Carlos Nagore
Deputy Manager
Compliance department of MAPFRE GROUP

The Directive of the European Parliament and of the Council of 25 November 2009 (“Solvency II” or “the Directive”)¹ , though better known for its solvency aspects, also codifies EU rules on insurance contracts.

Article 310 of Solvency II deals practically with all previous EU legislation in this area. In fact, where insurance, reinsurance and co-insurance contract contents are concerned, it repeals all the directives mentioned in the footnote, which are listed in Annex VI Part A of the Directive².

Solvency II consolidated European private insurance legislation into a single text with the exception of motor vehicle insurance, the rules of which had shortly before been codified in the Directive of the European Parliament and the Council of 16 September 2009.³

In reference to the subject of this article, Solvency II Title II, “Specific Provisions for Insurance and Reinsurance”, could be viewed as the embryo of EU insurance contract regulations.⁴

Title II of the Directive contains four chapters dealing respectively with applicable law and conditions of direct insurance contracts, provisions specific to non-life insurance, provisions specific to life insurance, and rules specific to reinsurance. Leaving EU regulations on co-insurance and reinsurance to one side, we will focus on the articles of Solvency II that provide general rules on insurance contracts – both life and non-life – as well as the articles that provide rules for specific classes of insurance, namely assistance, legal expenses, health and accidents at work.

Section 1 on applicable legislation sets forth the rules of international law, and refers to Regulation of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I)⁵ to determine the law applicable to an insurance contract . Although this is not the subject of this article, it is worth pointing out that, in large-risk contracts, the parties decide which will be the governing law, and in all other contracts they have a choice of different laws (according to risk location, habitual residence of the policy holder, etc.).

Section 4 on conditions of insurance contracts and scales of premiums sets down the principle of no prior approval or systematic notification to the supervisor of general and special policy conditions, except in compulsory insurance.

Section 5 on information for policy holders regulates pre-contractual aspects. Specifically, the content of the duty to inform the policy holder – which the insurer must fulfil before a contract is concluded – is set out in Articles 183 to 185 of Solvency II, and in greater length for life insurance.

It should be noted that the Directive of the European Parliament and the Council of 23 September 2002⁶ provides additional contents to this duty of information where the policy holder is a natural person who, in distance contracts, is acting for purposes which are outside his trade, business or profession.

Section 5 also includes the right of individual life insurance policy holders to cancel a contract. This right of cancellation (or “withdrawal” in the terminology used by the Directive of the European Parliament and of the Council of 23 September 2002⁷ , or “retraction” in its implementation into Spanish legislation by Law 22/2007 of 11 July on the distance sale of financial services) releases the policy holder from any obligation under the contract.

Chapter II contains the provisions specific to non-life insurance. As noted above, leaving EU legislation on co-insurance to one side, Sections 3 to 6 lay down rules on four particular insurance classes: assistance, legal expenses, health and accidents at work.

The Directive defines the assistance branch on the basis of the eventualities covered by travel or tourist assistance, i.e. difficulties while travelling and while away from the policy holder's home or habitual residence. Member States are allowed to bring other contingencies in different circumstances under the assistance category, provided that they do not clearly pertain to other insurance lines.

Section 4 sets down the rules on legal expenses insurance, with a higher density of regulation than for the other classes. In addition to contractual aspects, Solvency II also regulates administrative aspects of legal expenses insurance. For instance, Article 200 sets out the accepted methods for claim management (including the free choice of lawyer in paragraph 4). Regarding the contents of legal expenses insurance contracts, Article 201 regulates the free choice of lawyer in cases of conflicts of interests, inquiries and proceedings.

Spanish legislation implementing EU rules on legal expenses insurance also deals with administrative aspects, with Article 5.2 of the Law on the Regulation and Supervision of Private Insurance specifically regulating methods of claim management⁸. (The Preliminary Draft Law on the Regulation, Supervision and Solvency of Insurance and Reinsurance Undertakings, which was submitted to the Advisory Board on 6 May⁹, includes an annex that sets out all the insurance classes.)

The rules on insurance contracts as such and the free choice of lawyer (and court procedural representative as required by Spanish law) in cases of conflicts of interests, inquiries and proceedings, however, are provided in Article 76D of the Law on Insurance Contracts¹⁰.

While Title II of Solvency II, “Specific Provisions for Insurance and Reinsurance”, is indeed regulatory in nature, it is nonetheless constrained in scope, as the Directive leaves many aspects of insurance contracts to national lawmakers. Furthermore, its harmonising effect is restricted by Article 7(4)(b) of Rome I Regulation¹¹ , which allows Member States not only to establish an obligation to take out insurance, but a compulsory insurance, and to lay down that the insurance contract shall be governed by the law of the Member State that imposes the obligation to take out insurance. In this context, Solvency II Article 179(2) prescribes that “Where a Member State imposes an obligation to take out insurance, an insurance contract shall not satisfy that obligation unless it complies with the specific provisions relating to that insurance laid down by that Member State”.

The Report¹² of the Group of Experts on European Insurance Contract Law, set up by the Commission Decision of 17 January 2013¹³ , states in this regard that “Legal provisions establishing a duty to insure will often detail the compulsory content and extent of the cover prescribed. The most common examples of compulsory insurance include liability risks, in particular in respect of motor vehicles, aviation, ships and some independent professions, e.g. lawyers and architects.”¹⁴ The report goes on to argue that “Compulsory insurance requirements could be considered to be barriers to trade. This applies to both the duty to insure as such and to requirements concerning the extent of cover and conditions of contract imposed by the respective legal provisions.”¹⁵

Notwithstanding this, harmonisation of EU insurance contract legislation is set to continue over the coming years. As noted in the Report of the Commission Expert Group on European Insurance Contract Law mentioned above, the contents of Solvency II Title II, “Specific Provisions for Insurance and Reinsurance”, will probably be extended in the future to cover aspects such as insurance proposal, insurance application, time limits for cancellation, contract wording and language, pre-contractual information, control of unfair terms, policy holder statement of risk, aggravation of risk, reduction of risk, consequences of premium non-payment, premium changes and notification thereof, retroactive cover, term of contract, termination, insurance claims, duty to collaborate and limitation periods.

