Opinion of the European Economic and Social Committee on ‘The European Insurance Contract’
Date: 2004-12-15
Institutions: European Economic and Social Committee
Subjects: EU law, approximation of laws, insurance contract, insurance law, single market

28.6.2005

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II

(Preparatory Acts)

EUROPEAN ECONOMIC AND SOCIAL COMMITTEE

413th PLENARY SESSION OF 15 AND 16 DECEMBER 2004

Opinion of the European Economic and Social Committee on ‘The European Insurance Contract’

(2005/C 157/01)

On 17 July 2003 the European Economic and Social Committee, acting under the second paragraph of
Rule 29 of its Rules of Procedure, decided to draw up an opinion on ‘The European insurance contract’.

The Section for the Single Market, Production and Consumption, which was responsible for preparing the
Committee's work on the subject, adopted its opinion on 10 November 2004. The rapporteur was
Mr Pegado Liz.

At its 413th plenary session of 15 and 16 December 2004 (meeting of 15 December), the European
Economic and Social Committee adopted the following opinion by 137 votes to one, with two abstentions
.

1. Introduction and grounds

market caused by the current diversity in the legislation
defining and regulating insurance contracts;

1.1
The fundamental principles regulating the drawing up
and validity of insurance contracts vary in the different legal
systems of the EU's Member States, despite the fact that they
have common origins and very similar structures.

1.2
Given that this is a key component in the operation of
the single market because of the additional security it brings to
commercial relations between insurance industry professionals
and consumers, the differences in legislation covering essential
aspects of insurance contracts in the various national
legal
systems are likely to create barriers to the completion of the
single market and cause additional difficulties for the cross-
border marketing of this financial instrument.

— identifying common principles in the different national
systems governing insurance contracts and areas which
could — from a technical and legal point of view — be
harmonised;

— considering possible

solutions and proposing models,
formulas or instruments which might need to be adopted in
order to secure more suitable Community-level legislation
to govern insurance contracts.

1.3
The present own-initiative opinion therefore aims to
alert the competent national and Community bodies to the
need and advisability of:

— cataloguing the issues and problems for consumers and for
the completion and the smooth operation of the single

1.4
From the start of the preparatory work for this own-
initiative opinion, it was deemed essential to secure the coop-
eration and involvement of members of the ‘Restatement of
European Insurance Contract Law’ Group, headed and coordi-
nated by Fritz Reichert-Facilides, Prof. Emeritus of Law at
Innsbruck University; this group comprises eminent lawyers
and specialists in insurance law from 15 European countries.

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1.4.1
Consequently, there was considerable satisfaction at
Prof. Reichert-Facilides' immediately acceptance of our invita-
tion to act as expert for the rapporteur. To this end, he imme-
diately put together an initial contribution (Position Paper I).

Secondly,
it is essential that the conflicting interests of the
parties are carefully balanced. As to this aspect, due recognition
must be given to the modern trend to grant a relatively high
degree of protection to the policyholder.

1.4.2 While Prof. Reichert-Facilides was in the process of
drafting this opinion, he unexpectedly passed away.

His life-long interest

1.4.3
in and considerable academic
work on the subject of insurance, together with his draft ‘Resta-
tement’, amply justify this reference here and a special mention
in tribute to his
of thanks for his remarkable commitment,
memory.

This fully explains and warrants the quotation here of
1.4.4
a substantial part of his ‘Position Paper I’;
this paper was
prepared as an introduction to the work leading up to this
opinion, and must have been one of the last pieces he wrote.

‘1. The diversity of European insurance contract laws consti-
tutes a serious impediment to a Single Insurance Market. This
has been the Group's judgment from the beginning. It is more-
over clearly emphasised by the EESC itself; thus in its Own-
Initiative Opinion “Consumers in the insurance market” of 29
January 1998 (OJ C 95 of 30 March 1998, p. 72; cf. there, e.g.,
nos. 1.6. and 2.1.9. par. 2). In the meantime, the Commission
itself seems to have converted to this insight (see Communica-
tion from the Commission to the European Parliament and the
Council of 12 February 2003: A more coherent European
Contract Law — An Action Plan, COM(2003) 68 final, OJ C
63 of 15 March 2003, p. 1; cited in the following as Action
Plan; cf. there, e.g., nos. 27, 47/48, 74).

term specific to the United States.

2. A harmonisation of laws in general and, of course, also of
insurance contract laws, can only be done on the basis of solid
comparative law research. The goal of our Group's work is a
restatement solution. What
is meant by “restatement”? The
word is derived from “to restate”, which is defined as “to
express again or convincingly.” In the legal sphere, “Restate-
ment” is a technical
It
describes — as is well known “in the profession” — a
condensed body of legal rules, derived from different but, in
substance, similar sources, systematised and unified in the sense
of a “best solution”. The work is done on a private, not legisla-
tive basis, by the American Law Institute. The similarities in
meaning of the sources stem, in the U.S., from the Common
Law basis of the (different) private laws of the various States. In
European insurance laws, comparably, similarities in substance
are due to their subject: “insurance”. This subject produces, as a
result of its very nature, similar regulatory needs. Guidelines for
finding a “best solution” for insurance contract law might be
these. Firstly, due consideration must be given to the essential
task of all insurance contract law: to provide a legal framework
for effective risk bearing on the part of the insurer and thus to
guarantee the good functioning of insurance business itself.

3. The Restatement as envisaged by our Group concentrates
on mandatory rules (resp. semi-mandatory ones, for the benefit
of the policyholder's side). Why that? It must be kept in mind
that the “living law” of insurance contracts is primarily not
found in statutes but in standard contract terms. Respecting
this means not only acknowledging realities but also devoting
oneself to the principle of freedom of contract. On the other
hand, there remains the essential task for the legislator to limit
this freedom. This has to be done for reasons of public policy
and for those of protecting the policyholder (or such third
persons for whose benefit the insurance is taken out). Particular
attention has to be paid to contract clauses which may lead to
a loss of insurance protection. The technical means to provide
these aims is — throughout all European legal orders — the
legislative creation of (semi)mandatory insurance contract law
provisions. — The problems arising insofar in view of a Single
Market are indicated by the Action Plan in these words: “…
Member States have developed rules which may or may not be
included in an insurance contract. To the extent that these
rules differ they might affect the products which are offered
across borders.” And indeed: Real promotion of an internal
insurance market requires harmonisation/unification of those
limitations of insurance contract freedom, — with the conse-
quence that all (standard) contracts abiding by such uniform
norms may be offered, competingly, throughout all European
countries and thus provide for an undivided market situation.
This is exactly the goal which the work of the Project
is
heading at.

4. The work's comparative law preparation (as indicated supra
sub no.2)
is strived for, as far as our Project Group is
concerned, by its mere composition. Experts of 16 legal orders
of insurance contract (within and outside the EU) are included.

5. The question poses itself whether the Restatement should
substitute the existing national rules or provide for an addi-
tional (at the time being: 16th) model especially for transformer
contracts. The problem is put forth by the Action Plan which
opens discussion for a so-called Optional Instrument. The issue
shall presently not be further dealt with.

6. Comparative work in insurance contract law must be done
with close attention towards general contract law. The Project
Group is bound to that by especially constantly observing and
considering the so-called Lando/Beale principles. Moreover, it
cooperates closely with the “Study Group on a European Civil
Code” (Professors von Bar and Beale). Within this organisation,
the Group is entrusted with the responsibility especially for
insurance contract law’.

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1.5
Various meetings have been held in preparation for this
opinion, with representatives from the European Commission
involved in the insurance sector and completion of the single
market, the CEA (The European Federation of National Insur-
ance Associations) and BEUC (the European Consumers' Orga-
nisation); this has allowed us to collect ideas, reactions and
suggestions regarding the subject in hand.

1.6
It was also decided to put together a questionnaire, to
be addressed to a wide range of national and Community
bodies — both public and private — representing the principal
stakeholders. At the same time a hearing will be held with the
main representatives of the interest groups involved (insurers,
manufacturing companies and other professionals and consu-
mers), together with legal experts and academics from different
backgrounds and legal systems.

