Van Hove v CNP Assurances SA, [2015] C-96/14

Unfair Terms in Consumer Contracts Directive (93/13/EEC) – group insurance contract taken out with loan – definition of ‘total incapacity’ – concept of ‘plain, intelligible language’

A French court referred a question to the CJEU on whether a term in an insurance contract, intended to cover loan repayments in the event of the insured’s total incapacity to work, constitutes an unfair term under the Unfair Terms in Consumer Contracts Directive (the Directive). The CJEU concluded that, in order to be fair, a term must not only be ‘grammatically intelligible to the consumer’ but also that the contract sets out transparently the specific functioning of the insurance arrangements. The Court also ruled that consideration must be given to the ‘contractual framework’ of which the term is a part, so that the consumer is in a position to evaluate the economic consequences on the basis of precise, intelligible criteria.

Facts

The dispute in the main proceedings concerned a claim brought by Mr Van Hove against CNP Assurances seeking a declaration from the French court that the terms of the insurance contract between Van Hove and CNP relating to the definition of ‘total incapacity for work’ and the conditions under which cover for that incapacity is acquired are unfair.  

In 1998, Van Hove took out an insurance policy with CNP that was intended to protect against the consequences of being unable to meet the monthly payments on two loans. The policy wording guaranteed to cover all loan repayments ‘due from the borrowers to the contracting party in the event of death, permanent and absolute invalidity or 75 per cent of such loan repayment in the event of total incapacity for work’. A further clause provided that ‘the insured person shall be regarded as being in a state of total incapacity for work if, after 90 consecutive days’ interruption of activity following an accident or illness, the insured finds himself unable to take up any activity, paid or otherwise.’ (emphasis added).

In January 2011, social security authorities set Van Hove’s permanent partial incapacity rate at 72 per cent. In June 2012, a doctor appointed by CNP found that Van Hove was fit to carry on appropriate employment and, using different criteria to the social security authorities, fixed his functional incapacity rate at 20 per cent and informed Van Hove that it would no longer cover the loan repayments.

CJEU preliminary ruling

The French court found that, in order to resolve the dispute, it is necessary to rule on whether the clause defining ‘total incapacity for work’ constitutes an unfair term. The CJEU was, therefore, required to consider whether the term:

  1. falls within the main subject-matter of the contact; and
  2. is drafted in plain, intelligible language.

To the first point, the CJEU held that the examination of a contractual term must be carried out having regard to ‘the nature, general scheme and the stipulations of the contract and its legal and factual context’. It is for the French court to determine whether the term forms part of the main subject-matter of the contractual framework and, further, whether it has been drafted in plain, intelligible language. Under Article 4(2) of the Directive, assessment of the unfair nature of terms shall relate neither to the definition of the main subject matter of the contract nor to the adequacy of the price and remuneration. The recitals to the Directive further explain that terms in an insurance contract which clearly define or circumscribe the insured risk and the insurer’s liability shall not be assessed for fairness, but only to the extent that these terms are in plain, intelligible language. Therefore, a contractual term that has been drafted in plain, intelligible language will be excluded from the assessment of unfairness.

As to this second point, the CJEU has made it clear that the transparency requirement cannot be reduced to contractual terms being formally and grammatically intelligible. The CJEU found that, although the wording of the clause is plain and precise, the ambiguity of the expression ‘take up any activity, paid or otherwise’ could be understood in various ways. The fact that the concept of ‘total incapacity for work’ within the meaning of the contract did not correspond to that of ‘partial permanent incapacity’ within the meaning of French social security law, combined with the extremely broad and vague nature of ‘activity, paid or otherwise’ meant that the scope of the term was not understood by Van Hove.

The parties entered the contract with the expectation of different economic results. Van Hove expected that at least some of the loan repayments would be covered if he was incapacitated. CNP contracted on the basis that cover would only be provided in the event that Van Hove was totally incapacitated. However, CNP covered the loan repayments until Van Hove’s functional incapacity rate was fixed at 20 per cent at which point the insurer refused to make any further payments. CNP relied on the contractual term which had the effect of restricting cover unless Van Hove was unable to undertake any activity, paid or otherwise. According to the CJEU, however, this contractual term lacked sufficient clarity for Van Hove to assess the economic consequences resulting from the limitation of cover.

