Act. Art. 938, sec. 5 of the Civil Obligations Act. 60 Belanić (2014), p. 1520. 61 Art. 938, sec. 6 of the Civil Obligations Act. 62 Art. 939 of the Civil Obligations Act. 59

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insurance proportionally between the paid premiums and the premiums to be paid at an increased risk.63 No difference is made if the insured event occurred as a result of the realized risk due to which there was no increase in its weight or if the insured event occurred merely as a result of the increased risk in its weight. Regardless of the risk (the one that changed the circumstances or the one that did not change the circumstances), the same consequences will always be the result of a proportional reduction in the risk. This is due to the fact that insurance coverage is viewed as a whole, and the question of the risks to be achieved, or the risk due to which the increase will occur, falls under coincidence, which cannot and should not be affected.

Reporting the Risk Decrease During the Insurance Contract Period Since risk increases may occur as a result of changed circumstances, which arose after the insurance contract was concluded, there may be a reduction (improvement) of the insured risk. Reduction of risk is reflected in the fact that following the conclusion of the insurance contract, there is a decreased degree of probability of achieving the insured risk (occurrence of the insured event), a reduction of the intensity of damaging consequences of the insured event, partial inability of the occurred insured event, etc. The consequences of risk reduction after the conclusion of the insurance contract are reflected in the fact that the policyholder is entitled to require a corresponding reduction in the insurance premium.64 The premium is reduced relatively to risk improvement. Reduction in premium would be calculated from the moment the insurance contractor informed the insurer of the reduction and not from the moment when the risk improvement actually took place. Of course, in order for the premium for risk improvement to be reduced, the insurer must agree with the policyholder’s request. The insurer is not obligated to agree to or accept the reduction in premium. Thereby, the reason for refusing to agree to a reduction in premium is not of importance (this may be the insurer’s position that there was no risk reduction, that risk reduction was not significant, or something else). If, for any reason, the insurer has not agreed to a reduction in premium, the policyholder (who can be replaced by the insured) may terminate the insurance contract by a unilateral declaration.65 In the event of termination, the insurer is required to return part of the premium to the policyholder covering the portion of the insurance contract that has not yet expired. We believe that risk reduction should be significant. If this is a minimal or insignificant risk reduction, the said risk reduction provisions could not be applied, i.e., the policyholder could not require a reduction in premium and then unilaterally

63

Belanić (2014), p. 1521. Art. 940, sec. 1 of the Civil Obligations Act. 65 Art. 940, sec. 2 of the Civil Obligations Act. 64

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terminate the insurance contract if the insurer refused to agree to a reduction in the premium.66

Disclosure Duty on the Occurrence of an Insured Event Disclosure of the occurrence of an insured event certainly affects the transparency of the relationship between the contracting parties. Namely, it is in the insurer’s interest to find out as soon as possible about the occurrence of the insured event; to ascertain as soon as possible the factual situation regarding the cause, scope, and extent of the damage; and to take measures to reduce the damage. Therefore, the Act expressly stipulates that after the insured event has occurred, it is the insured person’s duty to notify the insurer of the occurrence of the insured event within a maximum of three days after knowledge of the occurrence of the insured event,67 but the contractual party may agree on a longer term (not shorter than the stipulated term). In addition to the insured person, the insurer may also notify the policyholder and the insurance beneficiary of the occurrence of the insured event, although this is not expressly stipulated. An application for an insured event is filed directly with the insurer, but the obligation is also met when the application is filed with the insurer’s agent.68 The form and content of the application are not legally prescribed, meaning that the occurrence of an insured event can be filed both verbally and by telephone, and the modern means of electronic communication are not excluded. However, for a greater legal certainty, insurers use the so-called forms for damages claims, which are completed by the insured person.69 Information that must be disclosed may be subject to the terms of the insurance, but most often these data are provided in the application forms of the insured event. In addition to the requested information, the insured person must submit (if required) evidence that the insured event has occurred and evidence of the amount of damage (if this is available to him).

2.4

The Form and Mode of Providing the Information

One of the important questions in the transparency of the insurance contract is in what form and in what way the notifications should be issued, which the contracting parties are obliged to exchange regardless of whether or not these are information or notifications before the conclusion of the contract or throughout the duration of the insurance contract.

66

Belanić (2014), p. 1522. Art. 941, sec. 1 of the Civil Obligations Act. 68 Art. 930 of the Civil Obligations Act. 69 Pavić (2009), p. 224. 67

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The Insurance Act contains several special rules on the form and manner of providing information that the insurer (the insurance company) has to report to the policyholder. If the information is insured by the insurer prior to the conclusion of the insurance contract (these are information from Article 380 of the Insurance Act, supra 2.2.1), then the insurer has an obligation to provide the policyholder (the insured) before the conclusion of the insurance contract with a notice (in writing), which contains all legally prescribed information and data: (1) in person or (2) delivered by mail or (3) delivered by electronic mail.70 Unless otherwise stated, in the case of information that the insurer needs to provide the policyholder with throughout the duration of the insurance contract,71 then the insurer must inform the policyholder (the insured) in writing on the changes in prescribed data.72 When the insurance contract is concluded by means of distance communication, then the insurer is obliged to provide the policyholder (i.e. the insured personconsumer) with a prior notice and other prescribed information in writing or by means of another permanent medium.73 Permanent media is any instrument that allows a consumer to store personal information so that it is later available for use as long as it is necessary with respect to the purpose of the information, which allows unchanged data reproduction, such as chapter, electronic mail, CD-ROM, memory card, and hard disk drive.74 When it comes to information that the policyholder (the insured) has to provide the insurer with, the Civil Obligations Act does not contain any specific rules on the form and manner of providing such information. Although the Civil Obligations Act does not stipulate it, in practice, however, the written form is usually prevalent in which the required information is provided to the insurer prior to the conclusion of the insurance contract, as well as throughout its duration.75 These are written forms (the content of which is not prescribed, but each insurer uses his own form with relevant questions) that the policyholder fills out before or after the conclusion of the contract and submits to the insurer. If the fulfillment of such forms can safely determine the content and identity of the provider of such statement, i.e., the policyholder, then the general rule of law of obligations considers that the requirement for a written form has been fulfilled.76 The content of the information with which the insurer provides legally prescribed data to the policyholder or the insured person must be written in a clear and comprehensible manner.77 It is a very important provision taken from Article 185 paragraph 6 of the Solvency II Directive, the purpose of which is to enable

70

Art. 380, sec. 1 of the Insurance Act. This is information from Article 381 of the Insurance Act. 72 Art. 381, sec. 1 of the Insurance Act. 73 Art. 86, sec. 1 of the Consumer Protection Act. 74 Art. 5, sec. 1, par. 25 of the Consumer Protection Act. 75 Keglević (2016), 353. 76 Art. 292, sec. 4 of the Civil Obligations Act. 77 Art. 382, sec. 1 of the Insurance Act. 71

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the insurer/insured person to understand the contents of the information given in the notice. Thus, it is a provision that serves the protection of the insured person as a consumer. In theory, it is stated that information is provided in an expansive manner if it is clear and does not bring the insured into suspicion or ambiguity. The information is given in an insightful manner and if this prevents overloading the insured person with different information. On the other hand, information is given in an understandable way so that the average insured person can understand and comprehend it.78 Information provided under Articles 380 and 381 of the Insurance Act, which the insurer has to report to the policyholder/insured party, must be in the Croatian language.79 This is the language in which the insurance contract is concluded, and it is the language of the insurer/insured person; therefore, the requirement that the documents be in the Croatian language is a prerequisite of transparency between the contracting parties. Exceptionally, the text and content of the information that the insurer provides to the policyholder/insured may be written in another language if the insurer requests it or if the policyholder has the freedom to choose the applicable law.80 This provision is the result of alignment with Article 185 paragraph 6 of the Solvency II Directive and allows communication and exchange of documents in a comprehensible language between parties whose mother tongue is not Croatian.

2.5

The Moment to Fulfil the Duty to Inform and the Duty of Disclosure

The moment to fulfill the duty to inform depends on whether it is a duty to inform prior to the conclusion of the insurance contract, i.e., precontractual duty to inform, or a duty to provide information after the conclusion of the insurance contract, i.e., throughout its duration—so-called contractual obligation to notify. The main question that arises in this case is: when is it considered that the insurance contract has been concluded? The general rule is that the insurance contract is concluded when the insurance offer has been accepted.81 The insurer is obliged to submit without delay a duly formulated and signed insurance policy or other insurance document (cover sheet, etc.) on the concluded insurance contract.82 However, in order to evaluate whether the contract has been concluded, it is not important to submit the insurance policy (or some other insurance document) but rather that the offer has been accepted, whereby the offer can be made by any of the

78

Keglević (2016), p. 355. Art. 382, sec. 1 of the Insurance Act. 80 Art. 382, sec. 2 of the Insurance Act. 81 Art. 925, sec. 1 of the Civil Obligations Act. 82 Art. 925, sec. 2. of the Civil Obligations Act. 79

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contracting parties (not necessarily only the insurer or only the future policyholder/ insurer). There is an exception to the abovementioned rule regarding the insurance contract for persons (life insurance contract, accident insurance contract, etc.). An insurance contract for persons is concluded when the party signs the insurance policy.83 It follows that the mutual precontractual duties to inform and provide information to each other must be fulfilled prior to the contract’s conclusion,84 i.e., prior to the expressed willingness to conclude the contract, i.e., before the contractual party signs the insurance policy (in insurance contracts for persons). This is understandable because the contracting parties can agree to the conclusion of the insurance contract only if they have been informed beforehand about the circumstances relevant to the risk assessment and about other elements of the contract that are relevant for deciding whether a specific contract is in accordance with their needs. A further question is the deadline of the contracting parties’ obligation to inform each other about the various circumstances concerning the contract. The answer is throughout the duration of the insurance contract.85 This means that such a duty exists throughout the duration of the contract and terminates upon the termination of the insurance contract.86 The termination of the contract is a fact that is assessed according to the circumstances of a particular case (it depends on the type of insurance contract, whether the contract was concluded for a definite or indefinite period, whether an insured event occurred, whether there was a breach of the contractual obligation resulting in the right of the injured party to cancel an insurance contract, etc.).

2.6

Legal Consequences of the Breach of the Duty of Disclosure

Legal consequences of the breach of the duty of disclosure in Croatian insurance law can be divided according to several criteria: (1) with respect to subjects (whether the duty to notify has been violated by the insurer or the insured), (2) considering the phase in which the breach occurred (prior to the conclusion of the contract or after its conclusion), (3) considering the content of the sanction for the committed breach, (4) with respect to the legal source of the sanction.87

83

Art. 925, sec. 3 of the Civil Obligations Act. Art. 380, sec. 1 of the Insurance Act. 85 Art. 381, sec. 1 of the Insurance Act. 86 Keglević (2016), p. 359. 87 Keglević (2016), p. 359. 84

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Legal Consequences of the Breach of the Duty to Inform and the Duty of Disclosure

The Breach of the Insurer’s Duty to Inform Should the insurer violate his duty to provide precontractual information, the policyholder/insured could first use the means provided by the Insurance Act. This means that the policyholder/insured person could cancel the offer for the conclusion of the insurance contract (if he was the one who made an offer to the insurer); i.e., if the contract has been concluded, he has the right to withdraw from such contract.88 In this case, the policyholder/insured person is not required to state the reasons for the withdrawal from or cancelation of the contract,89 but the breach of the precontractual duty to provide information would certainly be a justified reason. There are also no deadlines for the cancelation or termination of the contract. An exemption applies to a life insurance contract where the deadline for the termination of the contract is 30 days from the date of receipt of the insurer’s notification of the conclusion of the contract.90 At this point, it should be highlighted that in the Croatian law of obligations, there is no concept or a legal institute of “contract withdrawal,” but there is an institute of unilateral termination of contract, which would content-wise be the closest to the concept of “contract withdrawal.” A special case is the breach of the precontractual obligation to notify with the distance insurance contract. In this case, as stated earlier, the Consumer Protection Act applies to the policyholder, i.e., it acknowledges the insured’s (the consumer’s) right to unilaterally terminate the contract.91 The consumer can legitimately use the unilateral termination of the contract without having to state in particular the reason for doing so; however, the breach of the duty to provide precontractual information or the duty to provide prior notice is certainly a justified reason for the unilateral termination of the distance contract. There is also a deadline for unilateral termination—14 working days from the conclusion of the contract, i.e., 30 working days in the case of a life insurance contract or voluntary pension insurance, with the latter being counted from the date on which the consumer was informed that the contract has been concluded.92 The main consequence of the unilateral termination of the contract is that each party has to return to the other party what it has received on the basis of such a contract within 30 days (the insurer the paid premium and the insured the insured amount if he had received it or a price of some other service provided to him, e.g., treatment costs in a voluntary health insurance contract). The insured (the consumer) is not responsible for any damages that the insurer has suffered as an

88

Art. 380, sec. 1, par. 4 of the Insurance Act. Keglević (2016), p. 361. 90 Art. 380, sec. 5, par. 5 of the Insurance Act. 91 Art. 87, sec. 1 of the Consumer Protection Act. 92 Art. 87, sec. 2 of the Consumer Protection Act. 89

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outcome of the unilateral termination of the contract, nor is he liable to pay any penalty or compensation for the termination of the contract.93 In addition to the withdrawal of the contract and the right to unilaterally terminate the contract, the insured also has the right to terminate the contract due to a lack of will in accordance with the Civil Obligations Act.94 Due to incomplete or inaccurate precontractual information, the policyholder may conclude an insurance contract on the basis of a misconception of some important circumstance (misstatement)95; i.e.; he may conclude a contract because the insurer misled him due to incorrect and incomplete infromation provided prior to the conclusion of the contract or he kept him misinformed with the intention of leading him on to conclude a contract (fraud).96 The policyholder has the right to rescind within one year from discovering the reason (subjective deadline) or within three years from the conclusion of the insurance contract (objective deadline).97 The consequence of the cancelation of the insurance contract is the return to the previous state; i.e., each party must return what it has received on the basis of such a contract (the insurer would be obliged to return paid premiums to the policyholder) and damage compensation. In theory, it is pointed out that,98 in the event of the breach to provide precontractual information, the policyholder could also claim damages for the conduct of negotiations contrary to the principle of conscientiousness and honesty (so-called contingent liability for damages—culpa in contrahendo).99 Finally, the Insurance Act prescribes misdemeanor fines for breach of obligations of forward notification, but such fines do not have an effect on the legal consequences of the insurance contract.

The Breach of the Insured’s Duty of Disclosure It has previously been stated that one of the obligations of the insurer after the conclusion of the insurance contract during his term is to inform the policyholder about all the circumstances stipulated by law and data changes.100 The Insurance Act does not contain special provisions on legal consequences if the insurer obstructs or fails to fulfill its obligation in whole or in part. Therefore, the general provisions of the mandatory law, i.e., the Obligations Act, on the consequences of nonfulfillment or partial fulfillment of obligations are applied. According to these rules, in compulsory contracts, when one party fails to fulfill its obligation, the other party may

93

Art. 90 of the Consumer Protection Act. Keglević (2016), p. 366. 95 Art. 280 of the Civil Obligations Act. 96 Art. 284 of the Civil Obligations Act. 97 Art. 335 of the Civil Obligations Act. 98 Keglević (2016), p. 366. 99 Art. 366 of the Civil Obligations Act. 100 Art. 381 of the Insurance Act. 94

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require the fulfillment of the obligation or, under statutory prescriptions, unilaterally terminate the contract (if the termination does not come under the law) and in any case is entitled to compensation.101 It follows that the policyholder has the right to terminate the contract due to the failure to comply with the legal obligation to notify the insurer under Article 381 of the Insurance Act. The consequence of termination of the contract is termination of contractual obligations, reimbursement of the prior state, and compensation of damages.102 This means that the insurer has longer time to return to the contractor the insurance of all paid premiums from the time the contract is concluded and to compensate the insurance contractor if it has been incurred. In addition to the unilateral termination of the insurance contract, the policyholder would also be entitled to compensation for damages due to breach of the contractual obligation to notify the prescribed information. Here it is: (1) responsibility for damage due to failure to notify103 and (2) contractual liability for damage due to failure to fulfill or delay in the fulfillment of the obligation.104 In the first case, the contracting party (in this case the insurer) who is obliged to notify the other party (insurance contractor) of facts affecting their mutual relationship (and also the information provided in Article 381 of the Insurance Act) is liable for the damage he has caused to the other party for failing to notify in proper time. In the second case, when the debtor (insurer) fails to fulfill his duty (to notify) or is late with his fulfillment, the creditor (the policyholder) has the right to demand not only the fulfillment of the duty but also the compensation of the damage he has suffered due to the failure of notification. The Insurance Act prescribes misdemeanor fines for the insurer for the breach of the notification duty and the breach of the contractual obligation to provide notification. However, they do not impact the legal effects and the survival of the contract.

2.6.2

Legal Consequences of the Breach of the Insured’s Duty

Legal Consequences of the Breach of Duty to Provide Precontratual Information It has already been stated that the policyholder, prior to the conclusion of the insurance contract, must fully and accurately report all circumstances relevant to the risk assessment. The Civil Obligations Act pays special attention to the legal consequences in the event that the policyholder breaches the duty of full and accurate precontractual contractual information of the insurer. The situation is different if the policyholder has intentionally violated such duty or has done so unintentionally.

101

Art. 360 of the Civil Obligations Act. Art. 380 of the Civil Obligations Act. 103 Art. 348 of the Civil Obligations Act. 104 Art. 342, sec. 2 of the Civil Obligations Act. 102

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If the policyholder has intentionally made an incorrect application or has intentionally withheld a circumstance of such a nature that the insurer would not have concluded a contract had he been aware of the true state of affairs, the insurer may call for a termination of the contract.105 The insurer’s right to request a termination of contract is limited by a preclusive deadline, and it is terminated if the insurer does not inform the policyholder of his intention to use that right within 3 months from the date when he found out about the inaccuracy or if he does not inform the policyholder about the intention of using such right as the result of witholding information.106 The termination of the insurance contract is understood here as being voidable, meaning that the court does not annul the contract ex officio but only based on the request or objection of the party. However, in terms of legal consequences, it differs from a voidable contract because the insurer has the right to retain and charge premiums for the period until the day of filing a request for termination of the contract.107 Therefore, there is no obligation to return what has been received. However, in accordance with the same provision, if an insured event occurs until the day of filing a request for the termination of the contract, the insurer shall be obliged to pay the dividends. This legal provision is openly criticized for enabling a legal fraud of the insurer.108 The policyholder is often not an insurance professional, so he cannot always estimate the circumstances relevant to risk assessment. Therefore, it is possible that due to his ignorance (i.e., not with the intent of deceiving the insurer), he incorrectly reports or fails to report some of the circumstances that would be relevant to risk assessment. If the policyholder did not deliberately make an incorrect application or did not deliberately omit some information (i.e., if the incorrect application or omission has been made as an act of negligence), the insurer may, at his option, (1) declare within one month from finding out about the inaccuracy or incompleteness of the application that he is terminating the contract or (2) propose a premium increase proportionate to the higher risk.109 If the insurer has declared the termination, the contract terminates within 14 days from the date on which the insurer notified the policyholder about his declaration of termination. If the policyholder has proposed an increase in the premium, the policyholder may reject or accept the proposal. If he does not accept the proposal within 14 days, the contract is terminated by law.110 In the event of termination, the insurer is obliged to return part of the premium for the period until the end of insurance. If the insured event occurred prior to the termination of the contract, i.e., prior to reaching an agreement on the premium increase, the insurer has an obligation to pay the insurance, but the fee is reduced to

105

Art. 93, sec. 1 of the Civil Obligations Act. Art. 932, sec. 3 of the Civil Obligations Act. 107 Art. 932, sec. 2 of the Civil Obligations Act. 108 Ćurković (2005), p. 35; Pavić (2009), p. 203. 109 Art. 933, sec. 1 of the Civil Obligations Act. 110 Art. 933, sec. 2 of the Civil Obligations Act. 106

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the extent of the premium paid and the premium rate that should be paid due to the real risk111 (prema stvarnom riziku). The insurer’s right to choose between the termination of the contract and the proposal to increase the premium would be acceptable for the situation if the incorrect or incomplete notification about the circumstances was deliberately made and the insurer would nevertheless decide on the conclusion of the contract but under different conditions. The Civil Obligations Act does not contain special provisions on this.112 In the life insurance contract, in addition to the general rules on the duty to report significant circumstances for risk assessment, special rules apply to inaccurate reporting about the age of the insured person.113 The age of the insured person is considered under the law to be a significant circumstance for risk assessment in the life insurance contract because it can be concluded from actuarial laws that the older the person is, the greater is the risk (e.g., the likelihood of death is higher in the elderly than in a younger person). The Civil Obligations Act provides possible situations of incorrect application of the insured person’s age: (1) if the insured person is reported to be younger and his/her age exceeds the limit prescribed by the conditions and the insurance tariffs, then the insurance contract is null and void; the insured is obliged to return all premiums, but he does not have the obligation to pay the insured amount; (2) if the insured person is reported to be youner and his/her actual age does not exceed the limit prescribed by the conditions and the insurance tariffs, then the life insurance contract is valid but the insured amount is proportionally reduced; (3) if the insured person is reported to be older than what he actualy is, then the contract continues and the insurance premium is reduced to the appropriate amount; the insurer is obliged to return the difference between the received premiums and the premiums to which he is entitled (it would not be forbidden to conclude an increase in the amount of insurance instead of reducing the premium).114 The aforementioned legal consequences of the incorrect application of the age of the insured in the life insurance contract occur regardless of the degree of the policyholder’s guilt, i.e., regardless of whether he made the mistake deliberately or unintentionally.

Legal Consequences of Breach of the Insured’s Obligation to Contractual Notification The main obligations of the policyholder/insured party throughout the duration of the insurance contract arising from the need for transparency in contractual relationships are a statement of circumstances that affect the change (more accurately the

111

Art. 933, sec. 3 and 4 of the Civil Obligations Act. Ćurković (2005), p. 33. 113 Art. 968 of the Civil Obligations Act. 114 Pavić (2009), pp. 343–344. 112

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increase) of the risk and the notification of the occurence of the insured event (supra 2.3.2.2 and 2.3.2.3). Therefore, the question logically arises concerning the consequences of failure to fulfill the abovementioned duty to notify the policyholder/ insured party. The Civil Obligations Act has no special provisions on the consequences of the policyholder’s/insured’s failure to notify the insurer (without delay or within 14 days)115 about the changes in circumstances throughout the duration of the insurance contract affecting the risk increase.116 If the insurer is not informed of any change in the aforementioned circumstances, the insurance contract shall remain in force under the same conditions. However, if the insurer finds out in any way117 (so not necessarily from the policyholder) about the change in the circumstances that affect the risk increase, then in accordance with the provisions of Article 938 paragraphs 3, 4, and 5 of the Civil Obligations Act (which have already been described in greater detail), then he is entitled to termination of the contract, i.e. to propose a new premium rate. In any case, the insurer is entitled to compensation for damages under the general rules of law of obligations: (1) for failure to fulfill or a delay in the fulfillment of the contractual notification obligation118 or (2) for failure to notify.119 On the other hand, the Civil Obligations Act explicitly states that a policyholder is obliged to compensate the damage to the insurer if he has failed to report the occurrence of the insured event within the prescribed deadline.120 The insurer may suffer the damage due to, for example, failure to take timely measures to reduce the damage, or due to reduced effects of property salvage etc. The insured person would not lose the right to the insured amount because of the missed application deadline and any such contractual provision would be void121 but the insurer may claim compensation for the late application of the insured event through the breach of the insured’s claim to the insured amount. The statutory three-day deadline for the application of the occured insured event does not apply to life insurance. This is due to the fact that in life insurance contracts, the insurer cannot suffer any damage due to delays in notification since the payment of insurance does not have the character of damage compensation; therefore, timely protection and rescue measures would not reduce the insurer’s obligation.122

115

Art. 938, sec. 2 of the Civil Obligations Act. Keglević (2016), p. 381. 117 Art. 938, sec. 6 of the Civil Obligations Act. 118 Art. 342, sec. 2 of the Civil Obligations Act. 119 Art. 348 of the Civil Obligations Act. 120 Art. 941. sec. 2 of the Civil Obligations Act. 121 Art. 942 of the Civil Obligations Act. 122 Pavić (2009), p. 225. 116

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3 Conclusion In Croatian insurance contract law, transparency is achieved through three regulations: the Civil Obligations Act, the Insurance Act, and the Consumer Protection Act. The Civil Obligations Act is the fundamental law on obligations in the Republic of Croatia, which, in addition to the provisions on various types of contracts, also regulates insurance contracts. Transparency under the Civil Obligations Act is, as a rule, one way. It refers to the obligations of the policyholder to notify on the circumstances regarding risk assessment (i.e., the probabilities of its occurrence), as well as the duty to report the occurrence of the insured event. A special exception to such one-way communication (policyholder ! insurer) is the insurer’s obligation to notify the policyholder that the insurance terms are an integral part of the contract and to provide him with them. Any additional duty of the insurer, such as providing additional clarification on the terms of the contract and giving advice to the policyholder or the insured, is not prescribed by the Civil Obligations Act. It should be assumed that the policyholder and the insured person, who as a rule are not professionals, cannot fully understand all the terms of the insurance provision and would certainly benefit from assistance with regard to additional clarification. Perhaps, de lege ferenda, the insurer’s obligation to provide certain additional information (or even advice) regarding the terms of insurance to the policyholder or insured person should be regulated. Furthermore, in the Civil Obligations Act, the policy should be changed under which the policyholder is obliged to report to the insurer all circumstances relevant to the risk assessment prior to the conclusion of the contract. It has already been stated, and here it is further emphasized, that the policyholder, since he is not a professional, often cannot know which circumstances are important for risk assessment. Rather than giving the policyholder information on essential circumstances, a solution should be applied according to which the insurer is the one who asks the policyholder about the circumstances considered relevant to risk assessment. In his practice, the insurer has a similar solution; i.e., he sends questionnaires to the policyholder, who, before signing the insurance contract, is required to complete it in writing or in electronic form. Unlike in the Civil Obligations Act, transparency in the Insurance Act and the Consumer Protection Act occurs in the opposite direction, i.e., the insurer ! the policyholder/consumer. The consequence of this is the adoption of EU legislation into Croatian law. The Insurance Act has taken into account the legal order of the Solvency II Directive, which stipulates, inter alia, the information that the insurer has the duty to provide to the policyholder before the conclusion of the insurance contract, as well as the duration of the insurance contract and the right to terminate the contract (Arts. 183–186). The Consumer Protection Act is applied to the insurance contract that is concluded by means of distance communication. This Act incorporated into the Croatian legal system Directive 2002/65/EC on the advertising and sale of consumer financial services, which contains, inter alia, provisions on the information that the financial service provider-insurer has to provide to the

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policyholder when concluding a contract by means of distance communication (Arts. 3–5). The adoption of these directives has alligned the Croatian insurance law with the EU legislation regarding transparency in insurance contracts and at the same time partly modernized the Croatian contractual insurance law (at least with regard to the obligation to notify counterparties in the insurance contract). However, it is necessary to consider whether the average legal insurer/insured person’s legal information list, which the insurer is obliged to provide, is too long. In other words, which amount of information that the insurer is obliged to provide is useful in deciding whether or not a particular product is appropriate for his needs? The totality of all aforementioned information can cause uncertainty and doubt in the insurer/insured person concerning the existence of certain rights and obligations of the policyholder/insured person, and these may often be incomprehensible. In that sense, the described overload of information can also lead to the negation of transparency in the insurance contract.

References Belanić L (2014) Ugovor o osiguranju. In: Gorenc V (ed) Komentar Zakona o obveznim odnosima. Narodne novine, Zagreb, pp 1439–1615. [Belanić L (2014) Insurance contract. In: Gorenc V (ed) Commentary in the civil obligations act. Narodne novine, Zagreb, pp 1439–1615] Ćurković M (2005) Obveze stranaka iz ugovora o osiguranju. In: Ugovor o osiguranju prema novom ZOO. Inženjerski biro, Zagreb, pp 29–44. [Ćurković M (2005) Obligations of the parties in the insurance contract. In: Insurance contract according to the new civil obligations act, group of authors. Inženjerski biro, Zagreb, pp 29–44] Ćurković M (2009) Ugovor o osiguranju osoba, život-nezgoda-zdravstveno. Inženjerski biro, Zagreb [Ćurković M (2009) Insurance contract for persons, life-accident-health insurance. Inženjerski biro, Zagreb] Keglević A (2016) Ugovorno pravo osiguranja – obveza obavještavanja i zaštita potrošača u domaćem, europskom i poredbenom pravu. Školska knjiga, Zagreb [Keglević A (2016) Insurance contract law - duty to inform and consumers protection in the domestic, European, and comparative law. Školska knjiga, Zagreb] Matijević B (2006) Obveza informiranja ugovaratelja osiguranja i zaštita potrošača. In: Novi propisi iz osiguranja – Zakon o osiguranju i Zakon o obveznim osiguranjima u prometu (group of authors). Inženjerski biro, Zagreb, pp 79–110 [Matijević B (2006) Duty to inform the policyholder and consumer protection. In: New insurance regulations - Insurance Act and Act on Obligatory Insurance in Transport (group of authors). Inženjerski biro, Zagreb, pp 79–110] Mišćenić E (2014) Consumer protection law. In: Josipović T (ed) Introduction to the law of Croatia. Kluwer Law International, Alphen aan den Rijn, pp 279–290 Pavić D (2009) Ugovorno pravo osiguranja, komentar zakonskih odredaba. Tectus, Zagreb [Pavić D (2009) Insurance contract law, commentary on legal provisions. Tectus, Zagreb]

Legal Sources Act on Compulsory Insurance within the Transport Sector, Official Gazette no. 151/2005, 36/2009, 75/2009, 76/2013, 152/2014

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Act on Licensing of Trades, Official Gazette, n. 143/2013 Act on Obligatory and Proprietary Rights in Air Transport, Official Gazette no. 132/2008, 63/2008, 134/2009, 94/2013 Act on the Croatian Agency for Supervision of Financial Services, Official Gazette, n. 140/2005, 154/2011, 12/2012 Civil Obligations Act, Official Gazette, n. 35/2005, 41/2008, 125/2011, 78/2015, 29/18 Companies Act, Official Gazette, n. 111/1993, 34/1999, 121/1999, 52/2000, 118/2003, 107/2007, 146/2008, 137/2009, 125/2011, 152/2011, 111/2012, 68/2013, 110/2015 Consumer Protection Act, Official Gazette, n. 41/2014, 110/2015, 14/2019 Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer financial services and amending Council Directive 90/619/EEC and Directives 97/7/EC and 98/27/EC OJ L 271, 9 October 2002, pp 16–24 Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (Text with EEA relevance), OJ L 335, 17.12.2009, pp 1–155 Insurance Act, Official Gazette, n. 30/2015, 112/2018 Maritime Code, Official Gazette, br. 181/2004, 76/2007, 14/2008, 61/2011, 56/2013, 26/2015, 18/2019 Obligations Act of 1978, Official Gazette of the SFRY, n. 29/1978, Official Gazette, n. 53/1991, 73/1991, 111/1993, 2/1994, 7/1996, 112/1999 and 88/2001

Transparency in the Insurance Contract Law of Germany Manfred Wandt

1 Introduction Transparency constitutes a well-recognised element in contract law. However, with regard to insurance contract law, transparency is even more important and may not be overestimated. This is due to the fact that insurance is a so-called legal product.1 The legal initial situation is, therefore, evidently different compared to contracts for the exchange of goods. Characterised by sold goods, the latter can usually be seen, touched, felt or perceived by other means. Insurance contracts, however, do not entail dealings with ‘visible’ goods. Solely after the occurrence of an insured event, the insured risk materialises and becomes ‘visible’. Hence, insurance contracts are not characterised by an exchange of physical goods for money but by the exchange of a promise of performance for financial compensation.2 In the absence of any physical manifestation of a mere promise, a visual inspection is not possible at all— but this fact is not rendering the insurance product non-transparent per se. Namely, the (linguistic) manifestation is not limited to common language but is rather based on legal language and technical terminology. Furthermore, insurance may only be perceived as a rather complex and complicated legal product. Even most common specific differentiations of this product, prescribed by primary risk

I would like to express my gratitude to research assistant Dr Kevin Bork for his valuable support. This analysis is based on Wandt (2012) and on Wandt (2017). In addition, I would like to thank Prof Dr Jens Gal for his consent to partly base this analysis on Wandt and Gal (2014). 1 2

Cf. in detail particularly Dreher (1991). Wandt (2012), p. 343.

M. Wandt (*) Goethe-University Frankfurt, Frankfurt, Germany e-mail: [email protected] © Springer Nature Switzerland AG 2019 P. Marano, K. Noussia (eds.), Transparency in Insurance Contract Law, AIDA Europe Research Series on Insurance Law and Regulation 2, https://doi.org/10.1007/978-3-030-31198-8_3

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description, secondary risk exclusion and tertiary risk re-inclusion, will impose their difficulties of comprehension on the average policyholder. Additionally, insurance constitutes a promise extending over a longer period; in the case of life assurance, this promise will often be bound to remain valid over decades. For this reason, e.g., one needs to provide a rule concerning the policyholder’s handling of the insured risk. In life assurance, to give another example for the complexity and intricacy of the product, one needs to provide for a rule if and how the policyholder is to participate in the surplus of the insurance undertaking. Hence, we are dealing with the transparency of highly complex legal regimes. The nature of insurance as a complex and complicated legal product will make it difficult, if not impossible, for the buyer of insurance, i.e. the policyholder, to reach a full and comprehensive level of understanding of all the properties of the prospective contract in question before the conclusion of the said contract. Without extensive expert advice (regarding insurance technique, financial and legal questions), a nonprofessional may never be able to fully comprehend the insurance product. This situation is, however, not entirely different from a vast variety of contracts for the exchange of goods. The buyer of an automobile will usually have no profound knowledge of the precise manner of functioning (e.g. engine operations, mechanical and electronic coherencies). Furthermore, he will be unaware of how the car manufacturer calculates its distribution costs, i.e. the buyer is unaware to what extent his purchase price will serve to cover the manufacturer’s overall expenses of distribution. Following this, the need for transparency of insurance contracts is evidently high. In this respect, statutory law and contractual conditions themselves attain definitional sovereignty—while contractual conditions are primarily comprised of the General Conditions of Insurance, so-called GCI (Allgemeine Versicherungsbedingungen— AVB). The following analysis is guided by the following structure: the overall legal framework concerning contract transparency (Sect. 2), the development of German insurance contract law (Sect. 3), transparency in the context of GCI (Sect. 4), transparency in the context of statutory insurance contract law (Sect. 5) and a conclusion (Sect. 6).

2 The Overall Legal Framework Concerning Contract Transparency Contract transparency may be achieved through a variety of different legal instruments. Among them are the most important contract law instruments: the pre-contractual duties of the insurer and of intermediaries to provide information and to advise; requirements for the design of written information and of GCI; requirements for the inclusion of GCI into the contract, in particular with regard to the issuing of GCI; the methods of interpreting GCI in order to avoid or eliminate

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lack of transparency, such as the principle of narrow interpretation applied to exclusion clauses or the well-known contra proferentem rule; transparency requirements for the content of GCI. Regarding transparency after the conclusion of the contract and during the contractual period: duties to inform about the content of the contract and about specific provisions of contract law; duties of the insurer to advise if there is discernible need. In general, it should be mentioned that the exact qualification of each particular instrument is of importance as each of these instruments may lead to different legal results. For instance, if the parties fail to meet the prerequisites for an effective inclusion of GCI, this may have the consequence that GCI will not become part of the contract. The content of the contract must then be typically determined by statutory regulations and, if necessary, modified or completed by supplementary interpretation of the contract. Nevertheless, if the insurer does not comply with its information duty with respect to GCI, the policyholder may be entitled to terminate the contract—either for the future or retroactively. Unfortunately, national laws do not always strictly separate these legal categories. National legislators sometimes even knowingly link insurance contract law with insurance supervisory law, which, in most cases, is detrimental to the aim of legal transparency.3

3 The Development of German Insurance Contract Law With regard to statutory law, transparency was a key element from the beginning of statutory insurance law. However, at first, it was introduced to German insurance supervisory law and not to German insurance contract law. Within the German Insurance Supervisory Act (Versicherungsaufsichtsgesetz—VAG), the policyholder’s clear comprehension of his insurance cover was already an important objective at the time of its coming into force in 1901. According to this Act, the insurer was obliged to submit for pre-approval to the supervisory authority the GCI it intended to use in its insurance contracts (sec. 4 subsec. 2 VAG 1901). The purpose of this provision is clarified by the explanatory memorandum to the VAG. It stated that the supervisory authority was under a duty to particularly assess whether or not the GCI made the policyholder’s rights and duties sufficiently clear.4 Certainly, this supervisory rule had indirect impact on the insurance contracts since all GCI needed approval before being used. In the course of EU deregulation in 1994,5 the German legislator abolished the pre-approval of the GCI by the supervisory authority and

3

With regard to the structural mix-up in Germany, see Sect. 3. Motive zum VAG, reprint, Berlin 1963, p. 32. 5 Until that time, insurers were exempted from meeting the prerequisites for the inclusion of general terms and conditions set by sec. 2 Unfair Terms and Conditions Act old version, due to the fact that their GCI were the object of preapproval by the supervisory authority (cf. sec. 23 subsec. 3 Unfair Terms and Conditions Act old version). 4

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oriented GCI legislation towards contractual instruments of control, nowadays incorporated in sec. 305 ff. of the German Civil Code (Bürgerliches Gesetzbuch— BGB6). On the contrary, the original Insurance Contract Act (Versicherungsvertragsgesetz—VVG7), dating from 1908, did not recognise clarity of insurance conditions as a matter of regulation. The German legislator was of the opinion that all relationships between policyholders and insurers were, in any way, primarily governed by GCI. An additional or substitutional extensive legislative framework was considered not to be necessary. The main purpose of the Act was, therefore, mainly to balance the insurance relationship by adjusting unfair insurance conditions. In technical terms, this was done by way of mandatory and semimandatory provisions applicable to all insurance contracts. In summary, GCI served a quasi-legislative function (pre-conditioned by the pre-approval of the GCI by the supervisory authority). After 1994, a general pre-approval by the supervisory authority was abandoned, and the focus of the supervisory authority changed evidently—currently targeting business operations and the solvency of the insurer. Surprisingly, the habitat of some provisions aiming for transparency still remained within the confines of German insurance supervisory law. Most importantly, sec. 10a VAG 1994 required the insurer to transmit to the policyholder a set of written consumer information (Verbraucherinformation) before the contract was concluded. This consumer information particularly included all GCI applicable to the insurance relationship in question. Any breach of this supervisory duty was contractually sanctioned pursuant to sec. 5a VVG 1994. This meant that the power of revocation granted to the policyholder did not extinguish until 14 days after the complete transmission of all information materials. This discrepancy between the location of the duty and the legal consequence of its breach is astonishing, in particular when keeping in mind that provisions are generally intended to create clarity. It certainly is questionable if such a synergy between the two main codices was expectable or comprehensible in a sense that an average policyholder could understand the mutual effects. This cataclysmic combination of insurance supervisory law and insurance contract law as well caused considerable scientific controversy. Germany has long been familiar with the formal and material control of GCI. Germany was one of the first countries to develop legal rules applicable to general terms and conditions, though these rules remained for some decades to be exclusively drafted by the courts. In the 1970s, these rules were transposed by the legislator into the Unfair Terms and Conditions Act (Gesetz zur Regelung des Rechts der Allgemeinen Geschäftsbedingungen—AGBG), which was subsequently altered, in particular, to meet the requirements of Council Directive 93/13/EEC of April 1993 on Unfair Terms in Consumer Contracts, the transposition of which it subsequently served. In 2002, the AGBG was abrogated, and its provisions were included into the

6 7

Translation available at http://www.gesetze-im-internet.de/englisch_bgb/. Translation available at http://www.gesetze-im-internet.de/englisch_vvg/index.html.

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BGB. In sec. 305 ff. BGB, the principle of transparency is given a central role in regulating the fairness of GCI. Section 305 ff. BGB set a two-pronged test of transparency: firstly, a GCI clause shall be invalid if it causes a significant imbalance between the parties’ rights and duties contrary to the requirement of good faith (sec. 307 subsec. 1 sentence 1 BGB, hitherto sec. 9 AGBG). On the other hand, pursuant to sec. 307 subsec. 1 sentence 2 BGB, a general term or condition may be regarded as unfair for the mere fact that it is not drafted in a clear and comprehensible manner. When the provisions of the Unfair Terms and Conditions Act were transferred into the BGB in 2002, the principle of transparency in the realm of general terms and conditions was made explicit by including this new provision. Before that, the German Supreme Court (Bundesgerichtshof—BGH) contended that the material control of GCI included a control of transparency of all clauses8—even though this was disputed by many. The BGH’s position, however, was affirmed by the Directive on Unfair Terms in Consumer Contracts (Art. 5 sentence 1).9 Within the EU, the requirement of ex ante approval of GCI has been abolished since the deregulation of the insurance sector in 1994.10 Accordingly, the deregulation of 1994 implemented a change to an ex post control of GCI. This alteration also meant that (contractual) transparency now became a primary subject for the civil courts. Almost all of the (up to now) approximately more than 130 decisions rendered by the chamber for insurance matters of the Federal Court of Justice dealing with transparency are dated 1994 or later. Nevertheless, civil courts were well equipped to deal with these questions since many of them had been raised in connection with unfair terms and conditions in (other) consumer contracts. After what may only be called a reform wave regarding other insurance contract acts in a variety of European countries, the German legislator decided to submit the German Insurance Contract Act to an extensive reform in 2008. The insurer’s duties to inform were substantially enlarged and broadened.11 In particular, it broadened duties to inform, as they have hitherto specifically existed for distance selling contracts,12 to cover all contracts regardless of their mode of conclusion since the German legislator favoured the application of a uniform law to all contracts.13 These

8

Cf., e.g., BGH, Entscheidungen in Zivilsachen (BGHZ) 104:92 with further references. Directive 93/13/EEC of 5 April 1993 on Unfair Terms in Consumer Contracts. 10 Art. 181 sec. 1 Directive 2009/138/EEC of 25 November 2009 on the Commencement and Pursuit of Insurance and Reinsurance Business (Solvency II). However, Member States may impose a duty on the insurer to submit general policy conditions for health insurance and compulsory insurances to the supervisory authority before using them. 11 Also cf. Verordnung über Informationspflichten bei Versicherungsverträgen (VVG-InfoV) of 18 December 2007, BGBl. I 2007, p. 3004. 12 Gesetz zur Änderung der Vorschriften über Fernabsatzverträge bei Finanzdienstleistungen of 2 December 2004 (BGBl. I 2004, p. 3102; cf. thereto BT-Drucks. 15/2946); implementing Directive 2002/65/EC of 23 September 2002 with respect to the Distance Marketing of Consumer Financial Services. 13 Küster (2010), pp. 730 ff. 9

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duties to inform were accompanied by duties to advise and duties to document, the breach of which would subject the insurer (or the insurance intermediary) to a claim for damages. The inclusion of these duties was to mirror the Insurance Intermediary Directive in order to level the insurance undertaking and insurance intermediary by applying the same standards. Yet further detail on sec. 9 VVG will not be given in the following—from the perspective of legal transparency, the provision is not convincing, demonstrated by both unclear demands of the Directive itself and the unreasonable tendency of the German legislator to draft intricately.14 However, in summary, the legislator managed the pursued transparency adequately when reforming general parts of the VVG. A good example may be seen in the redrafting of the increase of risk—forming one of the key elements of the reform.15 With respect to the VVG old version, doctrine was of the unanimous opinion that the old VVG was inadequate regarding legal systematics and was hardly comprehensible.16 On the contrary, the reformed VVG clearly separates the different criteria of the increase of risk and different legal consequences such as termination (Kündigung), contractual adjustment (Vertragsanpassung) and release from the duty to indemnify (Leistungsfreiheit). In doing so, the German legislator severely increased legal transparency.17

4 Transparency in the Context of GCI 4.1

Introductory Remarks

‘Terms which have not been individually negotiated’ are the legal heart of an insurance contract within a business-to-consumer (b2c) transaction. Disputes arising under the contract, in most cases, do not concern the effectiveness of individually negotiated agreements but mostly relate to the effectiveness of GCI. It should be noted that GCI are of significantly greater importance than those of the contracts for the supply of goods. This stems from the fact that GCI define the main subject matter of the contract by describing the insured event and by limiting the extent of coverage by means of exclusion clauses.18 The effectiveness of GCI is of crucial importance to the insurer as well. Only effective GCI guarantee the intended economic success since GCI constitute the main basis for the insurer’s premium calculation. Beyond any legal effectiveness of

Bruns (2015), § 9 para. 40 considers the drafting of the provision on the right to revoke and its legal consequence to be inadequate. 15 The reform of pre-contractual disclosure of the policyholder is not comparable in its technical dexterity. 16 Cf. Weyers and Wandt (2003), para. 264. 17 RegE BT-Drucks. 16/3945, p. 67. 18 See at a glance Koch (2018, pp. 92 ff., 97 ff.) and Wandt (2017), pp. 419 ff. 14

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GCI, insurers—given their widespread negative public perception—should have a strong interest in product transparency for their customers. Given the importance of transparency of contracts, in particular regarding GCI, it becomes evident that increasing transparency in said contracts is a crucial aspect in the process of increasing consumer protection. This has certainly been the case for Europe since the 1990s.19 Furthermore, it is quite a commonplace to say that in the EU, the standard of transparency has been continuously enlarged in the course of the evolution of consumer protection.20

4.2 4.2.1

GCI as Part of the Contract Inclusion of GCI According to Sec. 305 Subsec. 2 No. 2 BGB

A first manifestation of contract transparency within the system of controlling GCI can be seen when reflecting upon the requirements as to the inclusion of GCI. Apart from any content-wise control of GCI, formal requirements with regard to the conclusion of the contract are intended to promote transparency of contract. From the point of view of transparency, it is indispensable that written GCI are available to the prospective policyholder before being contractually bound, at the latest. This prerequisite aims to give the prospective policyholder the reasonable possibility of taking note and is provided by sec. 305 subsec. 2 no. 2 BGB.21 In the light of this, it would be even more adequate if the policyholder already gained knowledge of the GCI in good time before submitting his contractual statement. In the case of an oral agreement (e.g. by telephone) or preliminary cover, it is permitted that GCI will be submitted immediately after the conclusion of the contract; sec. 7 subsec. 1 sentence 3 VVG. In addition, it is generally permitted to waive pre-contractual information, but solely under strict formal conditions. However, it is controversial in German law whether such a waiver of pre-contractual information without any explicit clarification is at the same time a waiver of the issuing of GCI as a condition for their inclusion in the contract.

19

Along with the harmonisation of insurance law by EU directives; since the early 1980s numerous national insurance contract acts of EU Member States have been reformed to strengthen consumer protection: Sweden and Spain (1980), Belgium (1992), Germany, Austria, Finland (1994), Luxembourg and Greece (1997), Denmark (2004), Bulgaria (2005), Sweden and the Netherlands (2006), Germany and Portugal (2008), Finland (2010), Great Britain (2012) and Hungary (2013). 20 See at a glance Wandt (2012), pp. 340–353. 21 Schmidt (2019), § 307 para. 43.

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Prohibition of Unexpected Terms According to Sec. 305c Subsec. 1 BGB

A special feature of the general rule that the policyholder shall be aware of the content of GCI is the particular rule that a surprising (unexpected) clause does not become part of the contract. This rule is provided by sec. 305c subsec. 1 BGB and states that provisions in GCI do not become part of the contract if they are unexpected from the point of view of a reasonable contractual partner, taking into account the individual circumstances, in particular, with respect to the outward appearance of the contract. Therefore, such clauses are being denoted as ‘hidden’ clauses. The unexpectedness of a particular clause may also result from its placement within the contract or from the limitation of a right formerly provided by another GCI clause. However, the BGH has held that superfluous confusions in the wording of a clause are not harmful if the content of the clause can be developed with due care.22

4.3 4.3.1

Interpretation of GCI Method of Interpretation

From a global perspective, contractual interpretation is generally based on the intentions of the contracting parties. However, the starting points differ. In most common-law jurisdictions, contractual interpretation starts from an objective point of view. In contrast, (EU) continental laws follow a subjective standard of interpretation. However, it is rightly stated that the results are regularly identical.23 Concerning the interpretation of a consumer contract, the principle prevails that GCI are construed from the viewpoint of an average policyholder without any legal knowledge. In line with this principle, German courts refer to an average policyholder, who carefully reads and assesses the GCI, and considers the apparent contextual meaning of a particular term.24 Therefore, the policyholder is not spared from at least thinking about the GCI. The policyholder, hence, is expected to make observations with regard to the economic purposes of a clause.25 To substantiate the expression of the average customer, the jurisdiction has to take into account the understanding of EU law. The European Court of Justice considers a generally reasonable acting, attentive customer who is capable of selfdefining. Concerning GCI applicable to certain contract types, however, German courts have exhibited a rather strict understanding of what the average customer

22

BGH, Neue Juristische Wochenschrift Rechtsprechungs-Report Zivilrecht (NJW-RR) 1995:749. Brand (2011), p. 97. 24 BGH, Versicherungsrecht (VersR) 2003:236; BGH, Entscheidungen in Zivilsachen (BGHZ) 153:182. 25 BGH, Versicherungsrecht (VersR) 2005:639. 23

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knows and understands, thus, in some instances, applying a more consumer-friendly interpretation than what would be required by the European Court of Justice.

4.3.2

Contra Proferentem Rule

Pursuant to sec. 305c subsec. 2 BGB, any doubts as to the interpretation of standard business terms are resolved against the user. This doctrine is generally known as the contra proferentem rule and serves as a tool to interpret ambiguous general terms and conditions. It contains the rule to construe any unclarity in a general term or condition against the party that proposed its inclusion into the contract. It is in dispute whether the requirement of sec. 305c subsec. 2 BGB applies where a contractual clause is non-transparent in the sense of sec. 307 subsec. 1 sentence 2 BGB. The prevailing view is that these requirements must be equally applied.26

4.4

Scope of Judicial Review Within the EU

GCI—being an integral part of the contract—are subject to judicial review. Traditionally, the judicial review of GCI relates to the substantive validity of the content. A particular term is ineffective if it causes a significant imbalance in the parties’ rights and duties arising under the contract (contrary to the requirement of good faith), to the detriment of the consumer.27 Only in the last decades, transparency has developed into a separate independent standard of judicial review.28 The EU has followed this trend of various national legal systems by implementing the EC Directive on Unfair Terms in Consumer Contracts in 199329 (hereinafter the Directive). Nevertheless, there are still significant differences within the European Union since the Directive only requires a minimum harmonisation (Art. 8 of the Directive). According to Art. 4 (2) of the Directive, the assessment of the unfair nature of the terms shall relate neither to the definition of the main subject matter of the contract nor to the adequacy of the price and remuneration, on one hand, as against the services or goods supplied in exchange, on the other hand, insofar as these terms are in plain intelligible language. Rixecker (2019), § 1 para. 89; Höra (2017), § 1 para. 65. Art. 3 sec. 1 Council Directive 93/13/EEC of 5 April 1993 on Unfair Terms in Consumer Contracts. Most legal systems consider unfair clauses as utterly ineffective. As a further consequence, the clause either ceases without replacement, or (must) be replaced by mandatory legislative provisions or supplementary interpretation will apply. Under the Directive, a national court is prohibited from reducing an unfair term to its legally permissible core (geltungserhaltende Reduktion); BGH, Neue Juristische Wochenschrift (NJW) 2013:991 (p. 993, paras. 33 f.). 28 According to Pilz (2010a), p. 164, this development was initiated by German jurisprudence. 29 Council Directive 93/13/EEC of 5 April 1993 on Unfair Terms in Consumer Contracts. 26 27

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Regardless of Directive 93/13/EEC, there are significant differences within the EU Member States. According to the Final Report of the Commission Expert Group on European Insurance Contract Law, published by the European Commission in 2014,30 some Member States, e.g. Belgium, Denmark, Finland, Luxembourg, Portugal and Spain, submit GCI to a fairness test even if they relate directly to the main subject matter.31 On the contrary, English law seems to exempt any descriptions of the insured event and exclusion clauses from judicial review. It seems that German law stands out in exempting only those core elements of the contract from judicial review, without which the contract could not have been performed.32 However, it should not be ignored that the control of transparency of insurance contracts is intended to protect the policyholder. Therefore, this control should not lead to the result that the policyholder ends up without insurance coverage at all as a consequence of the core terms of the contract being ineffective. A recent decision of the BGH may serve as a suitable illustration: the court has declined to control the transparency of a clause concerning the definition of the insured event of a liability insurance because the invalidity of the clause referring to essentialia negotii of the contract would lead to the invalidity of the whole contract due to the absence of a legal substitute provision.33 In this respect, it is to be underlined that referring to several laws, the lack of transparency of GCI does not necessarily result in the ineffectiveness of the clause. So far, German law provides courts with discretion.34

4.5

Requirements on the Drafting of GCI According to Sec. 307 Subsec. 1 Sentence 2 BGB

In Germany, different criteria have been established in order to structure cases of non-transparency in a suitable manner. Hence, concerning the transparency doctrine as to substance, German law differentiates between comprehensibility (Verständlichkeitsgebot), certainty (Bestimmtheitsgebot) and completeness (Vollständigkeitsgebot).

30

https://www.uibk.ac.at/zivilrecht/forschung/evip/restatement/final_report.pdf. This may also be the approach of Turkish law, Art. 6 Regulation on Unfair Terms in Consumer Contracts. 32 BGH, Versicherungsrecht (VersR) 1994:1049. 33 BGH, Versicherungsrecht (VersR) 2014:625. However, the argument that there is no legal provision, which could substitute the term, appears doubtful because a supplementary contract interpretation is possible and also be based on legal provisions. Koch (2014), p. 1281 ff. 34 Sec. 307 BGB; cf. Langheid (2015), pp. 1071 ff. 31

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Comprehensibility

Comprehensibility means that a legal rule is framed in a way that it is understandable for its addressee. The problem in determining the level of comprehensibility lies in the determination of the person of reference. In insurance contract law, this will usually mean that a legal rule must be comprehensible for the policyholder, i.e. the average policyholder. The question of what constitutes an average policyholder may not be assessed empirically since the term refers to a legal fiction comparable to that of the reasonable person under common law, which is considered as a normative standard (normativer Maßstab).35 One aspect of comprehensibility is intelligibility. Hence, consumer contracts are to be written in plain and intelligible language. Yet it is generally permitted to use technical terms as long as these terms are customarily applicable in a way that an average policyholder is able to understand them.36 In order to maintain comprehensibility, the insurer is allowed to place lists etc. at disposal to explain technical terms provided they are referred to by the GCI (in a transparent manner as well). In cases where reference is made to laws and acts, these materials need not to be attached since extensive materials would render the GCI too complex and, therefore, incomprehensible.37

4.5.2

Certainty

With respect to certainty, GCI have to feature a high degree of concretisation. The conditions of a clause and its legal consequences are, hence, to be described in such detail not granting inadequate margin of discretion to the insurer. An average policyholder has to be set in a position in which he is able to identify his rights as clear and simple as possible and without external help.38 In abstract words, the clause shall not embody an excessive width of definition or be without contours. To the extent that the sanctions of a standard term are more disadvantageous, GCI must be drafted in richer detail.39 Certainty is at stake where undefined legal terms are being used. On one hand, GCI have to display sufficiently detailed rules (suitable for unexpected scenarios) in order to be assessable from an objective point of view. On the other hand, utmost 35 Insofar, the national concept and understanding of the term ‘average policyholder’ may differ from the legal fiction under EU law. See for the CJEU’s concept of average consumer ECJ 6 July 1995, Case C-470/93, Neue Juristische Wochenschrift (NJW) 1995:3243 (p. 3244); ECJ 16.7.1998, Case C 210/96, Neue Juristische Wochenschrift (NJW) 1998:3183 (p. 3184). Cf. also Clarke (2005), p. 145. 36 Präve (2000), p. 140. 37 BGH, Versicherungsrecht (VersR) 2008:337, para. 11; BGH, Neue Juristische Wochenschrift (NJW) 2014:924 (securities business); Rixecker (2019), § 1, para. 92. 38 Stadler (2018), § 307 para. 8. 39 Wolf and Ungeheuer (1995), p. 180.

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complexity shall be prevented, and undefined legal terms may not be prevented in total.40 In particular, adjustment clauses are deemed problematic in this respect. In order to fulfil the requirement of certainty, the criteria of the contractual adjustment have to be at least sufficiently determinable.41 In certain circumstances, comprehensibility and certainty may contradict each other. Certainty could require the insurer to describe the conditions and legal consequences in sufficient detail, possibly rendering a GCI clause to a state of utmost complexity. In cases where complexity reaches an extraordinary degree, clauses might no longer be comprehensible by overloading GCI with information overstraining the prospective policyholder. Having these cases in mind, the BGH grants certainty priority over comprehensibility as the policyholder will, thereby, not be hindered from asserting a right but only from understanding the clause.42 It might be argued that—in both cases—the policyholder will be hindered de facto. However, a lack of comprehensibility might be overcome by consulting an expert. A lack of certainty, to the contrary, cannot be overcome.43 In any way, comprehensibility as a whole insinuates a wishful Utopia, considering that an insurance product is necessarily based on technical terms and undefined legal terms.

4.5.3

Completeness

A particular standard term is to be considered unambiguous (resp. complete) when and if the framing of said rule (this includes mandatory statutory elements of the provision and its legal consequences) does not allow several possible interpretations. In this sense, unambiguity has to be understood as the absence of any reasonable doubt concerning the interpretation of a particular term. Concerning judicial review, a standard term is not deemed to be ambiguous insofar as the ambiguity is cleared by interpreting the term according to the contra proferentem rule. The contra proferentem rule, however, is insufficient when it comes to adverse regulations with respect to the content for the policyholder. In that case, the contra proferentem rule must be supplemented by an independent control of transparency. This means that a rule that is unambiguous may, nevertheless, be considered unclear and vice versa. According to the well-established case law of the German Federal Court of Justice, it is not sufficient that a contract term is clear and understandable from the point of view of the ordinary and reasonable policyholder. The term has also to be

Reiff (2018), § 40 para. 38 f. Armbrüster (2012b), para. 1016. 42 BGH, Versicherungsrecht (VersR) 1995:77 (p. 79). 43 Wandt (2016), para. 201. 40 41

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complete with respect to economic disadvantages and burdens as far as it may be required by individual circumstances.44

4.5.4

Veiled Duties (Verhüllte Obliegenheiten)

In addition to the aforementioned abstract principles, due regard must be given to so-called veiled duties (verhüllte Obliegenheiten).45 These are GCI, veiled by their wording, miming to constitute a risk limitation but instead constituting a duty of the policyholder. In detail, any differentiation between these two options of classifying the clause focusses on content and the rationale of the clause.46 Hence, when interpreting the clause, it is decisive whether it contains any individualising determination (constituting a risk limitation) or if it demands any significant conduct of the policyholder, causing insurance coverage or non-coverage (constituting a duty). These GCI are, generally speaking, capable of endangering GCI transparency as they are not always recognised as constituting a duty. Therefore, it is argued that such a clause is non-transparent and void according to sec. 307 subsec. 1 sentence 2 BGB.47

5 Transparency in the Context of Statutory Insurance Contract Law 5.1

Overview

In German general contract law, some types of contracts are equipped with specific provisions on transparency. This particularly applies to contracts between the seller/ supplier, on one side, and the consumer, on the other side, since the latter is regarded as particularly in need of protection. In order to grant such protection (and to transform certain European directives),48 e.g., the German legislator has established exclusive rules applicable to so-called consumer contracts and, even more distinct, applicable to specific consumer contracts, such as distance selling contracts (besides the controlling of GCI, as analysed previously).49 In respect of aforementioned 44 BGH, Versicherungsrecht (VersR) 2013:1397; BGH, Entscheidungen in Zivilsachen (BGHZ) 194:208 (para. 45). 45 Unlike an enforceable duty (echte Rechtspflicht) an Obliegenheit does not confer an enforceable claim for neither performance nor damages. Instead a breach of an Obliegenheit leads to other specific legal consequences determined by law. 46 BGH, Neue Juristische Wochenschrift (NJW) 2014: 449. 47 Differentiated Wandt (2015, pp. 265 ff.); cf. OLG Naumburg, Versicherungsrecht (VersR) 2015:102. 48 See above Sect. 4. 49 See for the fundamental structure of private consumer protection laws in the light of distance selling contracts Bülow and Arzt (2000), pp. 2049 ff.; with reference to the application of the

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contracts, German law subjects the seller/supplier to a duty to inform the consumer about certain facts and requires such information to be clear and comprehensible (cf., e.g., sec. 312c subsec. 1 BGB in conjunction with Art. 246 secc. 1 and 2 of the Introductory Act of the German Civil Code (Einführungsgesetz zum Bürgerlichen Gesetzbuch—EGBGB) and sec. 360 subsecc. 1 and 2 BGB). Another example for the principle of transparency applicable to specific consumer contracts would be the duties of information applicable to travel businesses. Pursuant to sec. 4 of the BGB-Information Duty Regulation (BGB-Informationspflichtenverordnung—BGBInfoV), a prospectus provided by a travel operator must contain definite and decisive information. This information must be ‘legible, clear and precise’ (sec. 4 BGB-InfoV). Yet the absence of a specific standard of transparency for a specific type of contract, however, does not mean that the transparency test would not apply for different scenarios. In such cases, jurisprudence applies the general standard of transparency—e.g. as part of the method of interpreting contractual clauses—by adopting this standard to the necessities of the type of contract in question. Notwithstanding the aforementioned, it has to be taken into account that insurance as a ‘legal product’—which (greatly simplified) only exists on paper and within the framework that the law sets for the contract50—is highly complex.51 This is why it is rather common to assume that the average policyholder is not able to fully and accurately understand the content of an insurance clause even where the insurer were to use its best efforts to draft such provision as comprehensible as possible.52 So far, the shortcomings of the required level of transparency, when drafting the contract, is in some way compensated by the requirements of transparency when distributing the contract. Hence, it is the duty of the insurer (respectively of the insurance intermediary) to inform and to advise the policyholder before concluding the contract (secc. 6, 7 and 60–62 VVG).53 Each of these provisions explicitly asks for the realisation of transparency. The insurer has the duty to inform the policyholder about the insurance company itself; about various details of the contract, including information; and about the premium and expectable costs, taxes, etc. in writing. This requirement is applicable to all insurance contracts (sec. 7 subsec. 1 VVG, combined with the provisions of the Regulation on Duties to Inform in Insurance Contracts (Verordnung über Informationspflichten bei Versicherungsverträgen—VVG-InfoV)). The insurer has to

Consumer Directive as the onset for interpreting sec. 312 subsec. 1 BGB see von Loewenich (2016, pp. 2011 ff.). 50 See above Sect. 2. 51 Wandt (2012), p. 343. 52 In further addition to the forgoing remarks on the perspective of the average policyholder, see Pilz (2010b), pp. 1289 ff., in due consideration of the average policyholder’s situation when dealing with non-accessible material for the interpretation of GCI. 53 However, building on previous jurisprudence about the insurer’s duty to inform, statutory requirements must be seen in the light of all individual circumstances, see Rudy (2018), § 6 para. 3; Reiff (2016), § 68 para. 8 ff.

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inform the policyholder about rights and duties arising from the contract, including GCI, in due time prior to the conclusion of the contract, to provide him with specific information concerning the object and characteristics of insurance coverage, as well as the policyholder’s statutory duties. With sec. 6 subsec. 1 VVG, the German Insurance Contract Act provides a rule that obliges the insurer to survey the policyholder’s desires and needs and to advise him as well as to justify its recommendation for a specific insurance. While a specific duty to inform has already existed under the old law (sec. 5a VVG 1994 and— concerning the distance marketing of consumer insurance contracts—sec. 48b VVG 2004 with annex), the duty to advise is a genuinely innovative feature of the new reformed VVG from 2008.54 Under the old VVG, there was the general assumption that it was the policyholder’s personal responsibility to gather all information necessary and to evaluate if a product in question fits his particular needs. Insofar, it was general court law that a duty to advise could only attach to circumstances that distinguished the case at hand from ordinary cases of the same kind. There was rather a duty not to give wrong advice than a duty to give advice. It should be remarked that the legislator seemed to regard this situation, which is the standard for the vast majority of all other contracts, as unacceptable for insurance contracts and even, when talking about the need for reform of the old VVG, mentioned the duty to advise as the very first field that needed thorough reform. The need for reform was generated by the Insurance Mediation Directive, which obliged the German legislator to implement a duty to advise for all insurance intermediaries and insurance consultants into national law. The German legislator regarded it as nonsensical to burden the insurance intermediary with a personal duty to advise while not letting a comparable duty fall upon the insurer itself, particularly taking into consideration that it is not the insurance intermediary (this is not completely true for the insurance broker) but the insurer that is the contractual party of the policyholder. In this respect, the legislator decided to implement the Directive in such a way as to endow separate claims to the policyholder against the insurance intermediary and the insurer alike while trying to form the insurer’s duty to advise as closely as possible after the duty of the insurance intermediary, which the Directive required to be implemented. This goal of the reform was achieved by including a broad duty to query, to advise and to document on the insurer (sec. 6 VVG) and on insurance intermediaries respectively insurance consultants (secc. 60 ff., 68 VVG).

Cf. further Armbrüster (2016), Vorbemerkung zu §§ 6, 7 VVG; Koch (2018), pp. 130 ff.; Schwintowski (2015), § 18; Rixecker (2015), § 18a; RegE BT-Drucks. 16/3945, pp. 59 ff.; Cf. also Reformkommission, Abschlussbericht, pp. 10 ff. and pp. 294 ff. On the insurer’s and insurance intermediary’s (i.e. insurance agent’s) duty to inform under the VVG old version see Römer (1998), pp. 1313 ff. 54

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The Duty to Advise (Secc. 6, 60–62, 68 VVG) Statutory Setting of the Duty to Advise

The insurer’s duty to advise, as provided for by sec. 6 VVG, is manifold: pre-contractually, the insurer has to query the applicant about his wishes and needs; if and to the extent that the occasion calls for it, it has to, where deemed appropriate, give objective advice, to motivate its advice and to provide the policyholder with a sufficient documentation of query, advice and motivation. In general, the insurer will aim to fulfil these duties through its insurance agents. So far, the insurer is responsible for fault on the part of its agent, according to sec. 278 BGB. According to sec. 6 subsec. 6 first half-sentence VVG, insurance contracts covering a large risk in the sense of sec. 210 VVG do not entail a duty to advise. The duties provided by sec. 6 subsec. 1 sentences 1 and 2 VVG, furthermore, do not oblige an insurer if the contract is negotiated with the policyholder by an insurance broker.

5.2.2

Precontractual Duty to Advise

The Necessity of Questioning: The Duty to Query In a first step, this is a truly innovative feature of the new law: the insurer is held to uncover a possible need for advice by questioning the applicant. This duty, however, does only exist if and to the extent that the complexity of a proposed insurance product or the person of the policyholder or his personal situation gives reason to. How these indefinite terms have to be interpreted exactly remains rather unclear.55 The legislator confined itself to stating only that sec. 6 VVG was not meant to implement a duty of extensive enquiry and investigation but was meant to safeguard a proper giving of advice by obligating the insurer to focus on and react to the (initial) information provided by the policyholder.56 This means that the insurer, usually acting through its insurance agents, is not held to ‘snoop’ around and ‘dig into’ the affairs of the policyholder but is solely required to take into account what the policyholder tells it/him and to ask questions where such seem necessary and appropriate. All in all, the insurer will be held to base its assessment for the need of questioning on an overall view. While the legislator believes that the insurer, through its agents, will in practice always question its customers in a way to establish the information necessary for an appropriate advice, there still remains some uncertainty on how inquisitive the insurer will be ‘forced’ to be in order to fulfil the duty to query

55

Wandt (2016), para. 299. Cf. for a more detailed perspective of the legislators rationale for the individual data-oriented duty to advice RegE BT-Drucks. 16/1935, p. 24.

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under sec. 6 subsec. 1 sentence 1 VVG. In particular, it is open for discussion what circumstances will necessitate a query, if such circumstances are deemed recognizable for the insurer (question of the level of diligence expected), and what extent of questions certain circumstances entail. The necessity of a question may be indicated by circumstances relating to the three factors enumerated by sec. 6 subsec. 1 sentence 1 VVG, i.e. the difficulty to understand the product in its complexity, the person of the policyholder and his situation. Enumerated Factors Indicating Necessity Firstly, this means that the duty to query will increase the more complex the offered insurance product gets. If the product is simple and easy to understand, such as a dog liability insurance, the insurer will, in many cases, not be obliged to ask any questions at all. It might be quite different where the interest to be insured can be covered by various types of complicated products. Such is, e.g., the case where the applicant tells the insurer that he wishes to conclude a ‘life insurance’. Already the multiple variables and options that are applicable to such a product—one may conclude a term (life) insurance, a universal life insurance, a unit-linked life insurance, a complementary occupational disability insurance, etc.—make it seem indispensable for the insurer to query about the motivation for such a product and the needs of the policyholder and base its advice on that information. Circumstances in the Person of the Policyholder Indicating Necessity Secondly, circumstances lying in the person of the policyholder may indicate questions. It is, hence, of importance to what extent the applicant is willing and able to formulate his wishes. If he articulates a clear and narrow desire to cover a certain risk, the query and advice may be limited to a minimum. Again, one must take into consideration the targeted insurance product. If one looks at a very complicated insurance contract, such as life insurance contracts, even the most refined and eloquent applicant will usually leave some questions open, which need to be addressed.57 Situation of the Policyholder Indicating Necessity Thirdly, the insurer must take into consideration the concrete situation of the policyholder in order to establish if questions are indicated. This may imply, e.g., that a certain situation may deem it necessary to limit the insurer’s questions to a minimum, even though in other situations further questions would have been indicated. For example, if an applicant is late for his flight and wants to conclude a

57 BGH, Entscheidungen in Zivilsachen (BGHZ) 194:39; differing Römer (2016, § 7 para. 18); also see BGH, Entscheidungen in Zivilsachen (BGHZ) 203:174.

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traveler’s baggage insurance at the airport, the insurer would be held to give consideration to time constraints of the traveler. In most cases, however, the criterion of the relevant situation will rather be important to indicate additional questions. If, e.g., the insurance agent is on the premises of an applicant who wants to conclude a personal liability insurance and notices a dog accompanying the applicant, it may ask if the applicant already has a policy to cover claims for dog owner’s liability (cf. sec. 833 subsec. 1 BGB) and, if none, to advise that the sought-after personal liability insurance does not cover such claims and that an independent cover might be advisable.

The Necessity of Advice: The Duty to Advise (in a Narrow Sense) In a second step, the insurer has to offer the applicant advice on options, on possible gaps of coverage, etc. by basing itself on the information gathered by the query. Such advice is not to be given bare-boned but must be motivated, i.e. the insurer has to tell the applicant what it regards as possible options or maybe the most advisable option and why such is, in its opinion, the case. As for the duty to query, the duty to advise solely exists if (and to the extent) the complexity of a proposed insurance product or the person of the policyholder or his personal situation gives reason to proceed further. So far, the aforementioned elements of the duty to query apply mutatis mutandis to the duty to advice. In a nutshell, it may be stated that the insurer has to advise on all circumstances of certain importance to the applicant in question as far as the questions relate to the targeted insurance product and provided that this is recognizable and that advice can reasonably be expected.58 Section 6 subsec. 1 sentence 1 VVG specifies that advice has to be given, ‘while taking into consideration an appropriate relation between the expenditure from advising and the premiums to be paid by the policyholder’. So far, the duty to advise is limited by an economic factor. Regularly, an insurance contract with a low premium will be a less complex product, which does not require an intricate advice. Furthermore, it would seem disproportionate to require the insurer to give lengthy advice on an insurance product that produces an annual premium of less than € 100. On the other hand, even a low-premium product may require a more thorough advice if all the other factors pre-dominantly point towards its necessity. Regarding the legislative intent of sec. 6 VVG—to safeguard appropriate advice—one should probably understand the requirement of economic proportionality in a way that in dubio advice should always be given if it is otherwise indicated but that such advice

58 Cf. for an exemplary presentation of jurisdiction strictly requiring and interpreting a mere objective cause, BGH, Versicherungsrecht (VersR) 2014:861 and OLG Karlsruhe, Versicherungsrecht (VersR) 2013:885 (p. 886); furthermore, OLG Saarbrücken, Versicherungsrecht (VersR) 2011:1556 (under the old VVG).

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may be limited to a proportionate level, thus concentrating on the essential elements of the product in question. Furthermore, even though this is not explicitly mentioned in sec. 6 VVG, one has to limit the duty to advise by the factor of reasonability. If one considers the sphere of interests of the applicant and of the insurer, both having in several instances interests that are rather diametrically opposed, it cannot be expected of the insurer to give a completely objective advice towards an applicant as would be expected of an insurance broker or consultant. So far, the insurer is not held to point out that a comparable insurance product would be obtainable from another insurer at a lower price or that other insurance undertakings offer policies that are better suited to fit the applicant’s needs.

The Necessity of Documentation: The Duty to Document In a third step, it is incumbent upon the insurer, usually represented by its agents, to document the query (pertaining to the wishes and needs) and the advice, as well as the reasons for having given it. While the query and advice are not subject to any form requirements, and will for the most part be operated orally, the documentation must be performed in writing (Textform).59 Pursuant to sec. 6 subsec. 2 sentence 1 VVG, the insurer is held to transmit this documentation to the applicant prior to the conclusion of the contract. However, the information shall be provided without undue delay after the conclusion of the contract if the policyholder wishes to be advised verbally or concerning provisional cover. Equally, it does not have to send the documentation even after the conclusion of the contract, pursuant to sec. 6 subsec. 2 sentence 3 second half-sentence VVG, if the contract is not concluded subsequently or if the contract for provisional cover relates to an obligatory insurance (in the sense of secc. 113 ff. VVG). For the most part, the documentation will be established by the insurer, represented by its insurance agent, during the sales talk. In many cases, a print-out will be handed over to the applicant immediately following the sales talk. It is to be expected, and it already is a widespread practice, that the insurance agents will use a standard transcript form devised by the insurance undertaking (for all products or different forms for different products). By using such standard forms, which will only be filled out by the agent, the insurer seeks to meet the requirement that the documentation has to be given in a ‘clear and coherent way’.60 The duty to document does only exist to the extent (meaning that it usually is not the ‘if’ but only the ‘whether’ that is in question) that the complexity of a proposed insurance product gives reason to document. In practice, this invokes insurers to

59

Cf. on the exceptions to the requirement of the written form, concisely Wandt (2016), para. 302. Regarding other branch-specific standardised information duties according to the VVG in general, cf. Loacker (2015), p. 200.

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establish different standard transcript forms corresponding to different insurance products (as to their complexity) rather than applying a ‘one-fits-all’ form.