1.7
This opinion outlines the main thrust of the replies to
the questionnaire, together with the reactions and suggestions
from the hearing held on 16 April 2004.

2. Some precedents

2.1.3
It pointed out more specifically that: ‘the different ways
in which each Member State has regulated these questions — or,
alternatively, the lack of regulation — leaves an entire market, where
competition is far from perfect and those acting for one side tend to
work together to the detriment of the other, to its own devices. This
means that a huge number of different solutions exist to what are
identical situations within the single market, particularly with regard
to cross-border transactions, which are becoming ever simpler with the
arrival of the information society’ (6).

2.1.4
After analysing the areas which it felt could be and
ought to be harmonised, the Opinion concluded by alerting the
Commission and the Member States to ‘the advisability of re-
examining the Commission's 1979 draft Directive on the coordina-
tion of
laws, regulations and administrative provisions relating to
insurance contracts in the light of the principle of subsidiarity’ (7); the
Committee urged the Commission to spare no effort in defining
Community-level common minimum requirements for insur-
ance contracts (draft directive) (8).

2.1
This is not a new issue for the EESC. The European
Economic and Social Committee has already issued an opinion
on ‘Consumers in the insurance market’ (1); this drew attention to
the ‘Proposal for a Council Directive on the coordination of laws,
regulations and administrative provisions
relating to insurance
contracts’ (2), which sought above all to harmonise some of the
basic rules and regulations pertaining to insurance contract
that
law;
hitherto the Commission had not taken another look at this
issue, ‘even though it is the prevailing opinion among both insurance
operators and consumer organisations that a whole series of obstacles
hampering completion of the single market in this field can be traced
back to the absence of Community legislation on insurance contracts
(a minimum level of harmonisation of substantive law)’ (3).

the Committee opinion also deplored that

fact

Further on in the opinion, the Committee highlighted
2.1.1
the first of a number of acknowledged general obstacles to the
effective implementation of
the single insurance market as
being ‘the total lack of harmonisation at the level of substantive law,
in other words, a minimum level of regulation on insurance contract
law in the European Union’ (4).

2.1.2 Moreover, the Committee drew attention to the fact
that ‘there is no legal framework at Community level defining rules
for a minimum level of transparency in insurance contracts in general,
including non-life insurance or, more specifically, describing unfair
general contractual clauses in insurance, or even laying down general
principles of good faith or contract balance in the field of
insur-
ance’ (5).

(1) Rapporteur: Mr Manuel Ataíde Ferreira (OJ C 95 of 30.3.98).
(2) COM(79) 355 final, in OJ C 190, of 28.7.79, amended by COM(80)
854 final, in OJ C 355 of 31.12.80: the EESC and EP opinions are
to be found in, OJ C 146 of 16.6.80 and C 265 of 13.10.80 respec-
tively. These texts will be examined in point 5 of this opinion.

(3) See footnote 1, point 2.1.9.
(4) See footnote 1, point 2.3.1.1.1.
(5) See footnote 1, point 3.4.

2.2 Moreover, consumer organisations and insurance profes-
sionals' associations have long been pointing to the need for
further harmonisation of legislation on insurance contracts.

2.2.1
As early as 1986, the European Consumer Law Group
was drawing attention to the need for ‘some harmonisation of the
laws on insurance contracts in the Community’, and pinpointed the
aspects of insurance contractual relations which it felt ought to
be harmonised (9).

(6) See footnote 1, point 3.6.1.
(7) See footnote 1, point 4.3.6.
(8) It was considered that the directive should include the following

aspects:
‘– minimum pre-contract information;
– a list of key terms and their meanings;
– a list of typical unfair terms in insurance contracts;
– the minimum compulsory content of any insurance contract;
– all the contractual obligations common to any insurance contract;
– the basic principles and rules of any insurance contract;,
– a provisional compensation scheme for third party liability insurance;
– compulsory link between premiums and the value of risks, in particular
by means of automatic depreciation of insured objects in line with their
age and a corresponding reduction in premiums;

– establishment of harmonised minimum cooling-off periods within which

consumers may withdraw from a contract;

– requirement for policies to be legible and understandable and for the
general and special conditions to be made available during the pre-
contract stage and before signature.

for a Directive of

See footnote 1, point 4.5. This line has been taken up again and
reiterated in various EESC opinion, such as in the recent opinion on
the Proposal
the
Council
84/5/EEC,
88/357/EEC, 90/232/EEC and Directive 2000/26/EC on insurance
against civil liability in respect of the use of motor vehicles, for which the
Rapporteur was Mr Levaux (point 4.3.) OJ C 95, of 23.4.2003.’

the European Parliament and of
72/166/EEC,

Council Directives

amending

(9) ‘ECLG-Consumer Insurance’,

pp. 205-228

in Journal of Consumer Policy (1986),

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2.2.2
The BEUC, for its part, has since at least 1994 been
pointing out the advisability of setting up a ‘basic legal frame-
work’ to deal with key aspects of insurance contracts which
might constitute ‘a common minimum legal basis’.

2.2.3
variety of organisations representing consumers.

A similar view was expressed in December 1998 by a

‘the diversity of national

The European Federation of National Insurance Asso-
2.2.4
ciations (CEA),
in its recent comments on the Commission's
Communication on a more coherent European contract law,
firstly emphasised that the Commission was right to suggest
that
regulations governing insurance
contracts concluded with consumers acts as a brake on the develop-
ment of cross-border transactions in the insurance sector’, and then
pointed out that ‘concerning the so-called “harmonised” acquis
the number and complexity of provisions
communautaire,
contained in the various texts covered by contract law in the
insurance sector pose real problems’.

in the various community texts applicable,

2.2.4.1
After listing a whole series of situations where there
was a pointless overlap of identical or unjustifiably different
it
provisions
concluded by expressing its support for ‘this proposal to improve
the acquis communautaire’ provided there was a proper prior
cost/benefit analysis and full consultation with interested
parties, focusing on barriers to the single market (10).

2.3
For its part, the Commission, in its Communications on
‘European Contract Law’ (11) and ‘A more coherent European Contract
Law — An Action Plan’ (12) has highlighted in this connection
that, according to several of the bodies consulted, insurance
contracts represent one area in the sphere of financial services
which raises more problems because of the ‘diversity of national
regulations’ in application. For this reason, consideration should
be given to the possibility that
such
measures may be needed in order to balance the need for greater
uniformity of national rules with the need to maintain product inno-
vation and choice’, and even to making this a priority in ‘a follow-
up action to the Better Regulation Action Plan’ (13).

convergence of

‘further

2.4
Lastly, the European Parliament, in its Resolution on the
Commission's Communication on the above-mentioned Action
Plan, regretting ‘the lack of early action to produce optional instru-
ments in certain sectors, such as consumer transactions and insurance,
where substantial benefits could accrue both to assist the good func-
tioning of the internal market and to increase intra-Community trans-
actions and trade,’ considers that ‘in order to facilitate cross-border

(10) CEA note of 4 June 2003.
(11) COM(2001) 398 final of 11.7.2001 (OJ C 255 of 13.9.2001)
(12) COM(2003) 68 final of 12.2.2003
(13) Action Plan – point 74. Also see points 27, 47 and 48 of the same

document

trade within the internal market,
it should be an early priority to
proceed with the establishment of an optional instrument in certain
sectors, particularly those of
contracts and insurance
contracts, and therefore calls on the Commission as a matter of
priority, whilst having regard to a high level of consumer protection
and the integration of
to
produce an opt-in instrument in the areas of consumer contracts and
contracts of insurance’ (14).

the appropriate mandatory provisions,

consumer

3. Replies to the questionnaire and the hearing of 16 April

2004

3.1
The questionnaire, which was sent in good time to a
number of bodies, elicited a total of 27 replies from both
national regulatory authorities in several countries and repre-
sentatives of insurance companies, industry, trade and consu-
mers.

