by Anton K Schnyder and Ahmet Kut
1. Object and purpose
Insurance contracts are special nominate contracts often codified in special statutes. Similar to a legal definition, § 1 of the German Insurance Contract Act sets out the typical contractual duties of the parties. The provision is of a general character: ‘By making a contract of insurance the insurer undertakes to cover a certain risk of the policyholder or a third party by paying a benefit upon occurrence of the agreed insured event. The policyholder is obligated to pay the agreed contribution (insurance premium) to the insurer.’ The object of insurance contracts is the provision of insurance coverage as regulated by supervisory law (insurance regulation). An insurance contract is an independent type of contract due to the fact that the provision of insurance is a special kind of product requiring particular rules—also from a private law perspective—given that the policyholder and in some instances third parties are likely to be in need of special protection.
From the perspective of a legislator regulating insurance contracts, it needs to be decided whether and, if so, which special provisions should be enacted and which persons (natural and legal) should be within the relevant scope of protection. The latter question arises even in those jurisdictions that have not codified insurance contracts in a special act of law but have instead integrated this type of contract into their general private law codifications. Special provisions in the law relating to insurance contracts generally comprise three types of norms: (1) mandatory provisions; (2) semi-mandatory provisions; (3) non-mandatory provisions. Mandatory provisions are those provisions which cannot be derogated from under any circumstances for reasons of ordre public, eg the (general) prohibition of double insurance or life insurance in respect of a third party where the person for whose death the insurance was concluded has not consented. Provisions which cannot be derogated from to the detriment of the policyholder or a third party are, by contrast, considered semi-mandatory provisions. As insurance contract law has become more and more committed to the requirements of modern consumer protection law, the number of semi-mandatory provisions is increasing, and legislators need to decide whether only consumers should benefit from them or whether other policyholders (eg small and medium businesses) should also have a right to invoke their protection. On the other hand, it is largely undisputed that policyholders requesting insurance for large risks do not fall within the scope of mandatory provisions.
With a view to the unification of European law, it should be noted that the Principles of European Insurance Contract Law (PEICL) as a general rule contain only fully mandatory and semi-mandatory provisions.
2. General and special provisions of insurance contract law
Insurance contract statutes (or the relevant sections of a general private law codification) usually include a general part with provisions that apply to all insurance branches and contracts. These are provisions (often at least semi-mandatory) that typically take into account all the characteristics of insurance contracts. Their focus lies above all on the conclusion and validity of insurance contracts. Major topics here include the conclusion of the contract and its revocation, formal requirements, policies, preliminary and retroactive coverage, and other special agreements. In this context, provisions regarding pre-contractual information duties of insurance companies, on the one hand, and disclosure duties of the applicant, on the other hand, are of central importance. In the latter case, the complex and seminal question is what should be the consequences of a policyholder’s breach of his duty of disclosure. Furthermore, a separate section of the regulation is usually dedicated to the premium which the policyholder has to pay. In particular, it is necessary to provide rules regarding the maturity of the claim, default of payment and divisibility of the premium. Questions surrounding the insured event are also of particular importance. When is the event considered to have occurred? What are the duties of the policyholder and what is the exact nature of the insurer’s required performance? Furthermore, the provisions regarding the duration, termination and modification of an insurance contract are of increasing importance; the main issues in this area are aggravation and reduction of risk, unilateral alteration of a contract, and termination both ipso iure as well as by notice. Depending on how the legislative instrument in question is conceptualized, further rules and regulations are often included in the general provisions which may also have an influence on insurance contracts. These rules can be, for example, special provisions regarding insurance intermediaries, prescription, enforcement or data protection.
Regularly, following the general part a special part of insurance contract statutes is dedicated to particular issues which pertain to specific insurance branches, and at the beginning of the special part one can often find general provisions dealing with several branches of the specific insurance sector. For example, a special part may first provide semi-general rules on indemnity insurance dealing with multiple insurance, overinsurance and underinsurance and then be followed by specific chapters covering, respectively, fire insurance, theft insurance and hail insurance. In addition, there are rules governing the coordination of insurance coverages, in particular the relation between private insurers and social insurance systems (subrogation, regress). The main criterion for categorizing specific insurance contracts is the distinction between indemnity insurance and insurance of a fixed sum, which is particularly relevant for personal insurance (indemnity insurance). In the area of non-life insurance provisions regarding property insurance and liability insurance assume importance. In the latter case, special provisions are necessary regarding compulsory liability insurance and compulsory insurances in general. Other special insurance branches of note are legal expense insurance, transport insurance and (if permitted for private insurers) building insurance. With regard to personal insurance, the main focus lies on life insurance as well as health and casualty insurance.
