Insurance update - Europe

Publication November 28, 2014


In this update we report on the UK regulators’ proposals for a new Senior Insurance Managers Regime. The PRA and FCA are consulting on changes to the approved persons regime in order to implement the fit and proper measures set out in Solvency II and ensure accountability of senior persons who run insurers. The PRA has also issued the latest consultation on measures for implementing Solvency II which covers the appointment of actuaries, requirements for run-off operations and reporting obligations for the Society of Lloyd’s. Intermediaries should be aware of the outcomes of the FCA’s thematic review into how bribery and corruption risk is managed in the commercial insurance broking sphere. Firms should also take note of the FCA’s forward-looking thematic review of complaint handling. The regulator is considering changes to its rules to remove barriers to effective complaints handling. We also report on two important decisions, one from the Supreme Court (Plevin), and the other from the Court of Appeal (Versloot). Finally, we include updates on recent developments in the Italian market.

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UK regulators publish consultations on new regulatory framework for individuals

PRA proposals

On November 26, the Prudential Regulation Authority (PRA) issued a consultation paper (CP24/14) on Senior insurance managers regime: a new regulatory framework for individuals. The proposals seek to update the PRA’s approved persons regime in order to implement the Solvency II Directive (the Directive) and to closer align the regime for insurers with that being introduced under the Senior Managers Regime for banks.

In a move away from ‘intelligent copy out’ the proposed regime seeks to provide more detailed elaboration on the fit and proper measures set out in the Directive. The proposals aim to ensure that the senior persons who run insurers, or who have responsibility for other key functions within the business, behave with integrity, honesty and skill. Although broadly aligned with the regime for banks the proposals take into account the different business model of insurers and will take into account the different risks and features of the industry.

The following Controlled Functions will be designated as Senior Insurance Management Functions (SIMFs):

  • Chief Executive Officer (SIMF1)
  • Chief Finance Officer (SIMF2)
  • Chief Risk Officer (SIMF4)
  • Head of Internal Audit (SIMF5)
  • Third Country Branch Manager (SIMF19) (Third-Country branches)
  • Chief Actuary (SIMF20)
  • With-profits Actuary (SIMF21) (For with-profits firms)
  • Chief Underwriter Officer (SIMF22) (General (re)insurance and Lloyd’s managing agents)
  • Underwriting Risk and Oversight Function (SIMF23) (Society of Lloyd’s)
  • Group Senior Insurance Manager (SIMF7) (Group)

None of the sanctions contained in section 36 of the Financial Services (Banking Reform) Act 2013, nor the presumption of responsibility contained in section 66B of the Financial Services and Markets Act 2000 will apply to the above SIMFs. The certification regime being applied to banks will not be required by insurers for their employees. The PRA proposes that the scope of individuals subject to approval before taking up their roles will be more role-specific than is currently the case under the existing approved persons regime. These individuals will be held to account for the ongoing safety and soundness of their firms and for the appropriate protection of policyholders.

Other individuals, known as ‘key function holders’ (included in the Directive) but who do not hold either a PRA or Financial Conduct Authority (FCA) controlled function will be need to be pre-approved. The PRA will take appropriate action in relation to these individuals only where it considers that they do not meet fit and proper requirements on an ex-post basis. Other individuals on a parent/holding company board or holding key group functions will also be subject to this approach.

The PRA will apply a proportionate approach to the application of this regime with the result that smaller firms and third country branches may be able to combine responsibilities for different functions.

Key to the proposals will be the requirement for (re)insurers to maintain a ‘Governance Map’ identifying the individuals who run the firm along with the key function holders.

Certain ‘core’ responsibilities will need to be allocated amongst the controlled function holders (including FCA controlled functions) including such things as taking responsibility for ‘leading the development of the firm’s culture and standards’ and ‘embedding the firm’s culture and standards in its day-to-day management’. New conduct standards will be introduced for both SIMFs and key function holders.

The consultation closes on February 2, 2015.