3.1.1
Replies were received from Austria, Belgium, Finland,
France, Germany, Liechtenstein, Lithuania, Malta, Norway,
Poland, Slovakia, Slovenia and Sweden.

3.1.2
ance Contract Law Project Group sent a single joint reply.

The members of the Restatement of European Insur-

3.2

A clear and unequivocal majority felt that:

a) the lack of mandatory rules of insurance law constitutes a
barrier to cross-border provision of insurance services, and
numerous instances of this are cited;

b) this situation prevents customers seeking insurance from
obtaining coverage from foreign insurers, with innumerable
examples being given;

c) this fact is an obstacle to insurance intermediaries providing
their services across borders, and a number of examples are
quoted;

d) harmonisation of mandatory rules of insurance contract law
would help insurers, customers and insurance intermediaries
to increase cross-border insurance transactions;

e) the Commission Directive of 1979-80 is still a good basis
for discussion of this matter, if reformulated in new terms
for which some
and according to different parameters,
respondents gave examples and suggestions.

The hearing was attended by 46 representatives of 36

3.3
institutions from 17 countries.

(14) Doc. A5-0256/2003, adopted at

the EP session on 2.9.2003,

points 11and 14.

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3.4
The general thrust of the replies to the questionnaire,
together with the discussions during the hearing, point to an
overall consensus, which may be summarised as follows:

3.5.2
contracts and only to natural persons.

Harmonisation should apply only to cross-border

There are striking differences between national

3.4.1
legal
arrangements where the regulation of insurance contracts is
concerned;

3.4.2
There is a significant lack of harmonisation regarding
insurance law at EU level, with repercussions for the comple-
tion of the internal market in this field;

3.4.3
A degree of harmonisation is desirable/necessary, espe-
cially for small and medium-sized insurers (individual consu-
mers and SMEs), in order to avoid inequalities and discrimina-
tion (mass risk);

A step-by-step approach should be taken to harmo-
3.4.4
nising insurance contract law and excessive rigidity should be
avoided, since harmonisation is not an end in itself but rather a
means of achieving the single market and as such, should
comply with the principles of necessity and proportionality;

3.4.5

The primary objective of harmonisation must be:

— mandatory rules

— the general part of insurance contract law.

The form of the model contract resulting from harmo-
3.4.6
nisation could be ‘optional’, but all its terms and components
must be mandatory for the parties as soon as it is adopted.

3.4.7
model should be a regulation,
harmonisation.

The Community instrument employed to adopt the
in order to ensure complete

3.5.3
ment of the single market in insurance.

Harmonisation is not a panacea for the underdevelop-

3.5.4
Particular attention must be given to mutual insurance
and welfare and social security bodies on account of their
specific features.

4. The need for a Community-level initiative

4.1 The internal market and insurance

4.1.1 G e ne r a l obse r va t i ons on th e r e la ti onsh i p of t h e

i nt e r na l ma r ke t a nd i nsu r a n c e

4.1.1.1
The European internal market comprises an area
without internal borders allowing the free movement of goods,
persons, services and capital (Art. 14 (2) EC-Treaty). ‘Insurance’
falls within the scope of the freedom to provide services (Art.
(49 — 55) EC-Treaty) or the right of establishment depending
on the circumstances of
Insurers providing their
the case.
services across borders or establishing themselves in another
Member State bring national insurance products into competi-
tion with their own policies.

4.1.1.2
As a result, the variety of choices to potential policy-
holders becomes larger. Ideally, positive selection by customers
seeking insurance should be the ‘invisible’ hand steering the
internal insurance market.

3.4.8
The proposals contained in the Commission's 1979-
80 directive, as amended to reflect the suggestions of the EP
and the EESC, could provide a starting-point for drafting the
regulation, but they need to be thoroughly overhauled in the
light of intervening developments in insurance law.

4.1.1.3
Further freedoms are affected by insurance matters:
the free transfer of premiums and insurance proceeds is guaran-
teed (see Art. 56 EC-Treaty). Furthermore, policyholders
making use of their freedom under Article 18 of the EC Treaty
should not face adverse effects on their policies when changing
their habitual residence from one jurisdiction to another.

3.4.9
Harmonisation, as outlined above, could stimulate
cross-border insurance and contribute to the further develop-
ment of the single market in this field.

3.4.10
such an initiative.

Treaty Article 95 could provide the legal basis for

3.5

Some respondents and participants added that:

3.5.1
definition of fundamental concepts.

Harmonisation should be ‘optional’ and limited to the

4.1.2 St a tu s of

i nsu r a nc e

la w h a r moni sa ti on a nd

i nsu r a nc e contr ac t law

4.1.2.1
This wide range of relations between insurance (law)
and the freedoms of the EC Treaty have led the EC to harmo-
nise important sectors of insurance law for the (proper) func-
tioning of the internal market. Legislation on insurance supervi-
sion is substantially harmonised throughout the EC and the
EEA by means of the so called ‘three generations’ of directives
in the field of insurance.

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4.1.2.2
On the basis of these achievements a system of
single licensing and home country control has been introduced
— as it was already envisaged by the ECJ in its decision of 4
December 1986 (15).
In the field of insurance contract law,
harmonisation is more or less restricted to issues of private
international and international procedural law (16).

4.1.2.3
Substantive insurance contract law has only been
harmonised in specific sectors and within those sectors only on
specific issues. There is, for example, a considerable body of
harmonised law in the field of motor vehicle liability insur-
ance (17). Common rules are also known in the field of legal
expenses insurance (18).

4.1.2.4
However, the vast majority of rules of substantive
insurance contract law, i.e. the general part providing for rules
applicable to all branches of
to
national legislation. This observation inevitably raises the ques-
tion of whether or not harmonisation of insurance contract law
is required in order to allow a proper functioning of
the
internal insurance market. The answer must be in the affirma-
tive if divergences in national insurance contract laws form a
barrier to the internal market.

is still subject

insurance,

(15) ECJ of 4 Dec. 1986 ECR 1986, 3755 (Commission / Germany).
(16) International procedural law: Council Regulation (EC) No 44/2001
of 22 December 2000 on jurisdiction and the recognition and
enforcement of judgments in civil and commercial matters; OJ
2001 No. L 12/1 (latest amendment OJ 2002 No. L 225/13), Art.
8 - 14; private international law: Convention on the Law Applic-
able to Contractual Obligations of 19 June 1980, OJ 1980 No. L
166, i.p. Art. 1 par. 3, 4; Directives' law: Second Council Directive
88/357/EEC of 22 June 1988 on the coordination of laws, regula-
tions and administrative provisions relating to direct
insurance
other than life assurance and laying down provisions to facilitate
the effective exercise of freedom to provide services and amending
Directive 73/239/EEC; OJ 1988 No. L 172/1 (latest amendment OJ
1992 No. L 228/1), i.p. Art. 2 lit c, d; art. 3, 5, 7 and 8; Council
Directive 92/49/EEC of 18 June 1992 on the coordination of laws,
regulations and administrative provisions relating to direct insur-
ance other
amending Directives
73/239/EEC and 88/357/EEC (third non-life insurance Directive);
OJ 1992 No. L 228/1 (latest amendment OJ 2003 No. L 35/1), i.p.
Art. 1 lit. a, b; Art. 27, 28, 30, 31; Directive 2002/83/EC of the
European Parliament and of the Council of 5 November 2002
concerning life assurance; OJ 2002 No. L 345/1; i.p. Art. 32, 33; as
to the private international law of the directives see Reichert-Facil-
ides/d'Oliveira (eds.), International Insurance Contract Law in the EC,
Deventer 1993; Reichert-Facilides (Hg.), Aspekte des internationalen
Versicherungsvertragsrechts im EWR, Tübingen 1994.

than life

assurance

and

(17) Council Directive 72/166/EEC of 24 April 1972 on the approxima-
tion of the laws of Member States relating to insurance against civil
liability in respect of the use of motor vehicles, and to the enforce-
ment of the obligation to insure against such liability; OJ 1972 No.
L 103/1 (latest amendment OJ 1984 No. L 8/17); Second Council
Directive 84/5/EEC of 30 December 1983 on the approximation of
the laws of the Member States relating to insurance against civil
liability in respect of the use of motor vehicles; OJ 1984 No. L
8/17 (latest amendment OJ 1990 No. L 129/33); Third Council
Directive 90/232/EEC of 14 May 1990 on the approximation of
the laws of the Member States relating to insurance against civil
liability in respect of the use of motor vehicles; OJ 1990 No. L
129/33; Directive 2000/26/EC of the European Parliament and of
the Council of 16 May 2000 on the approximation of the laws of
the Member States relating to insurance against civil
liability in
respect of the use of motor vehicles and amending Council Direc-
tives 73/239/EEC and 88/357/EEC (Fourth motor insurance Direc-
tive); OJ 2000 No. L 181/65; a fifth directive was proposed by the
Commission on 7 June 2002, COM (2002) 244 final = OJ 2002
No. C 227 E/387.

