CELEX: 62010CJ0082
Failure of a Member State to fulfil obligations
Directive 73/239/EEC
Articles 6, 8, 9, 13 and 15 to 17
Directive 92/49/EEC
Articles 22 and 23
Direct insurance other than life assurance
Amendment of statutes of an insurance body as regards its capacity
Non-application of the European Union insurance legislation in respect of insurance other than life assurance

By its application, the Commission requests the Court to declare that, by failing to apply to all insurance undertakings,
on a non-discriminatory basis, the European Union insurance legislation in its entirety and particularly Articles 6, 8, 9,
13 and 15 to 17 of the First Council Directive 73/239/EEC of 24 July 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 (OJ 1973 L
228, p. 3), as amended by Directive 2005/68/EC of the European Parliament and of the Council of 16 November 2005 (OJ 2005
L 323, p.1, ‘the First Directive’) and Articles 22 and 23 of Council Directive 92/49/EEC of 18 June 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) (OJ 1992 L 228, p. 1), as amended by Directive 2005/68 (‘the
Third Directive’), the Republic of Ireland has failed to fulfil its obligations under those directives.

Legal context

European Union legislation
The insurance sector has been the subject of coordination at European Union level and, as regards insurance other than life
assurance, the basic legal act is the First Directive. That directive has been amended and supplemented, in particular by
the Second Council Directive 88/357/EEC of 22 June 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 (OJ 1988 L 172, p. 1) and by the Third Directive, so as to create
a common legal framework for the pursuit of insurance business within the European Union.
The First Directive
The fourth recital of the First Directive states that ‘it is desirable to exclude from the application of this Directive mutual
associations which, by virtue of their legal status, fulfil appropriate conditions as to security and financial guarantees’
and that ‘it is further desirable to exclude certain institutions in several Member States whose business covers a very limited
sector only and is restricted by law to a specified territory or to specified persons’.
Article 4 of the First Directive provides:
‘This Directive shall not apply to the following institutions unless their statutes or the law are amended as regards capacity:
…
c)      in Ireland
Voluntary Health Insurance Board [“the VHI”]’.
Article 6 of the First Directive provides that the taking up of direct insurance business is to be subject to prior official
authorisation.
Under Article 8 of the First Directive, insurance undertakings that seek authorisation must adopt one of the legal forms provided,
limit their business activities to the business of insurance and operations directly arising therefrom to the exclusion of
all other commercial business, submit a scheme of operations to the supervisory authority, furnish the proof that it has the
minimum guarantee fund set out in Article 17(2) of that directive and be effectively managed by persons who fulfil the required
conditions regarding repute and professional qualifications or experience. Article 9 of that directive states that the particulars
or proof that must appear in the scheme of operations referred to in Article 8 thereof must relate to the items constituting
the minimum guarantee fund.
Under Articles 13, 15, 16 and 17 of the First Directive, insurance undertakings are subject to financial supervision by their
Member State of origin, which must require that they have sound administrative and accounting procedures and adequate internal
control mechanisms and ensure that they establish sufficient technical provisions in respect of their entire business and
have, at all times, an adequate available solvency margin in relation to all of that business for which, in principle, a third
party must constitute the minimum guarantee fund set out in Article 8 of that directive.
The Third Directive
Article 2(2) of the Third Directive provides that that directive is to apply ‘neither to the types of insurance or operations,
nor to undertakings or institutions to which Directive 73/239/EEC does not apply, nor to the bodies referred to in Article
4 of that Directive’.
Article 3 of the Third Directive provides that ‘[n]otwithstanding Article 2 (2), Member States shall take every step to ensure
that monopolies in respect of the taking up of the business of certain classes of insurance, granted to bodies established
within their territories and referred to in Article 4 of Directive 73/239/EEC, are abolished by 1 July 1994’.
Article 22 of the Third Directive lays down certain conditions relating to investment, by insurance undertakings, of assets
covering their technical provisions and their equalisation reserves.
Article 23 of the Third Directive provides additional clarification on the extent to which non-matching assets can be held
by insurance undertakings.

