DRAFT COMMISSION INTERPRETATIVE COMMUNICATION FREEDOM TO PROVIDE SERVICES AND THE GENERAL GOOD IN THE INSURANCE SECTOR (97/C 365/04)

(Text with EEA relevance)

The third Council Directives 92/49/EEC and 92/96/EEC (1) completed the establishment of the single market in the insurance sector. They introduced a single system for the authorization and financial supervision of the insurance undertaking by the Member State in which it has its head office (the home Member State). Such authorization issued by the home Member State enables the insurance undertaking to carry on its insurance business anywhere in the European Community, either under the rules on establishment, i.e. by opening agencies or branches in all the Member States, or under the rules on the freedom to provide services. Where it carries on business in another Member State, the insurance undertaking must comply with the conditions in which, for reasons of the general good, such business must be conducted in the host Member State. Under the system set up by the Directives, the financial supervision of the business carried on by the insurance undertaking, including business carried on under the rules on establishment or on the freedom to provide services, is always a matter only for that insurance undertaking's home Member State.

In the course of its contacts with numerous economic agents, the Commission has come to realize that the continuing uncertainty surrounding the interpretation of the basic concepts of freedom to provide services and the general good seriously undermines the workings of the machinery set up by the third Directives on the coordination of insurance and is likely to deter certain insurance undertakings from exercising the freedoms created by the Treaty which the third Directives set out to promote and, hence, to restrict the free movement of insurance services in the Union.

This draft communication is the Commission's contribution to the discussions under way on the problems associated in the insurance industry with the freedom to provide services (Part I) and the general good (Part II), in the light in particular of the third Council Directives on insurance (92/49/EEC and 92/96/EEC).

To date, these discussions have been restricted to the Member States, particularly within the framework of the Insurance Committee and the sub-group on the interpretation of insurance directives.

The Commission now takes the view that the broadest possible consultations should be held on its interpretative work and, accordingly, it invites all interested parties to submit their comments on this draft communication within four months of its being published in the Official Journal of the European Communities.

Comments should be sent in writing to the following address:

European Commission

Directorate-General XV, Unit C-2

Rue de la Loi/Wetstraat 200

B-1049 Brussels

Fax: (32 2) 295 65 00

Internet address: john.mogg@dg15.cec.be

In the light of the contributions received, the draft will, if necessary, be transformed into a Commission interpretative communication, which will enable economic agents and the Member States to determine the stance that the Commission would be likely to adopt in the event of a particular problem being brought to its attention.

The Commission deems it desirable to draw attention to and to systematize the principles governing the rights of establishment and the freedom to provide services, as elucidated by the Court of Justice, and to consider how they apply to the third Insurance Directives. This interpretation is based on the provisions of the Treaty, the texts of the Community Insurance Directives and on the decisions of the Court of Justice, which has set out a large number of principles essential to the observance of the freedom of establishment and the freedom to provide services (2).

In publishing this interpretative communication, the Commission is seeking to make transparent and to clarify the common rules which it is its task to see and be observed. It is supplying all those concerned, national administrations, economic agents and consumers, with a reference tool which explains the Commission's opinion with regard to the legal framework in which insurance business may be carried on.

The interpretations and ideas set out in this draft communication, which concern only the specific problems of the insurance sector (3), do not claim to cover all possible situations, but merely the most frequent or most likely.

They do not necessarily represent the often very divergent views put forward by the Member States and should not, in themselves, impose any new obligation on them.

It goes without saying that the Commission's interpretations do not prejudge the interpretation that the Court, which is responsible in the final instance for interpreting the Treaty and secondary legislation, might place on the matters at issue.

It should be explained straightaway that the interpretations contained in this draft communication do not affect the Commission's subsequent interpretations of the principles of establishment and freedom to provide services with regard to the development of communication technology and its use in the insurance business. Community policy on the information society is designed to promote the expansion of information society services and their movement between the Member States, especially electronic commerce (4). Clearly, with the development of the information society, use of the opportunities afforded by new technology for the performance of insurance and financial business should become very important and should eventually change the machinery for distributing insurance products in the Community.

The current legal framework for the single market in insurance is based on machinery where consideration has not yet been given to how to use this new technology for carrying out insurance business in the single market.

The initiatives which the Commission has just launched on electronic commerce (5) and the work carried out in the Insurance Committee on the implications of electronic commerce technology for insurance will provide new elements which will have to be taken into account in the interpretation of the Insurance Directives. The Commission considers, therefore, that the evolution of this technology could lead it later to alter its interpretation or issue a supplementary interpretation.

PART I

I. DEMARCATION BETWEEN THE RIGHT OF ESTABLISHMENT AND THE FREEDOM TO PROVIDE SERVICES (6)

1. Freedom to provide services

(a) Temporary nature

Article 59 et seq. of the Treaty establish the principle of the free movement of services. The principle acquired direct, unconditional effect on the expiry of the transitional period (7).

It should be noted that, according to the decisions of the Court of Justice, the freedom to provide services may involve the movement of the provider of the service, as envisaged in the third paragraph of Article 60 of the Treaty, or the movement of the recipient of the service within the Member State of the provider; the service may, however, also be carried out without any movement, either of the supplier or of the recipient (8).

Where a business is carried on under the freedom to provide services with the provider present on the territory of the Member State of provision, the concept of the provision of services is basically distinguished from that of establishment by its temporary character, while the right of establishment presupposes a lasting presence in the host country.

The distinction stems from the Treaty itself, where the third paragraph of Article 60 stipulates that a person providing a sercice may, in order to do so, 'temporarily` pursue his activity in the State where the service is provided.

According to the most recent case-law of the Court of Justice, the temporary nature of the provision of services is to be determined in the light of its duration, regularity, periodicity and continuity (9).

(b) Prohibition of circumvention

The Court has acknowledged that a Member State is entitled to take steps to prevent a service provider whose activity is entirely or mainly directed towards its territory from exercising the freedom enshrined in Article 59 of the Treaty in order to circumvent the rules of professional conduct which would be applicable to him if he were established in that State (10). It adds that such a situation may fall within the ambit of the chapter on the right of establishment and not of that on the freedom to provide services (11).

The criterion of frequency is important in order to determine whether there may be an attempt at 'circumvention` while using the right conferred pursuant to Article 59, but it is not suffient to define the service provided (an establishment may also operate on an occasional basis).

However, this reasoning is valid only for those forms of provision of services which involve movement by the service provider towards the Member State of provision, as referred to in the third paragraph of Article 60 of the Treaty.

Thus, a situation where an insurance undertaking is constantly being approached within its territory by consumers residing in other Member States could not be regarded as a circumvention. In such a case there would be no intention on the part of the provider of services to carry out such a circumvention.

2. Right of establishment

If an undertaking maintains a permanent presence in the Member State where it carries on its business, it is covered in principle by the provisions of the Treaty on the right of establishment. The Court has held that:

'. . . a national of a Member State who pursues a professional activity on a stable and continuous basis in another Member State where he holds himself out from an established professional base to, amongst others, nationals of that State comes under the chapter relating to the right of establishment and not the chapter relating to services` (12).

In Commission v. Germany of 4 December 1986 (13) the Court held that:

'. . . an insurance undertaking of another Member State which maintains a permanent presence in the Member State in question comes within the scope of the provisions of the Treaty on the right of establishment, even if that presence does not take the form of a branch or agency, but consists merely of an office managed by the undertaking's own staff or by a person who is independent but authorized to act on a permanent basis for the undertaking, as will be the case with an agency`.

The Court has therefore acknowledged that, in principle, an undertaking which has recourse to an intermediary on the territory of another Member State on a permanent basis to carry on activities in that Member State may lose the benefit of the feedom to provide services and come under the right of establishment. The Court has sought thereby to avoid the freedom to provide services being used abusively in order to circumvent the rules that would apply in the host Member State if the undertaking were established there (14).

This risk of abuse has nevertheless been eliminated in the insurance sector as a result of the harmonization achieved since the above judgment by the Community Directives concerning the conditions for taking up and carrying on insurance activities. The prudential and supervisory rules for insurance undertakings are equivalent, whichever way insurance activities are carried out: by way of establishment or through the provision of services.

With regard to the insurance sector, the Community Directives, which are based on the Court's judgment in Commission v. Germany, treat in the same way as an agency or branch of an insurance undertaking 'any permanent presence of an undertaking in the territory of a Member State, even if that presence does not take the form of a branch or agency, but consists merely of an office managed by the undertaking's own staff or by a person who is independent but has permanent authority to act for the undertaking as an agency would` (15).