(18) Council Directive 87/344/EEC of 22 June 1987 on the coordina-
tion of laws, regulations and administrative provisions relating to
legal expenses insurance; OJ 1987 No. L 185/77.

4.2 Insurance contract law as a barrier to the functioning of the

internal insurance market

4.2.1 Pr e se nt

si tu a ti on:

a n

i nc omp le te

i nt e r na l

i nsu r a nc e ma r ke t

4.2.1.1
There is empirical data indicating that the measures
taken by the EC so far (19) have substantially enhanced but have
not yet completed the functioning of the internal
insurance
market (20). This holds true for example for the freedom to
provide services in the field of mass risk insurance which is
guaranteed by Article 49 et seq. of the EC Treaty and envisaged
by the directives on insurance law but — in reality — not
substantially used by either the insurance industry or custo-
mers.

4.2.2 G e ne r a l b a c kg r ou nd of toda y's si tu a ti on

situation described above may be
4.2.2.1
The present
explained by looking at its general
legal background. A key
factor is the fact that insurance is frequently called a ‘legal
product’. This means that the product sold by an insurance
company is the insurance contract
itself shaped by party
autonomy and the (mandatory) law applicable to the contract.

4.2.2.2
Certainly there is no need to worry about the proper
functioning of the internal market as far as there is party
autonomy in the field of
law allowing
parties to shape insurance products in line with their mutual
preferences.

insurance contract

4.2.2.3
However, insurance is to a large extent governed by
mandatory rules (21). Some of these rules are at the same time
internationally mandatory.

(19) Mentioned sub 4.1.2.
(20) See Eurostat.
(21) Such rules can be called absolutely mandatory whenever parties
may not deviate therefrom by way of agreement. They may be
called semi-mandatory whenever parties may (only) agree on terms
more favourable to the customer than the legal rules.

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4.2.2.4
In effect the product of a particular insurer is to a
considerable degree shaped by the law applicable to the insur-
ance contract. This is why differences in national
insurance
laws may form a barrier to the internal market. The action plan
of the Commission on a more coherent European contract law
openly acknowledges this fact (22). This will be explained below
by looking at the perspective of the insurer (point 4.2.3), the
policyholder (point 4.2.4) and the insurance intermediaries
(point 4.2.5).

4.2.3.5
The insurer may avoid this result by choosing the
law applicable to the insurance contract (most likely the law of
its own seat) by way of agreement with the policyholder.
However, this option is substantially limited by the rules of
private international law in the directives on insurance. In non-
life insurance the directives grant free choice of law only for
insurance contracts covering large risks (26). Member States —
i.e. the Member State where the risk is situated — are granted
discretion to expand the scope of party autonomy (27). In all
other cases the directives grant party autonomy only to a
limited degree (28) and thereby do not avoid the described
problems of insurers selling their insurance contracts across
borders. In the field of life assurance the Member State of the
commitment may grant party autonomy (29). Otherwise parties
only enjoy a very limited choice of law (30).

4.2.3 T h e p e r sp e ct i ve of t h e i nsu r e r

Insurers are the producers of insurance coverage.
4.2.3.1
The design of their policies is based on a risk calculation which
takes into consideration the legal environment
in which a
policy is sold. An insurer who is able to sell a product under
one and the same legal order throughout the Community may
pool risks covered in the EC without distortions stemming
from differences in national insurance laws. As a result differ-
ences of insurance law would not form a barrier to the free-
doms of the insurer.

4.2.3.2
On the contrary, if the law applicable to a policy
changes depending on where the policy is sold, the differing
legal environment in each Member State will influence the risk
calculation and therefore affect the functioning of the ‘law of
large numbers’ on which the business of insurance is based.

As a result,

4.2.3.3
insurers selling their services across
borders would have to submit their policies to different design
and calculations depending on the law applicable. This would
form a severe barrier to the functioning of the internal market.

4.2.3.4
A short look at the Community's rules on private
international law in the insurance sector shows that an insurer
is in fact forced to adjust policies to the legal environment of
the Member State where they are sold. According to Article 7
(1) (a) and (h) of the Second Non-Life Insurance Directive (23) it
is the law of the Member State in which the risk is situated and
according to Article 32 (1) (1) of the Directive on Life Assur-
ance (24) the Member State of the commitment which applies to
the insurance contract. The place where the risk is situated or
the place of the commitment is in most cases determined by
the habitual residence of the policyholder (25).

(22) OJ 2003 No. C 63/1 (9 sub no. 47, 48: ‘The same problems occur

particularly with insurance contracts’.

(23) Full quotation see supra, note 20.
(24) Full quotation see supra, note 20.
(25) See Art. 2 lit. d Second Non-Life Insurance Directive; art. 1 par. 1

lit. g) Directive on Life Assurance.

These observations on the situation of European
4.2.3.6
international insurance contract law clearly show that in the
insurance of mass risks the insurer has to adapt its product in
most cases to the legal environment of the habitual residence
of the policyholder. (31) This burden is further increased by the
fact that the policyholder may change the place of habitual resi-
dence after the conclusion of the contract (32).

The only exception in European international insur-
4.2.3.7
ance contract law is the insurance of large risks in non-life
insurance. Here insurer and policyholder may choose the law
applicable. However, even in cases of large risk insurances a

(26) Art. 7 par. 1 lit. f Second Non-Life Insurance Directive (as amended
by Art. 27 Third Non-Life Insurance Directive; as to the definition
of large risks see Art. 5 (d) (i) First Non-Life Insurance Directive.
(27) See Art. 7 par. 1 lit a and d Second Non-Life Insurance Directive.
(28) See Art. 7 par. 1 lit b, c, e
(29) See Art. 32 par. 1 sent. 2 Directive on Life Assurance.
(30) See Art. 32 par. 2 Directive on Life Assurance.
(31) See the action plan of the EC Commission OJ 2003 No. 63/1 (9
sub 48: ‘The wording of a single policy that could be marketed on
the same terms in different European markets has proved impos-
sible in practice’).

(32) Even though such change would not affect the law applicable in
general, (internationally) mandatory rules at the place of the new
habitual residence may be imposed by the courts of this Member
State: By virtue of Art. 9 1) b) Regulation on Jurisdiction and
Recognition and Enforcement of Judgements the policyholder is
entitled to bring an action against the insurer in the Member State
of its (new) residence. The courts of this Member State may impose
mandatory rules according to Art. 7 2) 2) Second Non-Life Insur-
ance Directive and Art. 32 4) 1 Directive on Life Assurance
(mandatory rules of the lex fori).

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court of the Member State in which the policyholder has its
residence (holding jurisdiction under Article 9 1) b) of the Brus-
sels I Regulation (33)) may impose its mandatory rules (34).

holder to seek foreign coverage. Consequently, an internal
insurance market cannot be expected to form itself.