For further information:

Senior insurance managers regime: a new regulatory framework for individuals (CP24/14)

FCA proposals 

Also on November 26, the FCA issued a consultation paper (CP14/25) on Changes to the Approved Persons Regime for Solvency II firms. Solvency II requires that persons performing certain ‘key functions’ within firms are fit and proper. The FCA proposes to use its existing approved persons assessments but with adaptations where individuals will be carrying out Solvency II key functions.

The FCA anticipates that the existing FCA-designated controlled functions that are most likely to be Solvency II key functions are:

  • Significant Management (CF29)
  • Compliance (CF10)
  • Appointment and oversight (CF8)

The FCA is not proposing to expand the existing scope of the above controlled functions. Any individual performing any Solvency II key function which falls outside the above categories will be picked up by the PRA ‘key function holder’ regime.

The FCA proposes to amend the Fit and Proper Test for Approved Persons (APER) in order to take into account the Solvency II framework when making an assessment. This will include consideration of the firm’s own assessment of a candidate under PRA rules and requirements contained in either the Solvency II Regulations or the European Insurance and Occupational Pensions Authority (EIOPA) guidelines.

To more closely align the regime applied to insurers to that applied to banks, the FCA proposes to require pre-approval of all individuals taking up executive and other functions within firms not otherwise approved by the PRA. These people will become FCA Significant Influence Function (SIF) holders. The FCA will continue to consent to individuals performing PRA functions from a conduct perspective.

In the joint PRA/FCA Strengthening accountability in banking: a new regulatory framework for individuals (CP14/14), the regulators proposed new Conduct Rules for approved persons. The FCA believes that these Conduct Rules are appropriate to insurers as well as banks. For insurers, however, the Conduct Rules will only be applied to those functions that require pre-approval. The proposed conduct rules build on the existing APER rules with two additions: individuals would be obliged to pay due regard to the interests of customers and treat them fairly; and those in positions of particular responsibility must ensure that any delegation of their responsibility is to an appropriate person and that they oversee the discharge of the delegated responsibility effectively. The rules will be divided into two tiers: Individual Conduct Rules applied to all PRA and FCA approved persons in Solvency II firms; and a second tier applied only to FCA SIF holders in such firms.

The FCA proposes that the functions of Chief Risk Officer and the Chief Internal Audit Function should be designated as FCA SIF holders in Insurance Special Purposes Vehicles (ISPVs). Although the PRA proposes not to require pre-approval for these roles in ISPVs, the FCA believes that these functions remain important from a conduct perspective and will pre-approve candidates on this basis. Furthermore, not all controlled functions are required in the UK branches of EEA Solvency II firms and there will be a general override where the assessment of whether someone is fit and proper is reserved to the home state. However, where the functions are required and the override does not apply, EEA branches will be subject to the same approach as applied to UK firms.

The consultation closes on February 2, 2015.

For further information: Changes to the Approved Persons Regime for Solvency II firms (CP14/25)

PRA consults on further measures for Solvency II implementation

On November 21, the PRA issued a consultation paper (CP24/14) on further measures for implementing the Solvency II Directive. The PRA proposes to make changes (as consulted on by the Financial Services Authority in CP12/13) to align its rules with Solvency II and move them to the Solvency II Firms section of the PRA Rulebook. The consultation proposes changes in the following areas:

