Insurance Contracts CP - Law Reform Commission

may be regarded as technical or unmeritorious grounds. While the Directive clearly applies to insurance
contracts and the Insurance Ombudsman of Ireland Scheme features instances where the Directive has
been considered in the course of adjudications, there are no United Kingdom or Irish court decisions that
fully consider how the Directive may play a part in resolving disputes involving allegations of procedural or
substantive unfairness. Indeed, the Law Commissions observe that the UK regulations transposing the
Directive, effective since July 1, 1995, ―appear to have had surprisingly little impact on the insurance
industry‖ 16 .
6.12 The paucity of case-law on how the Unfair Contract Terms Directive has impacted upon
insurance contractual practices might suggest that there are relatively few situations in which contract
clauses have the potential for creating unfair commercial practices, either on an individual or a systemic
basis. An alternative view may be that the Directive has deterred insurers from using clauses that, at the
very least, fall foul of the indicative and non-exhaustive ―grey‖ list in the Directive itself. The limited
perusal of some 6 property insurance policies undertaken by the Commission, however suggests that
several potentially unfair terms continue to be in standard use by insurers in Ireland.
6.13 A more likely explanation for the underwhelming impact that the 1993 Directive has had on UK
and Irish contractual drafting lies in both the generic nature of the Directive itself, the lack of clarity that
several key provisions in the Directive possess (specifically in an insurance context), as well as
uncertainty over the relationship between the procedural and substantive aspects of unfairness.
6.14 Because the Directive applies to consumer contracts generally, Member States were not
expected to contextualise the requirements of the Directive in national transposing legislation on a
sectoral basis. Both the United Kingdom and Ireland transposed the Directive by way of Statutory
Instrument 17 without the benefit of the recitals, useful in this context insofar as the recitals provide
guidance on the extent to which the Judicial Review mechanism contained in the Directive is applicable to
consumer insurance 18 . While a court would of course resort to the full text of the Directive, it is a common
complaint 19 that the bare transposition of a Directive, shorn of the useful interpretive assistance to be
gleaned from recitals, is hardly a satisfactory legislative process, especially in consumer protection law.
6.15 The Directive itself provides assistance on interpreting what provisions in an insurance contract
are, and are not, likely to be subject to judicial scrutiny under the Directive, recital 19 fleshes out the
distinction between (non-reviewable) core terms and reviewable terms under the Directive.
For the purposes of this Directive, assessment of unfair character shall not be made of terms
which describe the main subject matter of the contract nor the quality/price ratio of the goods or
services supplied… It follows, inter alia, that in insurance contracts, the terms which clearly
define or circumscribe the insured risk and the insurer‘s liability shall not be subject to such
assessment since these restrictions are taken into account in calculating the premium paid by
the consumer.
6.16 This recital suggests that terms that relating to the premium to be charged – the price – are
exempt from scrutiny on the basis that such a term relates ―to the definition of the main subject matter of
the contract‖, to quote from Article 4(2) of the Directive itself. Therefore, it is certainly arguable (and
MacGillivray 20 appears to take this position) that exclusions and warranties, provisions which both define
and circumscribe a risk, and which will play an important part in determining the premium, are exempt
from scrutiny. Certainly, the Law Commissions did not dissent from the view that recital 19 and article
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Joint Consultation Paper, para. 2.106. The only case referred to is Bankers Insurance Co v South [2003]
EWHC 380 (Comm), a travel insurance case. There has been one more recent English case, Direct Line
Insurance v Fox [2010] Lloyd‘s Rep IR 324.
In Ireland see S.I. No. 27 of 1995. In the UK see S.I. 1994/3159, replaced by S.I. 1999/2083.
Particularly recital 19.
See White, Commercial Law (Round Hall 2002) and ‗Consumer Sale and Associated Guarantees‘ (2000) 7
CLP3.
11 th edition, paras 10-020 and 11-036.
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