Insurance Contracts CP - Law Reform Commission

The ―transparency requirements‖ mentioned in the draft Directive are found in Article 31 53 , and the
general principles 54 outlined in article 32 of the draft Directive are not to apply ―to the assessment of the
main subject matter of the contract provided the trader fully complies with Article 31‖ 55 .
6.44 This reformulation helpfully states that core provisions are immune from review if transparency
requirements are met. To purchase immunity the insurer must meet both the reasonable expectations of
the purchaser and communicate the essential features of the policy to the purchaser. The Commission
does not think this is too onerous and the Commission believes that this is in accordance with good
insurance practice, as well as the Ombudsman jurisprudence since 1992 to date. The adoption of Article
2:304 would, in the Commission‘s view, be an important step and the Commission would so provisionally
recommend.
6.45 However, the Commission suggest that the refinements should be adopted. First of all, the
Commission would favour the approach taken in Germany and elsewhere, which narrows down the scope
of the exclusion to terms which describe the insured risk and the premium paid. In other words, a
description of a policy as a ―guaranteed income protection policy‖, or a ―domestic fire insurance policy‖, as
well as the premium to be charged, would be immune from scrutiny. The Commission does not think this
will have a significant impact 56 but views on this from the industry are invited. Secondly, the Commission
would welcome an adjustment to Article 2:304(3) (b) so as to add that the terms ―have been clearly
communicated to the policyholder‖. This is implicit as a result of the fourth indent to Schedule 2,
Guidelines for the Application of the Test of Good Faith 57 , but in the Commission‘s view this requirement
should be overtly stated, for the avoidance of doubt.
6.46 The Commission provisionally recommends that Regulation 4 of the European Communities
(Unfair Terms in Consumer Contracts) Regulations 1995 (which deals with specific circumstances in
which a contract term shall not of itself be considered to be unfair) should be clarified in the context of
insurance contracts so that it is provided, to avoid any doubt, that: (a) a term in an insurance contract
shall not in itself be regard as unfair where the subject matter of the term has actually been considered by
the insurer in the calculation of the premium (price); (b) that this has been drawn to the attention of the
proposer; and (c) that this clarification to Regulation 4 should apply to consumers as defined for the
purposes of the jurisdiction of the Financial Service Ombudsman, namely natural persons and businesses
with an annual turnover not exceeding €3 million.
(10) Enforcement
6.47 The most important feature of Directive 93/13/EC is the fact that it is not merely a private law
mechanism. The role that national consumer regulators play in having terms declared unfair is a critical
part of effective enforcement. A declaration that a particular term is unfair has an effect that goes beyond
the ambit of individual private law adjudication 58 . As the Commission recommend that Article 2:304
should be available to small businesses, this raises the question about which State agency should be
able to utilise enforcement powers if, as the Commission believe, the same enforcement mechanism be
available to consumer insureds under the Directive. The Commission provisionally recommend that the
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Draft Article 32(1) is the good faith/significant imbalance provision currently found in S.I. 27/1995.
Draft Article 32(2) sets out the assessment process for the competent national authority, currently found in SI
27/1995.
Draft Article 32(3). Unfortunately for our purposes these provisions were deleted from the Consumer Rights
Directive (Directive 2011/83/EU, 25 October 2011)
Article 2:304(3)(b)arguably already does this.
―The extent to which the seller or supplier has dealt fairly or equitably with the consumer whose legitimate
interests he has to take into account‖. See also Schedule 3(j) (hidden terms) the list of unfair terms which are
presumptively unfair: SI 27 of 1995.
See Bright, ‖Winning the Battle against Unfair Terms‖ (2000) 20 LS 331; See the High Court Order in relation
to the Building industry of December 5, 2001, discussed by Dorgan [2002] Law Society Gazette 12, and the NI
Case of Kindlance v Murphy (1997) discussed by Bright, op cit..
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