9783866539457

Principles of European Insurance Contract Law: A Model Optional Instrument
sellier. european law publishers www.sellier.de
Principles of European Insurance Contract Law: A Model Optional Instrument

With a Postscript in Honour of Fritz Reichert-Facilides
edited by
Helmut Heiss
in co-operation with
Mandeep Lakhan
on behalf of the Project Group
Restatement of European Insurance Contract Law
The conference in Vienna was made possible thanks to the support received from various institutions. The Project Group is especially grateful to the Austrian Ministry of Justice (Bundesministerium fr Justiz) for hosting the event at Palais Trautson. It also greatly appreciates the nancial support offered by the following sponsors: Tyrolean Regional Government (Amt der Tiroler Landesregierung) Austrian Ministry for Science and Research (Bundesministerium fr Wissenschaft und Forschung) Tiroler Versicherung V.a.G. Uniqa Versicherungen AG University of Innsbruck (through the International Relations Ofce and Jubilumsfonds) The Group is also appreciative of the continued support provided by its general sponsor, the Austrian Science Fund (sterreichischer Fonds zur Frderung der wissenschaftlichen Forschung).
ISBN (print) 978-3-86653-184-0 ISBN (eBook) 978-3-86653-945-7
The Deutsche Nationalbibliothek lists this publication in the Deutsche National-bibliograe; detailed bibliographic data are available on the Internet at http://dnb.d-nb.de.
2011 by sellier. european law publishers GmbH, Munich.
All rights reserved. No part of this publication may be reproduced, translated, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior permission of the publisher. Production: Karina Hack, Munich. Typesetting: dus Publikations-Service GmbH, Nrdlingen. Printing and binding: AZ Druck und Datentechnik, Kempten. Printed on acid-free, non-ageing paper. Printed in Germany.
Preface
The PEICL provide the rst fully developed model of an optional instrument, a 2nd Regime, in European Contract Law. In particular, Articles 1:102 and 1:105 PEICL set out the option of the parties as well as the relationship of the PEICL to national law and general principles of contract law. While these provisions have been drafted with a view to insurance contract law, they can operate as a model for a general optional instrument at the same time. This volume presents the views and opinions of representatives of the political, business and academic arena on the suitability of the PEICL as a model for an optional European insurance contract law. In addition, a postscript has been added in commemoration of the founding father of the Project Group Restatement of European Insurance Contract Law, the late Dr Fritz Reichert-Facilides, LL.M. (Ann Arbor), Professor Emeritus of the University of Innsbruck, Austria.
Table of Contents
Preface
v
Part I
Welcome Address Georg Kathrein Introduction Helmut Heiss Political Perspectives Diana Wallis Developments at EESC Level Jorge Pegado Liz An Academic View Marcel Fontaine Report on Discussion I Mandeep Lakhan The Perspective of the Insurance Industry Felix Wieser The Consumers View Peter Hinchliffe
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15
25
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51
59
vii
Table of Contents
The Role of the Intermediary David Harari Report on Discussion II Mandeep Lakhan Closing Remarks: Summary and Outlook Jrgen Basedow List of the Speakers and Participants in the Discussion
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85
95
101
Part II Postscript Foreword Helmut Heiss Comparative Insurance Contract Law: General Aspects Fritz Reichert-Facilides () Afterword Helmut Heiss
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107
109
151
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Part I
Welcome Address
Georg Kathrein
Ladies and gentlemen, On behalf of Claudia Bandion-Ortner, the Austrian Minister of Justice, welcome to Vienna and welcome to the Ministry of Justice. Unfortunately, Mrs Bandion-Ortner is not able to open your conference and to pay a visit to your discussions. But she has an excuse, a good excuse; she is engaged in the Informal Council at Toledo where the European Minsters will discuss inter alia the further development of European Civil Law. She wishes you all the best for the conference and she asked me to deliver her thanks that you have chosen Vienna to discuss the Principles of European Insurance Contract Law. It is a great honour for us to offer you a platform for the presentation of the Principles. And we hope that you might taste just a little bit of the European spirit in the Palais Trautson where the Ministry of Justice is located. For more than 150 years, this building was the headquarters to the Hungarian Royal Lifeguard that served at the Habsburg Court not far away. After the collapse of the Habsburg Empire, the Palais hosted two Hungarian state institutions until it was sold to the Republic of Austria in the sixties of the former century. Since then, the building has been renovated several times, most recently in 2006 / 2007 to prepare an adequate setting for the Austrian Presidency in the year 2008. The ballroom we are in now has seen quite a lot of international conferences on European Civil Law. So after all, it is not an exaggeration if I say that the spiritus loci might bring some advantages to the project. I hope that it will contribute in a positive way to the further development of European Insurance Law. We all know that the development of European Civil Law is a difcult process: The European Parliament has already pled for further harmonisation of that part of law several times, bearing in mind the needs and requirements of European citizens and companies. The European Commission has elaborated an Action Plan and some further communications, but those efforts have not come to an end yet, we are still waiting for some
3
Welcome Address
further information. The Council and the Member States seem to be more critical than the other European institutions. There are serious objections against the plans and the resolutions of the European Parliament and the efforts of the Commission. As far as I can survey that, it has not yet been possible to nd a common political understanding. The European scientic community shows us a totally different picture: All over Europe, universities and teachers have come together to discuss the future European Civil Law, partly supported by the Commission, partly by other institutions and the industry. The Draft Common Frame of Reference, the results of the so-called Gandol Group, the Principles of European Tort Law and now the Principles of European Insurance Contract Law, all those papers contain more or less concrete rules and principles of European Civil law. They are inspired by Community law and by national regulations. And they all demonstrate what the future European law could look like. So this is quite a difcult situation: On the one hand, there are the political institutions and the Member States that have not been able to nd a common position; on the other hand, European academics have developed several instruments and drafts. One may ask what it is worth if there is no realistic political perspective to implement all those proposals into real law. Are we all wasting our time on theoretical issues that will never come to an end? Is it all pure science, without a view to the reality of European law-making business? Ladies and gentlemen, yes, it is pure science, yes, it is visionary and yes, it is theoretical, but it is even more than this. I do not want to strain phrases like tool box, optional instrument or other slogans that are used in political and scientic discussion, as it is not clear what they mean and to what they refer. But in any case, it is remarkable that the European academics have shown us what could be done, that they have demonstrated the possibilities in comparison with the realities we all live and work in. Of course, it is much more difcult to work on real legal instruments that have to consider the different interests of Commission, Parliament, Member States and all the parties that are involved in the legislative process. But the Principles and Frames of Reference have demonstrated that there might be alternatives to the current situation, depending on the political will and on the economic needs and desires. Moreover, the scientic work would not have been done in vein if it would take a longer time until the European institutions come to a common position. The Principles and the Frames of Reference contain a lot of interesting proposals that have to be considered in daily work. Whatever the legislators
4
Georg Kathrein
Welcome Address
in the Commission, in Parliament or in the Member States are drafting, they have to keep an eye on the solutions they can nd in the Principles or the Frames of Reference. The rules and principles herein are up-to-date, they represent the modern European standard and they are high-quality work. And the scientic drafts will nd their way into the practical daily life of European jurists. They will be quoted in decisions and judgments of the courts as well as in other documents and statements. So we do not have to wait until the political stakeholders have come to a decision, the practical inuence of the scientic efforts will start from the publication and the presentation of those works. There has always been some sort of rivalry between legislators and scientists. I dare to talk about this fact because I work in both branches, in the Ministry of Justice as well as for the University of Vienna. Scientists usually tend towards a critical point of view; they ask and tell themselves and their readers what has gone wrong and what could have been done better. Legislators and politicians are a little bit cautious and insecure when dealing with pure science. Above all, they believe that scientists do not have any idea of the political reality and the inuences and impacts on political work. One should not overvalue these tensions, but they probably are one of the reasons for the opposition against the drafts and Principles in the Member States. The question is how we could overcome these obstacles. Well, in my opinion we should go back to the beginning and we should keep in mind the aims of the projects: The Principles and the Frames of Reference cannot be perfect law; they should be the perfect proposal. Professor Heiss asked me in the preparation of the conference if I could give a short estimation of the Principles. I promised him to do so but as I received the book I decided to break my vow. It is simply impossible to talk about the Common Frame without going into detail due to the quality and the extent of the proposal. I just have to tell you one impression I gained as I started to study the Principles: I thought to myself that the proposal is attractive, as it is short, simple and clear, and I thought that it is dangerous, as it is the perfect proposal which could be the foundation and basis of further development. Let me come to an end and let me end with some personal remarks. I studied law at the University of Innsbruck years ago. One of my teachers in commercial law and private international law was Fritz ReichertFacilides. At that time in the late seventies we did not learn too much about insurance law and we did not hear anything about European
Georg Kathrein
Welcome Address
law, as the European Community was far, far away from Austria. It is a special pleasure for me that the undertaking to compare and to summarise the European law started in Innsbruck has now come to an end. Professor Basedow and Professor Heiss, thank you very much for your efforts and good luck for the future of the Principles.
Georg Kathrein
Introduction
Helmut Heiss
Thank you, Mr Kathrein, for your warm words of welcome, spoken on behalf of the Austrian Ministry of Justice. It is a pleasure to be hosted by you in your wonderful Palais Trautson. Mrs Vice-President, dear conference speakers, my colleagues, ladies and gentlemen! Successful law-making implies a complex social interaction between citizens, stakeholders, politicians and legal experts. Indeed, textbooks on comparative law present a rich selection of examples in which law-making failed because the interaction had been distorted in one way or another. A newly introduced law is usually deemed to have failed when society refuses to accept it and tries to avoid it as far as possible in social reality. Comparativists have pointed out that at least three criteria must be met in order to prevent a new law from failing: (a) there must be demand in society for a new law which makes citizens receptive to new rules; (b) the new rules must be based on a thorough analysis of the underlying problems so that they will address the demand appropriately; and (c) there must be a political will strong enough to provide for a new law of this kind. European insurance contract law in the past has presented yet another textbook example of failed legislation. The Amended Proposal for a Directive on Insurance Contract Law of 1980, which had never been enacted, was nally withdrawn by the Commission in 1993. Scarcity of demand, an inadequate analysis of the underlying problems and lack of political will are the main reasons behind the failure. Today, we will discuss an entirely new model law, the Principles of European Insurance Contract Law (PEICL) which were published quite recently by the Project Group on a Restatement of European Insurance Contract Law (the Project Group). You may wonder why a new attempt
7
Introduction
to unify insurance contract law was undertaken. After all, the questions remain the same: Which demand do the Principles meet? Do they give an appropriate answer to the problems of the single insurance market? Furthermore, is there strong enough political will to provide for a European Insurance Contract Law? We will hear answers and opinions to these questions from our most distinguished speakers, to whom we owe a debt of gratitude for taking the time and effort to analyse our model law the text of which, after all, comprises 283 pages. I do not know what their position will be. However, I do know that the founding father of our Project Group, the late Professor Fritz Reichert-Facilides, was very well aware of the three criteria mentioned previously. His initiative to set up the Project Group in 1999 was primarily based on the conviction that the progress in deregulating European insurance law, in particular the abolition of the traditional ex ante control of insurance products, had stimulated competition in the insurance sector and, thus, created an interest on the part of insurance companies to compete not only in domestic, but also in foreign markets. At the same time, the increasing mobility of policyholders raised the question of whether it was possible to reconcile the ideas of a single insurance market with the fact that policyholders were being forced to change their motor vehicle liability insurance policies, their household insurance policies, their health insurance policies, their life assurance policies and so on whenever they moved from one Member State to another. Both sets of interests, the industrys as well as the consumers, showed a newly developed demand for a unied insurance contract law and, thus, a new starting point for attempting to harmonise contract law in Europe. Moreover, Fritz Reichert-Facilides clearly identied that the unication of insurance contract law must be approached in a way that met the new demand. His approach was, therefore, orientated towards the single market from the very beginning which was obviously the only appropriate response to the new demand. This single market is based on freedom of contract and, therefore, relies on the creativity of the insurance industry in designing products which meet the demands of policyholders. The market is, however, restricted by mandatory rules of national insurance contract law, which also apply to foreign products especially to products of mass risk insurance once they are sold cross border. Following his single market orientation, Fritz Reichert-Facilides petitioned for a unication of mandatory rules only a restriction which still forms the backbone of the project. Other features of the Principles of European In8
Helmut Heiss
Introduction
surance Contract Law conform to the single-market orientation as well: The Principles transpose the acquis communautaire existing in the area of insurance contract law, such as the information duties imposed on the insurer and the withdrawal rights granted to the policyholder by the Distance Marketing Directive1 as well as the Life Assurance Consolidation Directive2. The Principles also transpose the insurance-related provisions in the Gender Directive3, the Unfair Contract Terms Directive4 as well as the Injunctions Directive5. This list of transposed directives indicates a third single-market element of the PEICL: they afford a high level of consumer or, more precisely, policyholder protection. This single-market orientation is one of the main features of our project. The Project Group has maintained this orientation even since joining the Common Frame of Reference (CFR) Project in 2005. The CFR was envisaged to be a set of denitions and general principles, but not necessarily a model law for the single market. The Group, however, thought that, at least as far as insurance was concerned, the CFR itself would not be sufcient to build a single market. This is why the Principles of European Insurance Contract Law, while providing a CFR, also serve as a model law for the single market. This goes to show that despite the Principles being characterised by some authors as academic in nature (we take this as a compliment and, in fact, we share this view), it does not mean that the Principles do not address the practical needs of the single market. Fritz Reichert-Facilides never intended to create virtual reality, but was instead willing to ght for change in the realm of the single market.
Directive 2002 / 65 / EC of the European Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer nancial services and amending Council Directive 90 / 619 / EEC and Directives 97 / 7 / EC and 98 / 27 / EC [2002] OJ L271 / 16. Directive 2002 / 83 / EC of the European Parliament and of the Council of 5 November 2002 concerning life assurance [2002] OJ L345 / 1. Council Directive 2004 / 113 / EC of 13 December 2004 implementing the principle of equal treatment between men and women in the access to and supply of goods and services [2004] OJ L373 / 37. Council Directive 93 / 13 / EEC of 5 April 1993 on unfair terms in consumer contracts [1993] OJ L095 / 29. Directive 98 / 27 / EC of the European Parliament and of the Council of 19 May 1998 on injunctions for the protection of consumers interests [1998] OJ L166 / 51.
Helmut Heiss
Introduction
The approach taken by Fritz Reichert-Facilides was welcomed by many outstanding scholars of insurance law who were willing to co-operate, join the Project Group and support Fritz Reichert-Facilides in his endeavour. Among them was Jrgen Basedow, who had just set up a Hamburg Team on insurance law and begun a comparative analysis of insurance contract law in Europe, which was published in a set of three volumes in 2002 and 2003. These volumes presented a reliable frame of reference for the purpose of extracting European Principles. Moreover, the Hamburg Team provided all the Notes for the published version of the PEICL, which contain comparative references to the status quo of insurance legislation in the Member States. When Fritz Reichert-Facilides passed away in 2003, many of the Principles presented in our book had thitherto not been drafted. Yet, the concept on which the overall project was to be based had been established. In addition, since I distinctly remember that Fritz Reichert-Facilides liked to refer to the Aristotelian concept of entelechia, it is clear to me that by applying this concept he could undoubtedly foresee what would be the ultimate outcome six years after his death. The Project Group is happy and proud to have completed what remained to be done when it lost Fritz Reichert-Facilides. One major development which could be anticipated as early as in 2003 was the shift from the comprehensive harmonisation of laws to the creation of optional instruments, which offered a promising alternative, especially in the eld of nancial services. Optional instruments provide no more than an alternative because an optional instrument cannot bring about better results for the single market than comprehensive harmonisation. However, they provide a promising alternative because optional instruments do not share certain shortcomings inherent to comprehensive harmonisation: First of all, optional instruments do not directly affect the legal tradition of each Member State; it leaves national laws untouched. Secondly, optional instruments leave the decision regarding its application to a choice of the parties, thereby ensuring that they will be used where there is demand and conversely not be imposed on parties who do not wish the Principles to be applied. This shift towards an optional instrument had previously been envisaged in a 2004 own-initiative Opinion on the European Insurance Contract from the European Economic and Social Committee, for which Jorge Pegado Liz was the rapporteur and Fritz Reichert-Facilides his ini10
Helmut Heiss
Introduction
tial expert. Today, the Principles of European Insurance Contract Law represent the rst thoroughly developed model of a European optional instrument. Based on a proposal by Jrgen Basedow, Article 1:102 allows parties to opt into the regime of the PEICL notwithstanding any limitations of choice of law under private international law. This formulation has raised systematic concerns for some authors: Why should a free choice of foreign law under art. 3 of the Rome I Regulation be restricted by art. 7 of the Rome I Regulation in matters concerning insurance and by art. 6 of the Rome I Regulation in consumer contracts, while the choice of the optional instrument which operates as a 28th regime in addition to the 27 national regimes would remain unrestricted? Consumerists like to add that the option will in fact be left to insurers to choose, with the policyholder having little inuence, especially when it comes to mass risk insurance. The systematic concern is, at least according to my own research work in the eld,6 unfounded because the optional instrument is NOT a 28th regime. If enacted as an EU regulation, it would rather represent a 2nd regime of domestic law within each Member State.7 EU regulations apply directly in every Member State and, therefore, are not to be regarded as foreign law. The choice of the optional instrument is, therefore, a choice between two regimes of domestic law and not a choice of foreign law. This applies to existing optional instruments, such as the European Company, the Community Trademark and the European Patent, and would equally apply to the PEICL if the European legislature were to enact them as an EU regulation. This observation does not, of course, address the concern of consumerists that the option may be chosen by an insurer in order to lower the
6
See mainly Helmut Heiss and Noemi Downes, Non-optional Elements in an Optional European Contract Law: Reections from a Private International Law Perspective (2005) 13 European Review of Private Law 693. This 2nd Regime model is developed in more detail in Helmut Heiss, Introduction in Jrgen Basedow, John Birds, Malcolm Clarke, Herman Cousy and Helmut Heiss, Principles of European Insurance Contract Law (Sellier, Munich 2009), and has recently been adopted by the EESC in its recent own-initiative Opinion (Opinion of the European Economic and Social Committee on The 28th regime an alternative allowing less lawmaking at Community level INT / 499 CESE 758 / 2010) and the Green Paper of the European Commission (Commission (EU), Policy options for progress towards a European Contract Law for consumers and businesses (Green Paper) COM (2010) 348 nal, 1 July 2010).
Helmut Heiss
11
Introduction
standards of consumer or policyholder protection. However, it should rst of all be noted that the second sentence of Article 1:102 excludes any partial choice of the PEICL, thereby ensuring that insurers cannot use the optional instrument for cherry picking purposes. Secondly, the PEICL apply a high standard of consumer protection themselves. So the choice is between national law, including consumer law, and the PEICL, which provides for a comparable standard of protection. You may ask: why would insurers then opt for the PEICL? Certainly not because they could avail themselves of a low standard of consumer protection. It is because a choice of the PEICL is the only way to produce European insurance products which can be distributed throughout the Community without having to make any adaptations to local law. The optional instrument allows insurers to develop European insurance contracts. This is why insurers doing business internationally should be willing to choose the PEICL. This is also why the PEICL will ultimately not only be the choice of the insurer: private customers who want to remain mobile within the Community will have an incentive to look for insurance products which are based on the PEICL in order to spare themselves the effort and costs of switching to a new insurance once they move from one Member State to another. These consumers will make an active choice in favour of the optional instrument themselves. We do not know what will be the political future of our proposal. However, although the European Council has hitherto stated its intention to maintain the Common Frame of Reference as a non-binding instrument, this may well not be its last word. There are a number of indications that the implementation of one or several (sector-specic) optional instruments may be expected in the future. The European Commission has repeatedly referred to the possibility of an optional instrument in its communications on European contract law. On 17 June 2008, the European Parliament and the European Council adopted the Rome I Regulation. While this legal instrument only governs conict-of-laws issues, Recital 14 states the following: Should the Community adopt, in an appropriate legal instrument, rules of substantive contract law such instrument may provide that the parties may choose to apply those rules. Recital 14 of the Rome I Regulation thus anticipates the choice of the Principles of European Insurance Contract Law or similar instruments as optional instruments. Furthermore, in its Resolution on the Common Frame of Reference for European Contract Law of 3 September 2008, the European Parliament repeatedly emphasised that this could, if nothing else, serve as a model for an optional instrument in the future. Most recently, the
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Helmut Heiss
Introduction
EESC has decided to prepare with Jorge Pegado Liz as its rapporteur an (own-initiative) Opinion on optional European contract law which is expected to be delivered in the course of 2010.8 It is therefore apparent that the optional instrument is at present being given serious political consideration.9
The purpose of this conference is to contribute to the ongoing discussion and we are all more than excited to hear our experts views. Thank you very much.
Editors note: The Opinion was presented by the EESC in May 2010, see (Own-initiative) Opinion of the European Economic and Social Committee on The 28th regime an alternative allowing less lawmaking at Community level INT / 499 CESE 758 / 2010. Editors note: The possibility of an optional instrument has meanwhile also been expressed as Option 4 in the EU Commissions Green Paper: Commission (EU), Policy options for progress towards a European Contract Law for consumers and businesses (Green Paper) COM (2010) 348 nal, 1 July 2010.
Helmut Heiss
13
Political Perspectives
Diana Wallis
Thank you very much indeed. Thank you very much for inviting me to share some thoughts with you today on the political possibilities of an optional instrument. I rst want to say very big thank you really to our organisers in terms of the Faculty of Law at the University of Zurich because the invitation turned up in my ofce, it must be almost a year ago, and I saw the heading University of Zurich, Law Faculty and it may be a bit strange for a British lawyer to admit this, but that was where I started my law studies. I spent two years there a long time ago and it was the rst time I was introduced to law. Therefore Im rather strange in British terms, I suspect. But it also gave me my rst love of comparative law to be introduced to a civil code, like the Swiss Civil Code available in three languages. So you know the voice that youre hearing today is not perhaps a typical British voice, but I hope you will see that it is very much a European voice. But youve asked me to give a political perspective and it will be a political perspective. Our European institutions at the moment are in state of huge change. We have a new Parliament, we are about to have a new Commission and we have a new treaty with new powers. So in a sense, whole new horizons, whole new perspectives, are open to us. What does this mean for this particular project for contract law, for insurance law? If you all permit me I will perhaps take you back a bit to some of the former documents and statements about this project and then try to draw some examples and pointers for the future about how the institutions have treated pure contract law and consumer law, and then to look at what the people in the possible new posts in our institutions are saying and what direction they may possibly take and what inuence I believe you may be able to have with this amazing scientic work that has been produced.
15
So, rst of all to roll back a little, because I have to say when I started preparing to come here and to speak I suddenly became a bit anxious and I felt perhaps slightly responsible, because it ran in my mind that somewhere, some years ago I had made quite a fuss about consumer law and insurance law in terms of European contract law. So I got my ofce to check and we found two amendments that Id led in 2003 and I shall share them with you. Theyre amendments to a report on contract law and the rst one goes like this:
Regrets the lack of early action to produce optional instruments in certain sectors, such as consumer transactions and insurance, where substantial benets could accrue, both to assist the good functioning of the internal market and to increase intra-community transactions and trade, and believes that early work in these areas would help inform and develop the whole action plan process.
That was the action plan on contract law, and as I say, this was 2003. And then, secondly:
Considers that in order to facilitate cross border trade within the internal market, it should be an early priority to proceed with establishment of an optional instrument in certain sectors, particularly those of contracts and insurance contracts, and therefore calls on the European Commission as a matter of priority, whilst having a higher level of consumer protection and the integration of the appropriate mandatory provisions, to produce an opt-in instrument in the areas of consumer contracts and consumer insurance.
So, weve been trying to push in that direction is what Im saying to you. Trying to push for some years, but its quite clear that we havent got there and were still a long way away. And alongside of that of course, the scientic community has been beavering away and has produced a work that could indeed be used to full those ambitions that were set out by the Parliament and indeed, I would say, responded to quite positively by the Commission at that stage to work towards some form of optional instrument in these two sectors. So that, by way of history, shows that in a sense weve been trying to move in the same direction.
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Diana Wallis
Now, let me tell you something about our new Parliament. A new European Parliament was elected for its next ve year mandate in June last year. If you take into account that we had had before that a considerable enlargement of the European Union, but also that this new Parliament that has been elected is more than 50 % new members, more than 50 %, then that is a huge turnaround in terms of the membership. Whilst it remains the case that no political family has overall control of the European Parliament, which to my mind makes it a very much more exciting and interesting place to work, the allegiances are different. The breakdown of the political families is very different to what we knew in the past. And what Im trying to indicate to you by that is: its not clear what sort of feeling or what sort of direction perhaps this new Parliament will take. Will it be progressive? Will it be slightly cautious? Very hard to say at this stage. As a Vice-President of the Parliament, I chair votes occasionally. And we can see on the sorts of majorities were getting at the moment that they are very tight. Sometimes between one and 10 votes. So its going to be interesting; I couldnt hazard a guess at this stage, what sort of direction it might take. But I tell you its a uid situation. New Commission: If youve been reading your newspapers, youll know weve been having a little problem getting a new Commission. But it should be settled hopefully by the rst or second week in February. The Parliament stamped its foot and decided it didnt like the look of one of the Commissioners; well, thats our right and she has withdrawn. But fortunately in the area that concerns us today, thats of justice, there are I think some interesting and hopeful developments. First of all, historically all the work on the contract law project, which has tended, for the pure contract law project, to be directed towards consumer law I apologise for the sort of technicality of this had been housed or was dealt with under the control of that part of the Commission that deals with consumer affairs. Now, to many of us in the Parliament for many years this had seemed to be unhelpful, because it is clearly so intimately linked to civil law and commercial law that it needs a clear justice input. Finally, the Commission has now transferred the whole of the responsibility for the contract law project from the consumer area of the Commission into the justice area. That is a positive, from my point of view, and I think it will be a positive from your point of view in relation to insurance. We now also have a clear indication that the Commissioner in charge of justice will be in charge of this project. That to me is a good beginning with this new Commission.
Diana Wallis
17
So the Commissioner-designate for justice who will almost certainly be the new Justice Commissioner is a lady from Luxembourg, who has served two terms as a commissioner. She has no legal background, but shes a feisty lady, Mrs Reding. And I liked her even more when she came to her hearing brandishing a copy and waving about a copy of the Draft Common Frame of Reference. So, I think we have progress. We have somebody who is going to be in charge of justice in the Commission, who has decided she likes the look of the contract law project and weve never ever had that before. Weve never had that before. Now, as I said, she may not be a lawyer, but she knows how the Commission works and shes also by background a journalist and shes a good communicator and I hope therefore, she will be a good publicist for trying to make people understand the benets of the overall contract law project. It would be good if she could make some of my fellow citizens in the United Kingdom understand that a European Contract Law is not a threat but actually an aid to our existence. But there we are. Im sure some people from my country who saw her brandishing this book about became very scared; but not me. So, there we are, that looks very hopeful. At the same time some of you will know that we have been working for about the last four years or more on what has been called the Review of the Consumer Acquis. And its on the experience that weve had there, that I want to look at that a little bit to draw perhaps some pointers of what might be the developments in relation to insurance law. Obviously, we all thought with reviewing the consumer acquis we were looking at eight existing sectoral directives in the consumer area, all dealing with a different individual eld, and hoping to put them into a coherent whole. The idea was that all the work on the Draft Common Frame of Reference on contract law would inform that review of the consumer acquis to make it more coherent, to make it more of a whole. But instead, ultimately what we got was a proposal for a consumer rights directive so-called which dealt with only four of the eight directives and seemed to have been drafted without even one eye on the Draft Common Frame of Reference. It was hugely disappointing. But as I say, this document had come from the consumer side of the Commission. We are still dealing with that directive and those of us that approach it from the justice side in the Parliament had already made our views felt and we understand that Mrs Reding, the new Justice Commissioner, is much more prepared to take on board our concerns, that there be much more coherence between this and the Common Frame of Reference. So, I think we are approaching a new beginning in terms of certainly the Commission
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Diana Wallis
taking on board the scientic work in the general contract law area and, hopefully, applying it in the consumer eld. I tell you this: if it doesnt look as though thats whats going to happen, the Parliament and certainly I know because I will also be responsible for an opinion on the consumer rights directive will amend the proposal in line with the Draft Common Frame of Reference. So, thats where we are at the moment. You have a Parliament that wants to push ahead with these sorts of projects. We have a new Commissioner, who at the moment is giving off the right signals in terms of the way she wants to progress; indeed Ill read you something from her written statement, just to show that, you know, she does mean it. She says, as part of her written statement:
Let me also ag two projects, which I would like to approach in the medium term. To move from the rst building blocks of European contract law, Common Frame of Reference, standard terms and conditions consumer rights, to a European Civil Code, which could take the form either of a voluntary tool to improve coherence or of an optional 28th Contract Law Regime or of a more ambitious project.
So, we have a lady in charge who is prepared to look over the horizon. But Im not convinced yet that shes seen the difculties that are likely to face her. Because I tried to ask her a question at her hearing and I dont think she understood me. And it goes a bit like this: I nd the way we are developing European law at the moment incredibly messy. Indeed, I was asked before Christmas to give a lecture at the University of Maastricht, a wonderful place where they teach students European law not outward from one national system, but as European law. And what I suggested to the students there, quite provocatively, was that actually in terms of what were doing with European civil and commercial law is, if were not careful, creating something of a chaos, because theres no clear line on where were trying to go or how were trying to achieve it. Now, obviously I was trying to be provocative, but let me just share some of those thoughts with you. On the one hand, we continually see put before us in the Parliament proposals like the consumer rights directive, which are basically what we would call harmonising internal market proposals, trying to harmonise
Diana Wallis
19
the rules and regulations across 27 mini-markets. Thats one approach. On the other hand, we see conicts-of-law regimes, like Rome I, contract law, Rome II, tort law, which underline the existence of our national systems, secure our national systems, and help us point to the right choice. We then have this growing talk about an additional 28th regime or an optional instrument. In the midst of that, we have countries like my own, who when theyre faced with something in the justice area that they dont like the look of, decide to exercise their opt-out. So nobody knows whos in and whos out. And that provokes frustration on the other side because we are now faced with the prospect in certain areas of civil law, with the Commissioner saying ah, ok, if certain people dont want to join in, then the core group of countries can go ahead on their own called enhanced co-operation. What a mess, frankly! How on earth is the average citizen or the average business to understand how they put together harmonised regulations, choice-of-law regulations, regulations that some people are in, some people are out, and there might be one oating around and called a 28th regime. Its chaos! Somebody has to get a grip and decide with a much more co-ordinated vision exactly what we are going to do. As I said, when Mrs Reding came to the hearing, I said to her, and perhaps I was slightly tongue-in-cheek, that she had produced in her written document an amazing patchwork. It was an amazing patchwork, something in there for everybody. But what I couldnt get an answer to and what I think nobody gives us an answer to is: how do we t this patchwork properly together so that it delivers a system which delivers proper, understandable access to justice? So, that might sound a bit pessimistic. But I wanted to give you a sense of the overall pattern or lack of pattern. But alongside of that, at the moment, we also have a document in the course of production. Its more than a document; its a wish from the Commission, faced with nancial and economic crisis, to reinvigorate Europes internal market. Before we had something called the Lisbon Strategy, now its been given a new name, its called 2020. And the idea is to put some punch again behind really making the internal market work. And of course, one of the big things that we could do to make the internal market work better is to deal with some of the legal barriers, particularly in an area like insurance law. If we could get to the place that was being described by Professor Heiss, then we would be much nearer to having a properly functioning internal market in insurance that would be benecial both to the industry itself and certainly
20
Diana Wallis
benecial to Europes citizens. So, I for myself have tried to indicate that we have to look at this area of laws forming non-tariff barriers. But you know, I can see it in the eyes of some of my colleagues when you start to talk about these sorts of things. Their eyes glaze over and its all too technical and all a bit boring. Somehow, and I hope Mrs Reding can help us and others can help us there, we have to be better at communicating what we are doing and what the gains of it could be. And of course there will be somebody new, who I believe you should target, heading the internal market area for the Commission, Mr Barnier from France. Before we had Mr McCreevy, Im not sure if his heart was within this sort of project, perhaps with Mr Barnier we will have a more ambitious partner, I hope so, but certainly I would say, bring your work strongly to his attention and I believe that we, too, must do that in the Parliament. The other possibility apart from the economical, the other thread that is driving policy in Europe at the moment, apart from this idea of reinvigorating the internal market, is a switch perhaps in justice policy. We have just produced the next ve-year plan in terms of justice, the so-called Stockholm Programme. The whole area of justice in Europe for the last, probably since 9 / 11, has tended for obvious reasons to be dominated by debates about security and freedom. Now at last I think were able to get back more to the freedom and justice side and more to the civil and commercial side. And that is evidenced in the Stockholm Programme document. And its also important because it goes back and you nd fortunately in the statements from all three European institutions within the Stockholm Programme, this idea of putting the citizen at the centre. They are citizen-centric in terms of justice. But its about making sure that freedom of movement is a reality. And for that freedom of movement and idea of a European space of civil justice to be real, it has to bring the things like we referred to earlier, that when a citizen exercises free movement, they dont have to change their insurance policy each time they move. You know, how much hassle is that? Those sorts of things are the sort of issues, which we are told we will be addressing as we take the Stockholm Programme forward. If thats right, then I see that as a huge opportunity for both pure contract law and for the insurance side. So again, I think the possibilities are there. But there is also the problem of how we convince people that using some form of optional instrument is an appropriate manner. Recital 14 of Rome I was mentioned as opening the door for the possible usage of such optional instruments and bodies of law. It does open the door by a slight crack.
Diana Wallis
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We wanted it to be much wider, many of us in the Parliament. We wanted the clear rule that the Commission originally proposed that would have allowed the clear use of the Common Frame of Reference and probably of your instrument as well. But the nation Member States got frightened and there was a terrible lobby within the Parliament saying No, no, no, you cant do this, you cant have something that doesnt relate to a national body of law. And in the end we were reduced to the Recital. So, there is a huge tension there and it is a huge obstacle to overcome. To persuade our Member States. And also, I would say, to persuade people in national parliaments because that is also what we as parliamentarians are going to have to do now we have the treaty of Lisbon. We have not only to deal with the European Parliament; we have to make sure that national parliaments are on board with our proposals. But I also see that as an opportunity. Because if we can get a feeling from national parliaments that they think some of these ideas are good, that they are benecial, maybe we will be able to break down the opposition that sometimes seems to me, and I apologise for this, to come from national ministries of justice! Maybe we will be able to break that down. The opportunities are there. Its a need to seize them. And of course the other problem, and weve seen this problem all so clearly with the discussion in the consumer eld and on the Consumer Rights Directive, is what do we do about national mandatory rules. In a sense thats the discussion that we need to have. How can we convince people that by having a European system they are not losing or gaining a lesser level of protection than they have from national mandatory rules? And that to me is whats so frustrating, because we ought to be able to have the debate on that level within Europe about what the mandatory rules should be to reect European values, to reect our concern that you get the highest level of consumer protection. I mean, we have the oddity at the moment that in order to get harmonisation, we had a proposal from the Commission on a consumer rights directive that leads to a lower level of consumer protection in many of our Member States. Surely that offends against the treaties. We need to be able to have the debate about mandatory rules at a European level and to clarify that actually what we want to do is to do better, not less. So, Ive probably spoken for too long and Ive tried to give you a sense of some of the politics at a very early stage of a new Parliament, of a new Commission, where the signals are still not clear. Ive drawn out what I think are some of the possible positives, some of the things that could be
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Diana Wallis
used and could allow us to move forward with an optional instrument. I can certainly tell you, from the Parliaments point of view, our little project group on contract law is meeting again this week and I certainly intend to go back and say Hey, you know we need to do more about insurance law, weve been too focused on consumer law, lets reinvigorate our own discussion about insurance law. But the obstacles that we face politically are also pretty huge. Sometimes I think in European politics and in the politics of European law we need the vision thing. Many of you as scientists and academics have helped provide us with a vision. Its now up to us as politicians and policy makers to take it forward and I guess, I believe, and its perhaps an over-worn phrase now, but yes, we can do it! Thank you.
Diana Wallis
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Developments at EESC Level