Nevertheless, in view of the most recent decisions of the Court of Justice (16) the Commission considers that the Member State of the provision of services may not rely on that judgment in order to assimilate any permanent presence of the provider of services on its territory to an establishment and subject it in any event to the rules relating to the right of establishment.

The Court of Justice recently acknowledged that the temporary character of the freedom to provide services does not mean that the provider may not equip himself with some form of infrastructure (chambers, office, etc.) in the host Member State in so far as it is necessary for the purposes of performing the services in question without coming under the right of establishment (17). The Court took the view that in such cases the temporary character of the services provided should be determined by reference to their duration, frequency, periodicity and continuity (18).

3. Grey area

It is not always easy to draw the line between the two concepts of provision of services and establishment. Some situation are difficult to classify, in particular where the insurer, in order to carry on its insurance business, uses a permanent infrastructure in the Member State of provision. This arises in particular in the following cases:

(a) recourse to independent intermediaries;

(b) permanent presence of the undertaking's own staff.

On the strength of the Court's case-law, the Commission departments propose the following interpretations:

(a) Recourse to independent intermediaries (19)

The problem is to define the arrangements applicable to an independent intermediary established in Member State A to whom insurance undertakings established in Member State B may have recourse in order to do business in Member State A, the conditions under which that independent intermediary may be regarded as himself exercising a permanent activity in that Member State and hence be assimilated to an establishment of the insurance undertaking in the host Member State, instead of as an insurance activity carried on under the rules on the freedom to provide services, and the resulting legal implications.

In De Bloos case of 6 October 1976 (20) the Court held that:

'One of the essential characteristics of the concepts of branch or agency is the fact of being subject to the direction and control of the parent body`.

In even more precise terms, in Somafer case of 22 November 1978 (21) the Court held that:

'The concept of branch, agency or other establishment implies a place of business which has the appearance of permanency, such as the extension of a parent body, has a management and is materially equipped to negotiate business with third parties, so that the latter, although knowing that there will if necessary be a legal link with the parent body, the nead office of which is abroad, do not have to deal directly with such a parent body but may transact business at the place of business constituting the extension`.

It concluded that a sole concessionaire not subject to the control and direction of a company could not be regarded as a branch, agency or establishment.

In Blanckaert and Willems case of 18 March 1981 (22) the Court held that:

'An independent commercial agent who merely negotiates business, inasmuch as his legal status leaves him basically free to arrange his own work and decide what proportion of his time to devote to the interests of the undertaking which he agrees to represent and whom that undertaking may not prevent from representing at the same time several firms competing in the same manufacturing or marketing sector, and who, moreover, merely transmits orders to the parent undertaking without being involved in either their terms or their execution, does not have the character of a branch, agency or other establishment . . .`.

Moreover, in his opinion in Shearson Lehman Hutton of 27 October 1992 (23) Mr Advocate-General Darmon stated that:

'The link of dependence vis-à-vis the company established in another signatory State (24) is not the determining criterion here. In our opinion, that criterion resides in the fact that the secondary establishment has the power to enter into contracts with third parties.

(24) The term 'signatory State` is used here because the case concerned the Brussels Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters.

`Lastly, in his report on the Brussels Convention, Mr Jenard notes that there is an agency or branch only 'where the foreign company is represented by a person capable of acting in a manner that is binding on it vis-à-vis third parties` (24).

On the basis of these precedents, the Commission considers that, for the links between an independent intermediary and an insurance undertaking to be regarded as meaning that the insurance undertaking falls within the scope of the arrangements governing an establishment, the intermediary must meet the following three cumulative conditions:

(i) the intermediary must be subject to the management and supervision of the insurance undertaking it represents,

(ii) it must be able to commit the insurance undertaking, and

(iii) it must have received a permanent brief.

It is, therefore, only where the intermediary acts as a genuine extension of the insurance undertaking that the insurance undertaking falls within the scope of the arrangements applicable to the establishment of a branch.

(i) The intermediary must be subject to the management and supervision of the insurance undertaking he represents

To verify if this criterion is met, a check should be made in particular to see whether, in the light of the links established between the insurance undertaking and the independent intermediary, the latter has sufficient freedom to organize his activities, to decide how much time he will devote to the insurance undertaking and, in particular, to represent competitors at the same time.

An exclusive brief received by an intermediary from a single insurer is an essential indication that the independent intermediary is subject to the direction and control of that insurer. It is nevertheless not uncommon in the insurance sector for intermediaries to represent several competing insurers at the same time. In most cases, such representation concerns different classes of insurance for different insurers.

Thus, in such cases, an intermediary who works for several insurers, only one of which has given him an exclusive brief, would be assimilated to a branch of that insurance undertaking to the extent that the brief subjects the intermediary to the direction and control of that insurer.

In any event, the remaining two conditions mentioned should also be satisfied in order for the intermediary to be assimilated to a branch of an insurance undertaking in the host Member State and for the activities of that insurer to be covered by the rules on establishment.

The above considerations apply irrespective of whether the intermediary is a natural person or a legal person.

(ii) The intermediary must commit the insurance undertaking

To determine whether this condition requiring a commitment has been satisfied, it has to be examined, in accordance with the Court's case-law, whether, in their contacts with an intermediary, third parties do not need to deal with the insurance undertaking itself and may conclude business with the intermediary.

The commitment of the insurance undertaking vis-à-vis the insured results primarily from the brief given to the intermediary to conclude insurance policies with those seeking insurance on behalf, and for the account, of the insurance undertaking not established in the host Member State. The specific purpose of an agency or a branch is to conclude policies with third parties on behalf, and for the account, of the head office, which is thus directly committed, since the agency is an extension of the head office.

In some cases, however, other elements of the brief given by the insurance undertaking to the intermediary may show the intention of the insurance undertaking to be directly committed to the policy holder. An insurance undertaking can thus be bound by the act of an intermediary even if the latter cannot sign policies. If, for instance, an intermediary can make a complete offer on behalf of the insurance undertaking, but it is the latter which retains the power to sign the policy, the commitment criterion may still be satisfied. If the insurance undertaking can refuse the proposal submitted by the intermediary and signed by the client, the criterion of the ability to commit will not be met.

Another case which could prove the intention of the insurance undertaking to be directly bound by the activity of its intermediary would be the power granted to the latter to decide to accept and settle a claim submitted to it, since decisions taken by the intermediary bind the insurer. This function must, however, be distinguished from the brief given to the intermediary simply to manage files relating to claims; this may include, where appropriate, the payment of indemnities pursuant to the instructions given by the insurer himself.

It is thus the margin of manoeuvre which the insurer has kept for itself with regard to the activities carried on by the intermediary on behalf of that insurer that makes it possible to know if a decision taken by the intermediary formally commits it or not.

The Commission considers that an insurance undertaking that decides to transport insurance business under the freedom to provide services must be able to use certain services either upstream or downstream of the transaction in the Member State of provision. For example, an insurance undertaking should be able to use for its business under the freedom to provide services:

- a local expert to assess the risks to be covered under the freedom to provide services,

- a local expert to assess damage caused under risks covered by insurance policies negotiated under the freedom to provide services,

- canvassers who do not conclude insurance policies and whose activity is limited to sending insurance proposals received from potential policy holders to the insurance undertaking for acceptance,

- local legal services, or medical services established in the Member State of provision,

- a permanent structure for collecting the premiums for insurance policies entered into under the freedom to provide services (e.g. a credit institution or a factoring company),

- a permanent structure for receiving notices of claims relating to policies concluded under the freedom to provide services for transmission to the insurance undertaking for a decision to accept or refuse a claim.

It should be made clear that the only brief which results in treating a permanent presence in the same way as a branch of the insurance undertaking in the Member State of provision is one which concerns the activities that are part of the undertaking's objects, i.e. the business of insurance. A brief given to persons established in another Member State to carry out activities other than insurance cannot be taken into account when assessing the arrangements for carrying on the insurance activity in the host Member State. This could be the case with a brief given to an investment company to manage the insurance undertaking's securities portfolio, or with a company instructed to manage real estate which the undertaking owns in a Member State and which it uses as cover for technical provisions.

(iii) The intermediary must have received a permanent brief

The capacity of an intermediary established in the host Member State to commit an insurance undertaking must be based on a long-term, continuous brief and not just a one-off instruction. This stable and continuous quality shows that the insurance undertaking intends to integrate into the economy of the host Member State the insurance activities which it carries on there.

