An insurance contract must set out in transparent, plain and intelligible language all its terms and conditions so that consumers can clearly infer the economic consequences which derive from it, the Court of Justice of the European Union (CJEU) recently affirmed.
The EU’s Unfair Terms in Consumer Contracts directive provides that consumers are not bound by unfair clauses that are set out in a contract concluded with a seller or supplier. Contract terms must be drafted in plain and intelligible language and any unclear contractual provisions will always be interpreted in favour of the consumer. However, this same law also provides that terms relating to the subject-matter of the contract as well as those relating to the relationship between price and the service/goods to be provided, cannot be taken into account in assessing the unfair nature of the contract provided that they are drafted in plain, intelligible language which the consumer can easily understand.
The facts of this case which came before the CJEU were briefly as follows. Van Hove concluded two loan agreements with a bank and simultaneously entered into a group insurance contract with an insurance company. The insurance contract guaranteed, in particular, 75 per cent cover of the loan repayments in the event of total incapacity for work. Following an accident at work, Van Hove was found to have a permanent partial incapacity rate of 72 per cent in accordance with French social security law. The doctor appointed by the insurance company concluded that though Van Hove was no longer fit to return to his former employment, he was still capable of working on a part-time basis in suitable employment. The insurance company therefore refused to cover the loan repayments despite Van Hove’s incapacity.
Van Hove filed legal proceedings against the insurance company alleging that the terms of the insurance contract relating to the definition of total incapacity for work and the conditions under which repayments were covered by insurance were unfair. He maintained that the term relating to total incapacity for work caused a significant imbalance to his detriment, since its definition was worded in such a way as to be unintelligible to a lay consumer. The insurance company rebutted that the term at issue could not be said to constitute an unfair term because it concerned the very subject-matter of the contract. It further contended that the definition of total incapacity for work was clear and precise.
The French court seized of the dispute made a preliminary reference to the CJEU requesting guidance as to whether the contract terms in question could be considered as unfair.
The European Court affirmed that, in insurance contracts, terms which clearly define or circumscribe the insured risk and the insurer’s liability cannot be subject to an assessment of unfairness or otherwise. This is so since these terms concern the very subject-matter of the contract and any restrictions are taken into account when calculating the premium paid by the consumer. The Court concluded that this could be said to be the case of the disputed terms since the contested terms defined the insured risk and the insurer’s liability while laying down the essential obligations of the insurance contract.
However, the CJEU then continued to maintain that the legal requirement of transparency must be interpreted broadly. It ruled that in the absence of a clear explanation as to how the insurance cover in relation to the loan re-payments would work out, Van Hove was not in a position to evaluate, on the basis of precise, intelligible criteria, the economic consequences which derived from his insurance contract. The fact that the insurance contract was part and parcel of the same contractual framework whereby the loans were taken out was also an important factor which had to be taken into consideration. A consumer cannot be expected to exercise the same vigilance in relation to the extent of the risks covered by the insurance contract as he would were the insurance and the loan contracts concluded separately, the Court ruled. The assessment of the actual unfairness or otherwise of the terms at dispute was then left in the hands of the national court.
Traders and service providers must tread carefully in their dealings with consumers and ensure the utmost compliance with the EU’s consumer acquis. As this judgment goes to show, the European Court is more than often inclined to adopt an interpretation of consumer laws which militates in favour of protecting the consumer.
mariosa@vellacardona.com
Mariosa Vella Cardona is a freelance legal consultant specialising in European law, competition law, consumer law and intellectual property law.