Jorge Pegado Liz
Ladies and Gentlemen, Dear Colleagues, It is a great honour and privilege to be given the possibility of addressing, in my capacity as member of the EESC and chairman of the Single Market Observatory (SMO), such a distinguished assembly in these very important circumstances. Having had the opportunity, since the beginning, to participate in the developments which have taken place at EU level, in the framework of the EESC own-initiative Opinion on European Insurance Contract Law, which has led to the conclusion of the rst part of the Restatement, I would like to take a moment to pay tribute to, with great fondness and admiration for his immense human qualities and professional capabilities, the former President of the Insurance Restatement Group, the late Professor Reichert-Facilides, who was so kind as to offer his valuable collaboration when we started our work on the Opinion and whose enthusiasm I still remember. I, today, have the pleasure of announcing that, once again, the EESC has decided to pursue the discussions on an optional system which provides an alternative to harmonising different national laws the so-called 28th regime. And I am particularly pleased to tell you that I have the honour of once more having, as expert for this Opinion, our good friend and present Chair of the Restatement Group, Professor Helmut Heiss, who, since the rst moment, has shown his availability and willingness to contribute to this Opinion with his knowledge and experience. To us, at the EESC, better law-making and, whenever possible, less regulation, is one of the aims of the internal market. All the initiatives under the better regulation exercise developed by the Commission and the European Parliament, and fully supported by us in several Opinions, were
25
aimed at nding the best ways to render the legal environment more userfriendly and understandable to business, workers and consumers. In recent years, lawyers, academics and civil society stakeholders have, on many occasions, suggested that an optional model could be an alternative to the classical way of harmonisation in specic areas, such as the pension system or nancial services. Even the Commission has gradually begun referring to the possibility of using the 28th regime method in various areas and the EESC has expressed support for this in a number of Opinions. However, the concept, nature and the framework for its application have yet to be dened properly; it is particularly important to show that it is not only feasible, but that it also offers advantages in terms of better lawmaking and of more simplied, understandable and user-friendly regulatory environment. This is actually the aim of our own-initiative Opinion. This is not an easy task, and I am aware of the main difculties of making this idea progress, being accepted and afterwards implemented. But I do believe that an optional legal instrument, with well-dened characteristics and a sound juridical nature, would provide for a comprehensive system of European contract law. Its contents could, therefore, be extended at least as far as contracts are governed by the Common Frame of Reference. However, since the European legislature aims predominantly at the proper functioning of the internal market, a stronger need for an optional instrument exists in areas of contract law dominated by mandatory rules, which form a legal barrier to the functioning of the internal market I see many advantages in this approach. An optional instrument would allow parties to a contract to enter into transactions throughout the European Union based on one regime of contract law. Barriers to the internal market such as legal risks and costs created by the differences in national legal systems would automatically be overcome. An optional instrument would, furthermore, offer advantages when compared with unication or harmonisation of national law.
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Jorge Pegado Liz
Firstly, an optional instrument leaves the decision regarding its application to the market. It makes sure that it will only be applied where parties to a contract consider it to be an advantage. Secondly, the individual legal culture of each Member State would be left untouched. This would make an optional instrument more acceptable in the political arena. Well designed and implemented by EU regulations, it would allow parties to use the instrument even in purely domestic situations. The choice would be unrestricted by special conict rules providing for the application of national mandatory rules and, therefore, the functioning of the internal market would strongly be supported even in areas like insurance, banking, consumer sales, etc. Finally, courts could not treat the optional instrument as a chosen foreign law. Therefore, principles like iura novit curia would apply and access to national supreme courts as well as the ECJ would be unrestricted, which is often not the case when foreign law or general principles are applied. Equally, institutions offering out-of-court complaint and redress mechanisms could not deny hearing a case using the argument that it is subject to foreign law. I know, however, that many people think that this is about discussing the gender of the angels or even feel that this kind of optional instrument is a Trojan horse being pushed into the fortress of private international law. During a very recent hearing at the EESC in Brussels, we had the opportunity to discuss some of these aspects among stakeholders, academicians, EU ofcials and national experts as well as EESC members, and I would like to thank those of you present here today, who were so kind to meet with us and to contribute to our paper. We will continue the elaboration of this Opinion in the coming months and I hope that the nal text will be approved by the EESC in its Plenary Session in May and adopted as a new tool by EU institutions in the frame-
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work of better law-making. With the support of most of you, I am sure that this will be possible in the near future.1
Editors note: The Opinion was presented by the EESC in May 2010, see (Own-initiative) Opinion of the European Economic and Social Committee on The 28th regime an alternative allowing less lawmaking at Community level INT / 499 CESE 758 / 2010. Jorge Pegado Liz
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An Academic View
Marcel Fontaine
I have been asked to deliver an academic view on the PEICL Project. Obviously it will be my academic view: as everybody knows, there are as many academic views as there are academics. I have accepted this invitation with pleasure, not only because I have been, and still occasionally am, a professor of insurance law, but also because I have been, and still am, very much involved in different initiatives dealing with harmonisation of contract law and drafting legislation on insurance contracts. Particularly, the issue of harmonising insurance contract law within the European Union has always been of very special interest to me. Thirty years ago, back in 1980, I was one of the organisers of a similar colloquium at my university devoted to what was then the big issue, a draft directive already attempting to harmonise some crucial aspects of insurance contract law. At the time, the mere idea of harmonising insurance contract law in Europe ignited very passionate reactions from different sides. But the draft directive failed and for many years, it was thought that such harmonisation was not practicable. However, in the meantime, several groups of academics had undertaken to prepare codications of contract law in general, among them the future UNIDROIT Principles and the future Principles of European Contract Law (PECL). There was a long period when these harmonisation efforts seemed to be purely academic. Fascinating discussions between colleagues, but utterly unknown in the outside world and without, it was feared at the time, any chance of ever being considered. But the winds turned perceptibly sometime in the nineties. The rst edition of the UNIDROIT Principles, published in 1994, turned out very quickly to be an unexpected success. Not only by the large attention it
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An Academic View
drew in the academic world, but also and perhaps mainly, by the fact that very soon some legislators took them as a model for reforming their laws on contract, while many arbitrators and some national judges started to refer to the UNIDROIT Principles in some of their decisions. The Principles on European Contract Law perhaps did not meet a similar success at rst, but they were retained as the general rules forming the core of the more ambitious project of the Study Group for a European Civil Code. We all know the developments that followed, with the initiatives of the European Parliament and the Commissions Action Plan, Communications and decision to prepare a Draft Common Frame of Reference. In a matter of years, what were mere academic exercises became part of coordinated efforts to draft such a Common Frame of Reference; a network of excellence was set up in 2005 to prepare a proposal and impressive publications have already come out. To my great satisfaction, insurance contract law showed a very visible prole in these recent developments. The group created by Professor Reichert-Facilides and competently taken over by Professor Heiss had endeavoured to prepare harmonised texts for insurance contract law. When the latest developments occurred, that group was in a very good position to be included in the network of excellence, the more so as insurance contract law had been singled out by the Commission, together with consumer contract law, as a matter where the drafting of common rules was a priority. So we are gathered today to discuss harmonisation of insurance contract law in Europe with an impressive book on the table, Principles of European Insurance Contract Law (PEICL), next to the Draft Common Frame of Reference series and to its still very alive predecessor, the Lando groups PECL. I will deal with my subject in two parts. I will rst submit a few observations about the PEICL as Such, before coming to the question of the PEICL as an Optional Instrument, thus attempting to give an academic view (or my academic view) on the subject.
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Marcel Fontaine
I. PEICL as Such
I. PEICL as Such
After my rst contacts with the book which has just been published, my immediate academic reactions to the PEICL can be presented in six points. Some are very short, some call for certain developments.
1. A very attractive book

The rst point is that when you take a look at it for the rst time it is a very attractive book. Compliments to the publisher! The presentation is sober and classical, as suits a scientic work, while being very elegant.
2. Many translations already available

A second point which you immediately discover is that most of the volume consists of translations. This is a remarkable achievement. The text of the PEICL is immediately available in twelve translations, i.e. in 13 languages counting the original English. This is a very important asset to promote access and promotion of a text in search of international recognition and acceptance.
3. Form: The American Restatement model

When coming to the PEICL themselves, a now familiar model has obviously inspired their formal presentation. Text (black letters), followed by comments and notes: the initial inspiration for this structure comes from the American Restatements, which have already served as models for both the UNIDROIT Principles and the PECL, and then for the authors of the other books of the Draft Common Frame of Reference. Some observations: a) The comments, I nd in general very remarkable. Their style is precise and clear. A masterful work has been done to present and explain the black letter rules. Such comments will be extremely helpful for all users of PEICL.
Marcel Fontaine
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An Academic View
An interesting question will be to evaluate the authority of the comments if the PEICL become a 28th regime (see below), and the parties agree that their contract will be governed by them. The question of the authority of the comments is not very signicant for similar instruments that remain soft law instruments (like the UNIDROIT Principles being invoked before an arbitral tribunal). You have the black letters and the comments, but actually, since the black letters are themselves soft law, how much more authority they may have than the accompanying comments is subject to discussion. The situation may become different in the case of the PEICL, if they become a 28th regime and the parties choose them as the law applicable to their insurance contract. The choice will make the black letter normative rules but then the relative authority of the accompanying comments will have to be reconsidered. What if the comments show some discrepancies with the black letters rules, which is probably inevitable in some instances? Mainly, what if the comments go beyond the black letters and contain developments on some side issues? This is not infrequent, as working groups preparing soft law instruments have often felt free to decide that certain matters could be left to be mentioned in the comments instead of being subject to a black letter provision. These are just rst thoughts on an issue that may deserve more attention in the future. b) The American Restatement model is famous for its numerous illustrations. At rst sight, such illustrations seem to be missing from the PEICL. But this is just a matter of presentation. Illustrations are also present in the PEICL, but they are included in the text instead of being singled out. It is a very good point to have such illustrations, which have proved to be especially enlightening with other instruments such as the UNIDROIT Principles or the PECL. c) To be frank, I am a little less satised with the notes which intend to give the comparative law background of the chosen rules. It is evident that the preparation of the PEICL was based on extensive comparative law research, and it is certainly interesting to have an idea of where each PEICL rule stands in comparison to different domestic systems. But personally, I feel that it is often a dangerous exercise to submit such condensed summaries of national solutions. I do not want to underestimate the obviously
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Marcel Fontaine
I. PEICL as Such
serious work spent preparing these notes; many are excellent, most are very good or good. But sometimes, they are less satisfactory, due to lack of nuances, excessive generalisations or similar shortcomings. Brevity is not always compatible with accuracy. I have often had the same experience with some of the notes in the PECL. I am especially sensitive to the issue since the question of whether or not to include comparative notes was discussed in the UNIDROIT working group, to be decided negatively. Of course we prepare such notes as internal documents, but we preferred not to publish them in the Principles because of the dangers involved.
4. A codied insurance contract law

There is another point which I would like to mention, which is generally overlooked because it is so obvious. The black letters of PEICL formulate the rules of insurance contract law in a codied form. It is important. It means that in situations where the otherwise applicable law would be that of a country where insurance law is not codied, operators are offered the possibility to refer to an internationally recognised codication, without having to choose the law of another domestic system. I think this is a signicant advantage as far as transaction costs are concerned. There has recently been much debate on the economic efcacy of the different legal systems. The controversial World Bank Doing Business reports have often equated economic efcacy with limited regulation or lack of regulation. On the other hand, some other research has pointed out the cost saving value of having codied statutes available for the different types of contracts. Such statutes do not only provide more certainty, they also simplify negotiations and contract drafting with the availability of default rules. In that respect, the advantage is the same where the rules are mandatory. The availability of the PEICL as an optional codied regime of insurance contract law will be an important resource for all parties involved in insurance transactions.
Marcel Fontaine
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An Academic View
5. The general structure

The general structure of PEICL inspires the following general observations. The overall division into three parts is classical and logical: general provisions, indemnity insurance, xed sum insurance. The contents of the rst part are also those to be expected: application of PEICL, denitions, conclusion, duration, premium, insurance event, prescription and so on. Though personally I might have modied the location of a few provisions, these are only my personal preferences; simply by participating in such collective work, one knows very well that several acceptable options are often available. In any case, the purpose of this general evaluation is not to enter to details. As a whole, the inner structure of the rst part is quite adequate. The same can be said about the contents of the second part, dealing with indemnity insurance: principle of indemnity, overinsurance, underinsurance, subrogation and so on. This is also largely what could have been expected, though here too I might have arranged some provisions differently. One remark however. Part two, so far, contains only general rules on indemnity insurance, without entering into specic classes of insurance. It is probably not necessary, at least for the moment, to enter into specic lines such as re insurance or credit insurance. However, some rules are urgently needed for the extremely important matter of liability insurance. This is a gap to be lled with priority, and I know that the group is working on it. Finally, part three, concerning xed sum insurance, consists of only one single provision. This is obviously insufcient. There is more to provide on the subject, if only to explicitly exclude the applicability of the rules characterising indemnity insurance perhaps with some qualications. Besides, here too, it would be advisable to have rules on some specic classes of xed sum insurance. I know that work is also continuing on drafting rules for life insurance, including collective insurance. One temporary problem with the current structure of PEICL is that the work has not been completed. Deadlines imposed by the Commission have led to a publication that perhaps would have occurred a little later
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I. PEICL as Such
if it had not been for those constraints. We shall come back to some problems that the current gaps would create should the PEICL in their present state become an optional instrument.
6. Protection of the weaker party

The last point I would like to raise somewhat more extensively than the preceding ones concerning the PEICL as Such deals with the degree of protection the proposed Principles offer to the weaker party. I know that there will be a report this afternoon on the consumers view of the PEICL. I will perhaps deal with some of the same issues, but I think that an academic point of view cannot fail to examine this essential aspect of the PEICL. Such degree of protection is a major criterion to consider when giving an evaluation of an existing or proposed codication of insurance contract law. This has become a central issue of insurance contract law, because of the usual imbalance of bargaining power between the parties. Most domestic systems in the European Union have gone through an evolution where, initially, the main concern was to protect the insurer against various types of fraudulent behaviour by the insured. Of course, this concern is still there. But now the stress is on providing the insured with protection against various types of abusive clauses which, in the past, were frequently imposed by the insurer, and on submitting the insurer to several new types of obligations. In this respect, I think that the PEICL are remarkably in line with some of the most progressive consumer protection developments. I will give two signicant examples. May I again point out that in this presentation, I am not going to enter into details and give critical observations about every single aspect of each provision referred to. In the present context, the aim is simply to give a general evaluation as to how the provision stands in the light of protecting the weaker party.
a. The applicants duty of disclosure

My rst example is the regime of disclosure. When applying for insurance cover, one must disclose any circumstances that the insurer needs to know
Marcel Fontaine
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An Academic View
in order to assess the risk. It is a very classical issue of insurance contract law, where the evolution just mentioned is especially apparent. The old approach was to be extremely severe toward the applicant. Any breach of the duty of the disclosure would in the past have generally led to denial of cover and avoidance of the contract. Most modern systems are much more balanced. They usually distinguish between bad faith and good faith breaches; they provide for adaptation or termination of the contract instead of avoidance (unless the applicant acted in fraud); in case a loss has occurred in the meantime, cover is not necessarily denied, normally there is at least partial and sometimes even full cover. Also, the traditional approach relied on spontaneous disclosure: it was up to the applicant to spontaneously declare all the elements that were relevant. The more recent alternative, now already retained by many national systems, is to rely on the questionnaire system: it is up to the insurer to ask questions and the duty of disclosure is satised if the applicant has adequately answered those questions. When one turns to Articles 2:102 to 2:105 of the PEICL, without entering into details, it is immediately evident that these provisions are generally in line with the new developments: the questionnaire system, no contract avoidance, but adaptation and possibly termination, at least partial cover of losses occurred in the meantime (with harsher rules normally prevailing in case of fraudulent breach).
b. The insurers pre-contractual duties

On the other hand, my second example of PEICL provisions protecting the weaker party concerns an issue which was totally ignored by insurance contract law in the past: the insurers pre-contractual duties. The duty of disclosure seemed to concern only the applicant. It is repeatedly heard that the contract of insurance is a contract of utmost good faith, uberrimae dei, but not so long ago, when you asked what this meant, it was obvious that one essentially thought of imposing reinforced duties on the applicant, never thinking of the insurer.
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Marcel Fontaine
I. PEICL as Such
Nowadays, it is becoming more and more recognised that the insurer also has obligations to disclose some elements, at least to provide the applicant with certain types of information. The PEICL stress this aspect emphatically, by devoting a full section to the insurers pre-contractual duties (Articles 2:201 to 2:203), parallel to the section on the applicants pre-contractual duties. There is much substance in this section: the insurer is obliged to provide extensive documentation about the proposed contract terms, to warn about inconsistencies in the cover and to warn about commencement of cover. Appropriate sanctions are provided. Many other examples could be given of PEICLs marked concern for protection of the weaker party: abusive clauses, sanctions for defaulting on premiums payment, loss notication, precautionary measures, payment of the insurance indemnity or capital and so on. The orientation is clearly in favour of protection. It is true that one can nd more protective provisions on some of these aspects in certain domestic legislations. I have already heard complaints from consumer groups in different countries, comparing domestic and PEICL provisions and concluding that adoption of the PEICL would on certain issues be a step backwards. Perhaps for some countries. On the other hand, however, the degree of protection afforded by the PEICL to the weaker party is signicantly ahead of the level reached in some other legal systems. As a whole, my feeling is that the PEICL can be described as a strongly protective codication. Two other aspects have to be mentioned relating to protection of the weaker party.
c. Mandatory character
The rst one concerns the mandatory character of the rules. Article 1:103 is the main provision. There are a few absolutely mandatory provisions in PEICL, two or three of them, as well as all of the rules which regulate fraudulent behaviour. Otherwise, all of the provisions are labelled as semi-mandatory, meaning that they can be derogated from, provided this is not done to the detriment of the policyholder, insurer or beneciary. It follows that clauses imMarcel Fontaine
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An Academic View
proving the consumers situation are possible. This should probably satisfy consumer circles. Could one object that this is not in line with the recent trend to prefer comprehensive harmonisation to minimum harmonisation (for the sake of effective harmonisation)? The objection, in my view, is not pertinent. We are talking at different levels. The PEICL as such are not supposed to be modied by a domestic legislature. It is on the basis of an individual relationship between insurer and insured that a modication can be negotiated. The Principles still offer a uniform text for all.
d. Large and mass risks

Another point I would like to raise in connection with protection of the weaker party is the regime of so-called large risks, as provided in the second sentence of Article 1:103 para. 2. Large risks are excluded from this semi-mandatory character: for such risks, deviations are possible to the benet of any party (except where absolutely mandatory rules are concerned). This means derogations are also acceptable when they are made to the benet of the insurer. As a consequence, all the protective rules can be contractually discarded for large risks. The scope of this regime has been dened using the criterion of mass risk vs. large risks, which has been preferred to that of consumer vs. nonconsumer contracts. This choice was made for the very commendable purpose of extending the protection to small and medium-sized enterprises. Another advantage is that the denition of large risks has been taken from the acquis communautaire, thus aligning the scope of application of different types of regulations. However, I am not totally happy about the second sentence of Article 1:103 para. 2. While recognising the advantage of using the acquis communautaire, I personally feel that the solution is too generous for some large risks. First, the reference to large risks is partly deceptive, because for some classes of insurance, the exemption applies without taking into consideration the size of the rm. Credit insurance transactions, for instance, are excluded as such, even for the many small rms that resort to such cover
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Marcel Fontaine
II. PEICL as an Optional Instrument
experience in credit insurance arbitration shows that there are real problems with some of the clauses which are imposed by insurance policies. Then, even where really large risks are concerned, such a global admission of contract derogations calls for reservations, at least in my view. Even large rms are not always in a position to negotiate fair terms. I still have to understand why a clause which would satisfy the denition of an abusive clause under Article 2:304 would cease to be abusive when included in a contract with a large rm (often such a clause will not have been individually negotiated in spite of the size of the insured). I would have preferred a much more restrictive system, allowing derogations in large risks contracts only from a limited list of provisions; this system is known in the laws of several countries.

What does the future hold for the PEICL? At the present stage, it is still an academic work prepared by an international group of prominent specialists of comparative insurance law, like some other instruments. What could further developments be?
1. A restatement of European insurance contract law?

Although the Group itself uses the formula A Restatement of European Insurance Contract Law as a subtitle to its Principles, in my view it is not a restatement in the proper American sense. Admittedly, we have pointed out that the formal presentation is obviously inspired by the American restatements. But as to the substance, the PEICL are not equivalent. American restatements have a very different aim: they intend to describe the current state of American law in the different sectors they cover. Sometimes they go a little further, but this is not the main purpose. The idea is certainly not to prepare harmonised provisions designed to replace the rules currently in force in the different States. However, the PEICL do not intend to describe the current state of insurance contract law in Europe (except through the comparative notes
Marcel Fontaine
39
An Academic View
mentioned above). There is no such thing anyway, at the present stage, as a largely common law of insurance contracts in the European Union. In spite of much correspondence as to the list of issues to be covered (due to the fact that insurance contracts everywhere are based on technical grounds that are universal), the answers given vary considerably, between common law and civil law countries as well as between civil law countries themselves. Regardless of whether or not a restatement in the American sense would still be feasible, the PEICLs aims are in any case more ambitious. The idea is to provide harmonised rules that could be used as an alternative to the different existing legal systems. The same can be said about the other similar projects (UNIDROIT, PECL, DCFR).
2. A soft law instrument?

Could PEICL be used as a soft law instrument? First, a personal memory. When we started working on the then to be UNIDROIT Principles, back in the seventies, our group rapidly decided to take the American Restatement model for the presentation. But for the substance, the models explicitly considered were mainly the Incoterms and the Uniform Customs and Practices for Documentary Credit of the International Chamber of Commerce. These were private codications which had gained universal acceptance, without any formal consecration, simply because of their adequacy for the needs of international trade, even though they had the mere status of what is now called soft law. We were hoping that the codication of contract law we were contemplating would perhaps gradually gain similar acceptance as the Incoterms or the Uniform Customs and Practices. Even at that time, there were other examples: some standard contracts were also widely referred to by practitioners. As mentioned earlier, the UNIDROIT Principles have already succeeded in reaching this objective, at least to some extent. I have recalled the recognition gained by these Principles with arbitrators and even national judges, as well as their inuence on certain legislative reforms; the UNIDROIT Principles are now referred to in certain important model
40
Marcel Fontaine
contracts and UNCITRAL has recommended their use in international trade. Could similar results be achieved with the PEICL, in their present stage of being published as the part of the Draft European Common Frame of Reference dealing with insurance contracts? As a model for reforms of domestic legislation, certainly yes. The PEICL provide a remarkable set of rules with comments on insurance contract law, and I have no doubt that from now on they will be on the table of any legislature undertaking to reform its insurance law, as a privileged source of inspiration. On the other hand, however, it is doubtful that the PEICL in their present state could serve, as the UNIDROIT Principles, for parties to choose them as the rules applicable to their contract, or for judges or arbitrators to base their decisions on them. The difculty, as we all know, is that insurance contract law, in most European countries, is largely mandatory, although to various degrees. Mandatory rules also exist in general contract law, but they are far less prevalent. The UNIDROIT Principles, the PECL and the Draft Common Frame of Reference reserve the application of domestic mandatory rules, but this is not a great problem: for general contract law, this concerns only limited aspects and it does not affect the parties choice to prefer application of such principles or other similar instruments for most aspects of their relationship. This is not possible for insurance contracts, because of a much larger development of mandatory rules. For that reason, the PEICL can hardly be used as soft law.
3. A basis for forced harmonisation?