Accordingly, the CJEU held that it is for the French court to decide whether, having regard to all the relevant information including the promotional material and information provided by CNP and the contractual framework, an average consumer would not only be aware of the difference in concept of ‘total incapacity for work’ and ‘partial permanent incapacity’, but would also assess the potentially significant economic consequences resulting from the limitation of cover under the policy.

Finally, the CJEU ruled that, when concluding related contracts, the consumer cannot be required to have the same vigilance regarding the extent of the risks covered by that insurance contract as he would if he had concluded that contact and the loan contracts separately.

Comment

This case provides some clarity around the meaning of ‘plain, intelligible language’ when assessing the fairness of a term in an insurance contract. A term must not only be grammatically intelligible but must set out clearly and transparently how the insurance arrangement will function. Insurers writing policies to cover incapacity for work must consider the consumer’s demands and needs and the level of cover the consumer understands will be provided in the event of a claim. For example, does the policyholder expect the policy to cover loan repayments in the event that he is unable to work and the payments exceed his income? In other words, does the insurance contract function in the way the consumer expects taking into consideration all marketing material, policy documentation and information provided by the insurer prior to concluding the contract.

In more general terms, this ruling serves as a reminder to firms of the importance of product design and policy wording that adequately reflects the level of cover. Broad, vague and ambiguous language such as ‘activity, paid or otherwise’ is open to various meanings and, in the UK, policy wording that falls far outside the expectations of policyholders is likely to be interpreted in favour of the consumer.

Van Hove v CNP Assurances SA, [2015] C-96/14

Nationale-Nederlanded Levensverzekering Mij NV v Hubertus Wilhelmus Van Leeuwen, [2015] EUECJ C-51/13

The CJEU has ruled that Article 31(3) of Council Directive 92/96/EEC (the Third Life Directive) does not preclude life assurers from being required by Member State law to provide policyholders with information additional to that set out in Annex II to the Third Life Directive provided that the additional information required is sufficiently clear, accurate and necessary to enable the policyholder to understand the essential characteristics of the contract. The consequences of failing to provide whatever additional information might be required under Member State law are irrelevant for the purposes of Article 31(3) of the Third Life Directive.

Background

The Third Life Directive specifies that certain information must be provided to a policyholder before a life assurance contract is concluded. Article 31(3) of the Third Life Directive states that Member States may require life assurers to provide additional information to that contained in Annex II only if it is necessary for the policyholder’s proper understanding of the essential elements of the contract.

Facts

Mr Van Leeuwen held a life assurance policy forming part of an investment with Nationale-Nederlanded Levensverzekering Mij NV (NN). At the time of contracting, the provisions of the Third Life Directive were relevant. The Third Life Directive has subsequently been repealed and replaced by Directive 2002/83/EC.

At the end of the term of the life assurance policy, a dispute arose between Mr Van Leeuwen and NN concerning the amount of the costs and premiums deducted in respect of death risk cover. It was Mr Van Leeuwen’s argument that he was not provided with sufficient information about such costs before the policy was taken out, in breach of  'open and/or unwritten' Dutch law.

Decision

The CJEU held that Article 31(3) did not preclude Member States from requiring life assurers to provide policyholders with information additional to that set out in Annex II to the Third Life Directive. Whether or not such additional information is required is a matter of choice given to the Member State.  Where additional information is required, it is for that Member State to determine the legal basis of the obligation in order to ensure that the policyholder understands the essential elements of the contract and to ensure a sufficient degree of legal certainty. What Article 31(3) does require is that whatever additional requirements may be applicable, the life assurer should be able to identify with sufficient certainty what information they will need to provide to the policyholder.

The CJEU was unable to provide any further comment on the exact nature of any obligations under Dutch law to provide further information, as the referring court had not furnished the reference for a preliminary ruling with specific examples.

Nationale-Nederlanded Levensverzekering Mij NV v Hubertus Wilhelmus Van Leeuwen, [2015] EUECJ C-51/13.