The ECJ, in the case of Jean-Claude Van Hove v CNP Assurances SA, confirmed that insurers must make sure their consumer customers understand the economic consequences of the insurance policies they take out.
To achieve this, the ECJ states that the terms relating to the main subject-matter of an insurance contract must be drafted in “plain, intelligible language” to comply with Article 4(2) of the Unfair Terms in Consumer Contracts (93/13/EEC) (the ‘Directive’). The Directive provides that consumers are not bound by unfair clauses that are set out in contracts with sellers/ suppliers. Article 4(2) states that terms associated with the main subject-matter of the contract fall outside the scope of the Directive if they are drafted in plain, intelligible language.
The ECJ explained that plain, intelligible language will be found if the language is not only grammatically intelligible to the consumer, but if it also clearly sets out the specific functioning of the insurance arrangements to allow the consumer to evaluate the economic consequences that could derive from the contract. If it is not easy for a consumer to make such an assessment, the national court may consider the possibility of unfairness.
If there is any dispute about whether a term will be held to be ‘core’ to the contract, the court will interpret the term in a way more favourable to the consumer. The ECJ will not determine this point, but will leave it to the national courts to consider whether the term is an essential component of the insurance contract at issue.
Although this decision impacts the insurance industry, it will also be of general interest to commercial practitioners who are required to draft documents to meet the same standard. The Unfair Terms in Consumer Contracts Regulations 1999 implemented the Directive into UK law, and paragraph 6 relates to the assessment of unfair terms. This legislation is set to be replaced by the Consumer Rights Act 2015 (on 1 October 2015), with paragraph 6 of the former being replaced by section 64 of the latter; practitioners should therefore be aware of the ECJ ruling, when faced with claims brought under either legislation.
As a result of the ruling, increased pressure will be placed upon those drafting contractual documents to ensure that key terms are easily understood and in plain English. If unsure, remember – the consumer is likely to be given the benefit of any doubt.