It

follows that

insurers will be very hesitant

4.2.3.8
to
provide cross border services at least when it comes to the
insurance of mass risks. It may be argued that a shift in the
private international legal regime could solve the issue. Indeed,
it would seem that the above-mentioned barriers would disap-
pear if parties enjoyed free choice of law and — in the absence
of such a choice — the law applicable was determined by the
place of establishment of the insurer. However, such a shift in
private international
law would substantially jeopardise basic
notions of policyholder and consumer protection in private
international law: it would grant free choice of law in the insur-
ance sector even in business-to-consumer situations in which a
consumer would be protected by Article 5 of
the Rome
Convention in other sectors. At the same time it would not
fully solve the problem: courts of the Member State in which
the policyholder has his or her residence would still apply their
own internationally mandatory rules. Above all policyholders
would be very hesitant to shop abroad knowing that they
would lose the protection of their home law and would be
submitted to unknown foreign insurance law (35).

4.2.4.3
Another aspect has to be added. Within the internal
market a policyholder enjoys free movement (see i.p. Article 18
of the EC Treaty). However, a change of place of habitual resi-
dence may have adverse effects on the policyholder's insurance
situation. First of all, the courts of the Member State a policy-
holder moves into may impose new internationally mandatory
rules that influence the insurance policy acquired at the former
place of residence. Secondly, the laws on mandatory insurance
may require a coverage different to the one the policyholder
has acquired in the former place of residence. Thirdly, a policy-
holder may want to have risks situated in different Member
States covered under one single insurance policy.

4.2.4.4
The current legal situation does not fully allow such
Euro-policies, instead so called ‘umbrella contracts’ are formed
which are in effect as many contracts as there are Member
States concerned. What is missing therefore is the possibility of
a portable policy for what has been described as the ‘Euromo-
bile’ policyholder (37) who lives and works in different parts of
the EC during his or her lifetime.

4.2.4 T h e p e r sp e ct i ve of t h e p oli c yh olde r

4.2.5 T h e p e r sp e c ti v e of i nsu r a nc e i n te r me di a r i e s

4.2.4.1
Under the current private international legal regime
policyholders may be very open to ask for foreign insurance
coverage. Knowing that they will (in most cases) be protected
by the law of the Member State of their residency, they will be
open to cross-border acquisition of insurance. However, policy-
holders will not be able to acquire foreign products even if
they want them: the applicability of their home country's law
always changes the acquired policies into contracts more or
less determined by the law of their own home country. And if
they nevertheless want to buy foreign insurance products they
will face foreign insurers that are very hesitant to grant such
coverage.

Intermediaries play a major

4.2.5.1
role in distributing
insurance contracts. They form a key element in the establish-
ment of an internal insurance market. This is particularly true
for insurance brokers. By using their freedom to provide
services — guaranteed by Articles 49–55 of the EC Treaty and
enforced by the Directive on insurance intermediaries (38) —
intermediaries substantially contribute to the creation and the
functioning of the internal
insurance market. In the field of
mass risk insurance especially it is more likely to be a broker
that will try to place a risk in a foreign insurance market than
the customer himself.

in the rules of

As shown this hesitation could probably be avoided
4.2.4.2
insurance contract
international
by a shift
law (36). However, such a change in private international law
would replace the hesitation of the insurer to grant coverage by
an at least equally strong hesitation on the part of the policy-

(33) See supra note 20.
(34) This result may be avoided by the insurer by installing a jurisdic-
tion clause admissible under Art. 13). 5) in connection with Art. 14
(i.e. no. 5) Regulation on Jurisdiction and Recognition and Enforce-
ment of
Judgements and granting exclusive jurisdiction to the
courts of the Member State where the insurer is seated. Overall the
perspective of the insurer is much more promising when it comes
to the insurance of large risks.

(35) See infra sub 4.2.4.
(36) See supra 4.2.3.

4.2.5.2
However, any data on a foreign insurance market
and its products is not likely to have significant meaning to a
broker lacking knowledge of local law. Since products found in
a foreign insurance market are designed with a view to local
law the broker may not assume that contents and price of the
policy will remain the same in the legal environment of its
(foreign) customer. Brokers cannot therefore avail themselves

(37) Basedow, Die Gesetzgebung zum Versicherungsvertrag zwischen
europäischer Integration und Verbraucherpolitik, in: Reichert-Facil-
ides/Schyder (Hg.), Versicherungsrecht in Europa – Kernperspek-
tiven am Ende des 20. Jahrhunderts, ZSR 2000 (Beiheft 34) 13 –
30 (page 20).

(38) Directive 2002/92/EC of

the
Council of 9 December 2002 on insurance mediation; OJ L 9 of
15.1.2003, p. 3.

the European Parliament and of

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easily of foreign insurance markets for placing mass risks but
have to negotiate contracts individually. This is likely to cause
prohibitive transaction costs and thereby prevent
the func-
tioning of the internal insurance market.

4.2.6.5
As a result, customers would effectively profit from
the internal market. In an internal market based on harmonised
insurance contract law,
innovations in the insurance sector
could more easily cross borders. European customers would
enjoy access to insurance products of foreign design.

4.2.6 Si mi la r

for
th r o u g h b r a nc h offi c e s

c once r ns

i n su r a nc e ma r ke te d

4.2.6.1
It is quite frequently mentioned that insurance by its
very nature requires some geographical closeness of the insurer
to the customer. In the future this observation may show that
cross-border sales will not be as frequent in the insurance
sector as in other businesses (e.g. the sale of books via internet
etc.). For reasons of customer relations, insurers might prefer to
operate in other Member States through branch offices or
daughter companies.

4.2.6.2
Representatives of such a view do not argue against
harmonisation of insurance contract law in principle. Rather,
they try to show that the impact will be limited to a certain
share of insurance contracts that will actually be marketed
across borders or to customers that are in fact mobile and
switch their place of residence between different Member
States.

4.2.6.3
The actual impact, however, will be more substan-
tial. If insurance contracts are sold in other Member States
through branch offices (‘establishments’) or even a through a
daughter company, the same problems for customers, interme-
diaries, and insurers appear.
their
products to local conditions including the local legal environ-
ment. As a result they have to redesign their products. There-
fore, a policy designed in one Member State cannot be sold in
another Member State through a branch office without substan-
tial modifications due to a different (legal) environment. Inter-
mediaries and customers face the problem that they will simply
not find foreign insurance products in their markets.

Insurers have to adapt

Harmonisation of

insurance contract

4.2.6.4
laws would
substantially reduce the costs of product design in the internal
market.
Insurers establishing themselves in another Member
State could restrict themselves to providing the customer with
advice through their agents, claims settlement through their
competent
insurers operated
through daughter companies, insurance groups could share the
effort and costs of product design.

regional offices etc. Even if

4.3 Harmonisation of insurance contract law and EU enlargement

4.3.1
On 1 May 2004, 10 new Member States joined the
EC, eight of which are countries in transition. Their insurance
laws had to be brought in line with the acquis communautaire as
a prerequisite for joining the EC (39). As a prerequisite for the
functioning of
in these countries,
modern legislation on insurance contract law is indispensable.
While some new countries have enacted modern legislation,
others still need to take action.

the insurance markets

4.3.2
Harmonisation of insurance contract law would there-
fore appear to serve the interests of an enlarged internal market
for insurance by helping the new Member States to modernise
their laws and avoid new disparities between national systems.
It would be helpful for the EC Commission to notify the respec-
tive countries as soon as possible when it plans to harmonise
insurance contract law.

5. The Commission's 1979 proposal for a directive

As mentioned above,

5.1
the Commission presented an
initial proposal for a directive in 1979, aimed at coordinating
the laws, regulations and administrative provisions relating to
insurance contracts (40). This proposal was drafted in the wake
of the General Programme for the elimination of restrictions on the
freedom to provide services, which — in matters pertaining to
direct insurance — provided for the coordination of legal and
administrative instruments governing insurance contracts ‘to the
extent that their disparity [resulted] in prejudice to policyholders and
third parties’ (41).

5.2
The proposal deemed the coordination required by the
Directives in force at that time to be inadequate; it also felt that
it was not enough for the Treaty to ban discriminatory treat-
ment regarding the provision of services,
the company
concerned was not established in the Member State where the
service was provided.

if

(39) See Heiss,

‘Expanding the Insurance Acquis to Accession Candi-
dates: From the Europe Agreements to Full Membership’, in: Heiss
in an Enlarged European
(ed.),
Union’, Karlsruhe, 2002, 11 – 22.

