Introduction
Supreme Court decision
Revised rule in Article 8
Influence of EU legislation
Scope of applicability and effects of Article 8
Comment
Due to a lack of legislation which would effectively protect insureds against unfair terms in general insurance conditions, the Federal Supreme Court has traditionally looked for other means to correct undesired results. The remedy that the court generally applies is the so-called 'undisclosed content control', which designates a method by which the desired ineffectiveness of an unfair term is brought about by a contractual interpretation. One of the more typical decisions in this regard is a 2008 Supreme Court judgment,(1) which is discussed below.
The revised Article 8 of the Federal Act Against Unfair Competition, which will soon enter into force, is likely to offer insureds better protection.
An insured took out a private household policy for a four-year period. Clause 4 of the general insurance conditions stated that the insurer was entitled to unilaterally adapt or increase the premium with effect from the following year. In turn, the clause provided the insured with the right to cancel the policy in such an event. However, this right of cancellation was denied if, within the scope of compulsory insurance (eg, insurance against natural forces, which had been included in the policy), the premium increase was based on new regulations issued by the federal authorities.
Notwithstanding Clause 4, the insured cancelled the policy when, based on such new regulation, the insurer unilaterally increased the premium. When the insurer insisted on the premium increase, the insured filed a declaratory judgment action requesting the court to declare that his cancellation of the policy was valid. When the court of first instance denied that request, the insured filed an appeal which was successful.
As is typical in such cases, the Supreme Court examined Clause 4 not under the concept of fairness, but rather under the aspect of it being unusual. More specifically, the court considered whether the insured, when he declared his overall agreement with the general insurance conditions, had to expect that they would contain such a clause. The more one-sided or detrimental to an insured's rights a clause is, the more likely it is held to be unusual and the less likely it is to have been expected by the insured.
The court was able to apply that method because the parties had not discussed Clause 4; nor had the insurer pointed to it at the time the contract was concluded. When analysing the facts, the court concluded that Clause 4, to the extent that it stripped the insured of his right to cancel the policy, was unusual and that the insured did not have to expect it. Therefore, Clause 4 did not form part of the applicable conditions of contract.
In its judgment, the court made detailed reference to the widespread criticism of the method mentioned, but did not provide critics with an answer. In view of the recently revised Federal Act Against Unfair Competition (discussed below), the court may not have to do so in future either.
The partially revised Federal Act Against Unfair Competition entered into force on April 1 2012. However, its Article 8, which contains a revised rule that protects insureds and consumers against unfair terms in general conditions of contract, will become effective on July 1 2012.
Article 8 was initially enacted in 1986 under the heading "Use of abusive conditions of contract". Its purpose was to ban abusive or unfair clauses in general conditions of contract. However, Article 8 turned out to be a blunt weapon, mainly because it made the removal of unfair contract conditions dependent on the requirement that they be misleading. That requirement was seldom met.
The revision attempts to revive Article 8, particularly by removing the element of deception. The new provision states that an act of unfair competition is committed by:
"anyone who, in particular, makes use of general conditions of contract which cause, to the detriment of the consumers and contrary to good faith, a significant and unwarranted imbalance in the contractual rights and contractual duties."
It is no coincidence that the revised Article 8 is similar to EU legislation, particularly Article 3(1) of the EU Unfair Consumer Contract Terms Directive (93/13/EEC). The similarity was intended, although the Federal Council had proposed in its parliamentary bill that Article 8 should protect all customers and buyers, not just consumers. However, during the parliamentary debate, the scope of application was restricted to consumers.
Unlike Article 3(3) of the directive, Article 8 neither contains nor refers to an annex or a catalogue containing a list of unfair terms. Therefore, as has been discussed in legal literature, the Swiss courts may consider the EU directive and its annex when looking for guidance on a particular case.
Scope of applicability and effects of Article 8
The precise scope and effects of the revised Article 8 will become clear only in future, when the relevant issues are decided by the courts. However, some indication can be given now.
The provision will apply only to general conditions of contract – uniform conditions that are used in a multitude of contracts, including general insurance conditions. Contracts and contract clauses that have been negotiated individually are not affected.
The provision applies only to consumer contracts. Although no uniform definition of 'consumer contract' exists in Swiss law, in this context it is likely to be understood to mean a contract for services or goods for ordinary consumption that are:
- intended for the personal use of the consumer or his or her family; and
- offered by the supplier in the course of its professional or commercial activity.
When deciding whether a controversial clause is unfair, the court will examine not only that particular clause, but also the totality of the contract's conditions (including the main subject matter of the contract), to assess whether a significant imbalance of rights and duties exists.
In order to reach the threshold for intervention, the significant imbalance must also be unwarranted and in violation of good faith. What this means is open to debate; the courts which will have to consider all relevant aspects of a particular case in order to reach a decision have not been given a suitable instrument. It is therefore likely that Swiss courts will consult the directive more than once (particularly its annex, which provides a non-exhaustive list of 17 indicative examples or groups of examples of unfair terms).
The Federal Act Against Unfair Competition contains no rule on the consequences of a disputed contract clause being found to be unfair and abusive. It is generally held that such a clause will be declared void, and that the pertinent rules of general contract law will apply instead.
Consumers whose interests are impaired in a particular case are entitled to initiate a court action and to raise the issue of unfairness. An action may also be brought by the Swiss Confederation, as well as by trade associations and by consumer organisations in particular.
Article 8 is said to be at the core of the partial revision of the act. It will clearly influence the drafting and use of general insurance conditions in the future, although only to the extent that policies for consumers in the mass-market sector are concerned. Thus, while it is unlikely that a large number of court actions will be initiated as of July 1 2012, insurers will profit from reviewing and possibly revising any general conditions of contract that are currently being used in the consumer sector.
For further information on this topic please contact Stefan Knecht at BADERTSCHER Rechtsanwälte AG by telephone (+41 44 266 20 66), fax (+41 1 266 20 70) or email ([email protected]).
Endnotes
(1) Supreme Court Judgment 4A_299/2008, October 28 2008 (BGE 135 III 1); published in the official court series in 2009.