No C 198/2 Official  Journal  of the  European  Communities 7. 8. 79 
II 
(Preparatory  Acts) 
COMMISSION 
Proposal  for  a Council  Directive  on  the  coordination  of laws,  regulations  and 
administrative  provisions  relating  to legal  expenses  insurance 
(Submitted  by the Commission  to the Council  on 23 July  1979) 
THE  COUNCIL  OF THE  EUROPEAN 
COMMUNITIES, 
Having  regard  to  the  Treaty  establishing  the 
European  Economic  Community,  and  in particular 
Article  57 (2) thereof, 
Having  regard  to the proposal  from  the Commission, 
Having  regard  to the  opinion  of the  European  Par-
liament, 
Having  regard  to the  opinion  of the  Economic  and 
Social  Committee, 
Whereas  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  ('), eliminated,  in order  to fa-
cilitate  the  taking-up  and  pursuit  of such  activities, 
certain  differences  existing  between  national  laws; 
Whereas,  however,  Article  7 (2)  (c)  of the  said 
Directive  73/239/EEC  provides  that: 
'Pending  further  coordination,  which  must  be 
implemented  within  four  years  of notification  of 
this Directive,  the  Federal  Republic  of Germany 
may  maintain  the  provision  prohibiting  the  simul-
taneous  undertaking  in its  territory  of health 
insurance,  credit  and  suretyship  insurance  or 
insurance  in respect  of recourse  against  third 
(') OJNoL  228,  16. 8. 1973,  p. 3. parties  and  legal  defence,  either  with  one  another 
or with  other  classes'; 
Whereas  there  exist  therefore  at present  barriers  to 
the establishment  under  effective  conditions  of 
competition  of agencies  and  branches  transacting 
legal  expenses  insurance;  whereas  it is essential  to 
remedy  this  situation; 
Whereas,  in order  to protect  policyholders,  steps 
should  be taken  to prevent  any  conflict  of interests 
between  a person  with  legal  expenses  cover  and  his 
insurer  arising  out  of the  fact  that  the  latter  is 
covering  him  in  respect  of  any  other  class  of 
insurance  referred  to  in  the  Annex  to  the 
abovementioned  Directive  or  is covering  another 
person; 
Whereas  the  system  of compulsory  specialization  at 
present  applied  by one  Member  State,  the  Federal 
Republic  of Germany,  precludes  the  majority  of such 
conflicts;  whereas,  however,  it does  not  appear 
necessary,  in order  to obtain  this  result,  to extend 
that system  to the  entire  Community,  which  would 
require  the splitting  up of composite  undertakings; 
Whereas  the  desired  result  can  equally  well  be 
achieved  by requiring  such  composite  undertakings  to 
adopt  a separate  management  comprising  in particular 
separate  accounting  and  a separation  of contracts  or 
of the  cover  provided  under  a single  contract; 
whereas  the  management  of claims  in respect  of legal 
expenses  cover  by an entity  having  separate  legal 
personality  is also  an appropriate  way  of precluding 
the risk  of a conflict  of interests; 
7. 8. 79 Official  Journal  of the  European  Communities No C 198/3 
Whereas,  in  order  to  attain  this  same  objective, 
specialized  undertakings  must  also  comply  with 
certain  provisions;  whereas  members  of their  staff 
who  deal  with  the  management  of claims  ought  not 
to carry  on at the  same  time  a similar  activity  in an 
undertaking  transacting  another  class  of insurance; 
Whereas  the  conflict  of interests  which  may  arise 
between  an insurer  and  an insured  person  implies  that 
the latter  must  be free  to choose  his lawyer; 
Whereas  conflicts  may  nevertheless  arise  between 
insurer  and  insured;  whereas  it is important  that  they 
be settled  in the  fairest  and  speediest  manner  possible; 
whereas  it is appropriate  therefore  that  provision  be 
made  in legal  expenses  insurance  policies  for  an arbi-
tration  or equivalent  procedure; 
Whereas  the  second  paragraph  of point  C of the 
abovementioned  Directive  73/239/EEC  provides  that 
the risks  included  in classes  14 and  15 in point  A may 
not be regarded  as risks  ancillary  to other  classes; 
Whereas  an insurance  undertaking  should  not  be able 
to cover  legal  expenses  as a risk  ancillary  to another 
risk without  having  obtained  an  authorization  in 
respect  of the  legal  expenses  risk;  whereas  a reference 
to class  17 should  therefore  be inserted  in point  C of 
the said  Annex, 
HAS  ADOPTED  THIS  DIRECTIVE: 
Article  1 
The purpose  of this  Directive  is to coordinate  the 
provisions  laid  down  by  law,  regulation  or 
administrative  action  concerning  legal  expenses 
insurance  as referred  to in paragraph  17 of point  A of 
the Annex  to Council  Directive  73/239/EEC,  herein-
after  called  'First  Coordination  Directive',  in order  to 
eliminate  any  possible  conflicts  of interest  between  a 
person  with  legal  expenses  cover  and  his  insurer 
arising  out  of the  fact  that  the  latter  is covering  him 
in respect  of any  other  class  of insurance  referred  to 
in that  Annex  or is covering  another  person. 
This  Directive  does  not  apply  to  legal  expenses 
insurance  where  such  insurance  is linked  with  that  in 
respect  of liability  arising  out  of the  use  of ships, 
vessels  or  boats  on  the  sea,  as  referred  to  in 
paragraph  12  of point  A of the  Annex  referred  to 
above. Article  2 
This  Directive  shall  apply  to those  various  elements  in 
a contract  of legal  expenses  insurance  whereby  the 
insurer  provides  services  or  bears  costs  for  the 
purpose,  in particular,  of: 
— securing  compensation  for  the  loss,  damage  or 
injury  suffered  by the  insured  person,  whether  by 
settlement  out  of  court  or  through  civil  or 
criminal  proceedings, 
— defending  the  insured  person  in civil,  criminal, 
administrative  or other  proceedings  or in respect 
of any  claim  made  against  him  otherwise  than 
through  such  proceedings. 