National legislation
The VHI was established and regulated by the Voluntary Health Insurance Act of 1957 (‘the 1957 Act’). That Act was amended
on several occasions in 1996, 1998, 2001 and 2008.
Under Section 4(1) of the 1957 Act, the VHI was to ‘make and carry out a scheme of voluntary health insurance for defraying,
to such extent as the Minister may from time to time specify, the cost to persons paying subscriptions to the [VHI] in respect
thereof, and to dependants of such persons, of such medical, surgical, hospital and other health services as the Minister
[for Health] may from time to time specify.’
The Voluntary Health Insurance (Amendment) Act of 1996 (‘the 1996 Act’) invested the VHI with an additional statutory power
to make and carry out ‘health-related’ insurance schemes.
Under Section 2 of the 1996 Act a health-related insurance scheme means:
‘a scheme of voluntary insurance the purpose of which is to provide for either or both of the following, that is to say:
i)      the making of payments by the [VHI] to persons in respect of sickness, injury or disease of amounts that are either specified
in the scheme or calculated in such manner and by reference to such matters as may be so specified;
ii)      the procurement by the [VHI] of the provision of health services to persons either without charge to them by the health service
providers concerned or upon payment by them to such providers of part of the cost of the services, in consideration of the
payment by or on behalf of the persons to the [VHI] of subscriptions, premiums or other charges, or
a scheme for the procurement by the [VHI] of the provision to persons of services related to the prevention of sickness or
disease either without charge to them by the providers of the services or upon payment by them to such providers of part of
the cost of the services in consideration of the payment by or on behalf of the persons to the [VHI], of subscriptions, premiums
or other charges.’.
Section 1 of the Voluntary Health Insurance (Amendment) Act 1998 empowers the VHI to ‘act as agent for an insurer in respect
of the provision of insurance cover pursuant to an international healthcare plan’.
Section 14 of the Health Insurance (Amendment) Act 2001 (‘the 2001 Act’) entitled ‘Additional powers of Voluntary Health Insurance
Board’ provides:
‘In addition to the powers conferred on it by the Voluntary Health Insurance Acts, 1957 to 1998, the [VHI] may, with the consent
of the Minister [for Health] and subject to such conditions as he or she considers appropriate and specifies in writing, carry
out a scheme for the provision of, or otherwise provide (whether as principal or as agent for another person) services in
respect of health care, health insurance, illness related insurance, personal care or related activities (including activities
of an advisory or consultative nature (and, in particular, activities involving the exploitation of information technology
or the provision of advice with respect to such exploitation)).’
Section 6 of the Voluntary Health Insurance (Amendment) Act 2008 (‘the 2008 Act’), which entered into force on 5 June 2008,
lays down, inter alia, a requirement for the VHI to meet the solvency requirements laid down by European Union legislation
before 31 December 2008.
Section 7 of the 2008 Act provides that, ‘on or after the date’ of its attaining authorisation, the VHI can carry out additional
functions such as operating medical facilities or providing pensions and financial services.
Section 10(1) of the 2008 Act provides for the establishment of a ‘subsidiary’ for the purposes of transferring to it ‘the
business of health insurance schemes and health-related insurance schemes carried out by the [VHI] pursuant to Section 2 of
[the 1996 Act].’

The pre-litigation procedure
On 25 January 2007, following a complaint, the Commission sent a letter of formal notice to Ireland, drawing the attention
of that Member State to the fact that the continuing exemption of the VHI from the application of European Union legislation
on direct insurance other than life assurance was contrary to the requirements of the First Directive, in spite of considerable
changes made to the capacity of that body since 1973.
In their reply dated 23rd February 2007, the Irish authorities maintained that it followed from Article 2(2) of the Third
Directive that the derogation under Article 4 of the First Directive continued to apply ‘notwithstanding any issue with regard
to alteration of capacity’ of the VHI and that, in any event, the various alterations made to the operations of the VHI by
the Acts of 1996, 1998 and 2001 had not materially affected its ‘capacity’
vis-à-vis
the situation under the system introduced by the 1957 Act. However, they confirmed that the Irish Government had agreed to
end the derogation and that various steps were under way to bring about the necessary changes.
