In this chapter of our Annual Insurance Review 2020, we look at the main developments in 2019 and expected issues in 2020 in Europe.
France - HMN
Key developments in 2019
At the end of 2019 the authorities, consumers associations and members of French Parliament issued various statements/guidelines, which insurance professionals (mainly insurers and brokers) had to implement in relation to telephone sales of insurance products. These important developments are set out below.
The ACPR (Autorité de Contrôle Prudentiel et de Résolution - the French authority supervising the insurance industry and the wider financial sector) repeatedly sentenced insurance brokers in December 2016, February 2018 and May 2019 for breaching their duty to advise and failing to deliver pre-contractual information when telephone canvassing.
Recently, the ACPR took further action, as they conducted an audit of the Moroccan branch of a French broker. It is remarkable that a French authority decided to extend its remit to outside of France.
On 9 October 2019, the ACPR published a handbook on its website reiterating the rules in this area.
The DGCCRF (Direction Générale de la Concurrence, de la Consommation et de la Répression des Fraudes: the French authority in charge of protecting consumers) also recently sentenced an insurance broker for telephone canvassing more than 18,000 consumers who were registered on Bloctel (which is a list of individuals who have expressly requested not to be subject to telephone solicitation).
In September 2019, consumer associations issued a press statement requesting the prohibition of telephone solicitation of insurance products, claiming that the French Federation of Insurers and the main French syndicate of insurance brokers are collectively responsible for the current situation.
There are currently four bills before the French Parliament. Two of them were lodged in 2018 and their purpose is to reinforce protection of consumers. Two other bills were lodged in October 2019 aiming to prohibit telephone solicitation or alternatively to make it subject to draconian conditions.
On 19 November 2019, the CCSF (Comité Consultatif du Secteur Financier: Advisory Committee of Financial Sector) issued an advice about the commercial practices of the sale of insurance products via the telephone.
In a press statement dated 26 November 2019, the ACPR invited professionals to follow the recommendations of CCSF. However, some professionals have commented that the scope of the advice issued by CCSF is too limited as it only concerns cold calls.
In November 2019, representatives of the brokers syndicate announced that they are ready to take necessary steps in order to preserve the reputation of the whole profession. Insurers should also control operations carried out by their brokers or cover holders, being reminded that they are potentially liable insofar as they provide the brokers with the script for telephone solicitation.
Following a meeting in November 2019 of insurance professionals, it was decided that the eventual aim is to abandon cold calls and prohibit oral consent (even where the call has been recorded). Written consent will be required, and it is proposed to allow a 24-hour cooling off period to allow the consumer to review the pre-contractual information provided online.
What to look out for in 2020
The coverage of operating losses where there is no physical damage has become more and more pressing in 2019 and will continue into 2020.
In particular where a company sustains operating losses following an event that has not caused damage to property.
This was highlighted by the terrorist attacks in Paris a few years ago. This caused operating losses to the tourist industry in Paris but there was no damage to any property but a significant decline in the number of tourists in the months following the terrorist attack.
At the end of 2018 and the beginning of 2019, the "yellow jackets" movement forced many shopkeepers and professionals to close on Saturday (the most profitable day for sales) in order to avoid damages to their property. This resulted in a significant loss of turnover. The irony being that by saving their property, the businesses sustained loss of turnover.
Another example is the explosion at the Lubrizol chemical plant in Rouen in September 2019. The resulting pollution from smoke and ash meant many farmers and breeders in the area had to throw away their products (especially milk). This was not covered by insurance and the question of indemnification by the French government has been discussed.
From an insurance point of view, operating losses sustained without physical damage are non-consequential immaterial losses (or dommages immatériel non-consécutifs) are frequently not covered. If they are covered, they are usually subject to sub-limits, which are significantly lower than the overall limit of indemnity.
Therefore, there is a real necessity to review insurance contracts in order to improve coverage. The current position is that insureds must have sustained damage to property in order to be entitled to cover. One possible solution is that this condition is removed. The industry could move towards a system where coverage is triggered by an event that would not be limited to physical property damage.
There is likely to be a capacity issue preventing in a major change. It may be that it could be introduced for large risks and not the small or medium size business who are largely affected by this restriction in cover. We will await to see which direction the insurance industry moves towards.
The Netherlands – Kennedy van Der Laan
Key developments in 2019
As we mentioned in last year’s Annual Review, the bill ‘Class Action Financial Settlement Act’ (Wet afwikkeling massaschade in collectieve actie (WAMCA) (the "Act")) was adopted in the Netherlands in early 2019. The Act will enter into force on 1 January 2020.
This law makes it possible, among other things, to claim damages in a class action, which was not previously possible. Previously parties could only obtain either a (i) declaratory judgment stating that the party sued was liable, or (ii) a binding declaration of a settlement reached between the interest group and the party sued. The WAMCA will now give power to the courts to award damages themselves.
At the same time, the Act aims to make settlement more attractive by improving the quality of collective interest groups, improve the coordination of class action proceedings and provide more finality for all parties.
Furthermore, the class action must have a sufficiently close relationship with the Dutch legal sphere (the so-called scope rule). A sufficiently close relationship exists when (i) the majority of the victims are habitually resident in the Netherlands, (ii) the party sued is domiciled in the Netherlands and additional circumstances indicate a sufficient connection with the Dutch legal sphere; or (iii) the event to which the legal action relates has taken place in the Netherlands.
The collective settlement of damages as decided by the court is, in principle, binding on all victim's resident in the Netherlands who have not opted out, and on all victims not resident in the Netherlands who have consented to their interests being defended.
The WAMCA applies to class actions instituted on or after 1 January 2020 that relate to events that occurred on or after 15 November 2016.