The other extreme would be to force harmonisation of insurance contract law in Europe by imposing the PEICL to replace existing domestic law, by a directive or more appropriately by a regulation. This is a theoretical possibility, but it is very unrealistic at the present stage. There would be too much political opposition. We all remember the failed attempt of the very limited directive of the early eighties.
Marcel Fontaine
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An Academic View
4. An optional instrument?
The optional instrument solution is put forward in the introduction to the PEICL (pp. xi-xviii). It mainly relies on Article 1:102: application of PEICL when the parties have agreed that the contract will be governed by them, notwithstanding any limitation of choice of law under private international law, application as a whole only permitted. Article 1:105 adds that, in principle, no recourse to national law shall be permitted, whether to restrict or supplement the PEICL. As the introduction demonstrates, this can only be practicable if the system is enforced by a European regulation making the PEICL a 28th regime. Such regime would not replace domestic laws, but would rule them out, mandatory provisions included, if the parties chose the PEICL as the law applicable to their contract. Personally, I like this approach. It would make a useful instrument available to insurers intending to work on an international basis with a single legal system, and for insurance consumers who would be assured to have a high degree of protection, even if sometimes it may be a little lower than the one they would have with their domestic law. Another advantage would be that rules imposed by a regulation would be subject to the interpretation of the European Court of Justice, thus achieving legal uniformity. At the same time, it would not affect domestic legal systems, thus sparing the difculty of trying to overcome national resistance to change. But perhaps it would encourage such change and gradually lead to more and more harmonisation. One may however wonder whether insurers will be ready to accept the application of such a 28th regime, very consumer protective, when the normally applicable law would be that of a country with lower consumer protection. But if these insurers want to sell their products in different countries, perhaps competition will convince them to overcome this hesitation. Other problems are likely to arise because the PEICL, at least at the present stage, do not regulate all aspects of insurance contract law, and because they concern a specic contract which for some issues remains subject to general contract law itself not harmonised at the present stage. The PEICL have attempted to meet such difculties. If Article 1:105 para. 1 excludes all recourse to national law in principle, this does not apply to
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Marcel Fontaine
III. Conclusions
mandatory national laws enacted for branches which are not covered by special rules contained in the PEICL. On the other hand, Article 1:105 para. 2 provides that questions arising from the insurance contract, not expressly settled in the PEICL, are to be settled in conformity with the Principles of European Contract Law (later to be replaced by the Common Frame of Reference), and in the absence of relevant rules in the PECL, in accordance with the general principles common to the laws of the Member States. These are certainly interesting attempts to deal with the present gaps in the PEICL, but one can suspect that implementation of such rules will not be without difculties. Concerning insurance contract law, one can only urge the Group to continue its good work and to provide some seriously needed additional rules soon, e.g. on liability and life insurance. These new rules will then replace the mandatory domestic rules if the PEICL are chosen by the parties. As to general contract law, the reference to the Principles of European Contract Law is interesting. But we would be on rmer ground if the general law of contract stated in the DCFR would also become a 28th regime. What if PEICL would become a 28th regime, but not the general rules on contract law? In that case, a normative text would delegate a gap-lling function to a soft law instrument
III. Conclusions
From my academic point of view, six points: 1) The PEICL are a remarkable product, the result of obviously very competent work of the Working Group. In general, the rules are well conceived and well drafted and are accompanied by comments of high quality. 2) The PEICL offer the weaker party a high degree of protection, even allowing for derogations to its benet. 3) However, I have reservations about the regime applicable to large risks, mainly left to freedom of contract. I see the advantages of aligning the
Marcel Fontaine
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An Academic View
criterion with other regulations, but I feel the sweeping exemption which follows is too lenient. 4) Due to the largely mandatory character of insurance contract law, the PEICL as such could not have similar success as some other soft law instruments. 5) The way to proceed is to have them enforced as an optional 28th regime. This is the formula that will probably be the most easily accepted, as domestic law would survive. 6) Some problems will of course remain, but there is never any perfect legal solution without problems
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Marcel Fontaine
Report on Discussion I
Mandeep Lakhan
Chairman of the session: MA Clarke After the rst session speeches by Mrs Wallis, Mr Pegado Liz and Professor Fontaine, the sessions chairman, Professor Clarke, opened the oor to questions. The main topic of concern was clearly the degree of consumer protection provided in the Principles of European Insurance Contract Law (PEICL). Other issues of interest were however also tackled: some questioned the fundamental need for the PEICL, while others enquired into the feasibility of the PEICL being applied, as well as the cultural challenges posed to the success of the work. Interest was also shown in the possibility of using the Principles as an aid to interpretation at European level.
I. Consumer Protection
1. Protection of the Weaker Party
Mr Ivanov raised the point that there were situations, for example concerning credit insurance, in which the contracting parties may have equal bargaining power. In such cases, the provisions protecting the weaker party could, in his opinion, have harmful effects on such types of contracting. The problem, he stated, lay in attempting to draft a common insurance law and to harmonise consumer protection into one set of principles. Professor Fontaine agreed with this point and reiterated that, as the insurer was not always the weaker party, he was in favour of making amendments to the clause. While Mrs Wallis also agreed with the initial observation, she stressed that this was a point which needed to be discussed openly on a political stage. In her view, the debate should be focused on the degree of protection to be offered as well as to whom, rather than on any potential threats to national law.
45
2. Degree of Protection
The point regarding the degree of protection was specically raised by Mr Schsch, who viewed the level of consumer protection provided by the PEICL as problematic. While he conceded that it was inevitable, in the process of harmonisation, for the level of protection afforded in the Member States to be adjusted in both directions, the implementation of the PEICL as an optional instrument would lead to the millions of policyholders who would never move to another country being disadvantaged. To illustrate this point, he gave the example of certain information duties in Germany which, among other things, were absent from the PEICL. Insurers who wished to avoid such duties could, he claimed, do so in the future by choosing to apply the PEICL to their contracts. Mrs Wallis responded that any decrease in the level of consumer protection through the use of an optional instrument was preferable to the current situation as it involved choice. Where the degree of protection offered to consumers was, in contrast, reduced by legislation, for example the Consumer Rights Directive, this was mandatory. She therefore considered the optional instrument route to be more desirable. In addition, she expressed the need for the PEICL to be used as an optional instrument rather than soft law. The provisions of an optional instrument, she reasoned, could be deliberated by Parliament in an open and democratic way. While this process could take years, it was to be favoured over the soft-law approach, in which the Parliament the peoples democratically elected representative would be unable to participate. Professor Fontaine agreed that the PEICL were less consumer protective than some domestic legislations, but emphasised that they constituted an optional instrument. He gave the example of insurers from two countries, country A and country B, the former having a higher degree of consumer protection than the latter. If the insurer from country B wished to sell his insurance in country A using the optional instrument, the consumer would not be obliged to purchase insurance from him as there would be local insurers selling their products according to domestic law, which as previously mentioned offered a higher degree of protection. Thus, due to the forces of competition, insurer B may decide to adapt his product to offer this higher degree of protection, too. In his view, this issue therefore did not present such a great problem in the eld of insurance contract law.
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Mandeep Lakhan
II. Need for the PEICL
On the subject of other aspects currently missing from the PEICL, such as costs and genetic data, Professor Heiss stated that they would be dealt with in the special part, in particular on life assurance. He also did not discount the possibility of later returning to the general part and including such matters.
II. Need for the PEICL

The fundamental need for the PEICL was queried by Mr Lambrou, who suggested using legislation to harmonise the standard of protection, and highlighted the risk that, if the PEICL were to fail, this would be a setback for the general harmonisation process. This question was, in fact, the subject of entire debate, Mrs Wallis replied. She had, however, coincidentally noted a list of reasons favouring an optional instrument, which comprised 1) better law-making, 2) better access to justice, 3) a decrease in transactional costs for the industry, 4) an increase in competition and economic activity and 5) an increase in consumer choice, which in turn facilitated freedom of movement for citizens. This was, she asserted, a fairly convincing enumeration.
III. Practical Viability of the PEICL

In spite of his praise of the Principles, Professor Brand questioned the viability of their implementation. He doubted whether the PEICL would be successful under the soft-law approach; he also had reservations about the feasibility of a 28th regime. He opined that the PEICL might be interesting for industrial contracts, but less so for consumer products due to the intangible nature of the product and of the law governing it. He added that, for the former contracts where the parties have equal bargaining power, the set of rules would not be adequate. On this point, Professor Fontaine repeated that he personally believed there should be a basic degree of acceptable equilibrium between the parties, and any remedies / sanctions must be proportionate. While he agreed that there were cases where the parties could negotiate without needing any protection, and thus more exibility was required, he did not think this was true on a large scale.
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With regard to the previous point, Professor Heiss expressed his expectation that the optional instrument would be used by both businesses and consumers. As the responses to the EESCs own initiative opinion had demonstrated, the most pressing areas in which pressure was being exerted by the industry were those of pension funds and life assurance, both of which were, for the most part, covered by consumer insurance contracts taken out by private customers. There was, on the other hand, also signicant business interest, as a great deal of money was involved. Professor Heiss added that such insurance contracts could easily be used cross-border because it was simple to determine whether certain criteria (for example reaching the age of 65) had been met.
IV. Cultural Challenges

The discussion was then steered by Professor Wendehorst towards an external factor which would determine the success of the PEICL. She pointed out that initiatives to harmonise rules tended to elicit fairly strong responses on both sides, and enquired about the extent to which the debate was truly one about cultural change, i.e. the fear of losing ones cultural identity, rather than content, for example regarding the level of consumer protection and the coherence of the rules. Mrs Wallis concurred that this was a constant underlying issue. While some people had suggested that the new era being entered was a European one, she wished to be more cautious. The very fact that a Treaty of Lisbon, rather than the constitution originally proposed, had been passed indicated a period in which there was more respect for individual Member States, their governments and their parliamentarians. She added that there had clearly been a retreat from the initial concept of a federal Europe. It was moreover apparent that, due to lack of consensus on key proposals for example the constitution, it was unlikely that a common civil code would be passed. An optional instrument, which by denition involved choice, therefore seemed to be a more persuasive alternative, and reected the current zeitgeist of Europe. The difculty posed was that it could not be optional in respect of values and elements, like protection of the weaker party, for which everyone desired a level of protection, but which remained to be determined. Concern over the growing tensions between civil and common law traditions was also expressed by Mrs Wallis, who warned that such divi48
Mandeep Lakhan
V. PEICL as an Aid to Interpretation
sions could disorientate the process and lead it astray. In her opinion, the groups work was incredibly important because it had been inuenced by all of the European legal traditions. This was a sentiment shared by Professor Fontaine, who could see the advantages of a codied system, but nevertheless regarded the principal merit of the PEICL to be that they constituted a consensus of the various legal systems.
V. PEICL as an Aid to Interpretation

A very different question regarding the PEICLs use by judges was raised by Professor Troiano, who asserted that there would be competition between the PEICL and national laws as parties would have a choice between the two. He asked whether there was, however, also another level at which the PEICL could have inuence, namely at national level. He suggested that domestic judges could use the PEICL as a starting point for problems of interpretation, even with regard to national mandatory rules. The response from Mrs Wallis was positive as this was, to a certain extent, already taking place. The European Parliament had recently requested a study in relation to the DCFR on general contract law, showing that an increasing number of national judges, and not merely the ECJ, were using and referring to the DCFR. There had, in fact, been at least eight known instances of this. She emphasised that once a body of academic law became available, judges also tended to draw on it as an aid. This was valuable as it facilitated a European-wide discussion on the same basis. Agreeing with this statement, Professor Fontaine envisaged reference being made to the PEICL in a similar way as was currently the case with the UNIDROIT Principles in arbitration and national courts. On this issue, Mrs Wallis also highlighted a problem with the current situation in which the European legislature was, by using conict-of-rules systems, imposing on judges the need to be aware of 27 bodies of national law and be expert linguists. This, she asserted, simply did not reect the reality of the situation. On the other hand, a work such as the PEICL, she argued, offered a practical and sensible approach to overcome, at least in the interim, some of the difculties mentioned.
Mandeep Lakhan
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The Perspective of the Insurance Industry1

Felix Wieser
The Austrian insurance industry recognised very early on that the drafting of principles of European insurance contract law represented a big opportunity. The Austrian Insurance Association has therefore been expressing its support for this project for a long time. The reasons for this are simple. Several Austrian insurance companies do a great deal of business at an international level, predominantly in Central, Eastern and Southern Europe. As a result, Austrian insurers are confronted with a variety of national legal systems. Diversity is of course present in all areas of law, not merely in insurance contract law. However, for reasons I am going to explain, the insurance sectors situation is special. These special reasons have repeatedly been analysed. The ndings show that it is a combination of specic factors that contribute to the complex situation with which we are faced. One basic understanding underlies all of the analyses: Differences between national laws always affect the transnational operation of business to some extent. The extent depends, however, on a couple of factors, namely: 1) the depth of regulation of a sector, 2) the degree of divergences between various national regulations, 3) the extent to which regulations affect the operation of businesses and 4) the availability of remedies to overcome the negative effects of differences in law. Applying these factors to the insurance sector reveals the following ndings: 1) The depth of regulation: In practically every legal system, insurance contracts are subject to detailed and complex regulations. There is hardly
1
The analysis and argumentation presented are those of the author personally. These concur, however, with the general stance taken by the Austrian Insurance Association on the potential of an optional European insurance contract law.
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The Perspective of the Insurance Industry
any other type of contract that is so closely regulated. A visible indication of this is that, in many legal systems, insurance contract law is consolidated into a special code. 2) The degree of divergences: In addition to the particular depth of regulation, legislation pertaining to insurance contracts extends far back in every Member State. Insurance contract law is therefore the product of a long, historical development. This has led to a high degree of divergence. It is important to note that nowadays these differences, for the most part, do not arise because of a deviation in policy decisions. They are rather more often the result of how similar principles have been drafted into elaborate rules. Thus, it is the sheer diversity of legal rules, rather than different standards, which trouble European insurers. 3) The effect on business operations: Differences in contract laws constitute a particularly signicant impediment to doing insurance business across Europe. This effect derives from the very nature of the products offered by insurers. In recent years, awareness has grown that insurance cover is a legal product. This is to say that the content and extent of cover insurers offer result from verbal descriptions laid down in the terms and conditions of the insurance contract. Thus, contractual terms make up the product, and these insurance terms and conditions are themselves inuenced by legal regulations. This means that due to the different national insurance contract laws, it is necessary, at least to some extent, to redraft the insurance terms and conditions for each jurisdiction. This at times amounts to the requirement of adapting insurance products to national provisions. The sale of uniform insurance products throughout Europe is therefore not possible. It is self-evident that the given situation conicts with the very notion of the European internal market. However, it is not only legal provisions concerning the scope of cover of an insurance contract which cause hindrances. Practical experience shows that, to a large extent, national regulations concerning conditions other than those directly affecting the scope of cover have the effect of not allowing the provision of insurance services on the basis of uniform processes. Every national law has rules governing several operational aspects of the contractual relationship. There are provisions concerning pre-contractual information duties, documentation duties, detailed provisions on collecting premiums, and rules dealing with cases in which the policyholder defaults on payments of premium, as well as rules concerning the duration of the insurance contract and its renewal, etc. For all these
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matters national laws provide rules which result in operational processes: workows, documents, IT solutions, etc. On an international scale, the multitude of diverse legal solutions necessitates an equally wide range of different operational workows, different documentation, different IT solutions, and involves huge costs for generating expertise and training personnel. Due to the complexity of national legislation, solutions must predominantly be developed in the respective countries. It is plainly clear that this leads to a multiplication of the costs, with which the European insurance industry is burdened. This operational factor is the reason why the general part of any insurance contract law statute which regulates all types of insurance is of vital importance. These general rules shape the business process. Without a uniform general part of insurance contract law, insurance services cannot be provided in a uniform way. 4) The availability of remedies: National legislation and the current European legal framework do not provide a solution. National rules governing insurance contracts are mostly mandatory or at least semi-mandatory. It is one of the characteristic features of insurance contract law that, in almost every European country, the mandatory nature of insurance contract law does not only apply to contracts concluded with consumers, but also to those concluded with corporate customers. Exceptions mostly apply for large or special risks only. The consequence resulting from this fundamental principle is obvious: Insurers cannot overcome legal differences by contracting out of statutory provisions and agreeing with their customers on terms and conditions which could be uniform throughout Europe. Thus, a solution cannot be found at this level of contractual agreement. Next, the question arises of whether conict-of-law rules could bridge the dividing factors. The relevant provisions of the European conict-oflaw regime laid down in art. 7 of the Rome I Regulation2 do not provide a solution. For consumer contracts and most contracts concluded with companies, the rules do not provide for the choice of a law other than the law of the country in which the policyholder has his habitual residence. Thus, for the vast majority of cases, it is not possible to choose one national contract law to govern contracts with customers in various countries. This possibility only exists for so-called large risks and for rare, exceptional situations.
2
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 / 6.
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Uniform principles of European insurance contract law may provide a solution to these problems. The Principles drafted by the Restatement Project Group3 are an excellent piece of work, ready for a review in the political process. However, uniform principles only represent a solution if they are made available as an optional instrument, i.e. where they can, by agreement of the contracting parties, be specied as the relevant contract law. They should not merely continue to be an interesting academic exercise. They should also not continue to be a model law, which legislatures may use or refrain from using as guidance. It is my conviction that a mere model law will have hardly any impact in the short and medium term. Effects will rst, if at all, become tangible over a very long period of time. Why does an optional European insurance contract law have the potential of providing a solution to the problems mentioned? What are the characteristic features of an optional contract law? An optional European contract law would enable insurers and customers to choose by contractual agreement a comprehensive European legal framework governing their rights and obligations. At the same time, such European rules would not displace national legal law, but rather leave national legal systems intact. Thus, uniform European rules would not encumber all insurers with new solutions. An optional European contract law would at rst leave the decision regarding its use to the insurer. Each insurer could determine whether he wanted to integrate the European contract law into his business organisation. The choice would presumably depend on which lines of business the insurer underwrote, whether the insurer carried on business nationally or internationally and in which areas, in Europe or elsewhere. The nal decision would still lie with the contracting parties of the individual insurance contract, the individual customer and insurer, who would decide on agreeing the law applicable. An integrated optional European body of law would reduce the pressure on the European institutions and the national legislatures to harmonise national contract laws in order to overcome the obstacles standing in the way of cross-border business. It would be a law of European origin providing consistent and coherent rules and denitions as well as uniform terminology in each
3
Principles of European Insurance Contract Law (PEICL) prepared by the Project Group Restatement of European Insurance Contract Law. Felix Wieser
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Member States language. National adaptations would not be necessary, nor permitted with regard to content and system. It would offer an integrated solution instead of national laws with European components the integration of which at times generate more incoherence than creating uniform solutions. Sets of rules like the present Principles of European Insurance Contract Law are based on ndings of comparative law and are the result of careful consultations between academic lawyers from different legal backgrounds, who, having considered national solutions, have come to an agreement. These legal rules are not novel in a problematic way. They are not an academic invention, but rather a reection of experience. They would provide uniformity where diversity has been the cause of a fractured market. This uniformity would be attained without sacricing the mandatory nature of the rules, which serve to protect the customer. This holds true for the protective regulations in both insurance contract law as well as conict-of-law rules. Such rules would be subject to scrutiny by the European institutions; the wording of the rules itself would, however, hopefully not be the result of a political compromise and a bargaining process which could weaken its coherence. Due to their international foundations and the inspection by the European institutions, such legal rules would be credible for any contracting party. For cross-border business, the law underlying the contract would not be the national law of one of the contracting parties. No party would have a home advantage. The European stamp of quality would ensure a fairly balanced treatment of both sets of interests, those of the insurer and of the customer. Last but not least, the concept of an optional instrument is something which has already proven to be not only feasible but also useful. The UN Sales Law4 provides such an optional instrument. The UN Sales Law is now in force in more than 70 countries and has proved its worth for many years. Its practical importance is continually increasing.
I have stated that the provisions concerning insurance contract law have a direct effect on operational processes and, as a result, constitute a huge factor for costs. The question therefore arises as to whether an optional European contract law would be accepted by insurers. Does a new system
4
United Nations Convention on Contracts for the International Sales of Goods (CISG).
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of contract law not entail a new investment on a large scale? The answer is yes. If an insurer wants to use the European contract law, he will be faced with sizeable initial investments. Any insurer would be confronted with the question of whether the expected benets are greater than the investment required. This leads to a point which would presumably be of great importance to the success or failure of a European optional contract law. The question concerned is whether the possibility of choosing the European law should be restricted to contracts with an international element, or also made available for purely domestic cases. From the perspective of the insurance industry, the answer is clear. The possibility of giving effect to European contract law should also be open for purely national contracts. Establishing a new law of contract naturally involves making considerable initial investments. These will be made if the insurers can expect to achieve a critical mass. It may be doubtful as to whether the initial investments would be made with a view to cross-border insurance relationships alone. The number of contracts concluded cross-border is low.5 The reason for this situation does not only lie in the differences between the contract laws. There are other reasons behind this, which will however not be dealt with here. The possibility of a uniform contract law regime would not overcome all of the obstacles. It is therefore foreseeable that insurers will predominately continue to carry out their international activities using subsidiaries. If an insurer doing business internationally had the opportunity to organise the processes based on a uniform contract law in all of the European countries in which he has subsidiaries, this would contribute to a substantial reduction in complexity costs. This however would only result where contracts without a foreign element could also be concluded on the basis of the European law in all of these countries.
5
Included among these contractual relationships, in addition to contracts concluded under the freedom to provide services, are contracts concluded by the parent company using dependant branches abroad and covering risks situated in the country of a branch ofce. These also constitute cross-border contractual relationships for which the question regarding the contract law applicable arises generally. This is often overlooked. For the most part, the contract law of the country in which the company does business is applied as a matter of course. Due to the current state of conict of laws concerning insurance contracts, there is practically no other option. The availability of an optional insurance contract law could provide companies with an incentive to act through branches, rather than establish foreign subsidiaries. Felix Wieser
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The optional contract law regime is perhaps the only instrument in the given situation which could contribute to a signicant consolidation of the internal market. It is not apparent that there are other comparable instruments. In particular, the choice-of-law rules concerning insurance cannot assume this function. Anyone who is familiar with the provisions in art. 7 of the Rome I Regulation will agree. While the inclusion of choice-of-law rules for insurance contracts in the Rome I Regulation represents an advance, this progress is essentially of a formal nature. A review of the provisions concerning insurance contracts has been announced.6 While I do not agree with the arguments which have been presented in favour of restrictive choice-of-law rules for contracts with commercial customers (non-consumers), I do not expect relevant changes to be made in substance. A choice of law will probably continue to be possible only within narrow boundaries.7 Even if the particularly restrictive choice-of-law rules in art. 7 of the Rome I Regulation were to be annulled,
6
Article 27 of the Rome I Regulation provides that the Commission must submit to the European Parliament, the Council, and the European Economic and Social Committee a report regarding the application of this Regulation by 17 June 2013. This should, if appropriate, be accompanied by amendment proposals. There is an explicit requirement that the report must include a study on the law applicable to insurance contracts. A choice-of-law option specied in European law is desirable for business contracts. The concern that the higher level of contractual protection could be circumvented using conict of laws is unfounded. It can be seen to be refuted. Those countries which have autonomously lowered the level of protection in conict of laws for their risks (e.g. the UK and the Netherlands) have by no means whatsoever been inundated with foreign insurers. At the same time, however, I subscribe to the view that liberal provisions on the choice of law would also not constitute a solution for the internal market. This is because the application of a foreign law acts as a deterrent to private customers and small businesses as they are neither capable, nor willing to clarify a foreign law for themselves, and, in cases of dispute, they would not have easy access to legal advice in their own country. However, there are a considerable number of enterprises which would be prepared to deliberately agree to the law of the insurer, which however do not receive the desired insurance contract due to the legal uncertainty associated with it for the insurer in cases of dispute. The situation of businesses in border regions is a typical example. The presumption that the freedom to choose a law would not be used by very many and that signicant internal market effects would thereby not ensue does not justify the restrictive provisions in Rome I.
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the general rules for consumer contracts in art. 6 of the Rome I Regulation would still constitute a barrier to a general solution. Providing panEuropean products to consumers, for example life insurance products for private pension plans, would remain impossible. In summary, it can be noted that: An optional European insurance contract law offers the opportunity of overcoming a substantial obstacle for an insurer to do business in more than one Member State or even across the entire European internal market. These qualities make the optional European insurance contract law attractive to the insurance industry.
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The Consumers View

Peter Hinchliffe
I have been asked to provide a consumers perspective on the Principles of European Insurance Contract Law. In doing so, I should explain that I am the lead ombudsman for the insurance sector in the UK. In that role, I have to resolve disputes between consumers and insurance companies and intermediaries. This gives me a good insight into the problems and concerns that consumers have in insurance contracts, but I am impartial and do not seek to take the consumers part or defend their interests. Today, however, I will seek to comment from the consumers perspective only, as requested. It may be helpful to give some background to my work and my perspective on the PEICL. The Financial Ombudsman Service in the UK deals with disputes brought by consumers and small businesses in respect of insurers and insurance intermediaries. As an ombudsman, I have the power to make legally binding decisions, but in doing so I am in the unusual position of not having to follow the law in all respects, I must only take account of it in coming to a conclusion that is fair and reasonable overall. As a consequence, we have cultivated a jurisprudence of our own that is slightly different to both English and Scottish law on insurance matters. I am required to take account of good industry practice and regulation in coming to a view on any dispute and these frequently depart from the pure insurance law position. As you may know, English law remains harsh for consumers at the moment and is seldom applied in its strictest form by insurers. The Law Commissions in the UK are working on a proposal to reform insurance law in England and in Scotland for consumers. I have been asked to provide brief comments on a 280 page proposal of great erudition and ambition. So please bear with me if my views seem a little supercial in part. I hope to give my comments some focus by restricting myself to a consumers perspective on the following important aspects of this optional instrument: Firstly, the question of who decides whether an optional instrument is to be adopted, who exercises this option?
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Secondly, I want to look at what the consumers view of the PEICL might be and the implications of this. Thirdly, I will give some thoughts on the benets and the concerns that the PEICL may present for consumers in practice. Fourthly, I have identied three particular and general concerns that I would like to raise with the Project Group in the hope that they can consider them in their future work. Finally, I also thought I might offer my views on the possible routes to adoption of the PEICL in the consumer marketplace.
I. At Whose Option Would This Optional Instrument Apply?

I suspect we might approach the PEICL on the basis that consumers are not going to be in a position to choose whether the instrument applies to the policy or not. It is unlikely in the foreseeable future that consumers will contact their broker and say Ill have one of those PEICL policies, please. I believe therefore that it might be wise to assume that the insurer or the intermediary will in practice decide whether to adopt the PEICL or not. I intend to discuss the position of the intermediary later, as I think the characteristics of the cross-border marketplace may mean that intermediaries will be the early adopters of the PEICL as a convenient route to selling to a number of countries. If it is always the insurer or the intermediary who chooses to make use of the PEICL as the governing law of the contract, then ought we to worry? Will this mean that the person choosing the legal basis for the policy will always choose the basis that is to their advantage? Im not sure if this is necessarily a problem, but its one of the potential features of the PEICL that will need to be examined in practice. If, for example, all of the German and Belgian insurers choose to adopt the PEICL, rather than the enlightened law on insurance that exists in those countries, and none of the English ones elect to replace the law that favours them over the consumer, might that suggest that weve solved one problem in terms of cross-border trade in insurance whilst creating another one? If the main users of the PEICL are insurers wanting to adopt the principles so as to offer less protection to consumers than they would do under consumer protection law in their own country, then it is unlikely that it will meet the aims of the Project Group. I do not believe that this risk is a necessary part of the development of the PEICL, but we will need to keep this practical issue in view
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I. At Whose Option Would This Optional Instrument Apply?
when planning and monitoring the introduction of the PEICL into the marketplace.
II. The Consumers View

1. Perception
If we are to consider the consumers view, we should consider the consumers likely perception of the proposals as well as the substantive effect of the PEICL for consumers. There can be a big difference between perception and the substance and this can have practical consequences. What might the average consumers perception of the PEICL be when they are considering buying insurance? My experience leads me to suggest that consumers are frequently not aware of who the insurer is under the policy they have bought. In many cases, they come to the Financial Ombudsman Service to complain about the rm who they think provided the insurance. In fact, they complain about the company whose brand name is on the letter rejecting their complaint or on the websites where they bought the insurance, or they complain about the intermediary who sold the policy, as they believe that they are offering the insurance. They may not have the details of the insurer at all. In this context, it is relevant to ask if consumers will know where the insurer is based. I doubt that they will. I can say that not all of the claims handlers or complaints functions of the intermediaries or insurers that we deal with know where the underwriting company is registered or based. It may be their Irish subsidiary, their Gibraltar subsidiary, in one case I remember it was the Czech branch of the German subsidiary of the UK company whose logo appeared on the marketing documents. So if the identity and location of the insurer are not important features to many consumers, the governing law of the policy may be even more remote. These issues may only become important to consumers when something has gone wrong with the insurance. A consumer may not therefore have much awareness that they are buying a product from a provider in another country. I suspect the consumer will take account of the language of the policy, the brand or logo and they will look at the advertising. These are likely to be the key considerations in making the consumer feel that it is safe to go ahead with the sales process. There may now (after the credit crisis) be a greater knowledge of consumer protection amongst consumers and that this varies by country, in
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the sense of an awareness of considering what happens if this business fails? This may be a factor that leads consumers to think Ill go for somebody I know, someone I recognise or someone local. All of these factors are likely to be much more important to consumers than the governing law. So my suggestion is that we might take the view, as a working assumption, that consumers will not have a view at all on the PEICL. They just dont mind. If this is the case then we will need to plan for the adoption of the PEICL on the basis that consumers will not have any control over its adoption. This reality must, I would suggest, impose some constraints and obligations on those considering how to implement the PEICL.
2. Substance
If we look at the substance of the PEICL and its implications for consumers, rather than the consumers perception, I think its incumbent on those working on the proposal, those thinking of introducing it into the business and obviously on any politician or regulator looking at how to make the best use of the PEICL, to consider, on behalf of the consumer, the practical effect of permitting insurers and intermediaries to adopt it instead of national law. It is difcult to do anything other than talk in very broad terms about the balance struck in the PEICL between the interests of consumers and those of insurers. Professor Fontaine gave his view, that this is broadly a consumer friendly proposal, and I should say that, from a UK perspective in particular, the PEICL looks to offer real advantages to consumers. This may be particularly obvious for UK consumers. In fact, I regard it as offering considerable reassurance and protection to EU consumers overall, whilst offering a balanced allocation of responsibilities and rights. Crucially, it also offers a high degree of certainty to insurers, that should mean that they are able to assess the risk that they are being asked to take on and to price the risk on the basis of the PEICL. It is important to remember that any shift in the legal basis of insurance in favour of the policyholder need not be a problem for insurers insofar as the change is capable of being priced into the risk and it is applied uniformly across all insurers in a particular marketplace. In the detailed form in which it is now published, it also has the very important feature (which I believe is deliberate) of being open to development or evolution as market practice, technology and / or consumer behaviour changes. This is of considerable importance to consumers as they do not control the developments of the market. The phrasing of the principles may be broad, but the concepts are sound and many of the notes suggest that these are likely to have precise
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III. PEICL The Benets and Concerns for Consumers
meaning or interpretations in particular countries where the concepts or terms are well established. We can see from Article 1:105 that one of the ways in which the PEICL has been assembled is on the basis that it should replace mandatory local law as and when the PEICL covers the same ground as mandatory local law. I suggest that there could be an awkward period for consumers when the PEICL governs some parts of their policy, but mandatory local law may apply to other parts. For consumers and their advisers that may mean that this is a difcult policy to interpret or enforce. If it is, then we need to be aware that it is unlikely that any consumer will wish to be the person who has to bear the expense of establishing exactly how the PEICL and national law interact. This could mean that in practice the insurers interpretation of the PEICL will apply in the consumer marketplace, as it will seldom be challenged, even if that interpretation is not what was intended by those drafting or implementing the PEICL. So I suggest that it will be important to the successful implementation of the PEICL in the consumer marketplace that it is able to provide a comprehensive statement of the legal principles in each of the policy areas in which it is being applied. I will discuss later the importance of consumers being able to enforce their rights under the PEICL in a cost effective manner.