Insurance Market

‘An Internal

(40) COM(79) 355 final of 10 July 1979, 190/2 of 28 July 1979
(41) OJ of 15.1.1962, Tit. V, Ca).

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5.2.1
To this end, it felt that it would be suitable to regulate
‘certain general questions relating in particular to the existence of
cover depending on the payment of the premium, the duration of the
insured persons who are not policy-
contract, and the position of
holders’, as well as the ‘consequences resulting firstly from the
conduct of the policyholder at the time of the conclusion and in the
course of the contract concerning the declaration of the risk and of the
claim, and secondly his attitude with regard to the measures to be
taken in the event of a claim’.

5.2.2
The proposal also considered that ‘Member States may
be authorised to adopt different solutions only where this is expressly
provided for in the text of the Directive’; any other approach would
call
into question the aims pursued by the proposal. This
would thus have been an important step towards full harmoni-
sation in this area (42).

The Committee, in its unanimously approved opinion

5.3
on this proposal (43), made the following key points:

a) the Commission had limited its approach to the coordina-
tion of points it deemed to be essential, although the
Committee felt that other aspects would also have to be
harmonised subsequently;

b) the Committee regretted that the Directive failed to draw
any distinction between mass risks and commercial, indus-
trial and other risks;

c) it suggested that sickness insurance also be excluded from

the scope of the Directive;

(42) The text indicated that,

inter alia, the following areas would be

harmonised:
a) the formal structure of the insurance policy;
b) the right to a declaration of guarantee when the contract is
concluded, together with the minimum formal requirements
pertaining to this;

c) the language in which the contract is concluded;
d) the rules covering the insured person's declarations when the
contract
is concluded, concerning circumstances which may
influence the insurer's assessment and acceptance of the risk,
and the consequences should the insured person fail to, or delib-
erately not, do so;

e) the rules covering the insured person's declarations after the
contract has been concluded regarding facts or circumstances
which may result in an increase in the risk, together with the
consequences of failing to fulfil the obligation to do so;

f) the rules regarding the burden of proof where there has been

failure to fulfil the abovementioned obligations;

g) the rules governing premiums in the event of a decrease in the

risk;

h) the consequences of failure to pay an insurance premium or a

part thereof;

i) the obligations of the policyholder should a claim arise;
j) the rules on terminating the insurance contract; and
k) the possibility of derogation from the provisions of the directive
for the parties to the contract, where this would be more
favourable to the policyholder, insured person or injured third
party.

The proposed Directive would apply to all direct insurance other
than life assurance, excepting that relating to:

a) railway rolling stock;
b) aircraft;
c) sea, lake and river and canal vessels;
d) goods in transit;
e) liability for aircraft and for sea,

vessels;

lake and river and canal

f ) credit and suretyship, paying attention to the particular

features inherent to these branches of insurance.

d) it regretted the fact that the Directive did not cover policies
subscribed by insurers established in a Member State, but
covering risks situated in non-Member States or policies
subscribed by policyholders domiciled outside the Com-
munity;

e) the Committee called for specific rules to be drawn up to
provide adequate protection for policyholders, be they indi-
viduals or small businesses, particularly to cover:

1) a cooling-off period and the right of withdrawal;

2) unfair clauses;

3) express mention of exclusions and deadlines;

4) adequate information prior to a contract's conclusion.

f) it called for the right of recourse of injured third parties to
be covered by an ad hoc directive or dealt with in the next
phase of coordination.

5.4
The Committee then carried out a critical analysis of
each one of the articles in the proposal; its comments in that
connection are still worth taking into consideration in any new
initiative in this sphere.

5.5
The European Parliament also issued its views on this
proposal (44) at the time. Amongst other things, it considered
that ‘harmonisation would guarantee a similar standard of protection
to policyholders whatever the choice of law’.

5.5.1
In particular, the Parliament proposed a number of
amendments, especially regarding: the scope of the Directive
(dispensing with exclusions); the key elements of
insurance
contracts; obligation on the policyholder to make declarations
regarding certain circumstances; the consequences of this for
maintaining the insurance contract,
in relation to either the
initial circumstances or changes while the contract is in force;
the proof to be provided by the policyholder should a claim
arise; and the conditions under which a contract may be termi-
nated.

5.5.2
The intention behind the Parliament's comments is
clearly to stress ‘there should be an equitable balance between the
interests of insurer and insured’.

(43) Rapporteur: De Bruyn, OJ C 146 of 16.6.1980

(44) OJ C 265 of 13.10.1980

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5.6
Following these comments, the Commission had the
opportunity to draft a new, amended proposal (45) which took
on board the various suggestions and proposals made by the
Committee and the Parliament. Here for the first time, it drew
attention to the fact that ‘the coordination of laws relating to insur-
ance contracts would facilitate the provision of services in a Member
States by those providing them in another Member State’. This was
one of the first mentions of the aim of achieving a single
market in financial services (46).

6.1.2
Guidelines for finding a ‘best solution’ for insurance
contract law might be the following: Firstly, due consideration
must be given to the essential task of all insurance contract law
— to provide a legal framework for effective risk bearing on
the part of the insurer and thus to guarantee the proper func-
tioning of insurance business itself. Secondly, it is essential that
the conflicting interests of the parties are carefully balanced.
With regard to this aspect, due recognition must be given to
the modern trend to grant a relatively high degree of protection
to the policyholder.

5.6.1
This Commission proposal for a directive was set to
enter into force on 1 July 1983. However, it was not adopted
in the end, due a lack of political will on the part of Member
States.

5.7 What is the present day relevance of the Commission's 1979/

1980 proposal?

Replies to the questionnaire sent out in this connec-
5.7.1
tion and the public hearing held on 16 April 2004 have indi-
cated a general consensus that this proposal, albeit dating from
twenty years ago, should be given serious consideration as a
still-valid contribution to, and a good starting point for, a new
initiative in this area.

Nevertheless, it has also been pointed out that current
5.7.2
for harmonising insurance contracts go far
requirements
beyond the 1980 proposal, and the rules to be proposed must
be the result of a debate on an in-depth study of comparative
law.

6. Forms of harmonisation

6.1 Finding best solutions by using a comparative legal method

Any

attempt

to harmonise European insurance
6.1.1
contract law should be preceded by preparatory comparative
law work. Such work is well under way on an academic level.
In fact, a comparative work has already been completed in the
area of general contract law with the presentation of the Princi-
ples of European Contract Law.
insurance
contract law, a substantial body of results from comparative
legal research work has been and will be published (47). In 1999
the late Professor Reichert-Facilides founded a Project Group,
‘Restatement of European Insurance Contract Law’. The
members of this group are experts in the field of insurance law
and represent various legal orders (within and outside the EC).

In the field of

(45) COM(80) 854 final of 15.12.1980 – OJ C 355 of 31.12.1980
(46) In particular, the Commission's new proposal referred to:

a) exclusion of sickness insurance, as suggested by the Committee;
b) greater details of the procedures for terminating a contract,
attaching too much importance to the possibility of retaining
amended contracts, rather than quite simply revoking them; and

c) better wording of the rules on the burden of proof.

(47) See Basedow/Fock (ed.), Europäisches Versicherungsvertragsrecht,
Tübingen, Volumes I and II 2002, Volume III 2003; Reichert-Facil-
ides (ed.),
International Encyclopedia of
in:
Insurance Contracts,
Comparative Law (forthcoming).

6.1.3
On the basis of these observations efforts to improve
the internal insurance market should focus on mandatory rules.
These rules are an indispensable framework for the autono-
mous contracting of the parties and at the same time form a
barrier to the internal insurance market as long as they are not
harmonised. As a result, regulatory needs in the field of insur-
ance are compatible with the harmonisation requirements of an
internal insurance market.