The Urgenda Climate Case against the Dutch Government, in which our firm (Chris van Dijk) was involved as advisor, was the first in the world in which citizens established that their government has a legal duty to prevent dangerous climate change. On 24 June 2015, the District Court of The Hague ruled that the government must cut its greenhouse gas emissions by at least 25% by the end of 2020 (compared to 1990 levels). The ruling required the government to immediately take more effective action on climate change. The case was upheld by the Court of Appeal on 9 October 2018. Following this judgment, the Dutch Government appealed to the Supreme Court, the highest court in the country. On 13 September 2019 two chief advisors to the Supreme Court advised the Court to uphold the Court of Appeal’s judgment. The final ruling of the Supreme Court will be delivered at a public hearing on 20 December 2019.
The Climate Case, which was brought on behalf of 886 Dutch citizens, made climate change a major political and social issue in the Netherlands and transformed domestic climate change policy. It also inspired climate change cases in Belgium, Canada, Colombia, Ireland, Germany, France, New Zealand, Norway, the UK, Switzerland and against the EU. This is likely to have a dramatic knock on effect on companies and if they fail to act you might expect regulatory investigations and potential D&O claims.
What to look out for in 2020
The Dutch Consumer and Market Authority (ACM) published guidelines regarding consumer protection and nudging. The ACM points out that companies nowadays have much more personal data about consumers than they did in the past. This makes it possible to personalize offers for specific consumers or groups of consumers. Whilst this might be advantageous for consumers, it could be used to persuade the consumer to make use of an initially less attractive offer. The ACM and the Dutch Authority for Financial Markets (AFM) reiterates the importance of consumer protection in relation to nudging in their “trend view 2020”. In this report, the AFM mentions nudging as one of their top priorities for their supervising role in 2020. As an example, the AFM describes the risks of unfair practices in relation to insurance comparison websites.
A concerning trend to look out for in 2020 is the development with regards to the notional interest rates used for the capitalisation of future damages in personal injury cases. Until recently, it has been standard practice to use a notional interest rate of 3%. This year however, there have been three cases in first appeal where the Court, considering the low return on investment of recent years, has decreed the use of a much lower notional interest rate of 0-1% (in one case even use a negative rate of -0,2%). Considering the current interest rates on the financial market and the low return on investment of recent years, it is feared that other Courts might well follow suit in the coming year. This would be a big blow for the Dutch insurance industry, as these developments might well cost the Dutch insurance industry several tens of millions of euros extra a year.
Italy – NCTM Studio Legale
Key developments in 2019
In the second part of 2018 the Court of Cassation, confirmed that the "claims made" clause is valid. The Court was asked to decide whether the following principles were correct: (i) the parties cannot quantify a third party claim as “loss” [sinistro in Italian] (ii) the claims made clause in civil liability insurance contracts covering third parties does not deserve protection under the Italian Civil Code.
This latest decision of the Court of Cassation has provided much needed clarity on the validity of the claims made clause. It has now been established that third party liability insurance policies on a claim made basis cover the risk of an insureds’ losses following a claim. This is valid even though it derogates from article 1917 of the Italian Civil Code.
It remains the case that dissatisfied insureds may still invoke their rights in different ways. In particular insureds will need to focus on remedies relating to (i) damages for pre-contractual liability, (ii) unfair policy terms; (iii) invalidity (or partial invalidity) of the contract where it is not fit for purpose (“difetto di causa in concreto”) – the remedy will involve amending the contract terms so that it is fit for purpose; (iv) modification of the contract where the policy contains unfair terms. What is clear is that going forwards insureds cannot rely simply on the "claims made" clause being invalid.
The Judgment represents an important – and hopefully conclusive – step forward to confirm the general validity and admissibility under Italian law of "claims made" clauses after several years of uncertainty and disputes. During 2019, this judgment has had an immediate impact both on claims made products’ distribution and sales now that consumers and insurers are more confident in relation to claims made policies. In addition, we expect the increased certainty provided by this judgment to lead to a reduction of coverage disputes relating to the validity of claims made clauses.: We consider this trend will continue to benefit insurers and insureds in the third-party liability policies market.
What to look out for in 2020
In March 2009, the Italian Insurance Regulator (ISVAP, at the time) issued Regulation n. 29/2009, dealing with, the insurability of certain risks relating to W&I policies (the “Regulation”).
According to Article 4, paragraph 2 of the Regulation “…insurance undertakings may not provide cover guaranteeing the reimbursement of contingent liabilities or losses on assets due to assessments resulting from undertakings extraordinary operations”. This provision triggered doubts and uncertainties over the validity of W&I policies.
The insurance market raised concerns about the possible impact of such provision on W&I policies. This led to the Italian Regulator (IVASS) issuing a statement on 25 July 2019. This statement was intended to provide clarification on the insurability of W&I risks.
IVASS confirmed the general application of the prohibition set forth by Art. 4, paragraph 2 of the Regulation. However more importantly the regulator clarified that W&I policies do not fall within the scope of such provision when the following requirements are met:
for seller-side policies, they cover the risk arising from the seller’s indemnity obligations in the event of a breach of the specific representations and warranties given by the seller to the buyer in the context of an extraordinary corporate transaction
for buyer-side policies, they (i) are based on limited and identified commitments not deriving from valuations, (ii) refer to risks which can be adequately assessed on an actuarial basis and (iii) provide indemnity which is not linked to the consideration for the extraordinary corporate transaction.
Following this important decision by IVASS, it is expected that the W&I insurance market will grow significantly in the next few years. Although, insurers and broker will have to make sure that marketed W&I policies do meet the above requirements. Private equity and corporate buyers and sellers will – thanks to this development – increasingly make use of W&I policies and, we expect at the same time, that insurers will offer new coverage solutions, making the market more open and competitive, in support of Italian M&A and PE deals.