Insurance: proposals for harmonisation of European insurance law

In December the project group on the restatement of European insurance contract law submitted draft Principles of European Insurance Contract Law to the European Commission. The Commission has long been concerned about the need to harmonise insurance law across Europe: at present insurance law and regulation differs widely between member states with the result that insurers selling products across borders must tailor these to take into account local legal requirements.

As presently drafted the proposed principles will not override existing national law. Instead they will provide an alternative legal framework which the parties will be able to agree should apply to and govern the insurance contract. Although the parties would - in certain circumstances - be able to derogate from some of the provisions in the framework, it is envisaged that certain provisions (not yet identified) will be mandatory. It is intended that the framework can be used for all types of insurance contracts, except reinsurance.

The proposed framework differs from present insurance law in England and Wales in a number of important respects. For example:

• A duty of disclosure would apply only to “clear and precise” questions put by an insurer - although if additional information were provided by the insured a duty not to misrepresent matters would apply to that information.
• The remedy of avoidance of the contract would not apply in the case of innocent or negligent non-disclosure or misrepresentation. In cases of negligence insurers could be liable to pay claims on a proportionate basis.
• On expiry of the policy period cover would automatically be prolonged unless written notice of termination were given by either the insurer or insured.
• Breaches of warranties or conditions precedent would not generally relieve an insurer from liability to meet a claim.

It is at present unclear when - and to what extent - the proposed principles will be implemented. Further draft provisions (for example special provisions for specific types of insurance) are still awaited. It seems fairly clear however that a framework of Principles of European Insurance Law will eventually be adopted which will provide an alternative to UK insurance law.

Further reading: Principles of European Insurance Contract Law 17 December 2007

The CMS network has a well established insurance group which works closely together across Western and Eastern Europe and are able to advise across a broad range of contentious and non contentious matters. The coordinator in London is Tim Ingham who is available to explain in more detail our European capability and, together with Diane Jerry and Peter Mansfield, answer any queries you may have on this up date.