Conclusion

The Commission takes the view that it is only where the above three conditions are met that the insurance undertaking, using the intermediaries permanently established in the host Member State, must be treated as if it had a branch in the host Member State, with all that this implies from the legal point of view. Accordingly, the insurance undertaking will have to follow the procedure for opening a branch laid down by Article 10 of the first Insurance Directives 73/329/EEC and 79/267/EEC, as amended by Article 32 of the third Insurance Directives 92/49/EEC and 92/96/EEC (specifying that the activities envisaged will be carried on through an independent intermediary). The intermediary's activities must be carried on with due regard for the rules on branches adopted in the interest of the general good by the host State.

The fact that these conditions may involve the subjection of the insurance undertaking to the right of establishment does not mean that the intermediary itself constitutes a branch of the said insurer. A branch is 'a place of business which forms a legally dependent part of an insurance undertaking` (25). Since an intermediary is assumed to be independent, he cannot be a 'part` of an insurance undertaking.

(b) Permanent presence of the insurance undertaking's staff

A distinction should be drawn here between two possible scenarios:

(b.1) The insurance undertaking's staff established on a permanent basis in another Member State do not engage in any insurance activity

Such an arrangement is commonly referred to as a 'representative office`, a flexible structure traditionally regarded simply as a means of reconnoitring the market, establishing contacts and examining to what extent establishment in the country concerned might prove viable.

Such offices are to be regarded as sui generis cases.

The Commission takes the view that such offices cannot, of course, be regarded as branches, the establishment of which would, on the basis of Article 10 of the first Insurance Directives as amended by the third Insurance Directives, be subject to the prior notification requirement.

(b.2) The permanent staff engage in insurance activities

The situation here is quite clear. The insurance undertaking is regarded as having a branch which, after 1 July 1994, should have been notified in advance under the first Directives, as amended by the third Directives. If the branch was operational before 1 July 1994 in accordance with the provisions in force in the Member State of establishment, it is deemed to have complied with the prior notification procedure laid down by Article 10 of the first Directives, and may avail itself of the acquired rights granted by Article 52 (1) of the third Directive 92/49/EEC and Article 48 (1) of the third Directive 92/96/EEC.

II. NATURE OF THE PROCEDURE FOR NOTIFYING THE OPENING OF A BRANCH OR THE INTENTION TO CARRY ON A BUSINESS UNDER THE FREEDOM TO PROVIDE SERVICES

The Commission considers that the notification procedure laid down in the third Insurance Directives (both for branches and for provision of services) (26) pursues a simple objective of exchange of information between supervisory authorities and is not a consumer protection measure. It should not, in the Commission's view, be considered a procedural condition affecting the validity of an insurance policy.

III. ADVERTISING INSURANCE SERVICES

The third Insurance Directives lay down that insurance undertakings with head offices in Member States may advertise their services, through all available means of communication, in the Member State of the branch or the Member State of the provision of services, subject to any rules governing the form and content of such advertising adopted in the interest of the general good (27).

The Commission believes it is out of the question to make the right to advertise (28) conditional on the need to comply with the notification procedure laid down in Article 34 et seq. of the third Directives in order to carry on insurance business under the freedom to provide services.

Such a link would be artificial, since it is not explicitly provided for by the third Directives. Article 34 et seq. of the third Insurance Directives subject to the notification procedure not advertising activities in the host Member State, but the intention to pursue an insurance activity on the territory of another Member State under the freedom to provide services.

Similarly, to link advertising and the notification procedure provided for the pursuit of activities under the freedom to provide services could lead to absurd situations where an insurance undertaking finds itself invited to notify the authorities of all the Member States in which its advertising may in theory be received, when it may be that the undertaking does not plan to pursue its activities in all Member States where such advertising is received.

The Commission believes, therefore, that, in accordance with the third Directives, all forms of advertising by whatever means (mail, fax, electronic mail, etc.) should not be subject to the notification procedure referred to in Article 34 et seq. of the third Directives. Only if the insurance undertaking plans to pursue its activities on the client's territory under the freedom to provide services, must it comply with the notification procedure.

The above considerations concern only the problem of advertising seen from the formal angle and do not affect the right of Member States to enforce, on their territory and subject to current Community law, their general-good rules on the content of advertising, pursuant to Article 41 of the third Directives.

PART II

IV. THE GENERAL GOOD IN THE THIRD INSURANCE DIRECTIVES APPLICABILITY OF RULES PROMOTING THE GENERAL GOOD

The third Insurance Directives reflect the case-law of the Court of Justice and contain many references to the concept of the general good, providing in particular that an insurance undertaking operating under a single licence must comply with host-country rules adopted in the interest of the general good.

Such compliance is required either in the specific context of freedom of establishment (Article 32 (4) of Directives 92/49/EEC and 92/96/EEC) or indiscriminately in connection with the freedom of establishment and the freedom to provide services (Articles 28 and 41 of Directives 92/49/EEC and 92/96/EEC).

Since the entry into force of the third Directives (1 July 1994), the host Member State may require an insurance undertaking operating under a single licence to comply with the same general-good provisions whether the undertaking carries on its activity under establishment (through a branch) or under the freedom to provide services.

It should be noted that, in mentioning the concept of the general good for activities carried on under the rules on establishment (branch), the third Directives anticipated the trend of decisions handed down at that time by the Court of Justice.

After the third Insurance Directives had been adopted, the Court applied its case-law on the general good both to the freedom of establishment and to the freedom to provide services.

1. The concept of the general good

(a) Case-law principles (29)

The concept of the general good is based in the Court's case-law. It was developed first in the context of the free movement of services and goods.

In the abovementioned Säger case (30) the Court held that.

'. . . as a fundamental principle of the Treaty, the freedom to provide services may be limited only by provisions which are justified by imperative reasons relating to the general good and which apply to all persons or undertakings pursuing an activity in the State of destination, in so far as that interest is not protected by the rules to which the person providing the services is subject in the Member State in which he is established. In particular, those requirements must be objectively necessary in order to ensure compliance with professional rules and to guarantee the protection of the recipient of services and they must not exceed what is necessary to attain those objectives`.

The Court therefore established, initially in the field of provision of services, a number of criteria which the host Member State must meet before requiring the provider of services to comply with a national measure restricting the pursuit of an activity under the freedom to provide services.

Such a restrictive measure must:

- come within a field which has not been harmonized. Measures relating, for example, to the calculation of technical provisions and the solvency margin, the conditions for taking up insurance business, and financial and prudential supervision may no longer be covered by the general good of a Member State. The level of harmonization achieved by the Directives could be considered as the 'Community general good`,

- pursue an objective of the general good,

- be non-discriminatory,

- be objectively necessary,

- be proportionate to the objective pursued,

- it is also necessary for the general-good objective not to be safeguarded by rules to which the provider of services is already subject in the Member State where he is established.

These conditions are cumulative. A national measure which is claimed to be compatible with the principle of the freedom of movement must accordingly satisfy all the conditions. If a national measure does not meet one or other condition, it is not compatible with Community law.

Court decisions have progressively extended the concept of the general good to the right of establishment (31). Initially, the Court used the concept in cases relating to the professional qualifications needed in order to take up an activity. In this context, the Court applied two elements of flexibility to the principle of non-discrimination:

- firstly, it held that the rules on the equality of treatment also prohibit all hidden forms of discrimination which, by applying other distinguishing criteria, actually lead to the same result (32),

- secondly, it has gradually moved away from its traditional approach, which was limited to strict equality of treatment, at first with regard to the professional qualifications needed in order to take up an activity (33) and subsequently with regard also to the conditions for carrying on an activity by way of establishment (34). In this respect, the Court proceeded from the premise that any restriction is in principle contrary to Article 52 unless it is in the general good and is necessary and proportionate.

In two subsequent judgments, which followed adoption of the third Insurance Directives, the Court definitively established the principle whereby freedom of establishment is not confined to compliance with the principle of non-discrimination but also prohibits any restrictions which apply indiscriminately to its exercise beyond the area of the recognition of professional qualifications (35).

Thus, in Gebhard of 30. 11. 1995 (36) the Court extended to the freedom of establishment the reasoning it had already applied in the field of the free movement of goods and the freedom to provide services as regards recourse by the host Member State to rules protecting the general good. The Court ruled:

'. . . national measures liable to hinder or make less attractive the exercise of fundamental freedoms guaranteed by the Treaty must fulfil four conditions: they must be applied in a non-discriminatory manner; they must be justified by imperative requirements in the general interest; they must be suitable for securing the attainment of the objective which they pursue, and they must not go beyond what is necessary in order to attain it (37)`.