I would like to provide some more detailed observations on the benets and the problems that the PEICL may present for consumers in practice. Let me start with some positives: Amongst the big issues that strike me as very helpful to consumers, I note: Article 4 and the provisions relating to precautionary measures, warranties or the equivalent term in other jurisdictions. This is an important area for consumers, a signicant practical concern when it comes to making a claim. I will not dwell on this in detail as others will outline the approach that has been adopted. My view is that the area is dealt with in the PEICL in a way that represents a helpful and user-friendly proposal for consumers in all countries. Instead, I would like to draw your attention to some other interesting statements in these proposals that seem to be acceptable, and apparently well established as European-wide principles, but which look quite radical to me. Many of these are signicant in practice. Both Article 2:603, which imposes restrictions on mid-term variations and Article 2:702 para.
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1(b), which gave consumers that right to be told about suitable alternative polices from the same insurer, address issues that we nd give rise to disputes and where consumers have a strong sense of grievance when they nd that the law does not protect them. A further example is in Article 5:104; where the right to a refund if the policy terminates early is clearly the fair position, but is not a universal practice in the insurance policies that I see. The important point in practice being that even if a policyholder has a legal right to a refund, insurers may say the opposite in the policy terms in the hope that consumers will not challenge this. Regulatory action may be required to overcome this practice. The Principles include, at Article 5:104, a limit of one year on the period in which premiums can be collected. That is, I believe, quite a novel proposal from a UK perspective, but of course, quite workable for insurers, once they understand that such a legal principle exists. If the legal position is clear and known, then it is simple for the insurer to price a policy on this basis and then devise a system of premium collection that will ensure that its position is protected. Nevertheless for consumers such a reform offers greater clarity and a substantive improvement. Another minor but helpful detail is the statement that there should be no right of subrogation against a household member (Article 10:101 para. 3). This is an issue in my ombudsman workload. Family life is rather more complex and households are rather more complex than they used to be. If the car was taken without permission by the ex-husband or ex-partner of the policyholder, is the theft covered or is it not? If it is the daughter who takes the car without permission? If its the ex-husband or present husband who sets re to the house, does the wife get to recover the cost of rebuilding it? Resolving the question of whether the claim is to be paid can be difcult, but that can still leave the question of subrogation as an issue that may deprive the policyholder of any real benet. It would be particularly helpful to think that across Europe there is, apparently, a consensus about the way forward on this difcult issue. So I believe that there are a lot of positive aspects in the proposed Principles, some of which may be familiar and well established in some EU states already. Article 6:105 on interest on late payment of a claim and Article 9:102 giving a right to consumers to be reimbursed for the cost of mitigation are other provisions that consumers should welcome. Some of these benets may be relatively minor in terms of the overall pricing of risk and yet quite signicant in practice for individual consumers when it comes to making a claim under a policy.
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However, in other areas, the PEICL proposal still leaves me with some uncertainty about its effect, despite the quality and length of the analysis and explanation. By way of example, it is possible to derogate from the PEICL under Article 1:103 in respect of insurance for goods in transit. This seems appropriate in a commercial context, but raises the question of what this means in a travel insurance policy, where for example, insurance covers the loss of baggage by a consumer when they are ying. What about household removals? Is there a different regime created under the PEICL for domestic goods in transit as opposed to other domestic insurance? The denition of the insurance contract in Article 1:201 is, I think, another potential cause of uncertainty. On one interpretation, it raises questions around how to distinguish insurance from maintenance contracts where a fee is paid but a service may or may not be required. At another level, it raises questions about the status of some derivatives and other nancial instruments. However, I can see that this may not be an issue in practice if the PEICL remains an optional choice. The effect of the PEICL being an optional instrument is that the parties to a maintenance contract or a derivatives transaction will have to decide that the PEICL applies and therefore presumably will only do so if the parties believe that this is an insurance contract. Another area where I am uncertain about the effect of the PEICL is in consumer insurance arrangements where insurers are being replaced from time to time. For example where a consumer buys a travel insurance policy from their credit card provider. One year a branded insurance policy may have one insurer underwriting it, the next year another insurer, and then another insurer as the branded seller looks for better prices from competing underwriters. I am also unclear how the PEICL will apply to an insured event that gives rise to problems over a number of policy years, e.g. a house is subsiding or the ood damage has an effect that was not appreciated until two years after it was rst noticed. It would be helpful to clarify this point and the effect of Article 8:104 at some stage. Group insurance is a very big and growing market and very important for many individuals in terms of getting health or travel or disability benets. It is referred to in Article 11:103. Again, I understand that within the project there may be an intention to address this area of insurance in more detail in the future. That would be helpful in the consumer market. The issue of multi-benets in policies is I think worth bearing in mind as the market develops. It is possible to buy an insurance policy now that may combine indemnity cover with a xed benet, or life cover with cover that provides regular payments of xed amounts whilst the policyholder is unable to work. In the future, the consumer marketplace may involve sellPeter Hinchliffe
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ing one policy to consumers for all or many of their insurance needs. That seems like a good business opportunity. So a consumer buys their annual household policy, but can also have an extension for travel, protection and life. In that case, the PEICL would have to be capable of working in a way that applied to a single contract that was partly indemnity insurance and partly xed sum insurance as envisaged in Article 13:101.
IV. PEICL General Concerns

I would like to raise three particular and more general concerns arising out of my review of the PEICL. The rst is around the position of intermediaries or sellers. I understand that the obligations of intermediaries are outside the scope of the PEICL, however as I have stated, I believe we have to look to the crossborder marketplace as somewhere where the role of the intermediary maybe crucial. The take up of the PEICL may not come from insurers deciding to trade in other countries, or consumers deciding to ask their broker to look for a foreign insurer because they are cheaper; instead it is more likely to come from the Internet, from mass advertising and from selling organisations that have a presence in a number of countries. Therefore, the position of the agent under the PEICL and their view of it becomes very important. I would however like to raise the issue of how the practical effect of the PEICL on the contractual position between the insurer and the policyholder is affected by the view taken in the PEICL of the legal responsibility of the intermediary. If we take an example of a product that could be sold across Europe; we might choose mobile phone insurance which is widely available in the UK. I dont even know whether that is available in all other countries. It is, dare I say, a pretty worthless product. The policy is sold to the consumer at the same time as the sale of a phone. It provides cover for many things that the consumer is probably already covered for, either contractually or in insurance terms. If you are a big seller of mobile phones or mobile phone contracts, you may not take much care about the insurance you are providing, the business goal is to buy the cover cheaply and maximise the commission. The intermediary may say to an insurer that they want a product that they can sell in 30 countries, and they want to be able to sell it over the phone or over the Internet. The intermediary may think Ill have one of those PEICL policies and I dont have to worry about local law. The insurer can tell me what its going to cost for the underwriting and Ill take care of the selling. If this is the way in
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which the consumer market develops, the insurer and the consumer will adopt the PEICL products at the instigation of the intermediary. In that context, if we look at some of the specic articles in the PEICL, we can see that the intermediary role is potentially important in interpreting the terms of the insurance policy. It appears to me from some of the comments in the PEICL that it is assumed that intermediaries will give advice (see Article 3:101 C1 and N5). This is a matter of EU law, under the Insurance Mediation Directive, but I am not sure that this assumption is valid in all countries. The UK regulator, the FSA, for example thinks that insurance can be sold without advice. In Article 2:202, the assumption that the intermediary is providing advice has an effect in relation to the insurers own obligation to correct any misapprehension. It is also the case that the insurer is allowed to invoke the knowledge that the agent has when dealing with the policyholder. This could be harsh where the agent has no obligation to make that knowledge available to the consumer. So let us continue with the example of an intermediary whose main business is selling mobile phones, but who also acts as an insurance intermediary and sells mobile phone insurance, which covers the buyer for loss, damage or misuse of the phone. The intermediary is likely to know that a particular phone model is more easily damaged or is less reliable than others that they sell. Is the consumer deemed to have that knowledge and to bear some responsibility for making this information available to the insurer if the insurer does not have this specialist knowledge? Articles 1:206 and 2:101 might suggest that they do. We can look at other areas where the knowledge of the intermediary is considerably greater than that of the consumer. A motor dealer who sells cars and motor or other insurance relating to the car, a supplier of electrical equipment selling extended warranty cover, a specialist travel company selling travel insurance might all be examples. So these well-intentioned and, I think, sensible provisions in the PEICL could come to have a signicance that was not intended. The issue of the consumers reliance on the agent to pass on any disclosure that they make is a general (and permanent) problem in insurance and there isnt an easy solution to ensure that consumers are protected from their agents failure. The PEICL does not seek to address this issue or to provide any protection for consumers (see Article 2:101 C6). Resolving this concern in the PEICL need not be a radical re-statement of the law. Some relatively minor statements on the practical application of the PEICL could benet consumers, for example; the PEICL could conrm that an intermediary with only one product to sell is to be seen as acting as the agent of the insurer and not the insured when considering the consequences between the insurer and the insured. The PEICL might make
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it the responsibility of the insurer to ascertain whether the intermediary is offering advice or not. If the intermediary is not providing advice, then that might affect the application of the PEICL to the insurer and the consumer. In short, it is not necessary for the PEICL to address the legal position of the intermediary. That is outside the scope of the project. But it may be better if the reliance in the PEICL on assumptions about the role and responsibilities of intermediaries were to be reviewed. (See for example Articles 7:101 and 7:102 which appear to require the consumer to assess what authority the seller has or should have under current insurance practice or whether the intermediary is independent.) The second general concern that I have relates to the most signicant issue for consumers when buying insurance. Most consumers when considering whether to buy insurance and what the policy terms mean are asking: what protection am I actually buying? In our experience at the Financial Ombudsman Service, consumers will commonly buy insurance in the belief that they know what the insurance will do for them. They may pay very little attention to the description of cover that is provided at the time the product is sold. Some sellers of insurance will devise sales processes that take advantage of consumer indifference or impatience. What the consumer thinks the policy does and what it does in practice may be materially different. By way of example, in my experience the scope of travel insurance is commonly misunderstood by consumers. It may not be until they make a claim under the policy that they understand that travel insurance offers particular cover with some very signicant restrictions and exclusions. Such consumers are likely to be honest people, they may not seek to mislead the insurer in making a claim, but they may feel very strongly that the unexpected event that caused them loss was exactly the sort of event that they wanted to be covered against when buying travel insurance. In some cases, they may have been encouraged in that view by the presentation of the policy. If we look at other types of consumer insurance policy, we can nd in the UK (and therefore, I suspect in other countries) policies that provide no transfer of risk or almost no transfer of risk on a proper construction of the policy the consumer could never claim back more than the cost of the premium . It is therefore legitimate to ask whether the law on consumer insurance policies should offer some protection to consumers that a valid insurance contract will have some basic properties. This might include some measures that will save them from the consequences of their own ignorance or indifference, where this ignorance or indifference is a known characteristic of consumers in the relevant marketplace
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or might clarify whether consumers have a duty to investigate the cover being provided. As I understood the PEICL, it is accepted that consumers do not have to know all about an insurance product, and that its very hard to convey all of the details at one time. It does not specically require in Article 2:201 or 2:301 that all signicant features and all material exclusions have to be brought to the attention of the consumer at the point of sale. The Principles do not provide any sort of clarity around the insurers duty to explain the product. There isnt any sort of tness-for-purpose warranty. There isnt any underlying minimum standard of insurance. So as I understand it the principle behind the PEICL is that the consumer or their adviser, whos helping them, has to do some work to investigate the product and guide the consumer. I question if that principle is appropriate in an environment in which advice is not being provided. Might it now be possible to go a little further in the consumer insurance marketplace and set out some legal principles relating to the minimum standard of cover, or of advice, that ought to be provided to consumers by those responsible for providing or selling a complex consumer product that they know is unlikely to be easily understand by those at whom it is targeted? I would like to mention the Unfair Contract Terms Directive, which provides that a term may be unfair (and unenforceable in law) if the consumer had no real opportunity of becoming acquainted with it before the conclusion of the contract. Should this principle be restated in the PEICL? It seems to me that there is an assumption in the insurance sector that the provisions of the Directive do not apply in the same way that they apply in other consumer transactions. It is acceptable to send the terms of a policy to a consumers after the contract has been agreed and has therefore become valid in law, even though studies of consumer behaviour in the marketplace mean that sellers of insurance know that consumer are unlikely to read these terms at this stage. Article 2:301 C9 appears to conrm that the insured need not know all of the terms of the contract. Articles 2:301 and 2:501 suggest that there is no need to conclude the insurance contract in writing. I am concerned at how the Unfair Contract Terms Directive and the PEICL are to be reconciled and how consumers are protected against insurers and intermediaries taking advantage of their known lack of interest in reading important features and terms of insurance policies.
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The third of my general concerns is around the availability of a clear accessible remedy to consumers if the insurer has failed to meet the requirements of the PEICL. From a review of the provisions of the PEICL, I do not believe that all of the provisions have a clear remedy. For example under Article 1:203, what happens if the language of the policy is not plain and intelligible? Under Articles 1:204, 2:501, 2:701, what is the consequence if documents or information are not sent by insurers? A clear statement of the consequences in law of failure to meet the requirement of the PEICL is likely to be helpful in the consumer marketplace. In considering the effect on consumers if the principles were to be adopted, legislators would need to consider the extent to which consumers are expected to go to their national courts and ask them to decide a complex or novel issues of European and / or national law in order to enforce their rights under the PEICL. It may be unrealistic to assume that individual consumers will be willing to take that step in practice given the expense and inconvenience. So some greater clarity of the remedies available to consumers and the process for enforcing them may be appropriate if the PEICL is to work in the interest of consumers. The position of ADR may be very important in this respect. There are various forms of dispute resolution, but I would like to highlight the role of FIN-NET. FIN-NET is the EU-sponsored group of national ombudsmen, who deal with nancial services disputes, including consumer insurance disputes. It may be helpful if their role was understood and claried as and when the parties begin to adopt the PEICL. It may be useful at this stage to provide an example of how the issues that I am raising may arise as the cross-border consumer insurance market develops and to consider how the PEICL would operate. Let us assume we have a website called 5 Star Insurance: It offers a range of consumer policies, some might be ok, and some are not very good. It offers insurance throughout the EU. It could be based in any country in the EU. All of the policies are governed by the PEICL (or as the website will say in big letters; the European Union approved PEICL). The policy terms are e-mailed to consumers after they have bought the cover. The pricing is supercially very attractive, as the cover is so limited. The policies are branded in the name of the website 5 Star Insurance. Of course we know that they are not the insurer. They may be an introducer, but they are likely to be an intermediary. We may know that many consumers will assume that they are the insurer. No disclosure is required, because the policy terms are full of exclusions or warranties, which take the place of underwriting.
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No advice is provided, little information is available to consumers at the time of the sale and no disclosure is possible. Consumers are happy with this. They are used to buying other products this way on the Internet. They click the button and get the product. So why not buy insurance that way? Now, if that is the future, the PEICL could be very attractive to that website because they have a single set of terms for the whole EU, they have translations of the terms, it is easy to promote the policies, it can be presented as coming with some sort of EU guarantee of quality. It is easy for the intermediary to use the PEICL and it is the insurer who takes the consequences. Insurers will be asked to bid each year for underwriting the 5 Star Insurance policies that have been designed and priced by the intermediary. The cheapest underwriter will win the business. That is the way the market works in some areas today where policies are being promoted under a strong brand owned by an intermediary or introducer. That is also the way it works in other markets where the seller has the market power. We need to consider the effect of the PEICL in those circumstances? As I have indicated, consumers need to know when entering into an insurance policy, what cover they are getting and how they know if it is the right cover for them? There are a number of legal concepts that could be drawn upon to provide some protection for consumers; tnessfor-purpose, implied terms or warranties, transfer of risk, good faith, legitimate expectation, etc. But these do not apply in all Member States and so cannot be relied upon when evaluating the application of the PEICL. The other fundamental issue for consumers is what happens if they are unhappy when they claim under the 5 star insurance policy. Can they pursue any grievance? Is it practical and affordable to do so or must they live with whatever interpretation the insurer places on the policy terms? I think if the PEICL could address these issues it would be helpful to consumers. If the PEICL cannot, then we may have an interesting position where a highly sophisticated, nuanced and detailed piece of work in relation to consumer insurance law is adopted at any early stage by unsophisticated sellers and regarded with some suspicion by consumers, who may struggle to understand how it meets their very basic expectations. My own view is that that the PEICL is perfectly capable of meeting that challenge, but that some of the supplementary work may need to focus on these three major issues.
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V. The Adoption of the PEICL

If it is the insurer or the intermediary who makes the choice on whether to adopt the PEICL or not and the consumer is indifferent, then as I have indicated, one of the important points in considering the how the PEICL works for consumers is whether they can enforce their rights under the PEICL when this is required. Problems normally arise for consumers when their claim is not paid, consumers complain less frequently about the sale of insurance. There will be an increased expense in being one of the early people to litigate on the PEICL, just because of the novelty of the legal position and the potential complexity in the principles needs to be resolved. Unless it is possible and realistic for consumers to challenge insurers interpretations of the PEICL, it will not provide the benets or the clarity that is intended. ADR can play an important part for consumers worried about enforcing their rights. Ombudsmen, for example, can provide a route for providing consumers with an affordable means of enforcing their rights in insurance disputes. I would also ask you to consider if ADR and ombudsmen might also provide another route for the adoption of the PEICL? I want to raise a possibility here, in outline only; is it possible to imagine the European Union saying that it wishes to adopt the optional arrangements on the basis that there must be a consumer redress scheme in each jurisdiction and that scheme must apply the PEICL or alternatively cannot apply a standard of local law that is less than the standard that would be offered to consumers under the PEICL? Alternatively, should cross-border sales be within the jurisdiction of a cross-border ombudsman? By this means, the position of consumers could be protected and the risk that insurers or intermediaries only seek to introduce the PEICL where it permits them to accept less responsibility in law than they would do under the relevant national law is diminished. It would also mean that the Principles could become the subject of decisions and analysis in the very short term as consumers can afford to pursue their concerns over the application of policy terms and have an accessible forum in which to do so. Early objective analysis of the PEICL will benet its prompt development and if an ADR forum does not provide the quality or certainty that the courts could, then appeals or reviews on points of law may be pursued by insurers at their expense. Ive listed some advantages and disadvantages of the PEICL, but insofar as it is offering protection to consumers, the implementation by means of obligatory access to ADR could be a way of introducing the PEICL as an optional instrument in the consumer market in a way that is fair to consumers and encourages the rapid developments of a parallel jurispru72
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dence around the PEICL. It is also possible that because Ombudsmen in different countries are allowed and encouraged to talk to each other and do so, unlike perhaps national judges, there could be more uniformity in the implementation of the PEICL across the EU. In conclusion, I hope that I have been able to raise some issues of relevance to consumers in a manner that will aid the development and introduction of the PEICL. It is hard to address this complex work in a manner that adds value and suggest concrete improvements when the work is founded in such thorough and expert analysis. In fact, I think it would be presumptuous of me to try to do. I also accept that this initial view of the proposals may contain some misunderstandings on my part, but I hope that the questions and issues that I have raised will assist the Project Group in considering the way forward. Overall, the PEICL is a very important and useful development in the law and should be a signicant step forward for consumers in providing safe access to a more competitive insurance market. It seems to me there is no reason in theory why the PEICL in its present form should not govern a consumer insurance contract and provide a satisfactory and just outcome for consumers. However, I hope that some issues that I have identied can be reviewed as the project moves forward, and that consumers can be reassured about the basic elements of an insurance product they buy from an EU insurer and what they can do if they are unhappy about a policy governed by the PEICL. By this means, public condence in the European insurance sector is increased and cross-border trade in insurance can start to grow. I had intended that this talk would conrm my respect and admiration for the work of the Project Group and my positive view of the potential for the PEICL on consumer insurance policies in the EU. I hope I have managed to present a view that is positive overall, whilst also raising a number of questions that came to my mind when I reviewed the detailed presentation of the PEICL. I hope that I have been of some assistance to the Project Group as they continue the valuable and innovative work. Thank you very much.
Peter Hinchliffe
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The Role of the Intermediary

David Harari
I. Introduction
Insurance intermediaries are strongly in favour of an integrated European Single Market for insurance services that is diverse and competitive, where private and business consumers could benet from a wide choice of innovative products at competitive prices and where service providers could operate in an efcient legislative environment that enhances their competitiveness. Insurance products are sold through a range of distribution channels. In many of the EU Member States, intermediaries are by far the main distribution channel for mass risks. The other channels include, among others, direct sales by insurance companies and sales through banks. The agents channel is the largest in countries such as France, Germany, Greece, Italy, Portugal and Spain, while in countries such as Belgium, Ireland, the Netherlands and the UK, brokers are by far the largest non-life distribution channel. Insurance intermediaries believe that further integration could provide signicant benets for consumers, the insurance industry and the wider EU economy. Insurance contracts are legal and intangible products which make them particularly suitable for cross-border sale. However, today, despite existing single passport systems for insurers and intermediaries any insurer and intermediary authorised in any one Member State can legally trade throughout the EU and despite a European insurance contract law mainly shaped by European directives, business reality is that the European market remains very fragmented. Cross-border competition is limited by a variety of barriers to market entry, reducing consumer choice and hindering business operations. At consumer level, language and cultural differences, consumer preferences and national consumer protection rules often act as entry barriers. At the supplier level, be it the intermediary or the insurer, the need for
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local risk knowledge, business and distribution characteristics as well as an abusive use of general good provisions by the host Member State makes cross-border selling difcult, if not impossible. There is no unique legislative panacea that will create a genuine single market for insurance services. However, we believe that an optional insurance contract law as proposed by the Project Group Restatement of European Contract Law could largely improve the situation and help cross-border activities emerge where there is a real market potential. Insurance intermediaries could play an important role in promoting this European regime with their clients and, by so doing, create a wider choice of insurance products for consumers, and new business opportunities and competitiveness for the industry. However, it is crucial that the roles of insurance intermediaries in this context are better claried. The question to be addressed today is whether the adoption of the Principles of European Insurance Contract Law (PEICL) would act as a catalyst for such an integrated European Single Market for insurance and whether there would be widespread use of contracts written under these rules, and how intermediaries could participate in the success of such a project.
II. Insurance Intermediaries Perspective

Insurance intermediaries are a vital link in the process of distributing insurance contracts. They also play a pivotal role in protecting the interests of insurance customers, primarily by offering advice and assistance to insurance customers and by analysing their specic needs. This role is highly valued by insurance buyers, as documented in a report regarding insurance intermediaries:
According to a survey conducted by the magazine Reactions, 73 % of the clients surveyed considered their intermediaries to be very important or essential to the insurance market. [] Even in the case of the most standardised insurance products, it appears that customers frequently solicit the internet for information on the insurance products, but buy the products via intermediaries. Clients rely heavily on intermediaries for more complex products, where customised advice is critical. It is interesting to note 76
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that the respondents in the survey were large insurance buyers, sellers and service providers who are experienced market players. Small clients may demand even more expertise and advice from an intermediary. (Swiss Re, op. cit.)
Today, the Insurance Mediation Directive1 (IMD), adopted in 2002, enables insurance intermediaries to play this role throughout the European Union. On the basis of their registration in their home Member State, intermediaries are authorised to do business in other EU Member States by way of freedom to provide services or by establishing a branch. They can therefore ensure the insurance servicing of their clients when the latter have exposure in other Member States as they increasingly do. At the same time, they can also help their clients to benet from the wide range of products on offer in the European Single Market for insurance. Together with the single passport for insurers set up in July 1994 by the Third Life and Non-Life Insurance Directives, this new single market legislative framework has facilitated cross-border insurance activities in the case of major industrial and commercial risks, but has had no such signicant impact on private risks (i.e. private individuals). One possible explanation is that insurers and insurance intermediaries who operate legally in one Member State are discouraged from expanding their business into another Member State by requirements imposed by the host Member State for consumer protection reasons and by a lack of knowledge of its conduct of business rules and insurance contract law. In the eld of mass risk insurance in particular, it is more likely to be an intermediary who will try to place a risk in a foreign insurance market rather than the customer himself. However, any insurance products developed in a foreign market are not likely to have signicant meaning to an insurance intermediary lacking knowledge of the specic provisions of the relevant national laws. Since products found in a foreign insurance market are mainly designed with a view to local law, the intermediary may not assume that contents of the policy will remain the same in the legal environment of his customer.
Directive 2002 / 92 / EC of the European Parliament and of the Council of 9 December 2002 on insurance mediation [2003] OJ L9 / 3.
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For example, as explained by Helmut Heiss in his introduction to the Principles of European Insurance Contract law (PEICL), an insurance product which is lawfully distributed in France could be considered invalid if sold cross-border in Belgium by a French intermediary to his Belgian customers. Indeed, a particular exception included in the French contract terms may be considered invalid under Belgian law. Insurance intermediaries will therefore hesitate to propose cross-border services, depriving their Belgian clients of better or more innovative products. Intermediaries cannot therefore avail themselves easily of foreign insurance markets for placing mass risks, but have to negotiate contracts individually. This generates prohibitive transaction costs. All of this prevents the functioning of a truly integrated internal insurance market. As far as large and industrial risks are concerned, as mentioned above, such policies benet today from greater contractual and jurisdictional freedom. The policyholder is deemed to be a sophisticated buyer and the selling process is not subject to complex consumer protection laws. As a result, the scope for invoking general good requirements, for example, is diminished. The question we must ask is: Can we build a case in favour of an optional European insurance contract law? An optional instrument of European insurance contract law allowing parties to conclude insurance contracts on the basis of a European law only instead of national laws would obviously solve these problems. The risks and costs of dealing with 27 different legal systems would be avoided. It would help insurance intermediaries willing to operate cross border to reduce their liability risks and to lower their transaction costs. They would not have to worry about the legal impact and consequences of diverging national contract law regimes on their cross-border transactions. The costs of legal research and adaptation of the products to each national system of contract law would disappear. This, of course, implies that product manufacturers, i.e. the insurers, are ready, interested and willing to design products for universal EU sale; products that could be distributed on the basis of a European law and whose performance and delivery would not depend vitally on local / national characteristics. These products would also have to be commercially attractive and meet a potential demand.
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III. Which Business Opportunities Are There for Intermediaries?
Consumers who live in border areas or are expatriates, who are labelled by the Project Group as euro-mobile consumers, are likely to demonstrate a greater propensity towards cross-border purchasing and pan-European insurance products. Products less impacted by local risk, such as medical assistance, householders all risks or term life, may be the ideal products for universal EU sale. Some pension business or simple savings products may also nd a cross-border market, provided that barriers created by tax relief are surmountable.
III. Which Business Opportunities Are There for Intermediaries?

The business opportunities that would be created by an optional insurance law for insurance intermediaries are threefold.
1. Marketing pan-European insurance products

Insurance intermediaries could play an important role in promoting and marketing cross-border sales of pan-European products to their clients. In 2004, a Belgian survey demonstrated that customers exhibit much greater propensity towards purchasing insurance cross-border if a local intermediary recommends the product. Insurance intermediaries will have to get a very good grasp of this European regime in order to advise their clients whether to opt for it or not. They will have to explain why the European regime offers similar or better protection for their clients in comparison to their national one, in addition to offering a better basis for cross-border transactions or even for national transactions as the European regime would not be limited to cross-border contracting situations. It may sometimes be hazardous, however, for an intermediary to advise his foreign clients to give up the protection afforded by a national contract law that he himself doesnt know very well. Liability risks of intermediaries could be signicant in this context.
2. Developing pan-European insurance products

Consideration will have to be given to the development of new, specic pan-European products that will be sold throughout the EU on the
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basis of a European insurance law. It is important that the industry, i.e. the product manufacturers, agree to design such products. Insurers with EU-wide business strategies could, for example, apply the same designs and actuarial calculations to their policies and would be able to pool mass risks on an EU-wide basis. Insurance intermediaries who act as wholesale intermediaries could also play an important role in this context. They could develop specialised pan-European insurance programmes and products for their clients. This is especially true in the case of intermediaries specialising in afnity programmes, distributed through networks or sponsors for simple insurance products that are very popular nowadays among consumers, such as extended warranties of various hi-tech products. We also believe that it is important that the design of such products is not imposed by EU legislation. We believe that such pan-European products would allow providers, intermediaries and insurers to benet from economies of scale. Even if those second regime products would, at the beginning, only satisfy the expectations of a nominal part of the 500 million EU citizens, the potential sales volume could progressively be signicant. For example, a European annuity-type product in conjunction with a suitable European regime could play a role in third pillar individual pension products.
3. Managing after-sales services of pan-European insurance products

Consideration will also have to be given to the after-sales services (claims handling, complaints). They would call for special organisation by insurers and insurance brokers or agents. Lets take the example of compulsory products. Today, they have to comply with host country rules. For third party motor liability, which represents the largest non-life category at about 40 / 50 % of premium, requirements make it very difcult if not impossible or non-viable to insure on a freedom-of-services basis. Local services for claims management and claims policing must be provided by the insurance providers.
IV. The Particular Legal Position of the Intermediary

An optional instrument of European contract law is characterised by the fact that its application depends on the choice being made by the parties
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to the insurance contract. Those parties would be allowed to conclude their contract using European law instead of national law. The parties to the insurance contract are namely the insurer and the policyholder. Insurance intermediaries are not parties to the contract; they are third parties to it. However, intermediaries are, in many cases, instrumental in bringing together the two parties to the insurance contract and it is important, therefore, to examine briey what the impact of opting for the European Contract Law would have on intermediaries activity in the context of the existing rules dened by the IMD (Insurance Mediation Directive). The authors of the draft Principles of European Insurance Contract Law consider that third parties must not be adversely affected by the parties choice:
The legal position of intermediaries will not be affected by the parties choice of the Principles of European Insurance Contract law. They do not regulate the duties of the insurance intermediaries, but only the liability of the insurer for its agents, including agents purporting to be independent
The authors therefore explained that the Principles do not transpose the Insurance Mediation Directive which has however been a source of inspiration for regulating the pre-contractual information and advice duties of the insurer. Although we can understand the legal reasons explaining the approach chosen, we wonder whether such an optional regime is really channel neutral because it seems to give precedence to certain distribution channels (direct sales?) over others. Furthermore, specic forms of intermediaries, like wholesale brokers or intermediaries having underwriting powers, are not taken into consideration in the framework of the European regime. This may lead to their exclusion from the European regime. Lastly, the fact that the European regime does not transpose the IMD nor use its terminology may lead to some confusion as to the information and advice duties of the intermediary when the parties to the contract choose the European regime and use the services of an intermediary.
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1. Channel neutral?
Insurance intermediaries are not parties to the contract: they are third parties. The authors of the draft Principles of European Insurance Contract Law therefore believe that the choice of the parties to the contract, i.e. the insurers and the policyholder, cannot affect the personal rights and obligations of the intermediaries. The Principles only regulate the scope of liability of the insurer for acts committed by intermediaries in their Articles 3:101 and 3:102. The Principles do not transpose the IMD. We wonder whether this approach will not favour a regime which would in practice exclude insurance intermediaries and in particular insurance brokers from its scope. Lets take the situation where the two parties to the contract opt for the European regime. According to this regime, the information and advice requirements are satised by the insurer (or his agents) to the policyholder. If the policyholder decides to deal via an insurance broker subject to the IMD, what are the information requirements with which this latter is required to provide the policyholder? Those of the European regime or those of the IMD or both? The situation is not clear and may appear simpler in the case of direct sales, for example. It is also not very clear in Article 2:202 whether the advice given by the independent intermediary replaces the advice to be given by the insurer.
2. Interaction between the IMD and the optional European regime

The Principles of European Insurance Contract Law do not transpose the IMD requirements and in particular its advisory and information obligations. As a consequence, in the situation where the parties to the contract have opted for the European regime and either the insurer or the policyholder deal with an intermediary whose activities are regulated by the IMD as implemented in national law, difculties and confusion may arise from the fact that the current ranges of obligations do not coincide. For example, some of the pre-contractual information requirements of the insurer of Article 2:201 go beyond those of art. 12 of the Insurance Mediation Directive.
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We wonder whether a dual track system of information requirements (for example, Article 2:202 and art. 12(3) of the IMD) would provide a substantial increase of the level of protection of the insured. The denitions of insurance intermediaries of the draft Principles of European Insurance Contract Law do not voluntarily match the ones of the Insurance Mediation Directive. The Principles only refer to and dene the term of insurance agent. However, reference is also made to independent intermediaries (or agents purporting to be independent) in some articles (for example, Articles 2:202 and 3:102) without this term being dened. This could lead to some confusion and make the use of an intermediary by the parties to the European contract difcult. Furthermore, comments on page 166 (Article 3:102 C2: Agents of insurers purporting to be independent) of the Principles of European Insurance Contract Law explaining that Intermediaries have to register either as being dependent or independent under the Insurance Mediation Directive are not correct. The Insurance Mediation Directive makes no attempt at making a distinction between independent and dependent intermediaries. Indeed, experience in many markets has proved that it is impossible to dene clear criteria matching all the situations in the marketplace. For instance, often intermediaries act as agents for certain types of risks and as brokers for other risks. For this reason, the distinction was not drawn in the IMD neither in its articles on denitions nor on register. It is art. 12 that seeks to ensure that consumers have a clear understanding of each risk, whether they are dealing with an intermediary who works for a limited number of undertakings or with an intermediary who works with a sufciently large number of insurance undertakings. These distinctions, as laid down in art. 12, are therefore not aimed at establishing any structure or criteria for intermediaries registers. The Directive rather relies on the disclosure of information to the client which allows the intermediaries to adapt to case-by-case situations. Whilst it is true that in the IMD, art. 12(1)(e)(i)-(iii) identies three categories of insurance intermediaries, it is clear that an intermediary can belong to more than one category; therefore, these categories are not appropriate for the general requirement of registration. The information referred to in art. 12(1)(e)(i)-(iii) is given to the customer on the basis of the insurance contract provided and not on the type of intermediary.
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Intermediaries information obligations are modulated according to the specic nature of the insurance contract.
V. Conclusion
We believe that an optional insurance law, together with a revised Insurance Mediation Directive, should allow insurance intermediaries to better help their clients benet from a wider range of products on offer in the European Single Market for insurance, thus playing their essential role as the catalyst for competition at EU level, and breathing life into the dormant Single Insurance Market. To this end, it is therefore crucial that the optional European regime is truly designed to be distribution channel neutral and does not lead in practice to the exclusion of insurance intermediaries.
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Report on Discussion II
Mandeep Lakhan
Chairman of the session: H Cousy After the second-session speeches by Dr Wieser and Mr Hinchliffe, chaired by Professor Birds, and the third-session speech by Mr Harari, the third sessions chairman, Professor Cousy, opened the oor to questions. These were varied and related to the different areas of the PEICL.
I. ADR, Law Enforcement and Remedies (Consumer Protection II)