Taking the view that the Irish authorities had not taken the measures necessary to ensure compliance with the requirements
of European Union legislation on direct insurance other than life assurance, including those concerning authorisation, financial
supervision, establishment of technical provisions and the solvency margin, the Commission sent a reasoned opinion to Ireland
on 14 November 2007, requesting that Member State to comply with that opinion within two months.
In its reply of 15 January 2008, Ireland maintained the arguments it had put forward in its reply to the letter of formal
notice and, by letter of 16 April 2008, sent the Commission a copy of the 2008 Act. By e-mail of 20 November 2008, it informed
the Commission that the VHI had submitted an application for authorisation to the Financial Regulator in June 2008.
In view of this further information, the Commission sent a complementary reasoned opinion to Ireland on 1 December 2008. In
that complementary reasoned opinion it was stated, inter alia, that although Section 6 the 2008 Act required the VHI to acquire
a guarantee fund, the Commission had received no information that the necessary fund had been acquired, nor as to the result
of the VHI’s request for authorisation. In those circumstances, the Commission concluded that Ireland had not yet complied
with its obligation to ensure that the VHI was fully subject to the requirements of the First and Third Directives.
In their reply dated 26 January 2009, the Irish authorities stated that, by adopting the 2008 Act, they had taken the necessary
legislative measures to ensure compliance with European Union legislation on direct insurance other than life assurance and
that they had demonstrated the necessary will to implement those measures. They stated that the VHI had submitted the application
for authorisation to the Financial Regulator in June 2008 on the basis of financial projections showing attainment of the
required solvency levels by the end of 2008, but that two subsequent events prevented the implementation of these projections,
namely a judgment of the Supreme Court of 16 July 2008 concerning a proposed risk equalisation scheme and the collapse in
the financial markets. Those authorities also reiterated that Ireland had ‘given a commitment to ending the derogation of
the VHI and it is fulfilling that commitment’
The Commission submits, however, that in spite of the advances made by Ireland on this issue, the VHI continues to carry out
all its business activities without having received authorisation from the Financial Regulator.
In those circumstances, the Commission decided to bring the present action.

The action

The derogation under Article 4 of the First Directive
Arguments of the parties
The Commission submits that it is clear from Article 4 of the First Directive, read in conjunction with the fourth recital
thereof, that the legislature of the European Union envisaged only a limited exemption to the general regime set up by that
directive, based on clearly defined and specific circumstances existing at the time when it was adopted.
The Commission also considers that Article 2(2) of the Third Directive simply carried over the derogation set out in Article
4 of the First Directive, independently of the new obligation laid down in Article 3 of the Third Directive which seeks to
end the monopoly status of such bodies.
With regard to the definition of the term ‘capacity’, appearing at the beginning of Article 4 of the First Directive, which
is translated as ‘
compétence
’ in the French version of the directive, the Commission considers that, in this context, the concept of ‘capacity’ of an
institution should be understood in functional terms, with regard to the activities which it is entitled to pursue under national
law, rather than in organisational terms.
According to the Commission, under Article 4 of the First Directive, any amendment which expands a relevant institution’s
capacity beyond that existing at the time the derogation was granted will bring that derogation to an end.
The Commission accordingly considers that the precise nature of any amendment to capacity is immaterial for the purposes of
assessing whether the derogation should be continued. In particular, it considers that it is of no legal relevance whether
or not the various amendments to the 1957 Act have affected the VHI’s capacity to a ‘material’ extent or changed its ‘principal
functions’.
However, the Commission stresses that, in any event, the amendment resulting from the 1996 Act allowing the VHI to carry out
‘health-related’ insurance schemes, and the amendment resulting from the 2001 Act allowing the VHI to provide additional services,
constitute material and substantial changes to the capacity of that body.
In its defence, Ireland argues first, in relation to the interpretation of the concept of ‘capacity’, that the legislature
of the European Union did not intend that a rule as important as the derogation set out in Article 4 of the First Directive
should cease to have effect by reason of incidental or minor changes in the VHI’s statutes or in Irish legislation.
