Wednesday, 29 April 2015

The core of insurance contracts and its transparency (ECJ in C-96/14)

Last Thursday, the ECJ published its decision in Van Hove v CNP Assurances SA (C-96/14)
This is an important decision with reference to a number of issues in the field of unfair terms in consumer contracts, and namely:
- whether and under what conditions terms in insurance contracts defining the conditions under which a certain risk is covered are to be considered as exempted from control under unfair terms rules;
- what is required of insurers in order for terms and conditions of insurance policies to be considered transparent. 

Moreover, the decision incidentally raises, but does not answer, the question as to the relationship of pro-consumer interpretation of terms which are not clearly drafted and their possible unfairness. 

The facts in a nutshell The consumer had entered several contracts, in order to obtain credit and to secure payment of the loan in case he would become incapable of providing for that himself. The insurance contract, however, limited its coverage (for what is relevant here) to cases in which the insured person found herself "unable to take up any activity, paid or otherwise". After an illness, the claimant had been found unable to carry out his previous job, and therefore received a subsidy from the national social security. The insurance company, however, stopped covering his loan repayment after a while arguing that he would be able to undertake a different, if part-time, job. 

The legal question Mr Van Hove claimed that the clause limiting the policy's coverage was unfair. The insurance company, on the other hand, claimed that the term was exempted from scrutiny under French consumer law and Directive 93/13 as forming part of the contract's main subject matter; in particular, the term should also be seen as clear and comprehensible for the purposes of the exception set out in Article 4(2) of the Directive.  
The Court basically analysed the company's defenses. 

The answer It concluded that it is for the national court to ascertain whether the term is part of the contract's core in the case at stake (but, probably, this is indeed the case) and that the same court has to ascertain whether all in all the consumer was in a position to understand the consequences that the clause would have for him (which was probably not the case). 

More in detail As to the question whether the term should be considered as part of the contract's "core", the ECJ repeated that it is for the national judge to ascertain whether this is the case; under the Court's case-law (para 34), it cannot be excluded that a term like the one under scrutiny "will circumscribe the insured risk and the insurer’s liability and lay down the essential obligations of the insurance contract at issue" (para 36). The national court will have to take into account "the nature, general scheme and the stipulations of the contract and its legal and factual context" (para 37). 

Second and more interestingly, as to the question of transparency, the Court articulates a number of considerations which it is not easy to sum up in a consistent way. While the decisum requires 
"that the contract sets out transparently the specific functioning of the arrangements to which the relevant term refers and the relationship between those arrangements and the arrangements laid down in respect of other contractual terms,
so that, as articulated in previous judgments 
[the] consumer is in a position to evaluate, on the basis of precise, intelligible criteria, the economic consequences for him which derive from it",
the Court's reasoning refers to a much broader set of circumstances and notions. 

First, it seems from the argument that also "the promotional material and information provided by the insurer in the negotiation of the insurance contract and, more generally, [...] the contractual framework" should be considered relevant in assessing the term's transparency.
Second, the court again makes reference to the "average consumer, who is reasonably informed and reasonably observant and circumspect" as the target of the required information provision. This reference, however, seems mitigated by the detailed requirements that the court sets to the end of finding that the consumer was indeed in a position to meaningfully assess the term (see, for both points, para 47). 
Furthermore, according to the Court (para 48), the fact that the insurance contract is part of a more complex stipulation should impose a higher transparency standard since "the consumer cannot be required, when concluding related contracts, to have the same vigilance regarding the extent of the risks covered by that insurance contract as he would if he had concluded that contract and the loan contracts separately".
Finally, the court concludes that, should the clause not fall within the "core terms" exception, the national court should also keep in mind that, where the wording of a contractual term is unclear, the interpretation most favourable to the consumer shall prevail. 

This decision, carefully analysed, brings to the surface the tension existing between unfair terms control as a remedy for specific cases of unfairness and the same tool as an instrument meant to more generally remove unfair terms from the market. Under the first approach, for instance, it makes sense to leave considerable leeway to the national court in assessing the term, to consider the complexity of the economic relationship and, most prominently, to refer to "promotional material and information provided by the insurance" in order to assess the term's transparency. If, on the other hand, unfair terms control must ensure that the market is cleared of unfair terms (which is, e.g., what the Court's case-law concerning the impossibility to reduce unfair terms suggests), although a certain degree of flexibility should be ensured for reasons of justice, incorporating all these factors significantly weakens the predictive- and therefore dissuasive- value of court precedents. 
As to the matter of interpretation recalled by the Court in its very last paragraph, it is unclear whether the sentence should be understood as a reminder for the case that the term is found as intransparent thus non-exempt, but not unfair- which would make it perfectly harmless- or as an indication as to how the term should be approached in view of assessing its fairness- which would open complications that are best left for a different discussion forum...

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