The obligations of the policyholder in particular The precontractual information duty The sanctions

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The obligations of the policyholderin particular
The precontractual information duty The
sanctions for the breaches
Common Frame of Reference Insurance
Contract Principles of European Insurance
Contract Law ( PEICL) (Bucharest, 16 February
2009)

• by
• Prof. Dr. I. Rokas, IKRP Rokas Partners

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A regulation from the point of view of the
protection of the policyholder

• The evolution of the European Insurance Contract
  Laws and the Common Frame of Reference (CFR)
• Critic on the extend of the sanctions which the
  insurer is allowed to stipulate provided by
  several national legislations for the cases of
  breach of policyholder contractual obligations.
• Gradually introduction of limitation of the
  sanctions by European ICAs.
• Distinction between consumer and non consumer
  policyholder by European ICAs.
• Introduction of information duties to the insurer
  by the 3rd generation insurance directives.

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A regulation from the point of view of the
protection of the policyholder

• Regulations on the breach of the information duty
  of the policyholder under the Common Frame of
  Reference (CFR)
• CFR regulates the mandatory rules in order to
  protect the consumer/ policyholder and the
  policyholder for risks other than the so called
  "large risks.
• The structure set of rules regarding the
  information duties and the sanctions for their
  breaches and regarding the sanctions for breaches
  of the precautionary measures.
• The rules aim to provide the extend to which the
  insurer is allowed to introduce sanctions for
  their breach. Their ratio is the protection of
  the policyholder.

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A regulation from the point of view of the
protection of the policyholder

• The breach of performance imposed by the
  insurance contract to the policyholder under the
  Common Frame of Reference (CFR)
• (Art.4101 - 4103 PEICL)
• Precaution measures under CFR The clauses
  requiring to perform or not to perform certain
  acts.
• The precaution measures clauses appear under
  Anglo - Saxon Law usually as "warranties" while
  under Continental Law from time to time appear as
  "exclusion of the coverage.
• Results by breach of the precaution measures as
  they appear under the
• Traditional European National Legislations
  mainly non coverage,
• CFR non coverage only if policyholder acted with
  the intent to cause the loss or recklessly and
  with knowledge that the loss would probably
  result.
• Any breach of performance, provided in the policy
  disregarding if they are named exclusions,
  warranties etc., does not entitled the insurer to
  avoid the contract under CFR, unless policyholder
  acted intentionally or recklessly.

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The extend of the duty to disclose the
circumstances of the riskThe general rule
(Art.2201 PEICL)

• Disclosure of the circumstances of risk
• Necessity to define the content and the extend of
  the duty to disclose in order to impose the
  maximum possible sanctions, which the insurer can
  stipulate by the policy against the policyholder
  who breaches the duty.
• The kind of circumstances of the risk which must
  be disclosed under CFR
• The applicant has to disclose only the
  circumstances which he knows or he should know.
• The applicant has to disclose only the
  circumstances which are thesubject of
• clear and
• precise questions put to him by the insurer
• If insured is other than the policyholder a
  breach of the duty also exists if that person
  (the insured) was aware even if the applicant was
  not.
• The sanctions can only be set after the
  conclusion of the contract, when the applicant
  becomes insured

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Breach of the duty to disclosethe circumstances
of the risk

• Innocent breach
• (Art.2102(3) PEICL)
• The rule no sanctions
• If the applicant (who became policyholder after
  concluding the contract) is in breach of the duty
  to disclose but he has no negligence for that
  breach, the insurer is not entitled to terminate
  the contract or to stipulate any other sanction.
• The exception sanctions
• The insurer can terminate the contract according
  to the proceedings provided below (s. slide 8,
  point a) if he can give evidence that it would
  not have concluded the contract, had it known the
  information concerned. (Time limit to react by
  analogy as per negligent breach, s. slide 8,point
  b).