In his speech, Mr Hinchliffe had expressed his concerns about the remedies offered by the PEICL to consumers. He enquired into whether recourse to alternative dispute resolution (ADR) or to ombudsmen was available to consumers as a means of enforcing their rights. He further noted that a potential disadvantage for the PEICL was that ombudsmen were unable to depart from national law. Professor Heiss responded to these concerns by rst stating that certain remedies were specied in most of the provisions. Furthermore, even where there was no direct reference, there was always the general remedy of injunctions and other collective enforcement measures, such as supervisory measures. He also emphasised that the PEICL referred in general to the PECL, which contained sanctions for breach of contractual duties. Furthermore, Article 1:301 of the PEICL extended the scope of application of the Injunctions Directive to the whole of the PEICL. This meant that if insurers violated the PEICL and even if there were no specic sanctions, consumer organisations could sue a particular insurer and petition for an injunction. This, he added, was quite aggressive. Professor Basedow added that, when considering recourse to ADR, it should be borne in mind that some of the systems in Europe were entirely voluntary and privately initiated, whereas others were based on the law.
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In an optional instrument, it was therefore not possible to oblige certain ombudsmen to accept them. It was only possible to state that it was not believed to be foreign law, and therefore the ombudsman should accept the case. Moreover, there might be countries in which there were no ombudsmen, the establishment of which could not be imposed by the PEICL. With regard to Mr Hinchliffes second point of concern, Professor Heiss pointed out that Article 1:302 expressly granted the possibility of using out-of-court complaint and redress mechanisms, such as ombudsmen. In response to the fact that ombudsman ofces at times refused to hear cases which were subject to foreign law, he rst concurred with this view and continued that this was also a reason for his insistence that since the PEICL would constitute a European law and European law was now an inherent part of domestic law the PEICL would not be a foreign 28th regime, but rather a 2nd national regime. As a result, ombudsmen would not be able to refuse to hear such a case on the grounds of it being foreign.
II. Insurance Policy

Two other aspects were also alluded to in Mr Hinchliffes presentation, which Professor Basedow wished to clarify. First, Mr Hinchliffe had referred to there being no need to conclude a contract in writing according to Articles 2:301 and 2:501. Professor Basedow stated that this rule had been misunderstood. It meant that, while insurance contracts would usually be made in writing, if this was not the case, there would nevertheless be a right to receive the policy. Thus, if there were a case in which the contract were concluded orally, it should be possible to bring evidence that this contract existed, and the insurer should be obliged to send the policyholder a policy. Without this provision, the problem could arise that, if there were no written document, there would be no contract. Second, Mr Hinchliffe had noted that, pursuant to Article 2:502, the insurer only need[ed] to highlight terms if they differ[ed] from prior agreement. Professor Basedow explained that there had been a similar misunderstanding in regard to this provision, which applied where the policy deviated from the application for insurance. This might occur due to lapse of time, change in conditions, or because the insurer no longer offered the cover originally requested. Consumers should be made aware of these changes through highlighting of the policy, and, where there was no reac86
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tion, the contract would be deemed to have been concluded on the basis of these (if he reacted, no valid contract). If there was no highlighting, he would have simply led it away without noting the changes, and later have had problems when he had a claim that was not covered.
III. The Role of Intermediaries

Following Mr Hinchliffes speech, which also addressed the subject of intermediaries and the problems faced, Mr Ivanov cast doubt on whether the clauses regarding best advice were favourable for using intermediaries. He asserted that the clauses would encourage consumers not to consult an intermediary as this would result in the insurance being less expensive. The consumer would save money, but receive the same information, and the insurer would be burdened with the duties of clarication. Thus, he argued, the consumer would get the same, or better, advice for free. This would be an unfortunate situation indicated Mr Hinchliffe, and added that consumers required procient advice, which would always be better obtained from an expert intermediary. In order to ensure an operation of the PEICL which was safe for intermediaries, he stressed the need to provide rules for situations in which no advice was provided by an intermediary. Hence, while the issue of the clauses was important in determining the attractiveness of the PEICL to consumers, advice from an intermediary had to be the best option for everybody. Countering the argument that direct advice would be cheaper when provided directly by an insurer, Mr Harari speaking from the perspective of intermediaries highlighted that consumers decisions were often guided by the nal price to be paid, regardless of whether intermediaries or direct sales organisations were used. In his experience, people in most countries took out insurance offered by agents (who were paid by insurance companies), thus resulting in de facto paid advice being provided. In a similar vein, brokers tended to work with several insurance companies, and be independent. Although they might not disclose their remuneration, the client knew how much he had to pay for his premium. Furthermore, if the intermediary was independent, then he would put his professional liability on the line by giving bad advice. He reiterated that intermediaries gave expert advice in many cases, and it was an important component of the sales process, especially where the product was complex. To these remarks, Professor Heiss added that the duty to warn about lack of cover, as set out
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in Article 2:202, was subject to the circumstances surrounding the conclusion of the contract. If the broker were under the duty of best advice, the insurers duty would be reduced, which in turn would reduce the costs of insurance and make the use of brokers more attractive.
IV. Duties of Intermediaries

Professor Heiss tackled the issue raised by Mr Hinchliffe in his speech concerning the lack of a best advice duty on the part of insurance brokers. As briey touched upon by Professor Cousy, there had been a proposal for such a duty, but it could not simply have been inserted into the PEICL owing to their nature. Professor Heiss explained that the PEICL were optional, and thus based on the choice of two contracting parties, the insurance broker not included. Due to the principle of freedom of contract, no special liability could be applied without consent from this, in effect, third party. Hence, including a duty of best advice for insurance brokers would have metaphorically been the equivalent of designing a car without an engine, i.e. futile. Mr Harari however also enquired into the effect on information duties if an insurer used the PEICL with an insurance broker. On this point, Professor Heiss indicated that there would be two sets of information duties. The rst set would concern the insurer and the products offered. These duties would always lie with the insurer. Specic information duties constituted the second set, which lay with the intermediary as they related to his own identity and his independent role. Mr Hinchliffe noted that the purpose of making available the PEICL was to ensure that it was safe for consumers to be active in a regulatory environment in which the duties of the intermediary were the same as those assumed by PEICL: the actions of two contracting parties were regulated by PEICL, while the assumptions that PEICL made about third party activities would be borne out by regulation. There was, he suggested, another alternative: namely to accept there was some uncertainty about the position of the third party, and thus simply to regulate the position between the two parties. In other words if the PEICL was supposed to be more attractive to consumers in situations where consumers received advice from an intermediary, this would be unproblematic. In contrary cases, it would lie within an insurers responsibility to ensure that they
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V. Choice of Insurers
receive the appropriate advice. The insurer would know whether it was selling through an advised / not advised channel. Hence, the activities of two parties could be regulated, without necessitating a process to bind three parties.
V. Choice of Insurers
Following Dr Wiesers speech on an optional instrument from an insurers perspective, Dr Ludwichowska asked him to offer a prediction about the practice which would most likely be adopted by insurers if the PEICL were enacted as an optional instrument. More precisely, she enquired into how insurers would shape their practice in particular with regard to crossborder insurance contracts, whether they would opt for the PEICL without further thought for the sake of simplicity, or whether they would really weigh the most favourable option the PEICL or the national system. In response, Dr Wieser stated that he would not like to give any predictions as the decision would not be an easy one for insurers to make. As they currently had a large portfolio of insurance contracts based on national insurance contract laws, a new insurance law would entail a large initial investment. The system used would therefore depend on how much business the insurer expected. Moreover, a lot depended on where the insurer did business: there was little incentive to switch to the PEICL for insurers working at a national level, but a great deal for those carrying on business internationally. The insurers who wished to offer a pan-European product would, Dr Wieser conrmed, have to make cost-benet calculations with regard to using the PEICL. This decision would also be based on an assessment of the rules in their entirety, and not as had previously been suggested by only taking into account individual provisions. Agreeing, Professor Basedow added that a comparison would be undertaken, especially as the PEICL represented a bundle of rights. Generally, Dr Wieser envisaged that there would be two parallel systems in place, as the current insurance contracts based on national laws would continue to be valid for a long period. However, he also further anticipated insurers having two sets of products with each being offered for only one system, rather than offering all of the products under both systems.
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VI. Application to Domestic Contracts

At this point, Dr Wieser also reiterated that it was very important for the PEICL not to be limited to cross-border insurance contracts. Most insurers did their work through independent subsidiaries which exclusively did business domestically. Pan-European products would only be offered if each of the subsidiaries could sell these products on their home market. He further remarked that it did not make sense for the application of the PEICL to hinge upon a cross-border element, which would force foreign subsidiaries to sell to domestic markets and vice versa. In fact, if the European institutions rejected applying the Principles to domestic cases, this would cause a problem, as he feared that without this the whole idea could fail. Professor Basedow added that, while in the tradition of unication of law a restriction to cross-border contracts was usually made, there were two arguments for the extension of scope. First, people sometimes knew in advance that they would move to several countries in the course of the next few years. They did not know where, but would have liked to have stability of their contractual relations in the insurance sector. They should not be forced to buy new insurance cover whenever they moved to a new country. The second was the one mentioned previously by Dr Wieser: namely that if the PEICL proved to be attractive to insurers, it would be easy for those who wished to use these to circumvent any cross-border requirement as they could turn a domestic relationship into a cross-border relationship by establishing a subsidiary in another country. Consequently, limiting the agreement to purely domestic contracts would simply be ineffective. It would also not be possible to claim that establishing a subsidiary in another country constituted a circumvention of the law (fraus legis), as had already been illustrated at European level (see Centros). For these reasons, the choice of applying the PEICL had not been restricted to contracts.
VII. Reference to the PECL

1. Binding Nature
Responding to the comments made by Professor Fontaine in his rstsession speech regarding the strange situation which would arise if the
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European legislature were to enact the PEICL (leading to the PEICL becoming binding law) which referred in Article 1:105 para. 2 to the PECL (a non-binding set of principles) as its lex generalis, Professor Heiss noted that the problem would only arise if the legislature did not enact contract law in its entirety, i.e. if only the PEICL were enacted specically for the insurance sector. In the latter case, the general contract law would become binding as part and parcel of the PEICL. This, however, was not uncommon. He highlighted that there were, for example, references to conventions with regard to trade usage in national commercial law as well as in European Union law. It was therefore neither new, nor unusual for non-binding rules by means of reference to obtain binding character within a specic context.
2. Degree of Certainty
Professor Wendehorst stated that the reference to the PECL led to degree of uncertainty about which provisions would in fact apply, since there was no indication as to how the relationship with the PECL would be dened. She further specically questioned which set of principles would be used to settle the matter of right to terminate. As regards the more general aspect of the question, Professor Heiss forthrightly acknowledged that the relationship (between the PEICL and PECL, and possibly other general principles) was problematic; however, he stated that it must be decided on a case-by-case basis whether a specic remedy granted by general contract law was available in the area of insurance contracts, or was excluded because there was a specic remedy in the PEICL. In many cases, this could be determined easily. In some cases, explicit reference had been made, e.g. provisions on limitation periods, where there were references to those articles of the PECL which would still apply and not those which had been derogated by the PEICL. Having stated that Professor Wendehorst was correct in asking about the general problem of determining when to apply the lex specialis and ascertaining when there was no rule so that reference to the lex generalis had to be made, Professor Heiss continued by drawing attention to three additional points in response. First, the Group did not consider itself to be a messiah. It had never expected to be able to provide solutions to all of the problems in insurance law, and it had certainly not presumed that instead of a national insurance law which was beset by many problems it could provide a European insurance law without any. There was a problem
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of interpretation. Second, the problem highlighted was not specic to the PEICL. Professor Heiss argued that it also arose in national legislation, for example in German insurance law where the rule of non-disclosure had specic sanctions and on which there was constant debate about whether the insurer was permitted (in addition to these sanctions) to rely on general contract provisions governing avoidance of the contract, mistake or fraud, etc. Third, it was further highlighted that one good thing about the problems arising from the PEICL was that they were unied problems and the ECJ would ultimately decide upon them uniformly. While Professor Heiss understood that some might be disappointed with the decisions of the ECJ, he stressed the fact that these would have binding force on all Europeans. Thus, it was better to have a unied problem, rather than 27 different problems of the same kind. Addressing Professor Wendehorsts specic example of the right to terminate, Professor Basedow indicated that this was governed by Article 5:103. He explained that Article 1:105 para. 2 was only to be applied in cases where an issue had not been expressly settled in the PEICL, i.e. where there was a lacuna in the law. Since this was not the case for the example mentioned above, there would be no recourse to the PECL. He claried that it was, however, apparent that similar questions would arise again sooner or later because, despite ten years of work, not all of the points which might possibly arise had been discussed.
VIII. Problems of Interpretation

The problems of interpretation addressed by the draftsmen of the PEICL in Article 1:104 led to a number of questions being raised by Professor Soyer. He enquired, rst of all, into the meaning of the wording that the rules would be interpreted in the light of their text, context, purpose and comparative background, and whether it meant that judgments in different Member States would be binding on ombudsmen in the other Member States. Furthermore, he questioned how it would be possible to catalogue all of these decisions. In his second question, Professor Soyer quoted the same provision, Article 1:104, in which was stated that the PEICL needed to be interpreted in consideration of the need to promote good faith. This was a concept, however, which could hold different meanings for different judges. He enquired into the extent to which that would be a difculty.
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VIII. Problems of Interpretation
In reply to the extent that the language used was concerned, Professor Basedow claried that most of the wording of the provision mentioned had been taken from other sources, such as art. 7 of the CISG. The ECJ had furthermore, in various decisions on the interpretation of Community law, promulgated that account had to be taken of these considerations. To respond to Professor Soyers question regarding interpretation, Dr Wieser used the example of the CISG, which he had referred to earlier in his speech. While agreeing that there might initially be varying judgments from national courts, he asserted that the experience gained from using the CISG showed that national courts did in fact look at the judgments of other courts. He even dared to make the prediction that the PEICL would soon be the subject of more annotation and commentaries than many national insurance contract laws had in the past. The experience to be gained from the PEICL would also be richer than that of many national insurance contract laws. Mr Hinchliffe added that the variations in interpretation of phrases, such as good faith, could also prove to have positive impacts. Any differences indicated that at least one jurisdiction could gain insights from which it could learn, and, over the course of time, improve. Coping with such a situation in the short term would, in his view, not be a problem and it would lead to benets in the long term. Mr Hinchliffe also afrmed there would be problems in implementing the PEICL. They were a set of principles, upon which the group had thoroughly deliberated in order to allow exibility in the future. This exibility could of course also lead to a degree of uncertainty. However, having examined some of the issues that arose in the Principles, it became clear that they already existed in every jurisdiction and were the subject of many different decisions. It would be interesting and benecial to the development of a pan-European and cross-border market to be able to compare decisions from different Member States. Whilst this might appear unlikely to occur, the idea of referring it to the ECJ could be extremely advantageous. He used the Unfair Contract Terms Directive as an example, since this was often used in the United Kingdom, despite the possibility of implying many of its concepts from the common law. It was, he observed, simply nice to quote a manifest principle. Thus, the uncertainty which could arise was no reason not to proceed. Professor Soyer had also raised a third point by noting that not only the issue of certainty in contractual relationships, but also the adequate protection of policyholders had been addressed in Article 1:104, which
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he believed could lead to a paradoxical situation, especially as it was, at times, necessary to sacrice a degree of certainty in order to protect policyholders. At this juncture, Professor Basedow explained that the considerations relating to interpretation mentioned previously had been augmented by only one criterion: the protection of the policyholder, as this formed the very essence of the whole project. He argued that, while Mr Schsch had, in the rst discussion session, cited a PEICL provision which was less favourable to the consumer than the equivalent German one, in general the PEICL provided a high level of consumer protection. This was desired to ensure that consumers had more or less the same degree of protection at European level as they did under national systems.
IX. Final General Reection

At the very end of the second discussion session, Professor Kullmann shared an anecdote which generally reected the possible success of the PEICL. He reported on a meeting which had taken place in Paris, with approximately 150 people attending from insurance companies. French insurers had stated that for insurers any regulation was akin to a ea: it was bothersome. If an insurer only did business on a domestic market, he had only one ea to deal with he could live with that. If, however, he wanted to extend doing business to other countries, 10 for example, he would have to live with 10 eas. It would be harder. But with 27 markets, there were 27 eas. The insurers recognised that the PEICL constituted just one ea and stated they would prefer just to live with this one ea instead of 27.
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Closing Remarks: Summary and Outlook

Jrgen Basedow
Up to their publication in late 2009, the Principles of European Insurance Contract Law (PEICL) had been presented to the European public at several venues: in London, Paris, Luxembourg, Berlin, Milan and Bucharest. On those occasions, the information made accessible to the public was limited, however. While the rules drafted by the Restatement Group had already been published before, the comments and comparative notes were still under preparation. Inevitably, many reactions from the respective audience were due to a misunderstanding of the naked rules. In the Groups view, the comments contribute a lot to the proper understanding of the PEICL by explaining the purpose and systematic role of single provisions; they thereby facilitate their application to specic fact situations. The notes are meant to make the reader aware of the similarity of the proposed rules with the law as applied in the Member States. We believe that the readers criticism will be tempered when he considers that a proposed rule which appears strange to him at rst sight is consistent with the law of some or even many other Member States. Professor Marcel Fontaine is of course right when he points out that a comparative survey can never be as detailed and precise as a text book on any single national law. What comparative law can provide, however, has been described by Ernst Rabel who used the metaphor of climbing a mountain: the farther up we get, the more we lose details of the valley out of sight, but the better will become our understanding of the overall structure and prole of the landscape. That is what we need in a harmonisation project such as the PEICL; the reader should know that our proposals are embedded in a general development of the law as it emerges from comparative studies. The Vienna conference is the rst where the full range of information on the meaning and background of the PEICL has been available. It is my impression that the critique of the PEICL as articulated by the representatives of academia, politics as well as different sides of the European
95
market has been rather moderate and that the PEICL seem to nourish the expectations of a future common optional platform of insurance contracts in Europe. It is of course quite understandable that whoever reviews the PEICL will start by a comparison of their provisions and rules with those of his own national law. Today, we could witness some assessments of this kind as well. Taken to an extreme this leads to a rule-by-rule comparison of the PEICL with the respective law, as the one prepared by the Association of German Insurers (Gesamtverband der Deutschen Versicherungswirtschaft, GDV). Where the PEICL deviate from the German Insurance Contract Act to the detriment of the insurer is thus criticised. It leads to the conclusion that the PEICL will only be chosen by an insurer if, in comparison with the respective national law, they do not considerably worsen the legal position of the insurer. On the other hand, the Belgian consumer organisation Test-Achats found that the PEICL, as compared to the Belgian Insurance Contract Act, are more progressive on four points while they are lagging behind with regard to 16 rules. In conclusion, the representative of the organisation recently said, at a public hearing of the European Economic and Social Committee, that the PEICL must be rejected. These evaluations have two things in common: they do not only reect the particular interests of specic, but in this case opposed groups of stakeholders, they also make use of their respective national law as the sole benchmark. This is not only inadmissible in a European project, it also leads to the wrong conclusions. In fact, both organisations cited above have completely ignored the interests of those of their members who want to transcend national boundaries. What about the Belgian employee who for some years moves to the Netherlands to work for a Dutch employer? What protection can the Belgian Act provide to this person when he or she takes out insurance with a Dutch insurer at the new residence? There is none, because art. 7 of the Rome I Regulation will generally designate the much more liberal Dutch law as applicable, and there is no way for the Belgian law to interfere. Thus the exclusive comparison of the PEICL with the Belgian law would appear to be awed from the outset since it completely disregards those consumers who do not spend their whole lives in one single Member State, i.e. Belgium. A mobile consumer like the one referred to above will have to address the issue of insurance at his new residence; why should he be unable to choose between the PEICL and the local law as suggested by
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Peter Hinchliffe? In reality he has no choice but to choose. The widespread assumption that consumers cannot make such a choice appears to be inspired by a narrow understanding of consumers who satisfy their demand exclusively within their own Member State. Over time, however, a growing number of people have transnational biographies, living for some years in Member State A and some in Member State B. But even those who stay at home may increasingly more often want to make use of electronic communications to buy standardised insurance cover from foreign online insurers. The conclusion of the Association of German Insurers is equally erroneous. The German insurer that is willing to acquire cross-border business has no option of doing that on the basis of its own German law, as far as small and medium-sized risks or compulsory insurance are concerned. Because of art. 7 of the Rome I Regulation, the law of the foreign policyholder will generally apply without any possibility of free choice of law. On that basis, it is impracticable to build European risk pools which would be subject to a number of different national laws with divergent mandatory provisions on many aspects of the contract. That is why such crossborder business is almost completely absent outside the area of large risks. Thus, the insurer which wants to expand its business into other Member States and which lacks the enabling legal framework will be glad about the PEICL which nally provide a common legal basis for the contracts forming part of a European risk pool. These observations clearly show that two kinds of criticism of the PEICL have to be kept separate: arguments concerning the conception of an optional instrument and arguments relating to the content of single rules. The discussion about specic rules will of course have to be conducted in the course of a future legislative procedure. But that discussion cannot question the usefulness of the PEICL as an optional instrument for the establishment of the Single Insurance Market. In fact, this conference has not brought to light any substantial argument concerning the basic concept of the PEICL, and it appears that this concept is without viable alternative. Time has come to complete the Internal Insurance Market for the sector of small and medium risks and compulsory insurance. As Vice-President Diana Wallis pointed out, a new attempt has to be made to reinvigorate the Single Market, and insurance would appear to be a favourable candidate for such an effort. In fact, the technical innovations of recent
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years which allow the marketing of standardised insurance cover over the Internet and the common European currency have established the essential preconditions for the building of a common insurance market and of European risk pools. Cross-border electronic commerce has become a common occurrence in the distribution of many kinds of consumer goods. Why should it be excluded for standardised insurance products where the insurers abstain from an individual risk assessment on the applicants premises? There are no good reasons inherent in the insurance business that prevent a Bavarian insurance company from making an insurance contract over the Internet with an applicant resident in Austria, Slovenia or Italy while the same company concludes thousands of such internet contracts with customers in Hamburg or Berlin every year. This does not mean that cross-border insurance will or should be the sole model for the future. Some insurers will go into that market, others will not. Some applicants will prefer PEICL policies, others will not. There is sufcient competition in the market to allow everyone to pursue his or her preferences. Some people argue that all insurance business is local because the insurer must be present on the spot when an insured event occurs and claims are made by the policyholder. But the investigation by the insurer can be made by a local agent in the policyholders country. Motor liability insurers have in fact built up a European network providing mutual investigation services in the case of accidents occurring outside the insurers country of establishment. We can be condent that market forces will generate similar systems of co-operation and agency in other sectors once an insurer makes up its mind to engage in cross-border business. The new European Commission will soon start to outline its working programme for the years ahead. In the hearing of the European Parliament preceding the approval of the new Commission, Commissioner Viviane Reding has made very favourable comments on the future of the Common Frame of Reference. Time will show whether her positive comments relate to the full range of subjects treated in the CFR and whether it will really be signed into law in all its parts. We believe that the PEICL would be an indispensible part of a rst stage of legislation since they refer to a sector where the internal market still has to be established by means of a uniform contract law. This can hardly be said for several other parts of the CFR. What the PEICL would require is a set of rules of general contract law which are needed to ll gaps of the PEICL and to supplement them. In our view, the adoption of the part of the CFR dealing with general contract law would therefore have top priority as well.
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How should this legislative process be structured? This takes us back to the criticism voiced in this conference relating to the content of specic provisions and also to the sceptical remarks made by some commentators on the academic nature of the PEICL and of the whole CFR. True, the Restatement Group is composed of academics. Although some of them have long-standing practical experience, it cannot be contested that the PEICL are the product of scholarly work. But this has been a matter of necessity: rst, I do not know any practitioner who would be prepared and able to spend 2-4 weeks per year for a period of 10 years in order to co-operate in an academic endeavour whose outcome has been and still is completely uncertain. Second, practitioners focus on single issues and often on those which have occurred in their day-to-day work, not on an overall system that could provide a legal framework for the future such as the one needed for European legislation. Third, ad hoc interventions by stakeholder associations would have been inevitable, had the group included practitioners; such interventions would have undermined and delayed the work even more. The Restatement Group, having nalised its work on important parts of insurance contract law, now submits its draft as a foundation to a broader discussion which should embrace all aspects of insurance practice. The European Commission would therefore be well advised to adjust its usual procedures in the preparation of Union legislation so as to include practical expertise. In addition to the usual public consultations, it could appoint a committee composed of judges, practising insurance lawyers, representatives of insurers, intermediaries, consumers, and a few academics to start deliberations on the adoption of the PEICL as an optional instrument. This committee would not start from scratch; its mandate would provide for the PEICL being the starting point of discussions. They should end after a maximum period of approximately 18 months following which the Commission could make a proposal for a PEICL Regulation based on art. 352 of the Treaty on the Functioning of the European Union. The Restatement Group has not ceased to exist with the publication of the PEICL. It is presently considering an expansion of its draft to specic sectors of insurance contract law, in particular to liability insurance and life assurance, both being of special signicance for the European market. But our draft relating to general insurance contract law has now been released to the public. The public, i.e. politics and stakeholders, now bear the responsibility for the adoption of a European act on insurance contract law and for the establishment of the internal market in the eld of small
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and medium-sized risks and compulsory insurance. When the Commission made its rst attempt to harmonise insurance contract law around 1980, it soon turned out that research in comparative law, an indispensable precondition for such harmonisation, was essentially lacking. From now on, this excuse is no longer possible. Academia has done the work that it can contribute; now the ball lies in the eld of practice and politics.
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Jrgen Basedow
List of the Speakers and Participants in the Discussion

Professor Jrgen Basedow, Max Planck Institute for Comparative and International Private Law (Hamburg) Professor Oliver Brand, University of Mannheim Professor Malcolm A Clarke, University of Cambridge Professor Herman Cousy, University of Leuven Professor Marcel Fontaine, Universit Catholique de Louvain David Harari, IFEBO S.A., Directeur Gnral, Paris Professor Helmut Heiss, University of Zurich Peter Hinchliffe, Lead Ombudsman, English Financial Ombudsman Service Nino Ivanov, Garant Versicherungs-AG SC Professor Georg Kathrein, Austrian Ministry of Justice Professor Jrme Kullmann, University of Paris Dauphine Athanassios Lambrou, Zemberis, Markezinis, Lambrou & Associates Dr Katarzyna Ludwichowska, Nicolaus Copernicus University Volker Schsch, German Federal Ministry of Justice Professor Baris Soyer, University of Swansea Professor OnofrioTroiano, University of Foggia Diana Wallis, MEP, Vice-President of the European Parliament Professor Christiane Wendehorst, University of Vienna Dr Felix Wieser, Uniqa Insurance Group
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Part II
Postscript
in Honour of the Late Professor Emeritus Dr. Fritz Reichert-Facilides, LL.M. (Ann Arbor), Chairman of the Project Group Restatement of European Insurance Contract Law (1999 2003)
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Foreword
Helmut Heiss
The Principles of European Insurance Contract Law are the product of ten years work by the Project Group Restatement of European Insurance Contract Law. This Project Group owes its existence to an initiative taken by Professor Dr Fritz Reichert-Facilides, LL.M. (Ann Arbor) and was chaired by him until he passed away in 2003. Since its inception, the Project Groups work has been based on a concept presented by Fritz Reichert-Facilides at the rst workshop in September 1999. This concept was derived from a text written by him, which has been reproduced below. The text was originally worded as the introductory chapter of a larger comparative work on insurance contract law. It reects the fundamental opinions of Fritz Reichert-Facilides, which were based on previous works of comparative insurance law, and, at the same time, bears witness to his most important academic aspiration: the harmonisation of insurance contract law in Europe. Therefore, making this text accessible to the public seems to be very worthwhile. The editor wishes to draw attention to the following points, which are of importance on reading the text: 1. The following text is the English translation of the original manuscript written by Fritz Reichert-Facilides in German. 2. Its contents have been reproduced in close to unaltered form. Slight modications have only been made where necessary, in order to incorporate the text in the present work. 3. Since the time of writing the text, a number of new laws have been passed and legal reforms undertaken. Likewise, a wide range of more recent literature and case law has become available. In order to avoid compromising the authenticity of the text, these changes have not been incorporated into the text. Instead, the most modern legislative developments on matters concerning insurance have been outlined in the afterword.
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Comparative Insurance Contract Law: General Aspects1