This case-law was subsequently confirmed by the Court in Bosman (38) and Futura (39).

(b) The concept of the general good in the third Insurance Directives

The third Insurance Directives refer to the general good in several places.

(b.1) Setting up a branch establishment

The host Member State has two months from the receipt of the file sent by the home Member State, to indicate to the insurance undertaking the conditions in which, for reasons of the general good, such activities must be carried on in the Member State of the branch.

(b.2) Marketing insurance policies

The Member State of the commitment or that in which the risk is situated must allow insurance policies (non-life or life) to be concluded with insurance undertakings authorized in other Member States, whether under the rules on branches or under the freedom to provide services, provided that such insurance policies do not conflict with the statutory provisions protecting the general good in force (in the Member State of the commitment or that in which the risk is situated) (Article 28 of Directive 92/49/EEC and Article 28 of Directive 92/96/EEC).

The above provisions apply to activities carried on under the rules on branches and to those carried on under the freedom to provide services. In other words, they apply to every insurer which, using its single licence issued by its home Member State, carries on insurance business in Member States other than its home State.

(b.3) Health insurance taken out as an alternative to the cover provided by a statutory system of social security

Article 54 of the third Non-life Directive (92/49/EEC) states that each Member State in which health insurance policies can be substituted either wholly or in part for the sickness cover provided by a statutory system of social security may require such policies to comply with the statutory provisions protecting the general good in that Member State for that class of insurance. The Member State may also require prior notification of policy conditions before such policies are marketed (40).

(b.4) An insurance undertaking authorized in its home Member State may advertise its services

An insurance undertaking authorized in its home Member State may advertise its services by any means of communication available in the Member State of the branch or the provision of services, provided it complies with any general-good rules on the form and content of the advertisement (Article 41 of Directive 42/49/EEC and Article 41 of Directive 92/96/EEC).

While they make clear that the provision of services may be restricted only by rules protecting the general good of the host Member State in areas which have not been harmonized at Community level, the third Directives do not innovate in relation to the established case-law of the Court of Justice. The Court has held, as has been pointed out above, that even a non-discriminatory rule in the host country may be discounted to the advantage of a provider of services, if that provision is not in the interest of the general good or, if it is not necessary or proportional to the objective pursued.

The third Insurance Directives do not distinguish, with regard to the conditions for carrying on such an activity, between setting-up a branch and the provision of services (41). The differences which they introduce concern only the notification procedure, which is more detailed for the establishment of a branch (Article 32 of Directives 92/49/EEC and 92/96/EEC) than for the conduct of insurance business under the freedom to provide services (Article 34 et seq. of Directives 92/49/EEC and 92/96/EEC).

The Commission considers that, since the entry into force of the third Insurance Directives, the assessment of conformity with Community law of a national measure restricting one of the activities referred to in the Annex to the first Directives must be made in the light of the requirements of the concept of the general good, both for activities carried on through a branch and for those carried on under the freedom to provide services.

The fact that the Community legislator did not intend to differentiate in this respect between the arrangements applicable to branches and those applicable to the provision of services (42) is clear from the 19th recital of Directive 92/49/EEC and from the twentieth recital of Directive 92/96/EEC, which state that:

'. . . it is for the Member State of the commitment (or in which the risk is situated) to ensure that there is nothing to prevent the marketing within its territory of all the insurance products offered for sale in the Community as long as they do not conflict with the legal provisions protecting the general good in force in the Member State of the commitment (or in which the risk is situated)`.

Since the recitals to a directive have legal force as an aid to interpretation, they shed light for the reader on the intentions of the Community legislator (43).

2. Conditions under which the host country rules promoting the general good may be enforced

Discriminatory restrictions

As a general rule, if the restriction in question is discriminatory, it can be justified only on the grounds set out in Article 56 of the Treaty (public policy, public security and public health (44); economic grounds are not included (45). It follows that there is no need to rely on rules promoting the general good in such cases.

Non-discriminatory restrictions

The situation is different, however, in the case of non-discriminatory restrictions. It can be deduced from the principles laid down in the third Directives and confirmed by the Court's general-good case-law that any non-discriminatory national measure which restricts an insurance activity benefiting from mutual recognition and carried on either through a branch or under freedom to provide services must, if it is to be capable of being lawfully enforced against a Community insurance undertaking, be in the interest of the general good, be necessary and proportionate and must not duplicate the rules of the home country.

In any event, in the event of a dispute, it is for the Member State imposing the restriction to prove that the measure in question meets these conditions.

The Court has provided a number of pointers as to the areas covered by the concept of the general good and the principles to be applied.

(a) Areas covered by the general good

The Court has so far recognized the following areas as possibly being covered by the general good, in the absence of harmonization (46):

- professional rules intended to protect the recipient of services (47),

- the protection of workers (48) including social protection (49),

- the protection of consumers (50),

- preservation of the good reputation of the national financial sector (51),

- the prevention of fraud (52),

- social order (53),

- the protection of intellectual property (54),

- the preservation of the national historical and artistic heritage (55),

- cultural policy and safeguarding cultural diversity in the audiovisual sector (56),

- the cohesion of the tax system (57),

- road safety (58),

- the protectiion of creditors (59), and

- the protection of the proper administration of justice (60).

The list is not exhaustive, and the Court reserves the right to add to it at any time.

(b) Principles applicable

For it to be compatible with Community law, it is not sufficient that the national measure invoked be recognized as being in the interest of the general good. The host Member State must also respect certain principles.

These principles are those established by the Court in its case-law on the general good (non-discrimination, non-duplication, necessity, proportionality, etc.) and already outlined in this communication. In accordance with that case-law, however, the concept of the general good is an exception to the fundamental principles of the Treaty in the area of freedom of movement and should therefore be interpreted strictly so that it is not relied on excessively or misused.

A host Member State should therefore satisfy itself that a national measure which it plans to introduce is in the interest of the general good and is necessary and proportionate (61).

In this context, it follows that the inclusion by some Member States of whole areas of their national law in the list of provisions adopted in the interest of the general good could prove to constitute a misuse of the concept; several Member States are tending to treat as rules adopted in the interest of the general good all their legislation on consumer protection, their tax or commercial law or their competition law. The Commission takes the view that the principles of necessity, non-duplication and proportionality mean that Member States should indicate, when a Bill is adopted in the case of new legislation or, where appropriate, when the conditions referred to in Article 32 (4) of Directives 92/49/EEC and 92/96/EEC are notified, the specific provisions in each national legislative instrument which could be in the interest of the general good.

However, although the reasoning is identical and the questions are the same whether the insurance undertaking operates through a branch or under the freedom to provide services, the answers may vary depending on the mode of operation.

The assessment of the proportionality of a restriction may differ depending on the mode of operation.

There are undoubtedly differences of kind between the provision of services and establishment; consequently, a restriction could be more easily regarded as proportionate where an operator carries on his activities permanently within a territory than where he does so only temporarily.

The Court recognized this difference by imposing a less restrictive and more 'lightweight` legal framework for provision of services than for establishment.

It has consistently held that a Member State:

'may not make the provision of services in its territory subject to compliance with all the conditions required for establishment and thereby deprive of all practical effectiveness the provisions of the Treaty whose object is, precisely, to guarantee the freedom to provide services` (62).

The Court has likewise consistently held that it does not follow from Article 60 (3) of the Treaty that

'all national legislation applicable to nationals of that State and usually applied to the permanent activities of undertakings established therein may be similarly applied in its entirety to the temporary activities of undertakings which are established in other Member States` (63).

Thus, depending on the circumstances, the same restriction applied in the interest of the general good could be adjudged proportionate in respect of a branch but disproportionate in respect of a service provider.

(c) Examples in the insurance sector

Having identified the main characteristics of the general good, the Commission regards it as appropriate to state its interpretation of the concept as it applies to insurance, giving a few examples of national rules where compliance could be required by the authorities of the host Member State on the grounds of their supposed compatibility with the general good. Once again it should be explained that this interpretation does not prejudge that which the Court, competent in the last analysis for the interpretation of the Treaty and secondary legislation, could be asked to give of the questions raised. Such rules may concern, for instance:

(i) prior notification of policy conditions;

(ii) capital redemption operations of insurance undertakings;

(iii) uniform no-claims bonus systems;

(iv) the language of the insurance policy;

(v) professional codes of conduct;

(vi) maximum technical interest rates for life assurance;

(vii) the imposition of standard clauses or minimum insurance conditions;

(viii) clauses imposing mandatory levels of excess in insurance policies;

(ix) compulsory stipulation of a surrender value in insurance policies

(x) the prohibition of cold-calling.