Article  3 
1. All  undertakings  which  transact  at the  same  time 
legal  expenses  insurance  and  insurance  in one  or 
more  other  classes  set  out  in the  First  Coordination 
Directive  shall  manage  legal  expenses  insurance 
separately  from  the  other  classes  of insurance. 
2. The  separate  management  shall  be organized  in 
such  a way  that  the  simultaneous  transaction  of legal 
expenses  insurance  and  one  or more  of the  other 
classes  set  out  in the  First  Coordination  Directive 
shall  not  prejudice  the  interests  of the  insured  person 
with  regard  to the  cover  of legal  expenses. 
This  shall  mean  in particular  that: 
— separate  accounts  shall  be kept  in respect  of the 
legal  expenses  business, 
— legal  expenses  cover  shall  be  the  subject  of a 
contract  separate  from  that  drawn  up  for  the 
other  classes  of insurance  or shall  be dealt  with  in 
a separate  section  of a single  policy  in which  the 
nature  of the  legal  expenses  cover  and  the  amount 
of the  relevant  premium  shall  be specified. 
3. Furthermore,  Member  States  may  require  under-
takings  which  transact  or wish  to transact  within  their 
territory  at the  same  time  legal  expenses  insurance 
and insurance  in one  or more  other  classes  set out  in 
the First  Coordination  Directive  to  entrust  the 
management  of claims  in respect  of legal  expenses 
insurance  to an  entity  having  separate  legal  perso-
nality.  This  company  shall  be  mentioned  in  the 
contract  or separate  section  referred  to in the  second 
indent  of paragraph  2. Member  States  which  make 
use of this  option  shall  so inform  the  Commission  and 
the other  Member  States. 
Article  4 of this  Directive  shall  apply  by analogy  to 
the relations  between  the  undertaking  which  transacts 
NoC  198/4 Official  Journal  of the  European  Communities 7. 8. 79 
both  legal  expenses  and  other  insurance  and  the 
company  which  is entrusted  with  the management  of 
claims. 
4. Every  contract  of legal  expenses  insurance 
entered  into  by an undertaking  which  transacts  such 
insurance  and  one  or more  other  classes  of insurance, 
but does  not  entrust  the  management  of claims  in 
respect  of its legal  expenses  business  to an entity 
having  separate  legal  personality,  shall  provide  that 
where  the  person  enjoying  legal  expenses  cover  calls 
upon  the  insurer  to meet  obligations  in respect 
thereof,  the latter  shall  advise  him  of any  factor  liable 
to bring  about  a conflict  of interests  between  them 
and shall  at the same  time  give  him  the possibility  of 
entrusting  the defence  of his interests  to a lawyer  of 
his choice.  Any  insurer  not  fulfilling  this  obligation 
shall  compensate  the insured  person  for any  resultant 
loss. 
Article  4 
Where  an undertaking  transacting  only  legal  expenses 
insurance  has  financial,  commercial  or administrative 
links  with  an undertaking  which  transacts  one  or 
more  of the other  classes  of insurance  set out  in the 
First  Coordination  Directive,  no  member  of the 
management  of the indoor  or outdoor  staff  of either 
company  who  is concerned  with  the management  of 
claims  or with  legal  advice  in respect  thereof  may  at 
the same  time  carry  on a similar  activity  in the other 
company. 
Article  5 
On each  occasion  when  it is necessary  to instruct  a 
lawyer  to represent  or defend  the interests  of a person 
with  legal  expenses  cover,  the latter  must  be free  to 
choose  his lawyer.  The  insured  person  shall  not  have 
the capacity  to surrender  this  right  by contract. 
Article  6 
Member  States  shall  adopt  all appropriate  measures 
to ensure  that  legal  expenses  insurance  policies 
provide  for  an arbitration  or equivalent  procedure 
whereby,  where  there  is a difference  of opinion 
between  a legal  expenses  insurer  and  his client  as to what  action  should  be taken,  the  dispute  shall  be 
resolved  by one  or more  persons  who  shall  be lawyers 
or arbitrators. 
The insured  person  shall  not be required  to bear  more 
than  one  half  of the  costs  resulting  from  such 
procedure. 
Article  7 
Member  States  shall  abolish  all  provisions  which 
prohibit  an insurer  from  carrying  on within  their 
territory  legal  expenses  insurance  and  other  classes  of 
insurance  at the same  time. 
Article  8 
The second  paragraph  of point  C of the Annex  to the 
First  Coordination  Directive  shall  be replaced  by the 
following  text: 
'However,  the risks  included  in classes  14, 15 and 
17 in point  A of this  Annex  may  not  be regarded 
as risks  ancillary  to other  classes.' 
Article  9 
Member  States  shall  amend  their  national  provisions 
so as to comply  with  this  Directive  within  12 months 
of its notification  and  shall  forthwith  inform  the 
Commission  thereof. 
The provisions  thus  amended  shall  be applied  within 
18 months  of the date  of notification. 
Article  10 
Following  notification  of this  Directive,  Member 
States  shall  communicate  to the Commission  the texts 
of the  main  provisions  of the  laws,  regulations  or 
administrative  provisions  adopted  by them  in the field 
covered  by this  Directive. 
Article  11 
This  Directive  is addressed  to the Member  States.