  • Appointment of actuaries. The proposed rules cover appointment and termination of actuaries and the relationship between firms and their actuaries and between actuaries and the regulator. The purpose of these rules is to ensure that insurers have access to adequate actuarial advice both in valuing liabilities to policyholders and in exercising discretion affecting the interests of with-profits policyholders.
  • Schemes of operation. This chapter sets out proposed changes to the requirements in respect of run-off operations for Solvency II. The rules propose changes to terminology, take account of the proposed rules for the Society of Lloyd’s and UK firms in difficulty, and clarify the level at which information and documentation is to be provided in respect of third country branches.
  • Regulatory reporting national specific templates (NSTs) specific to the Society of Lloyd’s. The proposed templates will ensure that the PRA receives quantitative data that is essential for the effective supervision of participants in the Lloyd’s market after Solvency II implementation. The PRA proposes a requirement for the Society of Lloyd’s to complete NST numbers NS.12 and NS.13 because the nature of the capital structure needs to be reflective in the way in which the PRA applies the requirements of Solvency II to the calculation of the solvency capital requirement and the format of its reporting. NS.13 is required so that the PRA can collect information necessary to assess whether any shortfall in a syndicate’s own funds compared to its reporting point can be met by the Society of Lloyd’s own funds. To ensure a an efficient data collection, the PRA proposes a new rule, 7.3, in the Reporting Part of the draft PRA Rulebook (in CP16/14) requiring the Society of Lloyd’s to submit the Lloyd’s reporting templates to the PRA at the same time as the Society submits its quantitative reporting templates.

CP24/14 also includes five draft supervisory statements which set out the PRA’s expectations of firms, and give further clarity, on:

  • Regulatory reporting exemptions.
  • Regulatory reporting, internal model outputs.
  • ORSA and the ultimate time horizon – non-life firms.
  • The quality of capital instruments.
  • The treatment of pension scheme risk.

The PRA notes that the final Solvency II Regulations (the Delegated Acts and the Implementing Technical Standards) have not yet been adopted. The guidance in CP24/14 is therefore subject to changes depending on the final versions.

Consultation on CP24/14 closes on January 30, 2015. The PRA will publish a Solvency II policy statement with feedback, including the finalised rules and the final supervisory statements, in 2015 Q1.

For further information:

Solvency II: further measures for implementation - CP24/14

Transposition of Solvency II: Part 3 – CP16/14

FCA publishes the findings of its thematic review into Managing bribery and corruption risk in commercial insurance broking (TR14/17)


In 2010 the Financial Services Authority (FSA) published a report (FSA 2010 report) on anti-bribery and corruption in commercial insurance broking (a link to our update on this report can be found here). The 2010 report reviewed how well commercial insurance intermediaries managed the risks of making corrupt payments to third parties and concluded that there were serious weaknesses in some intermediaries’ anti-bribery and corruption (ABC) systems and controls. The FSA 2010 report concluded that there were significant risks that intermediaries might make illicit payments or inducements to third parties.

The findings of the recent FCA review

After taking over regulation from the FSA, the FCA undertook a thematic review to assess how the commercial intermediary sector had responded to the specific issues identified in the FSA 2010 report and to consider how well intermediaries were addressing bribery and corruption risks across their wider business and how well risks were addressed through governance, due diligence and ongoing monitoring.

The thematic review took place between October 2013 and June 2014. Ten intermediaries were visited of which nine were Lloyd’s brokers. All the intermediaries were medium-size or smaller.

General comments

  • Most intermediaries in the sample did not yet adequately manage the risk that they might be involved in bribery and corruption.
  • Although half the sample had started to look at ABC risks, work being done was still in progress and more work was required to ensure that the measures were fully effective.
  • Three of the intermediaries in the review were unaware of the FCA/FSA work being undertaken on bribery and corruption risks.
  • Most progress had been made in relation to managing bribery and corruption risks posed by intermediary staff and work had been done on remuneration, gifts and hospitality policies and training.