(i) Prior notification of policy conditions

The third Directives expressly forbid any prior or systematic substantive control of insurance policies and policy documents (64), irrespective of the name given by the national authorities to the system used, whether it involves the prior approval of policies and scales of premiums or their simple, systematic notification with tacit approval or with the simple deposit of documents before they can be used. Prior, systematic approval is henceforward authorized only in those cases explicitly provided for in the Community Directives. Such is the case, for instance, with compulsory insurance (e.g. compulsory third-party motor insurance (65) or health insurance which is a substitute for a statutory system of social security (66).

The Member States may only use systems of ex post, non-systematic control of insurance conditions, without in any event, such a requirement constituting a condition which an insurance undertaking must satisfy before carrying on its business, in order to ensure that their general-good provisions concerning insurance conditions are complied with by the policies marketed on their territory. Since the Community legislator has already determined the systems of substantive control that may be applied by the Member States and their conditions of application, this is an area which is already the subject of harmonization at Community level.

Nevertheless, certain Member States with a tradition of prior approval of policy conditions continue to require prior notification of these particulars. They argue that this is necessary to protect their consumers and to guarantee transparency of the products available on their national markets. In most cases, a sheet describing the insurance policy conditions has to be submitted.

The Commission takes the view that maintaining such systems of prior or systematic control of insurance policies is not consistent with the third Insurance Directives. It also considers that Member States may not justify such requirements on grounds of the general good, since the conditions set by the Court of Justice have not been met, inasmuch as this is an area which is already the subject of harmonization at Community level.

(ii) Capital redemption operations of insurance undertakings

The system of a single administrative licence for an insurance undertaking in respect of those activities which fall within the scope of the Insurance Directives has meant that a life assurance undertaking may carry on anywhere in the Community those activities for which it was authorized in its home Member State. Such activities may be carried on in any Member State either under the rules on establishment or under the freedom to provide services.

'Capital redemption operations based on actuarial calculations, whereby, in return for single or periodic payments agreed in advance, commitments of specified duration and amount are undertaken` figure among the activities covered by the single licence, where such operations are the result of a contract and are subject to supervision by the insurance monitoring authority in the home Member State. Such activities, like any other activity falling within the scope of the Life Directives, may be carried on anywhere in the Community, including in a Member State in which they are not authorized for local life assurance undertakings on the grounds, for instance, that in the host Member State, such operations are regarded as banking operations and are therefore reserved for credit institutions.

The Commission considers, therefore, that there is no reason to prohibit the marketing of capital redemption products which fulfil the conditions of the first Life Directive 79/267/EEC, as amended by Directive 92/96/EEC, and which are marketed in a Member State by an insurer authorized in its home Member State to pursue such activities. The fact that, in the host Member State, such activities are not regarded as insurance activities and are not therefore permitted for insurers which have their head office there does not prevent insurers from other Member States from pursuing those activities which, having been the subject of mutual recognition between the Member States, benefit from the single licence system introduced by the third Life Directive 92/96/EEC (67).

In the exercise of these activities, capital redemption products that are made available in the host Member State by a life insurance undertaking should respect, as in any other life insurance activity, the regulations in force in the host Member State that are justified on general grounds, notably as regards the taxation of these products or rules on advertising.

(iii) Mandatory systems for reducing/increasing premium coefficients in compulsory third-party motor insurance (no-claims bonus)

In some Member States, detailed national legislative instruments establish the criteria to be taken into account when calculating the premiums for third-party motor insurance. The instruments prescribe, inter alia, coefficients for the reduction/increase of premiums (no-claims bonus schemes). The method laid down consists in determining a compulsory scale for calculating the annual premium. The scale applies both at the time the third-party motor insurance policy is concluded and when subsequent movements up or down the scale occur, depending on the frequency with which the insured submits a claim. The increase or reduction of the premium is not liberalized; on the contrary, it must comply with specific criteria laid down in the Member State's legislation. From the technical insurance perspective, such schemes are tariff measures and are therefore contrary to both the letter and the spirit of the third Directives.

The main argument advanced by Member States that have such a mandatory no-claims bonus system is that of prevention. According to these States, drivers who face an increased premium in the event of an accident will drive more carefully.

The third Non-life Directive 92/94/EEC introduced not only freedom as regards scales of premiums and the abolition of prior or systematic approval of scales and policies; it also introduced the concept of home country control in the field of financial supervision (68).

To the extent that such mandatory no-claims bonus systems are tariff provisions, they are contrary to the third Non-life Directive. In the circumstances, the Commission takes the view that the Member States cannot therefore invoke the general good in order to preserve the mandatory character of these systems, since they concern rules which have already been coordinated at Community level.

(iv) The language of the insurance policy

Some Member States require insurance policies taken out or performed on their territory to be drafted exclusively in their official language(s). Other languages, Community or otherwise, may be used only for simple translations, even if the Contracting Parties would have liked to use such languages for the original policy.

This absolute and unconditional requirement is justified by the linguistic sovereignty of the Member States and a desire to protect consumers and by the need for any proceedings brought before local courts to be properly conducted.

The Commission is not calling into question the linguistic sovereignty of the Member States (69).

The Commission considers in this respect that a distinction should be drawn between large industrial and commercial risks and mass risks. In the former case, consumer protection is not a valid concern. As regards mass risks and individual life assurance, provisions on the language of an insurance policy should also take account of certain circumstances. Thus, the first thing to take into consideration are policies with an international dimension, i.e. those where the law applicable to the insurance policy is not the law of the Member State where the risk/commitment is situated. For instance, exemptions from the principle that a policy must be drawn up in the official language(s) of the Member State where the risk/commitment is situated should be provided for in those cases where the insured person is of foreign origin. In all, 5 million citizens of the European Union live in a Member State which is not their own. Such persons would probably be better protected if they could take out policies in their own language instead of that of the Member State of residence or location of the risk they seek to cover. Secondly, exemptions should also be available for those cases where, pursuant to Articles 8 to 10 of the Brussels Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters, a dispute may be heard by a court other than in the country of the commitment.

(v) Professional codes of conduct

Professional codes of conduct, which are valid on the territory of a Member State of the European Union, are in principle also valid with regard to foreign insurers; failure to observe them often incurs a penalty, especially of a commercial nature. Compliance with codes of conduct is justified by the signatory parties on grounds of consumer protection or contribution to market discipline.

It should be pointed out that the restrictions of private origin covered by Articles 48, 52 and 59 of the Treaty are different from those covered by the Treaty's competition rules (Article 85 et seq.). In the former case, it is a question of a vertical relation between the private body from which the restrictive measures emanate and the Member State: the public authority cedes part of its prerogatives to a private body with a well-defined task and the authority to adopt measures which bind individuals. By contrast, in the latter case it is a question of a horizontal relation between economic agents: the origin of the restriction lies entirely in the agreement concluded, de jure or de facto, between private undertakings. The only role which the State may play in this case is to tolerate or encourage such a restriction (70).

The Commission takes the view that a distinction should be made between codes promulgated by national authorities and those drawn up by professional associations. The former should be examined on a case-by-case basis to ensure their compatibility with Articles 52 and 59 of the EC Treaty and in particular to see if the general-good conditions are met.

The latter type of code should normally be examined in the light of the Treaty's competition rules (Articles 85 and 86). In such cases and without prejudice to an examination of the requirements for the application of Article 85 (3), it should not always be possible to impose the codes on foreign operators, who, since they would not be members of the professional association which drew them up, will not have discussed their substance and means of application. It is possible, however, that the substance of such codes of conduct should also be examined in the light of Articles 52 and 59 of the Treaty.

(vi) Maximum technical interest rates for life assurance

The third Life Directive 92/96/EEC coordinated the actuarial principles governing the calculation of mathematical provisions.

Concerning the definition of technical interest rates, the third Life Directive provides (71) firstly, that the home Member State may set a maximum technical interest rate which the insurance undertakings it supervises must apply in order to calculate the bases for their technical provisions. It provides secondly that the home Member State may require insurance undertakings with their head office on its territory to notify systematically the technical bases used to calculate tariffs and technical provisions.

The Commission would point out that, in view of the provisions of the third Directive and the rules on supervision, which give exclusive competence for financial supervision to the insurance undertaking's home Member State, the branches of insurance undertakings and the insurers operating under the freedom to provide services are not bound by the provisions of the host Member State on maximum technical interest rates. Since the host Member State has no competence as regards financial supervision, it cannot impose compliance with its own prudential principles or check such compliance through substantive control of premium scales.