6.2 Harmonisation measures must afford a high level of policyholder

protection

6.2.1
Insurance contract laws — at least their semi-manda-
tory provisions — aim at protecting the weaker party and may
be called consumer laws from a functional point of view.
However, traditionally policyholder protection is of broader
scope than general consumer law: together with private custo-
mers small businesses are protected when taking insurance.

6.2.2 When harmonising European consumer law the EC is
bound to afford consumers a high level of protection (see e.g.
Article 95 (3) of the EC Treaty). This concept is also applied to
legislative acts based on other articles of the EC Treaty granting
the EC legislative authority (in the field of
insurance law,
usually Article 47 (2) in connection with Article 55 of the EC
Treaty). As a result, a measure harmonising insurance contract
law would provide for a high level of policyholder protection.

6.3 Minimum standards or full harmonisation?

6.3.1
The analysis of current problems with the internal
insurance market clearly indicates that full harmonisation of
insurance contract law is required. Minimum harmonisation
would allow Member States to apply a higher standard of
protection, as allowed under European law, and thereby create
new barriers to the internal insurance market.

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6.3.2 Minimum standards would not be a detriment to the
functioning of the internal market,
if the current regime of
private international law was replaced by rules leading to the
application of the law of the state in which the insurer is estab-
lished. In this way, every insurer would produce its product
least a European
under its own national
minimum standard of protection) and be able to sell
the
product on the basis of the application of a law of the ‘home
in all other Member States. The policyholder could
country’
rely on obtaining minimum standards of protection in spite of
being subject to foreign law.

law (affording at

As mentioned above,

6.4.2
it is the mandatory rules that
form a hindrance to the internal insurance market and should
therefore be subject to harmonisation. Contract law in general,
however, is by its very nature non-mandatory. Some manda-
tory rules exist. These rules do not appear to be so fundamen-
tally different within the legal orders of the Member States that
non-harmonisation would disturb the functioning of
the
internal insurance market and neither do they have a predomi-
nant influence on the insurance product as such.

insurance

services of

6.3.3
However, such a shift in the private international law
regime is neither likely nor desirable. First of all, such a change
would deprive
the
consumers of
consumer protection provided by Article 5 of
the Rome
Convention, which protects the ‘passive’ consumer even in
areas where substantive consumer law is harmonised. Secondly,
mandatory rules of the law of the residence of the policyholder
would be imposed by courts; barriers to the functioning of the
internal market would therefore always remain. Thirdly, it has
to be mentioned that according to the Regulation on Jurisdic-
tion and Recognition and Enforcement of
Judgements an
insurer can sue its policyholder only in the courts of the policy-
holder's residence (see Article 12 (1)) with very few exceptions)
and a policyholder is very likely to choose the same forum
according to Article 9 (1) b) for its own actions.

Therefore, a shift

in the private international

6.3.4
law
regime would create a situation where the courts holding juris-
diction would in most cases have to apply foreign law. This
would make litigation in insurance matters more burdensome
and costly even if insurance law itself were to be harmonised.
Therefore this approach cannot be recommended. The private
international law regime should in principle stay as it is and
insurance contract law should be fully harmonised. This state-
ment, however, does not deny the possibility of improving the
current private international legal regime; e.g. as long as insur-
ance contract law is not harmonised, a ‘Euromobile’ citizen
could be allowed to choose between the law of the place of his
residence and the law of his nationality.

6.4 Does

the internal

insurance market need harmonisation of

general contract law?

6.4.1
Insurance contract law is systematically embedded into
general contract law. This observation raises the question of
law harmonisation can only
whether
achieve its goals if all the law of contracts (or at least its
general part) is harmonised or may be achieved independently.
The latter appears to be true.

insurance

contract

Exceptions might be observed. However, such excep-
6.4.3
tions can be dealt with within the harmonisation of the insur-
ance sector. One example of such rules is in fact already dealt
with by the directive on unfair contract terms in consumer
contracts (48), which also applies to consumer insurance poli-
cies (49). An insurance contract act at a European level would
only have to have the scope of its application extended to all
mass risks in order to satisfy the internal insurance market.

These arguments do not

6.4.4
intend to argue against
harmonisation of contract law in general. They leave this ques-
tion to the sole discretion of the EC institutions. In fact, harmo-
nisation of general contract law would make the task of harmo-
nising insurance contract law easier. The arguments presented
only try to demonstrate that harmonisation of
insurance
contract law can reach its goals on its own.

6.5 Establishment of an optional

instrument or harmonisation of

national insurance contract laws?

6.5.1 T h e

di ffe r e nc e

be tw e e n

h a r moni sa ti on

of

nati ona l la ws an d a n opti onal i nstr umen t

6.5.1.1
The action plan for a more coherent European
Contract Law has highlighted the possibility of introducing an
optional instrument instead of harmonisation or unification of
national contract laws. The main difference between the two
approaches lies in the fact that an optional instrument would
leave national contract laws untouched whenever the parties to
a contract do not either opt in or opt out of the instrument,
depending on whether this instrument used an opt in or opt
out approach. In this way parallel legal orders (the European
and the national ones) are created and parties are allowed to
choose between these regimes.

(48) Council Directive 93/13/EEC of 5 April 1993 on unfair terms in

consumer contracts; OJ 1993 No. L 95/29.

(49) A particular list on unfair clauses specific to the insurance sector
could be inserted if necessary; see the ESC own-initiative Opinion
on Consumers in the insurance market (CES 116/98 from 29.1.98)
and the Study coordinated by the Centre de Droit de la Consomma-
tion from the University of Montpellier, on behalf of the Commis-
sion (Contract AO-2600/93/009263) on unfair clauses in certain
branches of insurance and similarly to what as been proposed very
recently by the Commission for consumer credit (COM(2002) 443
final).

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6.5.1.2
On the contrary, harmonisation or unification of
national contract laws would replace traditional concepts of
national contract law by a European solution. Parties would not
have the choice of opting for their national or the European
model.

liability insurance is of major importance to the essential mobi-
lity of EC citizens because it affords indispensable protection to
victims of accidents. It is obvious that the protection of the
victim must not depend on the choice of the parties to an
insurance contract in favour of a European instrument. An
optional instrument could therefore not replace harmonisation
of national motor vehicle liability insurance law.

6.5.2 A dv a nt a g e s
a p p r o a c h e s

a nd

di sa dva nta g e s of

t h e

t w o

the internal

From the perspective of

6.5.2.1
insurance
market both solutions share an obvious advantage: they do
remove legal barriers to the marketing of policies across
Europe and make it possible for a policyholder to move freely
within the Community without adverse effects of differences in
insurance contract law on his policy. This is why either one of
these approaches is preferable to today's situation and the
choice between them is ultimately a matter of policy not of
principle.

6.5.2.5
Finally, the question is put forward of whether an
optional instrument would achieve efficient results in an area
like insurance law which is characterised by an imbalance
between the parties. Would parties make an efficient choice or
would the choice be made unilaterally by the insurers through
opt in and opt out clauses in their general terms of insurance?

6.5.2.6 Whether the goal of a European Insurance Contract
laws or
Act is achieved through harmonisation of national
through the establishment of an optional instrument is not a
primary concern. The question does, however, need careful
consideration.

Harmonisation of national

6.5.2.2
insurance contract law
could prove more burdensome than the enactment of an
optional instrument. Since it would lead to a replacement of
national ‘traditions’ by a European solution, the national legal
elite (practitioners as well as academics) might be hesitant to
follow a call for harmonisation.

6.5.2.3
An ambivalent factor is the correlation between the
intensity of the interference with national law and the speedi-
ness of reaching results for the internal market. Since an
optional instrument would not abolish national laws, it may be
viewed as a soft approach and therefore appear to be more
readily acceptable to the markets. On the other hand there is
the fear that an optional instrument could make the actors of
the single market (e.g. insurance companies and brokers) reluc-
tant to take the lead, with every actor waiting for the other to
go ahead and trying to profit from the (negative) experiences of
their competitors. Or would the optional instrument be seen as
a window of opportunity everybody wanted to open first, i.e.
through Internet
insurance selling? Certainly, harmonisation
would lead to immediate results because no actor could avoid
its application. On the other hand, the intervention might be
felt as very, or even too, strong.

