Court of Justice of the EU considers whether a term in a consumer insurance policy is unfair
The claimant (a consumer) took out an insurance policy with the defendant. That policy guaranteed to cover all loan repayments owed by the claimant to a company as follows: "75% of such loan repayments in the event of total incapacity for work", which was in turn defined as an inability "to take up any activity, paid or otherwise" after a certain waiting period.
The claimant claimed under the policy when he became unable to work but the insurer ceased covering his loan repayments when he was certified by a doctor as being fit to carry on appropriate employment, at least on a part-time basis (although he was not fit to return to his former post). The claimant alleged that the relevant term in his insurance policy was an unfair term in a consumer contract and sought to rely on EC Directive 93/13 (which aims to protect European consumers against unfair terms in contracts).
The recital to the Directive provides that terms which clearly define an insured risk and the insurer's liability do not fall within the Directive (since these restrictions are taken into account in calculating the premium) and Article 4(2) also provides that terms which relate to the main subject-matter of the contract fall outside of the Directive "in so far as these terms are in plain, intelligible language". The insurer argued that the relevant term was clear and that it concerned the very subject-matter of the contract. The counter-argument was that a clause which prevents the claimant from receiving cover even if his employment provides him with insufficient or no income whatsoever to meet his loan repayments would frustrate the purpose of the policy.
The Court of Justice of the EU has now provided some guidance on the interpretation of Article 4(2):
- The "main subject-matter of the contract" means the essential obligations of the contract, which for an insurance transaction: "are that the insurer undertakes, in return for prior payment of a premium, to provide the insured, in the event of materialisation of the risk covered, with the service agreed when the contract was concluded". It is for the referring court to decide whether the definition of "total incapacity to work" falls within the scope of the main subject matter of the policy, but the CJEU said it "cannot be ruled out" that such a term does circumscribe the insured risk and the insurer's liability.
- The referring court must also decide if the term has been drafted in "plain, intelligible language". The CJEU stated that it cannot be ruled out in this case that "even if the term is grammatically intelligible, which it falls to the referring court to assess, the scope of that term was not understood by the consumer".
The national court is entitled to take into account "the broader contractual framework" and the fact that this policy was related to loan contracts: "It is for the referring court to determine whether, having regard to all the relevant information, including promotional material and information…and more generally, of the contractual framework, an average consumer who is reasonably well informed and reasonably observant and circumspect" would be able to understand the "specific functioning of the arrangements to which the relevant term refers" and "would also be able to assess the potentially significant economic consequences for him resulting from the limitation of the cover".