Key findings 

  • Only half the sample had adequately identified and assessed bribery and corruption risks across both the trading and non-trading aspects of their business. The remaining intermediaries had either focused on a limited number of relationships or had not carried out a business-wide review of bribery and corruption risks.
  • The sample rarely assessed the bribery and corruption risks in a holistic manner and undertook limited due diligence on individual relationships with third parties.
  • Too often assessments of risk were of limited scope: for example, only taking into account the jurisdiction risk. Other factors, such as how the intermediary is paid, the sector and class of business, whether any political relationships were involved and the findings of any due diligence were not sufficiently taken into account.
  • Due diligence was weak in relation to bribery and corruption risks in almost half of the sample reviewed. The FCA found that in some cases intermediaries had failed to record key information properly, including terms of business agreements and information about third parties and their owners.
  • Intermediaries had not always evidenced the business rationale for including third party intermediaries in the distribution chain.
  • Most intermediaries sampled applied the same levels of due diligence, sign-off and monitoring regardless of the risk classification that the potential relationship had been given.
  • Policies and procedures often did not require approval of a higher risk relationship at a senior level of management. As a result, few such relationships obtained senior level approval.
  • Relationships should be monitored on an ongoing basis. Progress amongst the sample of intermediaries in this respect had been slow. Less than half of the files on third parties in the intermediaries sampled had been reviewed or monitored.
  • Although intermediaries now have documented policies in relation to receipts for expenses, the range of thresholds above which senior management approval would be required diverged widely. In addition, the FCA found examples of senior managers approving their own expenses.
  • Both bonus and remuneration structures and ABC training had improved since the FSA 2010 report. However training should include a test to ensure that the training is effective.

What happens next?

All commercial insurance intermediaries are asked to take the above findings on board, especially those who act on a wholesale basis. The FCA will update Financial Crime: a guide for firms to reflect the findings of this thematic review.

What should intermediaries do?

Commercial insurance intermediaries should review their systems and controls in the light of the findings of the thematic review.

In particular, firms should extend their procedures for identifying risks across their business, the risk assessment criteria should extend beyond jurisdictional risk into other areas identified in the review, processes need to be put in place to ensure that riskier arrangements get adequate oversight at a senior level and management arrangements need to ensure that ABC measures take place on an ongoing basis.

For further information:

TR14/17: Managing bribery and corruption risk in commercial insurance broker

FCA thematic review of complaint handling

The FCA has published the findings of its forward looking thematic review into complaint handling across 15 major retail financial firms including three general insurers and three life insurers. The FCA also invited five trade bodies to take part in the review and sought input from the Financial Services Ombudsman and consumer bodies.

Rather than examining firms’ compliance with FCA rules and uncovering poor practice, this thematic review sought to identify changes that can be made to ensure that the interests of consumers are at the heart of firms’ complaint-handling processes in the future. The aim of the review was to identify common themes and barriers to prevent effective complaint handling in the five key stages of firms’ complaint handling:

  1. Identifying a complaint
  2. Recording a complaint
  3. Internal reporting of a complaint
  4. Provision of redress
  5. Carrying out root cause analysis.

The FCA found that firms have taken steps to improve their complaint handling and found examples of firms involving senior managers more in the complaint handling process and encouraging staff to make the right judgements. Weaknesses were identified in each of the five stages, however, and firms can do more to deliver fair complaint handling and consistent outcomes for consumers. The FCA’s observations together with firms’ self-assessments and working groups led to the conclusion that there are four main barrier themes: application of FCA rules; cultural; operational; and specific barriers in relation to management information (MI) and root cause analysis.

Next steps

The FCA notes that both actions from all regulated firms as well as regulatory actions may be required to address the barriers identified in the review. All firms should consider how the FCA’s findings relate to their own complaint-handling operating models, policies and practices. Firms may like to consider:

  • Whether complaint handling policies and processes have the interests of consumers at their heart; avoiding a tick-box approach to compliance with Dispute Resolution: Complaints (DISP) rules.
  • Reviewing their definition of ‘complaint’ and training staff accordingly.
  • Whether systems and processes could inhibit accurate recording of complaints.
  • Observations made about consistency of redress and distress and inconvenience payments.
  • Their approach to root cause analysis focusing on the observations in the thematic review.
  • Whether any improvements to MI can be made.

In addition to action for firms, the working group recommended changes to DISP rules which will potentially enable the industry to provide better complaints experiences and outcomes to consumers. The working group proposals also include reconsidering firms’ biannual reporting of complaints data to the FCA. The regulator is conducting further research in light of these recommendations with a view to developing policy proposals which will be consulted on in due course.