Point in Time of Fulfilment of the Duties Section 6 subsec. 2 sentence 1 VVG provides that the documentation has to be transmitted before the conclusion of the contract. Although it is not explicitly said, the duty to query and to advise must be fulfilled not only before the conclusion of the contract but also before the policyholder’s contractual declaration. This could be argued by raising the fact that sec. 7 VVG (duty to inform) in contrast explicitly provides that the information has to be received before the policyholder’s contractual declaration. However, the goal of the duty to advise would be countered if the advice could be given only after the policyholder has already made his choice. It would not be convincing to focus on the conclusion of the contract and exclusively refer the policyholder to his right to revoke, which is not always provided (see the limited applicability of sec. 8 VVG). There also remains an ambiguity as to the point in time at which the duty to document must be fulfilled.61 While it is clear that the documentation material must (only) be transmitted to the policyholder prior to the contract conclusion—nota bene not before the policyholder’s contractual declaration—sec. 6 subsec. 2 VVG leaves open the question at what time the documentation must be established. Considering the fact that the law does not address this problem, it seems reasonable to assume that the legislator wanted to give the insurer (and the insurance intermediaries) the choice to establish a ‘live’ transcript or a transcript from memory.62

Waiver of the Policyholder (Sec. 6 Subsec. 3 VVG) According to sec. 6 subsec. 3 VVG, the policyholder may waive the right to be advised and the right to documentation by a separate written declaration in which the insurer explicitly indicates that such waiving may have an unfavourable effect on his option for asserting a claim for damages against the insurer. While this exception of sec. 6 subsec. 3 VVG has been widely criticised for endangering legislative intent, it must be regarded as a needful and self-evident rule of law.63 This waiver must be a separate written document, which then is to be signed by the applicant (yet not 61

On the temporal sequence of documentation, see Wandt (2016), paras. 303 f. By the same token Armbrüster (2016), § 6 para. 136 f.; insurers will regularly compile documentation during the customer call, cf. RegE BT-Drucks. 16/1935, p. 25; the insurer’s documentation serves, inter alia, the policyholder’s visualisation and, therefore, the comprehension of the insurance product, see BGH, Entscheidungen in Zivilsachen (BGHZ) 203:174 and Reiff (2006), p. 1709. 63 Critically on the policyholder’s option to waive his right to advice and documentation, Niederleithinger (2010), pp. 437 ff.; see also Römer (2007a), pp. 94 ff. discussing a possible threat to consumer protection. 62

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necessarily by the insurer). So far, it is remarkable that the refusal to respond to the insurer’s query (or to a single question in it), in the sense of sec. 6 subsec. 1 sentence 1 VVG, may not be presumed as a waiver in the sense of sec. 6 subsec. 3 VVG. The only result of such a refusal is that to the extent of this refusal, a need for advice (and, thus, a duty to advise) does not exist. Again, it should be mentioned that the possibility to waive one’s right to be advised is meant to be an exception of the general rule that all policyholders are to be advised. If insurers were to use such waivers across the board, they would most likely run the risk that the waivers might be ruled null and void, thus opening a floodgate to claims for damages, or that the German Federal Financial Supervisory Authority, (Bundesanstalt für Finanzdienstleistungsaufsicht—BaFin—inter alia supervising insurers), would intervene.64

5.2.3

Advice During the Contract Term

Section 6 subsec. 4 sentence 1 VVG, furthermore, obliges the insurer to query and advise ‘its’ policyholders throughout the term of their insurance relationship. Again, such a duty only exists under the condition that there is a recognizable necessity for advice.65 Other than for the pre-contractual duty to query and advise, sec. 6 subsec. 4 VVG does not (exclusively) enumerate the circumstances originating a duty to advise. It rather states that a duty exists ‘as far as it becomes recognizable to the insurer that there is reason to query and advise the policyholder’. This means that the reason must not necessarily lie within the insurance product, the policyholder or his situation but may also lie within other factual or legal circumstances, such as a change of the legal regime applicable to the held policy. Other than the pre-contractual duty, advice does not have to be documented as sec. 6 subsec. 4 sentence 1 VVG only states that the duties of sec. 6 subsec. 1 sentence 1 VVG are applicable throughout the contractual term. It does not refer to the duties of sec. 6 subsec. 1 sentence 2 and subsec. 2 VVG. Most importantly, the policyholder may only waive his contractual right to be advised throughout the term on a case-by-case basis. This means that no general waiver is possible neither in the general conditions nor in a separate document, by which a policyholder abstractly waives his right to be informed for the future. The policyholder may only waive his right individually. This waiver must be in writing.

64

Also, the German Federal Constitutional Court (Bundesverfassungsgericht—BVerfG) raised doubts with respect to transparency in general in this regard, in Versicherungsrecht (VersR) 2005:1109; also Römer (2007a), pp. 94 ff. 65 Wandt (2016), para. 310.

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Claim for Damages and Burden of Proof

Section 6 subsec. 5 VVG and sec. 63 VVG each grants the applicant an individual claim for damages if the duty to advise was breached by the insurer and/or the insurance intermediary. Being jointly and separately liable is of concern to the insurer and the insurance agent. As the duty to advise is a case of a statutory pre-contractual duty in the sense of sec. 311 subsec. 2 no. 1 BGB, the claim for damages exists whether or not a contract was concluded later on.66 According to the general principles of civil procedure, the policyholder bears the burden of proof concerning the breach of duty, the damage and their causality. Pursuant to sec. 6 subsec. 6 sentence 2 (insurer) and sec. 63 sentence 2 VVG (intermediary), there is a rebuttable presumption of fault so that it is up to the insurer/intermediary to prove that it/he acted diligently. In addition, the BGH held that non-compliance with the duty to document may result in a less onerous burden of proof of the policyholder. Moreover, the court held that an inversion of the burden of proof takes place where necessary advice is of evident importance and still not even rudimentarily documented.67 Furthermore, courts give preference to the policyholder by granting a rebuttable presumption with respect to causation if the breach of the duty to document is certain.68

5.3 5.3.1

The Insurer’s Duty to Inform (Sec. 7 VVG in Connection with the VVG-InfoV) Overview

With the enactment of the German Insurance Contract Act in 2008, the insurer’s duty to inform was substantially enlarged and broadened. This duty is accompanied by the duty to advise and to document (secc. 6, 7 VVG). Further substantiation on pre-contractual information was set out in 2007 by the VVG-InfoV.69 It comprises a comprehensive catalogue of basic information relevant to all insurance contracts, as well as additional requirements for life insurance, accident and occupational disability or substitutive insurance contracts. For instance, cost transparency is utterly important for life insurance contracts because of their peculiarity as long-term capital accumulation instrument. It is vital

66

Niederleithinger (2010), pp. 437 ff. BGH, Versicherungsrecht (VersR) 2015:107. 68 BGH, Versicherungsrecht (VersR) 2013:628; Reiff (2016, § 63 para. 51). 69 In addition, see on the integration into civil law Präve (2008), pp. 151 ff. 67

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to inform the policyholder to what extent his premium will be used to cover the insurer’s overhead and for this reason will not be available to accumulate capital. Section 7 VVG (in connection with the VVG-InfoV) contains a substantial regulation of the matter and affords the policyholder a personal claim against the insurer to be informed. In this way, it, arguably, differs from sec. 10a old VAG (in connection with Annex D to the VAG), the rule it replaces, which was regarded by some as a purely supervisory rule not granting any private claims to the policyholder. The new sec. 7 VVG has changed the old system of providing information in several other aspects.70 This information duty applies to all insurance contracts irrespective of the policyholder being a consumer or not. If the essential content of a contract of insurance—except for distance contracts—refers to the insurer granting preliminary cover, the parties may agree that the insurer shall only send to the policyholder GCI and the information in accordance with sec. 7 subsec. 1 VVG in connection with the VVG-InfoV upon request or with the insurance policy at the latest (sec. 49 subsec. 1 VVG). Section 7 subsec. 1 to 4 VVG do not apply to insurance contracts covering large risks in the meaning of sec. 210 subsec. 2 VVG. However, if the policyholder is a natural person, the insurer has to inform him of the applicable law and the competent supervisory authority in writing pre-contractually, sec. 7 subsec. 5 VVG. For a brief overview of the required information71: Sec. 1 VVG-InfoV requires the insurer to inform the policyholder about its own person (e.g. its name, its address), about its performance under the pre-visioned contract (e.g. general conditions of insurance, the nature, extent and due date of its performance, and the price and total costs of insurance), about the modalities of contract (e.g. its mode of conclusion, its term and possibility of termination, the possibility of revocation) and about possible legal remedies (in particular the possible access of the policyholder to an extrajudicial complaint and grievance procedure). For a life insurance contract, sec. 2 in connection with sec. 2 subsec. 3 VVG-InfoV, additionally requires information, in particular, on the share in surplus, e.g. the mode of calculation of the benefits of the contract, the way acquisition and distributions costs are debited from the premium (i.e. explanation of the Zillmer method) and the surrender value. If the insurer includes a model calculation pursuant to sec. 154 VVG, it has to meet specific requirements.72 It should be mentioned in this context, according to sec. 155 VVG, that in the case of insurances with surplus sharing, the insurer shall inform the policyholder annually in writing of the development of his claims, including surplus sharing. Further, the insurer, if it has provided figures regarding the possible future progression of the surplus sharing, must indicate to the policyholder how the actual development

70

Cf. in relation to sec. 7 subsec. 2 VVG on duties to inform, formerly stipulated by insurance supervisory law, RegE BT-Drucks. 16/3945, p. 121. 71 See in further detail Wandt and Bork (2018), pp. 261–292; See also Koch (2018), pp. 133 ff. 72 The same applies to an occupational disability insurance or an accident insurance with premium redemption (sec. 2 subsecc. 4 f. VVG-InfoV).

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deviates from the figures quoted initially. The duties of sec. 3 pertaining to the insurer of a health insurance are quite comparable to those of sec. 2. Section 4 VVG-InfoV provides for specific information modalities for consumers73 who now have to be provided with a product information sheet. It was feared by jurisprudence that a large number of insurers would be induced by the new law to fulfil their duty to inform in a very formalistic manner by handing over voluminous information materials, with the intent of covering against any kind of liability rather than with the goal of informing the policyholder as effectively as possible. To avert such negative effect of the comprehensive duty to inform and to protect the consumer against a possible hypertrophy of information, the legislator, thus, chose to oblige the insurer to hand over a product information sheet highlighting the essential elements of insurance. The product information sheet bears this name in its title and precedes all other information given to the applicant (sec. 4 subsec. 5 sentence 1 VVG-InfoV), i.e. the product information sheet must never be ‘hidden’ among the other information material but must lie on the top of the heap. In it, the necessary information, as non-exclusively enumerated by sec. 4 subsec. 2 VVG-InfoV, shall be presented in a concise, clearly arranged and coherent manner while pointing out to the policyholder that the information is non-conclusive, sec. 4 subsec. 5 VVG-InfoV. The VVG-InfoV also provides for the type of information an insurer has to disclose when it contacts the policyholder via telephone (sec. 5) and which information it generally has to transmit to the policyholder during the term (sec. 6).

5.3.2

Providing Information Timely

An important question concerning the duty to inform is what exactly is to be understood when requiring the information to be turned over in a timely manner before the policyholder’s contractual declaration. This requirement excludes the application of the model of policy (as hitherto exercised by German insurers, i.e. turning over all necessary information only at the moment at which the insurer accepts the offer made by the policyholder); it nevertheless remains unclear how far in advance the information has to be transmitted in order to be considered timely in the sense of sec. 7 subsec. 1 sentence 1 VVG. In interpreting the indefinite term ‘in a timely manner’, it is only certain that the latest possible moment must be that at which the policyholder communicates its contractual declaration, i.e. an acceptance or, more typically, an offer. It may, however, in several cases be preferable to assume an earlier moment for the information to be timely. Considering the wording of the legal rule, it seems to be preferable to interpret the prerequisite of timeliness on a case-to-case basis, taking into account the group of persons that the policyholder

73

The provision solely applies to consumers. In principal, the VVG 2008 treats every policyholder equally—except for contracts covering large risks. The VVG, thereby, refrains from providing exclusive rules on insurance contracts for consumers.

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belongs to and the nature of the product offered.74 This certainly precludes any dogmatic approach requiring, e.g., a three-day period to be observed in all cases. Rather, one should give regard to the following factors: the appropriate amount of protection needed by the policyholder against undue pressure to decide without having the necessary information, the concrete circumstances of the conclusion of the contract conclusion and the type, scope and importance of the deal. Furthermore, in all cases where the timeliness of the information might be controversial, one should apply the principle one could baptise as ‘in dubio pro consumer protection’ and tend to interpret ‘in a timely manner’ to the disadvantage of the person being obliged to inform. There are, however, some exceptions to the requirement of information before the policyholder’s declaration. Firstly, pursuant to sec. 7 subsec. 1 sentence 3 first halfsentence VVG, the information material must be transmitted without undue delay after the contract conclusion if the contract on demand of the policyholder is concluded via telephone or another means of communication that does not allow for written information to be transmitted to the policyholder prior to contract conclusion. Secondly, the same applies pursuant to sec. 7 subsec. 1 sentence 3 second half-sentence VVG where the policyholder by a separate written declaration explicitly waives his right to be informed prior to his contractual declaration.

5.3.3

Sanctions

In particular, considering its aim to abolish the model of policy (i.e. the prior practice of insurers to deliver the information material with the policy only at the moment of their contract acceptance), the legislator in particular could have provided for insurance contracts to solely be concluded after all information has been transmitted. Such an approach, however, would not have served best the interests of the policyholder, which in many cases will have a legitimate interest to have an effective insurance contract, notwithstanding any belated information. The legislator, hence, chose to sanction a violation of the duty to inform in a twofold manner: firstly sec. 8 subsec. 2 no. 1 VVG provides that the revocation period for the policyholder shall only start at the moment at which all information has been received by the policyholder. By effect of this rule, the insurer is sanctioned for its breach of duty to inform by a prolonged right to revoke upon exercise of which the policyholder can terminate the contract until the insurer fulfils its duty. Secondly, a violation of the duty to inform may result in a claim for damages. It is, so far, conceivable that the policyholder claims for damages for a breach of a (pre-) contractual duty under secc. 280 subsec. 1 and 311 subsec. 2 no. 1 BGB.75

74

Wandt (2016), para. 317. A particular problem which comes up in connection with the general possibility to claim damages consists in the question if premiums that have been paid—for insurance cover that has been provided—may also be claimed (at least in part) as damages. Insofar there are strong arguments

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With respect to legal certainty, the tremendous widening of differentiated and detailed information duties and their connection with the beginning of the revocation period provided by sec. 8 VVG seems doubtful.76 These doubts are reasoned by the danger of developing practices concerning specific information duties, which will be held illegitimate by the BGH as late as years have passed. As a worst-case scenario, this can stipulate, provided that the insurer does not fulfil its duty at any moment, that the policyholder has an eternal right to revoke (ewiges Widerrufsrecht).77 These transparency constraints are lacking interest, both from a legal and a socio-political perspective. Therefore, I could be recommendable to amend the beginning of the revocation period in sec. 8 subsec. 2 no. 1 VVG de lege ferenda, solely requiring the receipt of the regular product information sheet (Produktinformationsblatt) and proper granting of specific information with regard to personal insurance.

5.4

Additional Duties of the Insurer to Indicate and to Instruct

In accordance with the principle of transparency, the VVG obliges the insurer to highlight important explanations and indications by use of a separate notification in text form (Textform) or by use of a conspicuous indication within the insurance certificate (Versicherungsschein), sec. 37 subsec. 2 sentence 2 and secc. 51, 52 VVG. Moreover, VVG 2008 puts particular importance to the instruction of the policyholder with respect to the possible legal consequences of breaches of duties.78 Pursuant to sec. 19 subsec. 5 and sec. 28 subsec. 4 VVG, the insurer is not entitled to rights resulting from such breach of duty if the instruction was incorrect or even missing.79 Courts laid down strict but plausible rules for providing instructions on the legal consequences of breaches of duties (in the sense of Obliegenheiten): in order to avoid the instruction being overlooked, a typographical accentuation is necessary if

that sec. 9 VVG precludes claims for damages on paid premiums in those cases in which it applies (i.e. where the cover was incepted with the policyholder’s accordance before the expiration of the limitation period for revocation; the policyholder was instructed about the power of revocation, the legal effects of a revocation and the payable amount of money by way of an instruction notice). 76 Cf. also Brand (2012), p. 81, who argues, with regard to issues outside the scope of directives, in favour of a de lege ferenda removal of a mandatory right to revoke. 77 BVerfG, Recht und Schaden (r+s) 2014:6; cf. Armbrüster (2012a, pp. 517 ff.) on the insured’s disloyal behaviour hindering the eternal right to revoke, which must be construed restrictively under the aspect of an abuse of law. 78 In the sense of not conferring an enforceable claim for neither performance nor damages, see above Sect. 4. V. 4. 79 Cf. with regard to the uniformity of the formal requirements in both provisions, Tschersich (2012, pp. 56, 60).

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the instruction is given in a textual context with other explanations.80 Moreover, the textual context with the occasion of the instruction must be maintained, i.e. with inquiries addressing risks or with indications as to duties (Obligenheiten) which are to be fulfilled during the contract term.81 Likewise, the insurer has to adequately point out to the policyholder the connection with the policyholder’s answering to the insurer’s inquiries if the instruction is given on an extra sheet (which is, generally, permitted).82

6 Conclusion Considering the above and from a legal perspective, the principle of transparency may only require making transparent such properties of the product that are essential to the purchase decision. Understood in such a way, the main purpose of the principle of transparency in the context of a contract for the exchange of performances is to put the buyer in a position, in which he is not forced to buy ‘a pig in a poke’ but may ascertain if the product meets his reasonable expectations. Concerning insurance, this intrinsic need is quite obvious since the insurance cover will always serve an existential need. Transparency in insurance gains even more weight considering the natural invisibility of insurance being a legal product.83 It is, so far, reasonable to abstractly demand utmost contractual transparency and to make the insurance product visible to the customer. The legislator, however, also faces another difficulty: it needs to decide which rights and duties are essential, which are the precise conditions of transparency that the contractual fixation of these rights and duties has to meet and by which means outside the policy and GCI transparency may be increased for the policyholder. In particular, concerning such requisites of transparency that do not regard the transparent wording and fixation of the contractual text, the legislator needs to assess if and to what extent such information or advice is suitable to increase the policyholder’s understanding of the product.84 In assessing the appropriateness of such means, one needs to take into consideration if the (average) policyholder is typically willing to make use of and/or demand such information and advice. One needs to, furthermore, pay attention to the expenses caused for preparing additional information materials and advice. In addition, legislators have to keep in mind that

80

OLG Hamm, Versicherungsrecht (VersR) 2016:103. OLG Karlsruhe, Versicherungsrecht (VersR) 2016:105; OLG Karlsruhe, Versicherungsrecht (VersR) 2016:445; concerning the exceptional case of a doubled instruction OLG München, Recht und Schaden (r+s) 2016:68. 82 OLG Saarbrücken, Versicherungsrecht (VersR) 2015:91. 83 Cf. Dreher (1991), pp. 145 ff. 84 See also Schneider (2015), pp. 477 ff. on the stress ratio between the insured’s (informational) self-determination and the insurer’s imperative to guide and care. 81

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too much information can sometimes create incomprehensibility—or in other words, less (or reduced) information might in certain circumstances be more. These potential disadvantages need to be seen in relation to the (economic) importance of the specific insurance product. Apart from the deplorable aspect of the eternal right to revoke triggered by a breach of the insurer of any of its information duties, the legal scholars can only evaluate with reservation whether the specific concept of information duties stands the practice test. This reservation grounds on the lack of evidenced empirical data with regard to the efficiency of the attainment of information duties.85 One should always be reminded that information duties pursue different aims. Firstly, they aim to provide the policyholder with substantial information necessary for his contractual decision. Secondly—and this purpose is often disregarded—these duties of the insurer aim to supply the policyholder with an immediate source of information in respect of the substantial content of the contract after the contract is concluded.86 In order to achieve these goals to their full extent, the legislator must limit information duties to a substantial core and secure that these pieces of information are made comprehensible to a maximum number of policyholders. In light of this, considerable doubts as to the current version of the VVG arise even without evidenced empirical data. Aiming at efficient transparency before the conclusion of the contract, handing over GCI should solely be accompanied by the product information sheet—as originally proposed by the former judge of the BGH and first ombudsman (Ombudsmann) Römer87—and the proper granting of specific information with regard to personal insurance. Admittedly, the freedom of the German legislator was limited within the scope of the EU Directive concerning the Distance Marketing of Consumer Financial Services.88 The second goal of information duties (supplying the policyholder with an immediate source of substantial information after the contract is concluded) is not achieved best by additional information duties but by a statutory regulated optimisation of the contractual drafting. Insurance contracts and insurance business subsist on legal certainty and transparency. Not only the contractual parties but also the legislator is, therefore, called upon to create clear, unambiguous, complete and valid provisions. Hence, scholars are legitimately demanding to preserve legal transparency by erasing provisions that are contradictory to EU directives and by forming legal statutes out of interpretations of national law that are in accordance with the directives.89

85

Loacker (2015, pp. 275 f.). See with regard to GCI, Rixecker (2019, § 1 para. 82). 87 Römer (2007b, pp. 619 ff.). 88 Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002. 89 E.g. Franck (2014, p. 18). 86

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Through the implementation90 of the Insurance Distribution Directive (IDD),91 the legal environment for insurance distribution has changed as of 23 February 2018.92 In its chapter V,93 the IDD stipulates requirements for information and rules for the conduct of business applying to all insurance distributors, i.e. any insurance intermediary, ancillary insurance intermediary or insurance undertaking.94 In implementing the Directive, the German legislator’s task was to refrain from blindly creating new or more detailed information duties but to strive for efficiency in transparency.95 The effects of the IDD on the practice of insurance distribution are not yet predictable in total.96

References Armbrüster C (2012a) “Ewige” Widerrufsrechte und ihre Rechtsfolgen. Versicherungsrecht (VersR) 2012:513–523 Armbrüster C (2012b) Examinatorium Privatversicherungsrecht. Springer, Berlin and Heidelberg Armbrüster C (2016) In: Langheid T, Wandt M (eds) Münchener Kommentar zum Versicherungsvertragsgesetz, vol 1, 2nd edn. C.H. Beck, Munich Beenken M (2017) Beratungspflichten nach der IDD und ihre Umsetzung ins deutsche Recht. Recht und Schaden (r+s) 2017:617–621 Bork K, Wandt M (2019) Transparency in German insurance supervisory law. In: Marano P, Noussia K (eds) Transparency in insurance law and regulation, vol 2. Springer, Berlin and Heidelberg. (in print) Brand O (2011) Contract terms: judicial approaches to the interpretation of insurance contracts. In: Burling J, Lazarus K (eds) Research handbook on international insurance law and regulation. Edward Elgar Publishing, Cheltenham and Northampton, pp 93–119 Brand O (2012) Verbraucherschutz im Versicherungsrecht. In: Lorenz E (ed) Karlsruher Forum 2011: Verbraucherschutz – Entwicklungen und Grenzen. VVW, Karlsruhe, pp 55–94 Bruns A (2015) Textbook Privatversicherungsrecht. C.H. Beck, München Bülow P, Arzt M (2000) Fernabsatzverträge und Strukturen eines Verbraucherprivatrechts im BGB. Neue Juristische Wochenschrift (NJW) 2000:2049–2056 Clarke M (2005) Policies and perceptions of insurance law in the twenty-first century. Clarendon Law Series, Oxford Dreher M (1991) Die Versicherung als Rechtsprodukt. Mohr Siebeck, Tubingen

90 Act implementing Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on Insurance Distribution and amending other Acts of 20 July 2017, (BGBl. I 2017, pp. 2789 ff.). 91 Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on Insurance Distribution, OJ L26/19. 92 However, authors argue that the legislator partly fell short with respect to the implementation of the IDD in the Insurance Contract Act (Versicherungsvertragsgesetz—VVG), see Beenken (2017, pp. 617 ff.). 93 Artt. 17 ff. IDD. 94 Definition provided by Art. 2 sec. 1 subsec. 8 IDD. 95 See in further detail Wandt and Bork (2018). 96 Bork and Wandt (2019; in print).

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Franck G (2014) Richtlinienkonforme Auslegung der Vorschriften über die vorsätzliche Herbeiführung des Versicherungsfalls in der Kfz-Pflichtversicherung. Versicherungsrecht (VersR) 2014:13–18 Höra K (2017) In: Höra K (ed) Münchener Anwaltshandbuch Versicherungsrecht, 4th edn. C.H. Beck, Munich Koch R (2014) Kontrollfähigkeit/-freiheit formularmäßiger Haftpflichtversicherungsfalldefinitionen? Versicherungsrecht (VersR) 2014:1277–1283 Koch R (2018) Insurance law in Germany. Kluwer Law International BV, The Netherlands Küster P (2010) Die vorvertragliche Beratungspflicht des Versicherers nach § 6 Abs. 1 und 2 VVG. Versicherungsrecht (VersR) 2010:730–735 Langheid T (2015) Missbrauchskontrolle von Leistungsbeschreibungen nur bei Intransparenz. Versicherungsrecht (VersR) 2015:1071–1075 Loacker L (2015) Informed insurance choice. Edward Elgar Publishing, Cheltenham and Northampton Niederleithinger E (2010) Auf dem Weg zu einer VVG-Reform. Versicherungsrecht (VersR) 2006:437–447 Pilz K (2010a) Missverständliche AGB. VVW, Karlsruhe Pilz K (2010b) Zur Berücksichtigung des einem durchschnittlichen Versicherungsnehmer nicht zugänglichen Auslegungsmaterials bei der Auslegung von AVB. Versicherungsrecht (VersR) 2010:1289–1295 Präve P (2000) Versicherungsbedingungen und Transparenzgebot. Versicherungsrecht (VersR) 2000:138–144 Präve P (2008) Die VVG-Informationspflichtenverordnung. Versicherungsrecht (VersR) 2008:151–157 Reiff P (2006) Die Auswirkungen der Versicherungsvermittlungsrichtlinie auf die Kreditwirtschaft. Wertpapier-Mitteilungen (WM) 2006:1701–1709 Reiff P (2016) In: Langheid T, Wandt M (eds) Münchener Kommentar zum Versicherungsvertragsgesetz, vol 1, 2nd edn. C.H. Beck, Munich Reiff P (2018) In: Prölss E, Martin A (eds) Versicherungsvertragsgesetz, 30th edn. C.H. Beck, Munich Rixecker R (2015) In: Beckmann RM, Matusche-Beckmann A (eds) VersicherungsrechtsHandbuch, 3rd edn. C.H. Beck, Munich Rixecker R (2019) In: Langheid T, Rixecker R (eds) Versicherungsvertragsgesetz, 6th edn. C.H. Beck, Munich Römer W (1998) Zu den Informationspflichten der Versicherer und ihrer Vermittler. Versicherungsrecht (VersR) 1998:1313–1322 Römer W (2007a) Beratung nötig – Verzicht möglich. Zur Kunst der Gesetzgebung. Verbraucher und Recht (VuR) 2007:94–96 Römer W (2007b) Zu den Informationspflichten nach dem neuen VVG. Versicherungsrecht (VersR) 2007:618–620 Römer W (2016) In: Langheid T, Rixecker R (eds) Versicherungsvertragsgesetz, 5th edn. C.H. Beck, Munich Rudy M (2018) In: Prölss E, Martin A (eds) Versicherungsvertragsgesetz, 30th edn. C.H. Beck, Munich Schmidt H (2019) In: Bamberger HG, Roth H, Hau W, Pauseck R (eds) Kommentar zum Bürgerlichen Gesetzbuch, 49th edn. C.H. Beck, Munich Schneider W-T (2015) Zwischen Selbstbestimmung und Fürsorge: Information, Beratung und Belehrung im Versicherungsvertragsrecht. Recht und Schaden (r+s) 2015:477–489 Schwintowski H-P (2015) In: Beckmann RM, Matusche-Beckmann A (eds) VersicherungsrechtsHandbuch, 3rd edn. C.H. Beck, Munich Stadler A (2018) In: Jauernig O (founder), Stürner R (ed) Bürgerliches Gesetzbuch, 17th edn. C.H. Beck, Munich

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Tschersich H (2012) Rechtsfragen der vorvertraglichen Anzeigepflichtverletzung und der vertraglichen Obliegenheiten. Recht und Schaden (r+s) 2012:53–61 von Loewenich A (2016) Zum Anwendungsbereich der Verbraucherrechte-Richtlinie als Hintergrund der Auslegung des § 312 Abs. 1 BGB. Zeitschrift für Wirtschafts- und Bankrecht (WM) 2016:2011–2016 Wandt M (2012) Transparenz als allgemeines Prinzip des Versicherungsrechts. In: Mansel H-P, Beckmann RM, Matusche-Beckmann A (eds) Weitsicht in Versicherung und Wirtschaft – Gedächtnisschrift für Ulrich Hübner. C.F. Müller, Heidelberg, pp 340–353 Wandt M (2015) Zur dogmatisch gebotenen Enthüllung von “verhüllten” Obliegenheiten. Versicherungsrecht (VersR) 2015:265–269 Wandt M (2016) Textbook Versicherungsrecht, 6th edn. Vahlen, Munich Wandt M (2017) Transparency of insurance contract terms. In: Lambros Kotsiris L, Noussia K (eds) Liber Amicorum in Honour of Ioannis K. Rokas. Nomiki Bibliothiki, Athens, pp 419–432 Wandt M, Bork K (2018) Pre-contractual information duties under the German insurance law. In: Han YQ, Pynt G (eds) Carter v Boehm and pre-contractual duties in insurance law. Hart Publishing, Oxford, pp 261–292 Wandt M, Gal J (2014) German report to the questionnaire on transparency of insurance contract terms and conditions and pre-contractual information by the AIDA German Chapter. Available via http://www.dvfvw.de of subordinate document. Accessed 30 Apr 2019 Weyers HL, Wandt M (2003) Textbook Versicherungsvertragsrecht, 3rd edn. Vahlen, Munich Wolf C, Ungeheuer M (1995) Zum Recht der allgemeinen Geschäftsbedingungen – Teil 2. JuristenZeitung (JZ) 1995:176–188

Transparency in the Insurance Contract Law of Greece Christos S. Chrissanthis

1 Introduction 1.1

The Greek Insurance Market1

The macro-economic condition in Greece has been one continuing financial (public debt) crisis since 2008, which has also adversely affected the private sector of the economy and most particularly credit institutions. The average GDP per capita has substantially decreased by about 14% since 2007; it was about US$32,000 in 2007 and had fallen to about US$28,580 in 2018. This is reflected in the insurance market as well, as the total revenue from premiums and the average insurance premium per capita are steadily decreasing during the past years. The Greek insurance market is rather concentrated in terms of life insurance but dispersed in terms of non-life insurance. In the field of life insurance, the five leading firms possess a collective market share of 75.6%, while in non-life insurance the five leading firms collectively possess 39.1% of the market. The total number of insurance enterprises is 51. The vast majority (32 insurers) offers non-life policies, and most of them are actually active only in the field of motor vehicle liability insurance. There are five insurers offering life policies. Finally, there are 14 insurance enterprises that still offer both life and non-life policies as they were licensed to operate before the introduction of the principle of separation of life and non-life risks. From the 51 insurers, 33 have the legal form of a Greek limited liability insurance company by shares (societe anonyme). These are 1

The information provided in this chapter is derived from the Annual Report for 2018 of the Hellenic Association of Insurance Companies. C. S. Chrissanthis (*) University of Athens, Athens, Greece e-mail: [email protected] © Springer Nature Switzerland AG 2019 P. Marano, K. Noussia (eds.), Transparency in Insurance Contract Law, AIDA Europe Research Series on Insurance Law and Regulation 2, https://doi.org/10.1007/978-3-030-31198-8_4

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controlled by either Greek or foreign shareholders. There are also 15 branches of foreign insurers and three mutual cooperative societies. About 54% of the total revenue of the market derives from non-life policies and 46% derives from life policies. There are two firms offering ‘online’ insurance, basically motor vehicle third-party liability coverage. The basic financial figures for the market are as follows: the total revenue from premiums in 2018 was €4 billion about €2.1 billion (52.4%) was derived from non-life policies and about €1.9 billion (47.6%) derived from life policies. The total volume of insurance compensation paid in 2015 under life policies was €1.2 billion and under non-life policies in the same year was €676 million. Even though the macro-economic prospects are disappointing, it seems that there are still strong prospects for growth in the insurance sector, particularly in the field of life policies (i.e. pension schemes), as well as in accident and hospital insurance. Professional liability coverage is another steadily growing sector. From the point of view of marketing, there is still a lot to be done in terms of ‘customer centricity’2 and the online marketing. Obtaining an insurance policy in Greece is a process that is far from being a satisfactory experience for the insured. This is mainly due to the lack of transparency of the policy terms and operational inefficiencies in distribution networks. Particularly, younger policyholders (i.e. aged 35–45) usually seek for more personalised and customised insurance services that comprise aspects of investment, savings and health care under a single product. Online insurance currently responds only to the need for motor vehicle policies and does not seem to effectively comprise other types of insurance. Market confidence has been seriously injured by the failure of two rather popular life insurers in 2009, which was a major financial scandal at that time.

1.2

The Greek Private Insurance Contract Law3

Greek insurance contract law is strongly oriented towards transparency. This is basically because in the context of the contract conclusion process, it obliges the insurer to provide the prospective policyholder ‘contract specific’ pre-contractual information, as well as guidance as to their legal rights. The deficiency, though, is that such ‘contract specific’ information is provided at a late stage in the contract conclusion process, that is, at a time when the applicant has spent a great deal of time and effort to cause the conclusion of the contract and has committed to it, at least emotionally. It is highly improbable that a policyholder will be willing to cancel a

2 For a discussion of the impact of customer centricity and transparency in the Dutch healthcare insurance market see Looijenga (2016) (available at http://edepot.wur.nl/395221). 3 For a concise description of Greek Insurance Law, see Chrissanthis and Chardalia (2017) (available online at: https://iclg.com/practice-areas/insurance-and-reinsurance/insurance-and-reinsur ance-2017/greece).

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policy after having spent considerable time and effort to obtain a policy from the insurer. The law on the insurance contract is codified in Law 2496/1997. This is supplemented by Law 4364/2016, which implemented the Solvency II Directive 2009/138 EC. Although Law 4364/2016 basically addresses insurance regulation, however, some of its provisions have an impact on private insurance law as well. The law on insurance intermediaries consists of Law 1569/1985 and Presidential Decree 190/2006 (the later implementing Directive 2002/92 EC). Directive 2016/97 EU on insurance distribution has been implemented into Greek law by virtue of Greek Law 4583/2018. The Central Bank of Greece (the regulator for the insurance market) has also issued secondary regulation for intermediaries. This secondary regulation is taking into account the provisions of Directive 2016/97 EU. The Greek legislation on the supervision and regulation of insurance enterprises consists of Law 4364/2016, which implemented Solvency II Directive 2009/138 EC. This law repealed Legislative Decree 400/1970, which comprised the Greek law on insurance regulation until 31 December 2015. Secondary regulation has also been issued by the Bank of Greece under the Solvency II Directive, thus introducing into Greek law many of the EIOPA and CEIOPS guidelines. The basic characteristics of Greek private insurance contract law are as follows.

1.2.1

Freedom of Contract and the Distinction Between ‘Large Risks’ and ‘Other Risks’

Since the introduction of Law 2496/1997, Greek law has adopted a distinction between ‘large risks’ and ‘other risks’. Freedom of contract prevails with respect to ‘large risks’, but the law is mandatory to the benefit of policyholders with respect to ‘other risks’. ‘Other risks’ are not deduced to consumer insurances only. Many business insurances fall within the spectrum of other risks. So the distinction between ‘large risks’ and ‘other risks’ is more favourable to policyholders than the distinction between ‘consumer policies’ and ‘business policies’. As a result of this distinction, many business insurances are subject to mandatory provisions of Law 2496/1997. In ‘large risks’, freedom of contract is restricted only by the Greek public policy. This is mainly deduced to the indemnity principle. So a non-life policy should only provide compensation for the loss suffered and should not render the insured richer. Freedom of contract in ‘large risks’ also includes the freedom to choose the law applicable to the policy, as per Article 7(1) of Regulation 593/2008 EC. In connection to risks other than ‘large risks’, the Greek law is mandatory and cannot be derogated by contract, save that clauses that are more favourable to the policyholder can validly be agreed upon. Hence, the parties cannot validly reduce the level of protection already granted to the insured by the provisions of Greek private insurance contract law (Law 2496/1997). This level of protection mainly relates to the following: (1) a relaxed duty of pre-contractual disclosure, which is established under Greek law; (2) proportionate remedies in case of breach of this duty; (3) certain

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pre-contractual information that the policyholder is entitled to receive prior to the conclusion of the contract and (4) the policyholder’s right to object to any policy terms that do not correspond to the type of cover applied for, in case such pre-contractual information was not made available to them. Finally, in case of risks other than ‘large risks’, the parties are not free to choose the law applicable to the policy and must abide to the criteria set by Article 7(3) of Regulation 593/2008 EC. Until the introduction of Law 4364/2016, which came into force on 01 January 2016, the definition of ‘large risks’ was provided by sec. 33(1) of Greek Law 2496/ 1997. According to this definition, ‘large risks’ included only four risks, namely goods in transit, marine risks, aviation risks and credit and suretyship risks. However, sec. 13(27) of Directive 2009/138 EC (which is now implemented into Greek law by virtue of Law 4364/2016) provides a different and broader definition for ‘large risks’. Under the Directive, ‘large risks’ may include, in addition to goods in transit, marine, aviation, and credit and suretyship risks, additional risks, such as fire, damage to property and general liability, provided that the policyholder is a large company, as per the criteria set by sec. 13(27)(c) of Directive 2009/138 EC. The different legislative definition of ‘large risks’ in Directive 2009/138 EC and Law 2496/1997 gives rise to the issue whether the Directive has actually amended the definition of ‘large risks’ provided in Law 2496/1997 or whether each legislative instrument adopts its own definition of ‘large risks’, which is addressed to its own needs and its own purposes. It is true that the Directive, according to the letter of its provisions, uses the concept of ‘large risks’ only as a tool to determine the law applicable to the insurance contract (sec. 178, which refers to Regulation 593/2008 EC) and as a prerequisite for an exception from the obligation of the insurer to provide certain information to the policyholder (secs. 184 and 190). The Directive does not use the concept of ‘large risks’ to differentiate insurance policies in terms of freedom of contract as Law 2496/1997 actually does. It does not refer to ‘large risks’ in order to draw a line between insurance policies where strong policyholder protection by way of mandatory law is favoured and insurance policies where freedom of contract prevails. So the concept of ‘large risks’ has a different role to play in the Directive and Law 2496/1997 as it serves a different purpose in each legislative instrument. From a policy point of view, the market in Greece should welcome strong policyholder protection by way of mandatory law for various reasons. On the one hand, market confidence was always at stake because of widespread unfair terms and financial failures of insurance enterprises. On the other hand, competition among insurers was never strong enough, and the level of service that policyholders enjoyed was always low in many respects. So in a market with a low level of both confidence and competition, the protection of the policyholders by way of mandatory law should be valued more than freedom of contract because under such circumstance, mandatory law is for the benefit of the market as a whole. Indeed, what has happened in Greece in the past decades is that a few underperforming and imprudent insurers have destroyed the market to the detriment of both policyholders and other insurers.

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It is noteworthy that the narrow definition of ‘large risks’ under sec. 33(1) of Law 2496/1997 may have received judicial criticism. Indeed, Judgment Nos. 18 and 19/2015 of the Supreme (Cassation) Court (Areios Pagos) have reasoned that the provisions of Law 2496/1997 are mandatory only in connection to consumer insurances, that is, only in connection to policies where the policyholder would qualify as a consumer. The judgment does not provide any express justification for its reasoning and does not explain how a court judgment could possibly amend or deviate from an express and clear provision of the law. Some commentators argue that this judgment is simply wrong and does not carry any impact as to the interpretation of the law in the future. It is true that the facts and the proceedings in the lower courts in these two cases were rather exceptional, and this has possibly led to such exceptional judgments issued by the Cassation Court. So it seems that these cases are decided on their own facts/merits and will not necessarily introduce a new interpretation of the law.

1.2.2

Consumer Insurances

Freedom of contract is further restricted in consumer insurances by way of legislation on unfair general terms and conditions. The Greek legislative instrument with respect to unfair contract terms is sec. 2 of Law 2251/1994. This law implements Directive 1993/13 EC and applies to all contracts with consumers, including consumer insurances. General terms that are not individually negotiated are deemed to be unfair and, hence, void, if they cause a significant imbalance in the parties’ rights and obligations, resulting to the detriment of the policyholder. Greek courts usually adopt a broad approach as to the concept of ‘consumer’. So micro and small businesses, as well as professionals (i.e. accountants, surveyors, doctors, barristers, etc.) have been found to qualify as consumers by many Greek court judgments.

1.2.3

Pre-contractual information

The distinction between ‘large risks’ and ‘other risks’ is decisive in connection to pre-contractual information and contract conclusion as well. With respect to risks other than ‘large risks’ (including consumer insurances), the process of contract conclusion is expressly dealt with in sec. 2 of Law 2496/1997. The insurer is obliged to provide certain information and guidance to the insured before the conclusion of the policy. If this obligation is breached, the insured is granted the right to withdraw from the policy (by way of rescission) within 14 days as from the delivery of the policy to policyholder. Further, the insurer is obliged to issue a policy on terms corresponding to the specifications of the proposal form and the type of insurance cover described and sought by the applicant in the proposal form. If the policy deviates from the proposal form, the insurer is obliged to notify accordingly the insured and advise him that he has a right to withdraw from the policy within 1 month as from the day of the

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delivery of the policy. In case this obligation is breached, any deviation of the policy from the proposal form is inoperative, and the policy is deemed to correspond to the terms described in the proposal form.

1.2.4

Duty of Disclosure and Utmost Good Faith on the Part of the Policyholder

Since the introduction of Law 2496/1997, Greek law has practically abandoned the strict duty of utmost good faith, at least with respect to risks other than ‘large risks’. With respect to ‘large risks’, freedom of contract prevails and the parties may contractually adopt a positive and strict duty of disclosure (i.e. an utmost good faith duty). However, with respect to risks other than ‘large risks’ and consumer insurances, if the insurer has used a questionnaire (which is almost always the case), then – anything not covered in the questionnaire is deemed to be immaterial in terms of disclosure; – if certain questions were not answered and the insurer has issued the policy, he cannot invoke the unanswered questions at a later stage as a breach of the disclosure duty; – the insurer cannot invoke the insufficiency of the answers if the respective questions were not adequately specific and precise, unless there is fraud on the part of the policyholder; and – if an answer is unclear, the insurer has a duty to revert and investigate further and cannot at a later stage invoke such insufficiency, unless there is fraud on the part of the policyholder. So although in theory a duty of disclosure still remains, in practice it has been abandoned.

1.2.5

Proportionate Remedies

Greek insurance law has moved towards proportionate remedies in case of misrepresentation or insufficient disclosure to the insurer since 1997, when Law 2496/1997 was introduced. The distinction between ‘large risks’ and ‘other risks’ is again decisive. In ‘large risks’, freedom of contract prevails and the parties may arrange remedies contractually. In risks other than ‘large risks’ and consumer insurances, the remedies for insufficient disclosure are proportionate, depending on the type of fault on the part of the policyholder (i.e. whether misrepresentation or non-disclosure is innocent, negligent or fraudulent). Proportionate remedies are arranged as follows: – In case of innocent misrepresentation or non-disclosure, the insurer is entitled to terminate the policy (subject to a 15-day prior notice) or request its amendment. Claims already paid in the past cannot be recovered.

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– In case of negligent misrepresentation or non-disclosure, the insurer has the same rights, as in the case of innocent misrepresentation. However, if the risk occurs before termination comes into force, or before the policy is amended, the insurer is entitled to pay compensation reduced on a proportional basis, i.e. according to the volume of premium that would have been charged otherwise. – In case of fraudulent misrepresentation or non-disclosure, the insurer is entitled to terminate the policy with immediate effect. Moreover, the insurer is relieved from liability, even if the loss has occurred before termination, so an insurer who was able to detect the fraud only after the risk has occurred is not prejudiced and is also relieved from liability. – By way of exception to the aforementioned, life policies and accident and health policies can be terminated only in case of fraudulent misrepresentation or non-disclosure. – The right of termination is waived if it is not exercised within 1 month as from the date when the insurer became aware of the misrepresentation or non-disclosure. If the risk occurs within the running 1-month period, the insurer is relieved from the obligation to pay compensation. – The insurer is entitled to insurance premiums until termination becomes effective. – No remedies arise if the insurer had actual, accurate and correct knowledge of the facts that were misrepresented or non-disclosed; however, ostensible knowledge does not suffice. – Remedies for misrepresentation and non-disclosure arise irrespective of causation; that is, it is immaterial whether the fact, which was misrepresentation or not disclosed, actually contributed to the occurrence of the loss. – Warranties are fully valid and enforceable only in connection to policies relating to ‘large risks’. In connection to all other risks, warranties are in principle valid, but they are enforceable only if (a) they are proportionate (that is, the remedy provided for, i.e. exemption of the insurer from liability, is proportionate to the violation of the clause, meaning that the issue of materiality of the warranty is also examined) and (b) causation can be established between the violation of the warranty and the occurrence of the loss and, further, (c) violation of the warranty is due to negligence or fraud on the part of the insured. In case of an unenforceable warranty, insurers usually argue that they are still operative as contractual exemptions from cover, but the issue is highly controversial and unsettled in court jurisprudence. The “basis of contract clause” is treated as a warranty in both ‘large risks’ and other risks. The involvement of intermediaries in the disclosure process raises the issue on whether their fault and/or the knowledge is attributed to the insured or the insurer. In principle, brokers are considered to be agents of the insured, while insurance agents are deemed to be agents of the insurer. This approach is greatly supported by specific provisions of Greek Law 1569/1985, holding that brokers act on behalf of the insured, while agents act on behalf of the insurer. Agency, however, is not a matter of law but a matter of fact. So in each case, it must be determined on the basis of the

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facts, whether the broker or agent represented the insured or the insurer. This means that the crucial issue is whether there is actual, ostensible or apparent authority. Tied agents are deemed to be agents of the insurer. Directive 2016/97 EU on insurance distribution obliges intermediaries to inform the client for whom they are acting. So this is likely to raise the uncertainty as to whom agents and brokers are representing.

1.2.6

Compulsory Insurance

In compulsory insurance, there is no freedom of contract because the legislation specifically provides the terms that insurance policies must incorporate. So in compulsory insurance, the law is mandatory. In Greece, this is basically the case of motor vehicle liability insurance. Solvency II Directive 2009/138 EC enables member states to introduce and retain mandatory law with respect to compulsory insurance.

1.2.7

Contract Construction

Insurance policies are usually interpreted according to the contra preferentem principle, which greatly favours the insured.

1.3

The Greek Law on Insurance Regulation

Since 01 January 2016, Greece has implemented Solvency II Directive 2009/138 EC4 by way of Law 4364/2016.5 Insurance is a regulated business and requires prior licence, being granted by the Central Bank of Greece, which supervises insurance enterprises and credit and financial institutions as well. Although the Central Bank of Greece is a single body supervising both insurers and bankers, the supervision is carried out through different departments within the Central Bank of Greece. Investment companies are regulated by a different body, namely the Capital Markets Committee. However, investment activities of insures and credit institutions are regulated by the Central Bank of Greece. Hence, in connection with insurers, the Central Bank of Greece is responsible for supervising both prudential regulation and financial conduct (i.e. conduct of 4

Guidance relating to the transparency provisions of the Directive can be found in CEIOPS (Committee of European Insurance and Occupational Pensions Supervisors) Consultation Paper No. 34, Transparency and Accountability, (CEIOPS-CP-34/09), 26.03.2009. 5 For a concise discussion of the Solvency II Directive 2009/138 EU see Smith (2010), p. 357. For a comparison of how solvency requirements are applied in the US and the EU see Siegel (2013), pp. 308–331 (www.genevaassociation.org).

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business). It can carry on investigations, impose administrative fines, grant and revoke operating licences and issue secondary regulation. The Central Bank of Greece certifies and supervises insurance intermediaries as well. What the Central Bank of Greece does not deal with is consumer protection, unfair contract terms and anti-trust issues. Unlike other countries, Greece does not have an efficient Ombudsman Service. Although there is such a service, its impact in practice is rather negligible because its decisions are not enforceable. In most cases, a complaint to the Ombudsman does not result to any remedy for the insured; filing a legal action with the courts and becoming involved in a long litigation process is usually necessary. There is a Consumer Protection Department with the Ministry of Economic Development, which is responsible for consumer protection in general, including consumer insurances. In the past, it has issued secondary legislation relating to unfair contract terms in insurance policies. It can also examine complaints submitted by insurers and impose administrative fines. There is also one major and rather active Consumers’ Association in Greece, which in the past has extensively dealt with insurance policies, particularly life and hospital policies, focusing on the fairness of contractual terms. Its main strategy of reaction is by filing class actions against insurance companies. The Central Bank of Greece, the Ombudsman Service and the Consumer Protection Department adopt a restrictive approach as to the concept of ‘consumer’. So micro and small businesses and professionals do not qualify as consumers. Greek courts, however, have adopted a different and broader approach in many occasions.

2 Transparency Theory6 During the past decades, micro-economic theory has highly emphasised on the impact of information on economic decision-making and optimal allocation of assets. The term ‘information economics’ is usually employed to describe the economic theory that gives special importance to information. Dissemination of information is now considered to be critical for the efficient operation of the markets. Economic theory has inspired legislators, and many of its findings and conclusions have been transformed to concrete and specific legislative measures. Legislation now provides for extensive disclosures on many occasions to deal with asymmetries of information and to facilitate optimal decision-making. Thus, information economics have resulted to a legal theory about transparency.7 In legal literature, 6

Guidance relating to the transparency provisions of Directive 2009/138 can be found in CEIOPS (Committee of European Insurance and Occupational Pensions Supervisors) Consultation Paper No. 34, Transparency and Accountability, (CEIOPS-CP-34/09), 26.03.2009. For a discussion of transparency theory in the context of insurance see Schwarcz (2014), pp. 394 and 400 (also available at http://scholarship.law.umn.edu/faculty_articles/572). 7 Carnell et al. (2008).

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transparency is considered to be a decisive factor in terms of contract construction, unfair contract terms, consumer protection (particularly in connection to off premises and distance selling), etc. Insurance is one of the fields of law in which transparency is vital in the contract conclusion process as the insurer is required to provide information to the policyholder during the pre-contractual stage. In addition, regulation makes it obligatory on many occasions to provide information to a contractual counter-party, as in the case of insurance intermediaries, which are obliged to disclose their associations with certain insurance companies, etc. Finally, recent empirical research seems to suggest that enhanced transparency leads to greater demand, even during a financial crisis period.8 Moreover, at the microeconomic level, insurance companies, providing greater transparency to their customers, seem to achieve better sales than their competitors.9

2.1

Why Is Transparency Necessary?

Transparency is a common characteristic and common target in all regulated businesses, like insurance, banking and investment. The reason why insurance, banking and investment are regulated and supervised by the state is to protect policyholders, depositors and investors and also to enhance market confidence. Lack of confidence would result to market destruction, that is, to unwillingness on the part of consumers to transact with firms and, hence, to no transactions at all. No one would be willing to transact with an insurer, a banker or an investment company whom they would not trust. Moreover, a potential policyholder would be overly cautious (or even reluctant) to obtain insurance if he was aware that the insurer possesses more information about the contract and its prospects than himself. Transparency is destined to counterbalance asymmetries of information. Therefore, market confidence and transparency are essential pre-requisites for the existence of the market. Transparency and disclosure of information enhance market confidence. They give policyholders the opportunity to make better decisions and informed decisions. Information economics have made it amply clear how much important information for economic decisions is. Information (and disclosures and transparency relating to such information) may also be price sensitive; that is, it may be material to measure the value of a policy and whether it is worth the premium. It is also material to set a proper premium.10 Transparency can also enhance comparability of the products offered in the market and can, hence, reinforce efficient competition among insurers and make it

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Dong (2014) (available at: https://www.econstor.eu/handle/10419/100664). Lin and Yang (2013), pp. 2184–2187. 10 Nat’l Sci. & Tech. Council, Smart disclosure and consumer decision making: Report of the Task Force on Smart Disclosure, 2013 (7), available at www.whitehouse.gov/sies/default/files/ microsites/ostp/report_of_the_task_force_on_smart_disclosure.pdf. 9

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possible for those insurers who are more efficient than others to attract more clients and increase their market share. It is submitted that transparency makes policyholders responsible for themselves and allows them to make their own judgment; instead of having policyholders relying exclusively on regulatory authorities, it places policyholders in a position to protect themselves. Well-informed policyholders can police the market themselves and can act in parallel with regulators through private enforcement. Hence, transparency is a supplement of (or even a substitute for) state supervision and reinforces market discipline.11 From a policymaking point of view, transparency and disclosure provisions can be more efficient than statutory regulation for several reasons. They motivate customers themselves to be more responsible and to take their own action. They result to an ex ante protection of customers, while other regulatory provisions usually result to an ex post protection only. Markets that rely more on transparency, disclosures, private enforcement and self-regulation are more efficient than markets relying solely on state supervision and statutory regulation.12 Transparency provisions can enhance private enforcement, particularly if breach of the transparency obligations entitles the policyholder to file a legal action against the insurer.13 Legislative provisions on transparency are more efficient if they provide for specific remedies in case they are breached. For example, in case a disclosure obligation has not been honored, the law may provide that this amounts to a breach of statutory duty, enabling customers to file a legal action. It is a matter of legal interpretation whether a breach of transparency provision grants specific rights and remedies to customers. This interpretation depends on the wording and phrasing of each legislative instrument and may differ from one jurisdiction to another. One argument that is usually employed is that the purpose of regulatory provisions is to protect the market overall but not to protect individual interests of customers as such. Under this approach, breach of regulatory provisions may result to administrative fines, but it does not by itself alone entitle customers to file a legal action, unless other provisions of civil law are also triggered. The counterargument to this approach is that regulation (and regulatory disclosure in particular) is actually destined by its very own nature to protect individual interests of customers, and hence if regulatory disclosure provisions are breached, customers are entitled to file a legal action against the non-disciplined company.14 Of course, one of the great difficulties in such cases is the quantification of the loss suffered by a customer due to insufficient disclosure and the determination of the volume of damages to be 11

For a similar assessment in the securities market see La Port et al. (1999), pp. 471 seqq.; La Port et al. (2003). 12 Schwarcz (2010), p. 1707. 13 Schwarcz (2014), pp. 394 and 414 (also available at http://scholarship.law.umn.edu/faculty_ articles/572). 14 This approach seems to be supported by the Solvency II Directive 2009/138. For example Recitals 14 and 16, 17, 43, 60, 68 specifically mention that the purpose of regulation is to protect the contractual counter-party. Moreover, Art. 27 of the Directive explicitly provides that the purpose of regulation is the protection of the contractual counter-parties and the insureds.

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claimed. Another difficulty relates to establishing causation between the insufficient disclosure on the one hand and the loss suffered on the other; how can one prove that the loss actually suffered by a customer is attributed to insufficient disclosure? One way to overcome this difficulty is to reverse the burden of proof as to causation. This, however, requires the implementation of specific legislative provisions reversing the burden of proof.

2.2

Types of Transparency

Transparency can be of two different types: (a) ‘contract/product specific’ or (b) ‘full disclosure’. ‘Contract/product specific’ transparency relates to dissemination of information, relating to the features of a specific contract or product. Information provided to the policyholder prior to contract conclusion, regarding the policy cover and other features of the policy, is an example of contract/product specific transparency. ‘Full disclosure’ transparency relates to dissemination of a broader set of information, which usually relates to the contractual counter-party offering the product or the service. Information disclosed by listed companies is the most characteristic example of full disclosure.

2.2.1

‘Contract/Product Specific’ Transparency

‘Contract/product specific’ transparency is destined to increase the level of awareness in connection to a specific contract that is about to be concluded or a specific product or service that is about to be purchased. The efficiency of this type of disclosure depends on whether the information disclosed is relevant to the product in question and decisive to the decision-making process of the respective purchaser.15 It is up to the legislator to take all necessary precautions so that the information to be disclosed be carefully selected and determined so that it will be relevant to the product and comprehensive. Usually, policyholders or other consumers are unable to process much information or lengthy and complicated information. Moreover, the time when such information is provided must be carefully determined so that it comes before the prospective purchaser is contractually or emotionally committed to the purchase, that is, before he has spent a substantial amount of time and effort to become aware of and familiar with the respective product. Sometimes, regulators indicate that such information is provided according to a standardised uniform disclosure template and design, making it easier to be followed and processed by all policyholders. Still, the problem with the efficiency of

15

For a discussion of the adverse effects of inadequate product transparency in the Italian insurance market see Galli (2005), pp. 443–450 (available at www.palgrave-journals.com/gpp).

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this type of disclosure is that consumers may have limited background knowledge and may be practically unable to use and evaluate the information provided.16 Another type of ‘product specific’ disclosure is that of ‘structured products’, that is, products comprising features that are determined by the legislator and standardised. Standardisation of contractual terms is the most striking characteristic of ‘structured products’. For example, in many jurisdictions, including Greece, some types of compulsory insurance come in terms and conditions, which are set in advance by the legislator by way of mandatory provisions. So the type of cover, the exceptions and all other material features of the policy are determined by the law, and the only thing that the prospective policyholder has to do is to compare the premium offered by various insurers. In Greece, this is the case of motor vehicle liability insurance, which is a ‘structured policy’. This type of transparency minimises search costs. Article 179 of Solvency II Directive 2009/138 EC allows member states to enact that compulsory insurance will be traded as a ‘structured product’. In particular, this article provides that member states may provide that the insurance for some types of risks is compulsory; furthermore, when member states provide for compulsory insurance, they can also determine the particular terms according to which such insurance shall be offered, as well as the terms according to which termination of such policies shall affect third parties that have suffered a loss and can claim compensation against the insurer. In addition, Article 181(2), by way of exception to Articles 154 and 181, provides that member states may oblige insurers offering compulsory insurances to notify the general terms and conditions of such policies to the public authority regulating insurance enterprises before they commence using such terms in the market. Article 206 of the Directive contains similar provisions that are applicable to ‘sickness policies’, which substitute for social insurance. So when insurance policies are used to replace social insurance, member states are allowed to provide that such policies will be traded as ‘structured products’. The 2016/97 EU on insurance distribution greatly enhances ‘product specific’ disclosure and transparency.

2.2.2

‘Full Disclosure’ Transparency

‘Full disclosure’ is mainly used in the case of listed companies to compensate for asymmetries of information.17 However, this type of transparency can also be helpful with respect to insurance enterprises. In addition to financial information, insurance enterprises could possibly disclose information regarding the total volume of compensation paid per cover, the average time for processing and settling claims, the number and volume of claims that have been rejected, etc. In ‘full disclosure’ transparency, the information becomes publicly available online. Such information

16 17

Kennedy et al. (2012), p. 1141. Healy and Palepu (2001), pp. 405–440.

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is used primarily by intermediaries, which distribute products of the disclosers.18 ‘Full disclosure’ increases the level of market discipline and may assist regulators to identify early enough market problems that require action on their part.19 The literature suggests that on a statistical basis, companies with concentrated ownership make substantially less disclosure than companies with dispersed ownership, as well as that European companies are rather more concentrated than companies in common law countries.20 The Solvency and Financial Condition Report21 Indeed, one of the major innovations of Solvency II Directive 2009/138 EC22 is that it introduces a ‘full disclosure’ requirement for insurance enterprises. According to Articles 51–54 of the Directive, insurance companies are required to make publicly available a Solvency and Financial Condition Report.23 This report shall be issued annually and shall be updated in case of any major developments. The report shall discuss the solvency and financial condition at both entity and group level. It will contain both quantitative and qualitative information. According to Article 51, the report must cover aspects such as financial performance, system of corporate governance of the company, an assessment of the risks to which the company is exposed in terms of concentration, mitigation and sensitivity, valuation methods for assets, technical provisions and liabilities, management of capital resources and capital adequacy requirements, and compliance with capital adequacy and solvency capital requirements. The aim of the Directive is that the technique that this information shall be disclosed has to be standardised so as to achieve comparability, harmonisation and so as to enhance competition among insurance undertakings. The European Insurance and Occupational Pensions Authority (EIOPA) has proposed this report to be audited.24 It greatly depends on the management of each insurance enterprise to determine how much information needs to be disclosed. This discretion must be exercised on the basis of materiality and proportionality. According to

18

Lang and Lundholm (1996), pp. 467–492. Fung et al. (2008). 20 Vander Bauwhede and Willekens (2008), pp. 101–115. 21 Guidance relating to the transparency provisions of the Directive can be found in CEIOPS (Committee of European Insurance and Occupational Pensions Supervisors) Consultation Paper No. 34, Transparency and Accountability, (CEIOPS-CP-34/09), 26.03.2009. 22 The Directive has been supplemented by secondary EU legislation, in particular Regulation 2015/ 35 EU. 23 The European Insurance and Occupational Pensions Authority (EIOPA) has issued secondary regulation with specific standards that the Solvency and Financial Condition Repost must meet (EIOPA-BoS-15-109/14.09.2015); this EIOPA regulation has been implemented into Greek law by virtue of a Regulatory Act of the Executive Committee of the Central Bank of Greece, No. 77/12.02.2016. 24 CEIOPS Consultation Paper 58. 19

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CEIOPS consultation paper 58, ‘the level and depth of information to be publicly disclosed shall be based on the principle that a knowledgeable person can get a reasonably good understanding of the design and operational details of the internal model as well as the reliability of the internal model’25 of each insurance undertaking. Above all, this information must be disclosed in a legible and comprehensible form and must be easily accessible. Greek Law 4364/2016 has implemented the provisions of the Directive on the Solvency and Financial Condition Report in its Articles 38–42. Under Greek law, any misstatement or inaccuracy in such a public disclosure may result to civil liability of the insurance undertaking towards the policyholders. However, such civil enforcement is likely to encounter great practical difficulties, particularly in connection to establishing causation for a claim in damages, as well as in connection to the quantification of the loss suffered. The experience from similar difficulties in cases in the financial service sector is that it is necessary to introduce specific legislative provisions reversing the burden of proof as to causation, as well as to set specific rules for the quantification of damages.

3 Transparency in Insurance Law26 One can identify at least three major transparency targets in insurance law: (a) clarity of policy terms, particularly as to the scope of cover and the exceptions from cover; (b) transparency as to the claims’ process, that is, whether the treatment of claims on the part of the insurer is fair and timely; and (c) transparency relating to the intermediaries, that is, basically transparency as to their objectivity and their interests, which may raise conflicts with the interests of the applicant.

3.1

Transparency as to Policy Terms and Scope of Cover

It is not difficult to explain why transparency of policy terms is an imperative necessity. Insurance policies are indeed well known for the complexity of their terms. Most probably, they are the most characteristic example of obscure and incomprehensible contracts.27 When it comes to the scope of the cover and the relevant exceptions, the matter becomes even more problematic. The reason why the

25

CEIOPS Consultation Paper 58, par. 3.243. Guidance relating to the transparency provisions of the Directive can be found in CEIOPS (Committee of European Insurance and Occupational Pensions Supervisors) Consultation Paper No. 34, Transparency and Accountability, (CEIOPS-CP-34/09), 26.03.2009. 27 For the peculiarities of the insurance industry to the average consumer see Lualdi (2005), pp. 467–476 (available at www.palgrave-journals.com/gpp). 26

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clauses of insurance policies are so complex may be because of the rules and practices on the basis of which insurers operate. The insurance market has always been a very sophisticated one. The calculation of the premium is based on complex rules relating to probabilities, mathematics and actuary principles. In many cases, general economic factors (like the annual general level of increase of hospitalisation expenses) are taken into account to fix the premium. All such parameters are far from being common knowledge. So the necessity for increased transparency as to policy terms, and particularly those terms relating to the scope of cover, is self-evident. In this context, it must be reminded that exception clauses represent a tool for the pricing of a policy; that is, instead of fixing a higher premium, the insurer may insert an exception clause. So exception clauses are integral to the pricing of the policy. Due to this fact, it is legally doubtful whether exception clauses can be successfully challenged on the basis of the unfair contract terms doctrine. The unfair contract terms doctrine cannot be used to review the core contractual arrangement, which is the pricing of a contract. In insurance policies, providing for an exception clause is equivalent to providing for an increased premium.28 It is worth noting, however, that this principle has been recently substantially relaxed by the CJEU, which held that even a term relating to the essential subject matter of a contract, like an exception clause in an insurance policy, can be reviewed under the unfair contract terms doctrine if it is literally intelligible or if it does not in practice allow the policyholder to assess their economic consequences for the policy as a whole.29 In many jurisdictions, mainly in some US states, the courts have developed an alternative doctrine to deal with excessive and undue exceptions from cover; they developed the doctrine of reasonable expectations. An insurer cannot rely on an exception clause when the surrounding circumstances that led to the conclusion of a policy indicate that the policyholder reasonably expected to be covered against the risk that is excluded. The reasonable expectation doctrine is not upheld in all jurisdictions. Indeed, it is difficult to hold that an exception clause should be inoperative because it contradicts the reasonable expectations of the policyholder when the letter of the contract is clear and unambiguous that a specific risk is not covered. Under Greek law, it would be difficult to employ the reasonable expectations doctrine when an exception clause is clearly drafted. However, if the phrasing of a clause is obscure, then of course it is interpreted on the basis of what a reasonable counter-party would understand and not on the basis of what the party that drafted the clause intended to mean. A final note must be made regarding the absence of any regulatory prior approval of policies. In

28 The Recitals of Directive 93/13 EEC on unfair terms in consumer contracts provide: “Whereas, for the purposes of this Directive, assessment of unfair character shall not be made of terms which describe the main subject matter of the contract nor the quality/price ratio of the goods or services supplied; whereas the main subject matter of the contract and the price/quality ratio may nevertheless be taken into account in assessing the fairness of other terms; whereas it follows, inter alia, that in insurance contracts, the terms which clearly define or circumscribe the insured risk and the insurer’s liability shall not be subject to such assessment since these restrictions are taken into account in calculating the premium paid by the consumer”. 29 CJEU, 23.04.2015, C-96/14, Van Hove v. CNP Assurances.

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the past, policy terms were submitted to the public authority supervising insurance enterprises and were approved. This was supposed to provide some comfort in connection to the fairness of the terms. However, such a prior approval of terms is no longer in practice. Indeed, Articles 154, 181 and 182 of Directive 2009/138 EC provide that member states shall not require the notification to the regulating authority of policy terms, at least not on a systematic and regular basis. There are, however, exceptions provided under Article 181(2) and Article 206, whereby insurers may be obliged to notify the terms of policies, relating to compulsory insurances, and ‘sickness’ policies, replacing social insurance. In an attempt to deal with the problem of complexity of policy terms, most jurisdictions provide for ‘contract specific’ disclosure on the part of the insurer. Under Greek law, this ‘contract specific’ disclosure comes in summary terms (Art. 2 (4) of Law 2496/1997). A summary of the basic terms of the policy must be provided to the policyholder. The policy that is delivered to the policyholder must be preceded by a ‘table’, providing in summary the basic terms of the policy. However, the efficiency of this type of disclosure is doubtful due to several reasons. On the one hand, this ‘summary disclosure’ can be quite long in practice. In some cases, the ‘table’, which is supposed to be a summary, can be as long as 20 pages or more. The fact that it is a summary table does not necessarily mean that it is drafted in a clear and unambiguous language. On the contrary, the language of a summary is usually in short-form phrasing and, hence, deficient and incomplete. Moreover, it is doubtful whether this summary disclosure comes during the pre-contractual stage or after the conclusion of the contract. Under Greek law, the contract conclusion occurs when the policyholder receives the policy from the insurer. Although, from a legal perspective, the policyholder enjoys a right to withdraw and a right to object to any deviations of the policy from the proposal form, this summary disclosure is usually received only after the insurance contract has been concluded. In any case, this summary disclosure comes at a very later stage because it is received at a time when the policyholder has already spent a great deal of time and effort to proceed with contract conclusion and has been at least emotionally committed to the conclusion of the contract. From a policy point of view, this ‘contract specific’ summary disclosure is inefficient in practice. A proposal to rectify this situation would be that basic policy terms should be available online so that they can be reached by the applicant before the submission of a proposal form. Ideally, the applicant should have available both the full policy terms and a summary before submitting a proposal form.

3.1.1

Transparency in the Context of Contract Construction

Under Greek private insurance contract law, transparency of policy clauses is an express legislative obligation of the insurer. Article 2(8) of Greek Law 2496/1997 provides that the policy terms must take into account the reasonable interests of the policyholder and the beneficiary, must be legible and must be clearly phrased. It also provides that a waiver of the right to request the avoidance of the contract because of

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error is invalid.30 So under Greek law, transparency of policy clauses is an express obligation of the insurer. Article 2 of Law 2496/1997 imposes some additional obligations to insurers, which may have a rigorous impact on the construction of policy terms, although they do not deal with this issue directly. Article 2(4) provides that if the contract includes both general terms and specific terms, the insurer must make a reference of this in the part of the policy that contains the elements of the contract that are particular to the policy in question. This provision has the effect of imposing upon the insurer the obligation to provide a ‘contract specific’ summary disclosure of the policy. Article 2 (5), (6) obliges the insurer to provide certain pre-contractual information to the policyholder and to advise them in case the policy issued deviates from the proposal form (particularly if there are deviations from the type of cover requested in the proposal form). If the insurer breaches this obligation, the policyholder is granted a right to rescind the contract and withdraw from the policy, and any deviations of the policy from the proposal form may be inoperative. Again, the effect of these provisions is that the insurer has to provide ‘contract specific’ summary information about the policy. These provisions have an effect on the contract construction of insurance policies as well. Hence, the Greek insurance contract law is, in some respects, more rigorous than the law on consumer protection in terms of securing the interests of policyholders. In other words, a policyholder may enjoy in some respects greater protection under Law 2496/1997 than he enjoys as a consumer under the law on consumer protection (i.e. Greek Law 2251/1994). In consumer insurances, the law on consumer protection (Greek Law 2251/1994, as amended and currently in force31) also applies. Article 2 of this law deals with unfair contract terms. Article 2(2) provides that general terms and conditions must be drafted in Greek and must be clear and unambiguous, specific (precise), intelligible and legible. This provision expressly states that the way general terms and conditions are drafted must enable consumers to fully understand their meaning. Article 2 (3) provides that clauses that were specifically discussed and agreed between the parties prevail over the general terms. Article 2(4) provides that in interpreting general terms and conditions, the interests of consumers must be taken into account and that the contra preferentem principle applies. Finally, Article 2(6) provides that a contractual term that has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance to the parties’ rights and obligations arising under the contract, leading to the detriment of the consumer.

30 Art. 2(8) of Law 2496/1997 was recently discussed in the Judgments 18 and 19/2015 of the Greek Supreme (Cassation) Court (Areios Pagos) in Plenary Session. 31 The last amendment of Law 2251/1994 was by Law 3587/2007. This law deals with several aspects of consumer protection such as unfair contract terms, distance sales, sales outside business premises, product liability, unfair business practices, such as unfair or deceptive advertising, etc. and implements the respective EU Directives on all these matters. Law 2251/1994 also implements into Greek law Directive 1993/13 EEC on unfair contract terms.

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According to the general principles of Greek law on contract construction, contractual clauses are interpreted on an objective basis.32 This means that what matters is what an average man would understand by reading the clause if he were in the position of the contracting party. What is decisive is not what the party that drafted the clause intended the clause to mean but what its counter-party was able to understand on an objective basis. To make this assessment, the letter of the clause is taken into account. The prevailing view on court jurisprudence is that a clause that is adequately clear and unambiguous is not subject to interpretation. It is only ambiguous clauses that require an interpretation by the courts; this interpretation is based on good faith and good business customs. So, in principle, courts cannot intervene to amend or avoid a clause that is clear and unambiguous, even if it leads to disproportionate results or seems to be contrary to business common sense. However, the way this principle is actually applied is not always consistent. In the majority of cases, Greek courts are not reluctant to intervene in the parties’ contractual arrangements and rigorously interpret contractual clauses to secure fairness and business common sense. Since policy terms are drafted by the insurer, the contra preferentem principle applies, and if a clause may be interpreted in various different ways, courts abide to the interpretation that is more favourable to the policyholder. It is to be mentioned, however, that this principle may lead to a different result if it can be established on the basis of evidence that the policy terms were drafted by a broker who was representing the policyholder.33 A good example of how transparency affects contract construction is the clauses on the annual increase of insurance premiums, particularly in life policies. The Greek courts have reasoned, in many occasions, that clauses providing for annual increases in insurance premiums are valid only if they provide for clear and unambiguous factors on the basis of which such increases are calculated. The courts have further explained that such factors are clear enough only if they enable the policyholder to calculate in advance by themselves how much premiums will increase in the future.34 For example, a basis like the annual inflation index, or some other macroeconomic indexes, like GDP, is regarded to be clear enough; however, other factors, like the number of losses or the total volume of losses covered by a particular insurer in the last year, fail to be clear and unambiguous, according to the standards set by the courts. The industry has complained that this jurisprudence is very restrictive

32 The legal provisions of Greek law on contract construction are Articles 177, 200 of the Greek Civil Code. These provisions apply to the interpretation of insurance policies as well. 33 On the construction of insurance policy terms see the Judgments of the Greek Supreme (Cassation) Court (Areios Pagos) 1285/1987, reported in Digest of Greek Lawyers (Efimeris Ellinon Nomikon) 1988, p. 677 and 211/2012, reported in Legal Herald (Nomiko Vima) 2012, p. 1954. 34 Judgment 1030/2001 of the Greek Supreme (Cassation) Court (Areios Pagos), reported in Commercial Law Review (Epitheorisi Emporikou Dikaiou) 2001, p. 740. Judgment 1407/2002 of the Appeal Court of Athens, reported in Commercial Law Review (Epitheorisi Emporikou Dikaiou) 2004, p. 553. See also Rokas (2013), p. 517.