(vii) Imposition of standard clauses or minimum insurance conditions

Member States which have rules laying down compulsory clauses for insurance policies justify them by a concern to protect the weaker party in the contractual relationship and to preserve the balance in the latter by imposing a given content for the rights and obligations of the parties, and by a desire to protect third-party victims in the event of an accident.

The Commission believes that, in any event, protection of the weaker party should be imposed only in those cases where it is objectively necessary, for in insurance policies where the policy holder, by virtue of his nature or size, has a particular need of protection in order to preserve the contractual balance. It will also be necessary to consider the proportionality of such measures and analyse whether the inclusion in insurance policies of standard clauses laid down by the rules of a host Member State is a more difficult condition in practice for insurance undertakings from other Member States to fulfil than for insurance undertakings from the host Member State. This would be the case in particular if those insurance undertakings were deterred from prospecting a new market because they would be forced to create an entirely new insurance product in order to sell it on the market concerned instead of using an insurance product which is already used in their home Member State.

Similarly, the obligation to comply with standard clauses or minimum insurance conditions should not mean, either, that insurance policies cannot be worded differently.

(viii) National rules imposing a compulsory excess in insurance policies

Member States with rules of this kind believe that compulsory excesses were introduced in the interest of the consumer, enabling him to take out insurance at a reasonable price, since, without this mechanism, which obliges the insured to bear part of the cost of the claim, premiums would increase in a completely unreasonable manner, because the insurer would have to act in the case of claims with a low economic cost. A second argument put forward by Member States which have adopted such rules is that the compulsory excess makes it possible to combat insurance fraud, which would otherwise be very frequent in the case of small claims. In such cases, the mandatory rule is designed to safeguard the profits of the insurer faced with a multitude of small claims.

The two arguments clearly establish that the introduction of a compulsory excess meets a need to discipline the market so as to avoid undue competition over premiums charged by insurance undertakings. It may also be asked whether the aim of a compulsory excess is not to preserve the profits of the insurer faced with a multitude of small claims rather than safeguard the interests of the policy holder or uphold public morality. It should be pointed out, however, that Community law excludes from reasons of the general good any consideration based on strictly economic grounds (72).

In addition, as with the imposition of standard clauses or minimum conditions in insurance policies, the rigid application of such rules by the host Member State may have a restrictive effect on insurance undertakings operating under the rules on establishment or under the freedom to provide services, since they would be prevented from marketing insurance policies already correctly used in their home Member State without such excesses.

Lastly, while it could be admitted that the introduction of excesses reflects the choice of management method by the insurance undertaking, it still has to be examined whether the imposition of compulsory excesses through binding rules is consistent with the objectives of the third Insurance Directives as regards policies and scales of premiums.

Insurance undertakings should therefore be free to assess the advisability of including an excess in the policies which they market. Where an insurance undertaking satisfies the solvency requirements laid down by its home Member State, which has given it its approval and is responsible for its financial supervision, it should be free to decide to market insurance policies, with or without excesses, in the host Member State, clearly indicating to customers that it is doing so, without being forced into this by binding national rules.

(ix) National rules imposing the obligation to provide in all life assurance policies for a surrender right and/or a bonus

The Member States advance very different reasons why such rules are compatible with the concept of the general good. Some consider that the obligation to fix a surrender value in a life assurance policy meets the interests of consumers, who thus have the flexibility and liberty necessary in such policies, most often long-term, and are able to mobilize their savings. On the other hand, in other Member States, which wish to guarantee the stability of the insurer's portfolio and promote long-term saving, the early cancellation of a life insurance policy by the policy holder adversely affects the interests of the insured person. As for the rules making it compulsory to provide in life assurance policies for the insured to receive a bonus, these are also justified, depending on the Member State, by a desire to protect the economic interests of the insured.

Although the situation in each Member State must be assessed separately, it should be pointed out that the third Life Directive 92/96/EEC lays down, as part of the actuarial principles which the home Member State imposes on insurance undertakings for the establishment of their mathematical reserves, specific provisions for policies with a guaranteed surrender value and provisions for policies with bonuses. Furthermore, among the information to be given to policy holders before the policy is concluded and during the term of the policy, Annex II to the third Directive specifies 'the indication of surrender and paid-up values and the extent to which they are guaranteed, and the means of calculation and distribution of bonuses`.

It may be wondered, therefore, whether a national rule of the host Member State which imposes in a general and absolute manner the obligation to provide for a surrender value or a bonus in life assurance policies marketed on its territory is objectively necessary and proportionate to the objective of protecting the economic interests of policy holders, or on the contrary whether this objective cannot be achieved by other less restrictive means, for example the obligation to give detailed information to the policy holder prior to the conclusion of the policy.

(x) Prohibition of cold-calling

As regards this last example, the Court has already recognized the right to prohibit this marketing practice in the case of other financial products after examining a provision of Dutch law which was designed to protect the good reputation and reliability of the financial market in the Netherlands (73). Consumer protection is also an argument that is often put forward in support of banning this marketing method. The reasoning followed by the Court in the Dutch case can also be applied to insurance products. Nevertheless, one should avoid trying to establish a general rule for the compatibility of this marketing method as far as insurance products are concerned, and each case should be assessed individually.

(xi) General

It is the Commission's duty to point out that national rules designed to protect the consumer (even if in principle invoked as promoting the general good, which is most often the case), or other considerations promoting the general good, must always satisfy the criteria laid down by the Court of Justice. Since the mandatory application of such rules in the host Member State may make it more difficult for risks located in that country to be covered by foreign insurers who carry on their business there under the rules on branches or under the freedom to provide services, their legitimacy must be examined in the light of the general-good test. In each case, the objectives pursued by the national rule invoked (consumer protection, protection of third-party victims, desire to make it possible for a risk to be insured by making its cover collective) must be examined, and a check should be made to see whether the conditions justifying recourse to the concept of the general good, set out in this document, have been met.

3. Rules relating to the law applicable to insurance contracts and the concept of the general good

The Insurance Directives (74) lay down specific rules for determining the substantive law applicable to insurance policies covering risks situated within the European Economic Area (75). They make it possible to define what substantive law will govern the insurance policy. The rules apply both to insurance activities carried on under the rules on establishment and to those carried on under the freedom to provide services.

As a general rule and in a concise manner, in respect of non-life insurance policies relating to 'major risks` within the meaning of Article 5 (d) of the first Non-life Directive 73/239/EEC (76) the parties have a free choice as to the law applicable to the insurance policy. As regards mass risks and policies which fall within the scope of the Life Directives, the established rules authorize the Member State where the risk/commitment which is the subject of the insurance policy is situated to submit the said policy to its own legislation. As regards compulsory non-life insurance, the Member State imposing the obligation to take out insurance may lay down that its legislation will apply to the said insurance policy (77).

The second Insurance Directives also provided specific rules for determining the law applicable, where the Contracting Parties have a choice and the latter is not expressly established or demonstrated with reasonable certainly by the terms of the insurance policy. They also lay down rules relating to the application of the 'policing laws` of the forum and the Member State of the risk/commitment and to the 'public policy` provisions (78).

The application, under the rules on the conflict of laws laid down by the Insurance Directives, by a Member State of its own 'mandatory` substantive provisions, its 'policing laws` and its 'public policy provisions` to insurance policies is likely, if it results in a restriction, to be examined from the viewpoint of the general good. The concept of the general good acts as a filter of national legislation. It obliges the authorities of the Member States to analyse their national legislation for compliance with the Treaty's principles of free movement.

It is essential that any rules of national law, whatever the field it relates to, should be compatible with Community law. Thus, in SAIL, the Court held that:

'The effectivenes of Community law cannot vary according to the various spheres of national law with it may affect` (79).

Community law takes precedence therefore, if necessary, over national rules in the sphere of private law.

In particular, it has fallen to the Court to verify compatibility with Community law of national rules of civil law (80) and civil procedure (81).

Consequently, and as has already been stated above, it is not sufficient that the host Member State's entire legislation on insurance policies be immediately declared mandatory for the authorities to think that it must be observed in full (82). Such provisions must also satisfy the requirements of the general good if the host Member State is to be able to require compliance with them by insurers operating through a branch or under the freedom to provide services.

Since these are rules which were adopted in order to protect the consumer, there is a strong possibility that such rules of substantive law will pass the general-good test. The Court has recognized that consumer protection is an objective of the general good which justifies restrictions of fundamental freedoms. It cannot be presumed, however, that the test will be passed. It was seen above that national laws adopted with the declared aim of protecting the consumer can be subjected to the control of the Court and, where appropriate, 'disqualified`, for example if they are not necessary or are disproportionate.