^{1 Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the life insurance, on the taking-up and pursuit of the business of insurance and reinsurance (Solvency II) (OJ L 335 of 17/12/2009).}

^{2 DAMAGE INSURANCE}

^{Council Directive 73/239/EEC of 24 July 1973 (OJ L 228 of 16/08/1973) 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. FIRST NON-LIFE INSURANCE DIRECTIVE}

^{Council Directive 73/240/EC of 24 July 1973 (OJ L 228 of 16/08/1973) abolishing restrictions on freedom of establishment in the business of direct insurance other than life assurance.}

^{Council Directive 76/580/EEC of 29 June 1976 (OJ L 189 of 13/07/1976) amending Directive 73/239/EEC on the co-ordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of direct insurance other than life assurance.}

^{Council Directive 84/641/EEC of 10 December 1984 (OJ L 339 of 27/12/1984) amending, particularly as regards tourist assistance, the First Directive 73/239/EEC 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.}

^{Council Directive 87/344/EEC of 22 June 1987 (OJ L 185 of 04/07/1987) on the coordination of laws, regulations and administrative provisions relating to legal expenses insurance.}

^{Second Council Directive 88/357/EEC of 22 June 1988 (OJ L 172 of 04/07/1988) 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. SECOND NON-LIFE INSURANCE DIRECTIVE}

^{Council Directive 92/49/EEC of 18 June 1992 (OJ L 228 of 11/08/1992) 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}

^CO-INSURANCE

^{Council Directive 78/473/EEC of 30 May 1978 (OJ L 151 of 07/06/1978) on the coordination of laws, regulations and administrative provisions relating to Community co-insurance.}

^REINSURANCE

^{Council Directive 64/225/EEC of 25 February 1964 (OJ 56 of 04/04/1964) on the abolition of restrictions on freedom of establishment and freedom to provide services in respect of reinsurance and retrocession.}

^{Directive 2005/68/EC of the European Parliament and of the Council of 16 November 2005 (OJ L 323 of 09/12/2005) on reinsurance and amending Council Directives 73/239/EEC, 92/49/EEC as well as Directives 98/78/EC and 2002/83/EC (Text with EEA relevance).}

^{LIFE INSURANCE}

^{Directive 2002/83/EC of the European Parliament and of the Council of 5 November 2002 (OJ L 345 of 19/12/2002) concerning life insurance.}

^{3 Directive 2009/103/EC of the European Parliament and of the Council of 16 September 2009 (OJ L 263 of 07/10/2009) relating to insurance against civil liability in respect of the use of motor vehicles, and the enforcement of the obligation to insure against such liability.}

^{4 Besides Solvency II, insurance contract harmonisation has been partly determined by EU legislation developed in other fields that nonetheless also applies to insurance contracts. Basically, this includes both rules governing contractual aspects generally and consumer protection legislation.}

^{The following four directives provide an example of this:}

^{Council Directive 93/13/EEC of 5 April 1993 (OJ L 95 of 21/04/1993) on unfair terms in consumer contracts.}

^{Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 (OJ L 178 of 17/07/2000) on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market (Directive on electronic commerce). This directive was already mentioned above.}

^{Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 (OJ L 271 of 09/10/2002) concerning the distance marketing of consumer financial services and amending Council Directive 90/619/EEC and Directives 97/7/EC and 98/27/EC.}

^{Directive 2011/7/EU of the European Parliament and of the Council of 16 February 2011 (OJ L 48 of 23/02/2011) on combating late payment in commercial transactions.}

^{5 Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 (OJ L 177 of 04/07/2008) on the law applicable to contractual obligations (Rome I).}

^{6 Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 (OJ L 271 of 09/10/2002) concerning the distance marketing of consumer financial services and amending Council Directive 90/619/EEC and Directives 97/7/EC and 98/27/EC}

^{7 Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 (OJ L 271 of 09/10/2002) concerning the distance marketing of consumer financial services and amending Council Directive 90/619/EEC and Directives 97/7/EC and 98/27/EC.}

^{8 Royal Legislative Decree No 6/2004 of 29 October approving the Consolidated Text of the Law on the Regulation and Supervision of Private Insurance.}

^{9 Available at http://www.dgsfp.mineco.es./direcciongeneral/. Select Junta Consultiva/Últimas reuniones}

^{10 Law 50/1980 of 8 October on Insurance Contracts, under Section 9 which was introduced by Article 6 of Law 21/1990 of 19 December to adapt Spanish law to the Council Directive 88/357/EEC of 22 June 1988 (OJ L 172 of 04/07/1988) 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. SECOND NON-LIFE INSURANCE DIRECTIVE}

^{11 Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 (OJ L 177 of 04/07/2008) on the law applicable to contractual obligations (Rome I).}

^{12 http://ec.europa.eu/justice/contract/index_en.htm}

^{13 Commission Decision 2013/C 16/03 of 17 January 2013 setting up the commission expert group on a European insurance contract law (OJ C 16 of 19/01/2013).}

^{14 Page 15 of the Report of the Group of Experts on European Insurance Contract Law (see footnote 12 above).}

^{15 Page 16 of the Report of the Group of Experts on European Insurance Contract Law (see footnote 12 above).}

go top