3. Trends of legal development
With respect to the development of European private law, it should be noted that several EU and EEA states have recently endeavoured to reform their respective private insurance legislation more or less comprehensively, eg Belgium, Germany, Finland, France, Greece, Liechtenstein, the Netherlands and Sweden. The primary goal of these reforms has not been the implementation of European directives given that there are none dealing with the specific matter of private insurance legislation. Indirectly, however, the insurance-related acquis communautaire has to some degree influenced the nature of the reforms. By way of example, one might consider the directives on insurance supervision which enhanced the duty on the part of insurers to provide the policyholder and other persons with information. The relevant provisions are often to be found in supervisory public law but may also be contained in private law statutes pertaining to insurance contracts. Additionally, with the implementation of the internal market for insurance, Member State authorities responsible for the supervision of insurance contracts are no longer entitled to an ex ante review of insurance products and their underlying general terms and conditions with a view to their conformity with the relevant laws (insurance regulation). Only in exceptional cases—in instances of abuse—is an ex ante review of general terms and conditions and tariffs permitted. Accordingly, the necessary protection of the insurance policy holder needs to be ensured by way of more effective regulation in private insurance laws and with the support of new stakeholders (eg consumer protection associations). The new codifications and reforms of European private law provisions on insurance law reflect these developments and are—in accordance with the general development of consumer protection law—mainly aimed at improving the protection of policyholders and other concerned persons. Whether and to what extent a common framework for contract law can be realized at the level of the EU and the EEA is further discussed in the Principles of European Insurance Contract Law (PEICL).
Both national codifications as well as the PEICL address key issues that are likely to play an important role in the reform of insurance contract law. A central issue that should be made subject to regulation by means of private law is the advice and information given to policyholders, namely by insurance companies and their field staff but also by (ideally independent) insurance intermediaries. With regard to legislative activity, the question is whether and to which extent insurance companies should be obliged to investigate the needs of persons interested in buying insurance, give advice and present these individuals with ‘tailor-made’ offers for insurance coverage. The same applies mutatis mutandis to insurance brokers; however, as insurance brokers have to act in the interest of the policyholders, their duties to advise may be enhanced in any event. The duties to advise and inform are increasingly enforced through provisions providing for contractual liability in the event the duty to advise was not fulfilled in a satisfactory manner.
Another main concern that may be detected is the abolition of the all-or-nothing principle. Particularly in cases where the behaviour of the policyholder leads to an impairment of his or her legal situation—eg violation of the disclosure duty or in cases of fault or omission as regards other obligations—recent codifications provide for differentiated legal consequences (cf § 28 of the German Insurance Contract Act and §§ 6 and 7 of the Belgian Law on the Terrestrial Insurance Contract). Complete loss of insurance coverage as a consequence of a breach of contract is now the exception.
Furthermore, the term and duration of insurance contracts is becoming increasingly flexible. In some countries, this means that the regular contract term has been considerably shortened (in some instances to no more than one year; see Art 30(1) clause 1 first sentence of the Belgian Law on the Terrestrial Insurance Contract (maximum term of one year)); in others, the policyholder has comprehensive rights of rescission and termination (see § 11 of the German Insurance Contract Act (right of termination)). However, such rights often apply to the insurance company as well. Consistent with (general) requirements of EU law, rights of rescission are increasingly common in the context of insurance contracts (cf § 8 of the German Insurance Contract Act and Art 7 of the draft Swiss Federal Law on the Insurance Contract).
New regulations can also be observed in the field of compulsory insurance. Injured third parties are increasingly granted direct claims against the insurer for personal liability—in some cases in connection with the duty of the policyholder to inform the injured party about the existing coverage (cf § 115 of the German Insurance Contract Act and Art L124-3 of the French Insurance Code (action directe)).
A difficult and complex field is the new (contractual) regulation of life insurance. In this area, particular focus lies on rules regarding surplus participation of the policyholders and detailed rules regarding early buy-back and early termination of the insurance. Here, requirements are being set—particularly in Germany—by the case law of the supreme courts (BVerfG 26 July 2005, BVerfGE 114, 73) and also increasingly by EU directives. It is apparent that, in this respect, a considerable challenge is posed by the question as to whether and to what extent the rights of policyholders should be regulated either by means of supervisory public law provisions or by means of mandatory private law provisions on insurance contracts. For now, it would seem that a final and satisfactory approach has not been found.
For the near future, it will be crucial whether the Principles of European Insurance Contract Law (PEICL) are implemented in the EU and EEA. In which legal form and with which options these general principles of private insurance contracts are implemented will not be of great significance. The important question is whether or not they will find their way into the practice of private insurance contracts at all. If this is the case, they could serve as a model for legislative activity beyond the territorial scope of Europe.
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