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Breach of the duty to disclosethe circumstances
of the risk

• Negligent breach
• The rule I
• (Art.2102(1)(2) PEICL)
• Sanctions are provided
• The insurer can
• Terminate the contract,
• by following a procedure which protects
  the insured with coherent information regarding
  the legal consequences of this termination and
  giving enough time to the policyholder to find
  coverage by someone else
• Variation of the contract
• Instead of termination, the insurer can also
  continue the contract,
• by proposing different contractual
  conditions to the policyholder, if the latter
  accepts it. If policyholder rejects, he has to do
  it within one month of the receipt of the written
  notice by the insurer. In that case the insurer
  can terminate the contract but only within a
  month from the written rejection of the
  policyholder.
• Reason for the CFR Regulation under b
  To give the insured the possibility to accept
  reasonable variation proposed by the insurer in
  order to avoid termination and the latter to
  terminate the contract only if the insured
  disagrees with those reasonable variation.

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Breach of the duty to disclose the circumstances
of the risk

• Negligent breach.
• The rule II
• (Art.2102(4)(5) PEICL)
• The time limit for the insurer to react
• As soon as the insurer is aware of the
  breach, he can react within a month, otherwise
  it is deemed to accept the risk although the
  circumstances were not disclosed properly.
• The procedure written notice information on
  the legal consequences of its decisions to
  terminate or variate the contract.
• Occurrence of the insured event before
  termination or variation effect.
• The insurer is released of his obligation.
• Condition Insurer has to give evidence
  that he would not conclude the contract had it
  known the information, under the further
  condition that the event is caused by an element
  of the risk which is subject to the negligent
  non-disclosure.
• The insurer can pay less insurance money.
• Condition Insurer would conclude the contract
  at a higher premium or different terms had it
  known the information. Result the insurance
  money shall be paid proportionately or in
  accordance with such terms.

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Breach of the duty to disclosethe circumstances
of the risk

• Negligent breach.
• The rule III
• Comments on the above rule of CFR
• New rule - different as in common national
  legislations
• a. the release of the insurer presuppose
  the existence of causal relation between the non
  disclosed information and the occurrence of the
  risk.
• b. the proportional rule includes not only
  the extent of the insurance money in relation
  with the premium paid but also the terms, i.e.
  the insurer can apply different terms as
  condition for the payment of the insurance sum,
  which can however not exclude the possibility to
  lead to avoidance of the payment.

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Breach of the duty to disclosethe circumstances
of the risk

• Negligent breach
• The exceptions
• (Art. 2103 PEICL)
• No sanctions are provided in the following
  cases
• The questions of the insurer to the policyholder,
  regarding the circumstances of the risk, which
  was not properly disclosed, were obviously
  incomplete or incorrect.
• The non disclosed or inaccurately supplied
  information had no materially effect to the
  insurer s reasonable decision to enter into the
  contract at all or to do so in agreed terms.
• The insurer led the policyholder to believe that
  the non disclosed informationwas not necessary
  to be disclosed.
• The non disclosed information was or should have
  been known to the insurer.

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Breach of the duty to disclose

• Fraudulent Breach
• (Art.2104 PEICL)
• The rule
• Avoidance of the contract
• Note Contract is retroactive void i.e.
  the insurer is not only free of the obligation to
  pay but he can claim back insurance sums he may
  have paid from the beginning of the contract
• Retain the right to any premium due
• Condition for applying a b
• That the insurer has been led to conclude the
  contract by the policyholderfraudulent breach.
  (Note causal relation must exist, however no
  causal relation must exist between the occurrence
  of the risk and the fraudulent breach of the
  information duty)
• That two months have not been lapsed since the
  insurer became aware ofthe fraud without giving
  notice to the policyholder of the avoidance of
  thecontract.
• Right of termination and of variation of the
  contract
• Exceptions
• no one

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The extend of the duty to disclose the
circumstances of the riskThe general rule

• Additional information
• (Art.2105 PEICL)
• In case the policyholder at the time of
  concluding the contract supplied the insurer with
  information in addition to the required ( s.
  slide 5), all rules shall also apply to this
  information.

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