In this regard, according to that Member State, that concept should be understood as a reference to ‘basic jurisdiction’ or
‘objects’ and not, as the Commission suggests, to a concept interpreted to mean that any changes to the VHI’s powers would
cause the Article 4 derogation to be lost.
Second, Ireland contends that it follows from Article 2(2) of the Third Directive that it operates as a continuing derogation
from the application of the provisions of that directive to the VHI, independently of any alteration of its statutes as regards
its capacity, as the status of the institutions concerned as state monopolies forms the basis for the derogation provided.
Third, Ireland draws attention to the changes which have been made to the legal framework of the VHI, contending that in reality
there is no material difference between the nature of the business carried on by that body now and at the time when the derogation
was introduced, that is, business related to private health insurance and operations directly arising therefrom.
Fourth, that Member State claims that, with the enactment of the 2008 Act, which was communicated to the Commission, it has
brought its legislation into line with that required by the directives concerning direct insurance other than life assurance.
That Act will end the VHI derogation and that organisation will be subject to the standard regulatory framework which applies
to all other private health insurance operators in the Irish market. That commitment to make such a change derives not from
any legal imperative but is, it is argued, a matter of national policy.
In its rejoinder, Ireland notes that, in relation to the idea of ‘capacity’, the Commission refers to the interpretation it
recommends as ‘functional’ but it has not addressed the central tenet of the defence on this point, namely that the term was
directed to the monopolistic nature of the bodies specifically mentioned in the First Directive.
Findings of the Court
It must first be noted that, as is apparent from the second recital in its preamble, the First Directive is intended to facilitate
the taking-up and pursuit of direct insurance other than life insurance by removing variations between national laws on controls
and by coordinating, in particular, legal provisions on the financial guarantees required of the insurance undertakings.
Since the First Directive came into force, the sector concerning direct insurance other than life insurance has been governed
by regulations that, inter alia, require the insurance undertakings concerned to obtain prior official authorisation (Article
6 of the First Directive) and, in order to obtain such authorisation, to meet various technical and prudential conditions,
related, in particular, to the form of the company and to the establishment of a guarantee fund (Article 8 of that directive),
as well as the required solvency margin (Articles 13 and 15 to 17 of that directive).
However, under Article 4 of the First Directive, unless their statutes are amended ‘as regards capacity’, a limited number
of insurance undertakings in each Member State have been exempted from the application of that regime. As is apparent from
the fourth recital in the preamble to the First Directive, this relates, in particular, to ‘certain institutions in several
Member States whose business covers a very limited sector only and is restricted by law to a specific territory or to specified
persons’.
It is clear from the very wording of those provisions that the derogation set out in Article 4 of the First Directive must
be strictly interpreted, as a derogation or exception to a general rule must be interpreted narrowly (see, by analogy, Case
C‑140/02
Anastasiou and Others
[2003] ECR I‑10635, paragraph 54; Case C‑337/06
Bayerischer Rundfunk and Others
[2007], ECR I‑11173, paragraph 64, and Case C‑111/09
ČPP Vienna Insurance Group
[2010] ECR I‑0000, paragraph 23).
That conclusion is corroborated by the preparatory work for the First Directive. Indeed, according to the text of Article
4, as worded in the Proposal for a First Council Directive 66/543/EEC of 17 June 1966 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
(Journal officiel 1966 175, p. 3056), the amendments of the statutes that triggered the application of the rules regarding,
in particular, obtaining prior official authorisation for exempted insurance companies, related to ‘territorial capacity’
and the ‘classes of insurance’ only.
The fact that the European Union legislature chose to use, in the final version of Article 4, the more general term ‘capacity’
without adding to it the adjective ‘territorial’ and without any reference to the amendments of the statutes ‘as to the classes
of insurance’ shows that it intended to limit the derogation more strictly than in the Proposal for a First Directive 66/543/EEC.
In view of the foregoing, the concept of ‘capacity’ set out in Article 4 of the First Directive should be interpreted as including
the essential functions or activities that were carried out by the bodies covered by that provision when that directive came
into force.