This additional level of reasoning is therefore essential, in the context of a single market, in order to verify if, in the absence of harmonization, national measures are not, under the pretext of consumer protection, being maintained simply to restrict or prevent the entry of insurance services which are different or unknown on the national territory.

If a Member State could invoke non-conformity with its own legislation in the case of an insurance product marketed in another Member State in order to restrict the marketing thereof on its territory, it would be hindering competition between insurance undertakings.

4. Action to be taken when faced with national rules regarded as being in the general good by the host Member State

To apply the principle just mentioned to a national rule which in his view is an unjustified restriction, the economic agent (insurance undertaking, intermediary or policy holder) must normally resort to the courts or inform the Commission, for example by lodging a complaint.

In practice, if for instance an insurance undertaking believes that the rules of a Member State where it proposes to carry on business contain restrictions that cannot satisfy the tests of the general good (e.g. binding provisions which are to be included in any policy and which are unknown, or different to those, in its home State), various possibilities are open to it:

- to avoid any potential conflict, it may of course adapt its services in all respects to the rules of the host country,

- if, all the same, it offers insurance products that do not comply exactly with the binding provisions of the host country, it may well be prosecuted by the national authorities or by one of its clients. The insurance undertaking will have to assert its Community-law arguments before a national court or authority in order to establish that the rule which the Member State intends to invoke against it does not satisfy the conditions identified by the Court. It is the national court which will assess the validity of the parties' arguments, having possibly referred the matter to the Court of Justice for a preliminary ruling pursuant to Article 177 of the Treaty,

- it may, at any moment, inform the Commission, which, if it thinks the restrictions are unjustified and hence contrary to Community law, could institute proceedings pursuant to Article 169 against the Member State concerned for failure to fulfil its obligations. In this context, it will be for the Commission to provide evidence of the alleged failure to fulfil obligations (83). Where appropriate, it is the Court of Justice which will decide in the last instance whether the disputed national measure satisfies the tests of the general good or not.

(1) Directive 92/49/EEC (OJ L 228, 11. 8. 1992, p. 1) and Directive 92/96/EEC (OJ L 360 L 360, 9. 12. 1992, p. 1) as last amended by Parliament and Council Directive 95/26/EEC (OJ L 168, 18. 7. 1995, p. 7).

(2) Where different interpretations of the Insurance Directives are possible, this document follows the interpretation which in the opinion of the Commission is closest to the EC Treaty. It should be noted in this respect that, in accordance with the Court's case-law, where a text of secondary legislation can be interpreted differently, preference should be given to the interpretation which would align it with the Treaty, rather than one which would render it incompatible (see Case 205/84 Commission v. Germany [1986] ECR 3755).

(3) As regards the banking sector, the Commission has published an interpretative communication on the freedom to provide services and the general good in the second Banking Directive (SEC(97) 1193 final, 20. 6. 1997)

(4) Council resolution on the new priorities concerning the information society, adopted on 8 October 1996; Commission communication to the European Council entitled 'Putting services to work` (CSE(96) 6 final, 27. 11. 1996); communication from the Commission to the European Parliament, the Council and the Economic and Social Committee concerning regulatory transparency in the internal market for information society services and proposal for a European parliament and Council Directive amending for the third time Directive 83/189/EEC laying down a procedure for the provision of information in the field of technical standards and regulations (COM(96) 392 final, 30. 8. 1996).

(5) Communication from the Commission on a European initiative in electronic commerce (COM(97) 157, 15. 4. 1997). In this context, it should also be pointed out that the Commission plans to present in the very near future a proposal for a Council and Parliament Directive on contracts negotiated at a distance in the field of financial services.

(6) For the purposes of this communication, the terms 'Member State of the provision of services`, 'Member State where the risk is situated`, 'home Member State`, 'Member State of the branch`, etc. are used in accordance with the definitions given in Directives 88/357/EEC, 90/619/EEC, 92/49/EEC and 92/96/EEC.

Member State of the provision of services: the Member State where the risk is situated pursuant to Article 2 (d) of Directive 88/357/EEC, where it is covered by an insurance undertaking or branch situated in another Member State, or the Member State of the commitment pursuant to Article 2 (e) of Directive 90/619/EEC, where the commitment is covered by an insurance undertaking or branch situated in another Member State (Article 1 (e) of Directive 92/49/EEC and Article 1 (f) of Directive 92/96/EEC).

Home Member State: the Member State in which the head office of the insurance undertaking covering the risk or the commitment is situated (Article 1 (c) of Directive 92/49/EEC and Article 1 (d) of Directive 92/96/EEC).

Member State of the branch: the Member State in which the branch covering the risk or commitment is situated (Article 1 (d) of Directive 92/49/EEC and Article 1 (e) of Directive 92/96/EEC). Branch: any agency or branch of an insurance undertaking. Any permanent presence of an undertaking in the territory of a Member State is treated in the same way as an agency or branch, even if that presence does not take the form of a branch or agency, but consists merely of an office managed by the undertaking's own staff or by a person who is independent but has permanent authority to act for the undertaking as an agency would (Article 1 (b) of Directive 92/49/EEC and Article 1 (b) of Directive 92/96/EEC, and Articles 3 of Directives 88/357/EEC and 90/619/EEC).

(7) Case 205/84 Commission v. Germany [1986] ECR 3755.

(8) Joined Cases 262/82 and 26/83 Luisi and Carbone [1984] ECR 377. Case C-76/90 Säger [1991] ECR I-195.

(9) Case 55/94 Gebhard [1995] ECR I-4195.

(10) Case 205/84 Commission v. Germany [1986] ECR 3755, supra; Case 33/74 Van Binsbergen [1974] ECR 1299; Case C-148/91 Veronica [1993] ECR I-487; Case C-23/93 TV 10 [1994] ECR I-4795.

(11) Case 205/84, paragraph 22, supra; Case 33/74 Van Binsbergen [1974] ECR 1299, paragraph 13.

(12) See Gebhard, supra.

(13) Case 205/84 [1986] 3755.

(14) Case 205/84 [1986] ECR 3755, paragraphs 21 and 22; Case C-148/91 Veronica [1993] ECR I-487.

(15) Article 1 (b) of Directives 92/49/EEC and 92/96/EEC and Article 3 of Directives 88/357/EEC and 90/619/EEC.

(16) See, in particular, Gebhard of 30. 11. 1995, supra.

(17) Case C-55/94 Gebhard, of 30. 11. 1995 supra. It should be pointed out that, in his opinion on Case 205/84 Commission v. Germany, supra, the Advocate-General stated that the appointment of an agent or representative (in the host Member State) did not in itself necessarily constitute establishment.

(18) Case C-55/94 Gebhard of 30. 11. 1995, supra.

(19) It should be pointed out straight away that the notion of 'independent intermediary` refers to structures (natural or legal persons) that are legally separate from the insurance undertaking they call on, irrespective of their form or designation. It is not used therefore in the more restrictive sense of Council Directive 77/92/EEC (OJ L 26, 31. 1. 1977) to distinguish between insurance agents (who act on behalf, and for the account, of, or solely on behalf of, one or more insurance undertakings) and insurance brokers (whose professional activity consists in particular in bringing together persons seeking insurance and insurance undertakings without being bound in the choice of the latter, with a view to covering risks to be insured, and who carry out work preparatory to the conclusion of policies of insurance and assist in the administration and performance of such policies, in particular in the event of a claim).

(20) Case 14/76 [1976] ECR 1497. It should be noted that this judgment, together with those cited in footnotes 21, 22 and 23, were delivered in cases concerning the interpretation of the concept of a branch in accordance with the Brussels Convention on Jurisdiction and the Enforcement of Civil and Commercial Judgments.

(21) Case 33/78 [1978] ECR 2183. See also Case C-439/93 Lloyd's Register of Shipping v. Société Campenon Bernard [1995] ECR I-961.

(22) Case 139/80 [1981] ECR 819.

(23) Case C-89/91 [1993] ECR I-165.

(24) OJ C 59, 5. 3. 1979, p. 1.

(25) See in this respect the concept of a branch given in Article 1 (3) of the second Banking Directive 89/646/EEC (OJ L 386, 30. 12. 1989) and Article 1 (8) of the Directive on investment services in the securities field (OJ L 141, 11. 6. 1993).

(26) See Article 10 of first Directive 73/239/EEC, as amended by Article 32 of Directive 92/49/EEC, as regards non-life insurance and Article 10 of first Directive 79/267/EEC, as amended by Article 32 of Directive 92/96/EEC, as regards life assurance for the procedure to be followed for opening a branch.