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because it is a customary practice that premium increases are calculated on the basis of factors that sometimes are not known in advance even to insurers themselves. Courts have also considered invalid (due to lack of clarity) clauses exempting from cover losses due to lightning in a fire policy35 or exempting from flood cover losses due to rupture and crashes in plumping piping36 or accidents during non-regular and charter flights in a life and accident policy.37 In addition, in a fire policy case, an Appeal Court considered invalid a clause exempting from cover losses due to fire transmitted from a forest on the ground that the policyholder was not properly notified about this exception.38 Similarly, an insurer who received a proposal form requesting cover against both death and hospital expenses but issued a policy providing cover only for the latter (hospital expenses) was obliged to pay compensation for death because he had failed to properly notify the policyholder that he declined to accept the risk of death.39 In another case, the insurer received a proposal form requesting cover under a professional liability policy for both the company involved (a stock exchange broker) and its directors and officers; the insurer issued a policy providing cover only to the company, but not to its directors and officers, but had failed to properly notify this deviation of the policy from the stage of the proposal form. The courts found that the insurer was liable under a director and officer cover, although such a cover did not exist at all in the policy.40 On the contrary, courts have considered the following terms to be transparent and enforceable: a clause in a professional liability policy stating that the insured amount represented a maximum cap covering both capital and interest for any claims raised against the insured,41 a clause in a fire policy exempting from cover merchandise that was stored in the outside yard of a commercial warehouse and not within the

35

Supreme (Cassation) Court (Areios Pagos), Judgment 11/2006, reported in Commercial Law Review (Epitheorisi Emporikou Dikaiou) 2006, p. 380. It is worth noting that Art. 19(1) of Greek Law 2496/1997 expressly provides that a fire policy provides cover against risks due to fire and lightning. 36 Supreme (Cassation) Court (Areios Pagos), Judgment 1597/2011, unreported. 37 Athens Court of Appeals, Judgment 2386/2006, reported in Greek Justice (Elliniki Dikaiosini) 2006, p. 1461. This case related to an accident during a flight with an aircraft of the Greek Military Air Force for non-military purposes. An aircraft of the Greek Military Air Force was crashed while it was used for the transportation of governmental officers and other person with non-governmental position in an official ceremony. The issue for the court to decide was whether the accident was covered under a life and accidents policy. 38 Appeal Court of Athens, Judgment 6120/2003, reported in Commercial & Company Law Review (Dikaio Epicheiriseon kai Etairion) 2004, p. 682. 39 Supreme (Cassation) Court (Areios Pagos), Judgment 1308/2007, reported in Commercial & Company Law Review (Dikaio Epicheiriseon kai Etairion) 2008, p. 71. 40 Supreme (Cassation) Court (Areios Pagos), Judgment 846/2003, reported in Commercial Law Review (Epitheorisi Emporikou Dikaiou) 2003, p. 839. 41 Supreme (Cassation) Court (Areios Pagos), Judgment 1987/2006, reported in Commercial Law Review (Epitheorisi Emporikou Dikaiou) 2008, p. 105.

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warehouse building42 or a clause in a group policy against life risks exempting from cover accidents and death occurring within a distance of up to 35 kilometers from the place of residence of the insured.43 In two recent judgments,44 which have received much criticism and seem to be rather controversial, the Greek Supreme (Cassation) Court (Areios Pagos) reasoned that a ‘claims made’ professional liability policy should be construed to include an exemption clause. That is, the court viewed the ‘claims made’ clause not as a clause defining the scope of the cover but as an exception clause, that is, a clause exempting from cover claims that were not raised against the insured and notified by the latter to the insurer during the policy period. This approach can be criticised because an exception clause is one establishing an exception from a preceding clause that is contained in the policy and describes what is covered. A ‘claims made’ clause is the basic clause describing the scope of the cover, and in this respect it is not preceded by any other clause in the policy. In a claim-made policy, you do not find a general clause providing cover against all claims raised against the insured and then a second clause exempting from cover those claims that are not raised and notified within the policy period of the cover. So the ‘claims made’ clause is the clause describing the type of the cover and not one establishing an exception. The court, following its above-mentioned controversial approach, noted that the insurer had not properly notified the policyholder about the exception that the ‘claims made’ clause introduced to the policy, but it also argued that the insurer was not obliged to do so because this was a policy covering professional risks and not consumer risks.45 So, at the end, the court upheld the validity of the ‘claims made’ clause, although on the basis of a wrong reasoning.

3.1.2

Transparency by Way of Pre-contractual Information

The EU Directives on life and non-life insurances always obliged insurers to provide pre-contractual information to prospective policyholders. In this sense, EU law always provided for certain ‘contract specific’ and ‘summary’ disclosure before contract conclusion. However, in connection to non-life insurances, the volume of such disclosure was limited and, hence, inefficient. The same obligations for pre-contractual information remain more or less the same under Solvency II Directive 2009/138 EC. Articles 183 and 184 refer to pre-contractual information in connection to non-life policies, while Article 42 Athens Court of Appeals, Judgment 2894/2008, reported in Commercial Law Review (Epitheorisi Emporikou Dikaiou) 2009, p. 831. 43 Supreme (Cassation) Court (Areios Pagos), Judgment 1679/2008, reported in Legal Herald (Nomiko Vima) 2009, p. 388. The court was influenced by the fact that the premium was evidently very small. On this ground the court reasoned that the purpose of the policy was not to ordinary cover risks occurring during the usual and daily transportation of the insured persons. However, this is a judgment that received criticism and may be regarded controversial. 44 Supreme (Cassation) Court (Areios Pagos), in Plenary Session, Judgments 18 and 19/2015. 45 This reasoning of the court is (with respect) again mistaken, as discussed earlier above.

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185 refers to life policies. These articles have been implemented into Greek law by way of Law 4364/2016; Articles 150 and 151 refer to non-life policies, while Article 152 refers to life policies.

Non-life Policies In non-life policies, pre-contractual information is extremely limited and contains only information as to the law applicable to the contract and the complaints’ process. If the contract is concluded by an insurer operating under the freedom of establishment or the freedom of service regime, pre-contractual information also includes details about the identity of the insurer and the insurer’s branch office and representative (i.e., name, corporate purpose, legal type, registered office and address, etc.), but such information is not obligatory if the risk covered is a large risk. From a policy point of view, this information is inadequate to enable the prospective policyholder to fully understand the subject matter of the policy. Pre-contractual information does not refer to the scope of the cover, the exceptions from the cover or other material clauses of the policy, such as warranties. So in non-life policies, the policyholder will only be able to fully perceive what he is purchasing only after he has received the policy and has spent time to carefully peruse its terms. Moreover, the Directive provides that such pre-contractual information relating to the applicable law and the complaints’ process is obligatory only if the policyholder is an individual. Greek Law 4364/2016 has also implemented this restriction of the obligation to provide pre-contractual information. It is worth mentioning, though, that before the introduction of Law 4364/2016, the Greek law obliged insurers to provide pre-contractual information to legal entities as well. So the implementation of the Solvency II Directive has resulted to an important limitation and restriction of the pre-contractual information in non-life policies. After Law 4364/2016, insurers in Greece are no longer obliged to provide the above-mentioned pre-contractual information to policyholders that are legal entities. It must be mentioned, though, that the above provisions of Directive 2009/138 EC must be read in parallel with the provision of Article 20 paras. (4)–(8) of Directive 2016/97 EU. This latter provision provides for an Insurance Product Information Document, which contains ‘product specific’ summary information and which must be made available to the policyholder before contract conclusion.

Life Policies In life policies, the volume of pre-contractual information required is substantially greater. In addition to information about the identity of the insurer, its branch office and its representative, the complaints’ process and the law applicable to the policy, insurers are obliged to provide ‘contract specific’, ‘summary’ information about the subject matter of the policy, that is, about the insurance product purchased. Such

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information relates to the benefits of the policy, the type of investment that is associated to the policy (if it is an investment policy), the premiums and how they are calculated, the surrender and paid-up values of the policy and whether they are guaranteed, the duration of the policy, the termination of the contract, the cooling-off period and the cancellation of the policy. It is worth mentioning that in case of investment policies, Regulation 1286/2014 EU also applies. This Regulation deals with key information documents for packaged retail and insurance-based investment products (PRIIPs). Under the Regulation, the volume of information required for investment policies is more detailed and sophisticated and follows the lines and principles required in other investment activities. The Directive has brought some substantive innovations in connection to the type of pre-contractual information required in life policies. Such information must also include a specific reference to the solvency and financial condition report of Article 51 of the Directive. The insurer is also required to make this report easily available to the applicant. This report is a ‘full disclosure’ report about the insurer. As a result, each time an insurer proposes a life policy, he is required to make such a ‘full disclosure’ about his solvency and financial condition to each and every prospective policyholder. This is expected to increase the level of awareness of policyholders and to enable them to make better and more informed decisions. Another innovation of the Directive is that the insurer is also required to provide to the prospective policyholder specific information to enable him to properly understand the risks underlying the contract that are assumed by him (i.e. the policyholder). So the insurer is obliged to provide information additional to that specifically mentioned in the Directive, and he is required to make a responsible decision about what sort of additional information is objectively required in this respect. Finally, the Directive requires insurers to update the more important items of the pre-contractual information required throughout the term of the contract, that is, to update policyholders on any changes. Greek Law 4364/2016 has implemented all of the above.

Legal Issues as a Result of the Implementation of the Directive into Greek Law The implementation of the Directive is likely to give rise to certain issues of legal interpretation in connection to some provisions of Greek insurance contract law, particularly of Law 2496/1997 on the insurance contract. Greek law provides for a more rigorous obligation in relation to pre-contractual information, and it is an issue whether these provisions of Greek law survive the implementation of the Directive by way of Law 4364/2016. Article 2(4) of this law provides that the insurer is obliged to deliver to the policyholder a summary of the more important policy terms. This obligation applies to both life and non-life policies. This summary must be delivered together with the policy. The purpose of this summary is to make it easier to the policyholder to peruse the terms of the policy and fully understand

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it. Furthermore, Article 2(6) provides that if the insurer fails to provide this summary, the policyholder has a right to object to the policy within a period of 14 days, commencing when the policy was delivered. If the policyholder exercises this right to object, the result is that the contract is not concluded. Moreover, the insurer is required to advise the policyholder about this right to object, and if he fails to do so, then the period of 14 days does not start to count. The right to object, due to failure to provide a summary of the policy, is waived after the lapse of 10 months as from the payment of the premium or its first installment. In addition, Article 2(5) of Law 2496/1997 obliges the insurer to advise the policyholder about any deviations of the policy from the application (proposal) for insurance that the policyholder submitted. If the insurer fails to do so, then any such deviations are inoperative and the insurance contract is deemed to have been concluded on the basis of the proposal form. If the insurer complies with this obligation to advise the policyholder on any such deviations, then the latter has a right to object to any such deviations and rescind the policy within a period of 1 month as from the date the policy is delivered. It seems that these provisions of Greek law survive the implementation of the Directive. Article 185(7) of the Directive enables member states to oblige insurers to provide additional pre-contractual information in connection to life policies if this is necessary to enable policyholders to properly understand the policy. Moreover, Greek law provides for specific remedies associated to the failure of the insurer to comply with the obligation to provide the information required. This does not seem to be contrary to the Directive.

3.2

No Transparency as to the Claims’ Process

There are plenty of reasons for justifying the necessity of increased transparency in connection to the claims’ process. Although the policyholder pays premiums on a regular basis, the insurer is only exceptionally called to pay insurance compensation if and when the risk materialises. The policyholder is unable to trace the behavior and the practices of the insurer in connection to claim’s handling. The law seems to provide inefficient remedies to the insured in case of late payment of claims, and therefore it seems that insurers are motivated by the current state of the law to delay payment of insurance compensation. Delaying payment of compensation may be used as a method to make pressure on the insured to accept an unfair settlement, particularly if the insured needs to be urgently funded to recommence operation and catch up with the market. Such unfair delays may involve bad faith on the part of the insurer. Finally, as already explained, the issue whether a risk is covered or not can be a matter of genuine and true dispute and dissenting opinions between the insurer

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and the policyholder, so delays in the claims’ process are, in principle, likely to arise.46 Therefore, insurers should be obliged to publicly disclose information regarding the claim process. Such disclosure should refer to statistical data regarding the number of claims received each year, the number of claims settled out of court, the number of claims litigated and the average time until payment of the claim takes place. A counterargument usually submitted by insurers is that such information qualifies as a trade secret and that, accordingly, its confidentiality should be preserved. The reason trade secrets are protected is to avoid unfair competition. It would be unfair if an insurer could compete against another while they possess confidential information regarding the business of the latter. However, this is not the case if a general system of obligatory disclosure applies to all insurers in the same way. Confidentiality does not seem to be a valid argument towards applicants and policyholders; that is, there may be some concern to preserve confidentiality against other insurers, but there seems to be no valid ground to preserve confidentiality towards applicants and policyholders themselves. Applicants and policyholders are adequately justified and legitimised to receive information regarding the claims’ process and the respective practices applied by insurers. Alternatively, the information to be disclosed can relate only to complaints that have been filed against insurers and have been examined by public authorities, the Ombudsman service and the courts in connection to the claim-handling practices applied by insurers. The Greek law does not currently provide for any such disclosures relating to the claim process. Solvency II Directive 2009/138 EC and Directive 2016/97 EU on distribution of insurance do not seem to provide for any such transparency either. It is unfortunate that the EU law, which has made remarkable progress in terms of transparency with the two recent Directives already mentioned, has omitted to establish any specific disclosure obligations in connection to the claim process.

3.3

Transparency and Intermediaries47

The insurance industry is possibly the only field where sales are effected not through insurance companies themselves but primarily through intermediaries. Unlike banks, which have extensive and nationwide networks of luxurious branch offices, insurance companies only rarely have their own branch offices to accept clients. Instead, insurance companies rely on networks of intermediaries, like agents, brokers, tied agents and banks. So insurance is undertaken by insurers, but, in practice, it is traded through intermediaries. The applicant and the policyholder communicate with an intermediary and only rarely with the insurers themselves. 46 Schwarcz (2014), pp. 394 and 414 (available at: http://scholarship.law.umn.edu/faculty_articles/ 572). 47 In connection to legal issues relating to the role of intermediaries in insurance see Marano (2010), p. 23; Cerini (2010), p. 159; Chrissanthis (2010a), p. 49; Chrissanthis (2010b), p. 9.

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The need for transparency in connection to the operations of intermediaries can be justified on various and multiple grounds. On the one hand, transparency on the part of insurers would be in vain, in the absence of transparency on the part of intermediaries as well. On the other hand, the existence of intermediaries gives rise to the well-known agency problems; intermediaries have their own interests, which might conflict with the interests of the party whom they represent. Transparency is a method to compensate and remedy such agency problems and conflicts of interests. Another renowned practical difficulty, making transparency compelling in the case of intermediaries, is that in many cases it is not clear for whom intermediaries are acting and whom they represent; that is, it is unclear whether they represent the policyholder or the insurer. To make things more complex, intermediaries often represent both parties in the context of a situation, which is called ‘dual agency’; dual agency is rare in all other types of trade and industries, but it is common in insurance. Transparency is possibly the easiest and most efficient method to clarify for whom intermediaries are acting.

3.3.1

The 1st Insurance Mediation Directive 2002/92 EC

The considerations mentioned explain why a great volume of the transparency efforts of the legislator of the European Union relate to insurance intermediaries. Indeed, EU legislation on transparency in relation to insurance intermediaries (i.e. the 1st EU Insurance Mediation Directive 2002/92 EC) preceded the legislation on transparency in relation to insurance undertakings themselves (i.e. Solvency II Directive 2009/138 EC). The Directive has been implemented into Greek law by way of Presidential Decree 190/2006. The Directive and the respective Greek Presidential Decree provide for a public registry of intermediaries. The existence of a public registry is a first step towards transparency since it allows both policyholders and insurance undertakings to confirm whether a person or an undertaking is licensed as an insurance intermediary. In addition, Article 12 of the 1st Insurance Mediation Directive 2002/92 EC obliges intermediaries to disclose before the conclusion of a contract certain information, including (a) their identity and personal status as a licensed intermediary; (b) any cross-shareholding participation with insurance companies exceeding 10% of the voting rights, i.e. participation of insurers in the intermediary’s share capital and vice versa; (c) whether the intermediary is acting independently and provides an objective analysis of the market or cooperates with one or more insurance companies; (d) the complaints’ process, which is available to customers. Such disclosure is not required if the intermediary is acting in connection to ‘large risks’ or in connection to reinsurance.48 According to the express letter of the Directive, member states are allowed to impose stricter provisions regarding information to customers. Greece has not implemented any stricter provisions. Article 13 requires that the

48

Directive 2002/92 EC, Art. 12 par. 1 and 4.

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information must be provided in written or other durable form and that it must be clear, precise and intelligible. These transparency obligations have been implemented into Greek law by way of Article 11 of Presidential Decree 190/2006. Moreover, the Central Bank of Greece has issued secondary regulation,49 setting more specific and precise standards in connection to the information and disclosure obligations of insurance intermediaries. This regulation was last amended by the Central Bank on April 2016. Since the last amendment occurred after Directive 2016/97 EU on distribution of insurance products came into force, it took into account the provisions of the latter. So the secondary regulation established by the Bank of Greece in connection to intermediaries is taking into account the obligations set by Directive 2016/97 EU on distribution of insurance products. Such secondary regulation provides the following: (a) intermediaries that offer investment type policies need to have an additional certification, which is specific to investment policies; (b) intermediaries need to make available to clients printed materials with the information and disclosure of Article 12 of Directive 2002/92 EC; such printed materials must have been prepared by the intermediaries themselves and are additional to any similar materials, which are prepared and made available by insurers; (c) before the conclusion of any policy, intermediaries are obliged to record the client’s characteristics and needs in a document specifically designed for this purpose and need to query the client in this respect; this is an implementation of the obligation of Article 12(3) of Directive 2002/92 EC; (d) intermediaries are obliged to submit to the client a written and adequately justified and substantiated opinion about the type of cover they propose; (e) intermediaries are obliged to make available to clients any written guidance and printed materials of the insurers, explaining the type of cover and the characteristics of each policy and must collect from the client a written confirmation that they have actually made available such literature to the client; (f) intermediaries are obliged to advise clients on the basic terms of each policy and the respective rights and obligations arising therefrom, with emphasis on the consequences of early termination and the importance of timely payment of premiums. They are also obliged to advise clients on their rights to object to any deviations of the policy from the proposal form and their right to rescind the policy. The regulation of the Central Bank of Greece further provides that intermediaries must adopt and apply measures destined to avoid conflicts of interests; in particular, they are obliged to adopt a written corporate policy on this matter and to take any additional precaution that is reasonably necessary to preserve the independence of their judgment. Intermediaries are also responsible to provide quality information in due time and to apply measures that secure that clients will enjoy timely and comprehensible information through trained employees. They are also obliged to keep detailed records regarding the information exchanged with clients and to preserve such records for a reasonable time. 49

Regulatory Act No. 86/05.04.2016 of the Executive Committee of the Central Bank of Greece. The Act is titled “Code of Conduct of (Re)Insurance Intermediaries”, but it establishes statutory duties.

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Finally, the Bank of Greece has already implemented into Greek law the guidelines of EIOPA in connection to the obligation of Article 25 of Directive 2016/97 EU. This article obliges both insurers and intermediaries who create insurance products to adopt internal procedures for the evaluation and approval of such products, so that they fit the needs and the characteristics of the customers to whom they are addressed to. Under Greek law, all these obligations represent statutory duties, which the intermediaries bear to the customers. Breach of such duties can cause both administrative fines and private enforcement. So breach of such duties may result to liability of intermediaries under civil law, although this involves difficulties as to the quantification of damages. It is worth mentioning that the regulation of the Central Bank makes liable each and every member of the management of the intermediary on a personal, joint and several basis with the intermediary enterprise.50 The Hellenic Association of Insurance Brokers has issued its own Code of Conduct. This Code applies only to the conduct and relationship of brokers with insurance companies; the conduct of brokers towards applicants is outside the scope of the Code. The Code is not of a statutory nature. It does not amount to legislation or regulation. However, it is legally binding on a contractual basis between the intermediaries and insurance undertakings that have adhered to it. It is not ‘soft law’ only. Its provisions are ancillary, additional and supplementary to the above-mentioned regulation of the Central Bank of Greece, which applies to all intermediaries. What is of interest in connection to this Code is that it provides that the brokers, who approach insurers to obtain a quotation, must act on the basis of written instructions from the applicant and that they must submit a copy of such written instructions to the insurer. Compliance with this process can in practice solve many of the uncertainties that usually arise as to the issue on whether the broker is acting for the policyholder or the insurer. If the broker has indeed obtained written instructions from the applicant and has in fact submitted such instructions to the insurer, then there will be express authority, and it is highly unlikely that any uncertainty will arise, at least in connection to those issues and matters relating to the conclusion of the contract.

3.3.2

Insurance Distribution Directive 2016/97 EU51

Directive 2016/97 EU on insurance distribution has refined, extended and reinforced the disclosure obligations of intermediaries, and it provides for disclosure obligations for insurers also. The impact of the new Directive on transparency is

50 Art. 31(4) of Directive 2016/97 EU on insurance distribution contains a provision to the same effect. 51 The Financial Conduct Authority of the UK has issued useful practical guidance on the implementation and the interpretation of Directive 2016/97 in its Consultation Paper I (No. 17/7). This guidance is of international interest and is not unique to UK only.

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substantial, and its disclosure provisions are rigorous. The new Directive contains a set of 14 articles on information requirements and conduct of business (Arts. 17–30). The Directive is one for minimum harmonisation, thus allowing member states to retain or introduce more stringent provisions for the protection of the interests of customers and potential customers.52 The Directive has been implemented into Greek law by virtue of Law 4583/201853 (Arts. 27–40); Articles 27–40 are implementing Articles 17–30 of the Directive. In addition, secondary Greek regulation on intermediaries issued by the Central Bank of Greece is also taking into account the obligations set by the Directive.54 The Greek legislator has implemented the Directive without retaining or introducing stringent provisions. So in implementing the Directive, Greek law has greatly retained its structure and the sequence of the provisions as they appear in it. It is also worth mentioning that Law 4583/2018 has abolished previous local legislation on insurance intermediaries, such as Law 1569/1985 and Presidential Decree 190/2006. Law 4583/2018 was published on the National Gazette on 18 December 2018 and came into force on that date. However, Directive 2016/97 provided that member states should have implemented it by 01 July 2018. So Greece was late in implementing the Directive. It is worth noting, though, that most of the provisions of the Directive have a direct effect on local law as from 30 September 2018, even in the absence of formal implementation by way of national legislative measures. The disclosure provisions of the previous Directive on insurance intermediaries, that is, Directive 2002/92 EC, are retained. Additional disclosure obligations have been imposed also. Article 17 of the Directive (Art. 27 of Greek Law 4583/2018) sets general principles to which intermediaries must abide. Intermediaries must always act to the best interest of the client; in particular, they must act honestly, fairly and professionally. Their communications to clients must be clear, fair and not misleading, including the requirement that any advertising or marketing materials must be clearly identified as such. Remuneration and performance measurement policies for both intermediaries and their staff must not promote mis-selling and must not conflict the duty to act to the best interest of clients. Such general principles are supplemented by some very important and overarching obligations of intermediaries. On the one hand, under Article 20(1), intermediaries must obtain a clear picture of the client’s needs and must only propose products corresponding to such needs. On the other hand, under Article 25, intermediaries must ensure that the products they propose have passed an internal evaluation and assessment test; 52

See recital 3 of Directive 2016/97. The implementation of Directive 2016/97 EU received little attention in Greek legal literature; see Rokas (2019a); Rokas (2019b), p. 3; Varouchaki (2016), p. 1; Karamanakou (2017), p. 772. 54 In particular the more important regulatory provisions are contained in Regulatory Act No. 86/05.04.2016 of the Executive Committee of the Central Bank of Greece. The Act is titled “Code of Conduct of (Re)Insurance Intermediaries” and establishes statutory duties for intermediaries. The provisions of the Act are based on Directive 2016/97, although the Act itself came into force before law 4583/2018 which implemented the Directive. 53

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they also must ensure that they fit the characteristics and the needs of the particular market segment to which they are offered and that they are not offered to another type of customers for whom they do not fit, particularly if they entail risks that those customers are not appropriate to bear. According to Article 18 of the Directive (Art. 28 of Greek Law 4583/2018), intermediaries are obliged to disclose to clients (in addition to their identity, their registered office, their capacity as intermediaries and not insurers, the complaints’ processes available and any cross-shareholding participations with insurers) whether they provide advice about the insurance products sold (advised sales), as well as whether they are acting for the customer or the insurance company. According to Article 20(1) of the Directive (Art. 30(1) of the implementing Greek law), an intermediary that claims to provide advice as to the insurance products sold is obliged to provide—prior to contract conclusion—a personalised recommendation explaining why a particular product would best meet the customer’s demands and needs. Furthermore, by making the intermediary responsible to inform the client whom they are representing, the Directive makes an attempt to overcome the uncertainties and difficulties that usually arise in connection to the representative powers of the intermediary and the imputation of his knowledge and fault. Indeed, in many cases, such disclosure shall be sufficient to prevent this type of ambiguity and similar litigation to arise. Moreover, under Article 19(1)(e), 19(2) and 19(3), which are implemented by Article 29 of Greek Law 4583/2018, intermediaries have a rigorous obligation to inform customers about several aspects of the remuneration received, such as the volume, the nature and the source of the remuneration; how it is calculated; whether it is paid by the applicant or the insurer; etc. Article 17 of Directive 2016/97 EU and Article 27 of Greek Law 4583/2018 also deal with the issue of intermediaries’ remuneration.55 Forms of remuneration, including aggressive bonuses to incentivise sales, or aggressive contingent commissions, may result to mis-selling, by bringing intermediaries in a situation of conflict of interest towards customers. Such aggressive incentives may lead intermediaries to propose products that do not fit customers’ needs, instead of other more suitable products, which are, though, remunerated less favourably. Article 17 does not expressly prohibit specific types of remuneration or bonuses, but it creates an obligation for both insurers and intermediaries to review remuneration policies and ensure that they do not employ incentives, which are likely to enhance mis-selling. This obligation is a rigorous one. Private enforcement is likely to discipline the market as insurers and intermediaries are exposed to potential liability to customers if they do not abide with prudent remuneration methods. Remuneration policies providing for excessively high bonuses or bonuses that are disproportionate to the total volume of remuneration are likely to result to mis-selling. For example, sales targets that trigger a higher than

55

Useful guidance in relation to the risks associated with types of remuneration and incentive schemes can be found in the document issued by the UK Financial Services Authority titled Final Guidance, Risks to customers from financial services, January 2013.

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normal increase to the level of remuneration or sales targets that retrospectively increase the rate of bonuses for all sales over a period rather than just those sales that exceed the target or an incentive scheme that provides a high bonus for the first ten members of the sales staff who will reach a sales target or other similar arrangements that are aggressive in seeking only to enhance sales, without taking into account the interests of the customers, are likely to infringe Article 17 of the Directive and may no longer represent a legitimate practice.56 Still, there is one problem relating to remuneration, which is not dealt with by Article 17. In particular, representing many insurers is a means to secure the objectivity of intermediaries, but this target is cancelled if each insurer offers a different level of commission (which is usually the case) or if some insurers provide remuneration in the form of contingent commissions based on gross sales. In any case, the attempt of the new Directive to closely discipline intermediaries’ remuneration is justified. In addition, under Article 20 paras. (4)–(8), which are implemented by Article 30 of Greek Law 4583/2018, intermediaries are obliged to provide to clients, before the conclusion of the contract, ‘product specific’ information in summary form.57 This includes information about the type of cover, the exceptions from cover, the duration of the cover and its termination, and any obligations that the insured must meet on the commencement of the cover or during the period of the contract or when a claim is raised. Such information must be provided in the form of a standardised document, which is called ‘Insurance Product Information Document’ (IPID). EIOPA has carried out research to come up with a standard format document and has issued its final report and its recommendations on this subject in July 2016.58 In August 2016, EIOPA has also issued a Consultation Paper regarding IPID.59 Such a standardised IPID is likely to not only increase the level of awareness of policyholders but also enable them to efficiently compare products proposed by different insurers and hence to enhance competition. Articles 26–30 of the Directive (Arts. 36–40 of Greek Law 4583/2018) provide for additional disclosure requirements in connection to investment-type insurance policies, where the disclosure obligations are similar to those of investment brokers under the financial service regulation. However, member states are allowed to provide an exemption from such requirements when the client is a professional. It is worth mentioning that Article 29(1) of Directive 2016/97 EU allows member states to require that the information provided to customers by both intermediaries and insurers should be in a standardised form; Article 39 of Greek Law 4583/2018, which implemented the above Directive, has not made use of this option and, hence, In 2012 in the US the Dodd – Frank Act prohibited similar arrangements in connection to intermediaries’ remuneration in the mortgage lending market. 57 The requirements of Art. 20 of the Directive regarding product specific information in summary form have been further refined by the Implementing Regulation 2017/1467 EU on the standardized presentation format for the insurance product information document. 58 EIOPA, IPID Consumer testing and design work, Final Report, EIOPA/OP/153/2015, July 2016. 59 EIOPA Consultation Paper on the proposal for implementing technical standards on a standardized presentation format of the IPID, EIOPA-CP-16/007, 01.08.2016. 56

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does not provide for information in standardised form in connection to investmenttype insurance policies. In addition, Article 29(3) of the Directive allows member states to introduce stringent requirements on the information provided to customers in connection to investment-type policies, but the Greek law has not made use of this option and has not introduced any such stricter obligations. The Directive imposes disclosure obligations to insurers as well. Insurers are obliged to provide information relating to their identity and registered office, the complaint process, as well as whether they are providing advice as to the insurance products sold (advised and non-advised sales). Insurers are also responsible for providing ‘product specific’ summary information relating to the policy in question in the form of a standardised IPID. By making both insurers and intermediaries responsible in connection to the IPID, the Directive fills a gap in the flow of information that could arise, in case that the intermediary failed to fulfil his obligations. Another important innovation of the Insurance Distribution Directive is Article 25 (Art. 35 of Greek Law 4583/2018), obliging insurers to adopt specific procedures for the evaluation and approval of the insurance products that they offer to customers. This means that insurers must identify the particular market segment to which each product is addressed; to take into consideration the particular needs of this type of customers, as well as the risks associated with them; to ensure that the product shall be designed to fit such needs and risks; to secure that the product shall not be distributed to other customers for whom it does not fit; to review all those and adapt products to market changes; and to educate distributors on the peculiarities of each insurance product. Intermediaries bear the same responsibilities in case they are creating insurance products themselves. Moreover, intermediaries that distribute products created by insurers have a responsibility to obtain from insurers the information regarding the characteristics of each insurance product, the market segment to which it is addressed and the approval process that has been followed for this product. EIOPA has issued specific guidelines for the implementation of Article 25.60 The requirement of Article 25 of the Directive has been further refined by Delegated Regulation 2017/2358 EU on product oversight and governance requirements for insurance undertakings and insurance distributors. The impact of the provisions of Directive 2016/97 EU and the implementing Law 4583/2018 on private insurance contract law is the same as the impact of the 1st Insurance Mediation Directive 2002/92 EC. Both Directives establish statutory duties under civil law. Breach of such duties may result to the liability of both insurers and intermediaries towards customers and prospective (potential) customers. The existence of specific statutory duties as to disclosure makes it unnecessary to examine whether the intermediary acted on behalf of the insurer or the customer and whether the intermediary’s fault is attributed to the former or the latter. However, even when there is breach of a statutory duty, difficulties as to establishing

60 EIOPA, Preparatory guidelines on product oversight and governance arrangements, 18.03.2016, EIOPA-BoS-16-071.

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causation and quantification of damages may still arise. Moreover, the existence of specific statutory duties may give rise to administrative fines and other administrative disciplinary measures.

4 Conclusion: The Impact of Insurance Regulation on Transparency on Private Insurance Law Disclosure and transparency provisions establish statutory duties for insurers and intermediaries. It is an issue of legal interpretation whether breach of such statutory duties entitles policyholders to a legal action for damages or not. It is up to the national courts of the member states to determine whether private enforcement is possible or not. It is true that if national courts adopt different interpretations on this matter, the way EU law is enforced may differ dramatically from one EU country to another. Under Greek law, private enforcement is likely to be possible for the majority of the provisions of Directives 2009/138 EC and 2016/97 EU. What is decisive for determining whether a legal action for damages is possible or not is whether it was the purpose of the legislator to grant this type of protection to policyholders or whether the only enforcement that the legislator intended to establish was by way of administrative fines. Civil courts will be required to determine whether the disclosure and transparency provisions actually intended to protect individual interests of policyholders or not. There should be no reservation that provisions on pre-contractual disclosure are indeed destined to protect individual interests of policyholders and hence entitle the latter to a legal action for damages if they are breached. Such provisions directly deal with the contractual relationship of the parties, and consequently they are destined to establish individual rights and obligations. Additionally, Article 27 of Directive 2009/138 EC expressly provides that the purpose of supervision is the protection of policyholders and beneficiaries. On the basis of such a provision, one may conclude that regulatory provisions aim to protect not only market stability but also individual interests of policyholders and beneficiaries. Inaccuracies in the Solvency and Financial Condition Report should also be actionable. This report is one that is made publicly available, so insurers can reasonably predict that it will induce potential clients. Moreover, this report is additional to other regulatory filings that remain private as they are addressed to the supervising authority only. Efficient private enforcement will, still, need to overcome difficulties relating to establishing causation and quantification of the loss suffered. In a similar context, the EU Commission has issued a Communication61 on quantifying harm for damages based on breaches of EU competition law, as well as a practical guide on quantifying 61

EU Commission, 2013/C 167/07, C 167, 13.06.2013, 19.

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harm.62 A similar approach and initiative from the Commission would be welcome in relation to quantification of damages in case of breach of statutory duties as to disclosure and transparency. Damages may not always be an adequate remedy to policyholders. Article 186 of Directive 2009/138 EC provides for a cooling-off (cancellation) period in favour of policyholders only in case of life policies. Under Greek law, non-life policyholders already enjoy similar rights. Beneficiaries are usually mistreated in relation to how claims are handled by insurers. The new EU legislation has failed to provide any disclosure and transparency obligations in connection to the claims’ process and the respective practices applied by insurers, although this is an important aspect that usually causes much concern and leads to litigation. Finally, enhanced transparency is likely to lead to less litigation. This is of vital importance because in case of litigation, insurers are usually better placed than the insured parties. Insurance law usually gives rise to difficulties as to the burden of proof and access to evidence, while insurers have easier access to more sophisticated and expert legal advice and services. Acknowledgements The author wishes to thank Miss Xenia Chardalia, LL.B., LL.M., LL.M. for her valuable legal insight and ideas in discussing the issues raised in this chapter.

References Carnell RS, Macey JR, Miller GP (2008) The law of banking and financial institutions, 4th edn. Wolters Kluwer CEIOPS (Committee of European Insurance and Occupational Pensions Supervisors) Consultation Paper No. 34, Transparency and Accountability, (CEIOPS-CP-34/09), 26.03.2009 Cerini D (2010) The information duties of insurance intermediaries. In: Rokas IK (ed) Insurance intermediaries, AIDA Distribution of Insurance Products Working Party 2010. Sakkoulas, Bruylant, p 159 Chrissanthis C (2010a) Representative power of insurance intermediaries (agents and brokers) and imputation of their knowledge and fault. In: Rokas IK (ed) Insurance intermediaries, AIDA Distribution of Insurance Products Working Party 2010. Sakkoulas, Bruylant, p 49 Chrissanthis C (2010b) Tied insurance intermediaries. In: Rokas IK (ed) Insurance intermediaries, AIDA Distribution of Insurance Products Working Party, 2010. Sakkoulas, Bruylant, p 9 Chrissanthis C, Chardalia X (2017) Insurance and reinsurance law in Greece. In: The international comparative legal guide to insurance & reinsurance 2017. Global Legal Group, London Dong MI (2014) Market reaction to transparency: an empirical study on life insurance demand in Europe. ICIR Working Paper Series, No. 17 EIOPA. Preparatory guidelines on product oversight and governance arrangements, 18.03.2016, EIOPA-BoS-16-071 Fung A, Graham M, Weil D (2008) Full disclosure: the perils and promise of transparency. Cambridge University Press

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EU Commission, SWD (2013) 205, 11.06.2013, C 2013, 3440.

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Galli G (2005) Towards a good governance in financial and insurance services: transparency in the life insurance industry in Italy. Geneva Papers 30:443–450 Healy PM, Palepu KG (2001) Information asymmetry, corporate disclosure and the capital market: a review of the empirical disclosure literature. J Account Econ 31:405–440 Hellenic Association of Insurance Companies, Annual Report for 2018 Karamanakou E (2017) Tied insurance intermediaries and ancillary insurance intermediaries in European Union law and bank assurance. Commercial Law Rev, 772 [in Greek] Kennedy LJ et al (2012) The consumer financial protection bureau: financial regulation for the twenty first century. Cornel Law Rev 97:1141 La Port R, de Silanes Florencio L, Shleifer A (1999) Corporate ownership around the world. J Finance 54:471 seqq. La Port R, de Silanes Florencio L, Shleifer A (2003) What works in securities laws? NBER 2003, Working Paper 9882, July, JEL No. G15, G18, G3, G22, P5 Lang MH, Lundholm RJ (1996) Corporate disclosure policy and analyst behavior. Account Rev 71:467–492 Lin S-L, Yang C-C (2013) Relationships between information transparency, corporate governance and D&O insurance. Int J Soc Behav Educ Econ Bus Ind Eng 7:2184–2187 Looijenga M (2016) Customer centricity and transparency in the healthcare insurance sector. Wageningen University Lualdi M (2005) Investor needs for transparency and good governance, and insurance reactions. Geneva Papers 30:467–476 Marano P (2010) Which regulation for the reinsurance intermediaries? The present and future of the EU Directive 2002/92 EC. In: Rokas IK (ed) Insurance intermediaries, AIDA Distribution of Insurance Products Working Party, 2010. Sakkoulas, Bruylant, p 23 Nat’l Sci. & Tech. Council, Smart disclosure and consumer decision making: Report of the Task Force on Smart Disclosure, 2013 (7) Rokas IK (2013) Freedom to fix premiums, adequacy of premiums for regulatory purposes and transparency of general terms and conditions relating to premium increases. Commercial Law Rev (Epitheorisi Emporikou Dikaiou), p 517 Rokas I (2019a) Insurance intermediation. A commentary on law 4583/2018. Sakkoulas Publications [in Greek] Rokas I (2019b) Law 4583/2018 on the implementation of Directive 2016/97 EU on insurance distribution. Nomiko Vima (a Greek Law Review issued by the Athens Bar), p 3 [in Greek] Schwarcz D (2010) Regulating insurance sales, or selling insurance regulation? Against regulatory competition in insurance. Minn Law Rev 94:1707 Schwarcz D (2014) Transparently opaque: understanding lack of transparency in insurance consumer protection. UCLA Law Rev 61:394 Siegel C (2013) Solvency assessment for insurance groups in the United States and Europe: a comparison of regulatory frameworks. Geneva Papers 38:308–331 Smith MJ-H (2010) Solvency II: The ambitious modernization of the prudential regulation of insurers and reinsurers across the European Union. Connecticut Insur Law J 16(2):357 Vander Bauwhede H, Willekens M (2008) Disclosure on corporate governance in the European Union. Corp Gov 16:101–115 Varouchaki E (2016) Directive 2016/97 EU on distribution of insurance products and the obligations arising therefrom for insurance enterprises. Rev Private Insur Law, p 1 [in Greek]

Transparency in the Insurance Contract Law of Italy Sara Landini

1 Introduction This chapter deals with transparency in insurance contracts under Italian law. The theme is framed in Italian legislation and in the complex relationship between the Civil Code, the Consumer Code (Legislative Decree 206/2005, Cons. Cod), the Insurance Code (Legislative Decree 209/2005, Ins. Code, recently modified by Legislative Decree 68/2018), IVASS (Italian Insurance Market Authority), TUF (Legislative Decree 58/1998) and Consob (the Italian public authority responsible for regulating the Italian financial markets) regulation. The term transparency is used in different ways: duty to inform and to advise; fiduciary duties and suitability rule in insurance contracts distribution; comprehensibility, certainty, completeness of contractual content; and fairness of contractual terms and unfair commercial practices. This last issue could be related to the recent Italian case law evolution on judicial worthiness control in case of B2B contracts. We will consider also the issue from the point of view of the case law evolution that is of particular interest in Italian law. Italian judges have a large margin of discretion in interpreting the law in view of the general clauses and the general principles contained in the rules. Alongside Italian case law, much emphasis will be given to the Community case law, which strongly influenced Italian courts by linking the issue of transparency to that of fairness of contractual terms and pre-contractual information, hence the importance of the concept of clarity and comprehension of the text and its connection to the topic of information and advice during the pre-contractual phase. Finally, attention is paid to the consequences of breaching the rules of conduct imposed on insurers and insurance intermediaries. S. Landini (*) Department of Legal Sciences, University of Florence, Florence, Italy e-mail: sara.landini@unifi.it © Springer Nature Switzerland AG 2019 P. Marano, K. Noussia (eds.), Transparency in Insurance Contract Law, AIDA Europe Research Series on Insurance Law and Regulation 2, https://doi.org/10.1007/978-3-030-31198-8_5

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2 Legal Framework of Italian Insurance law In Italy, the first discipline of the insurance contract was contained in the Commercial Code of 1882, in which insurance was regulated. The Civil Code of 1865 merely mentioned the insurance contract between aleatory contracts. The 1882 Commercial Code and the 1865 Civil Code were unified in the 1942 Civil Code (CC) regulating insurance contracts in Articles 1882–1932.1 The rules governing the insurance company were contained in special laws, which were then unified in the ‘Testo Unico’ of 1959 (now abolished by the Ins. Code). Despite the various attempts to unify the discipline of insurance contracts and of insurance undertakings,2 the division still remains today. Lastly, such an idea has been repeated with the issuance of the Private Insurance Code; in its final drafting, it saw the maintenance of the systematic split between the contract (disciplined by Artt. 1882–1932 cc) and the enterprise (mostly governed by Artt. 11–106 Ins. Code). We must say that at present time, the most significant part of the insurance contract discipline is contained in the Civil Code, although there are some provisions in the Insurance Code relevant to insurance contracts; in particular, Article 165 ff. Ins. Code is contained in Title XII, ‘Rules on Insurance Contracts’. Article 165 regulates the connection between the Insurance Code and the Civil Code, Article 166 contains rules on the drafting of insurance contracts, Article 167 provides for the nullity of the insurance contract concluded with an unauthorised undertaking, Article 168 is about the effects of portfolio transfer, Article 172 is on the right of withdrawal in case of tariff variations, Article 173 discusses legal protection, Article 176 provides rules on the withdrawal of proposal in life insurance, Article 177 is about the ius poenitendi in case of life insurance, and Articles 180–181 are about the applicable law in the case of international contracts. The presence of contractual provisions in the Insurance Code seems to emphasise the osmotic process between the insurance enterprise and insurance contracts.3 Finally, the Consumer Code (Legislative Decree no. 206/2005, Cons. Code) assumes relevance with regard to insurance contracts when the contractor, the insured or the beneficiary is a consumer, with particular regard to the discipline of unfair terms, unfair commercial practices and distance contracts.4 This is a condition that sometimes poses problems of coordination in the application of law. For instance, unfair commercial practices are regulated by the Consumer Code (Art. 18 ff.), the Insurance Code (Art. 182 on ‘the Law on Advertising and Marketing of Insurance Products’) and the Insurance Market Authority’s regulations (see IVASS Regulation 40 and 41 2018). 1

Volpe Putzolu (1987), p. 77. Asquini (1934), p. 5. 3 Vivante (1886), p. 4 ss. According to art. 1883 c.c. the insurance activity can be exercise only by an insurance undertaking. 4 Corrias (2007), p. 1750. 2

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Lastly, maritime insurance continues to find its own rules prevailing in the Navigation Code, where provisions both on maritime insurance (articles 514–547) and air insurance (articles 1001–1021) are laid down. According to Article 25 bis TUF, introduced by Act 262/2005 and modified by Legislative Decree 303/2006, Article 21 TUF on pre-contractual information and rules of conducts and Article 23 TUF on mandatory form and content of contract are applicable also to linked policies and capitalisation contracts.

3 Legal Framework on Transparency in Italian Law The fundamental norms on transparency are contained in the Civil Code: Article 1366 CC on interpretation in good faith and Article 1337 on fairness in the pre-contractual phase. Beyond the sectoral rules on transparency in insurance contracts, these two rules represent the pivot of the whole system, which, on the basis of these, must be interpreted. In Italy, pre-contractual liability is ruled by a statutory provision that requires parties to act in good faith during the negotiation and formation of the contract (Art. 1337 Civil Code). Since the entry into force in Italy of the current 1942 Civil Code, Article 1337 has been consistently given a narrow interpretation. From this narrow perspective, pre-contractual liability applies only in two cases: (1) when a party terminates negotiations without a valid reason or (2) when a party, aware of the existence of grounds for the invalidity of the contract or of other circumstances relevant to the contract, fails to communicate these to the other party.5 According to Article 1366, ‘the contract must be interpreted in good faith’. According to Italian case law, this norm means that in ascertaining the intention of the parties, good faith requires that the parties’ declarations should be interpreted as coming from reasonable people. Courts generally apply the principle of interpretation in good faith to fill gaps left by contractual provisions or to interpret them in an ‘equitable’ way.6 The most important primary norm on transparency in insurance contracts is contained in Article 183 Ins. Code, affirming that before the conclusion and during the term of the contract, undertakings and intermediaries shall  behave with diligence, fairness and transparency towards policyholders and insured persons;  acquire from policyholders the information necessary to evaluate their insurance or pension needs and act in such a manner that they are always appropriately informed;

5

Febbraio (2016), p. 291; Perlingieri (2012), p. 1301; D’Amico (2006), p. 983; Benatti (1991), p. 7; Alpa (1981), p. 535. 6 Bigliazzi (1991), p. 182.

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 make arrangements so as to identify and prevent—where reasonably possible— conflicts of interest and, in case of conflict, make policyholders aware of the possible adverse effects, and anyhow manage conflicts of interest so as to exclude any detrimental consequences for policyholders;  achieve an independent, sound and prudent financial management and take adequate measures to safeguard the rights of policyholders and of insured persons. IVASS shall, by its own regulation, adopt specific provisions on the drawing up of the rules of conduct to be observed in the relations with policyholders so that the activity is carried out correctly and taking account of each individual’s specific needs. In its regulation, IVASS shall take account of policyholders’ and insured persons’ different needs for protection, as well as of the nature of the risks and commitments covered by the undertaking; it shall establish the categories of subjects that do not need, in whole or in part, the protection envisaged for retail customers and shall establish the terms, limits and conditions of application of these provisions before the conclusion and during the term of non-life insurance contracts, taking account of the particular features of the various types of risk. The secondary sources of law on transparency are some IVASS regulations:  ISVAP (now IVASS) Regulation no. 34 of 19 March 2010 on the promotion and distance marketing of insurance contracts;  IVASS Regulation no. 41/2018, which modifies the previous Regulation 35/2010 on the information obligations and the advertising of insurance products;  IVASS Regulation no. 40/2018, which modifies the previous Regulation no. 5 of 16 October 2006, laying down provisions on insurance and reinsurance mediation.

4 The Protection of the Weak Party of the Contract in Italy with Particular Regard to Information Asymmetry National laws usually provide special dispositions aimed at consumer protection that have a specific impact on insurance contract law (i.e. unfair terms, unfair commercial practices). A study conducted by the Office of Fair Trading (OFT) with regard to UK consumers, published on February 2011,7 found that consumers rarely read contracts in full before entering them. Thus, they are usually unaware of some of the terms to which they are agreeing. Consumers can also make mistakes in interpreting terms and conditions that they are aware of. Moreover, we have to consider other factors related to the contract:

7

http://www.oft.gov.uk/shared_oft/marketstudies/consumercontracts/oft1312.pdf.

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 Lengthy boilerplate terms are often in fine print and written in a technical and complicated legal language.  Access to the full terms may be difficult or impossible before acceptance. Often the document being signed is not the full contract.  There may be social pressure to sign. For instance, the salesperson may imply that the customer is being unreasonable if he reads the terms. If the purchaser is at the front of a queue, there could be additional pressure to sign quickly. Sometimes suppliers give to customers a gift (also small), which socially obliges the customer to be co-operative and to conclude the transaction.  Information asymmetry could be another disadvantage for consumers. Firms usually know the distribution of interests and price across consumers. At the same time, individual consumers are unaware of this distribution. In the market with such information asymmetry, a firm is able to maximise its profits by setting the price to attract consumers that would give the product a high rating.8 Many consumer purchases are problematic, whether or not written or in complex oral terms and when conditions are involved. Also, personal and social conditions play a relevant role. Young people are especially likely to have problems with their contracts, while older consumers use prior experience and knowledge as a source of understanding. Consumers with higher incomes, those in higher social classes and those who have a higher education level have reported more problems, and this could be perhaps because they are accustomed to driving a hard bargain.9 Moreover, the purchase method is significant as a transaction can be conducted face to face, over the phone or via the Internet. The purchase method can influence consumers’ understanding of terms and conditions. This may depend on the different nature and degree of interaction between the parties of the contract, the accessibility and presentation of terms and conditions, the timing of when information is presented and the time available to assess information and make a decision. According to the results achieved by OFT, the most common problems were related to goods and services not meeting expectations. Sometimes there could be a

Becher (2008), p. 730: ‘Consumer policy increasingly places emphasis on the role of information in allowing consumers to protect themselves and promoting a competitive economy. Increasing the information available to consumers is undoubtedly beneficial, but this article cautions that the limitations of consumer protection though information also have to be recognized. In particular, emphasis is placed on the insights provided by behavioural economics which suggests that consumers may not always respond to information provided as rationally as traditional economic models sometimes assume. One implication of this is that the way information rules are framed needs to be revisited. Other consumer policy approaches (altering the default rules, using bans and regulations, and risk sharing) need to be considered alongside a strategy of information provision. To analyse which approach should be adopted or to find the appropriate balance between different approaches requires policy makers to engage more fully with the legal and consumer policy research community’: Howells (2005), p. 349; See also Grundmann et al. (2001); Weatherhill (1994), p. 49; Whitford (1973), p. 400; Sunstein and Thaler (2003), p. 1159. 9 Viscusi (1996), p. 661; Bainbridge (2000), p. 102; Hanson and Kysar (1999), p. 630. 8

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contract problem: 78% of consumers stated that terms were in dispute between the consumer and the trader, and in over half of these cases consumers felt that the trader had interpreted terms to their own advantage. Other contract-specific problems included unexpected terms and conditions (34%), cancellation problems (28%) and unreasonable charges and penalties (27%). Usually consumer contracts are standard contracts (sometimes known as adhesion or boilerplate contracts): these are contracts between two parties where the terms and conditions of the contract are set by one of the parties, and the other party has little or no ability to negotiate terms. It is commonly said also that the other party is placed in a ‘take it or leave it’ position.10 There is a debate whether, and to what extent, courts should enforce standard form contracts. On the one hand, they undeniably have an important role of promoting economic efficiency since they reduce transaction costs. On the other hand, unjust terms could be accepted by signatories in these contracts. For instance, terms might be considered unjust if they allow the seller to avoid all liability or unilaterally modify terms or terminate the contract. Such terms are not only unjust from a juridical point of view, but they also might be economically inefficient if they place the risk of a negative outcome on a consumer that is not in the best position to take precautions. Moreover, standard form contracts are usually drafted by lawyers who are instructed to minimise the firm’s liability and not necessarily draft to implement managers’ competitive decisions. There are a number of reasons why such terms might be accepted: standard form contracts are rarely read; standard form contracts may exploit unequal power relations and may have not enough information about the product purchased. Some contend that in a competitive market (11), consumers have the ability to shop around for the supplier that would offer them the most favourable terms. However, in case of oligopolies, consumers may still have access to form contracts only with similar predetermined terms and no opportunity for negotiation. Moreover, also in a competitive market, there could be no real opportunity for negotiation. Many people do not read or understand the terms, so there might be very little incentive for a company to offer favourable conditions. As we have said, in many countries, there are laws protecting consumers from unfair terms. In American law, the protection comes mainly from common law. In European Union countries, specific rules have been adopted by national legislators according to European Directive 93/13/CEE on unfair clauses in consumer contracts. Also, Asian countries have specific rules for B2C contracts, e.g. the Japanese Consumer Contract Act enacted in 2000 and amended in 2006. According to Directive 93/13, a contractual term that has not been individually negotiated shall be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract, to the detriment of the consumer. A term shall always be regarded as not

10 11

Rackoff (1988), p. 1174. Waterson (2003), p. 129.

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individually negotiated where it has been drafted in advance and the consumer has therefore not been able to influence the substance of the term, particularly in the context of a pre-formulated standard contract. Unfair terms are considered to be void and without effect. Article 3 of Directive 93/13 contains an indicative and non-exhaustive list of the terms that may be regarded as unfair. Among them, also in regard to hospitality industry, we can cite clauses  excluding or limiting the legal liability of a seller or supplier in the event of the death of a consumer or personal injury to the latter resulting from an act or omission of that seller or supplier;  inappropriately excluding or limiting the legal rights of the consumer vis-à-vis the seller or supplier or another party in the event of total or partial non-performance or inadequate performance by the seller or supplier of any of the contractual obligations, including the option of offsetting a debt owed to the seller or supplier against any claim which the consumer may have against him;  making an agreement binding on the consumer whereas provision of services by the seller or supplier is subject to a condition whose realization depends on his own will alone;  permitting the seller or supplier to retain sums paid by the consumer where the latter decides not to conclude or perform the contract, without providing for the consumer to receive compensation of an equivalent amount from the seller or supplier where the latter is the party cancelling the contract;  requiring any consumer who fails to fulfil his obligation to pay a disproportionately high sum in compensation;  authorizing the seller or supplier to dissolve the contract on a discretionary basis where the same facility is not granted to the consumer, or permitting the seller or supplier to retain the sums paid for services not yet supplied by him where it is the seller or supplier himself who dissolves the contract;  enabling the seller or supplier to terminate a contract of indeterminate duration without reasonable notice except where there are serious grounds for doing so;  automatically extending a contract of fixed duration where the consumer does not indicate otherwise, when the deadline fixed for the consumer to express this desire not to extend the contract is unreasonably early;  irrevocably binding the consumer to terms with which he had no real opportunity of becoming acquainted before the conclusion of the contract;  enabling the seller or supplier to alter the terms of the contract unilaterally without a valid reason which is specified in the contract;  enabling the seller or supplier to alter unilaterally without a valid reason any characteristics of the product or service to be provided;  providing for the price of goods to be determined at the time of delivery or allowing a seller of goods or supplier of services to increase their price without in both cases giving the consumer the corresponding right to cancel the contract if the final price is too high in relation to the price agreed when the contract was concluded;

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 giving the seller or supplier the right to determine whether the goods or services supplied are in conformity with the contract, or giving him the exclusive right to interpret any term of the contract;  limiting the seller’s or supplier’s obligation to respect commitments undertaken by his agents or making his commitments subject to compliance with a particular formality;  obliging the consumer to fulfil all his obligations where the seller or supplier does not perform his;  giving the seller or supplier the possibility of transferring his rights and obligations under the contract, where this may serve to reduce the guarantees for the consumer, without the latter’s agreement;  excluding or hindering the consumer’s right to take legal action or exercise any other legal remedy, particularly by requiring the consumer to take disputes exclusively to arbitration not covered by legal provisions, unduly restricting the evidence available to him or imposing on him a burden of proof which, according to the applicable law, should lie with another party to the contract. In regard to consumer protection remedies, we can remember a famous distinction: preventive measures, restitution and punishment.12 The promulgation of codes of conduct inspired by customers’ satisfaction principles could be considered a preventive measure. Moreover, many existing norms of consumer legislation are based on the presumption that consumers should have the necessary information in order to compare products in the marketplace. This kind of measure can be considered a preventative measure. Restitution is usually defined as reparations made by providing an equivalent product or compensation for loss or injury caused or restoration of property rights previously taken away. We can consider, as regards restitution, invalidity of contracts in violation of imperative norms or rescission of contracts in case of misrepresentation (a false statement of fact made by one party to another party), invalidity or violability of contracts in case of mistake (it is an erroneous belief, at contracting, that certain facts are) and consequently refunds of payments. Consumers can also claim damages in case of violation of their rights. With regard to insurance contracts, the Ins. Code considers the insured party, the policyholder and the beneficiary of the policy to be weak, regardless of their qualification in terms of consumer. This implies, as already mentioned, a somewhat different subjective area of application of the legal framework for the protection of the weak part of the insurance contract and in particular as regards the discipline on transparency and disclosure obligations, compared with the consumers law.

12

Cohen (1975), p. 24 ff.

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5 Transparency and Duty to Inform and to Advise: Fiduciary Duties and Suitability Rule in Insurance Contract Distribution According to the above-mentioned information asymmetry, the special duties of information and advice are addressed to insurers and intermediaries.13 The obligations arising from the fiduciary relationship between the intermediary and/or the insurer and the client in the distribution of insurance products is enriched by the obligations to inform and to advise the customer in order to support his or her consent and to offer to him or her a product that meets his or her interests. Detailed provisions on the duties to inform and to advice are contained in Regulations issued by IVASS (former ISVAP), which are a secondary source of law.14 ISVAP Regulation no. 34/2010 on the promotion and distance marketing of insurance contracts shall apply to the promotion and placement by means of distance communication, by insurance undertakings, of both life assurance contracts intended

13

Information is in written form. So Italian literature speaks about a new formalism. See Pagliantini (2015), p. 114. 14 Italian private legal system fixes a hierarchy of norms taking into account the peculiar source of law from which the norms derive. The principle of normative hierarchy states the relationships and the order between normative dispositions and the level of different authorities. Art. 1 of Italian civil code Preliminary dispositions and the Constitution seem to draw the following order: Community law, Constitution, Ordinary law, Regulations (the administrative rulings), customary law. Ordinary Law takes the first place in normative hierarchy according to article 1 of ‘Preliminary dispositions to the civil code’, but, as we have just said, it has to be considered also the Constitution—enacted in 1948—and the 1957 European Treaties. Under the term of ‘ordinary law’ we shall include: Act of Parliament, and some acts of the Government: ‘Decreti legge’ and ‘Decreti legislativi’. As well known, the legislative function is exercised by both Houses (Camera and Senato). Legislation can be introduced by the Government, by a Member of Parliament and by those entities and bodies so empowered by constitutional amendment law. The Government, in case of necessity and urgency, adopts under its own responsibility a temporary measure called Decreto legge (Law Decredd). Such a measure loses its effect from the beginning if it is not transposed into ordinary law by Parliament within sixty days of its publication. The exercise of the legislative function can be delegated to the Government according to principles and criteria established by the Parliament with a ‘Legge Delega’ and then only for a limited period of time and for specified purposes. Such Act of Government are called ‘Decreti legislativi’ (Legislative Decredd). They have a very important place in Private law system. The consumer code is a ‘Decreto legislativo’. The Civil Code is a ‘Decreto legislativo’. The Insurance code is a legislative decree too. Government and public Authorities adopt regulations that are second class sources of law. So they have to conform to law. Italy is divided in Regions. According to art. 117 C. every Region has legislative power in some residual matters. In other cases (such as urbanistic law, health, sports, transports, energy, etc.) it is provided a concurrent competence of State and Regions. In matters of national interest (such as immigration, public order, military force, justice etc.) only the State has legislative power. Regulations of public authorities (such as Isvap, that controls insurance market, and Consob, that controls banking market) play a relevant role in private law system. For instance on 26 May 2010 ISVAP published Regulation number 35 on the disclosure duties of insurance undertakings (with particular regard to pre-contractual information to the insured parties) and the advertisement of insurance products.; Iudica-Zatti (2003).

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for policyholders having their habitual domicile or—if legal persons—their head office in the territory of the Italian Republic and non-life insurance contracts covering risks situated in the territory of the Italian Republic.15 Regulation 34/2010 provides duties of information. According to Article 4, before the policyholder is bound by any distance insurance proposal or contract, undertakings shall provide him/her with the information about  his/her right to choose to receive and send the documents referred to under article 10 (1) of the Regulation 34/2010 on paper or on another durable medium;  his/her right, in the case referred to under letter a), to change the arrangements for notification, with the indication of any costs relating to the printing and sending of documents in paper format;  the fact that the undertaking will ask the policyholder to underwrite and send back the policy, unless it has been created as an electronic file;  his/her right to be put in contact with the person responsible for coordination and supervision of the promotion and distance marketing of insurance contracts by the call centre, by indicating his/her name and function. However the observance of information duties is necessary but not enough. The insurer must also sell suitable products. Thus, according to Article 9 of Regulation 34/2010, before the policyholder is bound by a distance insurance contract, the undertaking shall acquire from him/her any information useful to evaluate how the contractual proposal fits the policyholder’s insurance and pension needs and, where appropriate in relation to the type of contract, his/her risk propensity. Regulation no. 35/2010 of ISVAP, which deals with the information obligations and the advertising of insurance products, applies to insurance undertakings and determines the contents of both the Information Dossier and the Model Summary Profile and Information Note. However, IVASS has adapted Regulation 35/2010 to the new rules contained in Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution (IDD). Thus, Regulation 41/2018 replaced Regulation 35/2010, and, accordingly with IDD, with reference to pre-contractual information – exceeds the text and the structure of Regulation no. 35, which distinguished between life products, class III and V products and non-life products; – introduces the same product breakdown provided for by the CAP and taking into account European standardised documents IPID and KID;

15

Regulation 34/2010 shall not apply to the promotion and sale through the internet of insurance contracts by insurance undertakings when (1) the website contains a specific warning that its contents are intended only for policyholders having their habitual domicile or—if legal person— their head office in a State other than Italy, as regards life assurance policies, and for the purposes of covering risks situated outside Italy, as regards non-life insurance policies; (2) the website has operational procedures in place to refuse proposals or acceptances from policyholders having their habitual domicile or—if legal person—their head office in Italy as regards life assurance policies, or proposals or acceptances regarding risks situated in Italy, as regards non-life assurance policies.

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– prepares the additional standardised models to replace the current information notes. In order to allow IPID, which is called DIP under Italian law, to adapt to the varied types of products on the market, a standardised structure is provided, but the notions of ‘main’ information and ‘supplementary’ information have been not specified. IVASS has paid attention to the simplification of additional DIP. In the case of particularly complex or modular products, it is possible that the additional DIP have a longer length. To increase the comparability of products and to underline the integrative nature of the model, it is established the obligation to report in the additional DIP all the sections and columns, even if one or more of them are destined to remain empty for lack of additional information compared to those already reported in the homologous sections of the basic model. Regulation 5/2006 contained rules of conducts addressed to intermediaries. According to Article 49, intermediaries had put up on their premises, in a location visible to members of the public, a document printed in bold characters and conforming to the model envisaged in the former Annex no. 7A, illustrating the main behavioural obligations imposed on intermediaries in accordance with the decree and this Regulation. Before policyholders sign a proposal, intermediaries had to deliver or send to the client a copy of a statement, which should conform to the model envisaged in Annex no. 7B, reporting the essential information on the intermediary and his/her activity. In case the proposal is being offered away from business premises or in case the pre-contractual steps are accomplished via distance communication techniques the intermediaries had to deliber or send to the client a document in line with Annex no. 7A. The intermediary shall keep a statement signed by the client or the proof of the correct sending of documents to the e-mail address indicated by the client affirming that all the above obligations have been executed by intermediaries. Before a proposal or, when not envisaged, an insurance contract is underwritten, intermediaries shall provide policyholders with information adequate to enable them to make informed choices corresponding to their needs. To that end, based on the complexity of the contract being proposed, they shall explain to the policyholder the characteristics, duration, costs and limits of the cover, as well as any financial risks connected to the underwriting of the contract and any other element useful to provide complete and correct information. A duty of advice was also provided. According to Article 52, undertakings had to impart instructions to the intermediaries whose services they use so that in the pre-contractual phase, they would acquire from policyholders any information useful to evaluate the adequacy of the contractual proposal with regard to the latter’s insurance and pension needs and, where appropriate, in relation to the type of contract and to their risk propensity.16 ‘In the field of financial intermediation, the client must be provided with specific and detailed information on the financial product being traded. Thus it is not sufficient for this purpose . . . a

16

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As said, Regulation 40/2018 replaced Regulation 5/2006. The new norms regulate the presentation and behaviour to be observed in the exercise of the distribution activity, integrating the provisions of ISVAP Regulation no. 5/2006 with the adjustments deriving from the new primary legislation. In particular, the regimes of incompatibility with others positions are regulated (Art. 53) and the general rules of conduct (Art. 54) are based on equity, honesty, fairness, transparency and professionalism and on the principle of best interest of the contractors and policyholders, with particular focus on the obligation to provide them with the necessary information on the products offered and to make advertising communications in a way that is correct, clear, not misleading, impartial and complete. With regard to pre-contractual information, the following shall remain in force: – the obligation to deliver the ‘Information notice on the obligations of conduct to which intermediaries are required towards the contractors’, referred to in Annex 3 (former Annex 7A)—limited only to intermediaries; – the obligation to deliver the ‘Information to be returned to the contractor prior to signing the proposal; or if not foreseen, of the contract’ in Annex 4 (former Annex 7B)—obligation extended to all distributors; – the obligation to deliver the pre-contractual and contractual information documentation required from the current provisions. Attachment 3, which was previously requested to be posted on the premises, can today be made available to the public in the intermediary’s premises, including through technological equipment. In this regard, the Regulation confirms the exclusion of the application of the provision to distributors operating in the large risk market. The pre-contractual information contained in Annex 4 has been extended to the fee received by intermediaries in relation to the contract distributed. In order to give centrality to the interests and needs of the customer, the consultant role of the distributor has been enhanced. In fact, the distributor is called upon to propose a product that is appropriate and consistent with the customer’s insurance and social security needs. During the pre-contractual phase, the distributor is called to verify the needs and requests of the customer in order to identify the product that is most consistent with his/her needs and provide him/her with all the information on the product, useful to allow him/her to make an informed decision. To this end, companies are required to give instructions aimed at facilitating its distribution network in the acquisition of useful information and relevant in relation to the type of contract offered (Art. 58). The consulting phase in a strict sense is successive and only possible and consists in the possibility for the distributor to offer a personalised recommendation to the contractor.

generic and standardized communication’ (Cass. Civ. 07/04/2017, n. 9066). In the same sense, it was considered that ‘it can not be considered a sufficient information for the customer the subscribtion of the declaration> ’ (Cass. civ. 31/03/ 2017, n. 8314).

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6 Transparency and Comprehensibility, Certainty, Completeness of Contractual Content with Particular Regard to the Clause on Risk Exclusion Clarity and comprehensibility are an essential moment of the communicative act as they allow the recipient of the message to know the content, to understand the message and to establish a dialogue. In EC law, the concept of clarity and comprehensibility has also been found in Directive 93/13 on consumer contracts, generally stipulated by adhesion, which was then transposed by the Italian legislator in Article 1469 bis ff. of the Civil Code then transposed into the Consumer Code in Articles 33 ff. In particular, Article 34, paragraph 2, Cons. Cod. excludes the unfairness of a clause relating to the determination of the object or the adequacy of the consideration provided that such elements are clearly and comprehensively identified. Some authors have seen in this expression an attempt by the legislator to distinguish the issue of transparency of consumer contracts from the problem of ambiguity of the contractual content. Only in the case of lack of transparency would the clause be abusive. The ambiguity would find a solution in interpretation against the party that writes the contract of adhesion (referred to in Art. 35 Cons. Cod.).17 Some authors have seen in the lack of clarity mentioned in Articles 34 and 35 Cons. Code a hypothesis of nullity for dissent created by the misunderstanding that the text, as it has been formulated, is able to determine. Lack of transparency as imbalance would then be a hypothesis of injury to the freedom of choice in the substantial sense. Thus, for instance, in case of a clause containing a risk exclusion written in a not understandable way, it is not possible to evaluate the fairness of content of the clause according to Article 34 Cons. Code because such clause determines the object of the contract, but the consequence of lack of transparency should be the immediate declaration of nullity of the limiting clauses because the lack of clarity would in itself be the cause of unfairness.18 Regarding the delimitation of duties of transparency, it is important to consider that Italian case law, in accordance with the guidelines of the Court of Justice of European Union, tends to link the assessment of the unfairness of contractual terms with the rules of conduct on the duties to inform and to advise the customer about the product. In the CJCE judgment of 23 April 2015, Jean-Claude Van Hove v CNP Assurances SA, the Court affirmed that in case of a judgment on unfairness of contractual

17

Masucci (1996), p. 170. Before the entrance in force of Dir. 93/13/CE see Bellelli (1992), pp. 106–110. 18 See Rizzo (1997a), p. 96 ff.; Rizzo (1997b), p. 1189 ff. The Italian authors follows the German Transparenzgebot theorie. See Heinrichs (1995), p. 174 ff.

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terms, the obscurity of the delimitative risk clause in an insurance contract needs to be considered together with the lack of information. The Curia has been able to point out that the obligation of transparency of contractual clauses cannot be limited to formal and grammatical understanding. The CJCE affirms that ‘Article 4(2) of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts, must be interpreted as meaning that a term of an insurance contract intended to ensure that loan repayments payable to the lender will be covered in the event of the borrower’s total incapacity for work falls within the exception set out in that provision only where the referring court finds: – first, that, having regard to the having regard to the nature, general scheme and the stipulations of the contractual framework of which it forms part, and to its legal and factual context, that term lays down an essential component of that contractual framework, and, as such, characterises it, and, – secondly, that that term is drafted in plain, intelligible language, that is to say that it is not only grammatically intelligible to the consumer, but also that the contract sets out transparently the specific functioning of the arrangements to which the relevant term refers and the relationship between those arrangements and the arrangements laid down in respect of other contractual terms, 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.’19 Consistently with the CJCE case, the Italian case law tends, in particular in the case of complex content of contracts, like in the case of financial market contracts, to link the disclosure requirements to those of transparency of the contractual text, e.g. Article 35 Cons. Cod. It is a duty of distributors of financial products, both in the pre-contractual phase and in the contractual phase, to act in good faith and with diligence to clearly define the content and inform the contractor of the related risks.20

19

In the same term see CJCE 21 December 2016, in Joined Cases C154/15, C307/15 and C308/15, Francisco Gutiérrez Naranjo v Cajasur Banco SAU (C154/15), Ana María Palacios Martínez v Banco Bilbao Vizcaya Argentaria SA (BBVA) (C307/15), Banco Popular Español, SA v Emilio Irles López Teresa Torres Andreu (C308/15). The CJCE affirms that ‘However, relying inter alia upon the principles laid down by the Court of Justice in its judgment of 21 March 2013, RWE Vertrieb (C92/11, EU:C:2013:180), that court held that the requirement of transparency, laid down in Article 4(2) of Directive 93/13, must be construed as involving not only formal but also substantive compliance, that requirement having the same scope as the requirement referred to in Article 5 of that directive, and relating to the adequacy of the information given to consumers at the time the contract is concluded as to the legal and financial consequences for them of the application of the terms relating, in particular, to the main subject-matter of the contract.’ 20 See Trib. Viterbo 3 April 2015, in DeJure Online and in the same sense, Trib. Prato 20 September 2011, no. 970, in DeJure Online.

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7 Transparency, Unfairness of Contractual Terms and Unfair Commercial Practices National law combats unfair commercial practices, including unfair advertising, which directly harm consumers’ economic interests and thereby indirectly harm the economic interests of legitimate competitors with regard to B2C contracts. A commercial practice is commonly considered unfair in B2C relationship when directly ordered to mislead consumers’ transactional decisions in relation to products. As we have seen previously, all commercial communications can influence consumers’ behaviour, but according to the principle of proportionality, they cannot be considered unfair. As the European Commission noted in 2005, the laws of the Member States relating to unfair commercial practices showed differences that can generate mechanisms of distortions of competition and obstacles to the smooth functioning of the internal market. In the field of advertising, Council Directive 84/450/EEC of 10 September 1984 concerning misleading and comparative advertising established minimum criteria for harmonising legislation on misleading advertising, but in any case such directive does not prevent the Member States from retaining or adopting measures that provide more extensive protection for consumers. For those reasons, the European Parliament and the European Council adopted Directive 2005/29/EC on 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market and amending Council Directive 84/450/EEC, Directives 97/7/EC, 98/27/EC and 2002/65/EC of the European Parliament and of the Council and Regulation (EC) No 2006/2004 of the European Parliament and of the Council. This Directive establishes a single general prohibition of those unfair commercial practices distorting consumers’ economic behaviour. It also sets rules on aggressive commercial practices. According to Article 5, ‘A commercial practice shall be unfair if: (a) it is contrary to the requirements of professional diligence, and (b) it materially distorts or is likely to materially distort the economic behavior with regard to the product of the average consumer whom it reaches or to whom it is addressed, or of the average member of the group when a commercial practice is directed to a particular group of consumers’. Unfair omissions are characterised by a lack of information that consumers need in order to make an efficient transactional decision (such as the main characteristics of the product; the geographical address and identity of the trader; the price, inclusive of taxes; the arrangements for payment, delivery and performance; and the complaint-handling policy). According to Article 6, a commercial practice shall be considered misleading ‘if it contains false information and is therefore untruthful or in any way, including overall presentation, deceives or is likely to deceive the average consumer, even if the information is factually correct, in relation to one or more of the elements, and particularly: (a) the existence or nature of the product; (b) the main characteristics of

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the product; (c) the extent of the trader’s commitments; (d) the price or the manner in which the price is calculated, or the existence of a specific price advantage.’ A commercial practice shall also be regarded as misleading if, taking into account its factual context, all its features and circumstances, it causes or is likely to cause the average consumer to take a transactional decision that he would not have taken otherwise. According to this directive, national provisions on aggressive commercial practices should cover those practices that significantly impair the consumer’s freedom of choice. Those are practices using harassment; coercion, including the use of physical force; and undue influence. According to Article 9, ‘in determining whether a commercial practice uses harassment, coercion, including the use of physical force, or undue influence, account shall be taken of: (a) its timing, location, nature or persistence; (b) the use of threatening or abusive language or behavior; (c) the exploitation by the trader of any specific misfortune or circumstance of such gravity as to impair the consumer’s judgment, of which the trader is aware, to influence the consumer’s decision with regard to the product; (d) any onerous or disproportionate non-contractual barriers imposed by the trader where a consumer wishes to exercise rights under the contract, including rights to terminate a contract or to switch to another product or another trader; (e) any threat to take any action that cannot legally be taken’. In Italy, the discipline on unfair commercial practice is contained in Article 18 ff. Cons. Cod. With regard to insurance contracts, we have to remember that according to Article 182 Ins. Code, applicable also in case of B2B contracts, ‘advertising of insurance undertakings’ products shall be carried out in compliance with the principles of fairness of information and with the content of the information note and contractual terms of the relevant products. These principles shall also be respected when advertising is carried out by intermediaries autonomously’. At the level of secondary source of law, we have IVASS Regulation 41/2018 Article 30 ff. on advertising. According to such regulation, insurance products shall be advertised by taking into account the principles of clarity, fairness and compliance with the contents of the Information Dossier to which products refer. The advertising message shall be so designed as not to be misleading with respect to the characteristics, nature, guarantees and risks of the product offered. Clear forms of expression shall be used, along with clearly visible and readable types. Advertising shall immediately be able to be recognised and readily distinguishable with respect to any other form of communication. In these norms, the strict relationship between unfair practices and transparency is evident. Commonly, scholars distinguish the legislation and the phenomenon of unfair commercial practice from the legislation and the phenomenon of unfair terms. The latter concerns the contractual phase, particularly contracts containing terms that directly or indirectly limit (or attempt to limit) the rights of the counterparty (such as a consumer) protected under contract law, establishing a significant imbalance, to the

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consumer’s detriment, between the rights and obligations of the contracting parties in opposition to the principle of good faith. These terms are considered unfair and thus not binding. Unfair commercial practice concerns a different moment of relationship between parties; it involves the pre-contractual phase during which the trader tries to persuade the consumer in doing a certain transactional choice. On the contrary, it has been noted, with regard to European Union Law, that the Unfair Term Directive not only contains provisions relevant to contract law, but it also introduces provisions relevant to unfair commercial practice law.21 If one takes the norm contained in Article 7 of Directive 93/13/CE on unfair terms, according to which Member States were required to adopt adequate and effective means to prevent the ‘use’ or ‘continued use’ of unfair contractual terms by traders, it is evident that the conduct of using unfair terms is an unfair commercial practice, according to the definition provided by Directive 2005/29/CE on unfair commercial practice. In fact, Article 5 of this Directive says that ‘A commercial practice shall be unfair if it is contrary to the requirements of professional diligence. . .’, and according to Article 2, ‘professional diligence means the standard of special skill and care which a trader may reasonably be expected to exercise towards consumers, commensurate with honest market practice and/or the general principle of good faith in the trader’s field of activity’. Another case of intersection between unfair terms and unfair practice could be the use of unfair, and thus invalid, terms. In fact, the average consumer will not consider whether a clause is binding or not, and he/she could hold as part of the contract also those terms that are invalid because of their unfairness. So the use of invalid clauses may distort consumers’ awareness of their contractual rights or duties and thus their economic behaviour. Moreover, according to Directive 93/13/CE, terms that are not drafted in plain and intelligible language (non-transparent terms) shall be held as unfair. According to Article 5, ‘In the case of contracts where all or certain terms offered to the consumer are in writing, these terms must always be drafted in plain, intelligible language. Where there is doubt about the meaning of a term, the interpretation most favourable to the consumer shall prevail.’