For further information:

TR14/18 Complaint handling

Plevin v Paragon Personal Finance Limited [2014] UKSC 61

UK Supreme Court overrules Harrison v Black Horse and separates the decision concerning the fairness of a consumer credit transaction from adherence to conduct of business rules. This important case considers the circumstances which will make an amount of commission relevant for the determination of fairness under section 140A the Consumer Credit Act.  

The facts of the case

The case concerned Mrs Plevin, a widowed lecturer living in her own house with a mortgage and unsecured personal debt. Mrs Plevin had no dependants and had generous sickness cover provided by her employer.

Mrs Plevin responded to a leaflet posted through her door sent by a credit broker called LLP Processing (UK) Ltd (LLP). The offer was to refinance Mrs Plevin’s debts with security provided by her home. (LLP went into liquidation before the trial.)

Mrs Plevin called LLP to express her interest in the offer of refinancing. During the call, LLP assessed her demands and needs on the basis of the information provided by her as required by the Insurance Conduct of Business Rules (ICOB), then in force.

During the call a quotation for a product was made by LLP to Mrs Plevin. The proposal was for her to borrow £34,000 from Paragon Personal Finance Limited (Paragon). Alongside the refinancing loan, a payment protection insurance (PPI) policy was offered, payment for which would be made as a single premium of £5780 added onto the loan. After the call, LLP sent an application form and a Key Facts document to Mrs Plevin.

After the application was submitted, an employee of Paragon rang Mrs Plevin as part of their standard anti-money laundering policy. The only other contact she had with Paragon was when cheques were sent by Paragon covering the refinancing, the premium and an additional sum for home improvements.

Of the £5,780 premium paid for the PPI cover, £4,150 was commission (equal to 71.8 per cent). Paragon received the commission from the PPI provider, Norwich Union, retaining £2,280 and sending £1,870 to LLP.

Amongst other issues dropped before the case was heard before the Supreme Court, Mrs Plevin brought a claim against Paragon arguing that the relationship was unfair within the meaning of section 140A of the of the Consumer Credit Act 1974 (CCA). The unfairness arose from two things:

  1. The non-disclosure of the amount of commission.
  2. The failure to assess and advise upon the suitability of the PPI for Mrs Plevin’s needs.

The Consumer Credit Act – the court’s power to determine a relationship unfair

Sections 140A-D of the CCA confer power on the court to re-open credit transactions which are determined to be unfair. Under section 140B CCA the court can make an order where the relationship between the creditor and the debtor arising out of an agreement is unfair because of one or more of the following factors: the terms between the parties; the way a creditor has enforced his rights; or ‘any other thing done (or not done) by, or on behalf, of the creditor’ (either before or after the agreement has been entered into) (section 140A (c) CCA). Where a debtor alleges that the relationship in relation to the agreement is unfair, it is for the creditor to prove that it is not.

The Insurance Conduct of Business requirements

At the time of the agreement insurance intermediaries were required to comply with ICOB. The rules created duties between an intermediary and its customer. Where there are several intermediaries in a chain, ICOB applied only to the intermediary ‘in contact with the customer’. In Mrs Plevin’s case both LLP and Paragon were acting as intermediaries but for most purposes LLP was the intermediary for ICOB purposes.

ICOB did not require that the intermediary disclose the amount or existence of any commission paid.

The Supreme Court’s decision and the case of Harrison

The leading case on section 140A and the application of ICOB to sales of PPI was Harrison v Black Horse [2012] Lloyd’s Rep IR 521. Harrison was a decision of the Court of Appeal in which an application was made by a borrower under section 140A CCA to determine whether the commission for the sale of a PPI policy (which amounted to 87 per cent of the premium paid) was unfair within the meaning of the CCA. Tomlinson LJ declined to find that such commission (although ‘quite startling’) amounted to an unfair relationship as there had been no breach of ICOB. Since Harrison, the position has been taken that as there is no regulatory obligation to disclose the existence of commission, the amount of commission paid will not result in an agreement being unfair under section 140A CCA. This decision has bound a number of cases taken in relation to the sale of PPI added onto loans.