A technical concern about an optional instrument
6.5.2.4
relates to the fact that it cannot fully replace harmonisation.
This can easily be demonstrated by looking at motor vehicle
liability insurance. Harmonisation of the law of motor vehicle

6.6 Elaboration of EU-wide general terms of insurance?

6.6.1
Finally it might be asked whether harmonisation of
laws may be replaced by the elaboration of EU-wide general
terms of insurance. Indeed, the concerns about insurers who
have to take into consideration every single law of each
Member State would be reduced (though not entirely laid to
rest) if this effort was taken collectively and with the support of
the EC institutions.

6.6.2
Nevertheless, the approach cannot be welcomed. First
of all, EU-wide general terms can take into consideration differ-
ences of national law but still require separate risk calculation
and may be of disadvantage to a mobile citizen in the EU.

6.6.3 Moreover the approach would lead to the establish-
ment of model terms having adverse effects on competition in
insurance markets. It should be remembered that one of the
major steps in creating a single insurance market was the aboli-
tion of any right of Member States to systematically control the
general terms of insurance before they are introduced in the
market. (50) Such control leads to a lack of diversity of insur-
ance products, a reduced choice for the customers and thereby
reduced competition. The elaboration of EU-wide general terms
of insurance structurally bears a similar risk.

(50) See Art. 29 Third Directive on Non-Life Insurance; Art. 34 Direc-

tive on Life Assurance.

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7. Areas of harmonisation

i) insurance on account of third party.

It has been shown above that it is the mandatory rules
7.1
of insurance contract law which have to be harmonised. A
further question is whether all areas of insurance contract law
or only particular ones need to be harmonised.

7.2
Insurance law is commonly divided into a general part,
containing rules that apply to all insurance contracts, and the
law of specific branches of insurance. The question arises of
whether the internal insurance market would require harmoni-
sation of the general rules, the specific rules for particular
branches or both.

In theory, both are needed: general rules as well as
7.3
branch-specific rules of insurance law affect the product and
thereby impede the functioning of
insurance
market, e.g. rules on promissory warranties, which can be
found regularly in the general part, are of influence on the
ratio of risk and premium as much as specific rules on, e.g., life
assurance regulating this specific insurance. Therefore, harmo-
nisation should in principle not distinguish between the two
sets of rules.

the internal

7.4
Harmonisation might however be achieved in several
steps. If so, a list of priorities has to be drawn up. Here it
would seem appropriate to harmonise the general part first.
Many branches of insurance are not subject to specific and
mandatory (51) rules but only to general rules under current
national
insurance contract law regimes. Therefore, what is
most urgent is the harmonisation of the general rules of insur-
ance contract law in as far as they are mandatory. This harmo-
nisation would immediately allow the creation of an internal
insurance market in all branches not covered by specific and
mandatory legal rules. Once this task has been achieved,
however, regulated branches, such as life and health insurance,
should also be covered.

The kind of rules which could be harmonised in this

7.5
first stage could be as follows:

a) pre-contractual duties, mainly information;

b) formation of the contract;

c) insurance policy, nature, effects and formal requirements;

d) duration of the contract, renewal an termination;

e) insurance intermediaries;

f) aggravation of risk;

g) insurance premium;

h) insured event;

(51) Many provisions on specific branches that can be found in national
statutes on insurance contract law are non-mandatory and there-
fore in itself no obstacle to the internal market.

8. Conclusions and recommendations

8.1
Insurance today represents an essential service in trade
relations between professionals and between them and consu-
mers.

Some of

8.2
the fundamental principles governing the
conclusion and validity of insurance contracts in general differ
between the national legal systems of the EU Member States.

This state of affairs constitutes a barrier to the cross-
8.3
in conse-
border marketing of this financial
quence, hampers completion of the internal market in this
area.

instrument and,

8.4
A degree of harmonisation of the mandatory rules of
what is known as the ‘general part’ of insurance law could
contribute decisively to removing an entire series of obstacles
and difficulties facing insurance companies, insurance interme-
insured persons and policyholders, whether profes-
diaries,
sionals or individual customers,
in carrying out cross-border
insurance transactions.

8.5
This point of view is shared unanimously by all the
interested parties who were consulted or who spoke at the
hearing on this subject.

It

is felt

8.6
that a gradual approach to harmonisation
should be taken, aiming initially at the possible adoption of an
optional model
insurance contract all of whose terms and
components, however, would be mandatory.

8.7
The preparations must take account of the proposals
made in the Commission's 1979-80 directive, in the light of
the comments and analyses made by the interested parties, civil
society representatives and Member State regulatory bodies,
and paying due attention to the changes the sector has under-
gone in the meantime.

The Community instrument to be used should be a

8.8
regulation, taking Treaty Article 95 as the legal basis.

8.9
On the basis of the comments made in the present
opinion, the EESC urges the Commission to reopen this dossier
and begin examining comparative law and national practices in
the area of insurance contracts, in order to confirm that it is
necessary, advisable and possible to continue with efforts to
harmonise insurance contract law at Community level.

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8.10
been achieved by academic researchers in this field.

Such efforts must take account of what has already

The EESC recommends to the Commission that such
8.11
work be made known and submitted for public discussion by
means in particular of a green paper, the essential base for
preparing what is considered to be the most appropriate Com-
munity instrument.

8.12
The EESC is aware that only with a clear political will-
ingness on the part of the Member States to promote the initia-

tive to harmonise insurance contract law, can this major contri-
bution to the completion of the internal market in financial
services be realised.

8.13
The EESC calls upon the European Parliament to join
in this initiative and to give it the appropriate degree of priority
on its political agenda by restating its support for the objective
of harmonising mandatory rules of the general part of insur-
ance contract law.

Brussels, 15 December 2004.

The President

of the European Economic and Social Committee

Anne-Marie SIGMUND

Opinion of the European Economic and Social Committee on ‘Tourism and sport: the future chal-
lenges for Europe’

(2005/C 157/02)

On 29 January 2004, the European Economic and Social Committee, in accordance with Rule 29(2) of its
Rules of Procedure, decided to draw up an opinion on ‘Tourism and sport: the future challenges for
Europe’.

The Section for the Single Market, Production and Consumption, which was responsible for preparing the
Committee's work on the subject, adopted its opinion on 10 November 2004. The rapporteur was Mr
Pesci.

its 413th plenary session (meeting of 15 December 2004), the European Economic and Social

At
Committee adopted the following opinion by 144 votes to 1 with 2 abstentions.

Preface

is
The development of people,
enhanced by the exchange and sharing of positive values based
on respect for others and encouraging mutual understanding,
tolerance, hospitality and mutual willingness
to exchange
experience gained and plans for the future.

towns and communities

In an increasingly fast-moving society characterised by far-
reaching social, geopolitical and technological change, in which
material progress must be matched, at least, by the develop-
ment of values, it would appear essential to seize all opportu-
nities, both large and small, to reinforce and disseminate these
values.

Tourism and sport can also contribute to the achievement of
the objectives of the Lisbon strategy, which seeks to make
Europe the most competitive knowledge-based economy in the
world by 2010. Indeed, the increasing economic impact of
these sectors is a driving force for the economies of the EU
countries.

The adoption of the draft Constitutional Treaty, which, for the
first time, recognises tourism as falling within the EU's jurisdic-
tion, should make this contribution even more important. The
EESC sees this as an initial, fundamental step towards a Euro-
pean development,
support and coordination policy for
tourism and welcomes the inclusion in the aforementioned
constitutional text of the article on sport.

The tourism and sport sectors are natural vehicles for reinfor-
cing and disseminating values. They are social and cultural
activities in their own right as well as economic activities, and
are closely linked, sharing a number of basic values — intellec-
tual curiosity, openness to change and learning and the prin-
ciple of a level playing field.

Tourism and sport are two sectors which are going to
1.1
make an increasingly significant contribution to Europe's
economic prosperity and social well-being in the future. Their
key role is universally recognised throughout the world.

1. Introduction