21

Orlando (2011), p. 30: The use of invalid terms should also be deemed capable of materially distorting the economic behaviour of the average consumer during the performance of the contract (second element). In this respect, it seems correct to observe that the average consumer, faced with contractual forms drafted by the trader, which do not precisely reflect the legally binding clauses (since they contain some non-binding clauses), would usually be unclear about the parties’ rights and obligations arising under the contract, and would normally believe himself to be bound by all clauses. For the same reason, the trader would in practice be able to enforce the rights and powers literally provided in his favour by the unfair contract terms, even if such terms are legally non-binding and in principle unenforceable, thus profiting from the ignorance of the average consumer about the precise legal value (i.e. the non-binding character) of those terms. The use of invalid terms is therefore capable in the above circumstances of materially distorting the economic behaviour of the average consumer in relation to the exercise of his ‘contractual rights’.

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The use of terms defining the services or goods or the price or remuneration under the contract not drafted in plain and intelligible language should also be considered an unfair commercial practice, particularly a misleading omission pursuant to Article 7 of 2005/29/CE Directive. As a result of the above considerations, we can say that there is no strict distinction between rules governing the contractual phase and rules governing the pre-contractual phase of private relationships. Moreover, it could be misleading to lose the sight of the common purpose of consumer protection laws: consumer awareness and freedom of transactional choices. A physical person or organisation having a legitimate interest in the matter must have legal remedies for initiating proceedings against unfair commercial practices, either before a court or before an administrative authority that is competent to decide upon complaints or to initiate appropriate legal proceedings. The rules of conduct governing trade practices and the rules of validity that govern the fairness of contractual terms are approaching. Even a misconduct in the pre-contractual phase, such as not making it possible to disclose a clause, may be capable of distorting the behaviour of a market operator, which could be induced to enter into a contract that otherwise would not have been entered into, and may be qualified as a misconduct on the side.22 The Italian AGCM (General Authority for the competion and the market), which is the authority competent in case of unfair commercial practices, together with Act 25421/2015, condemned a website’s comparison of price regarding motor insurance contracts because providing information on prices without considering other information on the economic terms of a contract can distort consumers’ economic behaviour.

8 Transparency and Judicial Worthiness Control According to Article 1322 CC The Italian Supreme Court has ruled on the worthiness control of clauses in insurance contracts, particularly of claims-made clauses contained in insurance policies against professional liability. Examining the conclusions of the Court, it is possible to propose some considerations about the issue of the adequacy of the insurance products and correct information in respect to the needs of policyholders. The Supreme Court of Cassation in composition ‘united sections’23 has decided on the validity of claims-made clauses in liability insurance contracts.24

22

Landini (2011), p. 177. Cases brought to the Italian Supreme Court are normally heard by a panel of five judges. In more complex cases, especially those concerning compounded matters of interpretation, an extended panel of nine judges (‘united sections’ of the supreme court) decides the case. 24 Cass. civ., sez. un., 6 May 2016, n. 9140, in Riv. nel diritto, 2016, 844, with the comment of E. Cosconati,; in Foro it, 2016, I, 2026 ss. with the comment of R. Pardolesi, Palmieri and 23

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As known, in civil liability insurance, there are essentially two pricing models: the covered event could be the verification of the damaging event (loss occurrence formula) or the covered event could be the claim of the victim (claims-made formula). In the case of policies with a claims made clause, the insurance coverage includes all claims that occurred during the duration of the policy; in the case of policies with a loss occurrence clause, the coverage includes all the claims for compensation of the damages that occurred during the duration of the policy. These two models are based on different liability insurance needs: if there could be a significant lapse of time between the occurrence of the damaging event and the claim (as in case of medical malpractice), it will be preferable to conclude an insurance policy with the claim made formula; otherwise (as in cases of general liability insurance), the loss occurrence formula will be preferable. The two models are not so clearly distinct as it is possible to have so-called impure claims-made clauses: pure claims-made clauses provide for compensation of all damage claims received during the duration of the contract, regardless of the time of verification of the damaging event. Impure claims-made clauses provide for compensation of all damage claims received during the duration of the contract, if the time of verification of the damaging event is in some earlier period respect to the conclusion of the insurance contract.25 The Court affirms that Article 1917 Civil Code on liability insurance recognises the loss occurrence formula, which is the legal formula. Article 1917 provides: ‘In insurance of civil liability the insurer is obliged to indemnify the insured for the

B. Tassone. On the worthiness of claims made clauses, taking in to account the concrete interest of the insured party, Volpe Putzolu (2016); On the validity of claims made clauses see also Gazzara (2016), p. 88; Gaggero (2013), p. 401; Monticelli (2013), p. 701; The principle affirmed by UU.SS. Cass. has been applied by Tribunale di Milano 17 June 2016, in Redazione Giuffré 2016. A judgment after the Cassation Court 2016 on claims made has been held by Trib. Bologna 18 August 2016, in Foro it. Merito extra, 1605.1, affirming that the clause is valid. The discipline on unfair condition in consumers contract is not applicable because the actor is a professional; the clause doesn’t derogate to an imperative norm nor to the principle of good faith. This judgement seems to follow past judgements of the Supreme Court: Cass. 10 November 2015, n. 22891, in Resp. civ. prev., 2016, 2, 528; Cass. 17 February 2014, n. 3622, in Giust. Civ. mass., 2014; Cass. 22 March 2013, n. 7273, in Guida al diritto 2013, 22, 57 (s.m). Moreover, the Tribunal of Bologna affirms that the nullity profiles are not attached and proved, especially in the light of the amount of the premium, in relation to the insurance coverage limit (€ 517,000) and to the coverage including also events occurred before the stipulation. 25 Claims made clauses are well diffused not only in case of professional liability insurance but also in other cases, like in hypothesis of coverage of environmental liability. In such case generally along the length of time between the occurrence of the cause of the damage and the occurrence of its consequences, the coverage is technically possible only with the claims made formula. Cfr. Well (1998), p. 199 ff.; Clarke (1997), p. 429 ff. Even in Germany the introduction of such clauses, and then the Festellungsprinzip regarding identification of covered claims during the period of operation of the insurance coverage, is proposed with particular reference to Umwelthaftpflichtversicherung. See in particular Schimikowski (1998), pp. 231–234.

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incidents during the insurance period he has to pay to a third party, depending on the responsibilities deduced in the contract.’ Following such principle, the Cassation Court affirms: 1. The pure claims made clauses, covering damage claims received in the period of effectiveness of the guarantee, regardless of when the tort was committed, introduce a new model of insurance contract different from the one in art. 1917 c.c. on liability insurance. The new model could be called insurance for ‘claimed responsibility’. 2. The impure claims made clauses provide insurance coverage with a backdating of the guarantee. They do not affect the cause of the contract, but they are subject to the judgment of worthiness according art. 1322.26 This verification will be conducted by the lower courts (Judge of peace, Tribunal, Court of Appeal). If the clause results not worthy, then the judge can replace the claims made clause with a loss occurrence that in the opinion of the court would respond to the legal model outlined by Article 1917. The United Sections Supreme Court seems to focus on the existence of a legal model of liability insurance contract based on the loss occurrence formula. Moreover, the Court recognises the integration power of the judge ordered to cover the gap arising from the declaration of the nullity of the contract. In case of lack of worthiness, the application of the statutory scheme of the insurance contract liabilities will take place and a loss occurrence formula will

26 The word ‘meritevole’ (worthy in English) comes from the Latin ‘mereri’ which means ‘to make himself worthy of something’. Control of ‘worthiness’ in Italian law is found in various regulatory assumptions. Recall the art. 1322 which provides that ‘The parties may also enter into contracts that do not belong to the types having a particular discipline, provided they are intended to achieve the interests worthy of protection under the law’, and the art. 2645 ter entitled ‘Transcription of acts of destination for the realization of interests worthy of protection related to people with disabilities, to public authorities, or to other organizations or individuals’. The assessment of legal acts in Italy is subject both to the judgment of legality and to the judgment of worthiness of protection. This is accomplished on the basis of the fundamental principles of and values that characterize the legal system (Perlingieri and Femia 2014, p. 74). It means that a lawful act may be invalid as not worthy of protection. According to art. 1322 the parties are free to conclude contracts belonging to different types from those indicated by the law, provided they are in pursuit of interest that deserve protection. A past interpretation of the norm assumed that the control of worthiness take place only in case of atypical contracts (see Sacco 2010, p. 783). On contrary, on the basis of an interpretation that seems to be followed also by the present United Section Cassation Court, worthiness control is a way to assess the social value of the content of the contract in concrete (La Rosa 2014, p. 74; Costanza 2008, p. 423; Perlingieri 2003, p. 395; EAd. 1984, p. 235; Nuzzo 1974, p. 105). The question of the worthiness and proportionality of the contractual settlement lies on a different plane from the control of legality and regards the inclusion of the all private provisions included the Constitutional norms. See Scoditti (2015), p. 417; Irti (2014), p. 43; Irti (2015), p. 11 ff.; Pagliantini (2015), p. 38; Barcellona (2014), p. 571 ff.; De Nova (1993a), p. 236; Barcellona (1965), p. 56 ff.; Scognamiglio (1954), p. 335 ff. After the introduction of art. 2645 ter the discussion on ‘worthiness’ has been huge. This norm provides the registration of acts of destination for the realization of interest worthy of protection according to art. 1322. See particularly Perlingieri and Femia (2014), p. 11; Guizzi (2011), p. 350; Bianca (2011), p. 789.

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substitute the claims-made formula. According to the Court’s opinion, Article 1419 CC and Article 2 of the Constitution allow the courts to ‘intervene also in amending or integrative way on negotiating status when this is necessary to ensure fair balance between the interests of the parties’. Perhaps at this point, also with regard to Italian law, the existence of a legal model is doubtful since the term ‘fact’ can be interpreted both as the harmful act and the claim. The protection of the insured party is more likely in terms of information and the obligation to provide appropriate products by insurance intermediaries and by insurers. It is a problem of product governance.27 The concept of product governance was introduced by MiFID 2 in the financial market and can be described in terms of an organisational structure and rules of conduct relating to the creation, supply and distribution of financial products in the interests of investors. Speaking of policyholders’ protection in terms of the government of the products, it is important to consider the value of the insurance contract respect to the interest of the insured parties, from its creation to its distribution. This solution is now part of insurance intermediation after IDD that is focusing on the ‘best interest of the customer.’ Article 20 says that ‘Prior to the conclusion of an insurance contract, the insurance distributor shall specify, on the basis of information obtained from the customer, the demands and the needs of that customer and shall provide the customer with objective information about the insurance product in a comprehensible form to allow that customer to make an informed decision. Any contract proposed shall be consistent with the customer’s insurance demands and needs.’ The concept of adequacy was, in some ways, present also in the Italian Insurance Code (D. Lgs. 209/2005, hereinafter Ins. Code) in its Article 183, which says that ‘in the offer and performance of contracts companies and intermediaries must: a) act diligently, fairly and transparently towards policyholders and insured persons; b) acquire from contracting parties the information necessary to assess the insurance companies or pension needs and operate so that they are always adequately informed’. But according to Article 183, the distributor of insurance policies has to acquire information on the needs of the insured only to determine the information and the counselling that he or she needs.28

See Natoli (2012), p. 87 ss.; Generally speaking with regard to information in financial markets and information asymmetry; Amorosino (2014), p. 3; Cherubini (2005), p. 43; Rossi Carleo (2004), p. 363; Gentili (2004), p. 578; Alpa (2005), p. 475; Grundmann (2001), pp. 257 ss.; Nazzaro (2000), p. 193; Valentino (1999), p. 9 ss. e 67 ss.; ID., Obblighi di informazione e vendite a distanza, in Rass. dir. civ., 1998, 394; De Nova (1993b), p. 705 et seq. 28 The concept of insurance counselling raises from French Jurisprudence interpreting art. L. 112-4 insurance code. The intermediary must be “un guide sû r et un conseiller expérimenté”: Cour Cass., 10 November 1964, in Rev. gen ass. terr., 1965, p. 176. 27

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With the transposition of IDD, a stronger protection for policyholders will be provided in term of adequacy.29 In any case in this regard, Article 120, paragraph 3, Ins. Code requires insurers and intermediaries to propose or recommend to customers products that are ‘suited to (their) needs’, taking into account the risk inclination of the concerned person (Art. 52 IVASS Regulation 5/2006).30 Moreover, it is possible to consider such duty as an expression of the general duty of good faith in pre-contractual relationships according to Article 1337 CC. An insurance contract for professional liability sold to a professional with a formula claims made and a very short retroactivity, moreover providing a general declaration of the insured party saying that ‘for the effect of art. 1892, I declare to be

29

See Cass. 22 November 2000 n. 15101, in Contratti, 2001, 785, contrary to the direct horizontal application of EU Directive also in lack of timely transposition. 30 Art. 120 (Pre-contractual information and rules of conduct) 1. Insurance intermediaries recorded in the register referred to in article 109 (2) and those under article 116 shall furnish policyholders with the information laid down by ISVAP’s regulation 190, before concluding the contract and in case of subsequent significant changes or renewal, in compliance with the provisions of this article. 2. In relation to the contract offered insurance intermediaries shall declare to the policyholder: (a) whether they give their advice on the basis of a fair analysis—in that case they are obliged to give that advice on the basis of an analysis of a sufficiently large number of contracts available on the market, so that they recommend an adequate product to meet the policyholder’s needs; (b) whether they offer certain products under a contractual obligation with one or more insurance undertakings—in that case they shall provide the names of those undertakings; (c) whether they offer certain products under no contractual obligation with any insurance undertakings—in that case they shall, at the customer’s request, provide the names of the insurance undertakings with which they do or may conduct business, without prejudice to the obligation to inform policyholders of their right to request such information. 190 ISVAP Regulation n. 5 of 16 October 2006, in particular Part III. 3. In any case prior to the conclusion of the contract the insurance intermediary referred to in paragraph 1 shall offer or recommend a product which is adequate to meet the policyholder’s needs, in particular on the basis of information provided by the latter, and shall previously illustrate the main features of the contract as well as the benefits that the insurance undertaking is obliged to provide. 4. On account of the different policyholders’ protection needs, of the different types of risks, as well as of the knowledge and ability of the staff involved in mediation ISVAP shall, by its own regulation 191, lay down: (a) the rules on the way intermediaries shall introduce themselves and behave in relation to policyholders, with regard to the information requirements relating to intermediaries themselves and their relations, also of corporate nature, with the insurance undertaking, and to the features of the contract offered in relation to the advice they could possibly give on the basis of a fair analysis or to the existence of an obligation, involving promotion and mediation, with one or more insurance undertakings. (b) the way how information shall be provided to policyholders, and envisage the cases in which it may be provided upon request, it being understood that the need for protection usually calls for the use of the Italian language and the communication on a durable and accessible medium, soon after the contract has been concluded at the latest; (c) how records shall be kept of the business activity; (d) the violations for which the disciplinary sanctions envisaged by article 329 shall apply 192. 5. Insurance intermediaries dealing with large risks and reinsurance intermediaries shall be exempted from information requirements.

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not aware of facts that could cause my responsibility’, is not adequate, taking into account that, thanks to such declaration, in any case the insurer can refuse to pay indemnification (also when the claims occurred during the insurance period regarding a fact that occurred outside of the coverage period), assuming that the insured must be aware of the harmful fact causing the claim. As said by the German Court, the problem is to identify not the abstract legal model in case of liability insurance but the appropriate product for the insured party in the concrete case. It’s a problem of adequacy. An important question to solve, following such conclusions, is how to identify the juridical consequences in case of distribution of an inadequate insurance product. Of course administrative sanctions of IVASS will take place. But what about the contract and the private relationship between the insurer and insured? In the interest of policyholders, the solution could be civil liability and obligation to pay damage (including indemnification for loss) to be charged to the distributor (insurers, banks, agents, brokers).31 Another solution could be the nullification of the contract concluded in violation of mandatory conduct rules, like those contained in the law of insurance product distribution (see Artt. 120, 182 et seq. Ins. Code and IVASS Regulations 5/2006 and 35/2010). But such a solution could be contrary to the interest of the party to be covered. A void contract doesn’t produce any effect.32 It is possible to propose to the nullification of the single clause, which makes the contract inadequate with respect to the interest showed by the insured party. According to Article 183 Insurance Code, undertakings and intermediaries shall have the right to obtain information about policyholders in order to evaluate their insurance risk. Article 120, paragraph 3, Ins. Code requires insurers and intermediaries to propose or recommend to customers products that are ‘suited to (their) needs’. These are imperative norms but should take into account the terminology used by the legislator and the general interest of policyholders. Thus, insertion of a clause contrary to the expressed insurance needs of the policyholders could be considered void because it’s contrary to imperative norms, as stated in Article 1418 CC. In this way, we substitute a worthiness control with an adequacy control, which means that the judge has to take into account the interests of the policyholder based on the answer given to the insurer or the intermediaries on the condition that the judge will also be able to integrate the contract.

31 See Cass. S.U., 19 December 2007, nn. 26724, 26725, in Rep. Foro it., 2007, sub voce Intermediazione finanziaria [3655], n. 147, now in Foro it., 2008, I, with comment by Scoditti, La violazione delle regole di comportamento dell’intermediario finanziario e le sezioni unite. Cass., 17.2.2009, n. 3778, in Danno e resp., 2009, 503; Cass., 19.10.2012, n. 18039, in Mass. Foro it., 2012; Cass. SS.UU. 24.09.2018, n. 22437, http://www.altalex.com/documents/news/2018/09/25/ polizze-claims-made. 32 Cfr. Scoditti (2006), p. 119; Amadio (2005), p. 299 ff; Navarretta (2005), p. 521; Putti (2003), p. 603; D’Amico (1996), p. 99 ff.; D’Amico (2002), p. 39; Busnelli (1991), p. 556; Vettori (1983), p. 83.

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It is obvious that, in the case of total violation of 183 (i.e. the insurer and the intermediary do not acquire the necessary information from the policyholder), the control of adequacy is not possible. The signature of a general declaration of the policyholder, affirming that he or she does not want to give information to the intermediary or to the insurer, determines the total impossibility to sell adequate insurance contracts. We think that in this case, especially according to the new rules contained in the above-mentioned IDD2 Directive, the insurer and the intermediaries shall refuse the stipulation of any contract. Adequacy is not only a matter of correct information and counselling; it is also a matter of selling the product that meets the interest of the client. The norms protecting policyholders do not contain the distinction between consumers and professionals.33 The above-mentioned Articles 120 and 182 ff. Ins. Code refer to policyholders in general.34 In judgment 9140/2016 on claims-made clauses, the Court underlines that in case of professional liability insurance, it is evident that ‘the existence of a context of strong asymmetry of the parties power and where the policyholder, even though in theory qualified as “professional”, is, in fact, more often unprotected by comprehensive information in order to understand the complex legal mechanisms that govern the system of civil liability insurance’. It is a matter of fact that professionals, and not only consumers, need information and counsels ordered to the offer of an insurance product of their interest. The question of the weakness of the contracting parties must be addressed by distinguishing a socio-economic weakness, from a contractual weakness mainly linked to the profile of information symmetry that can also find in professional parties. With regard to professional contracts, it is also necessary to distinguish acts of the profession from acts relating to the profession. The first ones concern contracts concluded for the exercise of the profession with their clients, for example. The latter ones are related to all contracts entered into in connection with the performance of a profession, such as contracts for the purchase of goods or services in order to facilitate one’s profession or that are required for its operation, such as policies covering professional liability.35 Moreover, we cannot forget the basic norm of our Constitution in financial market matters: Article 43 says: ‘For the purposes of the common good, the law may establish that an enterprise or a category thereof be, through a pre-emptive decision or compulsory purchase authority with provision of compensation, reserved to the Government, a public agency, a workers’ or users’ association, provided that such

33

About the problem of the application of consumers protection discipline in case of contracts between professionals see Pardolesi (1994), p. 137; Patroni Griffi (1995), p. 356; Busnelli (1997), p. 759; Gatt (1997), p. 832. 34 About the problem of coordination of consumers code and sectorial codes see Rossi Carleo (2010), pp. 670, 688; Corrias (2007), p. 1750. 35 For those distinctions, see Gabrielli (2006), p. 227.

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enterprise operates in the field of essential public services, energy sources or monopolies and are of general public interest.’36 This norm recognises the rights of users in the financial market, not only of the consumers covered by Article 3 of the Italian Consumer Code (D. Lgs. 206/2005), who are physical persons purchasing goods and service for personal use. Also at community level (we must remember that Italian norms on consumer protection are derived from an EU directive), the notion of ‘consumer’ is a key concept delimiting the application of consumer-protection rules. In any case, there is no consistent and uniform definition in EU law, and there are also divergences among the Member States.37

9 Juridical Consequences of the Violation of the Transparency Rules of Conducts: Administrative Sanctions and Private Enforcement In the event of a breach of the rules of conduct regarding information and advisory duties aimed at contractual transparency, administrative sanctions are foreseen for both companies and intermediaries.38

36

Perlingieri (2004), p. 20; Corrias (2015), p. 617. Manko (2013). 38 Art. 318 (Advertising of insurance products) 37

1. Non compliance with the provisions of article 182 (1 and 3) or with the relevant implementing provisions shall be punished with a pecuniary administrative sanction varying from two thousand to twenty thousand euros. 2. Advertising which is in breach of the protective and prohibitive measures adopted under article 182 (4 and 5) shall be punished with a pecuniary administrative sanction varying from five thousand to fifty thousand euros, applicable to anyone making advertisements in breach of the prohibitive measures adopted under article 182 (4 and 5). Art. 319 (Rules of conduct) 1. Non compliance with the provisions of article 183 or with the relevant implementing provisions when the products marketed are those under article 2 (1), except for class VI, or article 2 (3), shall be punished with a pecuniary administrative sanction varying from two thousand to twenty thousand euros. 2. The breach of the protective and prohibitive measures adopted under articles 182 (6) and 184 (1), shall be punished with a pecuniary administrative sanction varying from ten thousand to one hundred thousand euros. Art. 320 (Information note) 1. Anyone failing to deliver the information note referred to in article 185 before the conclusion of the contract shall be punished with a pecuniary administrative sanction varying from two thousand five hundred to twenty five thousand euros.

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This means that administrative sanctions could be imposed by the national control authorities. The Italian law does not regulate the civil law consequences of the infringement of transparency conduct rules. The following solutions prevail: precontractual liability (Art. 1337 CC) and nullity for violation of an imperative norm (Art. 1418 CC). Consumers can then take actions to claim compensation for damages caused by such practices. The actions of consumers can represent a way of private enforcement. Case law in matters of financial intermediation law, providing conduct rules and information duties, affirms that in the case of omission of information on the inadequacy of the operations carried out by the intermediary institution, the contract is valid but the intermediary is liable for damages caused to the customer. The same conclusion could be applied in case of lack of information or advice during the distribution of insurance contracts.39

10

Trends

Finally, it is important to consider a new trend at Community level by questioning what may be new to Italian legislation. According to Articles 20 and 7 of IDD, the insurance product information document shall be a short and stand-alone document, be presented in a way that is clear and easy to read and be accurate and not misleading. Moreover, according to Regulation 2017/1469 Article 7, the insurance product information document shall be drafted in plain language and shall focus on ‘key information’ that the customer needs in order to make a correctly informed decision. Information is intended to facilitate the customers’ understanding of the content of the document. Consequently, the information in order to be comprehensible needs to be reduced to the ones strictly necessary. The norms take into account a recent problem of contemporary life—the so-called information overload. The term describes the difficulty of understanding an issue and effectively making decisions and choices when one has too much information about that issue. Psychologists recognise that humans have a limited capacity to store current information in their memory. People can process only a few information at a time. In case of information overload conditions, people become confused and are likely to make confused decisions based on the information they have received and not to make informed ones.

39

See Cass 16 May 2016, n. 9981, in Redazione Giuffré. The Italian case law tends to apply art. 1337 on precontractual liability. See Trib. Torino, 21.3.2005, in Giur.it., 2005, p. 1862; Trib. Trani, 10.10.2006, in Banca, borsa ecc., 2007, II, 621, Cass. 29.1.2005, n. 19024, in Foro it., 2006.

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Information overload is an increasing problem in life in general. The phenomenon is a typical product of ICT society, wherein people receive too many e-mails, reports and incoming messages to deal with all of them effectively. The first use of the terms ‘information overload’ has been attributed to Alvin Toffler in 1970. He predicted that the rapidly increasing amounts of information being produced would eventually cause problems to humans. The origin of the problem is that, although computer processing and memory is increasing, the people who should use the information are not getting any faster. Among the solution to the problems, we can include focusing on the quality of information rather than the quantity, learning how to create better information (this is the task of the so-called infogineering) and keeping the mind focused on one issue at a time.40 The regulation has been enacted according to Articles 20 and 9 IDD, providing that EIOPA, after consulting national authorities and after consumer testing, shall develop draft implementing technical standards regarding a standardised presentation format of the insurance product information document specifying the details of the presentation of the information. EIOPA shall submit those draft implementing technical standards to the Commission. EIOPA’s document, named EIOPA-17/056 7 February 2017 ‘Draft Implementing Technical Standards concerning a standardised presentation format for the Insurance Product Information Document of the Insurance Distribution Directive’, affirms that ‘The Insurance Product Information Document (IPID) is a significant project within the overall work of EIOPA on the Insurance Distribution Directive1 (IDD). Its objective is to ensure that the customer has the relevant information about a non-life insurance product to allow him to easily compare between different product offers and to make an informed decision about whether or not to purchase the product. This also closely reflects one of EIOPA’s own strategic objectives in its policy work on consumer protection, namely “to assist consumers of insurance products with making informed choices based on their rights and obligations”.’ Standardisation is, however, necessary in order to make the content of information comparable so that customers can make choices based on a comparison of information content and not just on the basis of the amount of the premium as they often do. There is a new dimension to the transparency that IVASS has sought to seize in the still unavailable 3/2017 document, which has just completed the consultation phase. It is likely that the authority will decide to supplement the information provided in the EU Regulation with information seeking to combine simplification and completeness.

40

See Rogers et al. (2013).

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Conclusion

Transparency has different meanings: information before the conclusion of the contract and during its life, comprehensibility of contractual texts and the possibility for policyholders to compare different proposals, and obligation of high professional assistance. Insurance companies and intermediaries must behave with diligence, correctness and transparency towards policyholders. Perhaps nowhere are there examples of a complex and technical language as the way standard provisions of traditional insurance contracts are written. This fact is clear to anyone who has ever tried to interpret, understand or enforce an insurance contract. The intrinsic complexity and technicality of the insurance product makes it difficult for the average consumer to understand it. So intermediaries are, also, required to explain to the policyholder, in a clear and easy-to-understand language, the characteristics of the proposed contract. Moreover, in case of financial insurance products, they must illustrate any financial risks connected to the execution of the contract. Different factors affect people’s perception and comprehension of information about the risks related to investments. Insurance companies and intermediaries must assess their clients, with specific regard to non-professional client, using suitability criteria (their knowledge about, and experience with, financial products and their financial situation) and considering their actual investment objectives. Due to information asymmetry, to the disadvantage of the consumer, special duties of information and of advice are addressed to insurers and intermediaries. The obligations arising from the fiduciary relationship between the intermediary and the insurer, on one side, and the client, on the other, during the distribution of insurance products is enriched by the obligations to inform and to advise the customer in order to support his or her consent and to offer to him or her a product that meets his or her interests. The rule governing such duties are contained both in Act of the Italian legislator (and generally in Insurance code), usually moving from European Directive, and in regulations of IVASS. These duties are closely linked to the discipline of unfairness of contractual content in consumer contracts. Lack of transparency is in fact considered by lawmakers and courts as a form “contractual unfairness”. Still the use of unfair commercial practices, i.e. practices that are capable of distorting customer behaviour, can be identified in transparency flaws that can be qualified in terms of ambiguity and deceptiveness of the promotional message. All the special rules contained in the Insurance Code and in the Consumer Code should not be separate from the general rule of good faith both in the contractual phase and in the pre-contractual phase. The insurance contract even if is particular and characterised by strong technicality must be framed in the general principles of contract law in general. The Italian legislature did not regulate the civil consequences of the violation of the rules of transparency. Courts tend to find the solution in the general rules contained in the Civil Code: the rules on nullity for breach of imperative rule and

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the rule on liability. In various countries, we find a plurality of strategies, remedies and forms of government intervention in case of lack of transparency. Moreover, in order to create a regulatory framework for transparency, we have to consider also the administrative sanctions provided by the Insurance Market Authority.41 The violation of the rules of conduct ordered to the transparency of the contractual text, contained in Article 182 ss. of the insurance code, gives rise to a burst of administrative and civil consequences. There is a clear complementarity between civil consequences (invalidity and liability) and administrative sanctions in case of violation of the transparency rules. Moreover, the administrative measure ends up having some relevance in fact on the decision of the civil courts. Civil courts, in deciding on transparency, move within the general framework set by the rules of the Civil Code, in particular the principle of good faith and the ‘contra proferentem rule’, which states that any ambiguous term should be interpreted against the interest of the party that wrote the contract. This rule can be considered as a kind of punishment for a party that introduces intentionally vague or ambiguous language into the contract. The courts use the rules contained in the Civil Code also to evaluate the content of the contract, assessing if there is a significant imbalance of the parties’ rights and obligations. Such control is permitted under the Consumer Code, in case of B2C contracts, but Italian courts extend it to B2B contracts, though the control of worthiness of the contract is found in Article 1322. At the legislative level, there is a tendency to approach the law of insurance, the banking law and the financial market law, which share fundamental principles also in terms of transparency. There is a tendency to standardize the sectoral legislation of the three areas of financial market: banking law, insurance law, financial intermediation law. Hence, it is important to consider transparency in the insurance market not as a sectoral part but as a general part of the systems of civil law and financial market law.42

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Transparency in the Insurance Contract Law in the Netherlands Joasia Luzak

1 Definition of Transparency in Insurance Contract Law Transparency in insurance contract law raises a lot of questions in Dutch law concerning the role of transparency in the interpretation of contracts. The Dutch Civil Code (Burgerlijk Wetboek) does not contain specific rules on the interpretation of contractual provisions. It seems, therefore, that the Dutch legislator has left it to the Dutch courts to develop rules of interpretation and to determine what should occur in case a contractual provision was unclear.1 As a result, there is no specific definition of transparency in Dutch (insurance) contract law. Still, with the development of consumer law, the principle of transparency in Dutch (insurance) contract law gained in importance. Especially, the implementation of the European regulation of unfair standard contract terms to Dutch law demanded a new approach to the assessment of transparency and its consequences. Moreover, the notion of transparency has been perceived as an instrument to help determine the scope of the insurer’s duties to inform and of his duties of care, and their amount has increased due to the development of European consumer law.2 In the area of standard insurance contract terms, the notion of transparency plays a specific role as insurance contract terms are often copious, difficult to read and

1 2

Hendrikse (2010), p. 54. Rinkes (2010), pp. 30–31.

J. Luzak (*) Centre for European Legal Studies, University of Exeter, Exeter, UK Centre for the Study of European Contract Law, University of Amsterdam, Amsterdam, The Netherlands e-mail: [email protected] © Springer Nature Switzerland AG 2019 P. Marano, K. Noussia (eds.), Transparency in Insurance Contract Law, AIDA Europe Research Series on Insurance Law and Regulation 2, https://doi.org/10.1007/978-3-030-31198-8_6

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presented in an unattractive way.3 To determine whether the insurance contract terms are transparent, attention has to be given not only to their layout and font size but also to the content of the text. Therefore, transparency is nowadays understood as both legibility (leesbaarheid) and comprehensibility (begrijpelijkheid), even though traditionally more attention was given to the conditions of legibility.4 Legibility requires the insurer to draw the insured’s attention to the terms and conditions of the contract. This does not occur if, e.g., the font size of the disclosure is tiny and the provided information could only be read under the magnifying glass.5 The Dutch Supreme Court has recognised, even before the introduction of the new Dutch Civil Code, that a contractual clause may only be invoked if it could have reasonably be known to the parties concluding the contract.6 Illegible and hence non-transparent provisions may, therefore, be perceived as not known by the parties, which would not allow them to rely on them. Comprehensibility requires that contractual provisions are logically structured and unambiguous. Furthermore, contractual provisions may be incomprehensible if they contain professional terminology, with which only one of the contractual parties is familiar. Lack of transparency may also result from a contractual provision referring in its text to standard terms and conditions or legal provisions. Such a reference would not immediately allow the insured to fully understand the meaning and the consequences of this provision as he or she would need to consult the other terms and conditions or legal provisions. Therefore, inclusion in contractual provisions of any general terms, such as ‘as long as permitted by legal provisions’, without explaining the scope of such a reference could further confuse the insured as to his or her full rights and obligations.7 In the following paragraphs, first, briefly some issues of the regulation of insurance contracts under the previous regime will be presented (Sect. 2.1). However, considering that the perception of transparency in insurance contracts has not undergone many developments in Dutch law, the main issues thereof will be discussed in Sect. 2.2, under the current regime, especially since most rules applicable to the principle of transparency in Dutch contract law and the rules on interpretation of contractual provisions have been developed by Dutch courts and could not be seen as depending on a particular regime. The first paragraphs describe the place that the regulation of insurance contracts has in the current system of Dutch civil law (Sect. 2.2.1). Subsequently, the attention is given to the standards of contractual interpretation (Sect. 2.2.2). Considering the disputes surrounding non-transparent contractual provisions, it is important to establish what rules of interpretation are used by the Dutch courts to determine the content of a clause,

3

Vriesendorp-van Seumeren (2002), p. 20. Vriesendorp-van Seumeren (2002), p. 21. 5 Vriesendorp-van Seumeren (2002), p. 22; HR 21 November 1986, NJ 1987/946 (Tolbeck/ Swindak). 6 HR 19 May 1967, NJ 1967/261 (Saladin/HBU). 7 HR 19 May 1967, NJ 1967/261 (Saladin/HBU). 4

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which is being contested as non-transparent. Since most insurance contracts are nowadays concluded with the use of standard terms and conditions, Sect. 2.2.3 introduces specific issues of transparency that are applicable to such standardised contracts. Dutch law may treat differently standard terms and conditions that are unclear (Sect. 2.2.3.1) from those that are ambiguous (Sect. 2.2.3.2), with a special regime having been devised for core terms (Sect. 2.2.3.3). The special role that the principle of good faith and the duty to warn of the insurer may play in ensuring transparency of standard terms and conditions are discussed in Sect. 2.2.3.4. Section 2.2.4 looks into how the requirement of transparency influences the scope of the pre-contractual duty that the insured has to notify the insurer about any circumstances that could influence the insurer in deciding whether and under what conditions to issue an insurance contract. Finally, Sect. 2.2.5 considers the importance for the insurer of describing the insured object in a transparent and detailed manner, with an aim that the insurer could then avoid an aggravated risk. These are the main issues that should be brought up in the discussion of the principle of transparency in Dutch insurance law.

2 The Issue of Transparency in Insurance As per Dutch Law 2.1

Previous Regime

The regulation of the insurance contract as a separate type of contract in the Dutch Civil Code is relatively new as it has only been in effect as of 1 January 2006. Previously, contractual provisions pertaining to insurance matters have often been included in other types of contracts. The Dutch regulator was predominately interested in preventing insurance fraud.8 Therefore, the Code of Commercial Transactions (Wetboek van Koophandel) contained only a few provisions on insurance law, as of 1838, which mainly protected the insurer from fraud that could be committed by the insured. Interestingly, throughout the years, despite the insurance contracts gaining in importance and scale, the provisions of this Code of Commercial Transactions have been barely revised. If the parties included in their contracts any provisions related to insurance law, then the general provisions of the law of obligations would have applied to it. The Code of Commercial Transactions specified general rules of insurance contracts in its Book I Title 9. Book I Title 10 regulated insurance against loss by fire, crop insurance and life insurance. Book II Title 9 dealt with the sea insurance. Book II Title 10 contained provisions on insurance for transport by land and inland waterways. Some additional insurance-related provisions could be found in other parts of the Code. Many of these provisions became, with time, inadequate to fulfil their role 8

Vloermans (2015), pp. 1–2.

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of protecting the interest of the insured parties, especially since in practice the insurer often deviated from them by drafting his insurance contracts differently.9 Prior to the implementation of the new insurance law and the Europeanisation of consumer protection, the position of the insured faced with an ambiguous, and therefore non-transparent, contractual provision was not favourable. If the non-transparent clause could be interpreted in more than one way, Dutch courts would regularly choose for the interpretation of an ambiguous term compliant with the meaning given to it by the insurer rather than the insured.10 Only with the adoption of the contra proferentem rule, following from the need to implement the Unfair Contract Terms Directive11 in Dutch law, has this approach shifted.12 Interestingly, the legibility of the insurance contract terms has been possibly more favourably assessed under the previous regime, as Dutch courts tended to consider subjective elements in this test. For example, if a particular insured person required glasses to read, the court would be more likely to determine if terms, which have been drafted in a small font, were intelligible to that insured.13 Under the current regime, the court, which is conducting the assessment of transparency, is more likely to apply the benchmark of the average consumer to evaluate the legibility of contractual provisions. Consequently, the objective yardsticks are more likely to be used. It needs to be noticed here that it has never been contested in Dutch law that the insured has a duty to read the contractual provisions, including the standard contract terms and conditions. Therefore, even if the small font does not make the reading attractive, it does not excuse the insured from not reading contractual provisions.14 However, if the small font would make these provisions illegible, then even a best attempt at reading them would not be able to properly inform the insured of his or her rights and obligations. From the above analysis, it seems, therefore, that the comprehensibility of the insurance contract terms used to be less relevant than their legibility. However, the lack of attention on the terms’ comprehensibility may be linked to the fact that, originally, insurance contracts were simpler and it was easier to determine their core terms: the insured object and risks. The main disputes as to the qualification of contractual provisions as core terms surrounded provisions either on the payments of premium or on the duration of the insurance contract.15 With the changing times and

9

Clausing (1994), p. 14. See for an overview of the old case law: Hendrikse (2002), pp. 12–16. 11 Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts. 12 The implementation of the contra proferentem rule was late in Dutch law, instead of as of January 1995 this rule started binding only as of the end of 1999. However, Dutch courts have previously given preference to this interpretation rule of their own motion, e.g. see: HR 24 September 1993, NJ 1993, 760 (Brackel/Atlantische Unie van Verzekeringen); HR 21 January 1996, NJ 1996, 683 (Kroymans/Sun Alliance). 13 Ktg. Haarlem 22 August 1975, Prg. 1975/1067; Ktg. Arnhem 30 January 1989, TvC 1989/93. 14 Rechtbank Zwolle 20 September 1939, NJ 1940/577. 15 Leerink (2009), pp. 176–187. 10

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the increased complexity of both insured objects and risks, the need for legislative intervention became clearer. The need for the revision and further regulation of the insurance contract as a separate type of contract has only started to be discussed in the 1950s. This led to the adoption in 1986 of the first draft of the new law. Due to the lack of political interest in the proposal and certain difficulties in delineating insurance law and the law of succession, the new Dutch insurance law has only been adopted in 2005.16

2.2 2.2.1

Current Regime Title 7.17 of the Dutch Civil Code

As of 2006, the insurance contract has been given a separate position, as a special type of contract (bijzondere overeenkomst), in Book 7 of the Dutch Civil Code. Due to the system of the Dutch Civil Code, the general rules of contract law that are included in Books 3, 5 and 6 of the Dutch Civil Code are also applicable to insurance contracts. These general rules of contract law apply to any special types of contract. This means that the conclusion of the insurance contract, its validity and the conditions of its performance are all subject to general Dutch contract law. This may change only if there are specific provisions regulating the above-mentioned issues included in Part 17 of Book 7 of the Dutch Civil Code, which is devoted to insurance contracts, specifically.17 None of the provisions added to the Dutch Civil Code on insurance contracts in 2006 introduce the principle of transparency or in any manner prescribe provisions of insurance contracts to be transparent. Therefore, it will be the general rules on pre-contractual obligations, such as good faith enshrined in Article 6:248 para 2 of the Dutch Civil Code, that will place such a requirement on insurers drafting their contracts. The lack of transparency will be established on the basis of the general standards of interpretation, which have been developed by Dutch courts years prior to the introduction of this legislative change.

2.2.2

Standards of Interpretation in Dutch Law

A clause in insurance contracts may be differently interpreted by the insurer and by the insured. In such cases, it is important to determine whether the clause was transparently drafted. If the clause is clear, it may still lead to varied interpretations if it is ambiguous, that is to say, when there is more than one interpretation thereof feasible. The lack of transparency may, therefore, be related to the lack of clarity or

16 17

Leerink (2009), p. 3. Leerink (2009), pp. 3–4.

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the existence of ambiguity. Either or both can lead to problems in establishing the precise meaning of a given contractual provision. In this assessment, Dutch interpretation rules require national courts to consider not only the intention of the parties in drafting the agreement but also the nature of the contract and all circumstances surrounding its conclusion, which may influence the interpretation of this provision.18 The main interpretation rule stems from an old case of the Dutch Supreme Court (Hoge Raad), the Haviltex case,19 which demands looking beyond the pure literal meaning of the words used in the contractual clause. Additionally, Dutch judges need to also consider reasonable reliance and expectations of the parties as to what has been agreed upon (so-called Haviltex norm).20 In the determination of the reasonable expectations of the parties, it might be relevant to account for their social position and their (legal) expertise.21 Therefore, if the contract is concluded between professional parties, the Dutch court would likely sooner rely on the literal meaning of the words used in the clause.22 The Dutch court should first try to establish the subjective meaning of the contractual term. Only if this fails should the objective meaning be examined, accounting for all the circumstances surrounding the contract’s conclusion.23 This order of assessment will not, generally, be reversed in cases where a contract was concluded by professional parties or where parties had been assisted in the contract’s conclusion by (legal) experts.24 However, it has been argued in legal scholarship that specifically in the area of insurance contracts, the expertise of the insured could impact the process of interpretation of contested terms. Namely, if the insured is a professional party and the term used in a contract is a technical term commonly used in the area of his or her expertise, that technical meaning of this term should lead the interpretation of the Dutch courts.25 However, this has not always been the position taken by the Dutch courts. In a case of the District Court of Rotterdam,26 the contested term of the insurance contract invoked ‘participation in the air traffic’ (deelnemen aan het luchtverkeer) as an exclusionary ground for compensation. When a KLM pilot died during a paragliding accident, his widow was denied compensation based on the fact that paragliding has been listed as an activity of air traffic in the Dutch law on air traffic (Wet luchtverkeer). In consideration of the fact that the insured was a pilot and therefore a professional party in the air traffic, it could be claimed that the Dutch court should use the technical meaning of ‘air traffic’, which would encompass 18

Loos (2013), p. 174. HR 13 March 1981, NJ 1981/635, ECLI:NL:HR:1981:AG4158 (Haviltex). 20 Hendrikse et al. (2015), p. 27. 21 HR 13 March 1981, NJ 1981/635, ECLI:NL:HR:1981:AG4158. 22 HR 5 April 2013, ECLI:NL:HR:2013:BY8101. 23 Hendrikse et al. (2015), p. 27. 24 HR 7 February 2014, ECLI:NL:HR:2014:260. 25 Hendrikse et al. (2015), pp. 28–29. 26 Rb. Rotterdam 15 February 2006, NJF 2006/339. 19

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paragliding. However, the court could use the dictionary definition of ‘air traffic’, which would provide a more insured-friendly interpretation as it could exclude paragliding from the scope of air traffic activities. The court decided to interpret the term in the insured-friendly way. Interestingly, if the insured is assisted during the contract’s conclusion by an independent advisor, this may again influence how the non-transparent term will be interpreted. In a case of the Court of Appeals of The Hague,27 the court suggested that under such circumstances, the meaning of the contested term preferred by the insurer would sooner be accepted.28 However, this would require a truly independent advice and a possibility for the parties to negotiate the terms of the insurance contract.29 A related question arises as to who should the term be transparent to—the insured or the third party that will receive the compensation from the insurance? The answer to this question is a subject of debate in the scholarship. Some authors30 claim that the third party should assume the terms of the insurance contract in their meaning as understood and accepted by the insured, while others argue that this should depend on the relationship between the insured and the third party.31 We could, for example, expect from a married couple to discuss the terms of the insurance contract and their understanding thereof. Other authors still may claim that when the insurance contract benefits a third party, the objective method of interpretation should be exclusively used.32 Dutch contract law carries a separate method of interpretation for situations when the insurance contract has not been individually negotiated and its provisions are meant to apply to many contracts. Therefore, in cases where standard terms and conditions are used by the insurer, the objective interpretation should be given priority (cao-norm).33 However, the lack of transparency of a standard contract term might have a different effect on a contract concluded by an insured consumer, which will be further discussed in the following paragraph.

2.2.3

Transparency of Standard Terms and Conditions: Book 6 of the Dutch Civil Code

Considering that many insurance contracts are nowadays concluded on the basis of standard terms and conditions of the insurer, especially in consumer insurance

27

Hof Den Haag 12 September 2006, NJF 2006/546. Hendrikse et al. (2015), p. 33. 29 Hof Amsterdam 30 September 2008, ECLI:NL:GHAMS:2008:BG2017; Hof Leeuwaarden 3 August 2010, ECLI:NL:GHLL:2010:BN3280. See also Hendrikse et al. (2015), p. 37. 30 Londonck Sluijck (2007), p. 255. 31 Hendrikse et al. (2015), p. 29. 32 Asser et al. (2012), p. 363. 33 HR 20 February 2004, NJ 2005/493 (DSM-Fox). 28

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contracts, there is often a possibility for the insured to invoke their lack of transparency and potential unfairness. The provisions regulating the assessment of the unfairness of standard terms and conditions and demanding their transparency are to be found in Book 6 of the Dutch Civil Code. The general prohibition of the use of unfair terms in standard terms and conditions applies to any insurance contract concluded on their basis, except when the insured is a big legal person as determined in Article 6:235 of the Dutch Civil Code.34 Despite the unfairness test having a wide scope of application, consumers specifically have been granted an easier manner to claim unfairness of standard terms and conditions. This has been facilitated, e.g., by the addition of black and grey lists of unfair terms, which respectively prohibit and presume as unfair clauses mentioned on them. Moreover, Article 6:238 of the Dutch Civil Code introduces the transparency principle (in its first sentence) and the contra-proferentem interpretation rule (in its second sentence) explicitly only for consumer (insurance) contracts. However, also these last provisions may apply to insurance contracts concluded with non-consumers on the basis of the so-called reflexwerking. This last notion allows Dutch courts to consider the similarity of the position of a non-consumer to that of a consumer and apply consumer protection against unfairness as appropriate.35 Consequently, the smaller the trader who is concluding an insurance contract, the more his contractual position will be comparable to that of a consumer and the more protection he may expect. Generally, there is no clarity in Dutch law when a person could classify as a consumer. Specifically, it is the mixed purpose (insurance) contract, concluded partially for personal reasons and partially in relation to the professional activity of the insured, that makes the notion of a consumer non-transparent. The insured could likely remain a consumer if his or her professional activity covered by the insurance contract would be negligible.36 Some authors suggest that negligible should not amount to more than 25% of the activity of the insured37; others narrow this limit down to 10%.38 Standard terms and conditions may be non-transparent to the insured as they are formulated in an abstract, non-personalised way, allowing them to apply to many different parties and situations. This means that the insured may not realise what

34

Loos (2013), p. 30. Article 6:235 para 1 of the Dutch Civil Code excludes from its scope of application ‘a legal persons as meant in Article 2:360 of the Civil Code, who at the time of conclusion of the contract has made his last annual account public or to whom prior to that time Article 2:403, paragraph 1, of the Civil Code has been applied’ as well as ‘a party to whom the provisions under point (a) do not apply, if from a registration pursuant to the Commercial Register Act shows that he has fifty or more employees in service at the before-mentioned time of the conclusion of the contract.’ Its para 3 excludes an insured who is also using standard terms and conditions in his or her own dealings, and uses similar terms and conditions. 35 Loos (2013), pp. 257–268, 174–177. 36 Following the CJEU’s judgment in case C-464/01 of 20 January 2005 (Gruber) NJ 2006/278. 37 Loos (2005). 38 Hendrikse et al. (2015), p. 47.

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impact any given standard terms and conditions may have in his or her case.39 To combat this lack of transparency, the insurer could add explanations to such abstract standard contractual terms or provide examples of circumstances under which these terms would be applicable.40 If a specific standard term lacks transparency, this could mean that either it is completely unclear what the term means or that this term could be interpreted in more than one way. In the first case, as a consequence of the lack of transparency, the term may need to be removed from the contract, and the impact thereof on the contract’s performance needs to be established (further discussed in Sect. 2.2.3.1 below). In the second case, it needs to be decided whether the term should be removed from the contract in its entirety or interpreted in one of the possible ways (further discussed in Sect. 2.2.3.2 below). Moreover, it is necessary to consider what terms could qualify as core terms (further discussed in Sect. 2.2.3.3 below) as the lack of transparency of core terms may lead to the review of their fairness. At the end, this part will briefly introduce the general pre-contractual principle of good faith and the duty to warn in Dutch law, which may demand certain transparency of insurance contracts as well (further discussed in Sect. 2.2.3.4 below).

Unclear Terms When the meaning of the term is completely unclear, the Dutch scholarship argues for the removal of such an unclear standard contract term from the (insurance) contract on the basis of Article 6:233 point a of the Dutch Civil Code. This is a consequence of the term being then contrary to the transparency principle of Article 6:238 para 2 first sentence of the Dutch Civil Code.41 Dutch scholars assign this consequence not only when the non-transparent standard term is a core term but also with respect to all standard terms and conditions that lack transparency.42 As it has been mentioned in the previous paragraphs, generally Article 6:238 para 2 first sentence of the Dutch Civil Code should apply only to consumer insurance contracts. Therefore, professional insured parties may not explicitly rely on the protection offered in the above-mentioned provision. However, they could also invoke it through the use of reflexwerking, relying on the presumption of unfairness of a non-transparent term in their own case. They would then need to prove that their contractual situation is comparable to that of an insured consumer. If the court recognises the lack of transparency and the uneven contractual position between the insurer and, e.g., a professional insured party, then it is likely that the unclear term would be removed from the contract.43

39

Vriesendorp-van Seumeren (2002), p. 21. Vriesendorp-van Seumeren (2002), p. 21. 41 Hijma (2010), p. 34. 42 Hendrikse et al. (2015), p. 54. 43 Hendrikse et al. (2015), pp. 55–56. 40

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However, Article 6:233 point a of the Dutch Civil Code does not apply to big professional insured parties or to such insured parties who have drafted themselves similar standard terms and conditions, pursuant to Article 6:235 of the Dutch Civil Code. Such insured parties may not invoke the protection offered in the abovementioned provisions, also not through reflexwerking. Therefore, they need to rely on other measures to contest the lack of transparency. Their claim could be based on the fact that the insurer should not be able to rely on the unclear term that he has himself introduced in the contract on the basis of Article 6:248 para 2 of the Dutch Civil Code, which requires parties to respect the principle of good faith (further discussed in Sect. 2.2.3.4 below).44

Ambiguous Terms When there is more than one meaning that may be given to the contested term in a consumer insurance contract, the contra proferentem rule should be applied. The contra proferentem rule requires that an ambiguous clause is interpreted in the way most favourable to the consumer, pursuant to Article 6:238 para 2 second sentence of the Dutch Civil Code.45 For example, if the insurance contract specifies that it terminates when the insured car is ‘ordinarily’ kept abroad, the contra proferentem interpretation of this clause would not lead to the termination of the insurance contract when the car owner was abroad with his car for a long time, looking to move there, but was still officially living in the Netherlands and his car was registered and insured there.46 This interpretation rule has been introduced to motivate traders to pay closer attention to the way they draft their standard terms and conditions and to encourage them to employ non-ambiguous, transparent terms.47 However, it is also applicable in case the insurer would use standard terms and conditions drafted by third parties. Furthermore, as it has been mentioned in the previous paragraphs, through the use of reflexwerking, also professional insured parties could potentially invoke this rule. Interestingly, it has been argued in the Dutch scholarship that the introduction of this interpretation rule may undermine consumer protection in practice. This could occur if traders began to draft their standard terms and conditions in a manner even more complex than previously.48 The reason for using a complex sentence structure and detailed disclosures would be the trader’s attempt to not leave any gaps left open for interpretation.

44

Hendrikse et al. (2015), p. 56. Which provision implements the rule from Article 5 of the Unfair Contract Terms Directive. 46 Rb. Rotterdam 1 June 2005, ECLI:NL:RBROT:2005:AT8539 (Soldano/Erasmus Verzekeringen BV). 47 Loos (2013), p. 174–177. 48 Vriesendorp-van Seumeren (2002), p. 22. 45

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Dutch courts mostly use the contra proferentem rule when the insured is a consumer, looking to interpret the ambiguous term in the manner most favourable to consumers.49 There is a dispute in the Dutch legal scholarship as to what is the most favourable to consumers’ interpretation of a particular contract term. Some authors argue that if the term is ambiguous and one of its meanings could lead to the assessment that the term is unfair, followed by the removal of this term from the contract, the court should choose this meaning. After all, it may not benefit consumers if the court chooses instead the other meaning of the term that would allow to ‘save’ the term in the contract.50 Other authors argue, however, that the unfairness test serves a different purpose than that of the contra proferentem rule.51 Considering the lack of guidance in the Unfair Contract Terms Directive on any further consequences of the lack of transparency beyond the application of the contra proferentem rule, this ambiguity regarding the impact of the lack of transparency on the unfairness assessment is unsurprising. However, it may lead to different interpretation of ambiguous terms of insurance contracts, depending on whether a given court assigns the meaning to a contested term in consideration of its impact on the unfairness test. With regard to B2B insurance contracts, Dutch courts take a point of view that the contra proferentem method of interpretation is not a rule but should be given preference, as long as the insured has no expertise in the area of insurance.52 This means that most small traders taking out insurance may expect Dutch courts to interpret ambiguous insurance contract terms in a favourable-to-them meaning, relying on the form of reflexwerking.53

Core Terms It is crucial to determine what terms in an insurance contract could be perceived as core terms, considering that the consequence of their lack of transparency is their submission to the unfairness review. The Court of Appeals in Amsterdam54 determined that a term in an insurance contract that directly influences the scope of the insurance cover should be considered as a core term of the insurance contract, as long as this term is transparent.

49

See e.g. Rb. Rotterdam 20 February 2008, ECLI:NL:RBROT:2008:BC6349; Rb. Arnhem 15 December 2010, ECLI:NL:RBARN:2010:BO9558; Hof Amsterdam 11 January 2011, ECLI: NL:GHAMS:2011:BP1172. See to the contrary Ktr. (Cantonal judge) Rotterdam 4 December 2001, Prg. 2002/5807. 50 Loos (2013), p. 180. 51 Hijma (1999), pp. 115–116; Hendrikse et al. (2015), p. 45. 52 HR 28 April 1989, NJ 1990/583 (Liszkay II). 53 Hendrikse et al. (2015), p. 48. 54 Hof Amsterdam 30 September 2008, ECLI:NL:GHAMS:2008:BG2107, para 4.9.

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Importantly, the Dutch Supreme Court insisted on a narrow interpretation of the notion of core terms in judgments that examined other standard terms and conditions than those of insurance contracts.55 This led to doubts about whether terms that described the scope of the insurance cover could be classified as core terms.56 Generally, however, the scholarship indicates as core terms of the insurance contracts terms defining their premium payments, cover scope, as well as exclusions from the cover scope.57 It needs to be mentioned here that predominately the scholarship and case law do not recognise as core terms such terms that determine the circumstances under which the scope of the insurance cover could be adjusted and when the insured could lose his right to claim the insurance.58 This seems consistent with the Court of Appeals’ point of view. After all, such terms do not directly determine the scope of the cover as, in general, a certain risk remains within the cover, and only under the circumstances mentioned in the term would it be excluded.59 However, the above-mentioned description of core terms may lead to uncertainty in practice. Insurers could manipulate the drafting of an insurance contract with an objective to exclude a certain term from being classified as a core term. An example given in the scholarship mentions an insurance policy, which could either state that ‘the insured object remains insured as long as it is provided with 20 fire-extinguishers’ or ‘in case the insured object is no longer provided with 20 fire-extinguishers, the right to compensation is lost’.60 Only in the first case would the term be perceived as a core term, despite these terms having the same effect in practice. As a result, it would not be the content and context of the specific term that would determine its status as a core term but rather the manner in which it has been drafted. Alternatively, in order to determine whether a term describing the scope of the cover is a core term, it could be examined whether it specifies the circumstances under which the insurer is obliged to pay compensation. With the application of this last test, the content of the term would be decisive.61 Another delineation of core terms in the Dutch scholarship follows the insurer’s obligation to bear certain risks and the corresponding obligation of the insured to pay premiums, as well as to take care of the insured object or person.62 The core terms concerning the insurer’s obligation encompass any description of the insured interest, the basis for compensation of damage, the validity period of the cover and the insured risks, including any exclusions and limitations of such risks. As far as the obligations of the insured are concerned, the core terms include the description of the

55

HR 19 September 1997, NJ 1998/6 (Lottospel); HR 21 February 2003, NJ 2004/567. Claiming that such terms should not be seen as core terms, see: Frenk (2000), p. 129. To the contrary see: Hendrikse et al. (2015), p. 61. 57 Tolman (2010), pp. 23–25; Jongeneel (2010), p. 103. 58 Doorhout Mees (1996), p. 43. 59 Hendrikse et al. (2015), p. 62. 60 Hendrikse et al. (2015), p. 63. 61 Hendrikse et al. (2015), p. 64. 62 Tolman (2010), pp. 23–25. 56

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care that the insured needs to exhibit towards the insured interest and payments of premiums and their calculation. Terms on the duty of care of the insured may oblige him to take certain preventive measures. But they may also just inform him of the contributory negligence rules applicable under the insurance contract. Aside the terms listed above, it would be unlikely that other terms of the insurance contract could be classified as core terms.63 However, the above-described classification may also lead to uncertainties in practice. As an example, certain duties of care of the insured could easily qualify as either core terms or other standard terms and conditions.64 Interestingly, some authors have argued that even terms explicitly regulating the scope of the insurance cover should not be treated as core terms if the insured had not expected their presence in the insurance contract.65 Such unexpected terms could be excluded from the core terms’ classification not only if their content was surprising to the insured but also if the surprise pertained to their form, e.g. their positioning on the insurance policy.66 In consumer contracts, the argument continues that the principle of transparency of Article 6:238 para 1 first sentence of the Dutch Civil Code requires not only the provision of grammatically correct and clear terms, but it also aims at informing the consumer of his or her legal position. Considering that it should be relatively easy for the insurers to draw the attention of the insured to the core terms of the insurance policy, unexpected terms should not be perceived as core terms.67 In consumer insurance contracts, unexpected terms could be annulled on the basis of Article 6:237 point b in combination with Article 6:233 point a of the Dutch Civil Code. In other insurance contracts, they could be contested under Article 6:233 point a of the Dutch Civil Code. Insured parties excluded from the scope of application of the unfairness test pursuant to Article 6:235 of the Dutch Civil Code could try to find recourse through the application of the good faith principle, as discussed in the following paragraph. If a term in an insurance contract qualifies as a core term, then it may only be tested for unfairness if it is non-transparent. Lack of transparency of such terms would thus result not only in the application of the interpretation rule contra proferentem, if more than one meaning could be given to them. The further reaching consequence of the lack of transparency of core terms could be the possibility of their annulment, which could even result in the termination of the whole insurance contract.68 After all, without its core terms, the insurance contract may not be possible to be saved.

63

See also: Hendrikse et al. (2015), p. 63. Hendrikse et al. (2015), p. 67. 65 Vriesendorp-van Seumeren (2010), pp. 275–276. 66 Hendrikse et al. (2015), p. 68. 67 Hendrikse et al. (2015), p. 69. 68 Hendrikse et al. (2015), p. 69. 64

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Good Faith and the Insurer’s Duty to Warn Core terms determine the primary cover of the insurance policy and, therefore, could be perceived as the most important terms of the insurance contract. With respect to core terms, Dutch law requires the insurer to make them explicitly transparent to the insured, which usually means that they should be mentioned on the front page of the insurance policy.69 The insurer has a clear duty to warn the insured about the scope of the primary cover and any limitations thereof. The sanction for the breach of this obligation is not being able to invoke any such limitations against the insured, pursuant to Article 6:248 para 2 of the Dutch Civil Code. Article 6:248 para 2 of the Dutch Civil Code applies to any insurance contract, whether it was concluded by a consumer or a professional insured party. This provision requires the parties to act in good faith and, therefore, prevents insurers from invoking any limitations to the primary cover that have not been transparently announced to the insured. The lack of transparency in the provision of information to the insured may, therefore, have serious consequences. For example, in the case of the Court of Appeals of ‘s-Hertogenbosch,70 the concluded travel insurance contract has not clearly specified that the insurance policy would only be valid if it encompassed the whole duration of the travel. The insured only wanted to insure the onwards part of his travel. The court determined that since the insured has previously concluded such limited travel insurance contracts with the same company and since the limitation was not included in the policy cover but rather only mentioned in the standard terms and conditions thereof, the insurer should have explicitly drawn the attention of the insured to this limitation. Since this has not occurred, the limitations of the insurance policy were non-transparent to the insured and the insurer could not invoke them in good faith, pursuant to Article 6:248 para 2 of the Dutch Civil Code.71 The duty of the insurer to warn about unexpected or less transparently drafted terms of the insurance policy and consequences of the termination of the insurance policy binds him also if the insured is assisted by a professional advisor. In the case of the District Court Utrecht,72 the insured notified her advisor of her wish to terminate her insurance against incapacity for work on the day of 1 January 2006. The insurer notified the insured directly, and not her advisor, that one of her insurance policies could only be terminated on 1 January 2010. This insurance contract contained a clause 3.4.1. that states that the compensation would not be paid out after the insurance contract expires. When the insured found out that she had breast cancer in 2007, she tried unsuccessfully to revoke the termination of her insurance contract. However, when the insurer stopped paying her compensation as

69

Hendrikse et al. (2015), p. 81. Hof ’s-Hertogenbosch 12 June 2009, ECLI:NL:GHSHE:2009:BI7715. 71 Similarly, in B2B insurance contracts see: Hof ‘s-Gravenhage 6 March 2012, ECLI:NL: GHSGR:2012:BV8730. 72 Rb. Utrecht 18 July 2012, ECLI:NL:RBUTR:2012:BX2398. 70

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of 1 January 2010, the court considered that the insurer could not in good faith invoke clause 3.4.1. Its meaning could have been non-transparent to the insured, and therefore the insurer should have explicitly warned about its grave consequences for the insured. The court believed that an average insured party would have understood the above-mentioned clause as definitely not covering any incapacity for work that would have occurred after the insurance contract had expired. However, it was not as obvious that any compensation for the incapacity for work that had manifested itself earlier, during the validity of the insurance contract, would have ceased as well. Since the insurer was in direct contract with the insured, he could not trust that the insurance advisor would provide such a warning to the insured instead.73

2.2.4

Transparency and Pre-contractual Duty of the Insured to Notify

Before an insurance contract is signed by the parties, the insured has a duty to notify the insurer about any issues that may influence the risks of providing him or her with an insurance policy, pursuant to Article 7:928 of the Dutch Civil Code.74 This provision specifies that any information that the insured has or should have that he or she knows or should know could influence the decision of the insurer whether and on what conditions to provide the insured with an insurance policy needs to be provided before the contract’s conclusion. In part, the pre-contractual duty of the insured to notify will, therefore, depend on his or her knowledge of the relevance of the given information to the insurer (so-called kenbaarheidsvereiste).75 Consequently, in order for this duty to notify of the insured to arise, the insurer should be transparent in communicating to the insured what information he requires for the assessment of the insurance risks. If the insurer uses a questionnaire in the pre-contractual phase to inquire about certain facts, there is a presumption that the questionnaire asks about information that is relevant to the insurer, this provided that the questionnaire is transparent.76 If the question asked by the insurer is unclear or ambiguous, the Dutch Supreme Court has decided77 that the understanding thereof by the insured prevails over the interpretation given to it by the insurer, this provided that the interpretation by the insured is reasonable and that it is possible to understand this question in more than one manner. The insurer has the burden of proof that the relevance of certain information has been made clear to the insured. This may be difficult to prove if no questionnaire was used by the insurer. Additionally, there may be difficulties with meeting this burden of proof if the insurer expected to acquire certain relevant

73

Hendrikse et al. (2015), p. 84. Hendrikse and Rinkes (2015a), p. 201. 75 Hendrikse and Rinkes (2015a), p. 233. 76 Hendrikse and Rinkes (2015a), p. 234. 77 HR 20 December 1996, NJ 1997/638. 74

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information by asking a general question at the end of the questionnaire.78 Such a general question may not indicate to the insured clearly enough what information is relevant to the insurer. The insurer may generally assume that the answers provided by the insured are correct.79 This implies that he does not need to check whether the insured answered all questions correctly and fully.80 However, the insured has no obligation to provide information to the insurer that is generally well known. For example, in the case of the Court of Appeal of The Hague,81 during the conclusion of the insurance contract for a ship, the insured did not need to notify the insurer that in the area where the ship was stationed there was a heavy storm ongoing. At the time of the conclusion of the insurance contract, this fact was well known in Rotterdam and the insurer could have known this from reading local newspapers. The insurer has, therefore, also a certain duty to obtain relevant information himself.82 For example, in a case where the insurer provided a policy for the goods of the insured but did not inquire as to the nature of these goods, he could not later claim that had he known that the goods were condoms he would have raised the premium payments.83 Moreover, while the insurer does not need to check the correctness of the information provided in the questionnaire, he should draw the attention of the insured to any non-answered questions on the form and may not infer any facts from the lack of answers.84 Therefore, if the insurer normally uses a questionnaire to obtain information about the insured, on which basis the contract would be concluded, and in a given case such a questionnaire would not be completed, any risks associated with the non-revealed information would rest with the insurer. This occurred in the case Huls/NLP,85 where the insurance policy of an airplane was provided without the standard questionnaire having been filled by the insurer. Had this questionnaire been completed, it would have revealed that Huls had no pilot’s license—a necessary condition for providing this insurance. After the accident, when NLP refused to pay out compensation, the Dutch Supreme Court decided that Huls indeed should have provided this information. However, NLP would have known about the missing license if they followed their standard procedure and ensured the completion of the questionnaire. Therefore, the insurer should bear the risk of not having the insured complete the questionnaire. If the insured completes the questionnaire inconsistently, the insurer should also inquire further as to the correct state of the matter.86 This means that the insurer

78

Hendrikse and Rinkes (2015a), pp. 234–235, 239. HR 15 November 1957, NJ 1958/67 (Baris-Riezenkamp). 80 Hendrikse and Rinkes (2015a), p. 237. 81 Hof Den Haag 21 November 1919, W. 10617. 82 Hendrikse and Rinkes (2015a), p. 238. 83 HR 22 February 1924, NJ 1924/488 (Gummiwaren). 84 Hendrikse and Rinkes (2015a), p. 239. 85 HR 18 April 2003, NJ 2004/634 (Huls/NLP). 86 Rb. Noord-Holland 30 January 2013, ECLI:NL:RBNHO:2013:BZ2272. 79

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should thoroughly examine the answers of the insured and inquire as to any inconsistencies between them.87 When the insurer discovers that the insured did not provide all the necessary information in the pre-contractual phase, he should notify the insured of this fact and of the likely consequences, pursuant to Article 7:929 of the Dutch Civil Code. The literal wording of this provision only requires the insurer to warn the insured that there is missing information without the need to indicate what information is missing. Legal scholarship argues, however, that this duty of the insurer to warn only then makes sense if the warning also informs the insured as to the content of the missing information.88 This would then allow the insured to either decide to terminate the insurance contract or to negotiate its change with the insurer.

2.2.5

Transparency and Aggravated Risk

Transparency of the description of the insured object may play a significant role in the determination whether the insurer agreed to pay out compensation in case the circumstances surrounding the insured object have changed, thus aggravating the insured risks. Dutch law does not provide a specific protection to the insurer against any aggravation of the insured risk during the performance of the insurance contract. The insurers are, therefore, forced to regulate such matters in their own contract terms.89 This could be done, e.g., by including a very detailed description of the insured object in the insurance contract, which description would determine the scope of the insurance cover. Alternatively, the insurer could place a duty to notify on the insured of any circumstances that might have aggravated the insured risks during the performance of the insurance contract. The sanction for the breach of this obligation would be the loss of the right to compensation. Another solution would be to incorporate certain preventive guarantee clauses in the insurance contract, under the sanction that if their conditions were not fulfilled, the right to compensation would be lost.90 With regard to the detailed description of the insured object, the judgment91 of the Dutch Supreme Court in the case Wimpy-bar is relevant. The insurance policy against loss by fire described the object as a building made of stone with a hard cover, in which building a Wimpy-bar was located. At the time the fire started, the Wimpy-bar was located only at the ground floor of the building, with the first floor being occupied by a Pakistani restaurant and with the second floor and the attic devoted to residential housing. The Dutch Supreme Court decided in this case that if the intention of the insurer in providing a detailed description of the insured object

87

Hendrikse and Rinkes (2015a), p. 239. Hendrikse and Rinkes (2015a), p. 250. 89 Hendrikse and Rinkes (2015b), p. 521. 90 Hendrikse and Rinkes (2015b), p. 521. 91 HR 15 May 1992, NJ 1993/263. 88

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was to cover risks to that object only as long as it remained unchanged, then the insurer should not be obliged to pay out compensation when the object has changed. However, providing a detailed description of the insured object without relating to it the insurance cover and its scope may be perceived by the national courts rather as a description of the state of the matter at the time of the contract’s conclusion than a delineation of the scope of the cover.92 Some authors argue that if the insurer provides a detailed description of the insured object instead of a more neutral one, this suggests that the details influenced his decision to provide an insurance cover. If the latter view prevailed, the courts should honour the intention of the insurer, which would lead to the loss of the insurance cover, when the insured object changes.93

3 Conclusions The scope of the application of the principle of transparency has increased, and its consequences became more significant with the development of European consumer law and its implementation in the Netherlands. Importantly, rules on consumer insurance contracts may be applicable to other insurance contracts, with certain limitations, through the use of the doctrine of reflexwerking in Dutch law. While the principle of transparency demands insurance contract terms to be provided in a comprehensible and legible manner to the insured, in practice the sanctions for the lack of transparency differ between unclear and ambiguous terms. Lack of clarity or ambiguity may both result from either incomprehensibility of illegibility of the term. In case the terms are unclear, they may be assessed as unfair and removed from the insurance contract. Ambiguous terms should be interpreted in the manner most favourable to the insured, pursuant to the contra proferentem interpretation rule. It is disputed in the Dutch scholarship whether the most favourable to the insured meaning could be the one leading to the finding of unfairness of the term or whether these tests should remain separate. The fairness of core terms of the insurance contract would only be assessed if these terms are non-transparent. Different ways of determining which term should be perceived as a core term have been suggested in the Dutch scholarship. Despite Dutch insurance contract law lacking a provision on the principle of transparency, the general contract rules on interpretation, unfair contract terms, as well as duty to act in good faith, have been efficiently filling this gap. Therefore, there is only some discussion in the Dutch scholarship as to the particularities of the consequences of providing the insured with non-transparent contract terms.

92 93

Hof Den Haag 29 May 2007, ECLI:NL:GHSGR:2007:BA6424. Hendrikse and Rinkes (2015b), p. 523.