Fritz Reichert-Facilides ()
A. The Insurance Contract in Comparative Law

i. Insurance as Subject Matter
Basic Elements
1. Denition. The treatment of insurance, as the basis for and determination of the insurance contract, has been highly controversial in legal theory.2 However, it is neither feasible nor necessary to dwell on this discussion here, since the basic elements of insurance are recognised universally.3 The decisive factor is the assumption of a risk facing one
1
This title has been assigned to the following text by the editor, Helmut Heiss. Note: Further editors additions are clearly indicated by text in square brackets. See the overview furnished by R Schmidt, Begriff in E Finke (ed), Handwrterbuch des Versicherungswesens, vol. 1 (2nd edn Hoppenstedt, Darmstadt 1958) paras. 243-248; Hans Mller, Moderne Theorien zum Begriff der Versicherung und des Versicherungsvertrages in AIDA (ed), Atti del Primo Congresso Internazionale di Diritto delle Assicurazioni: Roma, 4-7 aprile 1962, vol. I (Giuffr, Milan 1963) 247-275; Luca Buttaro, Moderni orientamenti sul concetto giuridico di assicurazione nella dottrina italiana, Assicurazioni 1962, vol. 29, 179-199; R Uria, Orientaciones modernas sobre el concepto jurdico del seguro en la doctrina espaola e hispaoamericana (Editorial Logos, Madrid 1987) 341-374; Ray Hodgin, Problems in dening insurance contracts, [1980] 1 Lloyds Maritime and Commercial Law Quarterly 14-20; qualifying the importance of the doctrinal disputes for legal work, for example, Hans-Leo Weyers, Versicherungsvertragsrecht (Metzner, Frankfurt a.M. 1986) 30. See Robert E Keeton, Basic Text on Insurance Law (West Pub. Co., St. Paul 1971) 2: Determining whether a transaction falls within or outside the eld of insurance is classication by a criterion so broad that its application is rarely in dispute.
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Comparative Insurance Contract Law: General Aspects
party the policyholder insured by another party, the insurer, in return for payment of a premium.4 The cover of the risk for which a premium was paid may be accomplished in two ways: The policyholders claim for performance on occurrence of the insured event is based either on a contractual obligation entered into with an insurer or on his membership in a mutual insurance corporation, i.e. an insurance cooperative. The rst model is also known as proprietary insurance, the latter as contributory insurance.5 The dif4
With regard to risk, see s. 2 below; Ernst Bruck and Hans Mller, Kommentar zum Versicherungsvertragsgesetz und zu den Allgemeinen Versicherungsbedingungen unter Einschlu des Versicherungsvermittlerrechtes, vol. I (8th edn de Gruyter, Berlin 1961) 1 VVG para. 51; Karl Sieg, Allgemeines Versicherungsvertragsrecht (3rd edn Gabler, Wiesbaden 1997) 27; Yvonne Lambert-Faivre, Droit des assurances (9th edn Dalloz, Paris 1995) 35; Maurice Picard and Andr Besson, Les assurances terrestres en droit franais, vol. 1, (Le contrat dassurance) (5th edn Librairie Gnrale de Droit et de Jurisprudence, Paris 1982) 1; Michael Parkington, Nicholas Legh-Jones, Andrew Longmore and John Birds, MacGillivray and Parkington on Insurance Law (8th edn Sweet & Maxwell, London 1988) 1; Anthony A Tarr, Australian Insurance Law (Law Book Co., Sydney 1987) 6; Lawrence J Culligan and Anthony V Amodio (eds), 44 CJS: Insurance (West Pub. Co., St. Paul 1993) 2; Patterson, Essentials of Insurance Law (2nd edn McGraw-Hill, New York 1957) 62; Antigono Donati, Trattato del diritto delle assicurazioni private, vol. II (III. Il diritto del contratto di assicurazione) (Giuffr, Milan 1954) 35; ER Hardy Ivamy, General Principles of Insurance Law (6th edn Butterworths Law, London 1993) 3. Belgium: art. 1(A) ICA; Netherlands: art. 7.17.1.1 Draft CC; Spain: art 1 ICA; Israel: s. 1 Insurance Contract Law 1981. Ernst Bruck and Hans Mller, Kommentar zum Versicherungsvertragsgesetz und zu den Allgemeinen Versicherungsbedingungen unter Einschlu des Versicherungsvermittlerrechtes, vol. I (8th edn de Gruyter, Berlin 1961) 35 VVG para. 6; Karl Sieg, Allgemeines Versicherungsvertragsrecht (3rd edn Gabler, Wiesbaden 1997) 89, Yvonne Lambert-Faivre, Droit des assurances (9th edn Dalloz, Paris 1995) 312, Maurice Picard and Andr Besson, Les assurances terrestres en droit franais, vol. 1, (Le contrat dassurance) (5th edn Librairie Gnrale de Droit et de Jurisprudence, Paris 1982) 32, ER Hardy Ivamy, General Principles of Insurance Law (6th edn Butterworths Law, London 1993) 33; Lawrence J Culligan and Anthony V Amodio (eds), 44 CJS: Insurance (West Pub. Co., St. Paul 1993) 17 p. 97; Antigono Donati, Trattato del diritto delle assicurazioni private, vol. II (III. Il diritto del contratto di assicurazione) (Giuffr, Milan 1954) 47. As a comparative periodical on mutual insurance, La revue dinformation et Fritz Reichert-Facilides
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ference is primarily of importance from the viewpoint of corporate law.6 As to the specic insurance law aspects prevailing between the parties, contributory insurance and proprietary insurance can generally be treated alike.7 Accordingly, the following discussion, adhering to established patterns, will make no distinction.8 2. The Risk. The term risk has many meanings. It has bearing in various elds of human culture, like philosophy, anthropology, sociology and, not the least, law and economy.9 However, it is in the subject of insurance where it holds a central position. Yet, even here a uniform denition does not exist. Insurance law codications are usually not concerned with this.10 In insurance, three usages prevail. Sometimes, nothing else is meant than a danger as such.11 Sometimes, risk describes the incurring of ventures. In yet another sense, the subjects or objects exposed to a risk are
8 9
10
11
de documentation de lAssociation Internationale des Socits dAssurance Mutuelle (AISAM) is of interest. Cf. Werner Pfennigstorf, Public Law of Insurance, in Jacob S. Ziegel (ed), International Encyclopedia of Comparative Law, vol. IX, ch. 7 (Mohr Siebeck, Tbingen 1972) ss. 135 ff. Symptomatic, for example, 1 para. 2 German ICA in which the identical treatment of both forms of insurance in contract law is obviously deemed to be a matter of fact. See furthermore for recent developments, rst sentence of art. 2 2 Belgian ICA. See, for example, the works of legal literature cited in n 4 above. The term itself derives from (Spanish) risco; this expression originally meant a cliff. Since cliffs are a peril to ships, it became increasingly common to use the expression abstractly for any kind of damage; see Elmar Helten, Das Risiko und seine Kalkulation in Heinz Leo Mller-Lutz and Reimer Schmidt (eds), Versicherungswirtschaftliches Studienwerk, Studienheft 21 (Betriebswirtschaftl. Verl. Gabler, Wiesbaden 1984) 127; also Yvonne Lambert-Faivre, Droit des assurances (9th edn Dalloz, Paris 1995) 241. So explicitly for Switzerland, Hans Roelli and Max Keller, Kommentar zum Schweizerischen Bundesgesetz ber den Versicherungsvertrag vom 2. April 1908, vol. I (2nd edn Wyss, Berne 1968) 13. Robert E Keeton and Alan I Widiss, Insurance Law (Student Edition) (2nd edn West Pub. Co., St. Paul 1988) 10; Elmar Helten, Das Risiko und seine Kalkulation in Heinz Leo Mller-Lutz and Reimer Schmidt (eds), Versicherungswirtschaftliches Studienwerk, Studienheft 21 (Betriebswirtschaftl. Verl. Gabler, Wiesbaden 1984) 127.
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called the risks themselves.12 For insurance contract law, the rst, i.e. risk as danger,13 is relevant as a threat to a person of an event the occurrence of which would be actually, or at least typically, adverse to him.14 In every case, an element of uncertainty is essential.15 Therefore, every insurance contract is an aleatory transaction.16 The uncertainty may relate to the question alternatively or cumulatively as to whether or to what extent the risk will be incurred.17 Subjective uncertainty is sufcient.18
12
13
14
15
16
17
18
See Elmar Helten, Das Risiko und seine Kalkulation in Heinz Leo MllerLutz and Reimer Schmidt (eds), Versicherungswirtschaftliches Studienwerk, Studienheft 21 (Betriebswirtschaftl. Verl. Gabler, Wiesbaden 1984) 127. Cf. Ernst Bruck and Hans Mller, Kommentar zum Versicherungsvertragsgesetz und zu den Allgemeinen Versicherungsbedingungen unter Einschlu des Versicherungsvermittlerrechtes, vol. I (8th edn de Gruyter, Berlin 1961) 1 VVG para. 40. For the difference between indemnity insurance and insurance of xed sums, see s. 10 below. Concise and unequivocal: Kenmerkend voor de verzekeringsovereenkomst is het element van onzekerheid. (Comments on Dutch Draft CC no. 3 p. 5). Yvonne Lambert-Faivre, Droit des assurances (9th edn Dalloz, Paris 1995) 183-184; Michael Parkington, Nicholas Legh-Jones, Andrew Longmore and John Birds, MacGillivray and Parkington on Insurance Law (8th edn Sweet & Maxwell, London 1988) 7; Edwin W Patterson, Essentials of Insurance Law (2nd edn McGraw-Hill, New York 1957) 62, Antigono Donati, Trattato del diritto delle assicurazioni private, vol. II (III. Il diritto del contratto di assicurazione) (Giuffr, Milan 1954) 41. Ernst Bruck and Hans Mller, Kommentar zum Versicherungsvertragsgesetz und zu den Allgemeinen Versicherungsbedingungen unter Einschlu des Versicherungsvermittlerrechtes, vol. I (8th edn de Gruyter, Berlin 1961) 1 VVG para. 5; Ernst Bruck and Hans Mller, Kommentar zum Versicherungsvertragsgesetz und zu den Allgemeinen Versicherungsbedingungen unter Einschlu des Versicherungsvermittlerrechtes, vol. II (8th edn de Gruyter, Berlin 1980) Vor 49-80 VVG para. 22. Switzerland: Hans Roelli and Max Keller, Kommentar zum Schweizerischen Bundesgesetz ber den Versicherungsvertrag vom 2. April 1908, vol. I (2nd edn Wyss, Berne 1968) 14; Germany: Ernst Bruck and Hans Mller, Kommentar zum Versicherungsvertragsgesetz und zu den Allgemeinen Versicherungsbedingungen unter Einschlu des Versicherungsvermittlerrechtes, vol. I (8th edn de Gruyter, Berlin 1961) 1 VVG para. 5; as to (subjective) perception of risk by individuals, see Bayerische Rckversicherung (ed), Risiko ist ein Konstrukt (Knesebeck, Munich 1993). Fritz Reichert-Facilides
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Additional Elements
3. Legal Aspects. In addition to the basic elements discussed above (s. 1 above), there are other characteristics of the insurance contract which do not establish its type, but serve to illustrate its nature. (1) Insurance contracts establish continuous obligations, (2) they are to a signicant degree governed by the principle of good faith (s. 48 below), and (3) standard terms and conditions in the special form of standard insurance contract terms play a prominent role (s. 22 below). 4. Purpose. The essence of an insurance contract is the assumption of a risk for compensation (s. 1 above). In life insurance, in addition, the savings aspect is often an even more dominating motive. Furthermore, insurance contracts are used much more often than other contracts to benet third parties (s. 45 below).
Community of Risk Bearers (Gefahrengemeinschaft)

5. The nature of insurance was earlier described as aleatory (s. 2 above). This, however, is true only for the individual contract. In the context of the business activities of an insurance company this aleatory component is reduced, if not completely eliminated. Modern insurance business tends to be characterised by the existence of identical risks.19 An insurer assumes not an isolated risk, but rather several, or in most cases, a mass of identical risks. In doing so, a community of risk bearers (in German legal terminology, Gefahrengemeinschaft) is created. Thus, the business, in spite of the uncertain nature of the individual elements, achieves a level of predictability which strips it of its fortuitous and speculative character.20 Under the laws of
19
20
In the beginning, this was the characteristic feature which distinguished mutual insurance and its precursors from proprietary insurance. As a consequence of the development of this branch of business, it is today a typical element per se of insurance operations. For an historical perspective on the inclusion of the notion of identical risks, which stems from the sphere of mutuals in proprietary insurance, see Levin Goldschmidt, Universalgeschichte des Handelsrechts (Stuttgart 1891, reprint Scientia Verl., Aalen 1957) 355. See also on Spanish views Hermann Eichler, Zur spanischen Dogmatik des Versicherungsvertrages, Zeitschrift fr die gesamte Versicherungswissenschaft 1962, 291-295, 294; Maurice Picard and Andr Besson, Les assurances terrestres en droit franais, vol. 1, (Le contrat dassurance) (5th edn Librairie Gnrale de
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probability, from a statistical point of view, the larger the mass of individual events observed,21 the less important the role of random events. In German insurance law terminology, one speaks of a collective of risk bearers (Gefahrengemeinschaft). These, however, are aspects of insurance technique. In spite of their economic importance to insurance business, they are of no constitutive importance to insurance contract law.22 Here, the issue is rather the fair evaluation of the individual contractual obligation. It is at times true that the mass character of insurance business just may play a role in the shaping and operation of certain legal rules.23 Still, the application of insurance contract law to a specic case is independent of the existence of a collective of risk bearers or of the intention to establish one. A different solution is inevitable if only for reasons of legal certainty: When would the insurers portfolio include enough risk bearers in order to speak of a collective if this were a prerequisite for insurance contract law? Private law principles cannot be made dependent upon numbers games.24
ii. Summary
6. Denition. In sum, essential elements of the insurance contract may be described as follows:25 It reects a legal transaction between an insured
Droit et de Jurisprudence, Paris 1982) 67; Victor Ehrenberg, Versicherungsrecht, vol. 1, in Karl Binding (ed) Systematisches Handbuch der deutschen Rechtswissenschaft (Duncker & Humblot, Leipzig 1893) 72. Robert Schwebler, Lebensversicherung, Dieter Farny and others (eds), Handwrterbuch der Versicherung (VVW, Karlsruhe 1988) 417-425, 424. Cf. the references as to the denition in n 2 above, see most recently, for example, Meinrad Dreher, Die Versicherung als Rechtsprodukt (Mohr Siebeck, Tbingen 1991) 50. For example, for German law Erich R Prlss in Erich R Prlss and Anton Martin (eds), Versicherungsvertragsgesetz (26th edn Beck, Munich 1998) Vorbem. II paras. 1-2; 1 VVG 1 para. 12. A (modern) example of insurance transactions without the existence of identical risks is the phenomenon of captive insurance companies: these are insurance companies which are afliated with a single business enterprise (or a group of companies) and which cover exclusively or predominantly the companys risks. On the creation of skeleton denitions as a method of legal understanding, see Karl Larenz, Allgemeiner Teil des deutschen Brgerlichen Rechts (7th edn Beck, Fritz Reichert-Facilides
21
22
23
24
25
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B. Demarcations
and an insurer involving the assumption of a risk in return for payment of premium. In some cases, especially life insurance, the savings aspect is also relevant or even salient. Characteristic features are (1) the establishment of a continuous obligation (2) the importance of good faith principles and (3) the prominent role of standard insurance terms. In order to spread the risk, the grouping of risks and the establishment of a collective of bearers of identical risks is typical of the insurance industry as a whole, but not a characteristic feature of an individual insurance contract.
B. Demarcations
iii. Insurance Contract
7. Elements inherently found in insurance contracts (s. 1 above) are also present in other kinds of transactions.26 In particular, the aleatory element also characterises gambling and betting.27 The exhaustive intellectual efforts directed towards dening the insurable interest, which have accompanied the development of insurance law from the start, were to a great degree aimed at distinguishing serious insurance transactions from dubious and daring ones.28 However, other commercial transactions which are unquestionably within the realm of the law, for example bank guarantees, have elements of insurance contracts. In this context and in the case of other commercial activities related to insurance, it should be noted that problems of overlapping have not arisen with respect to insurance contract law. Therefore, this issue, which is primarily a theoretical one, does not require further consideration here.
Munich 1989) 210; on the insurance business, see also Paul Brae, Elemente einer dynamischen Versicherungskonzeption aus wirtschaftswissenschaftlicher Sicht, Zeitschrift fr die gesamte Versicherungswissenschaft 1970, 1-15. See Robert E Keeton and Alan I Widiss, Insurance Law (Student Edition) (2nd edn West Pub. Co., St. Paul 1988) 6-7. It is characteristic that art. 1964 French CC classes insurance contracts among other subclasses of aleatory contracts (viz. gaming, wagers, life annuity and the contract of bottomry), without giving a specic denition of insurance contracts. [See, for example, Joachim Grtner, Die Entwicklung der Lehre vom versicherungsrechtlichen Interesse von den Anfngen bis zum Ende des 19. Jahrhunderts, Zeitschrift fr die gesamte Versicherungswissenschaft 1963, 337-375.]
26
27
28
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One must concede, however, that in the eld of supervisory law (s. 8 below),29 signicant administrative and court practice on borderline cases of insurance supervision exists in many countries. When is an enterprise which conducts risky transactions exclusively or along with other business subject to the jurisdiction of the supervisory authority?30 However, the question as to whether supervisory law applies is not identical with the issue raised under private law of the applicability of insurance contract law. In the latter case, it must be the concern of every national legal order to determine whether a particular set of facts should be governed by its insurance contract law. In general, one can say that the most important factor is the quality of the insurer as an insurance enterprise. Yet, it is conceivable that appropriate individual rules of insurance contract law, for example rules on subrogation or on double insurance, could even apply to a contract not concluded by an insurance company.31
iv. The Law of Insurance Contracts

8. The statements made so far already indicate that clean-cut lines of demarcation must be drawn not only for the insurance contract as a legal phenomenon, but also for insurance contract law as the complex of legal provisions regulating this phenomenon. In this context, the substantive law of insurance supervision, insurance enterprises, insurance intermediaries and insurance taxation all deserve attention since they all deal with insurance.32 However, this does not imply that an exact concept of insurance must be used. Rather, it is the task of each individual set of rules to resolve the problems before it autonomously. Since this essay only deals with insurance contract law, this aspect need not be discussed any further.33
29
30
31
32
On insurance supervision, see Werner Pfennigstorf, Public Law of Insurance, in Jacob S. Ziegel (ed), International Encyclopedia of Comparative Law, vol. IX, ch. 7 (Mohr Siebeck, Tbingen 1972). Cf. for example, Erich R Prlss, Reimer Schmidt and Peter Frey, Versicherungsaufsichtsgesetz (11th edn Beck, Munich 1997) 1 paras. 7-8; Karl Sieg, Grenzflle der aufsichtspichtigen Versicherungsunternehmen, Zeitschrift fr die gesamte Versicherungswissenschaft 1969, 495-516. Karl Sieg, Grenzflle der aufsichtspichtigen Versicherungsunternehmen, Zeitschrift fr die gesamte Versicherungswissenschaft 1969, 495-516. On insurance supervision, see Werner Pfennigstorf, Public Law of Insurance, in Jacob S. Ziegel (ed), International Encyclopedia of Comparative Law, vol. IX, ch. 7 (Mohr Siebeck, Tbingen 1972) s. 8. Fritz Reichert-Facilides
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B. Demarcations
9. Insurance Contract and Social Insurance. Social insurance is, in essence, state mandated in order to attain specic social goals.34 Initially, it was conceived as personal insurance for employees (sickness, accident, disability and old-age insurance), later it was extended to other groups of persons and additional risks.35 The basic elements of these two areas of law are delimitated sharply. Insurance contract law is concerned with regulatory principles following private law criteria (iustitia commutativa for an individual contract). Social insurance, on the other hand, involves an attempt by the state to achieve a social balance (iustitia distributiva). For the benet of the economically disadvantaged insured, emphasis is placed on the global equivalence of benets to the group state subvention excepted instead of individual equivalence.36 Despite grave differences, gradual transitions have taken place in the course of the legal development even with respect to the social component of both areas of law. Social security is no longer mere assistance of the poor, whereas insurance contracts increasingly serve to realise goals which must be regarded as being those of the welfare state. The growing number of compulsory insurance relationships speaks for itself (e.g. compulsory motor vehicle liability insurance in order to protect accident victims).37
33
33
34
35
36
37
Robert E Keeton and Alan I Widiss, Insurance Law (Student Edition) (2nd edn West Pub. Co., St. Paul 1988) 6-8; on this issue, see also Werner Pfennigstorf, Public Law of Insurance, in Jacob S. Ziegel (ed), International Encyclopedia of Comparative Law, vol. IX, ch. 7 (Mohr Siebeck, Tbingen 1972) s. 8. This is true notwithstanding the circumstance that voluntary membership in institutions of social insurance is sometimes permitted, for example, in Germany with the replacement of social insurance cover by insurance contracts concluded privately under 8 para. 1 no. 1a Social Insurance Code, Book V (Sozialgesetzbuch V). For example, sickness, accident, disability and old age insurance; see Fritz Reichert-Facilides, Gedanken zur Versicherungsvertragsrechtsvergleichung, Rabels Zeitschrift fr auslndisches und internationales Privatrecht 34 (1970) 510-522, 514. To this effect, see Yvonne Lambert-Faivre, Droit des assurances (9th edn Dalloz, Paris 1995) 17-18; Karl Sieg, Allgemeines Versicherungsvertragsrecht (3rd edn Gabler, Wiesbaden 1997) 23; cf. the respective passages in the country reports on nancing: Axel Weber, Volker Leienbach and Anne Dohle, Soziale Sicherung in Europa (2nd edn Nomos-Verl.-Ges., Baden-Baden 1991). In this context, the comparative observations made by John Birds, Modern Insurance Law (2nd edn Sweet & Maxwell, London 1988) 3 fn 6 are informa-
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In spite of such transitions, insurance contract law and social insurance law are drawn up and treated separately in legislation. This dichotomy will be accepted for the purposes of this essay.38
C. Classication of Insurance
10. In classifying insurance, one question must be asked for each separate eld39 and that is which regulatory purpose is achieved by an eventual classication? From this viewpoint, probably the most detailed classication laid down by the respective EC directives40 primarily has importance for the law of insurance supervision. Insurance contract law issues are touched upon only indirectly and only to the extent that the classication as laid down by the directives is relevant for the private international law of the contract (see ss. 33-34 below). In substantive insurance contract law, it is true that the distinction between reinsurance and direct insurance, as pronounced by the directives, also plays an important role. Reinsurance is hardly regulated by statutory law and when it is as an exception.41
38
39 40
tive. In the area of insurance contract law, the concept of protecting the policyholder is more developed in the United States than in the United Kingdom where the emphasis is on social insurance. Social insurance is less developed in the United States than in the United Kingdom and therefore the traditional rules of the law of insurance contracts of the latter country, which tend to deal with commercial intercourse rather than social aspects, are not prone to change as often. Social insurance issues are dealt with partly in Guy Perrin, Occupational Risks and Social Security in Bob A Hepple (ed), International Encyclopedia of Comparative Law, vol. XV, ch. 8 (Mohr Siebeck, Tbingen 1994). For example, supervision law, contract law, etc.; see ss. 1-5 above. For example, Council Directive 92 / 49 / EEC of 18 June 1992 on the coordination of laws, regulations and administrative provisions relating to direct insurance other than life assurance and amending Directives 73 / 239 / EEC and 88 / 357 / EEC (third non-life insurance Directive) [1992] OJ L228 / 1 Annex (seventeen classes of insurance with thirty-six subclasses); First Council Directive 79 / 267 / EEC of 5 March 1979 on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of direct life assurance [1979] OJ L63 / 1 (nine classes of insurance). Fritz Reichert-Facilides
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C. Classication of Insurance
In direct insurance, however, the highly detailed and individually shaped scheme of the directives does not correspond with traditional private insurance law systems. In Continental legal systems, the law of marine insurance traditionally forms a distinct body, though the wisdom of this is not undisputed.42 In the United Kingdom, marine insurance, although governed by a separate statute, has been intertwined with case law on insurance contracts in general into a uniform legal system.43 In addition to (ocean) marine insurance, Anglo-American law frequently employs a rough additional classication into inland marine, life, re and casualty (or accident) insurance.44 In Continental European legal systems, a differentiation, regarded as classical, prevails between indemnity insurance and the insurance of persons. It may be found in a number of codications.45 Of greater dogmatic precision is the distinction between indemnity insurance and the insurance of xed sums with respect to the contents of the performance of the insurer, i.e. indemnication against losses or payment of an abstractly
41
41
42
43
44
45
So, for example, in Spanish ICA: arts. 77-79. Beside such rare statutory provisions, it may be said for the law of reinsurance that the universally uniform legal rules governing the pertinent contracts rest, to a considerable extent, on reinsurance practices which are small in number. One can characterise it as an exemplary case of a modern lex mercatoria based on the principle of the freedom of contract. For reinsurance in general, see Klaus Gerathewohl, Rckversicherung, Grundlagen und Praxis, vol. 1 (VVW, Karlsruhe 1976), Fritz Reichert-Facilides, Vom Rechtsgehalt des Rckversicherungsvertrages in Reimer Schmidt and Karl Sieg (eds), Grundprobleme des Versicherungsrechts. Sedes materiae are usually the commercial codes, e.g. 778-900 German ComC. In Italy these rules are laid down in arts. 514-547 Code of Navigation. As recent examples, marine insurance is integrated in the general law on insurance contracts in Spain and in art. 7.17.1.1 Dutch Draft CC. See Marine Insurance Act 1906 which itself is codied case law (s. 12 with n 61 below). Robert E Keeton and Alan I Widiss, Insurance Law (Student Edition) (2nd edn West Pub. Co., St. Paul 1988) 18-27, ER Hardy Ivamy, General Principles of Insurance Law (6th edn Butterworths Law, London 1993) 7. Austria: 1 para. 1 ICA; Belgium: art. 1(G), (H) ICA. France: arts. L. 1211 ff. and L. 131-1 ff. ICA; Germany: 1 para. 1 ICA; Spain: arts. 25, 80 ICA; Switzerland: arts. 48, 73 ICA; cf. Israel: ss. 41, 53, 55 Insurance Contract Law 1981.
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determined sum of money.46 The insurance of xed sums is always insurance of persons; insurance of persons, however, may sometimes be also indemnity insurance (e.g. reimbursement of medical expenses). The protection of policyholders outweighs the system-oriented distinction. The issue here is the scope of unilaterally mandatory rules for the benet of the policyholder, rules which may be deviated from only to his advantage and the classication of insurance contract law resulting therefrom.47 Such protective aspects may result in the requirement of special legal regimes, for instance compulsory insurance.48
D. Historical Remarks
11. In General. Insurance addresses the need for security an elemental human drive. Nevertheless, from a historical point of view, it is a rather young phenomenon.49 Indeed, there were forerunners which already had their roots in the ancient world, but insurance contracts were alien to classical Roman law, for example.50 The rst legal forms which bear re46
47
48 49
50
Victor Ehrenberg, Versicherungsrecht, vol. 1, in Karl Binding (ed) Systematisches Handbuch der deutschen Rechtswissenschaft (Duncker & Humblot, Leipzig 1893) 13; Ernst Bruck and Hans Mller, Kommentar zum Versicherungsvertragsgesetz und zu den Allgemeinen Versicherungsbedingungen unter Einschlu des Versicherungsvermittlerrechtes, vol. I (8th edn de Gruyter, Berlin 1961) 1 VVG paras. 23-25; Yvonne Lambert-Faivre, Droit des assurances (9th edn Dalloz, Paris 1995) 46: It has now been adopted in art. 7.17.1.1 Dutch Draft CC. Cf. e.g. Finland: 3 para. 1 ICA; France: art. L. 111-2 ICA. Germany: 15a, 34a, 42, et al. ICA. The protective tendency is increasing; Belgium: art. 3 ICA; Israel: Insurance Contract Law 1981, arts. 39(b), 64; the Netherlands: arts. 7.17.1.16, 7.17.2.25a, 7.17.3.25 Draft CC; Spain: art. 2 ICA; E.g. compulsory liability insurance coupled (in part) with the action directe. William Holdsworth, A History of English Law, vol. 8 (2nd edn Sweet & Maxwell, London 1937; reprinted 1966) 274; Cf. also Yvonne Lambert-Faivre, Droit des assurances (9th edn Dalloz, Paris 1995) 3. For literature on the history of insurance, see the overview by Peter Koch, Geschichte der Versicherung in Dieter Farny and others (eds), Handwrterbuch der Versicherung (VVW, Karlsruhe 1988) 223-232. Karl-Heinz Ziegler, Die Antiken Belege fr den Versicherungsvertrag bei Grotius und Pufendorf in Horst Baumann, Helmut Schirmer and Reimer Schmidt (eds), Festschrift fr Karl Sieg (VVW, Karlsruhe 1976), 589-592, 589. Fritz Reichert-Facilides
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D. Historical Remarks
semblance to todays insurance contracts were reported in the shippable trade in Upper Italy in the 14th century.51 Chiey, however, emergencies and disaster thwarting security were met with passive resignation or extralegal remedies.52 Insurance as a general instrument of securing ones existence is, in spite of its early roots, a product of the industrial age. The rational and non-fatalistic approach to imminent dangers and their management by legal and arithmetical means signals an economic mentality which did not ourish in Western Europe and North America until the 18th and 19th century, and which was not typical for earlier ages or other societies.53 From the beginning of the industrial age, however, the eld of insurance experienced an upswing which may be characterised as dramatic.54 Aspects denoting the development especially in the 19th century are: Expansion into mass business, this again in interaction with the creation of large insurance companies, both mutual insurance companies and stock corporations and the development of a large sector of intermediaries.55 With respect to insurance elds, a diversication developed which went well beyond the originally dominating forms of insurance, namely ocean marine insurance and re
51
52
53
54
55
For the interaction of proprietary insurance with earlier notions of mutuality in the developing stage, see Levin Goldschmidt, Universalgeschichte des Handelsrechts (Stuttgart 1891, reprint Scientia Verl., Aalen 1957) 355. In this context, cf. on the relationship of religion and security, Fbvre, Frankfurter Allgemeine Zeitung of 9 March 1988 p. 35, discussing the position of Halperin, Revue dHistoire Economique et sociale Sz 30 (1952). A duty to give alms to the poor is inherent at least in all three great monotheistic religions of the world. As to the donation of Gottespfennige when entering into a business transaction, see Bruno Kuske, Zu den geschichtlichen Voraussetzungen der Transportversicherung: Wirtschafts- und Rechtsfragen der Transportversicherung (Springer, Berlin 1941) 5-16. As to the role of the family in providing security, for example in France up to the 19th century, see Yvonne Lambert-Faivre, Droit des assurances (9th edn Dalloz, Paris 1995) 4-6. Fritz Reichert-Facilides, Gedanken zur Versicherungsvertragsrechtsvergleichung, Rabels Zeitschrift fr auslndisches und internationales Privatrecht 34 (1970) 510-522, 513. With regard to recent developments on this issue and the following issues, see Meinrad Dreher, Die Versicherung als Rechtsprodukt (Mohr Siebeck, Tbingen 1991) 17. Cf. Victor Ehrenberg, Versicherungsrecht, vol. 1, in Karl Binding (ed) Systematisches Handbuch der deutschen Rechtswissenschaft (Duncker & Humblot, Leipzig 1893) 31.
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insurance. Life insurance especially with its savings aspect (ss. 4, 6 above) began to play a considerable role. The development of reinsurance led to a signicant improvement in insurance techniques. One prominent legal writer observed at the end of the 19th century that the insurance business has attained a technical perfection, a practical effectiveness beyond comparison.56 At the same time, he also remarked on insurance law that it [was] still in a lamentable condition of internal and external incompleteness.57 Indeed, the development of insurance contract law is, for the most part, a product of the 20th century.
E. Insurance Contract Laws

i. Development in the Twentieth Century
a. Beginnings
12. In terms of temporal priority and inuence, insurance contract laws of the German speaking area assumed a leading role among the 20th century codications.58 They are the German ICA of 1908, the Swiss ICA of 1908 and nally the Austrian ICA of 1917.59 Inuenced by them were the Scandinavian codications in effect in Sweden (1927), Denmark (1930), Norway (1930) and Finland (1933).60 Substantial importance was attached subsequently to the French law of 1930. Furthermore, arts. 1882-1932 Italian CC of 1942 pertaining to insurance contracts
56
57
58
59
60
Victor Ehrenberg, Versicherungsrecht, vol. 1, in Karl Binding (ed) Systematisches Handbuch der deutschen Rechtswissenschaft (Duncker & Humblot, Leipzig 1893) 41. Victor Ehrenberg, Versicherungsrecht, vol. 1, in Karl Binding (ed) Systematisches Handbuch der deutschen Rechtswissenschaft (Duncker & Humblot, Leipzig 1893) 42. Albert Ehrenzweig, Moderne Entwicklungsbestrebungen im Recht des Versicherungsvertrages (Bensheimer, Mannheim 1925) 7. The Austrian law in the revised version of 1958 is to a great extent identical to the German law. Sweden: Lag om frskringsavtal (1927 / 77); Denmark: Lov om Forsikringsaftaler, no. 129 of 15 April 1930; Norway: Lov om forsikringsaftaler of 6 June 1930; Finland: Vakuutussopimuslaki (132 / 1933); for recent developments, see s. 13 below. Fritz Reichert-Facilides
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deserve mentioning. In the United Kingdom, however, traditional case law dating back even prior to the 20th century prevailed and still prevails today. True, the Marine Insurance Act 1906 had already been enacted. It was, however, only a summary reproduction of the earlier case law.61 In the United States, case law also plays a decisive role. To the extent that state statutes exist, they are not codications of insurance contract law in the Continental European sense, but rather a collection of laws on insurance contracts, insurance supervision, corporate regulation and agencies. Sometimes mandatory pre-dened contract forms may be found.62
b. Recent Codications and Draft Laws63

