The Athens First Instance Court recently heard a case involving a law firm which sought to be indemnified from its professional indemnity (PI) underwriter. The policy covered a lawyer's professional liability while providing services within Greece and under Greek law. The lawyer's liability was invoked by his client for services under English law.
The insured claimed that he was entitled to indemnity not because the policy provided such cover, but rather because:
- he had requested such cover;
- the insurer had failed to include it in the policy; and
- the insurer had failed to follow the compulsory steps set out in the law on insurance contracts which must be followed when the policy terms differ from the insured's application for insurance.
The claim was dismissed and the decision was not appealed.
A UK seller and a Greek buyer entered into a memorandum of agreement governed by English law for the purchase of a yacht. Under the agreement, the buyer had the right to a sea trial of the vessel before the purchase was complete. While the buyer had paid a deposit for the vessel, he was entitled to reject the purchase within 24 hours of completion of the sea trial, in case of non-performance of the vessel. Should the buyer do so, the seller had to return the deposit. The sea trial was completed on a Friday evening and the buyer immediately notified the Greek law firm representing him in the transaction that he was rejecting the vessel on grounds of non-performance. The buyer's lawyers notified the UK seller on Monday morning, assuming that the 24-hour clause in the agreement referred to business days. The seller did not accept the rejection, as the 24-hour deadline was not observed. When the buyer ultimately decided not to purchase the vessel, the seller refused to return the deposit. The buyer then turned to his Greek lawyers in order to recover the deposit. The Greek law firm indemnified its client and sought to recover its loss from its PI underwriter. The latter refused to pay on the grounds that cover was provided only for legal services rendered by the insured within Greece and for liability arising from the interpretation and application of Greek law exclusively.
The claimant put forward the following primary arguments in the action filed before the Athens First Instance Court.
In his proposal to the insurer, when asked whether the firm's practice extended to foreign countries and, if so, what the approximate percentage of gross fees deriving from foreign countries was, the claimant stated that approximately 20% of his yearly income was generated abroad. Hence, the claimant suggested that by agreeing to provide him cover, the insurer had agreed to include his business activity outside Greece.
Article 2(5) of Law 2496/1997 on insurance contracts states as follows:
"In the event that the contents of the insurance policy differ from the proposal for insurance, such variations shall be deemed to have been approved from the commencement of the policy provided that the policyholder does not object in writing thereto within one month following the receipt of such insurance policy and to the extent that the insurer has duly informed the policyholder of such variations, as well as of the policyholder's right to object. This should be done by the insurer in writing, or by a notice situated on the first page of the insurance policy written in such a way as to make the notice readily distinguishable from the other parts of the document, thus enabling it to be easily noted by the reader… If the insurer fails to inform the policyholder of his rights under this paragraph… the variations in the terms of the contract shall not be binding on the policyholder, and the contract shall be deemed to have been agreed in accordance with the terms contained in the insurance proposal."
The policy contained a clause stating that it was issued without deviation from the insured's proposal and order to insure, which stated that the insurer accepted all of the terms mentioned in the insured's proposal, including his overseas business activities.
In response to the claimant's arguments, the insurer suggested as follows:
- The policy's schedule and operative clause specifically stated that cover was provided only for the insured's professional activity under Greek law and before the Greek courts. Elsewhere in the policy, it was stated that the indemnity provided applied only to final judgments against the insured according to the laws and obtained in the courts of the jurisdiction stated in the schedule, and not those obtained elsewhere. In addition, the policy did not indemnify the insured in respect of claims arising from losses or damages brought to courts outside of Greece or out of legal activities under non-Greek laws.
- Shortly after the insured's proposal was received by the insurer, the latter replied with an offer which included the essential terms of the cover that the underwriter would provide (eg, limits, premiums, deductibles and main exclusions) and stated that cover would be provided only with respect to the insured's activity within Greece and under Greek law. The insured did not respond and the policy was issued a few days later. The defendant argued that the policy had been issued, as the claimant had accepted the offer.