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References Asser C, Wansink JH, van Tiggele N, Salomons FR (2012) 7-IX* Bijzondere overeenkomsten (Verzekering), 3rd edn. Kluwer, Deventer Clausing P (1994) Inleiding verzekeringsrecht, 3rd edn. SHD Tjeenk Willink, Alphen aan den Rijn Doorhout Mees TJ (1996) De CAR-verzekering. WEJ Tjeenk Willink, Deventer Frenk N (2000) De gewijzigde opzetclausule in aanspraeklijkheidsverzekeringen, Nieuwsbrief Burgerlijk Wetboek, pp 86–93 Hendrikse ML (2002) Eigenschuld, bereddingsplicht en medewerkingsplicht in het schadeverzekeringsrecht. WEJ Tjeenk Willink, Deventer, pp 5–39 Hendrikse ML (2010) Uitleg van verzekeringsvoorwaarden: wie draagt het nadeel bij (vermeende) onduidelijkheden en onbegrijpelijkheden in verzekeringsvoorwaarden: de verzekeraar of de (consument-)verzekerde? In: Hendrikse ML, Rinkes JGJ (eds) Consument en verzekering. Uitgeverij Paris, Zutphen, pp 53–73 Hendrikse ML, Rinkes JGJ (2015a) De mededelingsplicht bij het aangaan van verzekeringen. In: Hendrikse ML, van Huizen HJG, Rinkes JGJ (eds) Verzekeringsrecht, 4th edn. Kluwer, Deventer, pp 201–272 Hendrikse ML, Rinkes JGJ (2015b) Risicoverzwaring en risicovermindering in het verzekeringsrecht. In: Hendrikse ML, van Huizen HJG, Rinkes JGJ (eds) Verzekeringsrecht, 4th edn. Kluwer, Deventer, pp 499–547 Hendrikse ML, Rinkes JGJ, Pluymen MH (2015) Verzekeringsrecht en algemene voorwaarden. In: Hendrikse ML, van Huizen HJG, Rinkes JGJ (eds) Verzekeringsrecht, 4th edn. Kluwer, Deventer, pp 25–109 Hijma J (1999) Consumentonvriendelijke interpretatie, Weekblad voor Privaatrecht, Notariaat en Registratie 6345, pp 115–116 Hijma J (2010) Algemene voorwaarden. Kluwer, Deventer Jongeneel RHC (2010) Werkingssfeer afdeling 6.5.3. In: Wessels B, Jongeneel RHC, Hendrikse ML (eds) Algemene voorwaarden, 5th edn. Kluwer, Deventer Leerink PM (2009) Premie betalen en risico dekken. Nederlands Tijdschrift voor Handelsrecht 4:176–187 Londonck Sluijck JB (2007) Kronik polisbepalingen. Aansprakelijkheid Verzekering en Schade 5:129–134 Loos MBM (2005) Het begrip ‘consument’ in het Europese en Nederlandse privaatrecht, Weekblad voor Privaatrecht, Notariaat en Registratie 6638, pp 771–772 Loos MBM (2013) Algemene voorwaarden. Boom Juridische Uitgevers, Den Haag Rinkes JGJ (2010) Het begrip ‘consument’ in het verzekeringsrecht: nationale en Europese perspectieven. In: Hendrikse ML, Rinkes JGJ (eds) Consument en verzekering. Uitgeverij Paris, Zutphen, pp 11–51 Tolman MJ (2010) Contractsvrijheid en kernbedingen: dode hoek in het contractenrecht. In: Tiggele-van der Velde N, Wansink JH (eds) Contractsvrijheid in het verzekeringsrecht. Kluwer, Deventer Vloermans N (2015) Inleiding. De overeenkomst van verzekering. In: Hendrikse ML, van Huizen HJG, Rinkes JGJ (eds) Verzekeringsrecht, 4th edn. Kluwer, Deventer, pp 1–24 Vriesendorp-van Seumeren RM (2002) Algemene voorwaarden en verzekeringsrecht. WEJ Tjeenk Willink, Deventer Vriesendorp-van Seumeren RM (2010) Case note to Rb. Amsterdam 3 February 2010. Tijdschrift voor Consumentenrecht 6:276–280

Transparency in the Insurance Contract Law of Poland Katarzyna Malinowska and Anna Tarasiuk

1 Definition of Transparency in the Polish Insurance Contract Law As a starting point to our analysis, it should be made clear that Polish law does not provide any definition of transparency. In everyday language (transparentny1 or przejrzysty2), it refers to an easy way of recognising or foreseeing, as well as meaning; public; revealed; not dubious; unambiguous; clear; without any doubts or suspicions as to the real meaning; full disclosure; comprehensibility; etc. In such a context, ‘transparency’ is used in legal texts, as well as in court judgements and opinions of the doctrine. Seemingly, the Polish understanding of transparency does not differ from its universal, international meaning.3 It is also, without a doubt, recognised as one of the foundations of the efficiency of free trade.4

1 Please see for reference: Polish Language Dictionary: https://sjp.pwn.pl/szukaj/transparentny. html. 2 Please see for reference: Polish Language Dictionary: https://sjp.pwn.pl/szukaj/przejrzysty.html. 3 Please see as an example: Ulusoy (2012), s. 39. 4 Available at: http://www.investopedia.com/terms/t/transparency.asp#ixzz3eOfkpk65

K. Malinowska Kozminski University, Warsaw, Poland e-mail: [email protected] A. Tarasiuk (*) Kozminski University, Warsaw, Poland Lyszkiewicz Tarasiuk Kancelaria Radcow Prawnych Sp.p., Warsaw, Poland e-mail: [email protected] © Springer Nature Switzerland AG 2019 P. Marano, K. Noussia (eds.), Transparency in Insurance Contract Law, AIDA Europe Research Series on Insurance Law and Regulation 2, https://doi.org/10.1007/978-3-030-31198-8_7

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It seems that the European and the Polish laws apply the notion of transparency in a double meaning: first, as a general principle of functioning of the insurance industry and, second, as a manner in which the information duties of the parties to the insurance contract should be performed.5 In the latter context, the emphasis is put on the pre-contractual information duties towards the consumer by the insurer, the aim of which is balancing the information deficit and enabling the consumer to take a conscious decision as to whether to conclude the insurance contract. In terms of the transparency duties on the policyholders, they are mainly understood as an obligation to reveal the risk to be insured at the contracting stage. The idea of transparency in the Polish legal system was developed primarily under the general consumer law in relation to the wording of the general terms of the contract. Subsequently, it also appeared in insurance law—in a broader sense than in the general consumer law6 (provisions of the law on insurance activity with respect to insurers and all types of policyholders or insured irrespective of whether they are consumers). It has also been developed in the insurance case law. The idea of transparency concerns mostly the information duties of the parties in the contractual relations, although such obligations result mostly from public law and not private law, followed by the in case they are breached.7 The most common example of the latter can be observed in the manner of preparing the general terms of insurance contracts. There can be no doubt that it is the European Union that vastly contributed to the understanding of transparency as it is commonly applied in current Polish legislation. It is well known that among approximately 100,000 directives, the notion of transparency mainly appears in the context of consumer protection, which in financial services has attained the most sophisticated level.8 This tendency has been implemented in full in the Polish legal system. Thus, the notion of transparency is 5 This concept has been analysed in depth in insurance context by Professor Wandt (2014). Definition of transparency in insurance contract includes three main prerequisites, i.e.: compherensive, clear, unambigious; See also the context analysed by Maśniak (2014). 6 Please see, for example, the Polish Supreme Court verdicts dated 16.09.2016 (IV CSK 711/15), Legalis no. 1716875 (on the interpretation of the unclear contractual provisions); dated 06.02.2015 (II CSK 295/14), Legalis no. 1187394 (on the interpretation of the contractual provisions). 7 It can also be understood in a broader sense, such as information obligations of the insurers regarding capital requirements and risk management, including information reports provided to the Polish Financial Supervisory Authority, please see: E. Kalińska, Wypełnianie nowych formularzy do sprawozdań może być kłopotliwe, http://www.gu.com.pl/in-dex.php?option¼com_content& da-moe-byview¼article&id¼53575:wypenianie-nowych-formularzy-do-sprawozkopotliwe&catid¼129:rynek-ubezpieczeniowy&Itemid¼151; Ostrowska, (2014). 8 For example the so called „Transparency Directive” regulating the procedure on providing information in relation to the information society; Directive 98/34/EC of the European Parliament and of the Council of 22 June 1998 laying down a procedure for the provision of information in the field of technical standards and regulations (O.J. EU L 204 dated 21.07.1998, s. 37. See as well Working Paper: Online services, including e-commerce, in the Single Market; Commission Staff Working Document Online Services, Including E-Commerce, In The Single Market Accompanying The Document Communication From The Commission To The European Parliament, The Council, The European Economic And Social Committee And The Committee Of The Regions A coherent framework to boost confidence in the Digital Single Market of e-commerce And other online

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commonly used by the Polish legal doctrine for the description of the insurers’ duties towards the policyholders9 and towards the insured. As will be shown in the analysis carried out below, transparency mainly refers to the parties’ information duties and is compliant with the general concept as developed for the consumer protection, namely the right to be given clear and unambiguous information. In the insurance area, its scope of application is, however, much broader and encompasses not only the consumers but all the policyholders, regardless of their status. This is due to the fact that information and competence deficit on the policyholder’s side is much greater than in other branches of industries. Although most of the Polish legal regulations concerning transparency in insurance contracts can be derived from the European legislation, nevertheless, some of its aspects were developed in a specific manner by Polish law. For instance, alpine insurance culture, which is characteristic of continental systems, is much more protective for the policyholder than marine insurance culture, which exists in common law.10 Although transparency is naturally associated with the obligations of the insurer, it cannot be ignored that the proper balance of the parties’ rights and obligations is one of the fundamental contractual principles, and as such it is also binding in insurance contractual relationships. That is why the policyholder’s information duties at the contracting stage, which are so crucial for proper risk assessment, also seem to form a part of the transparency regime of the insurance contract. The analysis carried out in this chapter will thus encompass the legal aspects of the risk declaration duties regulated by the Polish Civil Code11 (the PCC). The following analysis will concern various sources of law. Most of the analysis will be devoted to transparency as regulated in the PCC, as well as in the Act on Insurance and Reinsurance Activity12 (the AIRA), in the aspects that regulate insurance contracts. Besides, the provisions on unfair business practices and the general provisions on consumer protection will be explained in the context of insurance contracts. An explanation on recent regulations on the distribution of insurance products, namely the Act on Insurance Distribution13 (the AID), will also be given.

services {COM(2011) 942 final} {SEC(2011) 1640 final, http://ec.europa.eu/internal_market/ecommerce/docs/communication2012/SEC2011_1641_en.pdf. 9 For example: E. Kiziewicz, Zasada transparentności a ogólne warunki ubezpieczeń, dostęp: http:// www.rzu.gov.pl/publikacje/artykuly-pracownikow-i-wspolpracownikow/Ewa_Kiziewicz_-_ Zasada_transparentnosc_a_ogolne_warunki_ubezpieczen__132; M. Łuczyński, Rekomendacja dobrych praktyk informacyjnych dotyczących ubezpieczeń na życie związanych z ubezpieczeniowymi funduszami kapitałowymi – element budowy nowoczesnego rynku ubezpieczeń na życie, Wiadomości Ubezpieczeniowe, numer specjalny 3/2013. 10 Herman Cousy (2002), pp. 111–128; Malinowska (2008), s. 62 11 Act dated 23 April 1964 the Civil Code (uniform text: O.J. 2018 item 1025, as amended). 12 Act dated 11 September 2015 on Insurance and Reinsurance Activity (uniform text: O.J. 2018, item 999). 13 Act dated 15 December 2017 on Insurance Distribution (O.J. 2018, item 2210, as amended).

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2 The Issue of Transparency in the Insurance Field Under Polish Law 2.1

Previous Regime: Evolution

The Polish legal transparency regime applicable to insurance contracts has a pretty short history. It was introduced primarily by the first regulation of insurance contracts in the provisions of the newly drafted PCC in 1964. Since then, until the beginning of the XXI century, no significant changes in respect of transparency were introduced in the PCC. By way of consequence, the information regime existed mainly in the context of the risk declaration duty that was solely imposed on the policyholder at the stage of the conclusion of the insurance contract. It remained regulated by Article 815 of the PCC. According to the said Article 815 of the PCC, the policyholder is obliged to disclose to the insurer all the circumstances known to it about which the insurer has enquired in the offer form or in other letters before the contract execution. If the insurer executes the insurance contract despite receiving no reply to particular enquiries, the omitted circumstances are deemed insignificant. As a result, the transparency regime, as set by Polish law, is based on the system of questionnaire, which is much more convenient for policyholders than is spontaneous risk declaration. This rule has not changed since the beginning, and it applies both to consumers and to professional policyholders. An important evolution can be observed, however, in respect to the consequences of the breach of the declaration duties. While at the beginning the insurer was entitled to reject the claim in case the misrepresentation or concealment affected the general probability of the event insured, since the significant changes introduced in 2007,14 the insurer must prove that such misrepresentation had a real influence on a given event insured and not only on its general probability ratio. According to Article 815 § 3 of the PCC, the insurer is not liable for the effects of circumstances about which he was not informed contrary to the risk declaration duty. The situation of the policyholder is worse in case of a wilful misconduct, as if the risk declaration duty is breached due to wilful misconduct, in case of doubt, it is assumed that an event provided for in the contract and its consequences result from the above circumstances. It is important to note that the information duties attached to policyholders only concern their actual knowledge,15 although it is claimed by the doctrine that possessing an average knowledge of the subject to be insured should be perceived as one of the policyholder’s contractual duties. The duty of information also applies to the representative of the policyholder (for example the broker) and the insured16 (if different from the policyholder) and also includes the circumstances known by such persons. 14 Act dated 13 April 2007 on the amendments to the Civil Code and some other acts (O.J. No 82, item 557). 15 Article 815 § 1 of the PCC. 16 Article 815 § 2 of the PCC; see more in Malinowska (2015).

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The policyholders’ transparency duty as for the features of the risk may be prolonged and apply during the entire life of the insurance contract on the basis of contractual provisions (it does not exist ex lege) as the PCC provides that the insurance contract may provide for an obligation of the policyholder to report any change in the above circumstances during the contract term, immediately on learning of them. The above obligation does not concern life insurance17 due to its long-term character, which naturally encompasses changes in the health and life status of the insured. Although during the years the above-mentioned provisions have evolved in a way favourable to the policyholders, nevertheless, they constituted an unbalanced transparency regime, where information duties were mainly the policyholders’ burden. The insurers’ information duties focused on their obligation to show the difference between the policy wording and the content of the insurance terms or application form as filed by the policyholder.18 This situation has begun to change with the dawn of the twenty-first century and the attempt to adjust the Polish legal system to the European standards. The first Insurance Activity Act19 enacted in 1990 (the ‘1990 Act’), just after the political system changes, introduced compulsory elements of general insurance terms and conditions (GTC), according to which they should describe in particular the subject and scope of coverage, the manner of executing the insurance contract, the time of coverage, the rights and duties of the parties, as well as the manner of settling the amount of damage and paying the claim.20 In 1995, the obligation for the insurer to deliver the GTC to the policyholder at the moment of the conclusion of the insurance contract was introduced for the first time in the insurance regulations. Thus, at first, the transparency regime as for the insurers’ duties mainly included their obligations regarding the wording of the GTC and only related to other aspects of contracting in insurance to a very limited extent. The next stage of the evolution of the transparency regime took place with the enactment of the subsequent Act on Insurance Activity dated 22 May 200321 (the ‘2003 Act’), the purpose of which was the transposition of the third-generation insurance directives and Poland’s accession to the EU. It included much more

Article 815 § 2 of the PCC in fine. According to the current wording of the article 811 § 1 of the PCC, if in response to an offer which has been made, the insurer delivers to the insuring party an insurance document containing provisions which differ to the latter’s disadvantage from the content of the offer made by him, the insurer shall be obliged to draw the insuring party’s attention to it in writing at the delivery of that document, setting him a period of at least seven days to raise an objection. In the case of failure to comply with this duty, the changes made to the insuring party’s disadvantage shall not be effective and the contract has been concluded according to the offer's conditions. According to its § 2, in the absence of any objection, the contract shall be effective in accordance with the content of the insurance document on the following day after the lapse of the time limit set to file the objection. 19 Act on Insurance Activity dated 28 July 1990, compelled on 1 January 2004, where a new Act on Insurance Activity, implementing the third generation of the insurance directive entered into force. 20 Article 6 of the 1990 Act. 21 Act on Insurance Activity dated 22 May 2003 (O.J. 2003, No 124, item 1151, as amended). 17 18

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developed regulations within the scope of the transparency regime. Article 12 of the 2003 Act introduced the obligation to formulate the general insurance terms and insurance contract in an unambiguous and comprehensible manner, for the first time. All the provisions that were ambiguous were to be interpreted in favour of the policyholder, the insured, the beneficiary or other parties entitled to a claim. Apart from this, the provisions concerning the content of the general insurance terms were significantly enlarged22 in such a way that they should have provided additionally for terms for changing the sum insured, specific terms for calculating the sum insured (if different from the general rules), terms for calculating and paying the insurance premium, the method of premium indexation (if applicable) and terms for changing the insurance contract or its termination. In addition to the proper formulation of the insurance general terms, the insurer was charged with other pre-contractual duties, such as information on the law applicable to the insurance contract, in case the parties were not free to choose the law, or the applicable law as suggested by the insurer in case of a free choice, as well as the manner of resolving the complaints lodged by the policyholder and the body authorised for handling the complaints. The above, however, solely applied whenever the policyholder was a natural person, regardless of whether or not they were entrepreneurs at the same time.23 Following the life insurance directive, the 2003 Act also introduced extensive information duties imposed on the insurers in case of life insurance contracts and specifically for unit-linked products.24 These duties did no longer lie on the insurer during the execution of the insurance contract but were extended to the whole life of the contract. The 2003 Act, for the first time, regulated the duties of the insurer as for the adjustment of losses after the occurrence of the event insured. These rules should also form a part of the transparency regime during its performance stage, in the sense that they include extensive information duties making the adjustment of losses a transparent procedure. In that context, the 2003 Act included the obligation of the insurer to inform the policyholder about the loss adjustment procedure and documents necessary for its completion. The transparency regime also comprised the insurers’ obligation to inform the policyholder about the delay in settling the claim and reasons thereof, as well as the reasons for not satisfying the claim in full or in part, along with the information on the possibility of filing a suit with the court. The majority of the above rules have been transposed by the AIRA, which is the Act replacing the 2003 Act in 2015, as a part of the legislation incorporating the Solvency II Directive regime into the Polish legal system.

22

Article 12a of the 2003 Act. The above rules have been repeated in Article 25 of the AIRA, the act that replaced the 2003 Act. 24 Article 13 of 2003 Act. 23

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Current Regime Civil Code: Applying General Transparency Requirements to the Insurance Contracts (Article 384 of the PCC and SBSQ): Other Regulatory Guidelines

The previously mentioned PCC, similarly to the AIRA, set transparency rules in relation to the manner of concluding the insurance contract, as well as its conclusion itself. In terms of the manner of concluding the contract, the PCC does not differentiate between insurance and non-insurance contracts, simply providing for the possibility of concluding the insurance contract by way of an offer and its acceptance, tender, auction or negotiation. Mass insurance contracts are usually concluded by way of an offer and its acceptance. The offer can be made by a potential client by way of providing the application of insurance, but obviously the offer can also be made by an insurer. Regardless of the party making the offer, Article 66 § 1 of the PCC clearly indicates that a declaration made to another party about its intent to conclude a contract shall be deemed to be an offer if it determines the essential provisions of the contract. In terms of concluding the insurance contract itself, the most important provision seems to be Article 384 of the PCC. This is still true despite the fact that most of the information to be provided by the insurer to the policyholder/insured has been regulated by the AIRA. The rule introduced by the PCC concerns the other aspects of the above, i.e. ensuring that the required information reaches the addressee and— at the same time—ensuring the proper application of the principle of transparency. Article 384 § 1 of the PCC is strictly related to the previous developments. In effect, it provides for the basic principles that have to be followed when drafting a model contract set up by one of the parties, in particular the general conditions of contracts or standard forms of contracts. The provisions of the model form shall be binding upon another party if they have been delivered to the said party prior to the conclusion of the contract. As it refers to the model contracts, which are the basis for most mass insurance contracts, it plays an extremely important role in the creation of the insurance contractual documentation, as well as in the performance of the insurance contract from the point of view of its transparency. The general rule of Article 384 § 1 of the PCC, as quoted above, provides for very different rules when the policyholder/insured is a consumer. First, it differentiates between contracts commonly made in petty current matters of quotidian life and other contracts. The general obligation to deliver a standard form of a contract to a consumer in any contractual relation can be waived only in case of contracts commonly made in petty current matters of quotidian life, if the other party might have easily learned about its content. As it is very difficult to include insurance contracts in such a contractual group, the standard terms need to be systematically delivered to the consumer in order to be binding.

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The consumer–non-consumer division is also clearly visible in further provisions of the PCC. For example, it is directly connected with additional differentiation criteria applied by the PCC, namely the manner of concluding a contract (traditional manner versus electronic means of communication). According to Article 66 (1) of the PCC, an entrepreneur (that is, the insurer) that submits an offer electronically is obliged, before executing the contract, to inform the other party (policyholder) unambiguously and clearly of (i) the technical actions constituting the contract execution procedure; (ii) the legal effects of the other party confirming receipt of the offer; (iii) the principles and methods by which an entrepreneur records, secures and makes the content of the contract available to the other party; (iv) the technical methods and means for detecting and correcting errors in introduced data that it is obliged to make available to the other party; (v) the languages in which the contract may be executed; (vi) the ethical codes applied and their availability in electronic form. This provision applies accordingly in case of negotiations between the parties or executing the contract in any other way. It does not apply, however, to the execution of contracts by electronic mail or similar means of individual communication at a distance and does not apply either in relations between entrepreneurs if the parties so agree. It is clear then that the amount of information, as well as the form of providing such information, differs depending on whether the policyholder is a consumer or not. A transparency rule here is again repeated as an obligation imposed on the insurer: the information above must be provided in an unambiguous and clear way. The consumer status in insurance contracts became a difficult issue after the changes to the PCC, which entered into force in 2007.25 Although the definition of the consumer as set by Article 22 (1) of the PCC applies to all insurance contracts,26 there is a big difference when it comes to abusive clauses. According to Article 805 § 4 of the PCC, the provisions of Articles 3851 to 3853 of the PCC, which regulate abusive clauses, shall apply accordingly if a policyholder is a natural person entering into a contract directly related to its business or professional activity. Regulations regarding abusive clauses constitute a transposition of Council Directive 93/13/EEC on unfair terms in consumer contracts27 (93/13/EEC Directive) and have been defined in Article 3851 of the PCC, which reads as follows: Provisions of a contract concluded with a consumer, which have not been individually agreed with him, shall not be binding thereupon, if his rights and duties have been stipulated in conflict with good customs and in flagrant violation of his interest (wrongful contractual provisions). This shall not relate to the provisions which specify basic performances of the parties, including the price and remuneration if determined explicitly. The Article 805 § 4 in wording of the Act dated 13 April 2007 on amending the PCC (J.O. No 82, item 557). 26 According to article 22 (1) of the PCC: A consumer shall be deemed to be any natural person who performs acts in law with an entrepreneur, said acts not being directly connected with his economic or professional activity. 27 Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts, OJ L 95, 21.4.1993. 25

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remaining part of the article repeats the wording of the 93/13/EEC Directive by providing that ‘The provisions not agreed upon individually shall be such provisions of the contract over which the consumer had no actual influence. It shall concern, in particular, the provisions of the contract taken over from the model contract offered to a consumer by a contracting party.’28 The provisions of the 93/13/EEC Directive were transposed into the Polish legal system quite early29 and were aimed at ensuring more transparency.30 The amendments to the PCC introduced the notion of ‘abusive clauses’ (unfair contractual terms) and provided for rules as to how the information should be disclosed to the consumer. The most important regulation from the point of view of transparency added by the said amendment to the PCC is still binding Article 385 § 2 of the PCC, according to which the model form of contract must render its content unambiguous and comprehensible. Ambiguous provisions must be interpreted in favour of the consumer. According to Article 3852 of the PCC, the conformity of a given provision with good customs shall be examined in reference to the state of affairs on the date of conclusion of a contract and taking into account its contents, the circumstances of its conclusion and any other contracts in connection with the contract, which includes the provision being subject to such examination. The PCC, copying the relevant provisions of 93/13/EEC Directive, provided an open catalogue of abusive clauses indicating that in case of doubt, the unfair contractual provisions shall be those, in particular, that have been indicated in Article 3851 of the PCC. In 2005, the Polish Insurance Supervisory Authority (Komisja Nadzoru Ubezpieczeń i Funduszy Emerytalnych—Comission for Supervision of Insurance and Pension Funds31) (the PFSA) reviewed the situation of the standard insurance contract terms on the Polish market and issued its first report on the analysis. In the conclusions of the report, it indicated that, assessing the clarity of the GTC, the performed analysis authorizes to conclude that, as a rule, the GTC are documents difficult to be understood. The weak points are: illegible outline, lack of clarity enabling the easy information search, incomprehensible language and ambiguous terms.32 The PFSA’s research was made on the basis of examination of several GTC offered by some Polish insurers. The research resulted in many comments concerning the status and shape of the GTC’s availability on the market. In particular, the PFSA complained about the lack of clarity of the wording, in particular its

Article 3851 § 3 of the PCC. Act dated 2 March 2000 on protection of some rights of the consumers and product liability, (O.J. 2000, No 22, item 271 as amended). 30 For further information please also see for example: Tarasiuk-Flodrowska (2014), s. 31–40. 31 Currently: Commission for Financial Supervision. 32 Office of the Commission on Supervision of Insurance and Pension Funds, Irregularities in the General Insurance Terms and Conditions, Department of the Communication and European Integration, Warsaw, 2005, p. 4. 28 29

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readability, the precision of the terms used, as well as the uniformity of terminology used. The PFSA also noted the abuse of the use of generic clauses reducing the transparency of products: in life insurance, the use of formulas such as ‘the amount determined by the [insurance] company’, ‘the management [of the insurer] will determine’, ‘fee charged periodically, creating for the needs of the GTC definitions deviating from those used in the generally applicable laws, as well as failure to comply with the information obligations under Art. 13 of the Act on Insurance Activity, in particular ordering in Section I insurance the determination of the rules for determining benefits due under the contract and determining the costs and other charges charged by the insurance company for the payment of benefits, lack of other information, including the manner of establishment of the premium, payment of the premiums or return of payments made’.33 In terms of the legislation technique, the PFSA noted that the reviewed contractual standard forms included concepts deviating from concepts used in common law and common language. There have been cases in which the GTC did not follow the regulations, such as the Civil Code, on terms used, but used terms that were colloquial, far from the precision and clarity requirements. By way of example, the definition of property as set in the general terms was different from the one set in the Civil Code. The Report also complained about the legislation’s irresponsibility related to inadequate grouping of particular issues or their placement in different places of a contractual pattern. The introduction of concepts that are essential for the amount of benefit did not correspond to the inclusion of a glossary in which the meaning of the terms used for clarity of the terms and conditions would be clarified in a clear and unequivocal manner. Sometimes, for example, the terms mathematical reserve, technical interest rate, which are important for the intelligibility of the GTC, are not defined at all. The lack of clarity was also not conducive to the scattering of concepts and their definition in different places, rather than placing them in one chapter.34 A summary of the situation on the Polish insurance market in relation to the contractual standard forms was presented by the PFSA as dangerously bad.35 As a result of the indicated report, 68 clauses were regarded as potentially abusive, some of them related to the pure transparency of the information provided. One of the reasons for the above overall summary was the lack of transparency in the wording of the GTC, as a result of which the insurers tend to arrogate the right to themselves to unilaterally interpret the provisions of the insurance contract. These

33

Office of the Commission on Supervision of Insurance General Insurance Terms and Conditions, Department Integration, Warsaw, 2005, p. 9. 34 Office of the Commission on Supervision of Insurance General Insurance Terms and Conditions, Department Integration, Warsaw, 2005, p. 12 f. 35 Office of the Commission on Supervision of Insurance General Insurance Terms and Conditions, Department Integration, Warsaw, 2005, p. 23.

and Pension Funds, Irregularities in the of the Communication and European and Pension Funds, Irregularities in the of the Communication and European and Pension Funds, Irregularities in the of the Communication and European

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findings were, later on, reflected by further researches and reports of the Office for Consumer and Competition Protection (UOKiK). The UOKiK issued two reports on the insurance GTCs on the Polish market— one in 200636 (the ‘2006 Report’) and the second in 201037 (the ‘2010 Report’). In both of them, UOKiK confirmed the previous findings on the extreme deficiencies in transparency of the GTC wording. However, it indicated that a change in this respect was also visible. As the review of the GTC in 2006 covered only nine of the insurers (life and non-life) and 13 insurers in 2010, it is difficult to state that the findings could be treated as representative of all of the insurers at that time.38 However, the deficiencies presented in the 2006 Report and 2010 Report could—more or less— indicate the most common irregularities on the Polish insurance market. Indeed, the UOKiK indicated that the analysis of the general insurance terms and conditions in life insurance indicated that almost all insurers being examined used the contractual clauses that can be regarded as forbidden in contracts with consumers.39 It also repeated again the general recommendation by which the transparency and comprehension of the GTC are absolutely necessary, and the level of knowledge of the policyholder and use of the wording that enables the correct understanding of the relevant clauses should be an important tool in preparing the standard contractual terms. Otherwise, the payment of the insurance benefit from insurance contracts would not depend on the client’s assessment of the factual status as basis for claiming the payment but on a unilateral judgement of the insurer that is made on the basis of definitions of the GTC that it construed itself. Irrespective of the reports, the transparency issue in insurance contracts became an important matter for judgement in individual cases considered by UOKiK. The direct background of some of the decisions of this authority referred to the unilateral interpretation of the provisions of the GTC by the insurers. The criticism related not only to the factual unilateral interpretation but also to the direct provisions included in the GTC, such as the following: “the right of interpretation of these by-laws is exclusive to the organizer’.40 Transparency was also the subject of many court decisions, including Supreme Court decisions. In one of its rulings,41 the Supreme Court indicated: When assessing whether the contractual standard in the insurance contract is formulated unequivocally and comprehensibly, the subjective judgment should be limited and based on how the average recipient, being in the same position and concluding the 36

Office for Consumer and Competition Protection, Consumer Politics Department; Report of the control of the general terms applied by the insurers; Warsaw, September 2006. 37 Office for Consumer and Competition Protection, Consumer Politics Department; Report of the control of the general terms applied in life insurance; Warsaw, January 2010. 38 There were 65 insurers and 1 main branch in Poland as of the end of 2009. 39 Office for Consumer and Competition Protection, Consumer Politics Department; Report of the control of the general terms applied in life insurance; Warsaw, January 2010, p. 10. 40 Decision of SOKiK dated 23 January 2012 (XVII AmC 977/11), http://orzeczenia.warszawa.so. gov.pl/details/$N/154505000005127_XVII_AmC_000977_2011_Uz_2012-01-23_001. 41 Decision of the Supreme Court—Civil Chamber dated 28 March 2007 r. (II CNP 124/06).

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contract with the insurance company on the terms and conditions, would understand it. It is only if the clause of the contract in question appears ambiguous and unclear, it is entitled to its interpretation by contra proferentem. In one of its later decisions, the Supreme Court42 indicated that while interpreting the will of the parties to an auto-casco insurance contract, it cannot be disregarded that the common understanding of such a contract relates to a broad insurance coverage, so, in principle, all the events referred to as eg. theft should be included in it. Therefore, any exclusions of such liability should be clearly and explicitly defined in the GTC as well as in the insurance contract so that policyholders at the time of concluding the contract clearly know what events are not covered by the insurance. The Supreme Court further indicated that the use of unclear formulas or ambiguous formulation of responsibilities or exclusions is not acceptable. The same should apply to references to the legal acts or regulations not included in the insurance contract. There is no doubt that in case of any misconduct in this respect, the contractual term should be construed in favour of the policyholder. One of the most significant decisions of the Supreme Court that had an impact on the understanding of the importance of the transparency rule was taken in 2011.43 In that decision, the Supreme Court shared the standpoint that also according to Polish law, and not only in the relations with customers (Article 385 § 2 of the PCC), any doubts should be translated to the detriment of the party who has drawn up the contract. The risk of doubt arising from the unclear provisions of the contract, which can not be interpreted, should be borne by the party who has drawn up the contract.44 Having regard to the complexity of the contractual documentation and in order to ensure inter alia the compliance with the transparency rule in insurance, the PFSA issued several documents that were to supplement the general legislation regime in Poland by way of semi-binding provisions, such as guidelines and good practices.45 The most important matter from the point of view of transparency in Recommendation U was not only the necessity to avoid abusive clauses or provide for relevant information in a clear and unambiguous way but also the necessity to obtain the relevant insurance product data and its conditions in order to counteract misselling

42

Decision of the Supreme Court—Civil Chamber dated 12 January 2007 r. (IV CSK 307/06). Decision of the Supreme Court—Civil Division, dated 2 December 2011 r.; III CSK 55/11. 44 This was further confirmed by the decision of the Supreme Court, Civil Division, dated 10 February 2016, I CSK 1/15; Please also see: Decision of the Court of Appeal in Warsaw, I Civil Division dated 24 October 2013 r., I ACa 535/13 or Decision of the Supreme Court—Civil Division, dated 15 February 2013 r., I CSK 313/12. 45 Recommendation U regarding good practices in respect of bancassurance, issued for banks in June 2014 by the Commission for Financial Supervision http://www.knf.gov.pl/Images/ Rekomendacja_U_tcm75-38338.pdf (access on: 2 March 2016) and Guidelines for insurance companies regarding distribution of insurance, issued in June 2014 by the Commission for Financial Supervision. http://www.knf.gov.pl/Images/Wytyczne_dystrybucja_ubezpieczen_24-06-14_tcm75-38337. pdf 43

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and lack of transparency, which, as far as the payment of protection insurance products is concerned, also in Poland became a serious issue.46 In 2014, following Recommendation U addressed to banks, the PFSA issued Guidelines for insurance companies regarding the distribution of insurance.47 KNF decided that it is the insurer’s duty to care for the provisions of the insurance contract. In guideline no. 11 addressed to the insurers, the PFSA indicated: If an illicit contractual clause (abusive clause) is found in the contract, the insurance company should make the appropriate changes before the conclusion of the contract, or—if the abusive nature of the clause has arisen after the conclusion of the insurance contract—take steps to remove such provisions. In insurance contracts on account of a third party, the insurance company should strive to make appropriate changes in the content of the contract before joining the next persons to the insurance contract.48 It also obliged the insurers, by virtue of guideline no. 9, to provide information in relation to the insurance contract on account of a third party, including the obligation to provide adequate and complete information regarding the insurance contract. In guideline no. 9.3, the insurers became obliged to undertake efforts to provide information to clients in a clear and unambiguous way and to make sure that relevant information is exposed to the client, in particular those that are important to such client (including exclusions from the cover or amount of fees49). The activity of the PFSA (even though this area is not its primary goal of functioning) and of the UOKiK proved their raising interest in the transparency matter. In 2014, the PFSA expressed its concern about the increase in the number of entries in the register of prohibited contract terms whose application was found in contracts concluded by financial institutions subject to the supervision of the PFSA.50 It mentioned the necessity of keeping the standards with a particular attention to the transparency and uniqueness of the standard contractual terms in consumer relations. The PFSA requested that the financial institutions, including insurers, undertake internal legal control regarding the standard contractual terms with consumers, including confronting the contractual provisions with the registry maintained by the UOKiK.

See: A. Tarasiuk – Flodrowska, Bancassurance on the EU market – specificalities of the Polish Law, Evropska Revija za Pravo Osiguranje/European Insurance Law Review 4/2011, pp. 6–12, M. Więcko-Tułowiecka, Challenges of the Payment Protection Insurance Market – Analysis of European Tendencies in the Context of the Need for Legal Actions in Poland, Prawo Asekuracyjne, 1/2017, pp. 61–72. 47 Commission for Financial Supervision, Guidelines for insurance companies regarding distribution of insurance, 24 June 2014. 48 Guideline 11.1. 49 Guideline 9.5. 50 http://www.lex.pl/czytaj/-/artykul/knf-nie-za-duzo-tych-klauzul-niedozwolonych 46

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Insurance Activity Provisions

The AIRA was enacted in Poland on 11 September 2015 and replaced the 2003 Act. The new law was based on the Solvency II Directive,51 with the aim of transposing its provisions into Polish law. The AIRA also includes many other provisions, traditionally addressed to the insurers, notably their transparency obligation. Despite being included in the AIRA, many of the insurers’ duties form in fact a part of the contractual regime, or belong to both—public and private legal regimes. One of the examples of such rules are the provisions regulating the content of the general terms of insurance contracts and the insurance policy, the manner of delivering the insurance terms, as well as the rules of interpreting thereof. Under the current regime, the list of information to be included in the GTC52 is regulated in Article 16 of the AIRA, which, in principle, repeats the wording of the 2003 Act in this respect. The provisions of the AIRA also introduced a new concept related to the content of the GTC, which aims to improve their transparency. In accordance with Article 17 of the AIRA,53 the insurer needs to include in the standard contractual documentation, in particular in the GTC, a separate section in order to inform the policyholder about which provisions of the documentation regulate the most important elements of the insurance contract, including the payment of the insurance benefit or costs or charges.54 Not only the references but also the manner of presenting information has been strictly regulated:55 they need to be presented before the wording of the standard contractual terms, in A5 format or bigger after printing,

51

Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (Text with EEA relevance), OJ L 335, 17.12.2009, pp. 1–155. 52 The following should be included: (1) type of insurance and subject thereof; (2) terms of amending the sum insured or guarantee sum, if applicable; (3) rights and obligations of the parties to insurance contract; (4) scope of insurer’s coverage; (5) manner of calculating the amount of claim—in non-life insurance; (6) manner of calculating the sum to be paid—if insurance terms provide for a difference from general rules; (7) method of calculating and payment of the insurance premium; (8) method of indexing the insurance premium if applicable; (9) conditions of changing the insurance contract concluded for indefinite period of time; (10) prerequisites, manner and time for termination the insurance contract if applicable as well as resignation from the group insurance by the insured; (11) terms and manner of withdrawing from the insurance contract. 53 For further reference please see for example: M. Orlicki, Znaczenie prawne informacji o istotnych elementach wzorca umowy w świetle art. 17 ustawy o działalności ubezpieczeniowej i reasekuracyjnej, Prawo Asekuracyjne, 1/2017, pp. 3–12. 54 References to the following provisions need to be presented (1) the prerequisites of payment of compensation and other benefits or surrender values of insurance; (2) the limitations and exclusions of liability of the insurance company allowing for refusal to pay the compensation and other benefits or their reduction; (3) costs and any other charges being deducted from insurance premiums, from the assets of the insurance capital funds or through redemption of units of insurance capital funds; (4) the surrender value of the insurance in particular periods of the insurance cover as well as the period in which a claim for payment of the surrender value is not possible. 55 Regulation dated 16 December 2015 of the Minister or Finance regarding information provided in the general contractual terms used by insurance companies (O.J. 2015, item 2189).

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on a white background, using font Times New Roman, Arial or Tahoma, black and size 12 or bigger. It should also have a fixed line spacing using the spacing of at least 1 line, and the text of information shall be prepared in a uniform size. The principle by which insurance contracts have to be construed in accordance with the transparency regime has been repeated after the 2003 Act. According to Article 15 of the AIRA, ‘(. . .) 3. The insurance contract, general insurance terms and conditions and other standard contracts should be clear and comprehensible. (. . .) 5. The provisions of the insurance contract, the general insurance terms and conditions and other standard contracts worded ambiguously should be interpreted in favour of the policyholder, the insured or the beneficiary of the insurance contract.’ Although the method of delivery of the general insurance terms remained regulated by the PCC (please see sec. 2.2.1.), the AIRA imposed an additional obligation on the insurers: they have to post their GTC on their websites. The way by which this obligation has to be fulfilled was also explained by the PFSA.56 Although more and more regulations aim at providing a lot of information to the policyholders and the insured, it is interesting to note that there are almost no general provisions57 in Polish law regulating the compulsory content of an insurance policy or another document confirming the conclusion of the insurance contract. The general rules concern merely the accountancy aspect, according to which the insurance policy, for accountancy purposes, must include specific data.58 From a contractual point of view, under Polish law, the insurance policy is not decisive for the binding force of the insurance, but due to its probative value, it usually (as a matter of custom) includes the main data concerning the insurance coverage, insurance period and premium. Regulations of the content of the insurance policy do, however, exist in relation to the insurance contracts executed by foreign insurers having their registered office in the EEA and performing an insurance activity in Poland on the basis of the FoS or FoE. Article 215 of the AIRA provides for the minimum content59 of a

56

Please see letter of the President of the Polish Financial Supervisory Authority dated 04.04.2017 regarding presentation of the general insurance terms and conditions on the websites of the insurers; https://www.knf.gov.pl/knf/pl/komponenty/img/stanowisko_UKNF_publikacja_OWU_przez_ ZU_4_04_2017_50687.pdf. 57 Except for the detailed regulations regarding the compulsory insurances as provided in the Regulation of the Minister of Finance dated 13 June 2012 on the manner and scope of the document confirming the conclusion of the compulsory insurance contract (O.J. 2012, item 838); please also see another exception referred to in Article 215 of the AIRA. 58 Please see Act dated 29 September 1994 on Accountancy (uniform text O.J. 2018, item 395, as amended), Article 21. 59 The minimum content includes: (1) the address of the foreign insurer (in case of a branch—the address of the branch); (2) the place of concluding the insurance contract, (3) the court competent to resolve the disputes between the insurer and the policyholder, (4) the date of concluding the insurance contract and the insurance period, (5) the subject of the insurance contract and the terms of its performance, (6) the parties to the insurance contract (the policyholder and the insurer), (7) the amount of the insurance premium, (8) details of the insurance terms on the basis of which the insurance contract has been concluded, and confirmation of delivery thereof to the policyholder, (9) the name and address of the representative of the insurer dealing with the claims.

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document confirming the conclusion of the insurance contract by a foreign insurer with its main office in an EU country other than Poland, conducting insurance activity in Poland through a branch or on the basis of the freedom of services. It is difficult to find a reason that would justify differentiation between domestic and foreign insurers in Poland other than the obligation imposed by the Solvency II Directive on the latter. It is also possible that the Polish legislator did not want to interfere in the customs adopted on the Polish market in terms of insurance policies. Regardless of its general limited application, it should also be noted that the minimum requirements as to the policy content referred to in Article 215 of the AIRA do not apply to the insurance of large risks.60 Having in mind the abovementioned regulations regarding insurance policies, it seems that the insurers’ obligations related thereto should be treated as part of the transparency contractual regime, regardless of the fact that they are located in the AIRA and not in the PCC. An extensive transparency regime has been introduced with respect to life insurances. All the previous requirements have been repeated in the AIRA, making them more and more detailed and precise. For example, Article 20 of the AIRA provides for the obligatory content of the life insurance contract, which must include the definition of all benefits; the amount of premium related to the particular benefits (basic or additional); the manner of calculating the payments due, in particular the manner of calculating the bonuses, discounts, profit share and the actuarial interest rate; an indication of surrender and paid-up values and the extent to which they are guaranteed; as well as the indication of costs or other charges, taxation and financial status of the insurer. Even more advanced information is to be provided in unitlinked products and insurance based on index or other values.61 In addition to the above, information duties concern each prospective change of the insurance contract or change of the law applicable to the contract, together with the impact that such changes may have on the benefits due to the insured. Additional requirements also concern the periodical information (at least annually) regarding the scope of benefits due from the life insurance contract. Comparing the amount of information duties imposed on the insurer in life and non-life insurers, it turns obvious that the more complicated is type of insurance, the more transparent it should be. The new protection regime developed under AIRA introduced several new obligations that aim at strengthening transparency not only between the insurer

60 According to Article 3 point 6) of the AIRA, the large risks are the risks referred to in II Division of the Attachment to the AIRA, namely: (a) groups 4–7, 11 and 12, (b) groups 14 and 15—in case the policyholder is an entrepreneur or a freelancer and the risk is connected with such activity, (c) in groups 3, 8, 9, 10, 13 and 16—if the policyholder exceeds at least two of the following thresholds in the financial year: the sum of assets in the balance sheet in PLN equal to 6.2 mln euro, total net income from sale of goods and services as well as financial operations in PLN equal to 12.8 mln euro, average annual employment in full-time equivalents amounts to 250 people. 61 Please see Article 21–22 of the AIRA; also, from the point of view of the EU regulations please also see: Regulation (EU) No 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs) (O.J. L 352/1).

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and the policyholder but also extending its basic rules to the insured persons, not being the policyholders (it concerns especially group insurances). The need of effective implementation of transparency in insurance on account of a third party required the policyholder to be involved. Thus, in case of an insurance contract executed on account of a third party, in particular in a group insurance contract, certain information obligations towards the insured have been imposed on the policyholder directly or on the insurer to be provided through the policyholder.62

2.2.3

Act on Consumer’s Rights

On 30 May 2014, the Act on Consumer’s Rights63 was enacted as a result of the process of implementation of Directive 2011/83/UE on Consumers’ Rights (Directive 2011/83/UE). It became an important regulation with regard to the contractual relations with ‘consumers’64 in relation to contracts that can be concluded at a distance. Although Directive 2011/83/UE does not apply to financial services, its minimal harmonisation character allows the EU Member States to extend its application to other domains not included in the Directive. This relates in particular to types of contracts that have not been included in the scope of application of Directive 2011/ 83/UE. Such was the decision of the Polish legislator: insurance contracts concluded at a distance have been included in the scope of application of the provisions enacted as a transposition of the said Directive. Although similar provisions existed previously in other legal acts, the current provisions resulting from the implementation of Directive 2011/83/UE are more precise. The impact of the provisions of the Act on Consumer Rights may be seen from different perspectives: as regards the entities on which the obligations are imposed (not only insurers but also insurance intermediaries), as well as from the perspective of the scope of the information, the moment of providing such information to the consumer, the impact on the insurance contract and finally the inclusion of the notion of consumer in the protection regime. Similarly to other discussed legal acts, the nature of the duties imposed on the insurer by the Act on Consumer Rights aims mostly at ensuring the transparency of the contract. By and large, we could say that even the right of withdrawal serves this purpose, though this matter will not be developed on further.65 There is no doubt that

62

Please see as an example Article 17 sec. 2 and 18 sec. 4 of the AIRA. Act dated 30 May 2014 on Consumer Rights (uniform text: O.J. 2017 item 683). 64 According to Article 221 of the PCC, the consumer shall be deemed to be any natural person who performs acts in law with an entrepreneur, the said acts not being directly connected with his economic or professional activity. 65 In accordance with the Article 40 of the Act, the consumer has the right of withdrawing for any reason from the financial services contract concluded at a distance within 14 days as from its conclusion, or from receiving the information on this right. In case of insurance contract, the right of withdrawal can be executed within 30 days from the day of receiving information on concluding the contract or informing the consumer on the right of withdrawal. These provisions co-exist with the provisions of the PCC, Article 812 § 4, which applies to all policyholders, regardless their consumer 63

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the conclusion of a contract at a distance notably aims to reduce the time and increase convenience in terms of distribution of a certain product or service. However, the above-mentioned aim should not precede the information duty towards the customer. Therefore, the legislator provided for a separate number of obligations in relation to financial service contracts, including insurances. In the latter case, the insurers were required to meet additional information requirements provided for in Chapter 5 of the Act on Consumer Rights. According to Article 39 of the Act on Consumer Rights, the entrepreneur (including the insurer) is required to provide information to the consumer in a clear and comprehensible way, no later than at the moment the consumer expresses the will to be bound by a contract. It should take effect in a way suitable for the means of distance communication used. The scope of information that needs to be provided is mostly compliant with Article 6 of Directive 2011/83/UE. Also, this information should be provided before the contract is concluded, on paper or on any other durable means accessible for the consumer. Precisely, as mentioned, it should take place when the consumer expresses the will to be bound by the contract, at the latest. In the insurance industry, it should be thus meant as a moment of submitting the insurance application to the insurer. Where the contract is concluded at the consumer’s request via means of distant communication by which that information cannot be provided, the insurer is obliged to provide that information promptly at the time the contract is being concluded. During the performance of a contract, the consumer shall be entitled to demand confirmation of the content of the contract in writing. The consumer also has the right to request a change of the means of distance communication, unless the contract does not provide for the use of such a means of communication or the means are not suited to the nature of the service provided. The information duties shall not apply to one-off services provided via means of distant communication where an invoice is issued for such services and that entrepreneur makes available, as an element of its business enterprise, one or more means of distance communication. However, the two latter issues do not seem to concern insurance as the risk coverage is durable in time.

2.2.4

Act on Counteracting Unfair Practices

Transparency rules applicable to insurance contracts also result from Act dated 23 August 2007 on counteracting unfair market practices66 (the ‘Act on unfair practices’). The Act on unfair practices is the implementation of Directive 2005/

status, if only the insurance contract has been concluded for the period exceeding 6 months and the only division concerning the deadline for executing the withdrawal, where entrepreneurs should effect it within 7 days and the natural persons within 30 days from the moment of concluding the contract. That is why, it seems that the regulation of the Act on consumer rights has a limited impact on insurance contracts and mostly is used to the short-term travel and similar insurance. 66 Act dated 23 August 2007 on counteracting unfair market practices (uniform text: O.J. 2017, item 2070).

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29/CE dated 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market (Directive 2005/29/CE).67 The Act on unfair practices benefits partially also from the goals of Directive 2005/29/CE, which, as the European Commission has stressed, aimed at boosting consumer confidence and making it easier for businesses, especially small and medium sized (SMEs), to carry out cross-border trading. Most significant unfair practices that can be used in the insurance industry were recognised at that stage, i.e. practices such as providing untruthful information to consumers or using aggressive marketing techniques to influence their choices. From the wide range of types of unfair practices recognised in Directive 2005/29/CE and subsequently by the Polish law, counteracting the provision of misleading information by the insurers seems to be one of the important elements of the legislation. Seemingly, it forms part of the transparency regime and is directly related to contracting in the insurance field. Thus, particular attention from the transparency point of view in insurance should be put on those practices that are misleading in such a way that the information provided by the insurer may affect the decision of the consumer in terms of concluding the contract, which may take place in particular if it contains false information and is therefore untruthful or in any way, including overall presentation, deceives or is likely to deceive the average consumer, even if the information is factually correct, in relation to one or more of the following elements, and in either case causes or is likely to cause the consumer to take a transactional decision that he would not have taken otherwise. Even if the information is not false but does not include important data necessary for taking up the decision on concluding the contract, it can be treated as misleading and thus unfair practice.68 The above regulation co-exists with other laws that regulate particular branches of industries, for example when the important information is not self-regulated in the Act on unfair practices but refers to other provisions of law that enact the obligation to provide the consumer with certain pieces of information. In the case of insurance contracts, such information is that included in the GTC and other pre-contractual documentation. Some of the courts’ verdicts confirm that the lack of proper information concerning the content of the insurance terms (for example concerning the unilateral right of terminating the insurance contract and the right of changing the insurance premium) should be treated as an unfair business practice.69

67 Directive 2005/29/EC Of The European Parliament And Of The Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market and amending Council Directive 84/450/EEC, Directives 97/7/EC, 98/27/EC and 2002/65/EC of the European Parliament and of the Council and Regulation (EC) No 2006/2004 of the European Parliament and of the Council (‘Unfair Commercial Practices Directive’), O.J. no L 149/22. 68 Article 6 of the Act on unfair practices. 69 Please see for example decisions of the District Court in Warsaw dated 22 January 2015 (XXV C 430/12), Decision of the District Court in Warsaw dated 28 June 2012 (XVII AmA 58/11), Decision of the District Court in Warsaw dated 29 December 2014 (XXIV C 828/13), Decision of the Supreme Court dated 28 September 2018 (I CSK 179/18).

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Act on Protection of Competition and Customers

The Polish legal system allows the consumers to exercise their individual right to be well informed in several ways, including a contractual level (in direct relation to the insurer), amicable dispute resolution and in-court proceedings (an incidental control). Apart from the above, there is also a possibility to claim and determine by the relevant public authority as to whether a particular clause should be regarded as abusive (an abstract control). Consumers can exercise their right for the in-court proceedings by way of an incidental control. This tool can be used when a contract concluded includes an abusive clause (and there is no possibility to find an amicable solution with the insurer). In this case, the consumer may turn to the particular district court and initiate civil law proceedings in order to claim his or her rights settled with the argumentation that the relevant provision of the contract is not binding as it is abusive. The abstract control, in turn, relates to the possibility to notify the relevant authority about the suspected use of abusive clauses in contracts with consumers. The abstract control was recently subject to changes—in April 2016, an amendment to the Act on protection of competition and consumers70 came into force, and on its basis the President of the UOKiK has been granted the power to decide on the unlawful character of contractual clauses (abusive clauses). Previously, the Court of Competition and Consumer Protection (SOKiK) had such power. The contractual clauses recognised by the legally valid judgment of the SOKiK as abusive were entered in the register, and from that moment it was forbidden to use them in contracts concluded with consumers. Currently, once the claim to the President of UOKiK is submitted, a consumer can be admitted (as a concerned person) to participate in the proceedings regarding the recognition of the contractual provisions of the contract as unlawful. The claimant is authorised to file and explain the circumstances of the case and review its files. The consumer’s notice addressed to the President of the UOKiK shall indicate whether the consumer has contacted the entrepreneur in order to remove the challenged provision from the contract and what the standpoint of this entrepreneur was. A contract template, including the disputed provision and a short justification of the reasons why it is a violation of good customs or a gross breach of the consumer’s rights, has to be attached to the said standpoint. The initiated procedure ends with an administrative decision of the President of the UOKiK, which determines whether or not a given clause is abusive and forbidden in further use. The President of the UOKiK may also set out measures to remove the ongoing effects of unlawful practice and impose on the entrepreneur a fine. This issued decision takes effects only against the entrepreneur applying such abusive clause and due to all consumers that have entered into the contract with this entrepreneur under provisions indicated in the decision. The relevant decisions of the President of the UOKiK are published on the UOKIK’s website.

70 Act dated 16 February 2007 on Competition and Consumer Protection, (uniform text: O.J. 2018, item 798).

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Regardless of the above possibility to decide on contractual terms as a result of a claim, UOKiK often conducts regular checks on contract templates used by entrepreneurs in consumer contracts, including insurance contracts. Such verifications are often a result of notices addressed to the UOKiK by consumers, the consumer ombudsman, the Financial Ombudsman or consumer organisations. As a consequence, the UOKiK can initiate administrative proceedings for the recognition of the abusive nature of some provisions of the standard contract. In the course of such controls, it examines the application of the transparency rule.

2.2.6

The Act on Insurance Distribution

The recent developments of the EU regulations in terms of distribution of insurance products, namely Directive (EU) 2016/97 of the European Parliament and of the Council on insurance distribution71 (the IDD), provided for additional regulations on requirements as for transparency in the insurance distribution area. They had a great impact on the scope of information provided to the policyholders and the insured, as well as on their presentation, which was required to be simple and clear. In terms of the extension of the scope of information required by the IDD, it seems that transparency regarding the remuneration72 of the insurance distributors73 and the management of conflict of interest74 is the most important. IDD required that the customers be provided in advance with clear information about the status of the persons who sell insurance products and about the type of remuneration they receive. Such information should be given to the customer at the pre-contractual stage.75 The same obligation was also imposed on employees of the insurer who conduct distribution activity.76 Further, the IDD required the Member States to ensure transparency in relation not only to the fact that the remuneration on account of distribution activity is paid but also to the manner and basis of its calculation in order to avoid situations in which it can impair the ability of the insurance distributors to act in accordance with the best interest of the customers or prevent them from making suitable recommendations or presenting information in a form that is fair, clear and not misleading.77 In order to meet the above aims, Member States need to ensure that insurance distributors are not remunerated or 71

Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution, OJ L 26/19, pp. 19–59. 72 Please see Article 17 of the IDD. 73 According to Article 2 sec. 1 point (8) of the IDD, an insurance distributor means any insurance intermediary, ancillary insurance intermediary or insurance undertaking. According to Article 2 sec. 1 point (3) of the IDD, an insurance intermediary means any natural or legal person, other than an insurance or reinsurance undertaking or their employees and other than an ancillary insurance intermediary, who, takes up or pursues the activity of insurance distribution in exchange of a remuneration. 74 Please see Article 19 of the IDD. 75 Please see recital 40 of the IDD. 76 Please see recital 41 of the IDD. 77 Please see recital 46 of the IDD.

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do not remunerate or assess the performance of their employees in a way that conflicts with their duty to act in accordance with the best interests of their customers. In particular, the insurance distributor shall not make any arrangement by way of remuneration, sales’ targets or otherwise that could provide an incentive to itself or its employees to recommend a particular insurance product to a customer when the insurance distributor could offer a different insurance product that would better meet the customer’s needs.78 In terms of information duties, the insurance distributors have the obligation to provide the customer with information regarding the amount of the fee if the fee is directly payable by such customer or, where that is not possible, with information regarding the method of computation of the fee.79 Member States have been obliged to ensure that, before the conclusion of an insurance contract, an insurer communicates to its customer in a timely manner the nature of the remuneration received by its employees in relation to the insurance contract. Article 19 of the IDD, which refers to conflict of interest and transparency, requires the Member States to ensure that before the conclusion of an insurance contract, an insurance intermediary, except for the above-mentioned information regarding remuneration, provides the customer in a timely manner with information regarding the ownership structure between the intermediary and the insurer, the status of the intermediary, including whether it provides the advice or not.80

78

Please see Article 17 sec. 3 of the IDD. Please see Article 19 sec. 2–5 of the IDD. 80 Such information must include: 79

(a) whether it has a holding, direct or indirect, representing 10% or more of the voting rights or of the capital in a given insurance undertaking; (b) whether a given insurance undertaking or parent undertaking of a given insurance undertaking has a holding, direct or indirect, representing 10% or more of the voting rights or of the capital in the insurance intermediary; (c) in relation to the contracts proposed or advised upon, whether: i. it gives advice on the basis of a fair and personal analysis; ii. it is under a contractual obligation to conduct insurance distribution business exclusively with one or more insurance undertakings, in which case it is to provide the names of those insurance undertakings; or iii. it is not under a contractual obligation to conduct insurance distribution business exclusively with one or more insurance undertakings and does not give advice on the basis of a fair and personal analysis, in which case it is to provide the names of the insurance undertakings with which it may and does conduct business; (d) the nature of the remuneration received in relation to the insurance contract; (e) whether in relation to the insurance contract, it works; i. on the basis of a fee, that is the remuneration paid directly by the customer; ii. on the basis of a commission of any kind, that is the remuneration included in the insurance premium; iii. on the basis of any other type of remuneration, including an economic benefit of any kind offered or given in connection with the insurance contract; or iv. on the basis of a combination of any type of remuneration set out at points (i), (ii) and (iii).

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The Polish Act on Insurance Distribution (the AID) implemented the IDD in full. Certain issues regarding transparency have been developed in greater detail, such as transparency in the division of brokers81 and agents,82 as well as their roles, while some others remained as adopted in the IDD (conflict of interests and the remuneration of the insurance distributors, which are strictly connected).83 In this respect, Polish regulations provide a surprisingly high level of protection to policyholders. First of all, it is claimed that the strict division of intermediaries into brokers and agents seems to well serve the purpose of maintaining transparency (and especially managing conflicts of interest) as Polish law leaves little room for doubt on whose behalf an intermediary acts on and whose interests are represented in the insurance distribution process. A properly shaped information policy supports understanding of the role of the insurance intermediary even if the insurer pays the broker’s remuneration. Though the above belongs rather to the market structure rules, it seems also to affect the contractual relations between the policyholder and the intermediaries, mostly in respect of disclosing the information on remuneration.84 Further obligations in relation to the scope and manner of disclosure of information towards the insurance customers have been imposed on the insurance distributors by delegated acts issued on the basis of the IDD.85 One of the most important is the obligation to present information regarding insurance products in a simple, standardised form, similarly to previously implemented solution for investments products—KID.86 The obligation to present the information in standardised format is related to the pre-contractual stage, and its aim is to provide the customer with the 81

Understood as acting in the name and for the client. Understood as acting in the name and for the insurer. 83 Please see for example: Maśniak (2014); Consultation document on the Review of the Insurance Mediation Directive (IMD) Commission Staff Working Paper, s. 9, Bruno Geiringer, IMD2: the review of the Insurance mediation Directive, http://www.out-law.com/page-11652, s. 3; D. Maśniak, K. Malinowska, Czynności dystrybucyjne w nowym reżimie zawierania umów ubezpieczenia – wybrane aspekty implementacji dyrektywy nr 2016/97 w sprawie dystrybucji ubezpieczeń, Prawo Asekuracyjne 2/2017. 84 The Polish AID implemented the IDD in its minimum form, i.e. by introducing the requirement to reveal character of the remuneration, but not its amount. No ban on broker’s commission has been even discussed; Please see: Malinowska (2016), pp. 89–101. 85 See: Commission Delegated Regulation (EU) 2017/2359 of 21 September 2017 on information requirements and conduct of business rules applicable to the distribution of insurance-based investment products conduct requirements (IBIPs) (O.J. L 341/8), Commission Delegated Regulation (EU) 2017/2358 of 21 September 2017 supplementing Directive (EU) 2016/97 of the European Parliament and of the Council with regard to product oversight and governance requirements for insurance undertakings and insurance distributors (O.J. L 341/8), Commission Implementing Regulation (EU) 2017/1469 of 11 August 2017 laying down a standardised presentation format for the insurance product information document (O.J. L 209, 12.8.2017, pp. 19–23). For background information please also see: Technical Advice on possible delegated acts concerning the Insurance Distribution Directive, EIOPA-17/048, 1 February 2017. 86 Commission Delegated Regulation (EU) 2017/653 of 8 March 2017 supplementing Regulation (EU) No 1286/2014 of the European Parliament and of the Council on key information documents for packaged retail and insurance-based investment products (PRIIPs) by laying down regulatory technical standards with regard to the presentation, content, review and revision of key information documents and the conditions for fulfilling the requirement to provide such documents, C/2017/1473, OJ L 100, 12.4.2017, pp. 1–52. 82

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possibility to compare the insurance products and, only on this basis, take a decision on whether to conclude an insurance contract. Polish regulations did not provide specific developments in this respect. As the above constitute purely EU generally binding regulations—they do not have their equivalents in Polish law and will not be discussed further.

3 Conclusions On the basis of the analysis here above, although no definition of transparency appears in Polish law, ‘transparency’ seems to be recognised in Poland in a similar way as in other EU Member States and does not differ from its universal meaning. Also, as in other countries, it is treated at least as a dual obligation: a general principle of functioning of the insurance industry that relies on the good faith rule, as well as a principle of providing information. The second pillar of transparency can also be divided into two aspects: the amount of information that should be provided and the manner in which it should be provided. Further, divisions can be made in relation to the moment at which such information is provided, but there is no doubt that, as in other EU members, Poland is not the exception and all the relevant information related to the insurance contract as such should be provided before the insurance contract is concluded. The Polish legislator provided for principles for making the rule of transparency effective. It introduced the duties to inform the policyholder/,insured as well as directions on the manner in which such information should be provided in the generally binding legal acts, such as the PCC, the AIRA and others. Although the PCC, being a general civil law regulation, does impose such obligation without providing for any sanctions in case of breach, the AIRA refers in general to conducting insurance activity in violation of the legal provisions. Any violation of any legal obligation aiming at ensuring transparency is then sanctioned. New provisions of AID certainly strengthen the concept of transparency in contractual relations on the Polish insurance market, not only in insurance contracts but also in the process of distributing insurance products. Where the legal provisions seemed unclear or—in some cases—unnecessary, the PFSA provided for its guidelines or good practices. Although they do not constitute legal provisions and are not generally binding, having a general status of ‘comply or explain’ rules, they force the insurers to follow the suggestions of the PFSA in a way that should enable the transparency rule to be followed. It is quite clear from the above analysis that the idea of transparency in the Polish legal system is connected directly to consumer law, and the protection of the policyholder/insured is much wider in terms of transparency in the context of abusive clauses than in any other contractual relationship under Polish law. One may hope that any examination of the GTC in the future, either by the PFSA or UOKiK, will show different conclusions from those found in the discussed reports, namely no deficit of information, and confirm that the decision of the

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policyholder in an insurance contract has been made on the basis of clear and unambiguous information presented in an understandable manner. One additional issue, however, should be noted. There is no doubt that transparency in insurance contracts is absolutely necessary and that the Polish legislator should ensure that relevant legal instruments are in place to enable the transparency rule to make it work. However, the actions of the supervisory authorities or the aim of the rule should not alter the rule of transparency as a rule ‘at all costs’. It should be clear to the policyholder that the rule of transparency is for its benefit, but it should not substitute itself to his/her decision. Decision should always be made solely by the customer after he or she benefits from the relevant information.

References Cousy H (2002) La fin de l’assurance? Considérations sur le domaine propre de l’assurance privée et ses frontières. In: Droit et économie de l’assurance et de la santé. Mélanges en l’honneur de Yvonne Lambert-Faivre et Denis-Clair Lambert. Dalloz, Paris, pp 111–128 Geiringer B, IMD2: the review of the insurance mediation directive, p 3. http://www.out-law.com/ page-11652 Kalińska E (2014) Wypełnianie nowych formularzy do sprawozdań może być kłopotliwe. http:// www.gu.com.pl/index.php?option¼com_content&view¼article&id¼53575:wypenianienowych-formularzy-do-sprawoz-da-moe-by-kopotliwe&catid¼129:rynek-ubezpieczeniowy& Itemid¼151 Kiziewicz E (2004) Zasada transparentności a ogólne warunki ubezpieczeń. http://www.rzu.gov.pl/ publikacje/artykuly-pracownikow-i-wspolpracownikow/Ewa_Kiziewicz_-_Zasada_ transparentnosc_a_ogolne_warunki_ubezpieczen__132 Łuczyński M, Rekomendacja dobrych praktyk informacyjnych dotyczących ubezpieczeń na życie związanych z ubezpieczeniowymi funduszami kapitałowymi – element budowy nowoczesnego rynku ubezpieczeń na życie, Wiadomości Ubezpieczeniowe, numer specjalny 3/2013 Malinowska K (2015) Transparentność w umowie ubezpieczenia - przemiana zasady najwyższego zaufania w prawo do informacji. In: Gnela B (ed) Informacja w prawie ubezpieczeń gospodarczych, Warszawa Malinowska K (2008) Umowa ubezpieczenia w Europie bez granic, Bydgoszcz, p 62 Malinowska K (2016) Insurance transparency and protection regime under the insurance distribution directive. Insurance Review/Wiadomosci Ubezpieczeniowe 4(2):89–101 Maśniak D (2014) Wynagrodzenie pośrednika w ubezpieczeniach morskich i jego transparentność w świetle projektowanych zmian dyrektywy o pośrednictwie ubezpieczeniowym (IMD2), Gdańskie Studia Prawnicze, Tom XXXII Maśniak D, Malinowska K, Czynności dystrybucyjne w nowym reżimie zawierania umów ubezpieczenia – wybrane aspekty implementacji dyrektywy nr 2016/97 w sprawie dystrybucji ubezpieczeń, Prawo Asekuracyjne 2/2017 Orlicki M (2017) Znaczenie prawne informacji o istotnych elementach wzorca umowy w świetle art. 17 ustawy o działalności ubezpieczeniowej i reasekuracyjnej. Prawo Asekuracyjne 1:3–12 Ostrowska M (2014) Wdrażanie dyrektywy Solvency II i jej rola w integracji europejskiego rynku ubezpieczeniowego, Warsaw University Law review, nr 1/2015 Tarasiuk-Flodrowska A (2014) Abusive clauses in consumer and insurance contracts – recent developments in Europe. Evropska Revija za Pravo Osiguranja/European Insurance Law Review 1:31–40 Tarasiuk-Flodrowska A (2011) Bancassurance on the EU market – specificities of the Polish Law. Evropska Revija za Pravo Osiguranje/European Insurance Law Review 4:6–12

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Ulusoy S (2012) Transparency concerning on-line insurance. In: Transparency in insurance law. AIDA Seminar, Istanbul, p 39 Wandt M (2014) Transparency as a general principle of insurance law. In: World congress of AIDA, Rome Więcko-Tułowiecka M (2017) Challenges of the payment protection insurance market – analysis of European tendencies in the context of the need for legal actions in Poland. Prawo Asekuracyjne 1:61–72

Legal Acts Act dated 23 April 1964 - The Civil Code (uniform text: O.J. 2018 item 1025, as amended) Act dated 29 September 1994 on Accountancy (uniform text: O.J. 2018, item 395, as amended) Act dated 2 March 2000 on the protection of the consumers rights and product liability, (O.J. 2000, No 22, item 271 as amended) Act dated 22 May 2003 on Insurance Activity (O.J. 2003, No 124, item 1151, as amended) Act dated 13 April 2007 amending the PCC (O.J. No 82, item 557) Act dated 13 April 2007 on the amendments to the Civil Code and some other acts (O.J. No 82, item 557) Act dated 16 February 2007 on Competition and Consumer Protection, (uniform text: O.J. 2018, item 798) Act dated 30 May 2014 on Consumer Rights (uniform text: O.J. 2017, item 683) Act dated 23 August 2007 on Counteracting unfair market practices (uniform text: O.J. 2017, item 2070) Act dated 11 September 2015 on Insurance and Reinsurance Activity (uniform text: O.J. 2018, item 999) Act dated 15 December 2017 on Insurance Distribution (O.J. 2018, item 2210, as amended) Regulation of the Minister of Finance dated 13 June 2012 on the manner to prepare and the scope of the document confirming the conclusion of compulsory insurance contracts (O.J. 2012, item 838) Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts, (O.J. L 95, 21.4.1993.) Directive 98/34/EC of the European Parliament and of the Council of 22 June 1998 laying down a procedure for the provision of information in the field of technical standards and regulations (O.J. EU L 204 dated 21.07.1998), p. 37 Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005 concerning unfair business-to-consumer commercial practices in the internal market and amending Council Directive 84/450/EEC Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (Text with EEA relevance), (OJ L 335, 17.12.2009), pp. 1–155 Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution (OJ L 26/19), pp. 19–59 Regulation (EU) No 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs) (O.J. L 352/1). Regulation dated 16 December 2015 of the Minister or Finance regarding information provided in the general contractual terms used by insurance companies (O.J. 2015, item 2189) Commission Implementing Regulation (EU) 2017/1469 of 11 August 2017 laying down a standardised presentation format for the insurance product information document (O.J. L 209), 12.8.2017, pp. 19–23.

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Commission Delegated Regulation (EU) 2017/2359 of 21 September 2017 on information requirements and conduct of business rules applicable to the distribution of insurance-based investment products conduct requirements (IBIPs) (O.J. L 341/8) Commission Delegated Regulation (EU) 2017/2358 of 21 September 2017 supplementing Directive (EU) 2016/97 of the European Parliament and of the Council with regard to product oversight and governance requirements for insurance undertakings and insurance distributors (O.J. L 341/8)

Administrative Decisions Decision of SOKiK dated 23 January 2012 (XVII AmC 977/11), http://orzeczenia.warszawa.so. gov.pl/details/$N/154505000005127_XVII_AmC_000977_2011_Uz_2012-01-23_001. Accessed 1 Jan 2018

Case Law Decision of the Supreme Court – Civil Chamber dated 28 March 2007 (II CNP 124/06) Decision of the Supreme Court – Civil Chamber dated 12 January 2007 (IV CSK 307/06) Decision of the Supreme Court – Civil Division, dated 2 December 2011 (III CSK 55/11) Decision of the Supreme Court – Civil Division, dated 10 February 2016, (I CSK 1/15); Please also see: Decision of the Court of Appeal in Warsaw – Civil Division, dated 24 October 2013, (I ACA 535/13) or Decision of the Supreme Court – Civil Division, dated 15 February 2013, (I CSK 313/12) Decision of the District Court in Warsaw dated 22 January 2015 (XXV C 430/12) Decision of the District Court in Warsaw dated 28 June 2012 (XVII AmA 58/11) Decision of the District Court in Warsaw dated 29 December 2014 (XXIV C 828/13) Decision of the Supreme Court dated 28 September 2018 (I CSK 179/18) The Polish Supreme Court decisions dated 16.09.2016 (IV CSK 711/15), Legalis no. 1716875 (on the interpretation of unclear contractual provisions); dated 06.02.2015 (II CSK 295/14)

Other Sources Letter of the President of the Polish Financial Supervisory Authority dated 04.04.2017 regarding the presentation of the general insurance terms and conditions on insurers’ websites. https://www. knf.gov.pl/knf/pl/komponenty/img/stanowisko_UKNF_publikacja_OWU_przez_ZU_4_04_ 2017_50687.pdf Office of Competition and Consumer Protection, Consumer Politics Department (2010) Report on the control of the general terms applied in life insurances, Warsaw Office of the Commission on Supervision of Insurance and Pension Funds (2005) Irregularities in the general insurance terms and conditions. Department of the Communication and European Integration, Warsaw, p 4 Office for Consumer and Competition Protection, Consumer Politics Department; Report on the control of the general terms applied by insurers, September 2006, Warsaw.

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Recommendation U regarding good practices in respect of bancassurance, Commission for Financial Supervision, June 2014. http://www.knf.gov.pl/Images/Rekomendacja_U_tcm75-38338. pdf. Accessed 2 Mar 2016 Guidelines for insurance companies regarding the distribution of insurance, Commission for Financial Supervision, 24 June 2014a, Guidelines for insurance companies regarding the distribution of insurance, Commission for Financial Supervision, June 2014b., http://www.knf.gov.pl/Images/Wytyczne_dystrybucja_ ubezpieczen_24-06-14_tcm75-38337.pdf. Accessed 1 Mar 2016 Working Paper: Online services, including e-commerce, in the Single Market; Commission Staff Working Document Online Services, Including E-Commerce, In The Single Market Accompanying The Document Communication From The Commission To The European Parliament, The Council, The European Economic And Social Committee And The Committee Of The Regions; A coherent framework to boost confidence in the Digital Single Market of e-commerce And other online services {COM(2011) 942 final} {SEC(2011) 1640 final Technical Advice on possible delegated acts concerning the Insurance Distribution Directive, EIOPA, 1 February 2017, EIOPA-17/048 Commission Delegated Regulation (EU) 2017/653 of 8 March 2017 supplementing Regulation (EU) No 1286/2014 of the European Parliament and of the Council on key information documents for packaged retail and insurance-based investment products (PRIIPs) by laying down regulatory technical standards with regard to the presentation, content, review and revision of key information documents and the conditions for fulfilling the requirement to provide such documents, C/2017/1473, (OJ L 100), 12.4.2017, pp. 1–52 Consultation document on the Review of the Insurance Mediation Directive (IMD) Commission Staff Working Paper, p 9 http://www.investopedia.com/terms/t/transparency.asp#ixzz3eOfkpk65 Polish Language Dictionary. https://sjp.pwn.pl/szukaj/transparentny.html Polish Language Dictionary. https://sjp.pwn.pl/szukaj/przejrzysty.html

Transparency in the Insurance Contract Law of Portugal Margarida Lima Rego

1 Brief Overview of Insurance Contract Law in Portugal In Portugal, the most relevant source of insurance contract law is Decree-Law 72/2008 of 16 April 2008, which came into force on 1 January 2009. This statute, whose main purpose was to approve the new insurance contract legal framework appended thereto, has since been amended once, by Law 147/2015 of 9 September 2015. I shall refer to it hereinafter simply as PICA (Portuguese Insurance Contract Act). PICA was long overdue. It was the first successful attempt, in close to two centuries, to update, complete and consolidate the rules applicable to insurance contracts in general and the main rules applicable to some of the most relevant classes of insurance contracts in Portugal.1 Previously, insurance contracts had been governed by a fragmentary legal framework scattered over an assortment of some long-standing and some comparatively more recent statutes.2 There were inconsistencies within the framework, and some relevant issues were either entirely overlooked or only partially addressed. In addition, there was a widely shared perception that the existing regulation should be amended so as to more faithfully reflect current values, consumer protection not having been high up in the scale of

1 A remarkably thorough regulation of the insurance contract had been included in the Commercial Code of 1833, subsequently replaced, not as successfully when it came to the insurance contract, by the Commercial Code of 1888. 2 For an overview of the history of insurance law in Portugal, see Cordeiro (2013), pp. 75–100. For a more thorough account of the insurance business over the last 45 years, see Carvalho (2016).