13. Codications. In the past 30 years, numerous efforts at codication have been completed. Argentina (1967; visibly inuenced by German law), Spain (1980), Israel (1981), Norway (1989), Sweden (Consumer Insurance Law 1980), Belgium (1992) and Finland (1994) deserve mentioning in this context. In the Anglo-American legal family, Australia (1984) and Utah (1987) deserve attention. Apart from these comprehensive new codications, remarkable legislative acts of reform of the existing codications may be found in other jurisdictions. France and Austria are exemplary here. French insurance law is constantly subject to legislative reforms which have been, in part, remarkably innovative.64 For special elds of insurance, for example legal protection or sickness, the impetus for reform came from EC directives.65
61
62 63
64
65
Marine insurance law was largely codied on the basis of the common law in the Marine Insurance Act 1906, see: John Birds, Insurance Contract Law in England, Zeitschrift fr die gesamte Versicherungswissenschaft 1984, 95-112, 95 fn 4. For example N.Y. Standard Fire Insurance Policy. [An update to the following survey is provided in the afterword by the editor, below at page 151.] Yvonne Lambert-Faivre, Droit des assurances (9th edn Dalloz, Paris 1995) 153156. See, for example, the Council Directive 87 / 344 / EEC of 22 June 1987 on the coordination of laws, regulations and administrative provisions relating to legal expenses insurance [1987] OJ L185 / 77; Council Directive 92 / 49 / EEC of 18 June 1992 on the coordination of laws, regulations and administrative provisions relating to direct insurance other than life assurance and amending Directives 73 / 239 / EEC and 88 / 357 / EEC (third non-life insurance Directive)
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14. Draft laws. From a comparative view, not only the statutes in force should be considered, but also those legislative elaborations which are not yet in force. Here, the draft law of the Netherlands (drawn up within the framework of the new codication of the Burgerlijk Wetbook) deserves mentioning, furthermore the draft of a new (inland) insurance contract law in Greece. This is also true for the Proposal of the EC Commission66 and the reform proposal of the English Law Commission67.
c. Features of Legislation
15. The common concerns of the codications without going into detail at this point are on the one hand classication and specialisation (s. 16 below); and on the other protection of the policyholder (s. 17 below). 16. Classication and Specialisation. Earlier legislative efforts were directed towards establishing rules for insurance contracts, for example the duty to disclose or the effect of fault for which no established model existed in private law. In most cases, this was done by means of a separate law being applied to insurance contracts.68 17. Protection of the Policyholder. The protection of the insured policyholder and his beneciaries (s. 45 below) has been realised in insur-
66
67
68
[1992] OJ L228 / 1; Second Council Directive 88 / 357 / EEC of 22 June 1988 on the coordination of laws, regulations and administrative provisions relating to direct insurance other than life assurance and laying down provisions to facilitate the effective exercise of freedom to provide services and amending Directive 73 / 239 / EEC [1988] OJ L172 / 1; First Council Directive 73 / 239 / EEC of 24 July 1973 on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of direct insurance other than life assurance [1973] OJ L228 / 3. Proposal for a Council Directive on the coordination of laws, regulations and administrative provisions relating to insurance contract [1979] OJ C190 / 2. Law Commission, Insurance Law: Non-Disclosure and Breach of Warranty (Law Com No 104, 1980). The situation is different in, for instance, Italy where insurance contract law is integrated into the Civil Code as a whole (s. 12 above). The same is true in respect of the Dutch Code. Fritz Reichert-Facilides
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ance contract law.69 Why? The insured policyholder is not necessarily the socially weaker party in the sense of labour or landlord-and-tenant laws, for instance. Indeed at the time of the early codications, the presumptive policyholders were members of the propertied classes, wielding social and political inuence.70 In the insurance business, there existed and still exists a buyers market with stiff competition between the sellers of cover. Nevertheless, legislatures saw it as their duty to offset the specic superiority of the insurer by means of the law of contracts. This superiority was and still is justiably inferred from the character of the performance offered, i.e. the assumption of risk. This is a legally complex device of the substance or also the lack of expected substance which follows from the general contract terms of the insurer, and which the policyholder, due to his lack of specic expertise, normally cannot grasp to the same extent as his contractual partner and which he, typically as an isolated party, can hardly inuence.71 18. Duties to insure. In the 1930s, the notion developed of utilising insurance in a special manner to serve the purposes of the welfare state.72 Duties to procure insurance, in most cases liability insurance, were im69
70
71
72
See the earlier considerations even before the rst codication of the German ICA in Victor Ehrenberg, Versicherungsrecht, vol. 1, in Karl Binding (ed) Systematisches Handbuch der deutschen Rechtswissenschaft (Duncker & Humblot, Leipzig 1893) 82-84. In this context, it is informative to note that one of the early examples of protecting a contracting party by means of private law is found in the shipping laws of the United States: There, the consignee typically himself a merchant was protected from the consignor by provisions which could be derogated from only when the derogation was to his advantage. This rule was introduced in the system of treaties of the Hague Rules which have become recognised universally; see Grant Gilmore and Charles L Black, The Law of Admiralty (2nd edn Foundation Press, Mineola, NY 1975) 143-144. See, for example, Axel Flessner and Hein Ktz, Bericht ber das Deutschschwedische Juristenkolloquium Sozialstaat und Privatrecht, Rabels Zeitschrift fr auslndisches und internationales Privatrecht 29 (1965) 805816, 809 (on the lecture given by Fritz Reichert-Facilides). For the denition of the welfare state in its private law dimension, see Axel Flessner and Hein Ktz, Bericht ber das Deutsch-schwedische Juristenkolloquium Sozialstaat und Privatrecht, Rabels Zeitschrift fr auslndisches und internationales Privatrecht 29 (1965) 805-816, 805 (on the lecture given by Konrad Zweigert).
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posed by statutory law. The legislative intent was to protect the insured from ruinous nancial disaster; in liability insurance, an additional aspect was beneting the injured party. Motor vehicle liability insurance was the beginning.73 Its introduction, and after World War II, its spread across Europe and beyond resolved the immense task of providing compensation by means of private law for victims of trafc accidents.74 Other elds of insurance, once again especially in liability insurance, followed suit.75 Liability insurance of operators of nuclear reactors and of oil shipping companies is of international importance.76 In the past, there has been some controversy as to whether compulsory motor vehicle liability insurance should be abandoned in favour of compulsory accident insurance cover for accident victims themselves; this latter model, however, has not achieved general acceptance so far.77
Excursion: Tax Aspects

19. The conclusion of insurance contracts is frequently subject to an insurance tax.78 On the other hand, certain insurance contracts concluded by private individuals are subject to tax privileges (e.g. life, accident, sickness, third-party-liability insurance).79 Thus, in addition to social in73
74
75
76
77
78
On its introduction in Germany in 1939, see, for example, Werner Asmus, Kraftfahrversicherung (5th edn Gabler, Wiesbaden 1991) 24 f. A seminal treaty was the European Convention on Compulsory Insurance against Civil Liability in respect of Motor Vehicles, done at Strasbourg on 20th April 1959. As an example, see ER Hardy Ivamy, General Principles of Insurance Law (6th edn Butterworths Law, London 1993) 622-624 for an overview on compulsory insurance in the United Kingdom; for France, see Yvonne Lambert-Faivre, Droit des assurances (9th edn Dalloz, Paris 1995) 13 ff. See Paris Convention on Third Party Liability in the Field of Nuclear Energy of 29th July 1960 and Brussels Supplementary Convention of 1963 as examples of liability insurance covering the operations of nuclear reactors. Eike von Hippel, Schadensausgleich bei Verkehrsunfllen, Haftungsersetzung durch Versicherungsschutz (de Gruyter, Berlin 1968); Andr Tunc, Trafc Accident Compensation: Law and Proposals in Andr Tunc (ed), International Encyclopedia of Comparative Law, vol. XI, ch. 14 (Mohr Siebeck, Tbingen 1972). Schweizerische Rckversicherungsgesellschaft, Sigma 1984, no. 11 / 12, p. 2. Fritz Reichert-Facilides
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F. Insurance Contracts Law Sources
surance (s. 9 above), individual safety measures in the form of insurance contracts are also encouraged by the state.
F. Insurance Contracts Law Sources79

20. Statutory Sources. Codications of insurance contract law and draft codes as typical 20th century phenomena have already been discussed above (ss. 12-14 above). In general, the relationship of these codes to private law or to the existing commercial law is not problematic. More problems emerge in the relationship to those recent special laws which aim at protecting the consumer or the weaker party per se in private law. In such cases, an extension to insurance contracts is not regulated uniformly.80 This issue is signicant for the complete picture of the respective legal regime governing insurance contracts. 21. Case Law. Even though the wording of a law on insurance contracts may remain unchanged, insurance contract law in a broad sense, i.e. the totality of legal rules, not only those inferred from codied law, may be subject to far-reaching changes through supreme court decisions. The German system with the mutual interaction of statutory and case law the latter based on the good faith principle of general private law (s. 50 below) is illustrative of this. Judge-made law dominates in the United Kingdom and in numerous other common law jurisdictions.81 The realisation of the English law reform project (s. 14 above) is currently not foreseeable.82 However, it
79 80
81
82
Schweizerische Rckversicherungsgesellschaft, Sigma 1984, no. 11 / 12, p. 2. Positive examples: Council Directive 93 / 13 / EEC of 5 April 1993 on unfair terms in consumer contracts [1993] OJ L095 / 29. Australia: ICA 1984 is in force in Australia. Austria: Consumer Protection Act; Germany: Law on standard terms and conditions (Gesetz zur Regelung des Rechts der Allgemeinen Geschftsbedingungen). Negative examples: Germany: Law on the rescission of door-to-door transactions and related transactions 6 para. 2; United Kingdom: see John Birds, Modern Insurance Law (2nd edn Sweet & Maxwell, London 1988) 96. As mentioned above (s. 13 above), separate acts have been passed in Australia and Utah, for instance. [See, however, the new reform project, as mentioned in the editors afterword below.]
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has already inuenced insurance practice there in the sense of creating a stronger orientation towards the protection of the policyholder.83 In spite of existing insurance statutes (s. 12 above), judge-made law is of signicance in its own right in the United States.84 22. General Insurance Contract Terms. The standard terms and conditions of insurance contracts are of exceptional importance universally. From an historical perspective, this was already true for the period before the age of the insurance contract law codications, in particular for the 19th century. These codications, especially their policyholder-protection provisions (s. 17 above), were themselves, for the most part, a reaction to unfair clauses included in the standard terms and conditions.85 Nevertheless, it remains true that standard terms actually determine the content of the product of insurance protection. Accordingly, the attempt of earlier insurance contract laws to determine in detail the content of specic classes of insurance contract rules contradicts reality.86 Recent insurance contract laws and draft laws (ss. 13-14 above) have therefore followed a different technique. A more or less wide-meshed general regulation is set down which goes into details only on the certain classes of insurance deemed to be particularly important.87 This general regulation is, for the
83
84
85
86
87
John Birds, United Kingdom Insurance Law Reform, AIDA Newsletter No. 21, March 1986, 338-340, 339. Reuben Hasson, The Special Nature of the Insurance Contract: A Comparison of the American and English Law of Insurance, (1984) 47 Modern Law Review 505-522. Albert Ehrenzweig, Deutsches (sterreichisches) Versicherungsvertragsrecht (Springer, Vienna 1952) 11; Helmut Heiss, Gedanken zur Reform des Versicherungsvertragsrechts insbesondere aus der Sicht des Kundenschutzes in Gottfried Mayer (ed), Konsumentenpolitisches Jahrbuch 1992-1993 (Verlag sterreich, Vienna 1994) 67-68. So, however, for example, the German Law on insurance contracts; as to this, see Albert Ehrenzweig, Moderne Entwicklungsbestrebungen im Recht des Versicherungsvertrages (Bensheimer, Mannheim 1925) 12. Such detailed statutory rules are especially called for in modern elds of insurance, such as health insurance and legal expenses insurance. See Wulf-Henning Roth, Die Vollendung des europischen Binnenmarktes fr Versicherungen in Neue Juristische Wochenschrift 1993, 3028-3033, 3033; Helmut Heiss, Gedanken zur Reform des Versicherungsvertragsrechts insbesondere aus der Sicht des Kundenschutzes in Gottfried Mayer (ed), Konsumentenpolitisches Jahrbuch 1992-1993 (Verlag sterreich, Vienna 1994) 68-69. Fritz Reichert-Facilides
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F. Insurance Contracts Law Sources
most part, mandatory or at least unilaterally mandatory in favour of the policyholder.88 23. Insurance Supervision. The law of insurance supervision also inuences insurance contract law, especially with respect to the control of standard terms, insurance contracts and premiums. This inuence, however, varies depending on time and jurisdiction. Most recently, a tendency to deregulate has become virulent, not the least within the European Community.89 24. Statements of Insurance Practice.90 A remarkable phenomenon, the legal character of which cannot be assessed a priori, is the use of unilateral declarations by insurers or insurance associations which also affect the content of contracts. In the eld of insurance contract law, they have, for example, in the United Kingdom, gained signicance as statements of insurance practice.91
88
89
90
91
Austria: 15a, 34a, 42, 158a, 158p, 178 and 178a ICA; Belgium: art. 3 ICA; Finland: 3 ICA; Greece: 226 Draft ComC; see also current art. 33 para. 1 ICA; Spain: art. 2 ICA; Israel: s. 39 Insurance Contract Law 1981; Argentina: art. 158 ICA. Werner Pfennigstorf, Public Law of Insurance, in Jacob S. Ziegel (ed), International Encyclopedia of Comparative Law, vol. IX, ch. 7 (Mohr Siebeck, Tbingen 1972). Statements referring to the business plan; these are special commitments on how the contract terms are to be applied in certain situations; see Werner Pfennigstorf, Public Law of Insurance, in Jacob S. Ziegel (ed), International Encyclopedia of Comparative Law, vol. IX, ch. 7 (Mohr Siebeck, Tbingen 1972) s. 198. See John Birds, United Kingdom Insurance Law Reform, AIDA Newsletter No. 21, March 1986, 338-340. As to statements governing transactions (Geschftsplanmigen Erklrungen) in German law, see Jan Volker Glauber, Wandlungen im Recht der geschftsplanmigen Erklrung, Versicherungsrecht 1993, 12-15; Steiner, Zivilrechtliche Ansprche des Versicherungsnehmers aus geschftsplanmigen Erklrungen?, sterreischische JuristenZeitung 1986, 673-677. In the meantime, the BGH has ruled that statements governing transactions are not part of the contractual insurance relationship unless they are communicated to the policyholder at the time of the formation of contract and the policyholder is informed that they will also become part of the contract. They may inuence the insurance relationship in singular cases, however, by giving the policyholder the right to force the insurer to observe
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G. Insurance Cover Worldwide

25. Statistical Data. In 1987, the global premium volume in reinsurance amounted to US $ 91.9 bn.92 The 1995 gure for rst insurance was US $ 2,143,408 bn.93 30.85 percent of this rst premium total was generated in North America, 29.11 percent in the United States alone. The share of the countries of the EC was approximately 27.5 percent, whereas Japan accounted for roughly 30 percent. For jurisdictions with reform insurance contract laws or draft laws (ss. 13-14 above) the following gures may be cited: Argentina 0.23 percent, Australia 1.27 percent, Finland 0.43 percent, Greece 0.09 percent, Israel 0.23 percent, the Netherlands 1.65, Norway 0.32 percent, Spain 1.26 percent, Sweden 0.51 percent. 26. Legal Considerations. The gures cited above show the economic importance of the insurance business as a whole and its relative importance in individual states and groups of states. This gives rise to the following conclusion: The legislative reform activities of individual countries with respect to insurance contract law (see ss. 13-14 above) are not necessarily related to their relative importance in the insurance market in general. Obviously, other factors are responsible for legislative impulses. Here, legal science deserves special mention for individual efforts at codication that have been linked personally to individual legal scholars.94
H. Legal Families of Insurance Contract Law

27. Classications. In comparative law, it is common to group individual legal orders into families.95 However, the criteria of classication are conthe obligations it has assumed. But they may not be used for the construction and examination of the validity of the standard insurance terms since they stand outside the contractual insurance relationship, BGH 7.2.1996, Versicherungsrecht 486-488, 487. Schweizerische Rckversicherungsgesellschaft, Sigma 1989, no. 5, p. 3. Schweizerische Rckversicherungsgesellschaft, Sigma 1997, no. 4, p. 18. See, for example, A Argyriadis, I NOMOTHETIKI METARRYTHMISI TOY IDIOTIKOY ASPHALISTIKOY DIKAIOY (Legal Change of Private Insurance Law), NOMIKO BIMA (Legal Forum) 33 (1985) 546-552. See, for example, Ren David, Introduction in Ren David (ed), International Encyclopedia of Comparative Law, vol. II, ch. 2 (Mohr Siebeck, Tbingen 1974) ss. 1-24. Fritz Reichert-Facilides
92 93 94
95
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H. Legal Families of Insurance Contract Law
troversial as are the number and designation of the legal families.96 Still, we may avoid this general discussion by acknowledging that the classication into a specic legal family must be dependent upon the respective area of law.97 In the case of insurance contract law, its relatively young and homogenous Western European and American legal roots must be taken into account.98 Delineating here between for instance a Romanistic, German and Nordic legal family would not completely miss the mark, but would appear to be rather articial. In spite of certain similarities, the differences between the Continental and Anglo-American legal regimes are remarkable.99 This is not primarily attributable to different substantive rules, but rather to different perceptions of the determining factors in the insurance relationship. From a Continental perspective, the insurance contract code primarily governs the relationship between the parties. Under Anglo-American law, on the other hand, it is the contract itself the written insurance policy which is the determining instrument. As a matter of course, the legal avenues available to the state only have a corrective function.100 And among these state-enacted sources, judge-made law retains its pre-eminence (s. 21 above). All things considered, it is justied to speak of two big families the Continental and the AngloAmerican in insurance contract law.101
96
97
98
99 100
101
For criteria of classication, see, for example, Konrad Zweigert and Hein Ktz, Einfhrung in die Rechtsvergleichung (3rd edn Mohr Siebeck, Tbingen 1996) 67 ff. (style of legal families) and Lontin Jean Constantinesco, Rechtsvergleichung, vol. III, Die rechtsvergleichende Wissenschaft (Heymann, Cologne 1983) 241 ff. (determining elements as opposed to fungible elements). Konrad Zweigert and Hein Ktz, Einfhrung in die Rechtsvergleichung (3rd edn Mohr Siebeck, Tbingen 1996) 67. See s. 11 above; as to the levelled out character of insurance contract laws due to their nature, see FJW Lwensteyn, Commercial Law in Jeroen Chorus and others (eds) Introduction to Dutch Law for Foreign Lawyers (Kluwer, Deventer 1978) 202. Cf. s. 12 above on statutory and case law. It is indicative that Robert E Keeton and Alan I Widiss, Insurance Law (Student Edition) (2nd edn West Pub. Co., St. Paul 1988) (614-743) use the title Rights at Variance with Policy Provisions for designating the protection of the policyholder, which is primarily the product of case law. Some time ago, it was also still possible to speak of a Socialist legal family, which was characterised like the Continental by codications. Special rules were primarily attributable to ideological justications and to the state-dominating character of these countries. Legal instruments for protecting the poli-
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ii. Signicance
28. Blurred Lines of Delimitation. However, the signicance of this classication should not be overestimated particularly in insurance contract law. Classication does not allow a clear-cut delimitation. There are, for example, so-called hybrid insurance contract regimes, i.e. regimes composed of elements of several legal families. Israel and South Africa can be mentioned in this context.102 Furthermore, independent intellectual approaches are appearing in Islamic states. In their case, the issue at hand is the development of insurance concepts which are in line with the basic precepts of Islamic law (inter alia the proscription of interest). However, these approaches have not yet solidied into a legal family.103 29. Aspirations to Classify. Classication into legal families is the result of a need for order, but has no immediate consequences. It is analogous to the classication into language families: Knowing that Portuguese and Italian belong to the same category is of no direct consequence for command of these languages. Comparative studies of insurance law must start with the individual legal orders. However, in dealing with these legal
cyholder, for example, in the form of rules to the advantage of the policyholder which play such an important role in the Continental legal family have no validity when insurance contract terms are decreed by the state itself. With the demise of socialism in Europe, the regulatory and the doctrinal efforts of the respective states and their academic circles have lost their basis. Nonetheless, here the existence of insurance laws in Socialist legal orders shows that the institution is not dependent upon free-market conditions. On the other hand, it should be noted that the most adequate conditions for existence can be found where the issue is one of the autonomous planning of the individual economic subject and making corresponding precautions for the event of its frustration. For Israel, Naschitz, New Israeli Insurance Contract Law 1981, [1982] 3 Lloyds Maritime and Commercial Law Quarterly 249-251; for South Africa, Gerald Gordon, Wilfred Getz and DM Davis (eds), Gordon and Getz on the South African Law of Insurance (4th edn Juta, Cape Town 1993) 1 ff. As to the effects of the rekindling Islamic awareness in business law, see for example Heinrich Philipp Kindt, Das islamische Versicherungswesen, Versicherungswirtschaft 1985, 585-591. On the topic of developing countries and insurance, see Klaus Gerathewohl, Entwicklungslnder und Versicherung in Dieter Farny and others (eds), Handwrterbuch der Versicherung (VVW, Karlsruhe 1988) 141-152. Fritz Reichert-Facilides
102
103
132
I. Unication of Insurance Contract Law
orders (and their institutions), it is helpful to consider the style of the legal family to which they belong.104

30. Preliminary Remarks. The law of insurance must be one. This motto, after the well-known aphorism of maritime law (the law of the ocean must be one) was enthusiastically advanced and supported by the participants at the rst international congress of the Association Internationale de Droit des Assurances in 1962.105 Indeed, the unication of laws was then the movement of the times. It was regarded not only as an instrument for simplifying legal intercourse, but also as a manifestation of political and ideological progress towards a better world.106 The notion of a unied Europe had also begun to gain momentum, which gave the movement additional impulses.107 A generation later the original enthusiasm has given way to a more reluctant mood.108 Certainly, many international uniform laws have been
107
104
105
106
107
108
Konrad Zweigert and Hein Ktz, Einfhrung in die Rechtsvergleichung (3rd edn Mohr Siebeck, Tbingen 1996) 67 ff. Hans Mller in Associazione Internazionale di Diritto delle Assicurazioni (AIDA) (ed), Atti del Primo Congresso Internazionale di Diritto delle Assicurazioni: Roma, 4-7 aprile 1962, vol. I (Giuffr, Milan 1963) 101. Cf. Ren David, The International Unication of Private Law in Ren David (ed), International Encyclopedia of Comparative Law, vol. II, ch. 5 (Mohr Siebeck, Tbingen 1971) ss. 3 ff.; Konrad Zweigert, Grundsatzfragen der europischen Rechtsangleichung in Ernst von Caemmerer, Arthur Nikisch and Konrad Zweigert (eds), Festschrift fr Hans Dlle, vol. II (Mohr Siebeck, Tbingen 1963) 401-418, 404; Clive Schmitthoff, International Trade Law and Private International Law in Ernst von Caemmerer, Arthur Nikisch and Konrad Zweigert (eds), Festschrift fr Hans Dlle, vol. II (Mohr Siebeck, Tbingen 1963) 257-272. Walter Hallstein, Angleichung des Privat- und Prozerechts in der Europischen Wirtschaftsgemeinschaft, Rabels Zeitschrift fr auslndisches und internationales Privatrecht 28 (1964) 211-231. In German legal literature: Paul Heinrich Neuhaus and Jan Kropholler, Rechtsvereinheitlichung Rechtsverbesserung?, Rabels Zeitschrift fr auslndisches und internationales Privatrecht 45 (1981) 73-90; Hein Ktz, Rechtsvereinheitlichung Nutzen, Kosten, Methoden, Ziele, Rabels Zeitschrift fr
133
successfully completed.109 On the other hand, this creative zest has also highlighted the problems of unication. These are quality decits with respect to doctrine and policy.110 An illustrative recent example is the increased usage of the catchword subsidiary, intended to restrict harmonisation of laws to areas where national legislation is less apt to resolve problems than unication.111 These observations are also of relevance for insurance contract law. It is clear that the law of insurance has not become one in the sense of the AIDA Congress in 1962. Nevertheless, individual cases of successful unication exist (ss. 31-32 below); on the other hand, failures of clear programme targets (s. 33 below) may not be overlooked.
111
109
110
111
auslndisches und internationales Privatrecht 50 (1986) 1-18; Peter Behrens, Voraussetzungen und Grenzen der Rechtsfortbildung durch Rechtsvereinheitlichung, Rabels Zeitschrift fr auslndisches und internationales Privatrecht 50 (1986) 19-34. As to problems arising even in a eld as well-suited for unication as the law of admiralty, see Rolf Herber, Gedanken zur internationalen ereinheitlichung des Seehandelsrechts in Hans Peter Ipsen and Karl-Hartmann Necker (eds), Recht ber See. Festschrift Rolf Stdter zum 70. Geburtstag am 22. April 1979 (Decker, Hamburg 1979) 55-77. Cf. furthermore Hein Ktz, Gemeineuropisches Zivilrecht in Herbert Bernstein, Ulrich Drobnig and Hein Ktz (eds), Festschrift fr Konrad Zweigert zum 70. Geburtstag (Mohr Siebeck, Tbingen 1981), 481-500; Jan Kropholler, Die Wissenschaft als Quelle der internationalen Rechtsvergleichung, Zeitschrift fr Vergleichende Rechtswissenschaft 1986, 143-163. See also the discussion report by HeinzPeter Mansel, Europisches Gemeinschaftsrecht und IPR, IPRax 1990, 344346, 345 and the statements by von Bar and Lorenz made therein. See, for example, the United Nations Convention on Contracts for the International Sale of Goods 1980 (CISG), signed on 11 April 1980 at Vienna, 1489 U.N.T.S. 3 and, for the European Union, the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters (consolidated version) [1998] OJ C27 / 1. Fritz Reichert-Facilides, Rechtsvereinheitlichung oder Rechtsvielfalt? berlegungen vor dem Modell des Versicherungsvertragsrechts in Fritz Schwind (ed), Europarecht, Internationales Privatrecht, Rechtsvergleichung. Verffentlichungen der Kommission fr Europarecht, No. 6 (Verl. der sterr. Akad. der Wiss., Vienna 1988) 155-170, 157. Emphatically Jochen Taupitz, Privatrechtsvereinheitlichung durch die EG: Sachrechts- oder Kollisionsrechtsvereinheitlichung?, JuristenZeitung 1993, 533-539, 537. Fritz Reichert-Facilides
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i.
Unication of Laws: Accomplishments and Failures
31. Planned Unication of Laws must be distinguished from grown unication.112 In the former case, one may point to several international treaties relevant for the law of insurance contracts, for instance, the 1959 European Convention on Compulsory Insurance against Civil Liability in respect of Motor Vehicles that was drafted within the organisational framework of the Council of Europe. This compulsory liability insurance in conjunction with the action directe against the third party liability insurer has, in the meantime, been introduced in all signatory states, and beyond. An earlier weak spot of this treaty, the broad range of minimum amounts covered, has been eliminated in the European Community by a harmonising directive.113 Moreover, several conventions on the unication of laws exist which regulate third party liability and duties to procure insurance ensuring actual enforceability of liability rules.114 In the European Community, the Council has in addition to laying down minimum cover for compulsory motor vehicle liability insurance regulated several particular issues in certain branches of insurance by subjecting them to harmonised rules contained in EC directives.115
112
113
114
115
Jan Kropholler, Internationales Einheitsrecht (Mohr Siebeck, Tbingen 1975) 17; Hans Dlle, Gezielte und gewachsene Rechtsvereinheitlichung, Zeitschrift fr Europarecht, internationales Privatrecht und Rechtsvergleichung 1963, 133-141. Second Council Directive 84 / 5 / EEC of 30 December 1983 on the approximation of the laws of the Member States relating to insurance against civil liability in respect of the use of motor vehicles [1984] OJ L8 / 17. Art. 10 of the Paris Convention on Third Party Liability in the Field of Nuclear Energy of 29th July 1960; arts. 12 and 15 of the Brussels Supplementary Convention of 1963. For life insurance: right to cancel the contract and minimum information for policyholders pursuant to art. 15 of Council Directive 90 / 619 / EEC of 8 November 1990 on the coordination of laws, regulations and administrative provisions relating to direct life assurance, laying down provisions to facilitate the effective exercise of freedom to provide services and amending Directive 79 / 267 / EEC [1990] OJ L330 / 50 and art. 31 of Council Directive 92 / 96 / EEC of 10 November 1992 on the coordination of laws, regulations and administrative provisions relating to direct life assurance and amending Directives 79 / 267 / EEC and 90 / 619 / EEC (third life assurance Directive) [1992] OJ L360 / 1, respectively; for obligatory motor vehicle insurance: extent
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32. Grown Unication of Laws. As in other areas of law, unication develops in the law of insurance independently of direct endeavours towards this end. An international approximation of national rules without direct activity on the part of the states may be observed from case to case. A good example of this is transportation insurance. In this eld, it is not uncommon even for insurance contracts concluded outside of the United Kingdom to be on English terms. A number of international commercial contracts actually prescribe such English transportation insurance cover often under the inuence of the loan banks. One could therefore regard these English clauses, especially the Institute Clauses, as privately created international uniform law.116 The conceptual bond to Incoterms is clear.117 Reinsurance law also presents an example of unplanned harmonisation which has developed in insurance practice. 33. Failures. A model universal law of insurance contracts has, as mentioned (s. 30 above), turned out to be illusory so far. Even a convention designed in accordance with the United Nations Convention on Contracts for the International Sale of Goods 1980 has not been successful. Neither have the expectations placed on the EC authorities as a legislature been fullled. In 1979, however, the Commission submitted a proposal to harmonise certain rules of insurance contract law.118 The preconditions of EC law for realising this project appeared to be rather remarkable. The Treaty of Rome, arts. 59 ff, is concerned with, among other subjects, the increase in the free circulation of services in the eld of insurance. To quote the Commission:
of cover and minimum amounts insured according to art. 1 paras. 1, 2, art. 2 paras. 1, 3 of the Second Council Directive 84 / 5 / EEC of 30 December 1983 on the approximation of the laws of the Member States relating to insurance against civil liability in respect of the use of motor vehicles [1984] OJ L8 / 17; for legal expenses insurance: conicts of interest must be avoided; art. 3 para. 1, para. 3(c), art. 4 of Council Directive 87 / 344 / EEC of 22 June 1987 on the coordination of laws, regulations and administrative provisions relating to legal expenses insurance [1987] OJ L185 / 77. Gerhard Luttmer and Klaus Winkler, Transportversicherung allgemein Dieter Farny and others (eds), Handwrterbuch der Versicherung (VVW, Karlsruhe 1988) 879-888, 881. ICC, Incoterms: ICC Ofcial Rules for the Interpretation of Trade Terms (ICC Publishing, Paris 2000). Proposal for a Council Directive on the coordination of laws, regulations and administrative provisions relating to insurance contract [1979] OJ C190 / 2. Fritz Reichert-Facilides
116
117
118
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The harmonization of contract law in connection with freedom to provide services and freedom of choice of applicable law has a twofold objective. Firstly, to guarantee the policyholder that whatever the choice of applicable law, he will receive identical protection as regards the essential points of the contract. Secondly, to eliminate as competition factors for undertakings the fundamental differences between national laws.119
Notwithstanding this programme, the proposal of the Commission has failed. What is the reason for this failure? Dogmatic differences between the Continental and the Anglo-American legal family may be one response but, as illustrated by other examples (cf. s. 27 above), these are surmountable. The actual reason for the failure lies in the conicting underlying interests.120 The insurance contract regimes to be harmonised differ substantially in their regulatory priorities. On the one hand, we have an emphasis on protecting the policyholder through binding insurance contract law provisions (Continental regime) and on the other on extensive freedom of contract (United Kingdom). Politically, it has been impossible to reconcile these differences within the Council,121 which in cooperation with the European Parliament is ultimately the law-making body. It remains to be seen whether and the extent to which these barriers may be overcome in the future. Starting points could be, for example, the deregulation of insurance supervision and possibly the unication of European Private Law.122
119
120
121
122
Proposal for a Council Directive on the coordination of laws, regulations and administrative provisions relating to insurance contract [1979] OJ C190 / 2, as amended. For an analysis of the various interests which play a role for the state, for the part of insurance and for the policyholders, see Fritz Reichert-Facilides, Rechtsfragen des Wettbewerbs zwischen inlndischen und auslndischen Versicherern in Fritz Hauss and Reimer Schmidt (eds), Festschrift fr Ernst Klingmller (VVW, Karlsruhe 1974) 375-391. Fritz Reichert-Facilides, Rechtsvereinheitlichung oder Rechtsvielfalt? berlegungen vor dem Modell des Versicherungsvertragsrechts in Fritz Schwind (ed), Europarecht, Internationales Privatrecht, Rechtsvergleichung. Verffentlichungen der Kommission fr Europarecht, No. 6 (Verl. der sterr. Akad. der Wiss., Vienna 1988) 164 ff.; Yvonne Lambert-Faivre, Droit des assurances (9th edn Dalloz, Paris 1995) 69-72. Resolution of 26 May 1989 on action to bring into line the private law of the Member States [1989] OJ C158/400 and Resolution of 6 May 1994 on the harmonisation of certain sectors of the private law of the Member States [1994] OJ
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34. Alternative: Unied Conict Rules. Within the European Community, the notion of co-existence in the sense of mutual respect for the existing private law regimes is increasing in signicance.123 The requirements for the Common Market are met by Community rules on private international law. This trend can also be ascertained in the law of insurance contracts. Instead of harmonising the rules of substantive law, emphasis is laid on harmonising the conict of laws.124 The harmonisation of private international law was achieved for the Member States by the Rome Convention on the law applicable to contractual obligations. In addition to reinsurance, it also applies, in principle, to direct insurance contracts. There exists, however, an important exception. Art. 1 para. 3 of the Rome Convention excludes its application from contracts of insurance which cover risks situated in the territories of the Member States of the European Economic Community because the harmonisation of private international law of insurance contracts within the European Community was already under discussion and this process was not to be disrupted when the Rome Convention was signed.125 The private international law of insurance contracts within the EC (s. 10 above) has, in the meantime, been fully enacted by several directives.126 However, it is subject to harsh criticism directed towards issues
125
123
124
125
126
C205/518. In the meantime, endeavours regarding general contract law have been partly successful: The Commission on European Contract Law (widely known as Lando Commission) has published a full version, with comments, of an important segment: Ole Lando and Hugh Beale (eds), Principles of European Contract Law, Parts I and II (Kluwer Law International, The Hague 2000). Jochen Taupitz, Privatrechtsvereinheitlichung durch die EG: Sachrechtsoder Kollisionsrechtsvereinheitlichung?, JuristenZeitung 1993, 533-539, 537 mentioning expressly the principle of subsidiarity. Ben Smulders and Paul Glazener, Harmonization in the Field of Insurance Law through the Introduction of Community Rules of Conict, (1992) 29 Common Market Law Reports 775-797. Mario Guiliano and Paul Lagarde, Report on the Convention on the law applicable to contractual obligations [1980] OJ C282 / 1. Second Council Directive 88/357/EEC of 22 June 1988 on the coordination of laws, regulations and administrative provisions relating to direct insurance other than life assurance and laying down provisions to facilitate the effective exercise of freedom to provide services and amending Directive 73/239/EEC [1988] OJ L172/1; Council Directive 90/619/EEC of 8 November 1990 on the coordination of laws, regulations and administrative provisions relating to direct life assurance, laying down provisions to facilitate the effective exercise of freeFritz Reichert-Facilides
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J. Regulatory Goals of Insurance Contract Law
of conception and weaknesses in legislative technique.127 The elimination of the exception in art. 1 para. 3 of the Rome Convention has been one suggestion, thus making the Convention applicable to all insurance contracts.128 An even broader proposal is to enact a uniform model for the entire private international law of insurance contracts.129