The court first highlighted the law regarding the formation of insurance contracts. The law states that insurance contracts are evidenced by a signed policy document (the insurance policy), which is provided by the insurer to the policyholder. In the event that the contents of the insurance policy differ from the application or proposal for insurance, these variations will be deemed to have been approved by the policyholder, provided that:
- the policyholder does not provide a written objection thereto within one month of receipt of the insurance policy;
- the insurer has informed the policyholder of such variations; and
- the insurer has informed the policyholder of his or her right to object by inserting a clearly distinguishable notice on the first page of the policy.
If the policy terms deviate from the insured's proposal and the insurer fails to inform the insured as required by law, the contract will be deemed to have been agreed on the terms contained in the insurance proposal.
On the other hand, under the Civil Code – which applies the 'mirror image' rule (ie, that an offer must be accepted exactly, with no modifications) – Articles 185 to 194 regulate the process of offer and acceptance between the parties in relation to the formation of any contract, including insurance contracts.
In the case at hand, the court stated that it was proven that the insured had provided the insurer with a proposal which stated (replying to the insurer's questionnaire) that part of his income was generated abroad. It was also proven that the insurer had not issued the policy immediately after receiving the insured's proposal. Instead, the insurer sent a fax to the insured's broker, which included not only the essential terms of the cover that the insurer was offering (including premium and excluded risks), but also a statement that only the insured's liability generated by his activity within Greece and under Greek law would be covered. Further, it was proven that:
- the policy was issued a few days after the insurer's offer was sent to the insured's broker;
- the policy contained no warning that it had been issued with terms that deviated from the insured's proposal; and
- the insured did not object to the policy, as per his right under the law.
The court confirmed (and neither party disputed) that the insured's loss occurred while he was providing his professional services under English law and that the policy did not cover this activity.
The court found that the insured's answer to the insurer's questionnaire (ie, that 20% of his income was generated by his services under foreign laws) was not a clear request to be covered for the relevant risks. While he may have been insinuating that he was seeking such cover, no clear proposal was addressed to the insurer. More importantly, Article 191 of the Civil Code states that acceptance of an offer with modifications constitutes a rejection of the original offer. The insurer was not obliged to warn the insured that the policy had been issued on different terms from the original proposal, as required by Article 2(5) of the law, because:
- the insurer did not issue the policy immediately after receiving the insured's proposal, but first sent him an offer (ie, rejected his offer and submitted a new offer); and
- the insured did not react.
Further, although the tacit acceptance of an offer is in most cases not considered valid to form a contract, in the case at hand, the insured was deemed to have tacitly accepted the insurance contract, as he did not object to the policy within one month of receiving it. The insurer was found to have no liability to indemnify the insured and the court thus dismissed the claim.
Under Greek civil law, contracts are formed by means of offer and acceptance; this requires two separate declarations of will by the parties. Under the Civil Code, the mirror image rule (also known as the 'unequivocal and absolute acceptance requirement') applies to the formation of contracts. However, in practice, most contracts are concluded by means of mutual and simultaneous approval (eg, simultaneous signing) of a legal document containing the parties' agreement, making the offer and acceptance rules' application less apparent.
However, this is seldom the case for insurance contracts. Policyholders only rarely countersign the policy. The law on insurance contracts requires only the underwriter to sign the policy: "[t]he insurance contract is evidenced by a signed policy document (the 'insurance policy') provided by the insurer. The insurer may sign it by mechanical means." In an effort to protect the insured as the weaker party to the contract – and taking into account that policies are drafted and issued by the insurer – the law has established a system by which the insurer must clearly warn the insured if the policy terms deviate from those requested in the insured's in the written application. However, the claimant's defence in the case at hand relied on – and the court carefully examined – the communication between the parties before the inception of the contract. The principles of civil law applied and it was found that the insured's application was rejected and the policy was issued under the terms of the insurer's new proposal, which the insured tacitly accepted.
For further information on this topic please contact Athanassios Lambrou at Zemberis, Markezinis, Lambrou & Associates by telephone (+30 210 363 6016) or email ([email protected]). The Zemberis, Markezinis, Lambrou & Associates website can be accessed at www.zmlaw.gr.