Lord Sumption gave judgment for the Supreme Court. The Supreme Court found that Harrison was wrongly decided. The Court’s decision is that the unfairness of a creditor-debtor relationship should not be dependent upon the regulatory rules set out in ICOB. ICOB will provide evidence of the standard of conduct expected but ‘cannot be determinative of the question posed by section 140A’. The concerns of the CCA and ICOB are different and should not be confused. Section 140A is entirely concerned with whether the relationship between a creditor and debtor was unfair. The reason for unfairness cannot be limited by whether or not there has been a breach of duty. The court may take into consideration a wider range of issues including the characteristics, sophistication and vulnerability of the debtor and the facts they could reasonably be expected to know or assume.

In determination of question (1) therefore, the Supreme Court decided that the non-disclosure of the commission payable made the relationship between Mrs Plevin and Paragon unfair within the meaning of section 140A CCA. Lord Sumption stated:

‘A sufficiently extreme inequality of knowledge and understanding is a classic source of unfairness in any relationship between a creditor and a non-commercial debtor. It is a question of degree. Mrs Plevin must be taken to have known that some commission would be payable to intermediaries out of the premium before it reached the insurer… But at some point commission may become so large that the relationship cannot be regarded as fair if the consumer is kept in ignorance’.

Although Paragon owed no duty to Mrs Plevin under ICOB, the breadth of section 140A required only that the creditor was responsible for an omission making the relationship with the debtor unfair if he failed to take such steps: as would be reasonable to expect to take in the interests of fairness; and, would have removed the source of that unfairness so that the relationship is no longer unfair.

The Court went on to consider question (2) which concerned whether Paragon was required to assess Mrs Plevin’s demands and needs in relation to the PPI when ‘acting on behalf of’ LLP. The Court determined that they had no such obligation. The requirement contained in ICOB required only that the intermediary making a personal recommendation to a customer was required to consider whether the product met the customer’s needs. This duty was owed by LLP, not Paragon who was not acting as intermediary for these purposes. Merely because Paragon received commission from Norwich Union this did not result in their becoming an intermediary for the purposes of the relevant section of ICOB (or otherwise):

‘The practice by which the agent of a consumer of financial services is remunerated by the supplier of those services has often been criticised. It is, however, an almost universal feature of the business, and it is of the utmost legal and commercial importance to maintain the principle that the source of the commission has no bearing on the identity of the person for whom the intermediary is acting or the nature of his functions’.

In conclusion

The non-disclosure of the amount of commission had the result of making Paragon’s relationship with Mrs Plevin unfair. Accordingly, the court was able to re-open the transaction under section 140B CCA.

For further information:

Plevin v Paragon Personal Finance Limited [2014] UKSC 61

Versloot Dredging BV and another v HDI Gerling Industrie Versicherung AG and others (The ‘DC Merwestone’) [2014] EWCA Civ 1349

This is an appeal from a judgment of Poppelwell J. The claimants were owners of the DC Merwestone, a vessel, insured under a Hull and Machinery time policy by the defendant underwriters. The cause of loss was crew negligence consisting of a failure to close the sea suction valve and drain a pump with the ultimate result that after the ice in the pump thawed, the engine room flooded causing damage to the engine itself. Insurers denied liability. At first instance, Poppelwell J determined that the policy responded to the loss but that the claim was forfeited by reason of a fraudulent means or device. The general manager of the vessel owners had made a false statement in relation to the circumstances of the loss. The judge applied the test (obiter) in Agapitos v Agnew (The Aegeon) [2002] 2 Lloyd’s Rep 42 as set out by Mance LJ. This test was that there would be a fraudulent claim where: a fraudulent device was directly related to the claim; the device was intended to promote the insured’s prospects of success; and the device would have tended to yield a not insignificant improvement in the assured’s prospects of success prior to any final determination of the parties’ rights. When this test was applied to the facts Poppelwell J found that there had been a fraudulent claim involving the use of fraudulent means and devices. The insured appealed.