Consequently, in the light of the limited scope of that derogation, if the essential functions or activities carried out by
the bodies benefiting from that derogation, such as the VHI, were to be amended by adding new activities or functions that
did not come within the existing capacities of those bodies, that derogation should cease to be applicable.
In order to verify whether such amendments have been made in Ireland, the various Acts relating to the VHI, enacted in Ireland
since the First Directive entered into force, should be analysed.
In this regard, it should be pointed out that whereas, under the 1957 Act, the VHI was to ‘make and carry out a scheme of
voluntary health insurance for defraying … the cost to [insured persons in respect of] medical, surgical, hospital and other
health services’, the fact remains that that body obtained, under the 1996 Act, the right to provide other ‘health-related’
services and, under the Voluntary Health Insurance (Amendment) 1998 Act, the power to act ‘as agent for an insurer in respect
of the provision of insurance cover pursuant to an international healthcare plan’. Under the 2001 Act, using the ‘additional
powers’ granted to it, it obtained the right to carry out, inter alia, ‘activities of an advisory or consultative nature’.
Ireland does not dispute the existence of those successive amendments to the statutes of the VHI, but it contends that they
are still related to the original basic activity, namely, voluntary health insurance. Furthermore, the additional activities
carried out by the VHI following those amendments are of minor importance compared to the principal activity, which has remained
the same since 1957, as the income generated by the VHI from all ancillary activities in 2009, for example, amounted to 1.3%
of total revenues.
However, given that, at the very least, the power of the VHI to act as an agent on behalf of another insurer under an international
healthcare plan or the right to carry out advisory activities go beyond the basic activities that it was authorised to carry
out on the basis of the 1957 Act, it must be held that Ireland’s line of argument cannot be accepted, irrespective of the
financial significance of those new activities with regard to the entire revenue of that body, as no provision is made for
this criterion in the First Directive.
Accordingly, in the circumstances of this case and in view of the conclusions drawn in paragraphs 47 and 48 of the present
judgment, amendments such as those to the statutes of the VHI under the 1996 Act are such as to substantially change the statutes
of that body with regard to its capacity within the meaning of Article 4 of the First Directive and, consequently, to result
in loss of the benefit of the derogation set out in that provision in favour of the VHI.
That conclusion remains valid in the context of the Third Directive, the scope of which coincides with that of the First Directive.
Thus, with regard to the relationship between Articles 2(2) and Article 3 of the Third Directive, it should be stated that
Article 2 maintains the condition concerning amendment of the statutes with regard to the capacity set out in Article 4 of
the First Directive, as it provides that the Third Directive ‘shall [not] apply … to the bodies referred to in Article 4 of
[the First Directive]’ and that the aim of Article 3, ‘notwithstanding Article 2(2)’, is merely to ensure that Member States
abolish the monopolies granted to the bodies referred to in that Article 4 by 1 July 1994.
The same conclusion can be drawn from the preparatory work for the Third Directive, showing that the scope of that directive
coincides with that of the First Directive and that, inter alia, ‘bodies governed by public law enjoying a monopoly of the
insurance of certain risks (Articles 2 to 4 of the First Directive)’ were excluded from the scope of the proposal for a Third
Council Directive of 27 July 1990 on the coordination of laws, regulations and administrative provisions relating to direct
insurance other than life assurance and amending Directives 73/239 and 88/357 (OJ 1990 C 244, p. 28).
Finally, with regard to the argument advanced by Ireland, concerning the advanced stage of the work undertaken internally
for the VHI to obtain official authorisation, it is sufficient to point out that it is settled case-law that the question
whether a Member State has failed to fulfil its obligations must be determined by reference to the situation obtaining in
the Member State at the end of the period laid down in the reasoned opinion and that the Court cannot take account of any
subsequent changes (see, in particular, Case C‑296/01
Commission
v
France
[2003] ECR I‑13909, paragraph 43, and Case C‑297/08
Commission
v
Italy
[2010] ECR I‑0000, paragraph 79).