M. L. Rego (*) NOVA School of Law, Lisbon, Portugal e-mail: [email protected] © Springer Nature Switzerland AG 2019 P. Marano, K. Noussia (eds.), Transparency in Insurance Contract Law, AIDA Europe Research Series on Insurance Law and Regulation 2, https://doi.org/10.1007/978-3-030-31198-8_8

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legislative concerns at the time some of our most comprehensive statutes had been enacted: the Commercial Code of 1888 and Decree of 21 October 1907.3 PICA comprises a total of 217 provisions, distributed by three main titles: Title I (Articles 1 to 122) includes the most general framework, purporting to regulate the main issues affecting all insurance contracts alike. Title II of PICA (Articles 123 to 174) regulates indemnity insurance. After a relatively small number of provisions devoted to all classes of indemnity insurance, a few chapters specifically regulate liability insurance (Articles 137 to 148), fire insurance (Articles 149 to 151), crop and livestock insurance (Articles 152 to 154), goods in transit insurance (Articles 155 to 160), credit and suretyship insurance (Articles 161 to 166), legal expenses insurance (Articles 167 to 172) and assistance insurance (Articles 173 and 174). Title III (Articles 175 to 217) is concerned with personal insurance. It includes chapters on life assurance (Articles 183 to 209), as well as on accident and health insurance (Articles 210 to 217). PICA applies to all classes of insurance, including those for which more tailored regulation was already in place at the time it came into force or has since been enacted. However, those types of insurance that were or have since been the object of special regulation will continue to be primarily regulated thereby. PICA applies to those classes of insurance only insofar as its rules are compatible with the relevant special regulation. So, for instance, maritime insurance is still primarily regulated by Articles 595 to 615 of the Commercial Code of 1888.4 There are well over 100 instances of compulsory insurance in Portugal.5 Statutes regulate them with varying degrees of comprehensiveness. All such regulation prevails over the comparatively more general rules contained in PICA. Portuguese insurance contract law is also partly made up of rules that originate in a multitude of statutes containing non-insurance-specific regulation, such as those that set forth the legal frameworks on standard terms, on distance selling, on electronic commerce, on consumer protection.6 To some extent, the rules governing the taking up and pursuit of insurance and reinsurance activities in Portugal—the Portuguese Insurance Supervision Act approved by Law 147/2015 of 9 September 2015, as amended by Law 7/2019 of 16 January 2019, implementing Directive 2009/138/EC of the European Parliament

3

Various announcements had been made the past that more systematic and in-depth legislation was in the making. The first of them was a brief reference at the beginning of the preamble of a statute approved as early as 1929. See Vasques (2005), pp. 21–22; Martinez (2006), pp. 34–39 (the latter chaired the committee in charge of drafting what would eventually become PICA). Almeida (1971), pp. 431–459, had included a draft of his own as an appendix to his monograph on the insurance contract, deeming the preparation of a new insurance contract law a ‘necessity’ (p. 423). Other authors would follow suit. In addition to the above, see Cordeiro (2003), pp. 17–23, (passim). 4 See Articles 2 and 155(2) of PICA. See Martinez et al. (2011), pp. 41–42 (annotation by Martinez PR). 5 There is a list of all compulsory insurance requirements on the regulator’s website: www.asf.com. pt. The regulator is the Portuguese Insurance and Pension Funds Supervisory Authority (ASF). 6 See Cordeiro (2013), pp. 553–555.

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and of the Council of 25 November 2009 on the taking-up and pursuit of the business of insurance and reinsurance, known as the Solvency II Directive—also have a palpable impact on insurance contract law. I shall refer to this act, hereinafter, simply as PISA. The same is true for those regulating insurance distribution—the Portuguese Insurance Distribution Act approved by Law 7/2019 of 16 January 2019, which has implemented Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution, known as the Insurance Distribution Directive. I shall refer to this act, hereinafter, simply as PIDA. For instance, the single most relevant criterion used in PICA to distinguish between rules that are absolutely or relatively mandatory to contracting parties from those that only apply by default depends on whether the contract should be qualified as mass insurance or as large-risk insurance, a distinction that stems from a set of directives on the taking up and pursuit of insurance and reinsurance activities in the European Union. PICA mostly applies by default to large-risk insurance, the parties being free to diverge from its rules, save in a very small number of cases.7 As regards mass insurance, however, there is a long list of provisions that may not be contractually derogated from or which may only be derogated from to the benefit of the policyholder, the insured and/or the beneficiary of the insurance. The distinction is currently set forth in Article 5(2) to (4) of PISA. As a Member State of the European Union, much of Portugal’s insurance contract law directly or indirectly originates in EU law, although this phenomenon is more pervasive in the regulation of the taking up and pursuit of insurance and insurancerelated activities than in the rules governing the insurance contract, which, although also partially predisposed by EU law, especially in what concerns the protection of the mass insurance consumer, were in fact more heavily influenced by recent national statutes of a few EU Member States, perhaps most prominently the Belgian Insurance Contract Act of 25 June 1992.

2 Definition of Transparency in Portuguese Insurance Contract Law ‘Transparency’ as a term meant to denote a special concern with the protection of the mass insurance consumer was firstly used in a Portuguese statute in 1994.8 That statute was Decree-Law 102/94 of 20 April 1994, which implemented thirdgeneration Council Directives 92/49/EEC of 18 June 1992 (non-life insurance) and 92/96/EEC of 10 November 1992 (life assurance).

7

Hence, in most instances the transparency requirements that will be discussed in the sections ahead should also be interpreted in this light, when it comes to large risks insurance. No further mention to this distinction will be made in this chapter. See Martinez et al. (2011), pp. 68–71 (annotations by Martinez PR and Oliveira AC). 8 See Oliveira (1995), p. 76.

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Although for the most part Decree-Law 102/94 established a new set of rules regulating the taking up and pursuit of the business of direct insurance and its supervision by the local regulator, Title IV contained a number of provisions directly regulating the insurance contract, amongst which were Articles 168 to 173, which listed the information that insurers must communicate to policyholders before non-life insurance contracts and life assurance contracts were concluded and, as regards the latter, also throughout the duration of contracts. Such provisions implemented Articles 31 and 43 of the third Non-Life Directive and Article 31 and Annex II of the third Life Assurance Directive. Given that there were more provisions in need of implementation on life assurance than on non-life insurance, the chapter where such implementation was accomplished was subdivided into sections, the first of which was entitled ‘Transparency’. There were no other references to transparency in this chapter and no references thereto in the chapter devoted to non-life insurance. The one reference to transparency in insurance contained in this statute was thus in the title of a section within the chapter devoted to life assurance. More than a year would pass before the approval of Decree-Law 176/95 of 26 July 1995, which came into force on 25 October 1995. I shall refer to it hereinafter simply as TIA (Transparency in Insurance Act). TIA’s preamble contextualises the establishment of a new legal framework on transparency in insurance as a much-needed reaction to the inception of the single European market in the insurance sector, which in this country had been accomplished by Decree-Law 102/94. Its entry into force had opened up a new area for competition, potentially giving rise to a greater and much more complex supply of insurance products, so the preamble said. Although there was no specific mention thereto, the abandonment of the prior system of supervisory preapproval of standard terms by the regulator was also an important factor behind the increased variety and complexity of insurance products available on the market.9 This increased variety of products came at the expense of a decline in product transparency and resulting added difficulties in product comparability. To make up for these perceived negative side effects of the single European market in the insurance sector, the third-generation directives ‘increased and broadened the minimal requirements for transparency of individual contractual contents’.10 This approach was ‘in line with the EU’s general approach of consumer protection by implementing a model of information’.11 Hence, the diversity of coverage, exclusions and other contract terms made available on the market, with variable degrees of explicitness, would call for the introduction of minimum transparency requirements in pre and post-contractual relations.

9

See Wandt (2012), pp. 9–22, p. 14. Wandt (2012), pp. 9–22, p. 14. 11 Wandt (2012), pp. 9–22, p. 14. 10

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Such transparency was an ideal to be sought after. In order to achieve that ideal, new information duties were created, setting out the data that insurers and insurance intermediaries should disclose to policyholders prior to, at the time of and after concluding an insurance contract and the manner in which such data should be conveyed to policyholders. Such was the purpose of Articles 168 to 173 of DecreeLaw 102/94 and, shortly afterwards, the main purpose of the Transparency in Insurance Act.12 ‘Transparency’, as used in TIA, is, first and foremost, a reference to the plainness and intelligibility of contract terms, as well as to their exhaustiveness. Strictly speaking, it transcends contract terms, also applying to any accounts of a predominantly descriptive or explanatory nature provided orally and/or in writing at or around the time of contracting and even to the contents of advertisements of insurance products. However, such other accounts might ultimately also be deemed to integrate the contract terms if they are found to be sufficiently concrete and objective so as to allow the interpreter to construe them as such.13 This meaning of the term is consistent with the understanding of the Court of Justice of the European Union that the requirement of transparency of contractual terms, as set forth in Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts, must be interpreted broadly to mean that terms that form part of the main subject matter of the contractual framework must be drafted ‘in plain, intelligible language’.14 Whilst being presented as an end in itself, transparency is ultimately also a means to an implicit end: making accessible to insurance customers all the data that they need to take in and process in order to make an informed decision when choosing to enter into an insurance contract.

3 The Issue of Transparency in Portuguese Insurance Contract Law 3.1

The Principle of Good Faith in Portuguese Insurance Contract Law

Although the term itself plays no part in traditional contract law, transparency is generally regarded as a key value in pre-contractual negotiations, both parties having a duty to negotiate in good faith (Article 227 of the Portuguese Civil Code). Once the contract has been concluded, the parties continue to be subject to the principle of good faith throughout the contract’s duration as they must act in accordance with this

12

See Cordeiro (2013), p. 552. This rule would eventually be set forth in Article 33 of PICA. 14 On the topic of insurance contracts, see Jean Claude Van Hove v CNP Assurances SA. 13

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principle both in fulfilling their obligations and in enforcing their contract rights (Article 762(2) of the Portuguese Civil Code).15 Good faith subjects contracting parties to ancillary duties aimed at protecting their respective counterparties and demanding loyal treatment of one another. Such protection and loyalty duties include duties of disclosure.16 Hence, even before transparency in insurance contracts had been the object of special regulation, to some extent insurers were already bound by such non-insurance-specific information duties, as could be drawn from the above-mentioned provisions on the principle of good faith in general contract law. Also a by-product of the principle of good faith is the regulation contained in Decree-Law 446/85 of 25 October 1985, as amended by Decree-Law 220/95 of 31 January 1995. I shall refer to it hereinafter simply as STA (Standard Terms Act). This Act, which in 1995 incorporated the implementation of Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts, applies to all contracts that consist of, or purport to include, standard terms drafted by one of the parties without any prior individual negotiation. In addition to prohibiting the use of any contract terms that offend the principle of good faith, rendering them null and void (Articles 12 and 15), the STA sets forth specific disclosure requirements that contracting parties must meet if they wish to include their standard terms in the contracts they enter into (Articles 4 to 9). All such standard terms must be fully and adequately communicated to the other party reasonably in advance of the contract’s conclusion. They must be thoroughly explained to the other party whenever such explanation is needed. Non-compliance with any one of these duties—of communication and explanation—results in the exclusion of such terms from the contract. Any ambiguities are resolved through the application of the contra proferentem doctrine, which determines that any doubt as to the meaning of a term will result in the term bearing the meaning most favourable to the adhering party (Article 11). Finally, mention should be made to Law 24/96 of 31 July 1996, as amended from time to time, which approved the Consumer Protection Act (hereinafter, the CPA). This Act reflects the need to protect the weaker contracting party and is applicable to contracts concluded between a professional and a consumer. The professional, in its capacity as supplier of goods or services, has a duty to inform the consumer about the goods or services provided in an objective, adequate and clear way. Consumers must be thoroughly informed about their product’s characteristics, the applicable price, the consequences of default, the contract’s duration, after-sales assistance and/or

15

The main reference on the principle of good faith in Portuguese contract law is Cordeiro (1997). On culpa in contrahendo and the duty to negotiate in good faith, see pp. 527–585. Good faith throughout the duration of a contract is dealt with on pp. 586–660. 16 See Cordeiro (1997), pp. 586–625. Although the author treats duties of disclosure as a third type of ancillary duties, in addition to the protection and loyalty duties, I believe that in all instances they should also be qualified as protection duties and/or as loyalty duties, which appears to deny their autonomy. Information is never an end in itself, but rather a means of protecting or being loyal to one’s contracting parties.

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time of delivery, when relevant. If this duty to inform is not complied with, consumers have a right to terminate the contract (Articles 8 and 9). Such is the wider legal context of any insurance-specific transparency regulation.

3.2

Transparency Regulation: The Previous Regime (TIA)

On 25 October 1995, when the Transparency in Insurance Act (Decree-Law 176/95 of 26 July 1995) came into force, most of that wider legal context was already in place. TIA had its predecessors, some of which were mentioned above. At that time, the legal framework governing insurance contracts in general was mostly still contained in Articles 425 to 462 of the Commercial Code of 1888. These would only be revoked on 1 January 2009, by Decree-Law 72/2008 of 16 April 2008, which replaced them by PICA. Understandably, before this came about, the most relevant sources of duties of disclosure lay elsewhere. Decree-Law 102/94 of 20 April 1994 was eventually replaced by Decree-Law 94-B/98 of 17 April 1998 and the latter by Law 147/2015 of 9 September 2015 (PISA), implementing the Solvency II Directive. As mentioned above, TIA’s preamble identifies the inception of the single European market in the insurance sector as the main driving force behind the growing need for the setting up of minimum transparency requirements in pre- and post-contractual relations. TIA was meant to set out the information that insurers must provide to their client policyholders so as to clarify their respective rights and obligations and thereby reduce the potential for conflict between contracting parties in insurance contracts. It only applied to individual insurance contracts entered into with natural persons, so its rules coexisted with rather than replaced its predecessors in its entirety.17 The drafting of a statute thoroughly regulating all insurance contracts had been publicly referred to a number of times in the past. It had been an apparently on-andoff pet project of different governments, which would not bear any fruits until 2008. In TIA’s preamble, the intention to make it happen was specifically referred to. Notwithstanding that more ambitious project, the need for dispensing adequate levels of consumer protection would recommend that the insurance contract law rules more closely related to the provision of information would come into force sooner rather than later. Such was the reason provided for their (provisional) inclusion in TIA. TIA’s Chapter I contained a number of so-called general provisions. Following a list of defined terms, Articles 2 to 7 of TIA were devoted to the establishment of pre-contractual information duties. Such duties were built upon those previously set forth in Articles 168 to 173 of Decree-Law 102/94 of 20 April 1994. In the first place, there were those duties generally applicable to life assurance contracts (Article

17

See Vasques (1999), pp. 191–192 and 201.

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2) and non-life insurance contracts (Article 3). Then there were duties specifically concerned with group insurance contracts (Article 4) and with insurance contracts that required the insured’s prior taking of a medical exam (Article 5).18 In 2004, Article 5-A was added, on structured savings collection instruments (unit-linked life assurance). Finally, there were some rules on public disclosure of pricing conditions (Article 6) and on the advertising of insurance products (Article 7). TIA’s Chapter II began with a section suggestively entitled ‘Transparency’. It contained two very short provisions. Article 8 set forth the rule that an insurance contract’s general and special terms must be ‘drafted in a clear and perfectly intelligible manner’.19 Article 9 determined that an insurance contract’s special and particular terms could not modify the nature of the risks covered in accordance with the applicable general and special terms, respectively, taking into consideration the legally prescribed risk classification (at that time Articles 114 and 115 of DecreeLaw 102/94). Given that insurance products were not—and are still not—subject to the principle of numerus clausus, the only concern behind this legal restriction seemed to be that of preventing the misselling of insurance products by prohibiting insurers from distributing any insurance products that may appear to belong to a class of insurance whilst actually belonging to a different class of insurance.20 Then there came a section on life assurance (Articles 10 to 12) and another section on non-life insurance (Articles 13 to 16). Both set forth the minimum contents of the contracts’ general and special terms. Chapter II included a fourth and final section, which contained a number of rules on the formation and duration of insurance contracts (Articles 17 to 25). A comparison of TIA and PICA allows us to confirm that whilst the wording of the relevant provisions has suffered significant amendments, the bulk of TIA’s provisions has found its way into PICA. Although Articles 5-A to 7 are still in force today, we may safely conclude that TIA was almost entirely replaced by PICA. We may also confirm the reasonableness of the decision not to wait until the enactment of PICA, which paved the way for the setting forth of the main rules on transparency in TIA, given that over a decade would pass before PICA’s entry into force, on 1 January 2009.

18

See Vasques (1999), pp. 214–215. See Vasques (1999), p. 350. The author believes that the actual wording came from Article 3(b) of the Spanish Ley 50/1980 of 8 October. 20 See Rego (2010), p. 283. 19

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Transparency Regulation: The Current Regime (PICA) Transparency in the Formation of an Insurance Contract

PICA is currently the most relevant source of transparency requirements in the formation of an insurance contract. One may safely conclude that information plays a very important role in PICA, there being numerous provisions specifically setting forth or referring to information duties of various kinds and scope.21 PICA’s Title I regulates the formation, vicissitudes and cessation of all insurance contracts in general. As to formation, first and foremost one should mention the prohibition of discriminatory practices, which deepens the concept of what is considered a discriminatory practice22 and sets forth a procedure to settle disputes arising from an insurer’s refusal to enter into an insurance contract with a prospective policyholder or the former’s acceptance to enter into such a contract only on more onerous terms than might otherwise have been granted to that prospective policyholder, such as a higher premium and/or the stipulation of extra exclusion clauses. This procedure includes a specific duty to provide the prospective policyholder with information on the objective data upon which the insurer grounds its decision to refuse the client or to condition its acceptance of the client to those unfavourable terms (Article 15 of PICA).23 This appears to be the new law’s first transparency requirement, although the term has not been employed in this context. When refusing a contract or when accepting to conclude it only under what appear to be discriminatory terms, the insurer must be able to justify the different treatment, but it must also be transparent as to the reasons behind that stance. Silence is no longer an option. By making insurers accountable to whomever reaches out to them in search of an insurance contract, this requirement reinforces the prohibition of discriminatory practices: not only are insurers banned from treating their clients differently unless their reasons to do so are legally acceptable, but this information right puts any one of them in a position to check them. The insurer’s duties to inform the policyholder and keep it up to speed on the contents of the insurance product that it supplies both before and after the contract is concluded are also very thoroughly laid down, with an emphasis on the insurer’s pre-contractual information duties (Articles 18–23 of PICA). The policyholder’s and the insured’s information duties on the insured risk are also comprehensively regulated, with emphasis on the initial declaration of the risk and the policyholder’s or the insured’s wilful or negligent misrepresentations respectively giving rise to the

21

See Articles 15, 18-26, 29, 78-79, 87-88, 91-94, 100, 133, 135, 140, 170, 178, 180, 185-187, 205-206, 208 and 201 of PICA. See Teles (2012) (passim); Cordeiro (2013), pp. 564–586. In English, see Rego (2017), pp. 565–567. 22 On discrimination in insurance, see Rego (2015a), pp. 119–134; See Rego (2015b), pp. 377–392. On Article 15 of PICA, see Rego (2014), pp. 869–888; Rego (2016), pp. 703–729. 23 Both in its original version and as amended by Law 147/2015.

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insurer’s right to avoid the contract and to its right to terminate or amend the contract (Articles 24–26 of PICA). Given that, as seen above, transparency as a concept used in this jurisdiction is meant to refer to information requirements placed upon the insurer, rather than to those placed upon the policyholder or the insured, the former will be analysed herein in greater detail than the latter.24 Article 18 of the PICA lays down the data that every insurer must disclose to a prospective policyholder as part of its pre-contractual duties.25 Although the provision includes a long list of topics that must be covered when rendering such information to the client, that list is non-exhaustive in nature. In sum, the insurer must convey to its client no less than the full contents of the envisaged insurance contract.26 This information must be conveyed to the client clearly and in writing. It must be written in Portuguese. The document must be delivered to the client prior to the contracting stage so that the client may process the information contained in that document before entering into the insurance contract (Article 21 of PICA).27 Except for the language requirement, even without such provisions we could reach a similar conclusion just by taking into consideration Article 232 of the Portuguese Civil Code and Articles 4 and 5 of the Standard Terms Act. Nonetheless, prior to the entry into force of PICA, it was fairly common practice for insurers to provide their clients at the contracting stage with a short summary of the contract terms, only conveying to them the full contents of the contract after its conclusion. Therefore, although legally unnecessary, the introduction of this requirement played in fact an important role in the dissemination, throughout the industry, of the notion that this practice is legally untenable.28 The following is the list of topics that are non-exhaustively set forth in these provisions—topics that an insurer must cover in its written communication with clients so as to fulfil its pre-contractual information duties towards them: (a) the insurer’s name and legal form; (b) the scope of the insurance coverage; (c) cover exclusions and limitations; (d) the premium amount or its calculation method, as well as the payment method and the consequences of default; (e) applicable bonusmalus rules and their calculation method; (f) minimum insured capital in compulsory insurance; (g) claim limits per insurance period; (h) the contract’s duration and the rules governing its renovation and cessation; (i) the rules on assignment; (j) how to

24

On the Portuguese rules on the initial declaration of the risk and on the consequences attached to the policyholder’s or the insured’s wilful or negligent misrepresentations, see the monograph by Poças (2013) (passim). See also Gomes (2011), pp. 388–445 (passim); Martinez et al. (2011), pp. 131–178 (annotations by Oliveira AC and Martinez PR); Teles (2012), pp. 249–273; Cordeiro (2013), pp. 573–586. 25 See Martinez et al. (2011), pp. 101–105 (annotation by Ribeiro E); Teles (2012), pp. 216–230; Cordeiro (2013), pp. 564–567. 26 Rego (2012a), pp. 22–23. 27 In some respects this requirement is closely reminiscent of § 7 of the German Insurance Contract Act. 28 Something similar to what had happened in Germany. See Gaul (2007), pp. 21–26; Stockmeier (2008), pp. 717–724; Römer (2008), pp. 1520–1523.

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lodge complaints, the applicable protection mechanisms and the supervision authority; (k) the applicable law, if different from that of Portugal (Article 18 of PICA); and (l) the Member State in which the head office is situated and the branch concluding the contract, where appropriate, and their respective addresses (Article 20 of PICA). Article 185 of PICA adds to the above-mentioned topics a few additional topics that insurers should also include in their pre-contractual communications with life assurance clients: (a) the attribution and calculation method of any profit participation rights; (b) the scope of each cover option; (c) an indication of surrender and paid-up values, as well as the nature of the coverage and penalties in case of surrender, reduction or assignment of the contract; (d) the premiums corresponding to each benefit and option; (e) the minimum guaranteed benefits, including information on the applicable interest rate and on the duration of the guarantee; (f) the reference values used in contracts with a variable insured capital, as well as the number of existing units; (h) the nature of the assets underlying the contracts with variable insured capital; (i) general information on the applicable tax arrangements; (j) in contracts that contain a capitalisation component, indication of the quantification of the charges and respective incidence and moment of liquidation; (k) indication of the right of access by the insured person to medical data resulting from any medical examinations performed on the insured person.29 Article 206 of PICA, on unit-linked products, adds the following to the abovementioned topics: (a) the reference value, (b) the policyholder’s rights in the event of liquidation of the investment fund or elimination of an account unit before the end of the contract; (c) the methods and regularity of the provision of information on the evolution of the reference value; (d) the terms applicable to the liquidation of the surrender value and of the insured sums; and (e) the regularity of the provision of information on the evolution of the investment portfolio.30 A special duty to explain the functioning of the insurance contract has also been set forth. The intensity of this duty mostly depends on the complexity of the contract and on the amounts involved, as well as on the medium used for the conclusion of the contract. This duty’s main focus is on the scope of the insurance coverage. This duty includes a requirement that the insurer identifies which insurance product, out of the various ones in its own portfolio, is most suitable to each client’s needs (Article 22).31 Pinpointing the true nature of these information duties is somewhat challenging. We should begin by distinguishing between the act of rendering information on the contents of a future contract or that is somehow relevant to that contract and the act of producing the statements that will form that same contract. When we utter an informative statement, that statement may be classified as being either true or false.

29

See Martinez et al. (2011), pp. 539–540 (annotation by Torres LC). See Martinez et al. (2011), pp. 588–597 (annotation by Ribeiro E). 31 See Martinez et al. (2011), pp. 119–126 (annotation by Oliveira AC and Ribeiro E); Teles (2012), pp. 237–240; Cordeiro (2013), pp. 569–570. 30

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When we conclude a contract, our statements are performative in nature: they are speech acts that create something new—the contract.32 This pre-contractual communication between contracting parties fulfils these two different functions at once: by informing their clients of the contents of the future contract, insurers are also taking steps that will later allow them to claim that a contract has in fact been entered into with those contents, to the extent that the information provided is contractual. Whilst most of the above-mentioned topics will correspond to actual contract terms, others are purely informational: for instance, the identification of the insurer’s registered address and office location is purely informational, and so is the information on the applicable tax arrangements. They are not part of the lex contractus.33 Strictly speaking, such information is not binding upon the insurer, although the insurer might be held liable if it renders information that is false, incomplete or misleading in any way. Indeed, non-compliance with the insurer’s pre-contractual information duties generally renders the insurer liable for any harm caused to the policyholder or the insured. In cases where the insurer is sued, where the client is claiming damages on the ground of the former’s liability for non-compliance with its pre-contractual information duties, the criteria applicable for the identification and quantification of the losses or injuries to be compensated for are the general criteria applicable to pre-contractual civil liability (Article 227 of the Portuguese Civil Code). In the case of pre-contractual information duties, it could be argued that if a policyholder does not obtain the most suitable coverage due to defective information and as a result suffers loss that ends up being uninsured, such policyholder/insured could claim compensation in the amount corresponding to the difference between their actual situation and that which they would have been in had adequate insurance been in place. Generally, it should be said that an injured party must be compensated for loss that is a direct consequence of the insurer’s omission.34 Breach of such duties also enables the policyholder to terminate the contract within 30 days of their receipt of the insurance policy, but only when the terms stipulated therein and the ones submitted as pre-contractual information differ and those differences represent crucial elements of the contract that influenced the policyholder’s decision to enter into the insurance contract (Article 23 of PICA).35 When the data that the insurer has failed to convey to its client, or that it has conveyed in a deficient fashion, would correspond to a contract term, in addition to that line of defence, the client is also entitled to argue that the term in question should be deemed to have been excluded from the contract due to its non-existent or

32

Speech acts in the meaning attributed to the expression by Austin (1962) and further developed by Searle (1969). 33 See Rego (2012a), p. 22. 34 Pinto (2008), pp. 1143–1144, 1379–1389 and 1412–1447. 35 See Martinez et al. (2011), pp. 126–130 (annotation by Oliveira AC and Ribeiro E); Teles (2012), pp. 241–248; Cordeiro (2013), pp. 570–572.

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inadequate communication, pursuant to Article 232 of the Portuguese Civil Code and Article 8 of STA. Non-compliance with information duties is also sanctioned with regulatory measures, it being classified as a serious misdemeanour by Article 370(z) of PISA. Such non-compliance is punishable with a fine of up to € 1,500,000. PISA contains several other provisions regulating market conduct requirements, many of which concern transparency in insurance. Such requirements will be analysed elsewhere. It is also important to note that, pursuant to Article 33 of PICA, specific and objective messages contained in insurance advertisements are deemed to be part of the insurance contract, those terms that contradict them being deemed as excluded from the contract, except to the extent that they are more favourable to the policyholder, the insured or the beneficiary.36 PICA has also provided some much-needed clarification that an insurance contract’s validity does not depend on the existence of a written contract, but where a contract has not been made in writing, the insurer is under a duty to put it into writing by producing a policy that it must deliver to the policyholder (Articles 32 to 37 of PICA).37 The policy may be supplied in any durable medium. The burden of proof of such delivery falls upon the insurer. Once delivered, the insurer may not invoke any clauses not included in the policy. However, the policyholder is given a 30-day period within which to check conformity of the policy terms with its prior agreement. Once such period has lapsed, only a claim of non-conformity that is sustained by written evidence will be accepted (Article 35 of PICA).38 In many cases, compliance with the above-mentioned transparency requirements entails the delivery, to each policyholder, of two sets of almost identical documents: a first set of documents containing the full contents of the future insurance contract at the pre-contractual stage and a second set of documents consisting of the insurance policy that is delivered to the same policyholder after the contract has been concluded. Nonetheless, the requirements that apply to both sets of documents are only partially the same. Whilst the pre-contractual document must be written clearly and in Portuguese (Article 21 of PICA),39 its post-contractual replica must be drafted in a concise, rigorous and understandable fashion, in legible font, using common words and expressions whenever the use of legal or technical terminology is not indispensable, also in Portuguese (unless the policyholder specifically requests information in a different language) (Article 36 of PICA).40

36

See Martinez et al. (2011), pp. 219–220 (annotation by Vasques J). See Rego (2012a), pp. 25–27. 38 See Rego (2012a), pp. 36–37. 39 See Martinez et al. (2011), pp. 115–119 (annotation by Ribeiro E); Teles (2012), pp. 230–236; Cordeiro (2013), pp. 567–569. 40 See Martinez et al. (2011), pp. 225–226 (annotation by Vasques J). 37

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A list of topics that should be included in an insurance policy is set forth, this time in Article 37 of PICA.41 Once again, the list only partially coincides with that relating to the pre-contractual document, contained in Articles 18 and 20 of PICA. Understandably, the first difference is in the name of this second document, which must bear the name ‘policy’ (apólice). Interestingly, this requirement is followed by the determination that all policy documents should be properly identified as such. This requirement appears to have been aimed at doing away with one of the most frustrating difficulties previously faced by an insurance lawyer in Portugal: that of gathering a complete set of all the documents that might contain the contract terms applicable to any given case, in the midst of what sometimes amounted to a real chaos of existing general, special and particular conditions, the former usually in various editions, of the many forms and questionnaires filled out by the policyholder and the insured and sometimes of a long succession of policy endorsements.42 Another very pragmatic requirement addresses an equally relevant concern: that of correctly identifying the policyholder, the insured and the beneficiary, with names, addresses and tax numbers, as well as the insurer’s claim representative. All other requirements relate to normative aspects of an insurance contract and should more properly be construed as being the mandatory minimum contents of an insurance agreement: they are the topics that the parties must agree upon when negotiating an insurance contract: (a) the nature of the insurance; (b) the insured risks; (c) the insurance period and the insured territory; (d) the rights and obligations of the parties, the insured and the beneficiary; (e) the insured capital or its calculation method; (f) the premium amount or its calculation method; (g) the date and time of the insurance’s inception and its duration; (h) what the insurer shall provide if the insured event occurs or its determination method; and (i) the governing law of the contract and any arbitration clause. Article 37 of PICA also establishes that certain contract terms must be written in a font style and size that is larger and bolder than that which is used in the remaining contract terms. This applies to terms relating to the contract’s ineffectiveness, prorogation, suspension or cessation by either party; terms that outline the coverage outlines, exclusions and limitations; and terms that establish deadlines for the policyholder or the beneficiary to take any action. Without prejudice to any liability derived therefrom, once again a breach of the duty to deliver the insurance policy also gives rise to the policyholder’s right to terminate the insurance contract within 30 days of their receipt of the insurance policy or, alternatively, to demand a correction of the policy terms when the terms contained therein differ from the ones agreed to by the parties and those differences represent crucial elements of the contract that influenced the policyholder’s decision to enter into the insurance contract (Article 37, which refers back to Article 23 of PICA).

41 42

See Martinez et al. (2011), pp. 226–233 (annotations by Vasques J and Oliveira AC). See Rego (2012a), p. 29.

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PICA also clarifies who owes what to whom in group insurance, in situations where there had previously been many doubts as to who should be the bearer and the recipient of the relevant information (Articles 78 and 79). In such insurance arrangements, the policyholder plays the role of a go-between, disseminating in the insured group the relevant information provided by the insurer. In arrangements where the insured bears the cost of the premium, or a part thereof, they are entitled to receive the same information that is owed to a policyholder in an individual insurance arrangement (Article 87). These are the information duties set forth in PICA (with the exclusion of a few additional ones that only apply to particular classes of insurance). However, these information duties are then supplemented by additional information duties set forth in legislation aimed at regulating specific distribution channels or specific types of contractual arrangements. As to the former, the regulation on the distance marketing of financial services contains some provisions that set forth further information duties,43 and so does the regulation on insurance contracts concluded via an insurance intermediary.44 As to the latter, unit-linked policies and other complex financial products are also subject to the requirements applicable to similar non-insurance-related financial products and have recently been the object of Regulation (EU) No. 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs),45 which has also been applied thereto since 31 December 2016.46 The new PRIIPs Regulation imposes new pre-contractual information duties for the benefit of retail investors in insurance-based products. The distribution of PRIIPs entails the drawing up of a so-called key information document (known as KID).47 A similar approach has been adopted involving both the life and non-life insurance sectors upon the implementation of the Insurance Distribution Directive (IDD). In Portugal, this came about with the entry into force of PIDA.48 IDD placed additional requirements on the sale of complex insurance-based investment products

43 See Articles 11 and following of Decree-Law 95/2006 of 29 May 2006 (as amended), which implemented Directive 2002/65/EC the European Parliament and of the Council of 23 September 2002. 44 See Article 29 of PICA and Articles 31 and 32 of PIDA. 45 Prior to its entry into force, see also Decree-Law 211-A/2008 of 3 November 2008 (as amended) and Regulation 2/2012 of the Portuguese Market and Security Commission (CMVM). 46 Article 34 of Regulation (EU) No. 1286/2014. 47 See EBA’s EIOPA’s and ESMA’s Final Draft Regulatory Technical Standards with regard to Presentation, Content, Review and Provision of the Key Information Document, including the Methodologies Underpinning the Risk, Reward and Costs Information in accordance with Regulation (EU) No 1286/2014 of the European Parliament and of the Council, of 31 March 2016. 48 See EIOPA’s Final Report on Public Consultation on Preparatory Guidelines on product oversight and governance arrangements by insurance undertakings and insurance distributors, of 6 April 2016, and its Final Report on Consultation Paper no. 16/006 on Technical Advice on possible delegated acts concerning the Insurance Distribution Directive, of 1 February 2017, pp. 29–60.

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(IBIPs), requiring insurers to provide information on the costs of the distribution service in addition to the information that they are already bound to provide on the product itself under the PRIIPs Regulation.49 For the first time, non-life insurers will also be required to produce an ‘insurance product information document’ (known as IPID) and provide it to their customers prior to their entering into their insurance contracts.50 According to EIOPA, the IPID is ‘a pre-contractual document and does not replace policy terms and conditions, which will be provided to customers in addition to the IPID’.51

3.3.2

Transparency Throughout the Duration of an Insurance Contract

As mentioned above, both the insurer’s duty to inform the policyholder and keep it up to speed on the contents of the insurance product it supplies and the policyholder’s and/or the insured’s duty (or burden) to disclose information on the insured risk are very thoroughly regulated in PICA. Information duties arise for both contracting parties both before and after the contract is concluded. However, the main principle behind the establishment of postcontractual information duties is that the data that should have been conveyed to the other party, had it existed or been known at the time of contracting, is exactly the same as that which must be conveyed to the other party in case it comes into existence or awareness during the life of the insurance contract. These post-contractual information duties are set forth in Articles 91 to 94 of PICA. Articles 92 to 94 of PICA regulate the consequences of changes in the data relating to the policyholder’s or the insured’s initial declaration of risk.52 Only Article 91 of PICA contains general rules applicable to both contracting parties. Specifically in what concerns the insurer’s information duties, as a result of the above-mentioned principle, the insurer must inform the policyholder of any changes in the information initially provided to the policyholder in compliance with the pre-contractual and contractual information duties (Article 91(1) of PICA). Of course, insofar as the data in question concern the normative contents of the insurance contract, the insurer is generally not entitled unilaterally to change it, according to the general principle of pacta sunt servanda (Article 406 of the Portuguese Civil Code). But some of the data in question are of a purely informational nature. For instance, a change in the insurer’s name or legal form would 49

See Article 40(1)(b) of PIDA and Article 30 of the IDD. See Article 33 of PIDA, Article 20 of the IDD and EIOPA’s Final Report on Consultation Paper no. 16/007 on Draft Implementing Technical Standards Concerning a Standardised Presentation Format for the Insurance Product Information Document of the Insurance Distribution Directive, of 7 February 2017. 51 EIOPA’s Final Report on Consultation Paper no. 16/007 on Draft Implementing Technical Standards Concerning a Standardised Presentation Format for the Insurance Product Information Document of the Insurance Distribution Directive, of 7 February 2017, p. 4. 52 As to which, see Rego (2012b). 50

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trigger the insurer’s duty to inform the policyholder because that information was included in the pre-contractual information to be provided to the policyholder pursuant to Article 18 of PICA. The insurer must also inform all irrevocable beneficiaries, as well as any other third parties whose rights have been specifically acknowledged in the insurance contract, of any contract amendments that might injure their interests, unless such disclosure would be contrary to the nature of the insurance or of the amendment (Article 91(2) of PICA). The most common irrevocable beneficiaries are financial lenders, the benefit of life assurance being typically irrevocably offered as collateral by their client borrowers. In property insurance, when the insured property has been pledged or otherwise offered as collateral, the beneficiaries of such guarantee fall in the category of third parties whose rights have been specifically acknowledged in the insurance contract. But this category is wide enough to include any third parties whose rights may somehow be directly or indirectly affected by an insurance contract, provided that such rights have been specifically acknowledged by the parties to the insurance contract. The parties may eliminate this information duty towards some or any third parties by stipulating the amendment’s confidentiality (Article 91(3) of PICA). However, this stipulation will not always prevail against legal protection afforded to some third-party rights. For instance, Article 146(1) of PICA sets forth an injured third party’s direct claim as against the liability insurer in all compulsory liability insurance. Even in voluntary liability insurance, the injured third party has a privilege over the insured’s indemnity claim as against the insurer (Article 741 of the Portuguese Civil Code). In cases such as these, the third party’s right to know must prevail over any confidentiality clause (Article 573 of the Portuguese Civil Code).

4 Discussion 4.1

The Role of Informed Consent in Traditional Contract Formation and in Today’s World

A contract is formed when all parties so declare, which happens, e.g., when a party makes an offer that is then accepted by the other party or parties or when two or more parties simultaneously express their acceptance of the same previously negotiated terms. In either case, the parties are meant to agree on all essential terms, that is to say, on all terms over which their agreement has been deemed a necessity by either one of them. Whenever the parties fail to agree on any essential terms, no contract is

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formed. Should they fail to agree on any non-essential terms, the contract is concluded without the inclusion of such non-essential terms.53 Information plays a central role in traditional contract formation models: contracting parties are meant to acquaint themselves with all the terms of the contracts that they contemplate entering into so as to make an informed decision as to whether or not to make a commitment thereto. Thus, according to Article 232 of the Portuguese Civil Code: The contract is not concluded until the parties have agreed on all clauses over which an agreement has been deemed necessary by either of them.54

If we forgot all our contract law bearings and interpreted this wording literally, we might be inclined to believe that it would be acceptable for a potential policyholder to ask its broker or financial advisor for an executive summary of the contract terms and simply let the professionals take care of the details. But that is not how this provision is traditionally construed. The question is: why not? I do not question that consent still has a role to play in contract formation. Neither do I wish to go over the primeval debate on contract formation as to the relative importance of the will of the parties, of their subjective intentions, as opposed to their more objectively observable outward utterances. I merely question the importance of a thoroughly informed consent: the requirement that contracting parties must acquaint themselves with the entire content of the contract that they are about to enter into before doing so. In fairness, I should say that contracting parties are not actually barred from entering into a contract when insufficiently informed. The problem is that such conduct is negatively valued.55 Take the preposterous Article 21(5) of PICA, which sets forth the rule that an insurance offer must include a statement, signed by the potential policyholder, confirming that the insurer has provided all legally required information.56 It does not ask potential policyholders to confirm that they have read and understood such information. However, if they fail to read it, they are to bear the consequences: they will be deemed to have accepted the contract terms they have failed to read or assimilate. A similar result is reached after the conclusion of the contract, when policyholders are given a 30-day period within which to read the policy so as to check that it is faithful to the parties’ agreement, as set forth in Article 35 of PICA.

53

See Vasconcelos (2008), pp. 486–490. See § 154(2) of the BGB. § 155 of the BGB is even clearer (on the effects of partial hidden dissent: the contract is deemed concluded without the part over which the parties have disagreed, if it is to be assumed that the contract would have been entered into without it). 55 See Cordeiro (2013), pp. 561–563 and 567, in defence of a policyholder’s right to be kept in ignorance of the intricacies of insurance contracts, that is to say, of their right to trust the insurer and the laws of the State. 56 Fortunately in contracts entered into with consumers this absurdity is cancelled out by Article 21 (e) of the STA, which prevails, pursuant to Article 3 of the PICA. 54

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That not paying attention is bad for you and should be frowned upon has been confirmed on numerous occasions by the Portuguese Supreme Court of Justice: [G]iven that the contractual freedom of one of the contracting parties is limited in practice to the freedom of accepting or rejecting the imposed contract terms and the conclusion of the contract, that contracting party must at least have the actual and effective knowledge of such terms, so that it may decide whether or not to accept them, the duty to communicate such terms appropriately and with the necessary advance being aimed at combatting the risk of his/her unawareness of significant aspects of the contract. It is intended to facilitate the adhering party’s complete and effective knowledge of the contract terms, also requiring the latter’s adoption of diligent behaviour, oriented towards an actual and effective knowledge of the contract terms.57

In today’s world, especially but not only in the financial world, contracts are becoming more and more complex, so much so that some of them are virtually incomprehensible to most of us. So why even bother? Why make the sometimes extraordinary effort that would be required so as to read them from cover to cover and really understand them? In today’s world, time is precious—so precious that it should not be deemed unreasonable for someone to decide, after weighing all the pros and cons, to enter into a contract, be it simple or complex, without first having carefully studied all its terms for as long as needed in order for such terms to be thoroughly understood and agreed to. Bearing in mind the dramatic increase in transparency requirements during the course of the last 20 years, and without questioning transparency’s role in making accessible to insurance customers all the data that they need to take in and process in case they wish to make an informed decision when choosing to enter into an insurance contract, I believe that another question is begging to be asked: does it make sense to put all one’s eggs in the basket of information? In particular, should transparency as an ideal be allowed completely to replace trust in contractual relations? If I know everything in advance, there is no need for trust. Transparency is a state in which all not-knowing is eliminated. When transparency prevails, no room for trust exists. Instead of affirming that ‘transparency creates trust’, one should instead say, ‘transparency dismantles trust’.58

4.2

The Insurer’s and the Intermediary’s Ever-Increasing Pre-contractual Information Duties

As we have seen, over the last 20 years, a number of statutes have been enacted, in Portugal and in other EU Member States, mostly as a result of implementation

57 58

Ac. STJ of 24.03.2011. Han (2015), pp. 47–48.

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requirements of EU directives, which have dramatically increased the insurer’s and insurance intermediaries’ pre-contractual and contractual information duties towards policyholders and relevant third parties in insurance contracts. Such duties, which epitomise the legislator’s efforts to keep up with the growing complexity of financial products, are in line with one of the main goals of EU legislation in this field: that of enhancing transparency in insurance transactions so as to protect insurance customers. This proliferation of information duties has increased the amount of paperwork being produced by insurers and provided to insurance customers, but this has not made a significant impact on the clarity of insurance contracts, which admittedly remain as opaque as ever. Furthermore, this system has a downside: whilst it penalises insurers that fail to comply with their information duties, whenever they do comply and information is properly made available, customers may be deemed negligent for choosing not to take it in. I take issue with this outcome. When so many of us make this choice on a daily basis, myself included, are we not being too demanding on customers by concluding that they should have read all the paperwork and made sure to understand and agree with it before choosing to enter into the contract? As an insurance customer, I have often entered into insurance contracts—and in fact many other contracts—without bothering to read the fine print. It happens on a daily basis that I find myself having to choose between taking the time to read all the paperwork that comes before me and being able to devote my time to so many other more interesting things that are going on in my life. And I am in a somewhat privileged position when it comes to insurance: at least if I were to choose to read all the paperwork, I could hope to grasp the essence of it fairly quickly, which may not be said of the greater part of our population. So why place what seems like such an unfair burden on insurance customers? For ordinary people today, at least in developed countries, many more of the needs and wants of daily life are acquired through contracts than ever before. As the reliance on contracts has been increasing, the delivery of textual content purporting to be contractual has resulted in an immense proliferation of such texts.59

It is widely known and accepted, at least in the field of medical law, that too much information that the patient is unable to understand and assimilate properly may hinder rather than facilitate the patient’s informed consent.60 This rings true in many other fields, especially those where the most relevant players have a marked 59 Radin (2017), p. 505. The author argues that very common procedures such as that of asking customers to click ‘I agree’ next to a line that states they have read any given set of terms and agreed thereto ‘has made liars of us all’ (p. 519). ‘How could we? There is so much of it. And why should we? We cannot change it, and we are not likely to understand it’ (p. 520). For empirical evidence on the (extremely reduced and thus virtually negligible) number of people who actually read such terms from top to bottom, see Bakos et al. (2014), pp. 1–35. 60 See Barendrecht et al. (2007), pp. 837–838; Han (2015). Jean Claude Van Hove v CNP Assurances SA (ECLI:EU:C:2015:262), p. 8: ‘More information, or more communication, does not eliminate the fundamental absence of clarity of the whole. If anything, it heightens it.’

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predisposition to resort to extremely technical, virtually opaque language and impervious drafting techniques, such as is the case of the insurance industry. Why pretend that the entire population is ready and able to understand the basics of an insurance contract just by reading it, even if aided by the insurer’s attempts at clarifying any aspects in need of clarification? Article 10(2) of the European Convention for the Protection of Human Rights and Dignity of the Human Being with regard to the Application of Biology and Medicine, known as the European Convention on Human Rights and Biomedicine, reads as follows: Everyone is entitled to know any information collected about his or her health. However, the wishes of individuals not to be so informed shall be observed.61

In fairness, there is not that much room for analogy between the right not to know one’s genetic code and the right not to bother reading the fine print in an insurance contract. However, such as in the field of medical law, it is submitted that in the field of contract law in general we should recognise a person’s right not to know, which is to say, a right to place one’s trust on the good judgment of a third-party intermediary or even of the insurer, our expert counterparty,62 a right that does not entail a waiver of the right to sue if later on it turns out that one’s demands and needs, as made clear to the insurer directly or through the intermediary, were not duly attended to.

4.3

The Insurance Distribution Directive: A New and Complementary Approach: The Demands-and-Needs Test, Product Oversight and Governance Arrangements

Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution, known as the Insurance Distribution Directive (IDD), has paved the way for a much-needed change of perspective. The IDD is the successor of the Insurance Mediation Directive.63 However, unlike its predecessor, it applies to all distribution channels, including insurance undertakings selling their own products directly, in order to guarantee that the same level of protection applies throughout the marketplace and that insurance customers can benefit from comparable standards.

61 Article 10(2) of the European Convention for the Protection of Human Rights and Dignity of the Human Being with regard to the Application of Biology and Medicine, known as the European Convention on Human Rights and Biomedicine (Oviedo, 1997). 62 See Cordeiro (2013), pp. 561–563 and 567. 63 Directive 2002/92/EC of the European Parliament and of the Council of 9 December 2002 on insurance mediation (IMD).

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Equality of treatment in the disclosure of information remains a concern of particular importance in this Directive.64 The purpose of providing customers with the data that will allow them to make an informed decision as to whether or not to enter into the contract is still present. I do not take issue with its lingering pervasiveness. No one in their right mind would argue that insurance customers should be kept in the dark. Such is the traditional flow of information: insurer to insurance customer (I ! C). However, before that flow even begins, distributors are now meant to apply a demands-and-needs test to their (potential and actual) customers, which means we also find evidence of a new and reverse flow of information: insurance customer to insurer (C ! I). The IDD appears to strike a balance between both flows of information (especially but not exclusively in Articles 20 and 25 of the IDD). The new requirements are meant to tackle the very relevant problem of insurance misselling (Article 20 of the IDD). In order for the new requirements to be complied with, insurers must maintain, operate and review product oversight and governance arrangements aimed at identifying each product’s target market and ensuring that the product is and remains consistent with the needs of that target market throughout its lifetime and that it is distributed to that target market (Article 25 of the IDD).65 Hence, even before a product is commercialised, target groups must be identified and their typical demands and needs assessed so that the product’s design matches such typical demands and needs.66 Then there is a second round of attention that insurers must pay, this time to the individual demands and needs of their actual customers. Rather than flood their customers with information, insurers must begin by paying attention to their demands and needs, it being their job to find the product that best suits them. This includes the prior collection of information about their customers’ circumstances and concerns (Article 20 of the IDD).67 Implementation of this requirement should have entailed further development of the rule already set forth in Article 22 of PICA, according to which it is for the insurer to select, out of the various insurance products already present in its own 64

Recital 6 of the IDD. See also articles 1 and 2 (1) to (3) of the IDD. This requirement is not entirely new, but is a reinforcement of the principles which had previously been more succinctly set forth in Articles 153 and 154 of PISA. Article 153 of PISA was amended by Law 7/2019 of 16 January 2019 so as more thoroughly to reflect Article 25 of the IDD. See also Article 5 of ASF Regulation 10/2009-R of 25 June 2009, as amended, on the general principles to be followed by insurance undertakings in their dealings with policyholders, the insured, beneficiaries and injured third-parties. 66 See also Recital 55 of the IDD, and also EIOPA’s Final Report on Public Consultation on Preparatory Guidelines on product oversight and governance arrangements by insurance undertakings and insurance distributors, of 6 April 2016, and its Final Report on Consultation Paper no. 16/006 on Technical Advice on possible delegated acts concerning the Insurance Distribution Directive, of 1 February 2017, pp. 29–60. 67 See also Article 31 of PIDA and Recitals 44 and 45 of the IDD. There was but a hint of this requirement of an insurance intermediary to collect information from its clients and advise them accordingly in Article 12(3) of the IMD. 65

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portfolio, the one that most suits each customer’s particular needs68—all of this, of course, in order ‘to prevent or mitigate customer detriment’.69 However, the Portuguese legislator chose to include the relevant transposing rules in a provision directly addressed only to intermediaries, elsewhere determining, by mere cross-reference, that the same rules would also apply to insurers ‘as duly adjusted’ (with no further clarification of what such adjustments might be).70 The traditional flow of information is still present in the requirement that insurers ‘provide the customer with objective information about the insurance product in a comprehensible form to allow that customer to make an informed decision’ (also in Article 20 of the IDD). Of course the provision of information is still very relevant in today’s world because insurance customers must be allowed to confirm their insurer’s advice by reading through all the paperwork should they be so inclined. For those of us who are not, should we not be allowed simply to trust our insurer’s advice? Why must a burden be placed upon us thoroughly to check all contract terms before choosing to enter into the contract? Let us consider the case of an insurer that sold product liability insurance to cork manufacturers that worried about the risk of defective corks ruining the wine of their client wineries. This example is based on a real-life trend that I have personally come across whilst working as a legal practitioner some years ago in Portugal. The product was useless to these customers because product liability is meant to deal with damages caused by defective products to consumers.71 No one detected the inconsistency at the contracting stage; hence, no extension covering the damage caused to their non-consumer direct customers was negotiated. It is submitted that this episode of insurance misselling could have been dealt with quite adequately under Article 22 of PICA. It is also an example of the importance of complementing transparency requirements with a different set of requirements, such as the ones set forth in Articles 20 and 25 of the IDD. The incident could have been prevented if the target market for this product had been correctly identified. Even without the prior identification of a target market, the incident could have been prevented by placing upon the insurer the burden to check that the product it offers to its customers is consistent with their actual insurance demands and needs.

68 According to Cordeiro (2013), p. 570, this duty is most important in its negative form, that is to say, as an insurer’s duty to warn a potential policyholders against purchasing insurance products which are ill-suited to their particular circumstances and/or which fail to meet their needs. 69 EIOPA’s Final Report on Consultation Paper no. 16/006 on Technical Advice on possible delegated acts concerning the Insurance Distribution Directive, of 1 February 2017, p. 34. 70 See Articles 31(4)(6)(7) and (8) and 37(3) of PIDA. 71 See Directive 85/374/EEC of 25 July 1985 on liability for defective products.

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Financial Contracts As Products: Inconsistency with the Customer’s Demands and Needs As Grounds for Remedial Action

Consumers can enter the market to buy physical products confident that they won’t be tricked into buying exploding toasters and other unreasonably dangerous products. They can concentrate their shopping efforts in other directions, helping to drive a competitive market that keeps costs low and encourages innovation in convenience, durability, and style. Consumers entering the market to buy financial products should enjoy the same protection. (. . .) How did financial products get so dangerous? Part of the problem is that disclosure has become a way to obfuscate rather than to inform.72

Elizabeth Warren, former Harvard Law School Professor of Law and current US Senator for the State of Massachusetts, when she wrote these words in 2007, was advocating an increase in financial market regulation and the creation of a new Consumer Financial Protection Bureau. This Bureau was created in 2010. As a contract lawyer, I look at what is essentially the same problem that Elizabeth Warren so aptly identified, but from a different perspective, in search of a different answer to a different question. And my question is: has consent as we know it reached its expiration date as the cornerstone of contract law? Some law and economics authors are moving along this line of reasoning, their idea being that customers of such massively distributed boilerplate contracts are actually purchasing a composite of item plus terms rather than just the item itself, the implication being that when some of such terms are inappropriate, we might classify them as defective and move to apply the rules on the sale of defective products.73 Some emphasise that whilst such massively distributed terms might be part of the product, they can hardly be classified as contractual terms proper, given that informed consent is truly neither sought nor provided.74 Whilst not disposing entirely of consent, I do believe that the protection of insurance customers can best be achieved if one complements the informational approach with a different approach consisting of treating financial products much like any other products.75 If a customer chooses to buy an electrical appliance, that customer will enter into a contract of sale in order to obtain the desired appliance. The contract is merely an aid, a legal means of providing customers with their chosen goods: in this example, the appliance. Financial contracts in general, on the other hand, often do not play such a merely instrumental role. Oftentimes financial products are the products. That is certainly the case of insurance contracts.76 So why not treat them as such?

72

Warren (2007). See Baird (2006), pp. 933–952; Radin (2017), pp. 529–531. 74 Radin (2017), pp. 531–533. 75 See Grigoleit (2012), pp. 25–64 (also on the limits of the traditional informational approach, albeit from a different perspective). 76 See Dreher (1991). 73

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Financial contracts such as those of insurance are intangible, as assets go. But they are nonetheless assets. They are a product that is supplied or distributed by their manufacturers—such is the language of the IDD. And such, it is submitted, is also the reality of financial contracts. In the case of the sale of goods, the contract is just a legal device conceived so as to transfer the goods. In the case of many financial products, the contract is the object of the distribution. The providers of financial services distribute a particular type of product that is purely legal in nature: they distribute contracts. It is submitted that just as customers are not required to read through an electrical appliance’s technical specifications and user’s manual before choosing to acquire it, they should also not be required to read through a financial contract from cover to cover before deciding to enter into that contract because it seems to me that this is exactly what most contemporary financial contract terms resemble: a product’s technical specifications and/or user’s manual. When I purchase a toaster, no one really cares whether I thoroughly understand the science behind it. I do not need to know why it can turn a bread slice into a toast. I only need to know that somehow it will make it happen once I plug it in, insert my bread slice in the proper opening and press the on button. Why should an insurance contract work out any differently? Consumers of financial products should not be required to spend any more time checking whether the products they acquire are toxic than consumers of household appliances are required to spend checking that their toasters are not going to explode in their kitchens. Neither should they worry whether the products they require are fit for their purpose, unless their own intention in acquiring the product is somehow unusual or unexpected. Someone else should be doing that for them. Elizabeth Warren’s answer was the creation of a new regulator, whose role would be to check the safety and adequacy of financial products. As a private lawyer, I look at the problem differently. I do not advocate a solution that drastically limits freedom of contract. By all means, insurers should remain free to design products as they see fit. Whilst they should be prevented from distributing toxic products to the wider public, for the most part I believe that this problem could best be handled through the shifting of some contractual and pre-contractual burdens. If insurers are legally required to pay attention to their customers’ demands and needs and provide products that match them, then they should be made liable in case they fail to fulfil this duty and provide a product that is inconsistent with their customers’ demands and needs, insofar as they conform to those of a typical consumer or, if they do not, to the extent that they were actually expressed by their customers prior to their entering into the contract. Will this new attitude solve all our difficulties as insurance consumers? I dare say it will not. But it is submitted that provided that the new approach is seen as a complement, rather than as an alternative to the more traditional informational approach, an important step forward will be taken when we come to accept that choosing not to read the contract terms from cover to cover should not always be frowned upon and seen as negligent behaviour but should rather be taken as an acceptance of some measure of risk that the future might bring forth a few unpleasant surprises, that is to say, up to a certain, reasonable extent.

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I shall bring forward one last example. When I buy a sofa, I usually order a special treatment designed to make the fabric more durable and stain resistant. Companies that render this service also offer something akin to insurance: a 10-year extended warranty whereby they commit to come to our homes and clean our sofa whenever a stain should make its appearance. This offer naturally comes with a list of the substances whose stains are covered—a list that I have naturally never bothered to read until the first stain came up. Only then did I read through the list so as to find out whether my stain fell within or without this coverage. I stand by the reasonableness of my behaviour. If knowing this in advance had been essential to my decision to seek out this coverage, I would have read it. I chose not to, and that is perfectly acceptable behaviour. So now, whenever a stain comes up that is outside the list, if I forget about it and call my service provider, they will respectfully tell me that I will have to pay for their cleaning services if I wish to benefit therefrom, just as a supplier of electrical appliances will inform me that if I had wished my toaster made fluffy toasts, in addition to the more regular ones, I should have bought a different, more expensive model or at least an optional extra device to place on top of my regular toaster because the one I bought did not come with that function. And that is fine. This is a risk I accept, as a consumer, when I choose not to read the fine print. The situation would be very different if my toaster had simply been incapable of toasting bread. Then I would have a valid claim, regardless of what I chose to read or abstain from reading. Going back to my list of stainable substances, regardless of what I chose to read at the time of contracting, I would have a valid claim if the list set forth in the contract terms is unreasonable, bearing in mind the typical consumer’s demands and needs, or my own concerns and needs, as expressed at the time of contracting. That will be the case, for instance, if the list is limited to a small number of substances that are not normally present in ordinary households, with the exclusion of food or beverages and of all forms of human waste. The same reasoning should apply to insurance and other financial products. After all, financial contracts, like any other products, should be fit for purpose.

5 Conclusions In Portugal, the most relevant source of insurance contract law is the Portuguese Insurance Contract Act of 2008 (PICA). PICA is currently also the most relevant source of transparency requirements in the formation and throughout the duration of an insurance contract. Information plays a very important role in PICA, there being numerous provisions specifically setting forth or referring to information duties of various kinds and scope, mostly as a direct or indirect result of implementation requirements of EU directives. It was very relevantly preceded by the Transparency in Insurance Act of 1995, which identified the inception of the single European market in the insurance sector as the main driving force behind the growing need for the setting up of minimum transparency requirements in pre- and post-contractual relations.

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Moreover, although the term itself plays no part in traditional contract law, transparency is generally regarded as a key value in pre-contractual negotiations, both parties having a duty to negotiate in good faith and continuing to be subject to the principle of good faith throughout the contract’s duration, being bound to act in accordance with this principle both in fulfilling their obligations and in enforcing their contract rights. ‘Transparency’ in this context is, first and foremost, a reference to the plainness and intelligibility of contract terms, as well as to their exhaustiveness. Strictly speaking, it transcends contract terms, also applying to any accounts of a predominantly descriptive or explanatory nature provided orally and/or in writing at or around the time of contracting. It also applies after the contract is concluded, the main principle behind the establishment of post-contractual information duties being that the data that should have been conveyed to the other party, had it existed or been known at the time of contracting, are exactly the same as that which must be conveyed to the other party in case they come into existence or awareness during the life of the insurance contract. Whilst being presented as an end in itself, transparency is ultimately also a means to an implicit end: making accessible to insurance customers all the data that they need to take in and process in order to make an informed decision when choosing to enter into an insurance contract or when faced with any relevant issue that may arise during the life of the contract. Bearing in mind the dramatic increase in information duties and related transparency requirements during the course of the last 20 years, I have argued against putting all one’s eggs in the basket of information, and I have questioned whether transparency as an ideal should be allowed completely to replace trust in contractual relations. Information plays a central role in traditional contract formation models: contracting parties are meant to acquaint themselves with all the terms of the contracts they contemplate entering into so as to make an informed decision on whether or not to make a commitment thereto. I have argued that the protection of insurance customers can best be achieved if one complements the informational approach with a different approach consisting of treating financial products much like any other products, placing upon the insurer the burden to check that the products it offers to its customers are consistent with their demands and needs. This view is consistent with the Insurance Distribution Directive (IDD)’s requirements that insurers must maintain, operate and review product oversight and governance arrangements aimed at identifying each product’s target market and ensuring that the product is and remains consistent with the needs of that target market throughout its lifetime, that it is distributed to that target market and that their actual customers are offered the product that best suits their individual demands and needs because insurance contracts, like any other products, should be fit for purpose.

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References Ac. STJ of 24.03.2011, Proc. 1582/07.1TBAMT-B.P1.S1 (Granja da Fonseca). (available at www. dgsi.pt) Almeida JCM (1971) O contrato de seguro no Direito português e comparado. Livraria Sá da Costa Editora, Lisboa Austin JL (1962) How to do things with words. Harvard University Press, Cambridge Baird DG (2006) The boilerplate puzzle. Mich Law Rev 104:933–952 Bakos Y, Marotta-Wurgler F, Trossen DR (2014) Does anyone read the fine print? Consumer attention to standard-form contracts. J Legal Stud 43:1–35 Barendrecht JM, Jansen CEC, Loos MBM, Pinna AP, Cascao RM, van Gulijk S (2007) Principles of European law. Service contracts. Oxford University Press, Oxford Carvalho R (2016) O seguro em Portugal. Factos e histórias. 1974-2007. INCM, Lisbon Cordeiro AM (1997) Da boa fé no direito civil. Almedina, Coimbra Cordeiro AM (2003) Da reforma do direito dos seguros. In: Moreira A, Martins MC (eds) III Congresso Nacional de Direito dos Seguros. Almedina, Coimbra, pp 17–23 Cordeiro AM (2013) Direito dos seguros. Almedina, Coimbra Dreher M (1991) Die Versicherung als Rechtpsrodukt: die Privatversicherung und ihre rechtliche Gestaltung. Mohr Siebeck, Tübingen EBA’s EIOPA’s and ESMA’s Final Draft Regulatory Technical Standards with regard to Presentation, Content, Review and Provision of the Key Information Document, including the Methodologies Underpinning the Risk, Reward and Costs Information in accordance with Regulation (EU) No 1286/2014 of the European Parliament and of the Council, of 31 March 2016 (JC 2016 21) EIOPA’s Final Report on Consultation Paper no. 16/006 on Technical Advice on possible delegated acts concerning the Insurance Distribution Directive, of 1 February 2017 (EIOPA-17/049) EIOPA’s Final Report on Consultation Paper no. 16/007 on Draft Implementing Technical Standards Concerning a Standardised Presentation Format for the Insurance Product Information Document of the Insurance Distribution Directive, of 7 February 2017 (EIOPA-BoS-17/055) EIOPA’s Final Report on Public Consultation on Preparatory Guidelines on product oversight and governance arrangements by insurance undertakings and insurance distributors, of 6 April 2016 (EIOPA-BoS-16-071) Gaul RE (2007) Zum Abschluss des Versicherungsvertrags – Alternativen zum Antragsmodell? VersR 58:21–26 Gomes J (2011) O dever de informação do (candidato a) tomador do seguro na fase pré-contratual, à luz do decreto-lei n.○ 72/2008, de 16 de abril. In: Freitas JL, Duarte RP, Cristas A, Neves VP, Almeida MT (eds) Estudos em homenagem ao Professor Doutor Carlos Ferreira de Almeida, II. Almedina, Coimbra, pp 388–445 Grigoleit HC (2012) Grenzen des Informationsmodells. Das Spread-Ladder-Swap Urteil des BGH im System der zivilrechtlichen Informationshaftung. In: Anlegerschutz im Wertpapiergeschäft. Verantwortlichkeit der Organmitglieder von Kreditinstituten. Schriftenreihe der Bankrechtlichen Vereinigung 34. De Gruyter, Berlin, pp 25–64 Han B-C (2015) The transparency society. Stanford University Press, Redwood City Jean Claude Van Hove v CNP Assurances SA (ECLI:EU:C:2015:262) Martinez PR (2006) Direito dos seguros. Apontamentos. Principia, Cascais Martinez PR, Torres LC, Oliveira AC, Ribeiro ME, Morgado JP, Vasques J, Brito JA (2011) Lei do Contrato de Seguro anotada, 2nd edn. Almedina, Coimbra Oliveira AC (1995) Contratos de seguro face ao regime das cláusulas contratuais gerais. Boletim do Ministério da Justiça 448:69–85 Pinto PM (2008) Interesse contratual negative e interesse contratual positivo. Coimbra, Coimbra Poças L (2013) O dever de declaração inicial do risco no contrato de seguro. Almedina, Coimbra Radin MJ (2017) The deformation of contract in the information society. Oxf J Legal Stud 37:505–533

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Rego MR (2010) Contrato de seguro e terceiros. Estudo de direito civil. Coimbra Editora, Coimbra Rego ML (2012a) O contrato e a apólice de seguro (The insurance contract and the insurance policy). In: Rego ML (ed) Temas de direito dos seguros. A propósito da nova lei do contrato de seguro. Almedina, Coimbra, pp 15–37 Rego ML (2012b) O risco e suas vicissitudes (Risk and its fluctuations). In: Rego ML (ed) Temas de direito dos seguros. A propósito da nova lei do contrato de seguro. Almedina, Coimbra, pp 275–297 Rego ML (2014) Da inconstitucionalidade das normas permissivas de ‘discriminação racional’ (The unconstitutionality of rules permissive of ‘rational discrimination’). In: Antunes MJ (ed) Estudos em memória do Conselheiro Artur Maurício. Coimbra, Coimbra, pp 869–888 Rego ML (2015a) Statistics as a basis for discrimination in the insurance business. Law Probab Risk 14(2):119–134. https://doi.org/10.1093/lpr/mgu017. First published online: October 15, 2014 Rego ML (2015b) Insurance segmentation as unfair discrimination: what to expect next in the wake of Test-Achats. In: Proceedings of the 16th Annual Conference of the Insurance Law Association of Serbia. Insurance law, governance and transparency: basics of the legal certainty, AIDA Serbia/German Foundation for International Legal Co-Operation (IRZ), pp 377–392 Rego ML (2016) A segmentação do mercado para avaliação dos riscos seguros: que futuro? (Market segmentation for insurance risk assessment: is there a future?). In: Estudos em Homenagem ao Prof. Doutor Carlos Pamplona Côrte-Real. Almedina, Coimbra, pp 703–729 Rego ML (2017) Chapter 41: Portugal. In: Center for International Legal Studies (ed) International insurance law and regulation. Thomson Reuters Westlaw, Eagan, pp 553–591 Römer W (2008) La reforma del derecho del contrato de seguro en la República Federal de Alemania. Revista de Derecho Mercantil 270:1515–1539 Searle J (1969) Speech acts. Cambridge University Press, Cambridge Stockmeier H (2008) Das Vertragsabschlussverfahren nach neuem VVG. VersR 59:717–724 Teles JG (2012) Os deveres de informação das partes. In: Rego ML (ed) Temas de direito dos seguros. A propósito da nova lei do contrato de seguro. Almedina, Coimbra, pp 213–273 Vasconcelos PP (2008) Teoria geral do direito civil, 5th edn. Almedina, Coimbra Vasques J (1999) Contrato de seguro. Coimbra Editora, Coimbra Vasques J (2005) Direito dos seguros, Regime jurídico da atividade seguradora. Coimbra Editora, Coimbra Wandt M (2012) Transparency as a general principle of insurance law. In: Wandt M, Ünan S (eds) Transparency in insurance law. ASSOCIATION INTERNATIONALE DE DROIT DES ASSURANCES, İstanbul, pp 9–22 Warren E (2007) Unsafe at any rate. If it’s good enough for microwaves, it’s good enough for mortgages. Why we need a Financial Product Safety Commission. Democracy: a journal of ideas, Summer 2007, no. 5 (available at http://democracyjournal.org/magazine/5/unsafe-at-anyrate/)

Transparency in the Insurance Contract Law of Spain Rafael Lara

1 Definition of Transparency in Insurance Contract Law The demand for “transparency” is experiencing a boom and varied fields of political, social, legal and economic reality, as it is a common feature of the markets and systems of contracting in both private law and public law.1 In particular, in private contract law, the obligations of transparency experienced an important strengthening over the last decades, thanks in no small measure to the appearance and subsequent development of protective regulations for consumers and users. As is well known, in order to deal with the aim of confronting the information imbalance in consumer relations it imposes pre-contractual obligations of information on employers and relevant professionals to allow consumers to take out contracts while being fully informed which has come to be known as informed consent.2 According to the Dictionary of the Spanish Language, “transparency3” is “quality of transparent,” and “transparent4” is defined in its fourth meaning as “clear, evident, understood without doubt or ambiguity.” For transparency, we must therefore understand “clarity” and fully apply it to, in our case, the content of the “insurance operation.” And here we use this expression of “insurance operation,” broader than that of “insurance contract,” because transparency will be demanded both in

1

Morillas Jarillo (2016), pp. 11–14. Miranda Serrano (2016), pp. 21–22. 3 http://dle.rae.es/?id¼aMOr1xH. 4 http://dle.rae.es/?id¼aMQJNiA. 2

R. Lara (*) Public University of Navarra, Pamplona, Spain e-mail: [email protected] © Springer Nature Switzerland AG 2019 P. Marano, K. Noussia (eds.), Transparency in Insurance Contract Law, AIDA Europe Research Series on Insurance Law and Regulation 2, https://doi.org/10.1007/978-3-030-31198-8_9

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advertising, as in the pre-contractual and contractual stage, and during the very development of the contract.5 The purpose of transparency is thus the adequate knowledge of the rights and obligations that are derived or will be derived from a particular contractual position. The rules of transparency should focus on the information that, in our case, the insurer should similarly provide regarding the time and form and the context of the contract.6 In addition, the term “transparency” can be used not only in relation to a particular clause but also in relation to the entire contract. A clause with clear, simple, and easily understood wording is transparent. But an excessively long contract, with abundant clauses that can in themselves be considered transparent but perhaps unnecessary, requires a full and detailed reading of the entire contract, which, as a whole, can no longer be considered as “transparent.” Even the physical format of the contract itself or the type and size of the letter can lead to the same consideration of the contract. If insurance contracts, given their general condition as adhesion contracts, are usually drawn up unilaterally by insurance companies and imposed on clients—who are not offered any possibility of participation in the drafting of the contractual content—it should be considered logical that, within the legislative policy objectives inherent in insurance legislation, it is particularly important to ensure that contractual contents are “clear” and “unambiguous” on the part of the adherent-insured.7 This being so, it isn’t surprising that, at the same time, one of the main criteria used in recent years by the First Chamber of the Supreme Court in matters of insurance is precisely transparency, ensuring that the protection of the insured party is the basic principle of all insurance regulations.8 The law of insurance has to promote the “possibility of knowledge” of the contractual content by the insured party. Unless they are clauses relating to constituent ends of the main object or economic structure of the contract, in which case it must go further, guaranteeing “knowledge itself.” That is to say, the transparency related to the essential elements and economic aspects of the contract which allowed the adherent to freely decide on the contract with the full knowledge of the economic burden that the contract entails and the benefit to be obtained from the counterparty. Therefore, where, due to lack of transparency, a stipulation relating to the essential elements or economic part of the contract had not been known and valued by the adherent prior to the signing of the contract, there is a problem of “lack of consent”

5

Nieto Carol (2016), pp. 63–66. Cámara Lapuente (2015), pp. 549–644, who points out that there is now no single clear notion of transparency. 7 Calzada Conde (2014), pp. 107–151. 8 See, for all, the recent judgment of the Supreme Court of March 2, 2017. http://www.poderjudicial. es/search/contenidos.action?action¼contentpdf&databasematch¼TS&reference¼7956162& links¼%22transparencia%22%20Y%20%22contrato%20de%20seguro%22& optimize¼20170310&publicinterface¼true. 6

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or “vitiated consent” since no one can consent to what they have not been fully informed of by the person whose obligation it is to do so: the proposer.9 The clauses that constitute the main purpose of an insurance contract should therefore be drafted in a clear and comprehensible way so that they not only are grammatically intelligible to the consumer but also clearly outline the specific working of the insurance mechanism. The contractual framework in which they are inserted must be taken into account so that the consumer in question is in a position to assess, on the basis of precise and intelligible criteria, the economic consequences arising from such clauses. If this is not the case, the national court may assess whether the clause in question is abusive.10 Clearly, “transparency,” as it provides a greater degree of information to the other contracting party, serves to protect the weaker contractual party, who, in an insurance relationship, generally has a lower degree of training and legal-financial information than those who act on behalf of insurance entities. Not only does “information asymmetry” occur, but there is also a “training asymmetry,” which is a euphemistic way of recognizing the absolute imbalance between the insurer and the insured. There is no doubt that the more widespread and affordable the information available to the insurance applicant is, the lower the transaction costs of the contract are. Therefore, there will be a greater efficiency in the allocation of resources guaranteeing the free decision of the future insured party. As has been said, what guarantees consumers’ free choice is not negotiation but “a choice between alternative and transparent options.” But “transparency” not only benefits the other contracting party; it also benefits the entire insurance market since it also makes it more efficient. In short, when we speak of “transparency” in the context of the insurance contract, we refer to the possibility of being able to know and understand, to allow the weakest party to have easy access to the content of the contract, which, in our case, is usually the insurance client.11

9

Miranda Serrano (2016), p. 23. Pertíñez Vílchez (2004), passim. 11 Particularly relevant in the Spanish legal system is the Judgment of the Supreme Court of May 9, 2013. It establishes that mortgage floors included in mortgage contracts are abusive, not for not including an interest cap clause in that same mortgage contract, but for a lack of disclosure and information transparency that may result in an unexpected change in the contract price. This judgment is a leading case in Spanish law with respect to the legal analysis of contract clauses affecting the main object of a contract. Vid. Pertíñez Vílchez (2004), passim. http://www.indret. com/pdf/995.pdf. 10

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2 The Issue of Transparency in Insurance as per the Spanish Law 2.1

Previous Regime

Until the enactment of Act 50/198012 of Insurance Contract (hereinafter LCS), the regulation of the insurance contract was included in articles 380 to 438 of the Commercial Code of 188513 without addressing all the peculiar elements of the different types of insurance and without taking into account the traditional classification of the same between insurance against damage and personal insurance. The Code of Commerce was limited to collecting a set of generic principles of the policies, but from the point of view of the parties as traders on an equal footing, and not with the approach that one party, the policyholder, is usually in fact a weaker party that adheres to the contract, in short, a consumer. The doctrine had already revealed, at the time of the study of contracting, the overcoming of radical liberalism from which the Codes departed and the need to carry out a review of the traditional dogma on which the subject of negotiation had been drawn up, given the crisis of the traditional and classic concept of the contract. In this sense, since the beginning of the last century, it had become evident that in certain commercial contracts—in particular insurance contracts—the parties were not discussing their conditions in each specific case, but to a large extent the conditions were imposed by one of them and the other was limited to merely adhering to such conditions. But such general conditions which in the field of insurance contract were subject to control by the public administration from the Act of May 14, 1908 (developed by its regulation approved by Royal Decree of February 2, 1912) lacked a specific regulation from a substantive perspective.14 With the coming into force of the LCS, there was a radical change in many orders of insurance regulation, among them, the advance in consumption, being defined since then defined as a pioneering right in the defense of the rights and interests of consumers. Thus, the Spanish LCS is a precursor of the legislation, not only nationally, but in the European Community, where the insurance contract is treated from the viewpoint of a specially protected field; the position of the insured as a consumer.15 In fact, today, in the field of micro insurance, where the insurance industry plays out to a large extent its future in terms of economic and social image, economic operators in this business model, have not lost sight of the insured as a consumer. 12

http://www.boe.es/buscar/pdf/1980/BOE-A-1980-22501-consolidado.pdf. With the exception of maritime insurance, which remained in force in the Commercial Code, specifically articles 737 to 805, until 2014 with the entry into force of Act 14/2014, Maritime Navigation. https://www.boe.es/buscar/pdf/2014/BOE-A-2014-7877-consolidado.pdf. 14 Duque Santamaría (2006), pp. 139–151. http://www.revistasice.com/CachePDF/ICE_833_139151__B8EF35DF8B93A1DF4C231B615DCF3E61.pdf. 15 Caballero Sánchez (1997), passim. 13

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Transparency, in this way, is closely linked to information.16 Consequently, it tends to facilitate the knowledge of the general conditions of the contract, to the policyholder (or potential policyholder). The modern Acts of consumer protection and general conditions try to protect consumers and users increasing availability of information on the general conditions,17 to which they are going to adhere and this view is supported by the LCS.18 Transparency in the wording of the clauses thus fulfills a remit of pre-contractual information in which it should not be forgotten all negotiation has disappeared, so that the paper or electronic availability of the clauses becomes, together with advertising, the basic source of information on the contract available to the insured.