i. Insurance Character of the Contract
35. Promise to Perform. An insurance contract is one involving the assumption by the insurer of a risk faced by the policyholder. From the standpoint of legal technique, this assumption is effected by the contractual establishment of a conditional promise on part of the insurer to make payment (or confer another benet) upon the occurrence of the insured event (s. 1 above). Thus, at inception, the performance of the insurer is
dom to provide services and amending Directive 79/267/EEC [1990] OJ L330/50 and Council Directive 92/96/EEC of 10 November 1992 on the coordination of laws, regulations and administrative provisions relating to direct life assurance and amending Directives 79/267/EEC and 90/619/EEC (third life assurance Directive) [1992] OJ L360/1. For details, see Bernhard Rudisch, sterreichisches Internationales Versicherungsvertragsrecht (Orac, Vienna 1994) 133 ff. Ben Smulders and Paul Glazener, Harmonization in the Field of Insurance Law through the Introduction of Community Rules of Conict, (1992) 29 Common Market Law Reports 775-797, 795 fn 48. So Wulf-Henning Roth (see Bernhard Rudisch, 1. Diskussionsbericht in Fritz Reichert-Facilides (ed), Aspekte des europischen internationalen Versicherungsvertragsrechts im Europischen Wirtschaftsraum (Mohr Siebeck, Tbingen 1994) 48) and Basedow (see Helmut Heiss, 3. Diskussionsbericht in Fritz ReichertFacilides (ed), Aspekte des europischen internationalen Versicherungsvertragsrechts im Europischen Wirtschaftsraum (Mohr Siebeck, Tbingen 1994) 107). Fritz Reichert-Facilides, Gesetzesvorschlag (nderung des EGBGB : Streichung von Artikel 37 Nummer 4; Einfgung von Artikeln 37a bis 37f und 220a) in Fritz Reichert-Facilides (ed), Aspekte des europischen internationalen Versicherungsvertragsrechts im Europischen Wirtschaftsraum (Mohr Siebeck, Tbingen 1994) 75-88, 83; Fritz Reichert-Facilides, Gesetzesvorschlag zur Neuregelung des deutschen Internationalen Versicherungsvertragsrechts, Versicherungsrecht 1993, 1177-1216.
127
128
129
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the making of this promise. Ensuring its exact formulation, encompassing an accurate description of the primary risk covered as well as of the secondary limitations of the risk (s. 39 below) are important regulatory tasks of the law of insurance contracts.130 36. Elements of a Genuine Transaction. Insurance contracts are aleatory (s. 2 above). This is a common feature among other transactions, some of which are usually not wholeheartedly enforced by the system, for example gambling and betting. The distinction between insurance contracts and contracts relating to these less accepted transactions lies in the nature of the risk to be assumed. To be insurable, the risk must be one the realisation of which would be detrimental to the policyholder (s. 2 above). A benet to him in the form of insurance money in the context of such detriment is legitimate. Another important element of insurance is its limitation to pure risk cover. In this context, the insurable interest requirement is of special importance. Its existence131 and its impairment on occurrence of the insured event are widely regarded as necessary elements for granting insurance protection.132
130
131
132
Fritz Reichert-Facilides, Gedanken zur Versicherungsvertragsrechtsvergleichung, Rabels Zeitschrift fr auslndisches und internationales Privatrecht 34 (1970) 510-522, 515-516. When the existence of an interest is not required, then the factual cover of a risk as subject to the insurance contract must be procured by other means. This may be effected by requiring as a precondition the actual occurrence of a loss in indemnity insurance or in the insurance of xed sums by requiring that the insured event affects the physical integrity of a human being and this is typically adverse. In case the physical integrity of a person other than the policyholder is in question, precautionary measures, for example, in the sense of a consent requirement, must be taken. Regarding a genuine transaction in the sense of insurers economic ability to bear the risks insured, see s. 5 above (Gefahrengemeinschaft) and, under the catchword of insurers solvability, Werner Pfennigstorf, Public Law of Insurance, in Jacob S. Ziegel (ed), International Encyclopedia of Comparative Law, vol. IX, ch. 7 (Mohr Siebeck, Tbingen 1972) ss. 232 ff. For example, the insurance of smuggled or illegally obtained goods. The interest to be insured must be lawful and in conformity with public morals, for details see s. 7 above, see also Werner Pfennigstorf, Public Law of Insurance, in Jacob S. Ziegel (ed), International Encyclopedia of Comparative Law, vol. IX, ch. 7 (Mohr Siebeck, Tbingen 1972). Fritz Reichert-Facilides
140
37. Public Policy. In addition to the elements discussed above (s. 36 above), public policy elements must be considered. In particular, fraudulent conduct on the part of the policyholder must be legally penalised. This is a task not only for criminal law, but for the law of insurance contracts, too. In the framework of the latter, the inducement to fraudulent conduct may be countered pre-emptively, for instance, by imposing rules prohibiting overinsurance or double insurance effected mala de, and by enforcing the principle that indemnity insurance may only compensate for losses suffered, but may not give rise to net gains. In addition, the law of insurance contracts must prevent insurance from being utilised as an indirect inducement for pursuing illegal goals or goals contra bonos mores.
ii. Concerns of the Insurer

38. Preliminary Remarks. From the point of view of the insurer, the calculability of the risks to be assumed is the dominant concern. An enterprise will indeed be best able to control this aspect in its own sphere through insurance techniques, such as the organisation and maintenance of a community of risk bearers (s. 5 above), through adequate reinsurance and, eventually, through the distribution of risks by co-insurance. In addition to these specic instruments of insurance contract law directed towards the assessment and control of risks, specic instruments of insurance contract law have been developed which serve to ensure calculability. 39. Assessing and Controlling the Risk. As mentioned in the foregoing point, specic legal techniques have been developed to meet the insurers concerns. The rst concern is the description of the primary risk in drafting the insurers promise and the elimination of incalculable or difcult risks or risks which would substantially increase the amount of the premium, for instance the risk of war in re or transport insurance. In this context, risk-oriented duties of the policyholder play a special role. They usually take the form of pre-contractual duties (s. 51 below). Here the consequences of the violation of these duties are also at issue, i.e. whether the insurance protection should be lost or diminished. 40. Securing Income from Premiums. The insurers claims for premiums can hardly be secured by property. There is neither retention of title as in sales law nor a lien as in a lease or a contract for work and services. Specic techniques are necessary for ensuring the insurers permanent solvency a prerequisite for the functioning of the insurance business.
141
Here again, the loss or reduction of insurance protection as a penalty for violations of duties to be fullled by the policyholder (here: payment of the premium) plays a role.
iii. Concerns of the Policyholder

41. Introduction. The insurer, due to its dominant position as entrepreneur, is able to allay its concerns since the company, either itself or through its representation, uses standard terms and conditions of insurance.133 The individual policyholder usually has no way of inuencing the contents of these terms.134 The primary factor neutralising this superiority is the power of competition (just as is the case with respect to the amount of premium demanded). The opening of the Single European Market for insurance business has served to intensify this competition. By employing an insurance broker, however, an insured albeit a large one can strengthen his position considerably vis--vis the insurer.135 Furthermore, his special contractual concerns are usually supported by the insurance supervisory authorities. A common instrument in this context is the control of the standard terms and conditions of insurance contracts.136 However, the employment of this instrument is receding as a consequence of deregulation so that the protection of the policyholders contractual position is increasingly an issue of private law subject to court practice and legislation. Modern legislation aimed at protecting the weaker contract party, such as that in Australia, Israel, Finland and Sweden deserve
133
134
135
136
See the phrasing of the rst sentence of 1 German Law on standard terms and conditions (Gesetz zur Regelung des Rechts der Allgemeinen Geschftsbedingungen). One exception is in the eld of ocean marine insurance, where the standard conditions of marine insurance (Allgemeine Deutsche Seeversicherungsbedingungen ADS) were drafted as a co-operative effort by policyholders, brokers and the chambers of commerce. Bernhard Lorenz, Kundenschutz durch Regulierung der Versicherungsvermittlung Eine komenisch rechtsvergleichende Analyse aktueller europarechtlicher Entwicklungen in Anton Schnyder, Helmut Heiss and Bernhard Rudisch (eds), Internationales Verbraucherschutzrecht (Mohr Siebeck, Tbingen 1995) 231-255. Werner Pfennigstorf, Public Law of Insurance, in Jacob S. Ziegel (ed), International Encyclopedia of Comparative Law, vol. IX, ch. 7 (Mohr Siebeck, Tbingen 1972). Fritz Reichert-Facilides
142
mentioning here. The needs most deserving of protection relate primarily to the transparency and continuity of insurance cover (s. 42 below). Other issues in question are those of duration of the contract (s. 43 below) and perhaps the imposition on the insurer of a duty to contract (s. 44 below). 42. Transparency and Continuity. A written document is conducive to the transparency of insurance cover and makes it more tangible for the policyholder. With respect to the construction of the policy, the policyholder is supported by the rule on ambiguities. In spite all of this, the policyholder is often unable to grasp the actual contents or lack thereof of the insurance cover promised. Here, the information duties of the insurer enter the picture (s. 52 below). These must be fullled in the course of contracting, during the duration of the agreement, and especially, after occurrence of the insured event. Often, they are characterised, in accordance with the actual circumstances of communication between the insurer and the policyholder, as follows: liability of the insurer for the conduct of its agents. Legally, however, these are duties imposed upon the insurer itself, and not linked to the intercession of intermediaries. Originally, these duties were developed by the courts. Today, they are increasingly making their way into statutory provisions. As to the continuity of insurance cover, the policyholder is concerned with being protected against a loss or an impairment of the insurance cover, especially in cases where this result is linked to a certain conduct on his part. 43. Duration of a Contract. In a buyers market of insurance (s. 17 above), offers of insurance protection can de facto be increased without limits. Therefore, the insurer and its agents are typically interested in a long-term commitment by the policyholder since acquisition of the contract normally entails efforts and costs. The policyholder, however, may for a number of reasons be interested in retaining his exibility. Facilitating this is an important aspect of modern policyholder protection legislation. 44. Duty to Contract. Notwithstanding the fact that, in principle, insurance is a buyers market, there are cases where an insurer may not want to enter into a contract, at least not under the usual terms. This is especially dangerous for the customer subject to a duty to insure, who must have insurance cover in advance in order to pursue certain activities (e.g. automobile insurance). Pertinent laws often obligate the insurer to contract.137 This is also true for (voluntary) consumer insurance under s. 9 Swedish Consumer Insurance Act.
143
45. Contracts to Benet Third Parties. In no other contract relationship do third parties play as important a role as in the eld of insurance. Insurance contracts are frequently concluded with the aim of beneting a party other than the policyholder. In addition, such beneting of a third party also ows from the law in view of the legislatures own policy goals. Complicated legal issues may arise; consequently, there is need for detailed and differentiating regulation of the subject matter.137
iv. Areas of Convergent Interest

46. Both parties are interested in concluding a contract leading to immediate cover without time-consuming risk assessment procedures. Binders have crystallised as a suitable instrument for realising this goal. 47. Restitution for Defective Contracts. Insurance contracts may be void or voidable. In case of a defective insurance contract which had existed for a certain period, the question as to restitution arises. This issue is of particular sensibility because of the unique aleatory character (s. 2 above) of the insurance contract. A solution specically geared to insurance and deviating from general legal principles is in the interest of both parties.
K. Good Faith in Insurance Contracting

i. Introduction
48. All legal orders treated here recognise that the principle of good faith is a signicant one.138 In the law of insurance contracts, it is of even
137
138
Austria: 25 para. 3. Motor Third Party Liability Insurance Law (Kraftfahrzeug-Haftpichtversicherungsgesetz). Germany: 5 paras. 2, 4 Compulsory Insurance Act (Pichtversicherungsgesetz); 3 paras. 1, 2 Compulsory Insurance for Foreigners Act (Auslnderpichtversicherungsgesetz); for further examples: Andr Tunc, Trafc Accident Compensation: Law and Proposals in Andr Tunc (ed), International Encyclopedia of Comparative Law, vol. XI, ch. 14 (Mohr Siebeck, Tbingen 1972) ss. 45 ff. Cf. for example Ole Lando, Performance and Remedies in the Law of Contract in Arthur S Hartkamp and others (eds), Towards a European Civil Code (Dordrecht / Boston / London 1994) 201, 205-209; France: art. 1134 para. 3 CC; Germany: 157, 242 CC; Ernst Bruck and Hans Mller, Kommentar zum VerFritz Reichert-Facilides
144
greater importance, since the partners in an insurance relationship rely upon each other to a very large degree. In order to make the insurance contract work, the insurers interest in calculating the risk and the interest of the policyholder in understanding the insurance protection contracted must be reconciled. Each of the parties must cooperate in the other partys interest. The following considerations illustrate the situation: On calculating the risk, it is normally the policyholder alone who has actual knowledge of the relevant circumstances and of the possibility of inuencing them. On the other hand, it is the insurer, as the producer of insurance protection, which intellectually dominates the underlying contractual agreement. If the policyholder has doubts regarding the scope of the insurance contract, he is dependent upon information from the insurer.139 49. The legal principle has been summarised as follows by German courts: It is a generally accepted principle of law that the insurance contract is governed to a particularly high degree by the principle of good faith and by considerations of common usage.140 For France, it is emphasised that good faith requirements, common to all contracts, apply to insurance contracts to a signicant degree.141 It is also acknowledged in
sicherungsvertragsgesetz und zu den Allgemeinen Versicherungsbedingungen unter Einschlu des Versicherungsvermittlerrechtes, vol. I (8th edn de Gruyter, Berlin 1961) Einl. para. 67; Italy: arts. 1337, 1366, 1375 CC; Spain: art. 1258 CC and art. 57 ComC; Switzerland: art. 2 para. 2 CC; Netherlands: arts. 6:2, 6:248 CC. Good faith (Redlichkeit und Billigkeit) applies expressly only to lling gaps and the control of terms, but is also applied by the courts for construing contracts, cf. Arthur S Hartkamp, Einfhrung in das Neue Niederlndische Schuldrecht in Franz Bydlinski, Theo Mayer-Maly and Johannes W Pichler (eds), Renaissance der Idee der Kodikation. Das Neue Niederlndische Brgerliche Gesetzbuch 1992 (Bhlau, Vienna 1991) 85, 96; Japan: cf. Kiyoshi Igarashi, Einfhrung in das japanische Recht (Wiss. Buchges., Darmstadt 1990) 97. Common law: Malcolm A Clarke, The Law of Insurance Contracts (3rd edn LLP, London 1997) para. 27-1A. See for example Fritz Reichert-Facilides, Die Erfllungshaftung des Versicherers fr seine Agenten, Versicherungsrecht 1977, 208-218, 211. Es ist anerkannten Rechts, da das Versicherungsverhltnis in besonderem Ma von Treu und Glauben mit Rcksicht auf die Verkehrssitte beherrscht wird. Established court practice in Germany: RG 14.12.1934, RGZ 146, 221; 23.8.1935, RGZ 148, 298; 31.1.1936, RGZ 150, 147; BGH 28.11.1963, BHGZ 40, 387. So also for Austria: OGH 3.3.1977, Versicherungsrecht 1978, 752. Yvonne Lambert-Faivre, Droit des assurances (9th edn Dalloz, Paris 1995) 186.
139
140
141
145
the Anglo-American legal family as a fundamental principle of insurance law that the utmost good faith must be observed by each party.142 In common law systems, however, one should note that, beside the principle of good faith which is a phenomenon at law, remedies in equity also serve functions which, in civil law, would be covered by the all-encompassing principle of good faith.143
ii. Specic Issues

50. General Remarks. Many insurance contract codications do not expressly lay down a general duty to exercise good faith.144 However, this arises indirectly in the form of a number of individual legal rules which
142
143
Carter v Boehm (1766) 3 Burr 1905 at 1909 (Lord Manseld); cf. ER Hardy Ivamy, General Principles of Insurance Law (6th edn Butterworths Law, London 1993) 136. For Australia, see ss. 12-15 ICA, Part II: The Duty of the Utmost Good Faith. A critical view of uberrima des is found in the remarkably thorough judgment of the South African court, Mutual and Federal Insurance Co. Ltd. v Oudtshoorn Municipality 1985 (1) SA 419, 435, 433 (A) by Joubert, JA: By our law all contracts are bonae dei [] yet the duty of disclosure is not common to all types of contract. It is restricted to those contracts, such as contracts of insurance, where it is required ex lege. Moreover, there is no magic in the expression uberrima des. There are no degrees of good faith. It is entirely inconceivable that there could be a little, more or most (utmost) good faith. The distinction is between good and bad faith. There is no room for uberrima des as a third category of faith in our law. [] It is an alien, vague, useless expression [] our law of insurance has no need for uberrima des and the time has come to jettison it. Despite this stinging criticism, it should be noted that the conclusion reached in the present case was the same as that of courts employing the notion of utmost good faith, viz. the duty of the policyholder to disclose prior to the conclusion of the contract, and is thus in line with modern legislation which provides for independent regulation of the duty to disclose. Ole Lando, Performance and Remedies in the Law of Contract in Arthur S Hartkamp and others (eds), Towards a European Civil Code (Dordrecht / Boston / London 1994) 201-222, 207; Malcolm A Clarke, The Law of Insurance Contracts (3rd edn LLP, London 1997) para. 27-1A; GW Shaw, Two hundred and twenty years of the utmost good faith: Studies in the honour of Nikolas Delouka (Athens 1989) 859-882. United States: 205 Restatement of Contracts 2d; Lawrence J Culligan and Anthony V Amodio (eds), 45 CJS: Insurance (West Pub. Co., St. Paul 1993) 376; 1-203 UCC. Fritz Reichert-Facilides
146
are inuenced by the characteristics of the insurance relationship and are laid down either by statutory or judge-made law. The latter applies to the construction of contracts. The performance of the insurer is particularly dependent upon the terms of the insurance contract. Interpreting these terms and thus dening the rights and duties of the parties is to a great degree a matter of applying the principle of good faith. Furthermore, primary emanations of this principle are the creation of additional duties of the parties which extend beyond the main contractual duties of granting insurance protection and paying the premiums (ss. 5153 below) as well as the proscription against exercising a right in bad faith (ss. 54-55 below). Generally, it is possible to say that results which were derived from good faith in the beginnings of insurance contract law are nowadays achieved under statutory law.
a. Creation of Duties144
51. Policyholder. One obligation of the policyholder derived from the principle of good faith is the duty to disclose antecedent to the conclusion of the contract. Contrary to the prevailing legal situation today in which specic legal rules impose such a duty, such conduct was expected in the past by virtue of the principle of good faith. In Carter v Boehm, for example,145 the policyholder was held to a duty to disclose to the insurer the other party to the contract his own sphere of risks, even though this would have inuenced the terms and the assessment of the premium. There is no doubt that the policyholder has an advantage over the insurer as to knowledge of the circumstances creating the risk. Good faith between the parties requires that the insurer must be informed about them. 52. Insurer. The good-faith principle creates a duty on the part of the insurer according to the observations which have just been made with respect to the policyholder (s. 51 above) to inform the potential policyholder about facts known to it which are relevant for the assumption of the risk. Thus, even before specic provisions with respect to retroactive insurance had been codied, the insurer was under a duty to inform the policyholder if, according to its sources of information, the risk has
144
145
But see, for example, s. 17 Marine Insurance Act 1906; Australia: ss. 13-14 ICA; 13. Carter v Boehm (1766) 3 Burr 1905 at 1909 (Lord Manseld).
147
already been realised or the insurance protection has become superuous for other reasons.146 53. In particular, however, the principle of good faith was and is regarded as creating duties based on the superior position of the insurer as the provider of the insurance protection (s. 17 above). This has consequences for the construction of the insurance contract (s. 55 below). In addition, it creates ancillary duties on the part of the insurer, viz. duties of information. Today, these duties have been acknowledged as an important instrument for consumer protection, the scope of which extends far beyond insurance law.147
b. Impermissible Exercise of a Right

aa. Individual Abuse of Right 54. The exercise of an existing right may be impermissible in a specic case if the right is exercised in a manner which is contrary to good faith. This is true not only for exercise in the narrow sense (establishing a claim), but also in general for any attempt to exploit a favourable legal position.148 In the context of insurance contract law, preventing the loss or exclusion of insurance protection in individual cases is of impor-
146 147
148
Carter v Boehm (1766) 3 Burr 1905 at 1909 (Lord Manseld). Helmut Heiss, Formvorschriften als Instrument europischen Verbraucherschutzes in Anton Schnyder, Helmut Heiss and Bernhard Rudisch (eds), Internationales Verbraucherschutzrecht (Mohr Siebeck, Tbingen 1995) 87-102, 100. Die Ausbung eines an sich bestehenden Rechtes kann im Einzelfall dann unzulssig sein (Scheinrechtsausbung), wenn der Berechtigte sein Recht in einer gegen Treu und Glauben verstoenden Art und Weise geltend macht. Dies gilt nicht nur fr die Rechtsausbung im engeren Sinne (Geltendmachung eines Anspruchs), sondern allgemein fr jedes Ausnutzen einer gnstigen Rechtsposition. Helmut Heiss, Treu und Glauben im Versicherungsvertragsrecht (Orac, Vienna 1989) 18 in a comparative examination of German and Austrian law; for French law, see Jean Carbonnier, Droit civil: 4. Les obligations (20th edn Presses Universitaires de France, Paris 1996) 213-214; for Italian law, see arts. 1375 and 1460 CC. Fritz Reichert-Facilides
148
tance.149 In Anglo-American systems, equitable remedies play an important role to this end.150
bb. Institutional Abuse of Legal Rights 55. There may be institutional as well as individual abuse of a legal right. The policyholder must be protected against contract terms which unreasonably neglect his interests. This is especially important when he is confronted with standard terms and conditions and thus a predened legal order (cf. s. 22 above). As a corrective measure, many provisions which may be derogated from only when favourable to the policyholder have been introduced in insurance contract laws (s. 22 above). In the end, these provisions are nothing more than specications of the rule prohibiting the impermissible exercise of a right which emanates from the good faith principle. A recent reference to the principle can be found in art. 3 para. 1 of Council Directive 93 / 13 / EEC of 5 April 1993 on unfair terms in consumer contracts [1993] OJ L095 / 29, which states:
A contractual term which has not been individually negotiated shall be regarded as unfair, if, contrary to the requirement of good faith, it causes a signicant imbalance in the parties rights and obligations arising under the contract, to the detriment of the consumer.
56. Further examples. The principle of good faith, moreover, imposes on both parties a duty to take into account their mutual interests in performing the insurance contracts. Examples are the duty of the policyholder to mitigate damages in case the insured event occurs, and that of the insurer not to delay unreasonably the payment of compensation and to treat the
149
150
For example, Helmut Heiss, Treu und Glauben im Versicherungsvertragsrecht (Orac, Vienna 1989) 42-43. Robert E Keeton and Alan I Widiss, Insurance Law (Student Edition) (2nd edn West Pub. Co., St. Paul 1988) 614-743 mentions rights at variance with policy provisions. In the United States, some states have, in the meantime, enacted corresponding statutes. In the United Kingdom, the insurance industry has successfully managed to ward off statutory regulation, most recently by measures of self-restraint within the framework of the Statements of Insurance Practice; cf. s. 24 above.
149
policyholder in an honest and fair manner, especially if he has no business or legal experience.151 57. Limits. In summary, even though the principle of good faith is essential for the insurance relationship and provides a basis for the reasonable reconciliation of interests, it has to be borne in mind that the recognition of good faith must never lead to a jurisprudence of sentiment, since hardships [] are not to be avoided by correcting unambiguous agreements.152 In Anglo-American insurance law, the maxim reads as follows.
[I]t must always be remembered that courts have said expressly that it is not their function to make for the parties a reasonable contract in place of what is there already. If the policy is expressed in such clear and precise words that only one interpretation of them is possible, the court generally ought to adopt that construction even though it appear[s] harsh to the insured.153
151
152
153
For the Anglo-American legal orders, see Malcolm A Clarke, The Law of Insurance Contracts (3rd edn LLP, London 1997) para. 30-6A with references. [] die Abstellung auf Treu und Glauben niemals in eine Gefhlsjurisprudenz ausarten darf, da Hrten [] nicht durch Korrektur klarer Vereinbarungen beseitigt werden knnen, Ernst Bruck and Hans Mller, Kommentar zum Versicherungsvertragsgesetz und zu den Allgemeinen Versicherungsbedingungen unter Einschlu des Versicherungsvermittlerrechtes, vol. I (8th edn de Gruyter, Berlin 1961) Einl. para. 67. Michael Parkington, Nicholas Legh-Jones, Andrew Longmore and John Birds, MacGillivray and Parkington on Insurance Law (8th edn Sweet & Maxwell, London 1988) 444. Fritz Reichert-Facilides
150
Afterword
Helmut Heiss
1. In the time since Fritz Reichert-Facilides wrote the preceding text, there have been new developments, in particular with regard to legislation on matters concerning insurance, which will be outlined briey here. Among the revised codications of insurance contract law, the Greek ICA 1997, Boek 7 (which entered into force in 2006) of the Dutch Burgerlijk Wetboek 1992, the Swedish ICA 2005, the Danish ICA 2006, the German ICA 2008 and the Portuguese ICA 2008 should be highlighted. Italy has also rewritten its insurance contract law in the Code of Private Insurance of 2005, albeit with marginal substantive changes. Large-scale legal reforms are taking place in the former socialist countries. Some have already been completed as, for instance, the entry into force of the completely new Czech ICA of 2004 shows. There is also a draft bill concerning the complete reform of the Swiss ICA, which was published in 2009. Finally, the English and Scottish Law Commissions published a report and draft bill regarding the reform of important parts of insurance contract law in December 2009. Fritz Reichert-Facilides did not live to see most of these reforms. However, the style of these new laws conrms the trend as identied and described by him. National legislatures are increasingly viewing their own role as that of limiting the market power of insurers by enacting mandatory provisions, leaving the design of products for the most part to the competitive forces of the market. Developments in Germany provide a good example of this. In the German ICA 2008, the legislature placed the aim of protecting policyholders using mandatory norms at the centre of the reform process. At the same time, it repealed non-mandatory insurance contract law, for example marine insurance law in the Commercial Code, which was of hardly any relevance in practice. 2. Fritz Reichert-Facilidess observations on the relevance of developments in consumer protection for insurance contract law also continue to be topical. This is demonstrated in Europe, for example, through the coming into force of several directives, which protect consumers generally and thus also on conclusion of private insurance contracts, for instance
151
Afterword
the Unfair Contract Terms Directive (93 / 13 / EEC)1 and the Distance Marketing of Financial Services Directive (2002 / 65 / EC).2 Such consumer protection rules are in part superimposed onto insurance contract law and at times create sophisticated questions on the interaction of both sources of law. 3. In his comments regarding the successful and failed initiatives towards the harmonisation of insurance contract law, an academic goal pursued by Fritz Reichert-Facilides over many years is clearly expressed: that of developing a model of a uniform insurance contract law which meets the needs of the Single Market. His conception was primarily focused on the European Single Market; it can however be applied mutatis mutandis to the supra-European level. 4. The aspiration underlying this postscript is of depicting the development of the academic work undertaken by Fritz Reichert-Facilides which led, quasi by literal entelechy, to a proposal for standardising insurance contract law in Europe. By establishing the Project Group Restatement of European Insurance Contract Law, he turned into reality a major aim of his comparative legal work, of which the text here is only one example. The Project Group is proud to have completed this work following his death for the good of the European Single Market as desired by Fritz Reichert-Facilides, but also in the hope of thus giving him a distinguished memorial.
Council Directive 93 / 13 / EEC of 5 April 1993 on unfair terms in consumer contracts [1993] OJ L095 / 29. Directive 2002 / 65 / EC of the European Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer nancial services and amending Council Directive 90 / 619 / EEC and Directives 97 / 7 / EC and 98 / 27 / EC [2002] OJ L271 / 16. Helmut Heiss
152

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Principles of European Insurance Contract Law: A Model Optional Instrument

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Principles of European Insurance Contract Law: A Model Optional Instrument

Restatement of European Insurance Contract Law

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ISBN (print) 978-3-86653-184-0 ISBN (eBook) 978-3-86653-945-7

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Developments at EESC Level

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Developments at EESC Level

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Developments at EESC Level

Jorge Pegado Liz

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Developments at EESC Level

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1. A very attractive book

2. Many translations already available

3. Form: The American Restatement model

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4. A codied insurance contract law

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5. The general structure

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6. Protection of the weaker party

a. The applicants duty of disclosure

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b. The insurers pre-contractual duties

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d. Large and mass risks