The owners appealed on the basis that: the judge had erred in determining that: (1) the general manager’s statement was a fraudulent device; (2) the test in The Aegeon should not be followed; and, (3) the denial of recovery of a legitimate claim (even if the claim was supported by a fraudulent device) resulted in a deprivation of possessions under article 1 of the First Protocol to the European Convention of Human Rights (implemented under the Human Rights Act 1998).

Christopher Clarke LJ gave judgment for the Court of Appeal. The appeal was dismissed.

  1. The court at first instance had been right to conclude that the general manager’s statement was a fraudulent device; it served as a false representation.
  2. The law on fraudulent claims had been applied correctly. There was a long line of authority which established a special common law rule that any lesser claim (for a true amount) was forfeited where a fraudulently exaggerated claim was made. The rule rested on the duty of good faith applied to contracts of insurance. The duty applied also to fraudulent means and devices as these were sub-species of fraudulent claims. Further, the fraudulent assured should not be allowed to think that if the fraud did not work nothing would be lost. There was also sufficient public policy justification for protecting insurers from fraud. It did not matter that the consequences could be harsh for the insured.
  3. The rule did not contravene the Human Rights Act 1998. Although the sum payable under a policy was a possession within the Act, the rule pursued a legitimate aim by means proportionate to the aim sought.

This decision provides authoritative support for the existing approach to fraudulent devices and will be welcomed by underwriters.

For further information: Versloot Dredging BV and another v HDI Gerling Industrie Versicherung AG and others (The 'DC Merwestone') [2014] EWCA Civ 1349

The Italian Council of State delays implementation of national database aimed at preventing motor insurance fraud

The Italian Council of State expressed its opinion in relation to the scheme of regulation to be issued by the Ministry of Economic Development concerning the implementation of an archive aimed at preventing fraud in relation to motor insurance policies, as provided for by Law no. 221 of December 2012.

The most important remark raised by the Council of State relates to the requirement by the Ministry of Economic Development to detail the information which shall be considered as indicators of fraud risk; the remark is aimed at limiting the scope of car owners’ personal and sensitive data processing.

The regulation is expected to be enacted in the next few months following a public consultation process.

For further information please contact Nicolò Juvara.

Italian Constitutional Court finds that rules for quantifying compensation for non-material damage covered by motor liability insurance are compatible with Italian Constitution

Following the demands of some Italian Courts, the Italian Constitutional Court has issued a judgment on the debated question as to whether Article 139 of the Private Insurance Code (as implemented by the Ministerial Decree of April 2012) setting the amount of compensation for non-pecuniary damage in the event of road traffic accidents is compatible with the Italian Constitution.

Non-pecuniary damages is a specific category of Italian law referring to those damages which are due to both the physical injuries and the mental distress of a damaged party (i.e. damage that is not financial or property damage). The Private Insurance Code (derogating to the general principles of the Italian Civil Code), sets the parameters which national courts must respect when quantifying the compensation for damage to health payable by the insurer, with limited regard to motor accidents leading to minor physical injuries (up to 9 per cent of disability).

Doubts had been raised in relation to the consistency of this specific set of rules with the provisions of equality set out by the Constitution, considering that these specific parameters (aimed at lowering liquidation costs for insurers) would only apply to non-material damage caused by motor accidents. Persons suffering other damages, although compensated under a different class of business, would not be subject to the same parameters.

In its judgment (dated October 30, 2014), the Italian Constitutional Court considered that there is no violation of the right to equality because the standard mechanism for quantifying the damage (pursuant to Article 139) grants to the judge the ability to adjust the amount of compensatory damages in consideration of the damage actually suffered by the injured party.

This judgment is in line with an earlier judgment (dated January 23, 2014) in Case C-371/12 of the Court of Justice of the European Union, which established that the Private Insurance Code is compatible also with relevant EU Directives.

For further information please contact Nicolò Juvara.

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