See Articles 14, 16 and 17 of Directive 88/357/EEC, as amended by Articles 34, 35 and 36 of Directive 92/49/EEC, as regards non-life insurance, and Articles 11, 14, and 17 of Directive 88/357/EEC, as amended by Articles 34, 35 and 36 of Directive 92/96/EEC, as regards life assurance, for the procedure relating to activities under the freedom to provide services falling within the scope of these Directives.

(27) Article 41 of the third Non-life Directive (92/49/EEC) and Article 41 of the third Life Directive (92/96/EEC).

(28) By advertising is meant 'the making of a representation in any form in connection with a trade, business, craft or profession in order to promote the supply of goods or services, including immovable property, rights and obligations` (Directive 84/450/EEC of 10 September 1984 on misleading advertising (OJ L 250, 19. 9. 1984, p. 17).

(29) The Commission's analysis may of course be modified to reflect changes in the Court's case-law.

(30) Case C-76/90 [1991] ECR I-4221.

(31) See Case C-55/94 Gebhard, supra.

(32) See, for example, Case C-1/93 Halliburton [1994] ECR I-1137, or Case C-330/91 Commerzbank [1993] ECR I-4017.

(33) Case C-340/89 Vlassopoulou [1991] ECR I-2357. See also Case C-104/91 Colegio Oficial [1992] ECR I-3003.

(34) Case C-19/92 Kraus [1993] ECR I-1663, paragraph 2.

(35) Case C-55/94 Gebhard, supra; Case C-415/93 Bosman [1995] ECR I-4921.

(36) Case C-55/94, supra.

(37) It is interesting to note that the Court's judgment in Gebhard relates to an area (access to the profession of lawyer) in which harmonization of the conditions for taking up and carrying on the activity is very limited in comparison with insurance. In the insurance sector, these conditions have been very extensively harmonized and the possibilities for relying on general-good rules are, hence, much more limited.

On the other hand, with regard to the law of insurance policies, which is a field that has not been harmonized by secondary Community legislation, the discretion of the Member States is much wider. It is above all in this field that the test of the general good is likely to be applied.

(38) Case C-415/93 [1995] ECR I-4921.

(39) Case C-250/95 Futura, not yet reported.

(40) It should be noted here that where the technique of health insurance is similar to that in the field of life assurance, Article 54 (2) of the third Directive 92/49/EEC has already established the conditions that can be applied to insurers exercising such activities.

As regards compulsory insurance for accidents at work, the Member States concerned may require every insurance undertaking to respect the specific provisions in their national law for such insurance, with the exception of provisions concerning prudential supervision, which belong to the competence of the home Member State (Article 55 of Directive 92/49/EEC).

(41) It should be pointed out that the principle of single authorization and supervision by the home Member State does not obstruct the application of other areas of the national law of the host Member State, e.g. tax law, social security law or labour law, which may accord differentiated treatment to Community firms depending on the way in which they choose to conduct their business, i.e. under the freedom to provide services or as a branch. In any event, the compatibility of such provisions with Community law will always be assessed on the basis of established case-law criteria especially where the general good is concerned, i.e. non-discrimination, non-duplication, necessity, proportionality, etc.

(42) It should be pointed out that the uniform application of the mutual recognition principle to both branches and service providers was not introduced for the first time by the third Insurance Directives but appears also in the other Directives relating to financial services: the second Banking Directive 89/646/EEC (OJ L 386, 30. 12. 1989), as last amended by Directive 92/30/EEC (OJ L 110, 28. 4. 1992, p. 52) and Directive 93/22/EEC on investment services in the securities field (OJ L 141, 11. 6. 1993, p. 27).

(43) See in particular Case 76/72 Michel [1973] ECR 457 and Case C-238/94 García [1996] ECR I-1673.

(44) See most recently Case C-17/92 Federación de Distribuidores Cinematográficos [1993] ECR I-2239.

(45) Case 352/85 [1988] ECR 2085; Case C-17/92 [1993] ECR I-2239; Case C-483/93 Svenssonn [1995] ECR I-3955.

(46) To this list must be added a fortiori the provisions of Article 56, i.e. public policy, public security and public health.

(47) Joined Cases 110/78 and 111/78 Van Wesemael [1979] ECR 35.

(48) Case 279/80 Webb, supra.

(49) Case C-272/94 Guiot [1996] ECR I-1905.

(50) Case 205/84 Commission v. Germany, supra.

(51) Case C-384/93 Alpine Investments BV [1995] ECR I-1141.

(52) Case C-275/92 Schindler [1994] ECR I-1039.

(53) Ibid.

(54) Case 62/79 Coditel [1980] ECR 881.

(55) Case C-180/89 Commission v. Italy [1991] ECR 709.

(56) Case C-288/89 Collectieve Antennevoorziening Gouda [1991] ECR I-4007; Case C-353/89 Commission v. Netherlands [1991] ECR I-4069; Case C-148/91 Veronica Omroep Organisatie [1993] ECR I-487.

(57) Case C-204/90 Bachmann [1992] ECR 249.

(58) Case C-55/93 Johannis Gerrit [1994] ECR 4837.

(59) Case C-3/95 Reisebüro Broede, not yet reported.

(60) Ibid.

(61) See, in the context of the free movement of goods, Case 304/84 Muller [1986] ECR 1511, paragraph 25 and Case C-17/93 Van der Veldt [1994] ECR I-3537.

(62) Case C-76/90 Säger, supra. See also Case C-198/89 Commission v. Greece [1991] ECR I-735.

(63) Case 205/84 Commission v. Germany, supra. See also Case 279/80 Webb, supra.

(64) Articles 6 (3), 29 and 39 of Directive 92/49/EEC and Articles 5 (3), 29 and 39 of Directive 92/96/EEC.

(65) Article 30 (2) of Directive 92/49/EEC.

(66) Article 54 (1) of Directive 92/49/EEC.

(67) The same conclusion applies mutatis mutandis to the other operations referred to in Article 1 (2) of the first Life Assurance Directive 79/267/EEC and contained in points V (Tontines) and VII (Management of group pension funds) of the Annex to the first Directive.

(68) Articles 6 (3), 29 and 39 of Directive 92/49/EEC and Articles 5 (3), 29 and 39 of Directive 92/96/EEC.

(69) See point 2 of the communication from the Commission to the Council and the European Parliament concerning language use in the information of consumers in the Community (COM(93) 456 final, 10. 11. 1993).

(70) See Case 229/83 Centres distributeurs E. Leclerc [1985] ECR 1; Case 83/231 H. Cullet [1985] ECR 305; Joined Cases 209 to 213/84 Asjes [1986] 1425; Case C-70/95 Sodemare, not yet reported.

(71) See Article 17 (1) (B) of the first Directive 79/267/EEC, as amended by Article 18 of the third Directive 92/96/EEC.

(72) See footnote 46.

(73) Case C-384/93 Alpine Investments v. Minister van Financiën [1995] ECR I-1141.

(74) Non-life insurance: see Articles 7 and 8 of the second Directive 88/357/EEC, as amended by the third Directive 92/49/EEC.

Life assurance: Article 4 of the second Directive 90/619/EEC.

(75) It should be pointed out that the Rome Convention on the Law Applicable to Contractual Obligations (OJ L 226, 9. 10. 1980, p. 1) excludes from its scope insurance policies covering risks situated in the territories of the Member States (Article 1 (3)).

(76) Article 5 (d) of Directive 73/239/EEC, introduced by Directive 88/357/EEC and amended in this respect by Directive 90/618/EEC (OJ L 330, 29. 11. 1990, p. 44).

(77) Article 8 (4) of the second Directive 88/357/EEC.

(78) Non-life insurance: Article 7 (1) of the second Directive 88/357/EEC.

(79) Case 82/71 [1972] ECR 119. See also Case 20/92 Hubbard [1993] ECR I-3777.

(80) Case C-168/91 Konstantinidis [1993] ECR I-1191; Case C-339/89 Alsthom Atlantique [1991] I-107; Case C-93/92 Motorradcenter [1993] ECR I-5009.

(81) See in this respect Case C-398/92 Case C-398/92 Mund and Fester [1994] ECR I-467; Case C-43/95 Data Delecta [1996] ECR I-4661; Case C-177/94 Perfili [1996] ECR I-161. See also Hubbard (footnote 65).

(82) Supra, point 2 (b).

(83) Case C-157/91 Commission v. Netherlands [1992] ECR I-5899.