2.2 2.2.1

Current Regime Introduction: The Complex Regulatory Group

When dealing with the issue of transparency in insurance contracts, we should not confine ourselves exclusively to the LCS since the regulatory profile of Spanish law in this area is complex. In response to the constitutional principle of protection of consumers and users (articles 51.1 and 2 and 53.3 of the Constitution19), Act 26/1984, General Act for the Defense of Consumers and Users (hereinafter LGDCU or TRLGDCU), was promulgated in Spain—a standard that is currently included in Royal Legislative Decree 1/2007, approving the Consolidated Text of the General Act of Defense of Consumers and Users20—and that undoubtedly completes the LCS regime. Subsequently, Act 7/1998, on General Contracting Conditions21 (hereinafter LCGC), which implemented the Spanish legal order of Council Directive 93/13 EEC of 5 April, on unfair terms in contracts concluded with consumers and users. It should be noted that this Act applies only in part to the general conditions of insurance contracts. Article 4 of the same, with some imprecision, indicates that the general conditions “that are specifically regulated by a general legal or administrative provision and that are of obligatory application for the contracting parts” (art. 4.2 LCGC). It is therefore understood that the LCGC applies to the general conditions of

16

Veiga Copo AB (eds), La protección del cliente en el mercado asegurador. Civitas, Cizur Menor, pp. 107–151, 1208–1213. 17 Alfaro Águila-Real (1991), passim. 18 Gómez Santos (2015) (electronic publishing www.uclm.es/centro/cesco). 19 http://www.boe.es/buscar/pdf/1978/BOE-A-1978-31229-consolidado.pdf. 20 http://www.boe.es/buscar/pdf/2007/BOE-A-2007-20555-consolidado.pdf. 21 http://www.boe.es/buscar/pdf/1998/BOE-A-1998-8789-consolidado.pdf.

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insurance contracts only in those aspects that are not regulated by the LCS through a peremptory norm.22 Despite the not always simple integration of the provisions of the LCS into the regulatory framework of the LCGC and the LGDCU, the doctrine recognizes the importance of providing a fundamental basis for jurisprudential interpretation, even if it has not always been uniform in nature.23

2.2.2

Control of Transparency in Insurance Contract

In order to compensate for the fact the insurer has a position of superiority in the contracting phase, particular control mechanisms known as “control of abuses” and “transparency” are inserted that require the so-called “inclusion.” The first control, is to avoid that there is an imbalance in the rights and obligations of the parties. The second, transparency control, to facilitate easy understanding of the clauses, in terms of their legal and economic burden, requiring the conditions are included in the contract. If in Spanish insurance law there has been a question that has presented an eventful history that is the one, without doubt, connected to the general conditions. In fact, one of the first articles of the LCS—the third—is directly concerned with this matter. The importance of the general conditions for the purpose of regulating the legal insurance relationship is notorious, since the legal regulations become a reality by way of those conditions that constitute the “conventional” discipline of the contract and to a large extent the “living law” which regulates this legal relationship. Hence, both insurers and insured and the public administration itself are aware of this relevance and sensitive to the rules concerning the general conditions in a contract usually carried out wholesale.24 Article 3 of the LCS is concerned with the incorporation of general conditions into the insurance contract so that the insured (or more properly the policyholder) would know the general conditions even before the conclusion of the contract, which refers to the moment when the insurer makes a proposal of the insurance contract. The insured’s information on the insurer also appears not only in the aforementioned article 3 but also in other precepts of the LCS itself (articles 5, 6, 8, 10, etc.). However, it is necessary to emphasize that article 3 of the LCS refers, together with the general conditions also to “individuals”. Article 3 LCS states that “the general and individual conditions shall be drafted in a clear and precise manner,” and the LCGC, on the same line, indicates in its article

22 It should be noted that in Spanish Law the different modalities of the insurance contract, in the absence of a specific Law that is applicable to them, will be governed by the LCS, whose precepts are imperative, unless otherwise provided in them. However, contractual clauses that are most beneficial to the insured shall be considered valid (ex article 2 LCS). 23 Peñas Moyano (1999), passim; Muñoz Pérez (2015), p. 1594. 24 Sánchez Calero (2010b), pp. 105–147.

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5.5 that the wording of the general conditions “shall conform to the criteria of transparency, clarity, concreteness and simplicity,” to which must also be added that article 80.1 a) of the TRLGDCU establishes that in contracts with consumers and users using clauses that are not individually negotiated, these clauses will require “concreteness, clarity and simplicity in the wording, with possibility of direct understanding, without references to texts or documents that are not provided prior to or simultaneously to the conclusion of the contract, and to which, in any case, should be expressly referred to in the contractual document.” In order to understand the scope of article 3 of the LCS, it is important to bear in mind that one of the purposes of these regulations is precisely to obtain clarity in the wording of the general conditions of the contract. It appears as a general objective to reach optimal transparency in the general conditions of the contract by imposing a duty or obligation on the insurer to draft the general conditions “clearly or precisely” so that the insured has the ability to understand them easily. Simplicity of policies is sought, and various measures have been suggested to achieve this objective, such as, for example, this criterion of “simplification.” Obtaining this simplicity and simplification in the general conditions of the contract aids the insured and, especially in their understanding of the forecasts that come from the events that occur during the length of the contract. Transparency is necessary because it is for the protection of the insured not only at the time of signing the contract but also throughout the life of the contract and, especially, in case of an accident or loss. In fact, when potential risk becomes an actual loss, the true protection of the insured is tested (or, where appropriate, the third beneficiary). The need for the general policy conditions in the different branches of insurance, in order to specify the risk covered by the insurers and the desire to clarify and simplify these conditions, have led to a categorising of the different types of the insurance contract. Insurance, which in some sectors has favored the trend towards uniformity of the general policy conditions used by different insurers, which has sometimes been seen as a limitation of competition and the question has been raised as to whether such uniform conditions were compatible with antitrust legislation and contrary to its restrictive practices. However, in the face of this rule, there are reasons that justify, in defense of one’s own competence and provided that they remain within certain limits, a tendency towards the determination to consider as lawful a certain normalization of the general conditions, which is aided by the idea of the transparency of the insurance market. Thus, the clarity of the offer of the different types of insurance contracts favors the insured, whether they have already concluded the contract or are in the process of concluding. By arriving at standard formulas, the differences in the offers of different insurers will have to be focused on the individual conditions that help to adapt the general conditions to each exact case, that is, to the needs of the insured. Either these differences will focus on the commercial premium or the special care shown by insurer to the insured, particularly at the time of the occurrence of the accident or loss. The clarity sought in the general conditions of the insurance contract tends precisely to its easy understanding and consultation on the part of the policyholder.

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Moreover, article 3 states that the general conditions must be known by the policyholder prior to the execution of the contract, that is, at the time of deliberation, which may not even conclude in a contractual agreement. This article tells us that the general conditions must be included by the insurer in the insurance proposal, if any, and necessarily in the policy or in a supplementary document, which will be signed by the policyholder, who receives a copy of the same. The need for clarity and precision of the general and individual conditions, imposed by article 3 LCS, sets out guidelines for control or supervision by the authorities (in Spain it is the Directorate General of Insurance25) to be able to exercise power as the invigilating body for all insurance activity. However, in regard to the specific content of this first volume, article 3 requires that the conditions be drafted in a clear and precise manner, imposes an obligation on the insurer, which demands, on the one hand, an active role in the drafting of clauses and, on the other, the removal of those that are not understandable to the insured. In relation to the legal consequence that comes from the non-observance of this legal requirement of transparency, it is rightly stressed that there are two possible ways to react: one is the interpretation of the clause against proferentem or against stipulatorem and in favor of the adherent (article 6.2 of the LCGC and article 1288 Civil Code), and the other is the declaration of non-incorporation of the clause and its consequent nullity (see article 8.1 of the LCGC). These two pathways could possibly be applied in the less serious cases (which give rise to a simple confusion of the clause) the ruling against the predisposed and in the most serious (giving rise to incomprehensible clauses) nullity of the clause. But this grading of the consequences of the lack of clarity of the clauses has to be adopted, in my opinion, with special care seeing what are the practical consequences of applying the rule of interpretation of the clause against the insurer and which come from applying the criterion of nullity of the clause, because for the counterparty—that is to say, for the insured—it is frequently more beneficial if the clause is considered valid, but is interpreted against who has predisposed it (that is, against the insurer) and not to be declared null, since then the supplementary rule would apply. On the other hand, the Spanish legal system prohibits general conditions that are detrimental to the insured. Indeed, article 3 of the LCS, apparently purely incidental, states that the general conditions “in no case may be detrimental to the insured.” The statement—made in a clear manner—whose reach is not easy to specify, especially considering that article 3 itself admits—with some caution—the limiting clauses and that, in addition, article 2 of the same legal text, indirectly refers to invalid clauses as being contrary to mandatory rules.26 At this point, article 3 shows us something important: the law wanted to distinguish between detrimental and limiting clauses. The difference is significant insofar as the latter are valid, even if they are not favorable to the insured, when the insured (as a “weaker” contracting party) consents, especially when making a statement of 25 26

http://www.dgsfp.mineco.es/. Sánchez Calero (2010a), pp. 64–104.

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his knowledge, while detrimental clauses are always invalid. The concept of a “detrimental” condition is therefore understood to be stricter than a limiting clause since there are valid limiting clauses. The detrimental clauses referred to in article 3 must have a special burden on the insured since the law itself admits the lawfulness of clauses that limit their rights. The prohibition of detrimental clauses is, therefore, a form of complementary protection offered by law to the insured, in the sense that it goes beyond its mandatory discipline. It is a further brake on the power of the autonomy of the will by means of the general conditions. But note that while article 3 extends the regime of clauses restricting both the general and individual conditions, in relation to the detrimental it only refers to the “general conditions.” This means that it is not valid to simply apply that prohibition when we are faced with an individual condition, at least when it has been the subject of a special negotiation between the policyholder and the insurer since article 3 prohibits detrimental general conditions thinking especially about those clauses that have been predisposed by the insurer. This is also the criterion that has been followed by the LCGC when article 1.2 seems to imply that the presence of clauses that have been individually negotiated— as is often the case with the individual conditions—does not prevent the application of the law on general conditions “to the rest of the contract if the overall assessment leads to the conclusion that it is an adhesion contract.” Thus arise two regimes: predisposed clauses, whose incorporation into the contract is attributable exclusively to one of the parties, and clauses that have been negotiated individually.27 The effects of the labeling of a contractual clause as detrimental (or, as the case may be, abusive) are substantially the same whether or not we apply the LCS, as well as consumer protection regulations, in that they are contrary to law: such clauses should be considered null and therefore should be understood as not set. We will therefore be faced with a case of partial nullity, so that the contract produces its effects but disregarding the existence of this clause. Thus, article 83 of the TRLGDCU expressly establishes that the declaration of nullity of unfair terms will not affect the validity of the entire contract if it can survive even without such clauses.28 Lastly, it is necessary to bring to light an especially relevant issue in this context—whether the contractual clauses limiting the insured risk are to be considered as clauses “limiting” the rights of the insured. It is interesting to note that in article 1 of the LCS the insurer’s obligation exists “within the agreed limits”; an idea that is repeated by the LCS throughout the articles that define the different modalities of the insurance contract by repeating the phrase that the insurer is bound “within the limits established in the Law and in the contract” (articles 45, 50, 54, 63, etc.). It seems clear that the insurer’s provision—in relation to both the guarantee of the insured risk and the payment of benefit once the loss occurs—depends precisely on

27 28

Pagador López (1999), passim. González Pacanowska (2015), pp. 753–768.

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the delimitation of the risk, which in turn, is the basis for calculating the consideration paid by the insured, in other words, the premium. However, this distinction is obscured if it is thought that the clauses that delimit the risk effectively constitute a limitation of the rights of the insured. The discipline on clauses restricting the rights of the insured—as has been stated in the LCS—is characterized by its special form of incorporation, aimed both to facilitate the knowledge of these clauses and to project consent on them, so that they form part of the regulation of the insurance contract. This discipline affects the declaration of will of the contracting part (the policyholder) when accepting the insurance proposal or offer of the insurer (see article 6 LCS). Article 3 of the LCS itself requires that the general condition “as the case may be” be included in the insurance proposal. But with respect to clauses limiting the rights of the insured that can be expected from each contractual type (whether general or individual), the law wants a qualified acceptance of these clauses by the policyholder, whose normal acceptance of the general conditions of a contract is manifested by a simple “adhesion” to them. In the case of limiting clauses, Article 3 of the LCS requires them to be highlighted in a special way (by another type of letter, by underlining or by a similar procedure) when incorporated into the contract and, in addition, that the policyholder specifically accept them in writing. This means that for the incorporation of the limiting clauses, the general approval of all contractual clauses is not sufficient, but the policyholder must declare, in writing, also that he specifically accepts the limiting clauses so that the limitation clause that has not been accepted or signed by the policyholder cannot logically be considered as binding since it is not part of the contract. In short, Article 3 LCS establishes two controls of formal transparency: one of a general nature, inasmuch as it addresses all the general and individual conditions of insurance contracts, and another one of a special character that implies a degree of greater transparency than the first and deserves to be called special and not general because it does not meet all the general and individual conditions, but only the limits of the rights of the insured. Both controls are also accompanied by a third party directly connected with the prohibitive rule of clauses damaging the rights of the insured ex article 3 LCS. This is a control of material transparency, for which the surprise clauses are considered detrimental and, therefore, illegal. Particularly illustrative in this matter is the recent Judgment of the Supreme Court of March 2, 2017, which notes that jurisprudence has determined, in a practical way, the concept of a limitation clause, referring to the natural content of the contract, derived from, among other elements, the clauses identified by their defining nature, of the individual clauses of the contract and of the typical or usual scope that corresponds to its object in accordance with the provisions of law or insurance practice (as well as the Judgment of the Supreme Court of April 22, 201629). Thus,

29 http://www.poderjudicial.es/search/contenidos.action?action¼contentpdf&databasematch¼TS& reference¼7653902&links¼%22con%20arreglo%20a%20lo%20dispuesto%20en%20la%20ley%

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the principle of transparency, which is the basis of the special system of limiting clauses, operates with special emphasis on introductory clauses or particular clauses.30

2.2.3

Other Manifestations of the Right of Information in Insurance Contract

We have seen that article 3 of the LCS is a key precept in in terms of information and, therefore, transparency, is not, but it is not only article in which the LCS expresses the right to information. Article 8 LCS, in its final section, establishes partial compliance with the information duty when it provides that if the content of the policy differs from the insurance proposal or the clauses agreed upon, the policyholder may demand that the insurer, within the period of one month from the date of delivery of the policy, remedy the existing discrepancies, and if they do not make a claim within that period they are considered to be in compliance with the policy. This provision, however, also in my opinion, runs counter to the fundamental consumer principle of obliging the policyholder to read the policy and declare their conformity with the views expressed or proposed in the contract.31 Another duty of information is the content in the final paragraph of article 76 LCS, which establishes the duty to display the insurance policy in order to allow the injured party to take direct action, which is one of the preliminary proceedings, expressly foreseen by the procedural legislator in article 265.1 5 of the Law of Civil Procedure.32 It should be noted that in order for the exhibition to be complete, it is also necessary to prove that the liability insurance was in force through the copy of the received insurance premium, where the existence of coverage is established. In this respect, it should be remembered that both the insurer and the insurance broker, who mediates over the contract, must keep a record of policies to verify the fundamental data of the insurance. Unfortunately, this duty to inform the injured party that is included in the broad notion of consumer, lacks consequences in case of non-compliance at a fundamental level, since it hinders the exercise of direct action, but does reveal non-compliance by the insurer and his lack of good faith. It is also in the area of liability insurance where the insurer is required to provide information on the existence of a conflict of interest (article 74 LCS), when the insured party wishes to be granted legal defense or when their insurer is also that of the opposing party or that of the injured party. In case of non-compliance this

20o%20en%20la%20pr%C3%A1ctica%20aseguradora%22&optimize¼20160429& publicinterface¼true. 30 Martorell Zulueta (2014), pp. 236–268. 31 Tirado Suárez (2014), pp. 204–208. 32 www.boe.es/buscar/pdf/2000/BOE-A-2000-323-consolidado.pdf.

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obligation of full disclosure also does not have a specific sanction at legal level, not even in administrative way, since the use of analogy is expressly prohibited. Article 94 of the LCS envisages life insurance policy will regulate the rights of rescue and reduction of the insured sum, so that the insured can know at any time the corresponding value of rescue or reduction. And article 104 LCS establishes in the matter of accident insurance the duty to notify the insured in writing the amount of the compensation that owed to him according to the degree of invalidity taken from the medical certificate and the scales set out in the policy. All of them are examples of transparency in insurance contracts.

2.3

Planned Regime

The inclusion of the insurance contract in the framework of a new commercial code together with the incorporation of the general principles of the contracting of the fourth book of the Commercial Code and current general regime of civil contracts requires a review of the framework of relations of these regulations, some deliberately incomplete, given that the State claims the sole purview. Alongside this factor, the new technological constraints, as well as the mechanisms of remote contracting by telemetric, electronic, telephone or similar means,33 and the legal influence received from integration in the context of Community Law and of European Comparative Law.34 The difficulties of a regulatory fit arise from the continual redrafts of the general conditions of the insurance contracts in the Project of Mercantile Code published in 201335 and later the most recent version in Preliminary project finally presented in 2014.36 The doctrine proposes to revise the precepts of the insurance contract to eliminate these special rules on the basis of bringing the scheme back to the law that regulates in a general way the general conditions, included also in the draft, and to the special provisions of the LCGC for the regulation of all contracts subject to a general contractual condition in consumer protection. In fact, at present, we do not have in Spanish law any rule that establishes a link between article 3 LCS, the LCGC and the provisions on general conditions and clauses found in the TRLDCU (articles 80 and following). On the other hand, it does contain a provision of this nature in the Preliminary Draft Commercial Code of 2014, article 581-3 of which establishes in its paragraph 2 that “the rules contained in the legislation on general contracting conditions shall apply to the general conditions of the insurance contract.”

33

Illescas Ortíz (2015), pp. 49–58. Fuentes Gómez (2014), pp. 561–578. 35 http://nuevocodigomercantil.es/pdf/Propuesta_codigo_mercantil.pdf. 36 http://nuevocodigomercantil.es/pdf/Anteproyecto_LEY_CMer.pdf. 34

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This rule confirms the relationship model between the general rules governing contracts concluded under general conditions and the special rules applicable to the general conditions of the insurance contract. In accordance with the well-known principle of lex specialis derogat generalis, the general conditions of insurance contracts are governed by the rules contained in its own legislation and, in addition to those not specifically regulated by the former, the rules contained in its own rules of the general conditions (LCGC). However, explicit reference to the applicability of a specific legislation (article 80 et seq. TRLGDCU) on clauses in consumer contracts is missing. But it is clear that this provision also applies when the adherent-insured acts as a consumer. This is inferred in article 59 TRLGDCU and by common sense.

2.4

Guides to Good Practice and Transparency

The Spanish Insurance Business Association (Unespa), an organization that brings together insurance companies, has developed a series of guides to good practice, which should be described as codes of conduct or self-regulation system. Thus, insurance companies have made significant progress in recent years in various selfregulatory initiatives to facilitate a better understanding of insurance products to their clients, especially in relation to prehiring information to make it more and more clear, understandable and transparent. For this reason, among other initiatives, Unespa has promoted the Good Practices Guidelines to transparency in the prior insurance, which most commonly affects families, such as multi-risk insurance, health, automobiles, payments or unit linked, practices that are being mostly followed by the sector. As a complement to these, a Guide to Good Practices of Transparency in Insurance Marketing has also been developed, which addresses the general principles that should govern the marketing of insurance by insurance companies in any form of sale, as well as in other insurance aspects.37

3 Conclusions The concept of transparency, of which clarity, concreteness and simplicity not only expressions but requirements in its wording, presupposing a contractual situation in which there is an informational asymmetry between the parties, typical of all other contracts of adhesion. One of the functions of transparency, it could not be otherwise, is to provide the client with necessary and sufficient information in the pre-contractual stage so that he can make a sound and rational decision whether to

37 www.unespa.es/frontend/unespa/AUTORREGULACION%2D%2DEn-Beneficio-De-NuestrosClientes%2D%2DEl-Seguro-Va-Mas-Alla-De-Lo-Que-Marcan-Las-Leyes-vn2818-vst226.

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take out the insurance or not so that the client can select from and assess rationally between the different offers on the market. It is not in vain that the discussion or doctrinal debate on the reach of the obligation of transparency has revolved around its relation with the control of substantial balance. When clarity is advocated as a manifestation of transparency, we are undoubtedly referring, among other things, to visual clarity. The text or form must be legible and must be in a position to be easily readable; otherwise, it would be the same as failure to deliver the copy of the contract. However, the rule of transparency in the wording of the clauses contained in an insurance contract cannot be limited to a formal requirement to comply with the conditions of understanding of the clauses provided, and clarity also implies that it must veto all pretenses of hiding the content of a stipulation, so there must be correlation between the size of the letter and transcendence of the clause. It seeks the direct or easy understanding that refers to the intellectual clarity of the conditions of the insurance contract and also to the understanding understood as material and formal clarity of the printed characters in which all clauses are written. And a good parameter to determine whether or not conditions are understandable is to go to the pattern of the “average adherent” figure. With the very purpose of clarity, it is easy to employ the very defects we are trying to avoid, since in outlining general conditions with all the relevant explanations can cause greater difficulties of understanding in that they can lengthen excessively the clauses of the contract. Moreover, unfortunately, the road to incomprehensibility is too often open, especially when the general conditions as a whole are collected without a logical, classified or systematic order. But it is not even strange to consider clauses in which the clauses themselves contradict one another or also assumptions in which the same text is used for different types of insurance contracts and is not adapted to the actual contract actually being concluded. Likewise, a specific clause may be incomprehensible when it is susceptible of being interpreted in multiple senses or, on the contrary, when it is practically impossible for a diligent policyholder to get a coherent and clear idea of his rights and obligations, or because the clause refers to legal provisions that of course are not attached to the clause. In short, a dynamic and non-static transparency obligation prevails, so that the applicant receives relevant information that will determine whether or not to accept the contractual offer after reading clearly explained paperwork and a clear wording of the clauses that contain and carry information. The clarity, or rather, the more clarity and precision that transparency requires, not only means that easy-to-understand words are all for every parties, but also a correct grammatical construction is evident. Short sentences, simple, legible, and well-punctuated, allow the content of the insurance contract to be easily understood. In Spanish law, the control of material transparency applies exclusively to clauses defining the main object of the contract when the adherent is a consumer (Supreme Court judgment of January 20, 2017). Therefore, and in accordance with the LCGC, the general conditions in insurance contracts between businessmen are subject to the general rules of the Civil and Commercial Codes and to the fulfillment of the requirements of incorporation under articles 5 and 7 LCGC, which basically demand

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that the “existence” and content of the clauses be made known to the adherent. If the clauses are unclear, they will be interpreted against proferentem, and if they are illegible or absolutely incomprehensible, it will be understood that they do not fulfill the requirements of incorporation. The control of material or qualified transparency is more demanding than a lack of consent, that is, that the requirements to appreciate the lack of transparency are less demanding than those established by the doctrine to assess the existence of a mistake by the consumer. It is the use of predisposed clauses that raises the burden of transparency and the duties of information on the part of the predisponent in relation to the consumer, duties that are not presupposed in the legal regulation of lack of consent, where the principle caveat emptor and self-protection of contractors on equal terms is central to explaining legal regulation. In any case, it is not an easy task to specify the level of transparency and resolve the dilemma that arises between the language accessible to anyone and the economic and legal complexity of the contractual content that naturally presents an insurance contract. But when a clause affects the determination of the main benefits of the insurance, it should not be enough for the insurer to provide the policyholder with his expertise, but also requires special clarity in his wording and a paperwork that is easily understandable. This is the case in insurance contracts of clauses delimiting the risks and limiting the rights of the insured. There is no doubt that the lack of transparency clauses that affect the determination of the main benefits of the insurance contract will be the cause of a substantial imbalance for the insured consumer, which may lead to an alteration of the cost of the legal relationship and therefore, the impossibility of choosing the most suitable option among the different alternatives that the market actually presents.

References Alfaro Águila-Real J (1991) Las condiciones generales de la contratación. Civitas, Madrid Caballero Sánchez E (1997) El consumidor de seguros: protección y defensa. Mapfre, Madrid Calzada Conde MA (2014) La protección del asegurado en la Ley de Contrato de Seguro. In: Bataller Grau J, Veiga Copo AB (eds) La protección del cliente en el mercado asegurador. Civitas, Cizur Menor, pp 107–151 Cámara Lapuente S (2015) Transparencias, desequilibrios e ineficacias en el régimen de las cláusulas abusivas. Anales de la Academia Matritense del Notariado (AAMN) 55:549–644 Duque Santamaría LP (2006) Evolución de la supervisión de la documentación contractual y técnica de los productos de seguro en España. El sector asegurador y de los planes y fondos de pensiones (SAPFP) 883:139–151 Fuentes Gómez JC (2014) La regulación de los contratos de seguro en el Anteproyecto de Ley del Código Mercantil. In: Bercovitz Rodríguez-Cano A (ed) Hacia un Nuevo Código Mercantil. Aranzadi, Cizur Menor, pp 561–578 Gómez Santos M (2015) La protección del asegurado como consumidor. Cesco: 1–20. https:// previa.uclm.es/centro/cesco/pdf/trabajos/34/113.pdf González Pacanowska I (2015) Artículo 83 Nulidad de las cláusulas abusivas y subsistencia del contrato. In: Bercovitz Rodríguez-Cano R (ed) Comentario del Texto Refundido de la Ley

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General para la Defensa de los Consumidores y Usuarios y otras Leyes Complementarias, 2nd edn. Aranzadi, Cizur Menor, pp 1145–1173 Illescas Ortíz R (2015) El contrato de seguro en el futuro Código Mercantil. In: Bataller Grau J, Quintáns Eiras MR, Veiga Copo AB (eds) La reforma del Derecho del Seguro. Aranzadi, Cizur Menor, pp 49–58 Martorell Zulueta P (2014) La protección del asegurado desde la perspectiva jurisdiccional. In: Bataller Grau J, Veiga Copo AB (eds) La protección del cliente en el mercado asegurador. Civitas, Cizur Menor, pp 235–268 Miquel González JM (2011) Artículo 83 Nulidad de las cláusulas abusivas y subsistencia del contrato. In: Cámara Lapuente S (ed) Comentarios a las Normas de Protección de los Consumidores. Colex, Madrid, pp 753–768 Miranda Serrano LM (2016) Control de transparencia de las condiciones del contrato de seguro: más allá de los clásicos requisitos de inclusión. In: Bataller Grau J, Peñas Moyano MJ (eds) III Congreso Nacional de Ordenación, Solvencia y Supervisión en Seguros Privados y II Congreso Internacional de Derecho de Seguros. Lowcostbooks, Valencia, pp 17–75 Morillas Jarillo MJ (2016) La información previa en la contratación de los seguros de personas: transparencia, cuestionarios y modelos predictivos. Marcial Pons, Madrid Muñoz Pérez AF (2015) Las condiciones generales en el contrato de seguro en el futuro Código Mercantil. In: Morillas Jarillo MJ, Perales Viscasillas P, Porfirio Carpio LJ (eds) Estudios sobre el futuro Código Mercantil: libro homenaje al profesor Rafael Illescas Ortíz. Universidad Carlos III, Madrid, pp 1591–1612 Nieto Carol U (2016) Transparencia y protección de la clientela bancaria. Aranzadi, Cizur Menor Pagador López J (1999) Condiciones generales y cláusulas contractuales predispuestas. Marcial Pons, Madrid Pagador López J (2011) Condiciones generales y cláusulas abusivas. In: Rebolo Puig M, Izquierdo Carrasco M (eds) La defensa de los consumidores y usuarios. Iustel, Madrid, pp 1307–1442 Peñas Moyano MJ (1999) La protección del asegurado (Análisis de la problemática derivada de la pluralidad de normas aplicables). McGraw-Hill, Madrid Peñas Moyano MJ (2018) Resolución alternativa de conflictos de seguros con consumidores. Revista Española de Seguros 174:179–2013 Pertíñez Vílchez F (2004) Las cláusulas abusivas por un defecto de transparencia. Aranzadi, Cizur Menor Pertíñez Vílchez F (2013) Falta de transparencia y carácter abusivo de la cláusula suelo en los contratos de préstamo hipotecario. Revista para el Análisis del Derecho (Indret) 3:1–28. http:// www.indret.com/pdf/995.pdf Quintáns Eiras MR (2018) Información como motor de la protección del asegurado en la comercialización de seguros. Revista Española de Seguros 175:373–420 Sánchez Calero F (2010a) Artículo 2 Aplicación de la Ley. In: Sánchez Calero F (ed) Ley de Contrato de Seguro: comentarios a la Ley 50/1980, de 8 de octubre, y a sus modificaciones, 4th edn. Aranzadi, Cizur Menor, pp 64–104 Sánchez Calero F (2010b) Artículo 3 Condiciones generales. In: Sánchez Calero F (ed) Ley de Contrato de Seguro: comentarios a la Ley 50/1980, de 8 de octubre, y a sus modificaciones, 4th edn. Aranzadi, Cizur Menor, pp 105–147 Tirado Suárez FJ (2014) La aplicación de la Ley General de Protección de Consumidores y Usuarios al Contrato de Seguro. In: Bataller Grau J, Veiga Copo AB (eds) La protección del cliente en el mercado asegurador. Civitas, Cizur Menor, pp 187–233 Veiga Copo AB (2016) Tratado del Contrato de Seguro, 4th edn. Civitas, Cizur Menor Veiga Copo AB (2018) El seguro. Hacia una reconfiguración del contrato. Aranzadi, Cizur Menor

Transparency in the Insurance Contract Law of Sweden Jessika van der Sluijs

1 Introduction The issue of transparency is a fascinating and huge topic that deserves further in-depth research. Transparency is relevant in many different perspectives, and this chapter will only encompass some of them. First, transparency is an essential element of the relationship between the insurer and the intermediaries on one hand and their customers on the other hand. Transparency is relevant in both ways: the customer needs information about the insurance, the insurer and the intermediary, and the insurer and the intermediary need information from the customer in order to provide the right product and to be able to calculate the risk. Further, transparency is an essential element of the relationships between the insurance undertakings and intermediaries on one hand and the supervisory authorities on the other hand. Even in this respect, transparency works two ways. The supervisory authority needs access to full information from insurers and intermediaries in order to provide authorisation and to conduct supervision. The issue of transparency in this sense includes, among other things, data management, reporting systems, supervisory routines, etc. The insurers and intermediaries, on the other hand, need information and guidance about the regulatory framework of conducting business. The market needs stability and predictable supervision. This chapter encompasses only transparency issues in the relationship between the insurance/intermediary and the customer. Further, focus in this chapter is only the insurers’ and intermediaries’ duties to provide information to the customers. The customers’ duties of disclosure to the insurer are not included in this chapter. The area of rules and regulations ensuring that information is provided to the customers is complex. There are different information rules for life insurance and J. van der Sluijs (*) Stockholm University, Stockholm, Sweden e-mail: [email protected] © Springer Nature Switzerland AG 2019 P. Marano, K. Noussia (eds.), Transparency in Insurance Contract Law, AIDA Europe Research Series on Insurance Law and Regulation 2, https://doi.org/10.1007/978-3-030-31198-8_10

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non-life insurance, different rules for life insurance with investment elements and without investment elements and different rules for individual insurance and collective insurance (where there is a group representative in the picture). Further, there are different rules for insurance based on collective labour market agreements, where the employers are imposed a duty to insure the employees, and other occupational pension insurance. The transparency rules differ between a non-profit insurance undertaking (a mutual insurance undertaking where the profit goes to the persons insured) and a profit-based insurance undertaking (where the profit goes to the owners). The rules work in many layers. Therefore, this chapter provides only a comprehensive overview of the rules. The life insurance industry, and especially individual and collective health and pension insurance, is closely related to the public health and pension compensation systems. Within the systems, there is a need for transparency towards the person entitled to compensation. However, public insurance systems are not encompassed in this chapter. When describing the legal instruments regulating transparency in Swedish insurance law, it is inadequate to consider only traditional legislation, preparatory works and case law. To achieve a comprehensive understanding on how transparency is ensured to the customers in Swedish insurance law, it is necessary to pay attention also to non-binding guidelines and recommendations issued by private and public actors. Further, activities conducted by the insurance industry are of interest. Some would argue that these ‘norms’ and activities are irrelevant for a study whose purpose is to analyse the legal perspectives of a topic. However, Sweden has a long history of regulating insurance both through traditional legislation and through soft law. One explanation on the great impact of soft law is that all of the Swedish insurance companies that have operated on the Swedish market, since the beginning of the twentieth century, have intimately cooperated with each other regarding premiums, statistics, insurance terms, et cetera. Insurance distribution, for instance, has since the beginning of the twentieth century been regulated alternately in hard law and soft law. This practice ended in the 1980s, when competition regulations were introduced, but the tradition of cooperation regarding questions of common interest has deep roots in the Swedish insurance industry. Many legal insurance issues are in practice regulated by recommendations, guidelines, codes of conduct and ‘statements’ issued by private and public actors. There are many examples in Swedish law history where the legislator has refrained from legislation on a specific issue because the insurance industry already self-regulated the very same issue. There are also many cases where the government has identified a problem but has decided for the time being to refrain from legislation, on the condition that the industry makes its own adequate soft law arrangements or conducts other activities. The ‘deal’ is on as long as the industry acts responsibly—if not, legislation is to be expected. Further, it is quite common that the government, an authority or an authority is the driving force behind an initiative for a soft-law norm-making process or an industry activity. There are several Swedish examples where the government has appointed a private organisation to issue norms in a certain context. Therefore, in this chapter, I will not only consider ‘traditional’ legal sources and activities

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conducted by official authorities. Instead, I will try to provide a comprehensive understanding on how transparency is dealt with in Swedish insurance law, by also taking the various soft-law schemes and industry activities into consideration.

2 The Notion of Transparency Neither the Swedish Insurance Contract Act of 2005 (2005:104) (ICA) nor the preparatory works contain a definition of the term ‘transparency’. Instead, the transparency principle is stated in the Insurance Business Act (IBA), a public law regulating the insurance business. The principle means that information to policyholders and to persons offered insurance must be adapted according to the nature of the insurance and must clearly show the insurance terms and the development of the value of the insurance. In general, ‘transparency’ means insight into something or access to the full information about something. In the insurance law field, transparency has a different primary meaning. Insurance is complicated. In order to achieve an in-depth understanding of insurance, it is necessary to take into consideration various aspects, such as economical, legal and actuarial aspects. However, too much information about insurance hardly helps the average insurance customer to understand insurance or to make the best choices about insurance. Instead, the main goal of ensuring transparency in the Swedish insurance law field is to make insurance understandable to the insurance customer. Thus, in the Swedish insurance law field, the principle of transparency aims at the clarification of the insurance contract or at simplification of information about the insurance contract. In Swedish insurance law, there are several regulations aiming to ensure that the customers have access to adequate and easily understandable information in order to make well-balanced decisions about their insurance. Another measure of increasing transparency in order to help the customers to understand insurance, to make the right choices and to compare different insurances is to standardize information. The word transparency is in this notion used firstly in the field of insurance supervision law, but there are also regulations and industry activities that aim to standardise information provided to customers in order to make insurance comparable and more transparent.

3 Legal Instruments Regulating Transparency into the Insurance Contract A characteristic feature of Swedish rules and regulations addressing ‘information duties’ is that they at the same time are of both public law character (providing information to customers is required by public law, and the duty is under supervision) and private law character (providing information to customers is required by

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private law, and if insufficient information is provided, the insurance contract is affected). Thus, the information rules in the Insurance Contracts Act are of both private law and public law character; non-compliance of the rules might be followed by contractual effects and by market sanctions or regulatory sanctions. The Swedish Financial Supervisory Authority’s (SFSA’s) regulations are of public law character, and yet they clarify the requirements of the information duties in the ICA, which in turn might affect the contract. For the purpose of this chapter, I have attempted to separate the private law side and the public law side of the topic. The chapter in volume I focuses on rules and regulations ensuring transparency into the insurance contract, and the chapter in volume II focuses on the transparency of the insurance intermediaries and the supervisory authorities’ and the industry’s activities in order to supervise those duties. As described above, the Swedish transparency principle is stated in the Insurance Business Act. The essence of the transparency principle is to impose information duties on the insurance companies and ensure that the insurers’ information activities are under the supervision of the SFSA.1 The insurer must maintain adequate information routines but does not have to ensure that the information actually reaches the customer or that the customer understands.2 The information must be adjusted depending on the nature of the insurance. There are different requirements on information about life insurance and non-life insurance, individual insurance and collective insurance. Further, the insurers must adjust the information depending on the category of the insured persons. There are different requirements on information to consumers and to commercial entities. The insurer must provide information also to third parties that have a right to insurance compensation. The transparency rule does not cover reinsurance. The reinsurance companies typically have the knowledge to safeguard their own interests.3 The motivation for the principle is the information asymmetry that typically exists between the insurer and the insured or someone seeking insurance. Therefore, it is not enough to impose information duties on the insurers in an insurance contract act; the information activity must be subject to supervision.4 In 2006, special rules concerning occupational pension insurance were added in the IBA. According to additional rules, the insurer shall inform the insured about its identity and about the underlying (labour market) agreements of the insurance. The rule implements Directive 2003/41/EC of the European Parliament and of the Council of 3 June 2003 on the activities and supervision of institutions for occupational retirement provision. In practice, often the labour organisations provide the information, but the rule imposes a duty on the insurers to inform the insured persons.5 The rule corresponds with the information duties stated in chapter 20 of the ICA of 2005. If

1

Prop. 1998/99:87 p. 176. Prop. 1998/99:87 p. 390. 3 Prop. 1998/99:87 p. 176. 4 Prop. 1998/99:87 p. 176. 5 Prop. 2004/05:165 s. 219. 2

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the insurer does not comply with the rules, sanctions issued by the SFSA may follow. Insurance contracts are regulated by the ICA of 2005.6 The first part of the act contains general rules, the second part of the act contains rules on individual non-life insurance, the third part contains rules on individual life and personal damage insurance and the fourth part contains rules on collective insurance. The act covers both consumer insurance and commercial insurance. Systematically, the act is mainly a consumer protection act, with mandatory rules in favour of the consumer. Chapter 8 contains rules on commercial insurance. Several of these rules are mandatory in favour of the costumer, which means that the Insurance Contracts Act more accurately can be described as a customer protection regulation. Chapter 2 of the ICA regulates the insurer’s duty to provide information to the customer. The chapter regulates only individual non-life consumer insurance, but the same rules are applicable to individual life and personal insurance,7 commercial insurance8 (unless the customer declares that no information is required) and collective insurance.9 In chapter 20, there are special information rules applicable to insurance based on collective labour market agreements. The Act on Investment Advice to Consumers (2003:862) was enacted in 2004. It is a consumer protection regulation with both public law elements and private law elements. The background of the Act was the rapidly changing financial market, which increased the consumers’ need for information in order to make well-balanced decisions when entering onto the financial market. According to the Act, the advisor must document every advising activity. Hence, one aim of the Act is to increase the transparency of investment advice to consumers. The SFSA’s Rules and General Recommendations on Information concerning insurance and occupational retirement pension (FFFS 2011:39) is applicable to the insurers’ information duties before entering into the contract (pre-purchase information), during the validity of the contract and during the payment period. Although the regulation is of public law character (in case of non-compliance, the SFSA may issue sanctions), the rules aim at ensuring that the customer receives adequate information about the insurer and the insurance contract. The regulation is applicable to both consumer insurance and commercial insurance. The rules consist of five chapters with general rules and recommendations, followed by four separate appendixes. Three of the appendixes are applicable to insurance; appendix 2 provides the rules on

6 The Insurance Contracts Act of 1927 (1927:77) lacked rules that imposed information duties on the insurer. Information duties were introduced in 1980, when the Consumers Insurance Contracts Act (1980:38) (CICA) was enacted. The CICA contains rules that imposed duties to provide information to the consumers. The insurer who failed to comply with the information duties were to be brought before the market court and the sanctions available were the market law sanctions, such as fines. 7 ICA 10:2. 8 ICA 8:1. 9 ICA 17:5.

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information about life insurance and occupational pension insurance, appendix 3 the rules on fact sheets and appendix 4 the rules on certain calculations. The most important soft-law issuer in Sweden in this field is the insurance industry organisation Insurance Sweden.10 Most of the insurance undertakings operating in Sweden are members of the organisation. Membership does not affect a company’s formal possibilities to conduct insurance business in Sweden. Insurance Sweden issues a large number of recommendations and guidelines with the insurance industry as the addressee. Insurance Sweden has adopted several recommendations on the insurers’ duties to provide information to customers. In March 2013, Insurance Sweden adopted a Recommendation on Fact Sheets for life-insurance based investment products.11 The Recommendation complements SFSA’s rules and general recommendations on information concerning insurance and occupational retirement pension (FFFA 2011:39), which states that certain information to customers shall be provided in fact sheets. The Recommendation contains detailed instructions on how to draft the fact sheets. In October 2014, Insurance Sweden adopted a Recommendation on pre-purchase information.12 The Recommendation replaced an earlier version from 2012. The Recommendation aims at complementing and concretising the laws and regulations on pre-purchase information. Further, it aims at ‘codifying’ good practice on pre-purchase information. In January 2016, Insurance Sweden adopted a Recommendation on information related to the transfer of the value of a pension insurance.13 The Recommendation replaced an earlier version from 2015. The Recommendation complements FFFS 2011:39 and contains rules on information in the specific situation when a value of a pension insurance is transferred from one insurer to another. Insurance Sweden is a private organisation, and the recommendations are not binding. Thus, the recommendations are soft law. In practice, however, the Swedish insurance industry follows the recommendations. There are several explanations. Almost all of the insurance undertakings that operate in Sweden are members of Insurance Sweden. Even though the membership does not explicitly entail a duty to comply with the norms created by Insurance Sweden, the membership has such a function. The norms are created by representatives from the business and thus have internal legitimacy. Further, the recommendations are not always entirely private products. The first two recommendations (from 2013 and 2014) are the results of private initiatives, but the third recommendation (from 2016) is based on a public initiative. In June 2014, the Swedish government gave the SFSA the assignment to initiate ‘understanding’ within the life and pension insurance business in order to increase transparency related to the transfer of the value of pension insurance. The

10

Insurance Sweden (2019). http://www.insurancesweden.se. Rekommendation – Faktablad för livförsäkringsprodukter av sparandetyp. 12 Rekommendation om förköpsinformation. 13 Rekommendation – Informationsgivning i samband med flytt av pensionsförsäkrings värde. 11

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government also gave SFSA the assignment to elaborate a ‘comparison tool’ in order for customers to be able to more easily compare different insurances.14 In turn, the SFSA forwarded the assignment to elaborate business understanding regarding the transfer of pension insurance value to Insurance Sweden.15 (The SFSA forwarded the assignment to elaborate the comparison tool to the Swedish Consumers’ Insurance Bureau; more about that below in Sect. 4.1.5.). Today, it is too early to assess the impact of the recommendation on the industry. However, even though the norms are only non-binding recommendations, the involvement by the government and the SFSA makes it highly legitimate, and the insurance industry will most likely comply with them.

4 Transparency in Swedish Insurance Contract Law In this section, I will, in general terms describe the rules, regulations and activities that aim at increasing the transparency of insurance contracts for the insurance customer. The aims of the norms and activities are to increase the customer’s understanding of insurance, to make it easier for the customer to compare insurance and to make better choices about his or her insurance. As described above, the area of regulation of information duties is very perplex. A common feature in the regulation is that the rules are structured according to the different phases of the duration of an insurance contract. Therefore, this chapter is structured mainly in the same way.16 There are four stages in the duration period of an insurance contract where the customer has a special need for information about insurance and where transparency in the sense that the customer needs simplified information is especially important: before entering into the contract, when entering into the contract, during the validity of the contract and in case of claim adjustments and disputes.

4.1

Pre-purchase Information

Before entering into the insurance contract, the customer needs to decide what kind of insurance he or she needs. He or she also needs to select an insurance company. Further, a customer about to buy insurance needs to know if there already is an insurance covering the risk. For instance, it is common that consumers are offered insurance in connection with a purchase of goods. Often the very same risk is already covered by the standard home insurance (which most people have). For consumers,

14

FI Dnr 14-8233. FI Dnr 14-8233. 16 Standards and Insurance based on collective labour market activities are treated separately in this paper. 15

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it can be difficult to assess whether the extra insurance is needed or not. In the ICA, there are several rules that impose upon the insurer a duty to provide information before the contract is entered into, the so-called pre-purchase information. The rules in ICA are complemented by regulations issued by the SFSA, which in turn are complemented by recommendations issued by Insurance Sweden. Further, the Swedish Consumers’ Insurance Bureau has developed a comparison tool in order to make it easier for consumers to compare insurance between different insurance companies.

4.1.1

Insurance Contracts Act of 2005

According to ICA 2:2-2:3, the insurer has a duty to provide pre-purchase information. The purpose of the information is to make it easier for the consumer to evaluate if he or she needs insurance and, if so, what kind of insurance. The information shall describe the general contents of the insurance terms in order for the consumer to evaluate the scope and the cost of the insurance. Important limits of the coverage, and whether the insurer’s liability depends on the payment of the premium, must be clear. The insurer also has a duty to inform the consumer of the renewal of insurance. The rule corresponds to the transparency principle stated in the IBA.17 Thus, the information duty does not encompass information on everything about the insurance. The insurer is not obliged to send the customer the full insurance terms. Instead, the insurer’s duty is to provide selected and simplified information about the insurance. In the preparatory works, it is made clear that the aim of the rules is not to ensure that the insured person receives full information. To require that the insurers provide full information about all the limitations of the contract would be going too far. Moreover, the insured will have difficulties absorbing all the contents of the information.18 The aim of the rule, instead, is to make it easier for the customer to make well-balanced decisions about the insurance, to choose between different insurances and to compare the premium costs. The insurer shall, if possible, provide the information in a readable and durable form that is accessible to the addressee.19 It may be provided electronically. The information shall be clear and written in Swedish, but it may be provided in another language if requested by the addressee.20 The insurer can be exempted from the duty of providing pre-purchase information if the customer renounces it or if it is not possible to give such information, for instance when the customer enters into a directly binding insurance contract over phone.21

17

Prop. 2004/05:150 p. 145. Prop. 2004/05:150 p. 153. 19 ICA 2:1. 20 ICA 2:1 and 10:1. 21 ICA 2:3. 18

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There are no sanctions stated in the ICA in case of the insurer’s omission to provide pre-purchase information. However, based on common contractual law principles, negligence of the duty to provide information, or providing inferior information, may affect the interpretation of the insurance contract. Regarding consumer insurance, there are provisions in the Consumer Contracts Act (1994:1512) requiring that unclear contract terms be interpreted in favour of the consumer. If the pre-purchase information is of inferior quality, thus causing the insurance terms to appear unclear, the Act may be applied. The provisions imposing information duties on the insurer in the ICA are applicable also on commercial insurance. In the legislation process, it was highly debated whether the insurance companies should have the same information duties to non-consumers. It was on one hand argued that many commercial actors are in the same need for information as consumers. On the other hand, it was argued that commercial entities typically are better suited to gain the relevant information on their own. Further, it was held that it would be problematic to have the same rules covering all commercial insurance since commercial insurance ranges from small commercial entities, which have the same information needs as a consumer, to multinational large-scale commercial entities, which do not have the same need. In accordance with the third non-life insurance directive,22 the insurers have, since 1995, had a duty to (also to non-consumers) provide information about the identity of the insurer, about dispute resolution possibilities and about the applicable law of the contract.23 If an insurance product is distributed through intermediation, the intermediary has the same duties as the insurer to provide pre-purchase information. This is stated in the Insurance Distribution Act (2018:1219) (IDA).24 There is a Supreme Court case where an insurance contract was considered valid because the insurance intermediary possessed certain information even though the information was not forwarded to the insured (NJA 1992 s. 782).

4.1.2

The SFSA’s Regulations and General Guidelines on Information (FFFS 2011:39)

The rules in the Insurance Contract Act are complemented by regulations of the SFSA. The SFSA’s regulations and general guidelines on information concerning insurance and occupational pension (FFFS 2011:39) contain detailed provisions on pre-purchase information, information during the validity of the contract and information related to claim adjustments and disputes.

22

Directive 92/49/EEC of 18 June 1992 on the coordination of laws, regulations and administrative provisions relating to direct insurance other than life insurance and amending Directives 73/239/ EEC and 88/357/EEC (Third non-life insurance Directive). 23 FFFS 1995:32. 24 IIA 6:5.

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According to the regulations, the insurer must provide complete information about its identity: its name, brand, legal form of business and national representatives, if the insurer is a foreign company. The regulation also more precisely determines the ‘design’ of the information. According to a general guideline, information related to (life) insurance-based investment products should be provided in the form of ‘fact sheets’. An appendix, containing very detailed rules on the content of these fact sheets in turn complements the guideline. Even if the regulation is a non-binding guideline, the entire Swedish life insurance business follows it. Insurance Sweden has adopted further recommendations that even more precisely and in detail regulate the contents of these fact sheets (see below). Chapter 5 and appendix 2 of the FFFS 2011:39 contain special rules for life insurance and occupational pension insurance. The rules are very detailed. Appendix 2 has 20 ‘bullets’ stating the contents of the insurer’s information duty. The information duty encompasses, for instance, the duration period of the insurance, how the insurance may be repurchased or how the value may be transferred to another insurer, principles for calculating value in the event of repurchase or transfer of value, conditions for changing the contract and related costs, the insured’s possibility to terminate the contract and so on. The rules mainly aim at ensuring that the consumer receive simplified information on complex issues, for instance on policies regarding reallocation.

4.1.3

Insurance Sweden’s Recommendation on Pre-purchase Information

In October 2014, Insurance Sweden adopted a Recommendation on pre-purchase information.25 The Recommendation replaced an earlier version from 2012. It complements and concretises the laws and regulations on pre-purchase information. Further, the Recommendation aims at codifying good practice regarding pre-purchase information. It is only targeting consumer insurance and not commercial insurance. I will not describe every rule in this Recommendation, but only a few, in order to provide an idea of its level of detail. Hence, according to the Recommendation, the insurers must provide pre-purchase information in a pedagogical and easily accessible way. The information must be presented in an easy every-day language and even attractive to obtain. Written information must be clear and well suited for the addressee. The information must not be too detailed and not too brief; information about all of the insurance terms is too much detail, and to simply refer to the insurance terms is too brief. The title of the information (if in writing) must be ‘Pre-purchase Information’. The information must not contain selling arguments, only facts, and it must be clarified that the information provided and the insurance terms are not the same thing. The consumer should be informed about the individual

25

Insurance Sweden (2019). http://www.insurance.sweden.

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choices within the insurance and to what extent he or she can influence the insurance contract (for example the level of self-deduction). There should also be information of the entities providing consumer aid, like the Swedish Consumer Agency26 or the Consumer Guidance.27 The information must contain a section titled ‘Important Limitations’. The information on the limitations of the insurance must be as clear as the information on the scope of the insurance. If the insurance is distributed under a different brand name than the insurer’s name, it must be clarified in the information. The Recommendation also contains rules on the form of information. If the information is provided electronically, it must be possible for the consumer to save it, for example by downloading a PDF file. The information must be easy to find and searchable on the insurer’s website. If the parties enter into the insurance contract over the Internet, the information must be provided to the consumer in an early stage of the process. The insurer must provide information on where to find the complete insurance terms (in cases when they are not sent to the consumer). The insurer always has a duty to, at the consumer’s request, send the insurance terms. The Recommendation aims at ensuring that the consumers receive simplified and easily accessible information. Further, the Recommendation aims at ensuring that the consumers receive standardised information since it also contains a link to standardised terms; see below.

4.1.4

Insurance Sweden’s Recommendation on Fact Sheets for LifeInsurance-Based Investment Products

In 2013, Insurance Sweden adopted a Recommendation on Fact Sheets for lifeinsurance-based investment products. The Recommendation complements the SFSA’s regulation FFFS 2011:39. It contains highly detailed instructions, or directions, on the elaboration of the fact sheets. The purpose is to ensure that the information is readable for consumers and to ensure comparability between different products.

4.1.5

The Swedish Consumers’ Insurance Bureaus’ Comparison Tool

The Swedish Consumers’ Insurance Bureau is an independent agency whose objective is to meet consumers’ need for information and advice regarding financial services and to provide support in dealings with finance companies. It is a private organisation that has public agencies behind it. The principals are the Swedish Consumer Agency, the Financial Supervisory Authority and Insurance Sweden. In 2014, the government gave the SFSA the assignment to develop a tool for comparing insurances. The assignment was in turn given to the Swedish Consumers’

26 27

Konsumentverket (2019). http://www.konsumentverket.se. Provided for by the municipalities.

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Insurance Bureau. The bureau has on its website a tool that can do comparisons of different insurances regarding, for instance, insurance sums, deductibles, returns on assets, costs, etc.

4.2

Entering Into the Contract

Insurance contracts are often entered into as a result of a financial advising activity, for instance by the insurance company or by an intermediary. Life insurance products, and especially insurance-based investment products, are complicated. Typically, the advisor possesses a lot of knowledge about the products, and the consumer possesses less knowledge about the products. Since investing in a life insurance can have a significant impact on the consumer’s personal financial situation, there is a need to ensure transparency of the situation when the insurance contract is entered into or when the decision of buying the insurance or making the investment is being made. What was the character of the advice? What was being said at the meeting? Did the consumer understand the advice? In the Act on Investment Advice to Consumers (2003:862) (AIAC), there are rules imposing a duty on the advisor to document the advising activity, to file it and to provide it to the consumer. The rules aim at securing evidence in case of a dispute but also aim at increasing transparency into the advising activity. The rules are complemented by regulations of the SFSA.

4.2.1

The Act on Investment Advice to Consumers

The Investment Advice to Consumers is a consumer protection act, and the background to the act is the rapidly changing financial market, which increased the consumers’ need for information in order to make well-balanced decisions when entering into the financial market.28 If the consumer lacks basic knowledge about the risks connected with the financial instruments in which he or she chooses to invest, a need for protection becomes evident. Considering the importance of investments on the investor’s private economy, it is important to ensure and meet the consumers’ need for knowledge and information. The act is applicable on financial investment advice by a commercial actor to a consumer, which covers retail investment and financial investments in lifeinsurance-based products. The act contains both market regulation and private regulation. The market regulation contains rules on supervision, rules on competence of the commercial actor and rules stating the advisors’ duty to comply with good advising practices. The private regulation contains rules on compensation in the event of negligent investment advice.

28

Prop. 2002/03:133 p. 7.

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For this chapter, the rules on documenting the investment advice are of interest.29 The rule contains a duty for the advisor to document the advice and to provide the documentation to the consumer. Financial advising usually transpires during a conversation between the advisor and the consumer. In order to, in hindsight, be able to evaluate the quality of the advice, the financial advice should be able to be reconstructed on the behalf of both parties. There are several aims of the rules on documentation duties. The advisor is presumed to be more careful when giving advice, and in case of dispute, it should be possible to prove what has been said and done. The rules also aim to increase transparency when giving advice.30

4.2.2

SFSA’s Regulations and General Guidelines (FFFS 2004:4) Regarding Financial Advice to Consumers

The regulation contains detailed (binding) rules and non-binding general guidelines on documenting financial advice to consumers. The documentation must contain information about the consumer: the identity of the consumer, the investment history of the consumer, the purpose of the investment, his family situation, his economic situation, his attitude towards risks and the investment strategy that the consumer and advisor has agreed upon. Further, the documentation must contain a description of the advice and information on whether the advisor advised against an investment. There are also rules on when the documentation shall be produced and by whom. The medium for the documentation is optional, as long as it is possible to identify the documentation for each advising activity and as long as it is easily searchable. The section on handing out the information to the consumer contains rules on when and how the documentation must be provided to the consumer. Finally, there are rules on the advisor’s duties on filing documentation.

4.2.3

New Rules?

In 2014, a commission of inquiry presented its proposal in a report on new consumer protection rules regarding financial advice to consumers.31 The report pointed out that the rules on documentation are too general and thus gave the advisor the discretion to decide on the contents of the documentation. Surveys have shown that some advisors fail to document the advising activity. In some cases, the documentation is handed to the consumer at the end of the meeting, and the consumer is asked to sign the documentation without having a chance to process the information. The connection between the consumer’s wishes and financial

AIAC § 4. Prop. 2002/03:133 p. 22. See further Consumer Protection in connection with the provision on financial advice, Summary, on regeringen, http://www.regeringen.se. 31 SOU 2014:4 Det måste gå att lita på konsumentskyddet. 29 30

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situation on one hand and the advice given on the other hand is rarely documented. Thus, the committee suggested more precise and concrete rules on the documentation duties of the advisor. For instance, according to the proposal, the advisor must document the reasons for each advice given to the consumer, describe explicitly the risks connected with a financial instrument and record the advising activity.32 Today the proposal has not yet led to legislation. When it comes to collective insurance, it is sometimes to a consumer somewhat unclear if he or she is covered by the insured or not. ICA contains rules about the insurer’s information duties to the collectively insured persons. Lately, it has been discovered that the possibilities of a collective insurance have been used by commercial actors who have insured, for instance, every client in their client register in exchange for a commission from the insurer. Often, the stock is large and the premiums are low. In some cases, entering into such an insurance contract is of an ‘opt-out’ character, which means that the clients (the insured consumers) often are unaware that they are insured at all. This clearly is a transparency problem. The phenomenon has been discussed in Sweden, and in 2013, the SFSA and the Swedish Consumer Agency together brought the government’s attention to the problem. In 2014, the government suggested a change in the ICA.33 According to the suggested rule, a collective insurance can be entered into only if the insured persons are members of an organisation.34 The aim with the suggested change is to ensure that there is a common interest between the insured persons and the group representative.35 The proposal has not yet led to legislation.

4.3

During the Validity of the Contract

Even during the validity period of the insurance contract, there are situations where the customer is in particular need of certain information. Right after signing the contract, the insured needs confirmation of the contract and access to information that was not provided before entering into the contract. Consumer non-life insurance is automatically renewed unless it has been cancelled. In case of renewal, the insurer is allowed to change the insurance terms. If that is the case, the consumer is in special need for clear information about the changes. In life insurance, which often is an insurance-based investment product, the consumer is in need of regular information about the development of the value of the insurance. During the validity of a pension insurance, the insured may transfer the value of the insurance from one insurer to another. In that case, the insured is in need of ‘prepurchase’ information, such as insurance terms, conditions, costs and offered

32

SOU 2014:4 pp. 23–26. Ds 2014:43 Grupp- och trafikförsäkringsfrågor. 34 See proposals for new 17:3 and 19:3 ICA. 35 Ds 2014:43 s. 23. 33

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investment instruments in the new insurance company. Further, the consumer needs information about the costs and other effects of the transfer itself.

4.3.1

Insurance Contracts Act 2005

After the signing of the contract, the insurer shall confirm the contract in writing. The insurer must inform the consumer about the full insurance terms, unexpected or important limits of the coverage, whether the insurer’s liability incurs only after payment of the premium and the consequences of the insured’s omission to report an increase of risk.36 Further, the insurer must inform the insured about the insured’s duty to follow safety regulations stated in the contract and the consequences of the insured’s omission to do so.37 During the legislative process, it was debated whether the duty to provide full insurance terms should be encompassed by the pre-purchase information duty. The legislator found that in many cases, a duty to provide the full insurance terms before entering into the contract might be rather unpractical. This was held to be the case when, for instance, the insurance contract is entered into over the phone or when the contract is entered into when the insured pays the premium.38 The purpose of the duty to provide information to the insured after the signing of the contract is not to provide full information about the insurance but instead to draw the insured’s attention to insurance terms and conditions that are of certain importance.39 If a consumer insurance is not cancelled, it is automatically renewed after the insurance period.40 In case of such renewal, the insurer may change the insurance terms. If there is such a change, the insurer has a duty to inform the insured.41 The duty encompasses only information that is necessary for the insured and not information about all of the changes. Especially important is to point out new limitations in the insurance coverage.42 Failure to provide information after entering into the contract is sanctioned by the ICA. According to ICA 2:8, if the insurer fails to provide the information listed in ICA 2:4 or 2:6, the insurer may not invoke the insurance terms. The sanctions were discussed in the legislative process. The government proposed a possibility for the insurance company to repair the damage by providing information afterwards, but the legal committee chose to dismiss the proposal. Thus, it is not possible to afterwards send the information and repair the omission.43

36

ICA 2:4, 2:5 and 17:3. ICA 2:4. 38 Prop 2003/04:150 p. 148. 39 Prop. 2003/04:150 p. 146. 40 ICA 3:4. 41 ICA 2:6. 42 Prop. 2003/04:150 p. 150. 43 Bengtsson (2009), p. 216. 37

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SFSA’s Regulations and General Guidelines on Information (FFFS 2011:39)

SFSA’s regulations have only a few rules concerning information duties during the validity of the contract. Firstly, if the insurer, during the validity of the contract, changes its name or brand or changes its legal form of business activity or the address to its main office or agency, the insured must be informed.44 Appendix 2 part C has special rules for life insurance and occupational pension insurance. The appendix contains 10 bullets that state the duty to, on a yearly basis, inform about, for instance, the current value of the insurance, investment returns, costs, premiums and taxes.

4.3.3

Insurance Sweden’s Recommendation on Information Related to the Transfer of the Value of a Pension Insurance

In June 2015, Insurance Sweden adopted a Recommendation on information related to the transfer of the value of a pension insurance.45 The Recommendation complements the FFFS 2011:39 and contains specified rules on transfer of the value of a pension insurance. The Recommendation is very detailed. It consists of six parts that stretch over 20 pages. Part 1 contains rules about the fact sheets. The fact sheets must, in excess of what must be included according to FFFS 2011:39, contain specific information about the possibility to transfer the value of a pension insurance from one insurer to another, the principles for calculating the value and the fees involved. Part 2 contains rules on information during the validity of the contract but before payment. The Recommendation provides a model for how to present information about fees. Parts 3 and 4 contain rules on the former and the receiving insurers’ duties to provide information related to the transfer. Parts 3 and 4 include rules on, for instance, how the information should be provided and on how to present transfer value and fees. The rules are very detailed. The Recommendation includes special form sheets and precise guidance on how to use them, as well as definitions on certain terminology. Part 5 contains rules on measures against administrative obstacles related to transfers. The Recommendation is applicable only to individual pension insurance.

4.4

Claim Handling and Complaints

Finally, the customer is in special need of simplified information in the case of claim handling and complaints. To be informed about the possibilities of dispute resolution

44 45

FFFS 2011:39 4:1. Rekommendation – Informationsgivning i samband med flytt av pensionsförsäkrings värde.

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is most important for the customer. For instance, some insurers, but not all, have internal complaint boards. Typically, the consumers are in need of information about where to seek advice in case of a dispute and about the dispute process in the National Board of Consumer Disputes or in court.

4.4.1

Insurance Contracts Act of 2005

In case of a claim adjustment, the insurer has to inform the insured about the possibilities of dispute resolution.46 The insurer also must inform the insured about the risk of limitation of the claim. The rules are applicable also on commercial insurance.47 The insurer’s duty to inform the insurer about the claim-handling process was clarified in a Supreme Court case from 1992 (NJA 1992 s. 845 I). In the case, an insured reported a burglary to the insurer. After an inquiry and some correspondence between the parties (and the insured’s lawyer), the insured sued the insurer. The insurer invoked limitation. The insured referred to a rule in the (former) Consumers Insurance Contracts Act of 1980, according to which the limitation period is 6 months from the time when the insurer has declared its final position in the matter. The Supreme Court emphasised the importance of ensuring that the information given by the insurer to the customer about the claim adjustment decision is very clear. Even though the letters from the insurer clearly stated the insurer’s final decision in the matter, the letter lacked information on the possibilities of dispute resolution and risk of limitation. Therefore, the insured’s right to bring the case before the court was not subject to limitation.48

4.4.2

The SFSA’s Regulations and General Guidelines on Information (FFFS 2011:39)

The SFSA’s regulation contains rules on information in this respect. According to FFFS 2011:39, the insurer must provide information on the handling of complaints.49 The information must include how the insurer is handling compensation decisions, disputes and other cases when the customer is dissatisfied. Further, the insurer must inform about their routines in case of a dispute, how claim decisions are reviewed, and references to relevant alternative dispute resolutions and to relevant advisory mechanisms (such as the Swedish Consumer Agency or the Consumer Guidance). The article is applicable only to consumer insurance.

46

ICA 2:7, 10:8. ICA 8:1. 48 The invoked rule in the now repealed CICA corresponds with the present rule in ICA 2005. 49 FFFA 2011:39 4:2. 47

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Standards and Definitions

There are several efforts within the Swedish insurance industry to increase the transparency of insurance by standardising insurance terms and definitions. The first chapter on the SFSA’s regulations and general guidelines on information (FFFS 2011:39) contains definitions on terms like ‘allocated returns’, ‘solvency quota’ or ‘occupational pension insurance’. The terms shall in its stated definitions be used in the information provided to consumers according to the regulation, but in practice, the definitions have a broader application. Addressee is not the customer, but the insured. The definitions have a transparency function. Due to Insurance Sweden’s initiative, the Swedish Standards Institute (SIS) has developed a word list with standardised terms in the field of pension insurance. SIS is a private organisation that undertakes the assignments to develop standards for the industry or for public bodies. The list, ‘Swedish Standard on Pension Terms’,50 is developed by, among others, representatives from Insurance Sweden, the Swedish Pension Authority and the Swedish Consumers’ Insurance Bureau. The purpose of the initiative is to harmonise the language in the field. Insurance Sweden recommends its members to use the SIS terms. The standard is complemented by a special SIS list directed to consumers (translated pension terms for consumers). The list is accessible on the SIS website.51

4.6

Insurance That Is Based on Collective Labour Market Agreements

Chapter 20 of the ICA is applicable to insurance that is based on collective labour market agreements. The information duties involve not only the insurer but also the labour market parties. If a labour market collective agreement imposes upon the employer a duty to insure its employees, the insurer and the labour market parties must provide information to the employer and employees affected by the agreement. The information shall encompass the employer’s duty to insure the employees, the insurance’s costs and coverage. After the contract is entered into, the insurer must inform the employees about their rights and duties following the insurance, as well as important limitations of the coverage. During the validity of the contract, the insurer and the labour market parties have a duty to inform the employer, the employees and others covered by the insurance.

50 51

Svensk Standard SS 40000:2014 Pensionstermer. Swedish Standard Institute (2019). http://www.sis.se.

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5 Conclusions In this chapter, I have tried to provide a somewhat comprehensive overview of the rules, regulations, recommendations and insurance industry activities that aim to increase transparency in insurance contracts. Insurance is very complicated, and the customers need to have knowledge of the products in order to make good choices. To provide simplified information can be contradictive related to provide accurate. Simplified and ‘edited’ information is in its nature inaccurate, and this is of course a dilemma. The insurance industry arranged a conference a few years ago on the topic of transparency. The theme was how to make insurance more understandable to consumers, and the dilemma was acknowledged: a person’s understanding of information on a topic that is as complex as insurance is not always 100% correct. The main goal of the transparency rules is to provide customers knowledge about insurance in order for them to make good insurance decisions. The questions are: are the aims of the regulation fulfilled? Is insurance transparent in a sense that the customers can make well-balanced choices about insurance? Well, for the very ambitious customer, it can be. However, it is not uncommon for a regular insurance customer to not make an effort to know in detail the pre-purchase information, afterpurchase information, insurance terms, yearly reports, fact sheets and so on. Rather, there might be a risk of ‘information overload’, leading to a situation where the customer does not want to know any information about the contract or knows very little information only. Paradoxically, insurance might have been more understandable to people in a period before the information rules were introduced in the Consumers Insurance Contracts Act of 1980. First, insurance products were not as complicated then as they are today. Further, from the end of the nineteenth century until the mid-1970s, ‘insurance tariff associations’ produced standard insurance terms. The insurance tariff associations included all of the insurance companies that operated on the Swedish market. The insurance companies committed themselves to adopting the standard into their individual insurance contracts, and only minor deviations from the standard were allowed. Thus, every insurance company that offered, for instance, fire insurance used the same terms in their insurance contracts. Of course, due to the emergence of competition regulations, the insurance business had to give this practice up. The insurance market started to become diversified, and with Sweden’s entry into the EU, the insurance market of today is very diversified. Today the customers are offered a great variety of insurance terms on the national and international market. From a competition law perspective, this is a good thing; the insurers compete with each other, producing better and cheaper products for the customers. From a transparency perspective, the diversity is more problematic. The pre-existing standardisation of the insurance contracts made ground for common knowledge, both among people working in the insurance industry and for the customers. The standardisation made the concept of insurance somewhat understandable and thus more transparent in that sense. Since the differences between different insurers were small, it was possible for the customers to make comparisons quite easily, if one

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compares with the situation of today. Because of the diversity of the insurance market today and the complex nature of insurance, it is very difficult for the average customer to fully comprehend insurance and to make adequate comparisons, even with the help of the insurers’ simplified information. The tendency is that Swedish legislation is not moving towards more information to the customers but moving towards information of higher quality, better documented advising situations and standardization of terms and language in order to facilitate comparisons. Since 1980, when the information duties were introduced, regulations have been added that specifies the duties. Since 2003, when the duty to document advising activities was imposed on advisors, further and more detailed legislation has been proposed. Since 2010, there have also been further attempts to harmonise the language of life insurance.

References Legislation Consumers Contracts Act (1994:1512) Act on Investment Advice to Consumers (2003:862) Insurance Contracts Act (2004:105) Insurance Business Act (2010:2043) Insurance Distribution Act (2018:1219)

Swedish Financial Supervisory Authority’s regulation FFFS 2004:4 FFFS 2011:39

Government Proposals Prop. 1998/99:87 Ändrade försäkringsrörelseregler Prop. 2002/03:133 Lag om finansiell rådgivning till konsumenter Prop. 2004/05:150 Ny försäkringsavtalslag Prop. 2004/05:165 Nya regler för tjänstepensionsinstitut SOU 2014:4 Det måste gå att lita på konsumentskyddet Ds 2014:43 Grupp- och trafikförsäkringsfrågor

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Supreme Court Cases NJA 1992 s. 782 NJA 1992 s. 845

Insurance Sweden’s recommendations Rekommendation om förköpsinformation Rekommendation – Informationsgivning i samband med flytt av pensionsförsäkrings värde

Articles Bengtsson B (2009) Departementen och lagrådet. Svensk Juristtidning

Websites Insurance Sweden, http://www.insurancesweden.se Konsumentverket, http://www.konsumentverket.se Regeringen, http://www.regeringen.se Swedish Standard Institute, http://www.sis.se

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Transparency in the Insurance Contract Law: A Comparative Analysis Between the Principles of European Insurance Contract Law (PEICL) and Selected European Legal Regimes Marta Ostrowska

1 Introduction The aim of this chapter is to analyse transparency measures applied within the Principles of European Insurance Contract Law (the PEICL) and to attempt to answer the question of whether the PEICL reflect (and, if so, to what extent) transparency standards of national insurance contract regulations. Transparency has been always considered an important element of insurance law. As a matter of fact, it has become even more essential since the European Union started to pay special attention to consumer protection issues and to implement enhanced protection instruments, in particular in the area of financial services, where information asymmetry (i.e. main reason to protect the customers) between the parties is considered to be one of the greatest. Nonetheless, in case of insurance law, not only does the significance of transparency result from the need to protect the weaker contractual party but also from the special nature of the insurance contract. Insurance relationship between the insurer and the policyholder is based on mutual trust, and therefore it is commonly characterised by the application of the utmost good faith principle (also known as uberrimae fidei),1 which definitely could be recognised as an early form or level of transparency. Nowadays, thanks to rapid development of the insurance market and the expansion of customer protection trend, transparency can be traced in almost every branch of insurance law, i.e. insurance contract, insurance mediation and insurance supervision.2 Years of

1 2

Malinowska (2008), p. 28. Wandt (2012), pp. 9–22.