In that regard, the justifications invoked by Ireland, according to which the delay in the implementation of the 2008 Act,
which will end the derogation concerning the VHI, is due to internal difficulties, cannot be upheld. As the Court has repeatedly
held, a Member State cannot plead provisions, practices or situations prevailing in its domestic legal order to justify failure
to observe obligations arising under European Union law (see, inter alia, Case C‑568/07
Commission
v
Greece
[2009] ECR I‑4505, paragraph 50).
Consequently, it must be pointed out that, by failing to apply to all insurance undertakings, on a non-discriminatory basis,
the European Union insurance legislation in its entirety and particularly Articles 6, 8, 9, 13 and 15 to 17 of the First Directive
and Articles 22 and 23 of the Third Directive, Ireland has failed to fulfil its obligations under those directives.

Limitation in time of the present judgment
In its written observations and at the hearing, Ireland requested that, should the Court uphold the Commission’s action, the
effects of the judgment should be subject to temporal limitation ‘in order to allow for the implementation of any changes
in an efficient manner’. That temporal limitation of the effects of the judgment is justified, first, by the fact that that
Member State acted in good faith in adopting the 2008 Act and, second, by the risk of serious difficulties which the Court’s
judgment could give rise to.
In this case, Ireland contends that the VHI insures about 1.4 million people, has more than 60% of the total private health
insurance market and incurs over 80% of the total claims costs which, for the year 2010, was likely to be of the order of
EUR 1.7 billion. That Member State stresses the difficulties and the risks that would be generated, with regard to the proper
functioning of the VHI and the stability of the private health insurance market, by a judgment finding a failure to fulfil
obligations. It also argues that the collapse in the financial markets prevented the application of the 2008 Act, which was
intended to bring the VHI system into line with European Union law.
The Commission observes that the condition relating to the risk of serious difficulties does not appear to have been met in
this case and adds that the financial consequences which might ensue for a Member State as a result of a ruling of the Court
do not in themselves justify limiting the temporal effects of that ruling.
According to the settled case-law of the Court, even if judgments delivered under Article 258 TFEU were to have the same effects
as those delivered under Article 267 TFEU and considerations of legal certainty might make it necessary, exceptionally, to
limit their temporal effects, provided that the conditions laid down by the Court’s case-law in the context of Article 267
TFEU are met (see, to that effect, Case C‑178/05
Commission
v
Greece
[2007] ECR I‑4185, paragraph 67; Case C‑239/06
Commission
v
Italy
[2009] ECR I‑11913, paragraph 59; Case C‑284/05
Commission
v
Finland
[2009] ECR I‑11705, paragraph 58, and Case C‑387/05
Commission
v
Italy
[2009] ECR I‑11831, paragraph 59) those conditions do not appear to have been satisfied in the present case.
In particular and in any event, that Member State has not demonstrated that the constitution of the guarantee fund and the
measures necessary to comply with the solvency margin, given the amounts involved, would have serious economic consequences
or that the finding of this failure to fulfil obligations, by possibly calling into question legal relations established in
good faith, would have a disproportionate effect on the functioning of the private health insurance market.
Accordingly, there is no need to limit the temporal effect of this judgment.

Costs
Under Article 69(2) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been
applied for in the successful party’s pleadings. Since the Commission has applied for costs and Ireland has been unsuccessful,
the latter must be ordered to pay the costs.
On those grounds, the Court (Fourth Chamber) hereby rules and declares:
1.
By failing to apply to all insurance undertakings, on a non-discriminatory basis, the European Union insurance legislation
in its entirety and particularly Articles 6, 8, 9, 13 and 15 to 17 of the First Council Directive 73/239/EEC of 24 July 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, as amended by Directive 2005/68/EC of the European Parliament and of the Council
of 16 November 2005 and Articles 22 and 23 of Council Directive 92/49/EEC of 18 June 1992 on the coordination of laws, regulations
and administrative provisions relating to direct insurance other than life assurance and amending Directives 73/239 and 88/357/EEC
(third non-life insurance Directive), as amended by Directive 2005/68, Ireland has failed to fulfil its obligations under
those directives.
2.
Ireland shall pay the costs.
[Signatures]
*
Language of the case: English.