M. Ostrowska (*) Warsaw University, Warsaw, Poland e-mail: [email protected] © Springer Nature Switzerland AG 2019 P. Marano, K. Noussia (eds.), Transparency in Insurance Contract Law, AIDA Europe Research Series on Insurance Law and Regulation 2, https://doi.org/10.1007/978-3-030-31198-8_11

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analysis and discussions over the policyholder’s protection and transparency within the insurance regulation leads to a lot of interesting conclusions among which transparency is argued to be a general principle of insurance law.3 As if this was not enough to demonstrate the importance of the issue, the scale of transparency phenomenon was interestingly reflected in one of the researches where the question whether the utmost good faith principle will be in the future replaced by a wide application of the principle of transparency was reasonably raised.4 As it seems, transparency rules the modern insurance regulation. However, the research on its efficacy demonstrates that the overall impact of transparency can be considered twofold. On the one hand, implementation of the transparency measures can ensure desirable level of consumer protection, but on the other hand, it is argued that excessive transparency may easily lead to the so-called information overload, which might be as harmful to the customer as the lack of transparency. The problem of transparency within the national insurance regulations has been already deeply analysed. Therefore, for the purposes of this chapter, only brief conclusions of these studies will be further presented. Instead, the main focus will be put on transparency within the PEICL. The PEICL constitute the result of work of the Project Group ‘Restatement of European Insurance Contract Law’.5 The Project Group, consisting of European experts in insurance law, was found in September 1999 and aimed at providing the European legislator with the instrument enabling to overcome the obstacles of the internal insurance market. Due to the rules on private international law of insurance contracts provided for in the Rome I Regulation (593/2008), products that are sold internationally, either by providing services cross-border or through foreign subsidiaries and branch offices, must be adapted to the mandatory rules of the Member State in which the insurance product is sold.6 Bearing in mind this regulation and the fact that the character of the national insurance contract laws is often mandatory, it is rather impossible to establish an internal market for the insurance products. In consequence, the Project Group proposed the creation of a European insurance contract law that would allow insurers to develop and sell insurance products throughout Europe based on the European regime of insurance contract law only. The PEICL are intended to serve as a draft Optional Instrument of European Insurance Contract Law being an alternative to national insurance contract law. Eventually, the PEICL are to be enacted as an EU regulation. Bearing in mind the objectives of the Project Group, the PEICL have been developed through comparative legal analysis of national contract laws,7 and

3

Wandt (2012), pp. 9–22. Wandt (2012), pp. 9–22. 5 Project Group ‘Restatement of European Insurance Contract Law’, established by Prof. Dr. Fritz Reichert - Facilides, LL.M., Innsbruck, Chairman: Prof. Dr. Helmut Heiss, LL.M., Zurich. Full version of PEICL available at: http://www.restatement.info or https://www.uibk.ac.at/zivilrecht/ forschung/evip/restatement/draft.html. Accessed 9 Apr 2019. 6 Heiss (2010), p. 7. 7 Basedow et al. (2009). 4

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its provisions are modelled taking into consideration the relevant national provisions. In order to pursue the aim of this chapter, first, an analysis of selected European insurance contract regulations was made.8 The said, analysis was thoroughly based on the studies on transparency within a particular insurance contract regulation provided by the researchers of different European jurisdictions. Subsequently, transparency provisions of the PEICL were identified and compared to those national described in the analysed studies. By way of explanation, it should be underlined that the analysis presented in this chapter should not be treated as complete or comprehensive. Due to the lack of definition for ‘transparency’ and common instructions of the analysis, the researchers not always present the insurance transparency from the same perspective. Also, depending on the approach they adopt, often their research focused only on the selected aspects of transparency. Nevertheless, the analysed material definitely allows us to provide at least a tentative answer to the question posed at the beginning of this chapter—do the PEICL reflect transparency standards of the national insurance contract laws?

2 Transparency in the Insurance Contract Within the EU Countries’ Legislation: A Landscape of Regulation The research on transparency within the insurance contract leads to the conclusion that none of the European insurance contract law provides for the legal definition of transparency.9 Nevertheless, the common linguistic meaning of this word is rather universal and similar; i.e., transparency is explained as comprehensibility supplemented by certainty, clarity and completeness. A helpful explanation of these terms has been given by the Austrian jurisprudence: a legal norm is comprehensible if it is understandable to the legal user with regard to its purpose and the legal consequences resulting from it. A legal norm is certain if it does not offer an unjustified margin of discretion and thus—although it is possible to prevent it by a more precise wording—would make it impossible to foresee (interpret) results from the policyholder’s point of view. A norm is sufficiently clear if it does not try to conceal the rights that the legal user derives from it or deceive his rights at all. Finally, completeness means that the effects of a legal norm must not be obscured by

8

The analysis includes the following jurisdictions: Spanish, Greek, Italian, Turkish, Austrian, Croatian, German, of Western Balkans (Serbia, Montenegro, Bosnia & Herzegovina), Portuguese, Dutch, Swedish and Polish. 9 However, it should be mentioned that Swedish Insurance Business Act attempts to define the principle of transparency and states that it means the information to policyholder and to persons offered insurance must be adapted according to the nature of insurance and clearly show the insurance terms and the development of the value of the insurance. For more details, see the Chapter by Van der Sluijs J, Transparency in Contract Law of Sweden.

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omitting certain parts.10 Taking these explanations into consideration, it is clear that in order to be transparent, not only does the clause need to be grammatically correct, but it should also clearly outline the insurance mechanism. Besides the general meaning of transparency, in terms of insurance, it is commonly understood twofold: as a general principle of insurance law and as a manner of providing information between the parties. The first understanding relates to the utmost good faith principle ruling the insurance contract, while the latter mainly refers to the language and form of the information provided. Viewed in this light, transparency is expected to enable the preservation of balance between the contracting parties, protect their rights and support the preservation of legal certainty and equality of the legal status of contracting parties and the principle of good faith in dealing. Thanks to the development of the European Union’s insurance legislation, the modern insurance law may be considered more or less harmonised. Hence, a significant portion of the national insurance regulations is alike. Predominantly, contract transparency is achieved by the Member States through similar legal instruments that refer either to the type of information to be provided (e.g. obligatory content of the general terms and conditions) or to the manner in which it should be provided (e.g. language and document drafting requirements, the methods of interpreting the general terms and conditions, such as the contra proferentem rule). The information obligations are divided into four stages within the duration period of the insurance contract: before entering into the contract, when entering into the contract, during the validity of the contract and in case of claim adjustments and disputes. These and other transparency obligations will be mentioned further in this chapter for the purposes of comparison.

3 Transparency Reflections in the PEICL Having presented the general overview of the national regulations in terms of the transparency of insurance contracts, some light should be now shed on the PEICL rules. In this paragraph, the PEICL provisions contributing to the improvement of transparency will be presented and briefly compared to the equivalent regulations of the analysed jurisdictions. For the purposes of clarity, the relevant PEICL provisions have been classified into five groups: (1) language, form and quality of the information; (2) pre-contractual information duties of an insurer; (3) pre-contractual information duties of an applicant; (4) post-contractual information duties of both the insurer and policyholder; (5) abusive clauses. Each of these groups addresses different aspects of transparency.

10

See Chapter 1 by Wöss S, Transparency in the Insurance Contract Law of Austria.

Transparency in the Insurance Contract Law: A Comparative Analysis. . .

3.1

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Language, Form and Quality of the Information

Article 1:203 of the PEICL lays down the requirements relating to the drafting and interpretation of insurance contracts, and according to the Project Group, it intends to promote the transparency of the documents.11 Firstly, in order to ensure transparency, it provides that all documents provided by the insurer shall be plain and intelligible and in the language in which the contract is negotiated.12 As the words ‘plain and intelligible’ are difficult to define, it is deemed that whether the document is drafted in a plain and intelligible way should be assessed from the perspective of a reasonable policyholder. Generally, the regulations of most European insurance contract laws are aligned with this rule. Clearly, national provisions are worded differently using less or more precise words. In Austria, even the additional prohibition of misleading is introduced, which is not mentioned in the PEICL. However, in the end, they all convey the same meaning—the content of the contract should be clear, understandable and unambiguous. To this extent, Article 1:203 of the PEICL reflects the national standards. It should be noted, though, that due to the analysed PEICL provision, the prescribed manner of drafting should be applied to all the documents provided by the insurer within the duration of the contract without specifying particular documents. In turn, some of the analysed national laws require the application of this rule specifically to the general terms and conditions of the insurance contract (model form) (e.g. Poland, Spain, Austria). Hence, in some cases, the scope of the PEICL provision would be wider than the national one and, consequently, indeed would provide more intensive protection of the policyholder. Secondly, as to the sanction for violations of the above requirements, Article 1:203 of the PEICL does not provide for one. However, it specifies that if the meaning of the wording of any document or information provided by the insurer is doubtful, the interpretation most favourable to the policyholder, insured or beneficiary, as appropriate, shall prevail. This in dubio contra stipulatorem rule is common for all the analysed national insurance contract laws. Also, it is necessary to underline that while the PEICL provision does not limit the applicability of this rule to insurance contracts concluded with the consumers, the Dutch and Turkish regulations do so—the contra stipulatorem interpretation rule applies here only with respect to consumer contracts. Again, it is another example proving that the PEICL provisions seem to be worded in a way that tries to encompass all the possible solutions existing in the national laws. 11

Basedow et al. (2009), Comment No 2 to the Article 1:203. Article 1:203 of the PEICL constitutes a general rule applying to the content of every document provided by the insurer to the policyholder. Nevertheless, it is worth to mention that the requirement to use clear language in the communication with the policyholder is separately mentioned in the Article 5:101 sec. 1 of the PEICL with respect to the information on the insurance premium where its payment is being made a condition of formation of the contract or of the beginning of cover. In the lack of explanation of such separate emphasis and assuming that the emphasis has been made on purpose, it can be presumed that the Project Group intended to underline the importance of this Article. None of the analysed papers referred to a similar regulation in the national laws. 12

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Apart from the rules on drafting and interpreting the insurance contracts, the PEICL provide for the provision regulating the situation where the terms of the insurance policy differ from those in the policyholder’s application or any prior agreement between the parties. According to Article 2:502 of the PEICL, such differences as have been highlighted in the policy shall be deemed to have been assented to by the policyholder unless he objects within one month of receipt of the policy. The insurer shall give the policyholder notice in bold print of the right to object to the differences highlighted in the policy. If the insurer fails to comply with these requirements, the contract shall be deemed to have been agreed on the terms in the policyholder’s application or the prior agreement of the parties, as the case may be. Although this rule has been barely mentioned by the researchers with respect to the transparency of insurance contracts (Spain), it is already known in most European jurisdictions,13 and it definitely contributes to the clarity of the contractual terms. This is because not only does the provision require highlighting the discrepancies for the convenience of the policyholder, but it also introduces special drafting rules regarding information on the right to object.

3.2

Pre-contractual Information Duties of an Insurer

As it was already mentioned, the transparency of insurance contracts is also ensured by certain information duties of both the insurer and the applicant. In this respect, the PEICL contain important regulations provided for in Articles 2:201 (provision of pre-contractual documents), 2:202 (duty to warn about inconsistencies in the cover), 2:203 (duty to warn about the commencement of cover) and 17:202 (insurer’s pre-contractual information duties regarding life insurance contract), among which Articles 2:201 and 17:202 are of particular importance. Hence, further in this paragraph, the focus will be put mainly on their content. Article 2:201 of the PEICL obliges the insurer to provide the applicant with a copy of the proposed contract terms and a document including a bunch of information of various nature before concluding the insurance contract. The information to be provided is as follows:  the name and address of the contracting parties, in particular of the head office and the legal form of the insurer and, where appropriate, of the branch concluding the contract or granting the cover;  the name and address of the insured and, in the case of life insurance, the beneficiary and the person at risk;  the name and address of the insurance agent;  the subject matter of the insurance and the risks covered;  the sum insured and any deductibles;

13

Basedow et al. (2009), Note No 1 and 4 to the Article 2:502.

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 the amount of the premium and the method of calculating it;  when the premium falls due as well as the place and mode of payment;  the contract period, including the method of terminating the contract, and the liability period;  the right to revoke the application or avoid the contract (. . .);  that the contract is subject to the PEICL;  the existence of an out-of-court complaint and redress mechanism for the applicant and the methods of having access to it;  the existence of guarantee funds or other compensation arrangements. As seen above, in order to render the legal relationship between the insurer and the policyholder transparent, the applicant should be first well informed about the insurer and intermediary (if one is involved). Further, the insurer should present the key material elements of the contract (subject matter of the insurance, sum insured, premium) and the most important mechanisms ruling the ‘life of the contract’ (premium payment, duration of the contract, termination, revocation and withdrawal of the contract). These are considered to be the information on the basis of which the applicant is able to reach an informed decision on whether or not to conclude the contract. This provision is modelled on Articles 183 to 189 of the Solvency II Directive (2009/138/EC),14 which should be implemented by all the Member States. Hence, all the European insurance contract laws include the concept of pre-contractual information duties of the insurer. Usually the analysed national provisions are formulated in a similar manner and require providing analogous information. In-depth analysis reveals, though, that sometimes the national regulations are more detailed and require to provide more information than the PEICL, e.g. competent supervisory authority, grievance procedure, price and total costs of insurance, taxes, modalities of the contract, mode of conclusion and possible legal remedies (e.g. Germany, Croatia, Poland). Speaking of the information on the insurance contract terms, the PEICL provide for the requirements regarding the content of the insurance policy. Article 2:501 of the PEICL stipulates that, in principle, the insurance policy should contain at least the information listed therein. These are very similar to the information indicated in Article 2:201 of the PEICL. In addition to the basic information relevant to all insurance contracts, both the PEICL and national regulations provide for a separate pre-contractual information duty dedicated to life insurance contracts. Article 17:202 of the PEICL specifies that where the life insurance contract is to be concluded, the insurer shall inform the applicant about whether he has a right to participate in profits and that the information and documents mentioned in Article 2:201 of the PEICL (described above) should be accompanied by the following additional information:  as regards the insurer: a specific reference to the compulsory publication of the annual report on its solvency and financial condition; 14

Basedow et al. (2009), Comment to the Article 2:201.

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 as regards the contractual commitments of the insurer: – an explanation of each benefit and each option, information about the proportion of the premium attributable to each benefit, both main benefits and supplementary benefits, where appropriate; – the methods of calculation and distribution of bonuses including a specification of the applicable supervisory law; – an indication of surrender and paid-up values and the extent to which they are guaranteed; – for unit-linked policies: an explanation of the units to which the benefits are linked, and an indication of the nature of the underlying assets; – general information on the tax arrangements applicable to the type of policy. Generally, equivalent national provisions set out the same rules, and the information listed therein is of a similar nature. However, the above-mentioned remark on the difference between the scope and details of information required under Article 2:201 of the PEICL and the national laws applies as well to Article 17:202 of the PEICL. For instance, the Member States additionally oblige the insurer to provide information about the tables of redemption value and the tables of capitalised sums per insurance years (Croatia), the surrender value and explanation of the Zillmer method (Germany). Besides the above, some analysed research papers mention the insurer’s duty to advise as an important element of the transparency of contracts (Germany, Portugal).15 The insurer has to provide the applicant with advice on all possible insurance options and what suits best his needs.16 Although the PEICL do not refer to such obligation,17 it is worth to shed some light on Article 2:202 of the PEICL, which seems to be related to the duty to advise. According to the said provision, when concluding the contract, the insurer shall warn the applicant of any inconsistencies between the cover offered and the applicant’s requirements of which the insurer is or ought to be aware, taking into consideration the circumstances and mode of

15 The analysis of the studies of transparency within Turkish insurance contract law leads to the conclusion that, contrary to the majority of European insurance laws, Turkish regulation does not oblige the insurer to warn the applicant in case there is an incompatibility between the cover offered and the applicant’s requirements. See Chapter 19 by A. Yesilova, Transparency in the Insurance Contract Law of Turkey. 16 Usually the duty to advise is associated with the pre-contractual phase but an interesting remark has been highlighted by Wandt M in the chapter Transparency in Contract Law of Germany. German insurance law specifies the duty to advise within the duration of the contract, i.e. the insurer is obliged to query and advise the policyholder throughout the term of their contract relationship only if there is a recognizable necessity for advice. 17 The duty to advice originates from the directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution (the IDD) which was transposed into the national laws by 23 February 2018 (Article 42 of the IDD). In turn, the current version of the PEICL is dated 1 November 2015. This ‘time difference’ is likely to be a reason why the PEICL do not include the provision specifying duty to advice. For additional explanation supporting this thesis see Basedow et al. (2009), Note No 1 to the Article 2:202.

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contracting and, in particular, whether the applicant was assisted by an independent intermediary. It seems that the goal of this provision is not merely informative. It gives the impression that it aims to establish a general pre-contractual duty on the part of the insurer to assist the applicant by providing information relevant to the applicant’s choice of cover and, consequently,18 help the applicant to choose the insurance that is adequate for his requirements. Duty to advice is driven by a similar purpose. Furthermore, in order to identify the inconsistencies or provide the applicant with advice, both regulations require the insurer, directly or indirectly, to obtain the relevant information on the applicant—in particular his ‘requirements’, which seem to be the equivalent of ‘needs’. In conclusion, clearly the PEICL do not provide for a standard insurer duty to advise, which is common for European insurance regulations. However, the above remarks on the insurer’s duty to warn the applicant of any inconsistencies between the cover offered and his requirements give reasonable grounds to state that the PEICL fulfil the purpose of the duty to advice at least partially. Consequently, it reflects transparency standards in this respect to the limited extent. As mentioned in the explanatory notes made by the Project Group, Article 2:202 of the PEICL has been modelled on the basis of the solutions provided by various EU directives and national laws, and it intended to constitute a compromise between the extremes existing therein. It seems, though, that since the national laws have been harmonised by the implementation of Directive (EU) 2016/97 of the European Parliament and of the Council of 20 January 2016 on insurance distribution, it would be desirable to adjust the PEICL to the new unified rules.

3.3

Pre-contractual Information Duties of an Applicant

The obligation to act transparently and render the insurance relation clear and understandable is also imposed on the policyholder and—in the pre-contractual phase—on the applicant. It is reflected in the obligation of the applicant to provide the information needed to properly assess the risk and decide whether or not to accept an application for insurance. Article 2:101 of the PEICL introduces the so-called duty to disclose when concluding the contract, the applicant shall inform the insurer of circumstances of which he is or ought to be aware, and which are the subject of clear and precise questions put to him by the insurer. Although the obligation is expressly imposed on the applicant, in fact it is partially transferred on the insurer. The PEICL limit the scope of the information that the applicant is obliged to disclose to information that the insurer asks for. This is a standard question method applied also in some of the Member States (e.g. Poland, Netherlands, Turkey). It is the opposite of the duty of spontaneous disclosure applied, e.g., in Croatia and Austria. It is believed that the question method is more appropriate and efficient as it is usually easier for insurers

18

Basedow et al. (2009), Comment No 1 to the Article 2:202.

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than for applicants to define which information is material to the risk.19 Interestingly, it is also claimed that the question method enhances the transparency of the insurer’s activity as the questions asked by the insurer reveals what information is required to assess the risk.20 Lastly, it is worth mentioning that, similarly to the insurer’s pre-contractual information duties, the PEICL also distinguish pre-contractual applicant disclosure duties in life and non-life insurance contracts, which correspond with each other (see Article 17:201 of the PEICL).

3.4

Post-contractual Information Duties of Both Insurer and Policyholder

The purpose of the pre-contractual information duties is mainly to allow the applicant to reach an informed decision and the insurer to accept the application for insurance. They are therefore necessary to establish the contractual terms acceptable for parties concluding the contract and commence the insurance relationship between the insurer and policyholder. On the face of it, it may seem that the moment of concluding the insurance contract is the most important in terms of information duties; however, as the insurance contract regards risk which by its nature may be changing, period of execution of the contract should be seen as equally important. The PEICL provide for several provisions on the information duties of both insurer and policyholder after the conclusion of the contract. Among them, Article 2:603 of the PEICL sets out the obligation of the insurer to send written notice of alteration to the policyholder no later than one month before the expiry of the current contract period in case of automatic prolongation of the contract, which may involve alteration of the premium or any other term or condition of the contract. Such regulation is generally aligned with most of the analysed national laws (e.g. Portugal, Croatia). Further, the insurer is also obliged to update information regarding the corporation. Article 2:701 of the PEICL stipulates that throughout the contract period the insurer shall provide the policyholder without undue delay with information in writing on any change concerning its name and address, its legal form, the address of its head office and of the agency or branch which concluded the contract. Similar regulations are included in the analysed studies about transparency in the national regulations (e.g. Sweden, Portugal). With regard to the post-contractual information duties of the policyholder, the PEICL introduced a provision regarding the duty to give notice in case of aggravation of risk (Article 4:202 of the PEICL). In fact, the PEICL do not provide for the obligation to notify the insurer in case of aggravation but specify the conditions of such notification. Consequently, it depends on the insurer whether or not to oblige the policyholder to give notice of aggravation. The duty to notify in case of 19 20

Basedow et al. (2009), Comment No 3 to the Article 2:101. See Chapter 6 by Luzak J., Transparency in the Insurance Contract Law of the Netherlands.

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aggravation of risk is commonly applied in national legal orders, though they exist in modified versions. Mainly they differ with respect to the notification deadline. Also, it is worth noticing that some Member States do not limit the duty to notify to cases of risk aggravation. Instead, they provide for the obligation to notify the insurer of any changes affecting risk assessment, i.e. cases of risk alleviation (Germany, Poland). A proper information exchange is also needed in case the insured event occurs. According to Article 6:101 of the PEICL, the occurrence of an insured event shall be notified to the insurer by the policyholder, the insured or the beneficiary, as appropriate, provided that the person obliged to give notice was or should have been aware of the existence of the insurance cover and of the occurrence of the insured event. Notice by another person shall be effective. As the notification of the insured event may be considered as a mechanism enabling the functioning of any insurance, the described rule applies to all national laws. Some light needs to be shed, though, on who should be obliged (or entitled) to notify. Among the analysed jurisdictions, some regulations do not impose the duty to notify exclusively on the policyholder (Poland, Germany, Austria, Netherlands); i.e., the notification is effective if made by the insured, beneficiary or even a third party. It seems reasonable since it is not difficult to imagine the circumstances in which neither of the interested persons is able to notify the insured event. The same solution has been implemented into the PEICL. Further to the duty to notify, under Article 6:102 of the PEICL, the policyholder, insured or beneficiary is obliged to respond to reasonable requests of the insurer; in particular, they should provide the insurer with information about the causes and effects of the insured event. Generally, the cooperation between the insurer and the policyholder in case of occurrence of the insured event is stipulated in the national laws in a similar way (e.g. Croatia, Turkey, Poland). However, it is worth highlighting that the PEICL are limited to the ‘reasonable requests of the insurer’, while the Member States’ regulations often refer to all the relevant information or documents asked by the insurer, which definitely creates a wider scope of information. The latter may seem to be more desirable with respect to transparency; however, it is not always favourable for the policyholder. Therefore, assuming that improvement of transparency in insurance contracts is for the benefit of both contractual parties, it seems reasonable to claim that Article 6:102 of the PEICL meets and even improves national standards. Besides the above-mentioned regulations, transparency in insurance contracts is also fostered by the following provisions of the PEICL: Article 2:702 (the insurer’s obligation to provide further information upon the policyholder’s request), Article 14:106 (the policyholder’s right to request at any time a statement relating to his claim record where the bonus-malus system is applied) and Article 17:301 (insurer’s post-contractual information duties relevant to life insurance). These, however, were not mentioned in the analysed papers.

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4 Abusive Clauses It can be considered that lack of transparency might sometimes cause a significant imbalance in the rights and obligations of the policyholder, which, in turn, may cause damage on the part of the policyholder. The PEICL define abusive clause as a term that has not been individually negotiated, and contrary to the requirements of good faith and fair dealing, it causes a significant imbalance in the rights and obligations of the policyholder, insured or beneficiary arising under the contract, to their detriment, taking into account the nature of the insurance contract, all the other terms of the contract and the circumstances at the time the contract was concluded (Article 2:304 sec. 1 of the PEICL). In principle, if such an unfair term is identified, it is not binding on the policyholder, insured or beneficiary. This provision, though, applies neither to the adequacy in value of the cover and the premium, nor to terms that state the essential description of the cover granted or the premium agreed, provided the terms are in plain and intelligible language. Furthermore, the described article stipulates a presumption that a term shall always be regarded as not individually negotiated when it has been drafted in advance (. . .). The fact that certain aspects of a term or one specific term have been individually negotiated shall not exclude the application of this Article to the rest of a contract if an overall assessment of the contract indicates that it is nevertheless a pre-formulated standard contract. Before analysing to what extent this provision is aligned with the national regulations, it should be mentioned that Article 2:304 of the PEICL is modelled on the Unfair Contract Terms Directive (93/13/EEC). Therefore, again, compliance can be expected. Indeed, definitions of the abusive clause are the same (e.g. Poland, Western Balkans, Italy). Similarly, the exclusion from application of the abusive clause sanction regards the same core terms of the contract. The analysis, though, does not give a clear answer to the question of whether or not the national regulations apply to insurance contracts concluded with both consumers and professionals as Article 2:304 of the PEICL does. This can be doubtful as the implementation of Article 3 para. 1 and Article 4 para. 1 of the Unfair Contract Terms Directive (93/13/EEC) was often made by the Member States into their consumer-related acts21 (Basedow et al. 2009, Comment No 3 to Article 2:304). Finally, noteworthy is the presumption that contractual term was not individually negotiated. In the Member States where a similar presumption is not provided (e.g. Poland, Italy), verification of the way in which the term has been negotiated is required in each case. Bearing in mind that this particular presumption, read separately, does not directly contribute to improving transparency, it is enough to mention that the PEICL solution definitely should be considered favourable for the policyholder, at least in terms of his protection. Speaking of abusive clauses, an interesting regulation of German law is worth mentioning. Because of sec. 305c subsec. 1 BGB, provisions in standard terms do not become part of the contract if they are unexpected from the point of view of a reasonable contractual partner, taking into account the individual circumstances, in 21

Basedow et al. (2009), Comment No 3 to the Article 2:304.

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particular with respect to the outward appearance of the contract. This is a prohibition of unexpected terms (also known as ‘hidden clauses’), where the unexpectedness of a particular clause may as well result from its placement within the contract or from the limitation of a right formerly provided by another general term and condition clause.22

5 Conclusions The aim of this chapter was to attempt to answer the question of whether the PEICL reflect transparency standards of European insurance contract laws. To this end, similarities and differences between the relevant provisions were briefly presented. The analysis gives the general impression that the PEICL rules constitute a compromise between various modifications of the same rules existing in the national laws. Moreover, particular provisions of the PEICL tend to be more general and less detailed in comparison with their equivalents in the European jurisdictions, which may be considered both positive and negative. Besides the remarks made in the main part of this chapter, it is worth mentioning that the PEICL omit the insurer’s duty to provide information regarding the existence of a conflict of interest and, contrary to national insurance contract laws, do not distinguish between consumer and non-consumer or make the application of its provisions dependent on such distinction. Taking into consideration the above remarks and bearing in mind the methodology and specifics of the analysis, the author believes that it is justified to say that the PEICL generally reproduce transparency measures common to national insurance contract laws, though it is hard to give a precise account of the extent. Consequently, it is safe to conclude that the level of protection of policyholders, ensured, i.a., by transparency measures, under the PEICL is high as compared to the level of protection offered by national laws of the Member States.23

References Basedow J, Birds J, Clarke M, Cousy H, Heiss H, Loacker L (2009) Principles of European Insurance Contract Law (PEICL). Sellier European Law Publishers GmbH, Köln Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts OJ L 95, 21.4.1993, pp 29–34 Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (Text with EEA relevance) OJ L 335, 17.12.2009, pp 1–155

22 23

See Chapter 3 by Wandt M, Transparency in the Insurance Contract Law of Germany. Heiss (2010), p. 7.

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Heiss H (2010) The principles of European insurance contract law: an optional instrument? http:// www.europarl.europa.eu/document/activities/cont/201004/20100430ATT73919/ 20100430ATT73919EN.pdf. Accessed 9 Apr 2019, p 7 Malinowska K (2008) Umowa ubezpieczenia w Europie bez granic, Oficyna Wydawnicza Branta, Bydgoszcz – Warszawa, p 28 Project Group “Restatement of European Insurance Contract Law”, established by Prof. Dr. Fritz Reichert - Facilides, LL.M., Innsbruck, Chairman: Prof. Dr. Helmut Heiss, LL.M., Zurich. Full version of PEICL http://www.restatement.info or https://www.uibk.ac.at/zivilrecht/forschung/ evip/restatement/draft.html. Accessed 9 Apr 2019 Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I) OJ L 177, 4.7.2008, pp 6–16 Wandt M (2012) Transparency as a general principle of insurance law. In: Wandt M, Ünan S, Sigorta Hukuku Türk Derneği (eds) Transparency in insurance law, Seminar papers, Deutscher Verein für Versicherungswissenschaft, pp 9–22

Part II

Civil Law: Other Jurisdictions

Transparency in the Insurance Contract Law of Chile Roberto Ríos Ossa

1 Introduction In the last few years, the Chilean insurance contract law has undergone relevant modifications. For this reason, and prior to a detailed analysis of the transparency topic, it is necessary to consider that our Commerce Code comes from 1865, and in this context, in the insurance contract law free will predominates, which had the norms enacted by the Superintendency of Securities and Insurance (SVS)1 as the unique limit, and later the norms of the Consumer Protection Law number 19.496 of 1994 (LPC/1994). Nevertheless, in the latter case, the application of the protection norms was gradual. From Law number 20.555 of 2011, which modifies the LPC/1994, the Chilean legislator recognizes insurance as an adhesion and consumer contract.2 In this sense, our doctrine has stated that “[. . .] we believe that at this stage it is not possible to discuss the idea that we have created the principle of

1

The law number 21.000 of 2016, replaced the Superintendence of Securities and Insurance (supervisory agency) by the Financial Market Commission. The Article 1 of law number 21.000 defines the CMF as a decentralized public service, of a technical character, holding a legal personality and assets that relates with the President of the Republic through the Ministry of Treasury. Then, regarding the functions of the supervisory organ, the cited norm is decreed that the CMF has the objective to safeguard the correct functioning, development and stability of the financial market, facilitating the participation of market agents and promoting the care of public faith. For these, it has to maintain a general and systematic vision of the market considering the interests of the investors and the insured. Additionally, another objective of the CMF is to safeguard that supervised persons and entities, from the start until the end of their liquidation comply with the laws, regulations and statutes and others that govern them. See Morales (2018), pp. 75–175. 2 Contreras (2014), pp. 89–120. R. Ríos Ossa (*) Pontificia Universidad Católica de Chile, Santiago, Chile e-mail: [email protected] © Springer Nature Switzerland AG 2019 P. Marano, K. Noussia (eds.), Transparency in Insurance Contract Law, AIDA Europe Research Series on Insurance Law and Regulation 2, https://doi.org/10.1007/978-3-030-31198-8_12

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pro-consumer in the Chilean Law and is understood as an adhesion consumer contract where the importance of information and its defect, which is the asymmetry, causes a contractual imbalance.”3 In the aforementioned context, Law number 20.667, which came into force on December 1, 2013, completely substituted the Chilean insurance contract regulation in the Commerce Code. It is a substantial modification after 148 years of being in force. The legislative technique brought, as a result, unsystematic legal texts with some inaccuracies on legal terms,4 the reasons of which shall be analyzed in the following paragraphs. The modification introduced by Law number 20.667 has its origin in the first Bill of Law of 1990, which culminated into a parliamentary initiative, whose processing began in 2010.5 The final Bill had its principal justification in the distancing of the legal regulation of insurance contracts from the insurance business. In this sense, the parliamentary initiative indicates that “the contractual reality was distanced from the content of the Commerce Code, which converted in to insufficient, erroneous and decidedly inapplicable, in some cases.” Further, this initiative mentions that “accompanied by contract liberty that presides all the private law, the insurance contract filled these loop holes with contract terms up to a point where the insurance practice separated from the law.”6 The aim of the preparatory work to adjust the Law to the practice of the insurance industry, it converges with the criteria that were incorporated before and during the parliamentary procedure of Law 20.667 as of 2010 are, in our opinion, antagonistic to the 1990 Law project. In this sense, our legislator, on the basis of the Public Order of Protection,7 seeks to protect the insured as contractors that are weak or disadvantaged against the predisposing insurer.8 This substantial opposition between the 1990 project and the regulation that finally introduces Law 20,667, resulted in a lack of systematization and imprecision, sometimes, of the legal language, as we have indicated. Along with the above, and for consumers’ insurance cases, the LPC/1994 comes together, assuming that it has created a state of legal uncertainty in determining the legal framework applicable to this special contract. For us, the rules of Article 512 et seq. of our Commerce Code will govern first, and in its silence, the rules of the LPC/1994 will apply.9

3

Barrientos (2016), p. 108. See Ríos et al. (2015a), p. 14. 5 In this sense, see Law number 20.667’s history, p. 4 and following. 6 See Law number 20.667 history, p. 4. 7 On the public order of protection in Chilean law see Tapia (2008), p. 486. 8 About this protective tendency of the insured see the intervention of the Insurance Superintendent of the time, Osvaldo Macías and Osvaldo Contreras. See Report of the Commission of Economy, Development and Development of the Chamber of Deputies, corresponding to the processing of Law number 20,667, published in D.O. on May 9, 2013, on the insurance contract. 9 Cfr. Barrientos (2016), p. 167 y and following. 4

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It is also important to highlight that the protective purpose is based on the identification and subsequent recognition in the law of the division between mass insurance and consumers and insurance of large risks.10 In the case of the former, the asymmetry between the insurer and the insured causes an imbalance that upsets contractual justice.11 In this context, the rules on information and clarity allow a better and complete understanding of the contractual content, on the one hand, and manage to rebalance the contractual relationship between the insurer and the insured, on the other hand. For this reason, the reforms that introduce Law number 20.667 incorporate instruments of protection in favor of the assured as their main objective, considering that the assured is a consumer.12 In the case of insurance of large risks, the demands of guardianship are not justified, and it will be the parties that should seek information and clarity in order to achieve adequate understanding of the contract. What instruments are those collected by the Chilean legislator to meet the protection objective that was set? They are two, fundamentally: the imperativeness of the rules governing insurance contracts, in the terms of Article 542 of the Commercial Code, and the duties of information, which weigh on both the insurer and the insured.13 Considering the objective of this work, the question arises about the rules of transparency in the insurance contract. The term transparency in its legal dimension is not clearly and systematically contained in Chilean law; however, if the legislative process and foreign legal sources are reviewed, the transparency rules that underlie the law can be found. It is for this reason that we will analyze the so-called transparency in an all-encompassing sense that will include information duties—in particular those specific to the precontractual phase—and rules on clarity or understanding of contractual content. In addition to the reform introduced by Law 20.667 of 2013 to the Commercial Code, we can identify legal norms on transparency in both the intermediation activity and the supervision activity. In the first case, in the regulations that monitor access to the intermediation activity—they were introduced for the first time in Chile in the year 1989 in the modifications to DFL 251—we find certain information duties that fall on the intermediaries that aim to guarantee the insurance consumer access to the best coverage conditions and market price. For its part, in relation to the Supervisory Authority in 2017, it enacted Law number 21.000, which replaces the current Superintendence of Securities and Insurance by the Commission for the Financial Market; the aforementioned law contemplates transparency standards in the

10

See Contreras (2014), p. 121. Ríos (2014), p. 32 y and following. 12 See Contreras (2014), pp. 18–19. The legislative debate of law number 20.667 refers to the quality of the assured who contracts in terms of adhesion and in a system of general conditions. See the legislative debate of law number 20.667, pp. 469–470, in http://www.bcn.cl/historiadelaley/nc/ historia-de-la-ley/4463/. 13 Ríos (2015a), p. 12 and following. 11

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supervision activity. Both topics, intermediation and supervision, will be analyzed in the pertinent chapters of this work. The author will give a panoramic vision of the transparency issues: firstly, an analysis of the general topic about transparency; secondly, a review of the precontractual duties of information; thirdly, an analysis of the contracts’ content; and, finally, some conclusions.

2 Transparency in the Chilean Insurance Contract Law 2.1

Background

The topic of transparency in the context of an insurance contract implies analyses of the precontractual issues and the final result of the contained contract.14 Transparency “may be defined as comprehensibility, non-ambiguity and certainty.”15 The execution of the precontractual duties of the insurer and the assured permits a better certainty about the contract terms and the promise of fulfillment of obligations of the contract. There is a concept of autonomy yet interdependence between the precontractual duties and the essential contract elements. Without precontractual duties, transparency does not exist. Therefore, the transparency issues are not limited to the literal text of the contract. In Chile, the legislator does not use, in a clear and systematic sense, the terms transparency and precontractual duty. The term transparency used by the doctrine and the foreign law can be seen in various legal texts that regulate a comprehensible access of information to the assured-consumer. These texts are the following: Article 17 on the terms and language of contracts and Articles 17B to 17L of the Consumer Protection Law16 on clarity and comprehensibility of precontractual information. Nevertheless, the most relevant transparency rules refer to the precontractual duties of information. Due to the aforementioned, we need to interpret Articles 514, 524, 525, and 529 of the Commerce Code and the General Consumer Law.17 As seen previously, there is a legal normative dispersion and superposition in the insurance transparency topics upon convergence of the Commerce Code and Law

14 The control of the content of the contract and transparency control should not be confused. However, without transparency, there cannot be control of content. 15 Wandt (2012), p. 10. 16 Law number 19.496 and its previous modifications, specifically the changes that introduced law number 20.667 of 2012. On the principle of transparency in the Chilean Consumer Law, see Baraona (2014), pp. 386–387. 17 See Barrientos (2016), p. 11.

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number 19.496 (herein forth LPC). In the opinion of the author, Law number 19.496 complements in a supplemental manner the Commerce Code.18

2.2

Duties of Information

The Chilean legislator in 2013 took the requirements of the good faith present at the time of formation of the insurance contract, specifying information duties19 and incorporating new effects in the face of noncompliance. Therefore, in the current legal status quo is the duty of information of legal origin, the first under the insurer— and referred to the contractual content, in particular coverage and price—and the second, by the insurance contractor—referred to insurable risk.20 This modification, introduced by Law number 20.667 in the year 2013, has the following relevant changes: on the one hand, new rules about the form and content of the precontractual duties and, on the other, the new system of defect in the way consent (to a contract) centered on the contract conservation, and the nullity proceeds only in the cases of the bad faith. The precontractual duties of information of the insurer and the assured will be analyzed. In both cases, firstly, the form and content will be discussed, followed by the effect of breach. We will approach in a panoramic way the law regime before 2013, and then we will analyze in detail the current law.

2.2.1

Precontractual Information Duty of the Insurer

Previous Regime: General Comments As we have already pointed out, the insurance contract in Chile was regulated by the rules of the Commercial Code of 1865,21 which were not modified until 2013.22 On the other hand, both the doctrine and the jurisprudence initially excluded insurance

18

Cfr. Barrientos (2016), p. 65 y and following. On the genesis and subsequent evolution of pre-contractual information duties, see Asua (1989), p. 55 and following; Ríos (2014), pp. 14–15. 20 On pre-contractual duty of information in English law prior to the modifications of 2015, see Lowry (2011), p. 56 and following. For a general revision of the amendment to the English law in 2015, see Merkin and Gürses (2016), p. 11 and following. 21 See Achurra (2005), p. 24 and following; Contreras (2002), p. 20. 22 In this sense, Baraona argues that “Regarding the duties of information in the preliminary negotiations, there is no general principle in civil and commercial law that obliges those who negotiate a contract to be fully transparent, that is, to give full information about what is being negotiated, although over time they have been outlined reporting duties prior to the conclusion of the contract, based on the principle of contractual good faith, supported by Article 1546 of the Civil Code, subject that is in full dogmatic and jurisprudential development”. Baraona (2014), p. 384. 19

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from the LPC/1994.23 Therefore, it will be the principle of good faith in contrahendo (at the moment of contracting) that will serve to determine the existence of a duty to inform in favor of the insurance contractor. In this context, there is a substantial change in 2011 through Law 20.555, which modifies Law 19.496 and incorporates new rules that expressly recognize the insurance contract as one of adhesion, on the one hand,24 and the existence of information asymmetries, on the other.25 Specifically, and on the duty of information and transparency rules, the new Article 17 B of the aforementioned law provides that “the adhesion contracts for credit services, insurance and, in general, for any financial product, drawn up by banks and financial institutions or by companies that support their line of business, commercial establishments, insurance companies, compensation funds, savings and loan cooperatives, credit, and any natural or legal person providing these services or products, must specify at least, in order to promote its simplicity and transparency, the following [. . .].”26 The aforementioned article expressly recognizes certain duties of information regarding contractual content, which every insurer must follow in order to ensure transparency or, in other words, a better and complete understanding of the contract.27 This information refers to the prices (premium), amounts of commissions, clause of anticipated termination of the contract, duration of the contract, among other aspects.28 As a conclusion, the precontractual duty of information on the contractual content that falls on the insurer had its support in the good faith recognized as a general principle in Article 1546 of the Civil Code, on the one hand, and from the reform of the year 2011 to that good faith, we must consider the content of the aforementioned Article 17B of the LPC/1994.29

Regime in Force In the Chilean law, the precontractual duties of the insurer is regulated in the second paragraph of Article 514 and in Article 529 number 1, both of the Commerce Code, and Article 17B of the Consumer Law.30 The modifications introduced by Law number 20.667, in 2013, to the Commerce Code recognized good faith in the performance of the precontractual duties of information. For the first time, in

23

See Barrientos (2016), p. 49 and following. See Barrientos (2016), pp. 11–49 and following. 25 De la Maza et al. (2013), p. 385. 26 De la Maza, when addressing the subjective scope of the norms of the norm, delivers an omnicomprehensive concept that he terms as financial goods and services. De la Maza et al. (2013), p. 381 and following. 27 De la Maza et al. (2013), p. 385. 28 See Ríos et al. (2015b), p. 531. 29 See Ríos et al. (2015b), pp. 533–534. 30 See Ríos et al. (2013), p. 32. 24

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Chile, the insurer is subject to special legal demands of information in the rules that regulate insurance in a specific way. Part of the Chilean doctrine does not explicitly recognize a duty of information in contrahendo and identifies it, rather, with the proposal of holding the insurance or proposal informed in the words of Contreras.31 We move away from this thesis because prior to the proposal or offer to conclude the insurance contract, the insurer must comply with the duty to inform the other party of the content of the contract. It is this prior information that allows the subsequent formulation of the offer.32 Articles 514 and 529 number 1 regulate the form and content of the precontractual duty of information, but they do not regulate the effects of the breach of duty. In this sense, it is necessary to pinpoint the form and content of the duty to verify if it is a breach. This will be seen in the following paragraph.

Form and Content of the Precontractual Duty of the Insurer The second paragraph of Article 514 and Article 529 number 1 allow the determining of the form and content of the duty, and the texts are as follows: Art. 514. Proposal. The proposal to execute the insurance contract shall express the coverage, the background and the necessary circumstances to appreciate the extension of the risks. For these, the insurer shall give the policyholder, in writing, all the information relative to the content of the contract that shall be entered into agreement. This shall contain, at least, the contract type, the risks covered and the exclusions; the insurance amount, the manner to determine it and the deductibles; the prime or the method of calculation; the duration of the contract, and the explicit indication of the start and end date of the coverage. Art 529. Obligation of the insurer. Additional to the obligation of article 519, the insurer assumes the following obligation: 1) When the insurance is directly contracted, without an insurance broker: giving advice to the assured, offering the most convenient coverage to his needs and interests, illustrating the conditions of the contract, and providing assistance along the duration of the contract, modification and renewal of the contract, and the claim. When the insurance is contracted in this form, the insurer shall be liable of breach, mistakes and omissions committed and the damage caused to the assured.

31

Contreras (2014), p. 151 and following; Arellano (2013), p. 39. A critical analysis on article 514 of the Commerce Code in Barrientos et al. (2015), p. 190 and following.

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As we can see, the articles cited impose on the insurer the obligation to provide information on contract33 terms to the insured in writing.34 For better comprehensibility and certainty of the contract,35 the information must contain the type of insurance, the risk coverage and exclusions, the amount insured, the deductibles, the premium, the duration of the contract and other relevant topics.36 On the other hand, these demands of written information must be adjusted to Article 17 of the LPC, which states that “[. . .] Adhesion contracts referring to the activities regulated by the current law must be written in a clear and legible way, with a letter size not smaller than 2,5 millimeters and in Spanish, except those words in another language that has been incorporated into the vocabulary [. . .].” It seems that the content of the information is clear from the above provision compared to Commerce Code Article 529 number 1, where the content of the duty is more extensive.37 Indeed, Article 17 of the LPC establishes that the insurer must provide advice on the insurance contract and that the conditions of the coverage must be adjusted to the interests and needs of the assured. As a result, the limit of the content of the duty depends on good faith. The judge should perhaps determine the final content of the information.38 To close, the duty of information content of the insurer aims to protect the assured facing the issue of excess of information, which paradoxically provokes the adverse effect of misinforming. It deals with the problematic about the imperfect rationality, phenomenon that in our doctrine De La Maza identifies with the capacity or possibility of use and understanding of the information on the part of the consumer, beyond the mere possession of material data.39 It is a problem not resolved in our law.

33

It deals with the duty of information that attenuates the asymmetry that exists during the contract formation process. Barrientos (2015), p. 84. Contreras denominates it as “informed proposal”, that is defined as the offer to contract insurance which the policyholder sends to the insurer only when the policyholder receives complete information from the insurance contract in terms of the article 514 of the Commerce Code. See Contreras (2014), pp. 152–153. 34 The insurer, through any technological means, shall provide information to the assured to make sure that the contract has been received, Article 12ª of the Consumer Protection Law permits this. See Barrientos (2015), p. 339; Contreras (2014), p. 266. 35 See Contreras (2014), pp. 19–20. 36 See Barrientos et al. (2015), p. 194. In the English Common Law see Rodger (2015), p. The Court of Justice of the European Union has stated: An insurance contract must indicate in a transparent, precise and clear the functioning of the coverage mechanism of the insurance, in such a way that the consumer can value his/her economic consequences See: http://curia.europa.eu/jcms/upload/docs/ application/pdf/2015-04/cp150042es.pdf. 37 Barrientos et al. (2015), p. 338 and following. 38 Ríos et al. (2013), p. 36. 39 De la Maza (2010), p. 27.

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Effect of The Breach of The Duty of Information In the case of breach, the Chilean Commerce Code does not contain norms that regulate the effects of the breach. In this scenario, it is necessary to distinguish between insurance contracts of major risk and consumer insurance contracts. In the case of major risk, the solution is in the Civil Code, specifically in Article 1.462 ff., which regulate the problems of defect of consent (to a contract), and in Article 1.680 ff., which is about invalidity of contracts, where the only solution is nullity of the contract. In the case of consumer insurance contracts, the solution is different. The law, specifically in Article 17B of the Consumer Law, establishes the possibility of maintaining the validity contract through modification of the defective conditions.40

2.2.2

Precontractual Information Duty of the Assured

Previous Regime: General Comments Prior to the 2013 reform, the precontractual obligation to declare the insured risk was regulated in Articles 556 number 1 and 557 number 1, both of the Commercial Code. According to the Article 556 number 1, the insured or contractor of the insurance had to declare sincerely all the necessary circumstances to identify the thing insured and to appreciate the extent of the risks. Contrary to the generality of nineteenthcentury trade codes of French influence, the Chilean legislator chose to expressly recognize a duty of information that can be categorized as a duty of spontaneous declaration, on the one hand, and with the only limitation of good precontractual faith in the determination of its content.41 As Vivante said, Il codice impone all'assicurato due obblighi: 1○ di dire esattamente tutto quello che dice; 2○ di dire tutto quello che sa.42 The use of question forms will be considered as an indication of the relevant data that make up the content of this duty of declaration and constitutes one of the substantial changes of the 2013 reform, which follows the questionnaire declaration system, as we will see later. Regarding the effects derived from the breach of the precontractual duty of declaration of risk, Article 557 of the Commercial Code provided for nullity as the only remedy or effect.43

40

See Ríos et al. (2013), p. 32. Ríos (2014), p. 20 and following. 42 Vivante (1922), p. 176. 43 Ríos (2014), p. 150 and following. 41

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Regime in Force Regarding the precontractual information duty of the assured, which has an objective to provide information to the insurer about risk, the Chilean law contemplates rules that are substantially different from the valid norms before the modifications introduced in 2013, in the form, the content and the effects of the breach of the duty. Articles 524 number 1, 525, and 539 regulate the precontractual duty of the assured. The texts are as follows: Art. 524. Obligations of the insured. The insured shall be obligated to: 1○ Sincerely declare all circumstances that the insurer request in order to identify the object insured and to appreciate the extension of the risks Art 525. Statement on the state of risk. In order to provide a statement as to what number 1○ of the previous article refers to, it is sufficient that the contractor provides information in accordance to that which is requested by the insurer about the facts or circumstances that are known or can serve to identify the insured object and to appreciate the risk extension. Once the insurance contract is agreed upon and without the insurer requesting the statement on the risk state, he cannot complain about the errors, reticence or the inaccuracies of the contract holder and even those facts or circumstances that are not understood in such request. If the loss has not occurred and the contract holder had inexcusably incurred determining errors, reticence or inaccuracies of the assured’s risk in the information requested by the insurer in accordance with number 1○ of the previous article, the insurer can rescind the contract. If the errors, reticence or inaccuracies about the contract holder does not cover the said characteristics, the insurer can propose a modification to the contract terms in order to adjust the premium or the coverage conditions to the uninformed circumstances. If the policyholder rejects the proposal of the insurer or does not answer within a period of ten days from the date of sending the same, the latter can rescind the contract. In the final case, the rescission will happen at the expiry of the thirty-day period from the date of sending the same communication. If the loss has occurred, the insurer shall be exonerated of his obligation to pay the compensation if the loss comes from a risk that would have given place to a rescission of the contract in accordance to the previous paragraph and, on the contrary, shall have the right to reduce the compensation in proportion to the difference between the agreed upon premium and that which would have been agreed upon in the case of knowing the true risk state. These sanctions will not be applied if the insurer, prior to executing the contract, has known about the errors, reticence or inaccuracies of the statement or should have known them; or if upon the execution, it paves the way to rectification or they are accepted expressed or tacitly. Art 539. Other causes of the inefficacy of the contract. The insurance contract is null if the insured, knowing fully well, provides substantially false information to the insurer which is what is referred to in number 1○ of article 524 and is resolved if such conduct is incurred upon complaining for the compensation for a loss. In the cases of pronouncing of nullity or insurance resolution, the insurer shall retain the premium or demand the payment and cover the expenses that have been demanded to get accredited even though no risk has been run, without prejudice to a criminal action.

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Form and Content of the Precontractual Duty of the Assured: The Questionnaire Regarding the form of the duty of information, the Chilean law takes the use of the questionnaire, leaving the spontaneous system of declaration, by virtue of which the insurer could invoke the breach of the duty when he, in his judgment, deems that the policyholder infringes the demands of good faith by not giving the information that is known or that has to be known and relevant about the risk.44 The modern practice of insurance where the questionnaire or other means of the knowledge about the risk—especially technological45—are commonly used by the insurer have made the obligation obsolete from being exact and precise in what is declared or said, on the one hand, and on the other hand, to say or declare all that is known about the risk.46 On the contrary according to the Chilean law, it is sufficient that the assured responds the questionnaire that has been elaborated and given by the insurer. As a result, it deals with a duty to respond as has been categorized by Spanish doctrine.47 Article 524 number 1 states that the assured shall be obligated to sincerely declare all the circumstances that the insurer requests for the identification of goods insured and for the appreciation of the extent of the risks, on the one hand, and Article 525 states that [. . .] it is sufficient that the assured give the information required by the insurer [. . .], allows us to conclude that the Chilean Law adopts the questionnaire system.48 The parameters of transparency have a double perspective on the questionnaire system. The correlative duty of the insurer is to obtain information about the risk through the elaboration of a questionnaire and form with clear and precise questions that permit clear and accurate answer and to deliver it to the assured. The Chilean law, as seen previously, adopted a closed questionnaire system as the insurer has to give the form and the policyholder meets his duty to inform upon responding to the questions. In this sense, the second paragraph of Article 525 states that once agreed upon, without the insurer having requested the declaration about the state of risk, the insurer will not be able to complain about the errors, nondisclosure, inaccuracies of the policyholder, including those facts and circumstances that are not comprehended in the form. Notwithstanding the aforementioned, the rigidity of the regime of Articles 524 number 1 and 525 of the Commerce Code seems to be moderate in the case of major risks. In these types of insurance, the demand for good faith in contrahendo goes beyond that stated in the cited articles. The reason is that the assured, operating in a specific industry, is well informed or better informed about the risk.

44

Ríos (2014), p. 41 and following. They are instruments that permit the insurer to anticipate the knowledge of the information that integrates the risk. 46 See Vivante (1922), p. 176. 47 See Sánchez Calero (2010), p. 282. 48 See Ríos (2014), p. 44 ff. 45

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Special Rules on Questionnaires in the Case of Life Insurance Regarding life insurance, Articles 524 number 1, 525, and 539 of Commerce Code must be applied in accordance with Articles 590, 591, and 592 of the Commerce Code, which refer to health examinations, preexisting diseases and indisputability. Health examinations and preexistence have a direct relationship with the elaboration and use of the questionnaire, which may be insufficient as an instrument for knowledge of risk in the insurance of persons, particularly due to the ignorance of the insured of certain diseases.49 In addition, when it comes to insurances in which the agreed insured sum is high, the tendency is to demand a more detailed verification of the health status of the insured by the risk underwriting rules elaborated by the insurers.50 In this context, and for specific cases, verification of data obtained from the responses to the questionnaire may be required, through additional information from the attending physician or specific or general medical examinations as authorized by Article 590 of the Commerce Code when arranging the insurer may “[. . .] request the practice of medical examinations in accordance with the provisions of the law,51 exams whose results are integrated into the process of knowledge of insurable risk, or in other words, the acceptance to take exams by the insured is part of the duty of declaration.” This correlative duty of knowledge of the state of health of the insured that falls on the insurer causes a relevant influence if the effects derived from a declaration of the risk is treated. In accordance with what we have indicated and with the provisions of the final clause of Article 525 of Commerce Code, sanctions for breach of the precontractual obligation to declare risks “[. . .] shall not apply if the insurer, prior to the contract, has known the errors, reticences or inaccuracies of the declaration or should have known them [. . .].” Good faith that requires the policyholder to declare the information they have and know is violated when the insured does not say what they know about their state of health when asked. On the other hand, it must be relevant data, in such a way that the divergence between the declared and the reality provokes a contractual imbalance that justifies the application of the remedies contemplated in the law.52 On the other hand, Article 590 of the Commerce Code provides that “[. . .] The insurer may only request information relating to the health of a person in the manner established in Article 525, and may request the practice of medical examinations in accordance with the provisions in the Law; norm that has as limit the right to privacy of the insured, the reserve obligation that falls on the insurer53, and the requirements 49

In this sense, Tirado Suarez et al. (2010), p. 2386. Tirado Suarez et al. (2010), p. 2389. 51 Hoyl y Ruiz-Tagle (2014), p. 156. 52 See Morillas (2016), p. 55. 53 In the Chilean doctrine, Hoyl and Ruiz-Tagle point out that the right to privacy of the people enshrined in Article 19 No. 4 of the Political Constitution of the Republic “[. . .] helps to prevent the 50

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of the so-called informed consent, thus adjusting to what is prescribed in Law 20.584 on Duties and Rights of Patients, on the one hand, and on the other, to the duty of custody of the clinical records of the Heads of Service in Article 134 of the Health Code.” Finally, it is pertinent to refer Article 591 of the Commercial Code deals with the problems arising from the preexisting, by providing that [. . .] Only those illnesses, illnesses or health situations diagnosed or known by the insured or by whom he contracts in his favor may be considered preexisting. The norm contained in the aforementioned Article 591 of the Commercial Code coincides with the provisions of Article 33bis 6 of Law 18.93354 by providing that “[. . .] For the purposes of this law, it will be understood that pre-existing diseases, pathologies or health conditions are those that have been known by the member and medically diagnosed prior to the signing of the contract or the incorporation of the beneficiary, where appropriate [. . .].” As a result of what has been mentioned, the so-called preexistences—as data that make up the insurable risk—must meet two requirements: be diagnosed medically and that such diagnosis is known by the insured or contractor of the insurance, so that the insured seeks coverage on a health risk that exists and is known prior to the conclusion of the contract.55 In this way, the ignorance of the preexistence constitutes a limit to the duty of response of the policyholder.56

Effect of Breach of The Duty of Information of the Assured or Policyholder The effects of the breach of the duty to inform about the risk are regulated in Articles 525 and 539 of the Commerce Code. These legal texts consider two types of breach of the precontractual duty of the risk: erroneous, nondisclosing or inaccurate statement (Article 525) and the statement of bad faith or substantially false (Article 539).57 These types of defective statements are qualified as a basic unit of fact that allows for the falling back on the system of remedies. Only in the case of Article 525 of the

questions that are made to the policy holder from violating their personal dignity, and impose on the insurance company the duty of secrecy and confidentiality of the information provided. Hoyl and Ruiz-Tagle (2014), p. 155. En el derecho español ver Tirado Suarez et al. (2010), p. 2395 and following. 54 Law 18,933 creates the Superintendence of Pension Health Institutions, dictates rules for the granting of benefits by Isapres and repeals Decree with Force of Ney n ○ 3, of health, of 1981. 55 Hoyl and Ruiz-Tagle (2014), p. 155. 56 In this sense, Ruiz-Tagle (2011), p. 169. 57 See Ríos (2014), p. 100 and following.

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Commerce Code, it is important to identify a chronological factor—the occurrence or nonoccurrence of loss—and a negligence factor.58 Basic Unit of Fact: Erroneous, Nonerroneous, Nondisclosing or Inaccurate Statement (Article 525 of the Commerce Code) An erroneous statement is that which contains information not corresponding to actual facts. Nondisclosure is not providing true information. The two statements are similar. Thus, these statements are the same, separating them from the traditional system of consent defect that is obligatory to distinguish between essential, substantial or accidental error with the objective of determining the existence of nullity and further if such is relative or absolute.59 Regarding breach of duty, if loss has not occurred and the conduct of the assured is negligent, the insurer can rescind the contract. The rescission60 is a faculty of withdrawal of the contract. In cases where the assured does not act negligently, the contract remains in effect if and when the policyholder accepts changes to the contract regarding an increase in the amount of premium or changes in the conditions of the coverage. If the policyholder refuses, the insurer can rescind the contract.61 In case the loss did occur and the conduct of the assured is negligent, the insurer can rescind the contract. If the policyholder’s conduct is not negligent, he has the right to seek indemnification, although limited to the proportion between the actual risk and the premium agreed on.62 As we can see from the previous analysis, the noncompliance with the precontractual obligation to declare the identified risk with an erroneous, reluctant or inaccurate declaration can give rise to three remedies: the faculty of withdrawal of the contract by the insurer, a modification of the conditions of the contract or a reduction of the compensation. In the last two cases, the Chilean legislator includes the principle of maintenance of the contract ( favor contractus) privileging the satisfaction of the contractual interest over the term of the legal link between the insurer and the insured.

58

See Ríos (2014), p. 100 and following. See Morales Moreno (2011), p. 403; Basozabal Arrue (2012, p. 190). 59 See Ríos (2014), p. 131 and following. 60 The word rescission in the Chilean Law means to be without effect, and it does not always refer to nullity or resolution. 61 See Ríos (2014), p. 104 and following. 62 See Ríos (2014), p. 104 f.

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Basic Unit of Fact: Declaration of Bad Faith or Substantially False of Article 539 The substantially false declaration in Article 539 contemplates conducts of bad faith, which include guile. For this declaration, the law maintains the remedy of nullity, with the exception of the faculty of the insurer to retain the premium.63 Indisputability as a Limit to the Sanction of Nullity in Life Insurance Contracts The effects derived from an incomplete or defective risk declaration in the context of the basic assumption unit of Article 525 of the Commercial Code—erroneous, reticent or inaccurate statement—may be excluded due to the so-called indisputability or incontestability.64 It is a rule of conventional origin—born of the practice of reinsuring life insurance65—that prevents the insurer from invoking a breach of the precontractual obligation to declare the risk after a certain period of time since the conclusion of the contract,66 except in the case of fraudulent declarations. In this sense, Article 592 of the Commercial Code establishes the so-called indisputability by providing that [. . .] Two years after the initiation of the insurance, the insurer may not invoke the reluctance or inaccuracy of the statements that influence the estimation of the risk, except when they were intentional [. . .]. With regard to the term “fraudulent” of the aforementioned Article 592, it is our opinion it refers to the declarations of bad faith or substantially false of Article 539 of the Commercial Code. The legal text that we have quoted is linked not only to Article 525 of the Commercial Code but to the mandatory regime of Article 542 of the same Code. And it is relevant to highlight it since the immobility of the normative content of Article 592 of the aforementioned code prevents insurers from excluding from the contract the indisputability, on the one hand, and on the other, modifying the term of 2 years to the detriment of the insurance contractor or of the insured. Indeed this legal term could be abbreviated by agreement between the parties, when more beneficial conditions are established for the insured or beneficiary.

63

See Ríos (2014), p. 131. In this sense in Spanish law see Benito et al. (2015), p. 102. 65 Suarez states that “[. . .] with a mainly commercial purpose of providing legal certainty to the policyholder that the life insurance policy will not be challenged as a result of an inaccurate or erroneous declaration, the Anglo-Saxon insurance practice has propitiated the clauses of incontestability”. Tirado Suarez et al. (2010), p. 2406. See Visintini (1971), p. 432. 66 In this sense, the explanatory memorandum of Law 20.667 states that “Special mention must be made, as far as this section is concerned, that the institution of indisputability has been regulated, which means that after a certain period of time, the insurer cannot invoke the reluctance or inaccuracies about the health status of the insured person in this type of insurance”. See history of the law 20.667 p. 205. 64

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Transparency in the Insurance Policy

The Chilean law substituted a regime of the solemn insurance contract to a consensual one, according to that which is stated in Article 515 of C.com.67 This policy meets an objective of ad probationem,68 on the one hand, and a function of transparency, on the other. With regard to the regulation of the transparency of insurance contracts, the Commerce Code does not contain explicit norms.69 For this reason, it is necessary to refer to the Consumer Protection Law. In concrete terms, Article 17 of the mentioned law establishes that the adhesion contract relative to activities subject to this law shall be written in clearly legible way, with a letter size not inferior to 2.5 mm and in Spanish, except words of other languages that have been incorporated into the Spanish vocabulary. Moreover, Article 17C of the same law states that adhesion contracts of financial products and services have to contain, at the beginning, a sheet with a standardized summary of the main clauses, and the suppliers have to include this sheet in their quotations, to allow comparison by the consumers.70 The cited Article 71 allow for the verification of transparency control of the contract formation eliminating the lack of clarity of the agreement and the contract document or policy.72 In this way, the assured will be able to know and comprehend their rights and obligations under the insurance contract.73 In addition to the norms contained in the LPC/1994, the Chilean law contemplates norms that we can categorize as transparency of the policy norms, specifically

67

See Contreras (2014), pp. 114–115. Hoyl and Ruiz-Tagle (2014), p. 14. See Ríos et al. (2015b), p. 115. 69 In our view, its important considerer, that in the particular case of Chile, on 16 October 2017, the Financial Market Commission, in the exercise of the powers conferred by law, issued General Rule No. 420 (hereinafter NCG 420) on “Self-assessment of Market Conduct Principles for Insurance Companies and Insurance Brokers”. The supervisory agency considered this regulatory regime on market conduct as a supervisory mechanism with a preventive objective. It involves a change in the supervisory system from one based on rules to one based on risks or principles that would be represented—among other things—by so-called market conduct. This rule of regulatory rank— which we refer to as soft law—reformulates with a denomination different from the legal one, figures and demands that are contained a priori in our legal order and of legal rank. The text of NCG 420 contextualizes the term Market Conduct as “the good practices that should be considered by insurers, intermediaries and other insurance market agents in order to protect the rights of policyholders and the general public, taking into account aspects such as fair treatment and transparency in the marketing of insurance, the payment of compensation and other benefits associated with it, which make it possible to provide solutions to so-called market failures”. As indicated in section II of NCG 420, the basic principles of market conduct are: (i) fair treatment of customers; (ii) management of conflicts of interest; (iii) protection of customer information; and (iv) promotion of market development through transparency. 70 See Barrientos (2016), p. 91 and following. 71 See article 17 K of Law number 19.496. 72 See Contreras (2014), p. 157. 73 See Pizarro et al. (2013), p. 362; Fernández et al. (2013), p. 414. 68

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in Article 3 letter e) of DFL 251, which provides: It will be the responsibility of the companies that the insurance policies they hire, are written in a clear and understandable way, that are not inductive to error and that do not contain clauses that are contrary to the law. In case of doubt about the meaning of a provision in the model of general condition of policy or clause, the most favorable interpretation will prevail for the contractor, insured or beneficiary of the insurance, as the case may be. It is a legal norm that aims in two dimensions. On the one hand, it refers to the clarity and understanding of the contractual content and, on the other hand, to the rule of interpretation against proferentem that seeks to protect those who did not participate in the drafting of the contractual stipulations.74 It is, therefore, a legal standard that applies to insurance cases categorized as adhesion and with consumers. Big-risk insurances are excluded. Finally, in terms of clarity and understanding of the content of the contract under Chilean law, come together rules of the LPC/1994 that aim to certain formal requirements in order to ensure the clarity of the stipulations of the contract and, on the other hand, DFL 251 norms that give responsibility for the clarity of the adhesion insurance contract in the predisposing insurer.

2.4

Conclusions

Based on the previously discussed hereinabove, the conclusions to be drawn are as follows. Transparency as a mechanism for understanding contractual content is a principle that is not systematically and uniformly enshrined in Chilean law. The transparency rule in the insurance contract is contained in the Chilean Law in an explicit manner, in some cases—such as the precontractual duty of information regulated by the Commerce Code—and is implicit in the norms contained in the Consumer Protection Law and in DFL 251. The duty of information imposed on the parties in the process of the formation of the contract shall meet the parameters of clarity and comprehension, which have to be reiterated in the final content of the insurance contract. In this way, the assured contracts in an informed and free manner. Regarding the precontractual duty of information, the Chilean law contemplates a system of declaration via a questionnaire, and in the case of breach of duty, nullity may ensue if bad faith exists. On the other hand, the contract is maintained, or the insurer can legally make a repurchase. Regarding the contractual terms contained in the policies, both the LPC/1994 and the DFL 251 contain clear rules that reflect the principle of transparency in order to have adequate understanding of the contract.

74

See Contreras (2014), p. 202.

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Ríos R (2014) El deber precontractual de declaración del riesgo en el seguro de daños. ThomsonReuters, Santiago Ríos R et al (2013) Pre-contractual information duty of the insurer, en Unam, Samin (director) Insurer’s precontractual information duty. Turkish Chapter of AIDA, Istanbul Ríos R et al (2015a) El deber precontractual de información del asegurador en las modificaciones introducidas por la ley 20.667 al Título VIII Libro II del Código de Comercio Chileno, en Caballero, Guillermo, Lagos, Osvaldo (directores), Estudios de Derecho Comercial, Quintas Jornadas Chilenas de Derecho Comercial, 2014. Thomson Reuters, Santiago Ríos R et al (2015b) Artículo 515 p), en Ríos Roberto (director) El Contrato de seguro, Comentarios al Título VIII Libro II del Código de Comercio. Thomson Reuters, Santiago Rodger A (2015) In: Merkin R (ed) An Introduction to insurance and insurance law, of insurance law introduction. Routledge, London Ruiz-Tagle C (2011) La buena fe en el seguro de vida. Editorial Jurídica de Chile, Santiago Sánchez Calero F (2010) Artículo 10. Deber de declaración del riesgo, en Sánchez Calero (director), Ley de contrato de seguro, comentarios a la ley 50/1980 de 08 de octubre y sus modificaciones, 4ª edición. Thomson-Reuters Suarez T, Javier F et al (2010) Artículo 89, El riesgo en el seguro de vida, en Sánchez Calero (director), Ley de contrato de seguro, comentarios a la ley 50/1980 de 08 de octubre y sus modificaciones. Thomson-Reuters, Madrid Tapia M (2008) Orden público de protección en el Derecho chileno, en Estudios de Derecho Privado en homenaje a Christian Larroumet. Fundación Fueyo Visintini G (1971) La reticenza nel contratto di assicurazione, en Rivista di Diritto Civile, pp 423–458 Vivante C (1922) Del contratto di assicurazione. Unione Tipografico, Editrice-Torinese, Torino Wandt M (2012) Transparency as a General Principle of Insurance Law, en Transparency in Insurance Law, Association Internationale de Droit des Assurances, Turkish Chapter of AIDA & German Chapter of Aida

Transparency in the Insurance Contract Law of China Zhen Jing

1 Introduction In the modern world, insurance is a primary mechanism for the management of risks, by which the insured transfers the risks of some uncertain events to the insurer by paying premiums to the insurer, while the insurer promises that he will pay the insured for losses caused by the happening of the uncertain events insured against under an insurance contract. This nature of the insurance contract makes it absolutely necessary for the contract to be made transparent to the parties of the contract. Transparency in insurance contract law has different contents at different stages of the lifetime of an insurance contract, and it must be viewed and understood from different angles. At the pre-contract stage, as far as the insurer is concerned, the most important matter to him is whether or not the risk can be insured. The insurer’s selection of risk is based on the correct assessment of the risk, but the information about the risk lies more commonly in the knowledge of the insured.1 This information must be presented by the insured to the insurer as fairly and correctly as possible so as to enable the insurer to make an informed decision on whether to accept the risks and, if so, on what terms.2 The transparency of the information as to the risks can be achieved by the imposition on the insured of the pre-contract duty of disclosure and representation. So from the insurer’s point of view, it can be said that fair and correct disclosure and representation of information about the risks by the insured to

1 2

Carter v Boehm (1766) 3 Burr. 1905. The Insurance Law, art. 16.

Z. Jing (*) Bangor University, Bangor, UK e-mail: [email protected] © Springer Nature Switzerland AG 2019 P. Marano, K. Noussia (eds.), Transparency in Insurance Contract Law, AIDA Europe Research Series on Insurance Law and Regulation 2, https://doi.org/10.1007/978-3-030-31198-8_13

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the insurer before the conclusion of the contract are the primary components of the concept of transparency. As far as the insured is concerned, the most important matter to him is whether he can recover the loss when the risk occurs. As the recoverability of a loss is governed by the policy terms that were designed and drafted by the insurer,3 the insurer knows and understands everything about the policy, while the insured may not understand the complex terms included therein. Thus, what the insurer must do is to clearly, concisely and effectively provide policy information to the insured in a form that allows the insured to understand the cover and compare it with other products. The requirement of policy transparency imposes on the insurer a pre-contract duty of disclosure and representation of information about the insurance policy; this would enable the insured to acquire the knowledge and understanding of the policy terms and make an informed decision as to whether or not to place a risk with the insurer. Thus, from the insured’s viewpoint, the major component of the concept of transparency is clear and correct representation of information about the policy terms by the insurer to the insured prior to the conclusion of the contract.4 During the insurance period, the risks insured against may change. In the case of a material increase of the risk of the subject matter, the insured is obliged to inform the insurer of the increase of the risk so the insurer has an option to increase the premium or to rescind the contract, depending on the extent of the increase of the risk.5 Here, the major component of transparency is for the insured to notify the insurer of a material increase of risk during the insurance period. At the claim stage, when an insured event occurs and causes loss, the insured must make the information about the loss transparent to the insurer to enable the insurer to make a correct assessment of the loss.6 On the part of the insurer, he must handle the claim in a timely manner and follow a procedure transparent to the insured.7 It is submitted that transparency is an essential precondition to ensure that all contractual parties benefit from the insurance transaction. The concept of transparency penetrates throughout the lifetime of an insurance contract, from the stage of entering into the contract, the currency of the insurance period, to the stage of making and settling claims. This chapter considers the requirement of transparency from the formation of an insurance contract to the claim stage in the insurance contract law in China: (1) transparency at the stage of making an insurance contract, (2) transparency during the life of the insurance contract and (3) transparency at the stage of making and settling claims.

3 Recoverability may also be affected by the insurer’s solvency which is usually regulated by the governmental authorities. 4 The Insurance Law, art. 17. 5 The Insurance Law, art. 52. 6 The Insurance Law, arts. 21–22. 7 The Insurance Law, arts. 23–26.

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To begin with the analysis of Chinese law in respect of transparency, it is appropriate to give a brief overview of the insurance legislation in China.

2 An Overview of Insurance Legislation in China In China, the Insurance Law of the People’s Republic of China (hereinafter the Insurance Law),8 the Maritime Code of the People’s Republic of China (hereafter the Maritime Code),9 the Interpretations of the Supreme People’s Court (SPC) on Certain Issues Concerning the Application of the Insurance Law (hereinafter the SPC Interpretations), the relevant regulations of the State Council of China and the regulations enacted by China Banking and Insurance Regulatory Commission (CBIRC)10 constitute the legal framework governing the insurance activities, insurance market and insurance industry. There are two major pieces of legislation for insurance contracts, namely the Insurance Law, which was first enacted in 1995 and amended three times in 2002, 2009 and 2015 and governs non-marine insurance, and the Maritime Code, chapter 12 of which governs marine insurance contracts. In this chapter, the statutory rules relating to insurance contracts in respect of transparency are considered. China has a civil law system; the written law is the major source of law. However, pursuant to the Resolution of the National People’s Congress Standing Committee on Strengthening the Work of Law Interpretation,11 the SPC is authorised by the National People’s Congress to enact judicial interpretations in respect of all questions arising from court trials concerning the specific application of laws and decrees.12 The SPC’s judicial interpretations on written laws have legal force.13 The SPC has so far published four pieces of Interpretations on certain provisions of the Insurance Law in 2009, 2013, 2015 and 2018, respectively (hereinafter SPC

8

The Insurance Law the People’s Republic of China was adopted at the 14th Session of the Standing Committee of the 8th National People’s Congress on 30 June 1995 and became effective as of 1 Oct. 1995. The Law was amended three times in 2002, 2009 and 2015. 9 The Maritime Code of the People’s Republic of China was enacted in 1992 and became effective in 1993. 10 The statutory regulatory authority on insurance in China. 11 It was adopted at the 19th Meeting of the Standing Committee of the 5th National People’s Congress on 10 June 1981. 12 Ibid, art. 2. See http://www.npc.gov.cn/wxzl/gongbao/2000-12/06/content_5004401.htm (accessed in June 2018). 13 According to articles 5 and 6 of the Stipulation of the Supreme People’s Court on the Judicial Explanation (2007 No. 12), the Supreme People’s Court stipulation, judicial explanation or decision have legal force. This means that the Supreme People’s Court stipulations, judicial interpretations, decisions or replies are of the legal sources in China.

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Interpretations I, II, III and IV, respectively).14 These pieces of Interpretations give detailed interpretations on certain provisions of the Insurance Law. Moreover, some High People’s Courts (HPC) at provincial level have published guidelines in handling insurance disputes; the HPC rules are not binding the lower courts but guiding them in hearing insurance cases.15 This chapter also considers relevant rules by the SPC or the HPC, where appropriate and necessary. In China, insurance is currently regulated by the CBIRC, which was established on 17 March 2018. Before the establishment of the CBIRC, the China Insurance Regulatory Commission (CIRC) was the insurance regulatory authority in China. The relevant regulations published by the CIRC are considered in this chapter.