September 01 2009
The creation and reinforcement of a duty of caveat in the sale of financial products has long been recognized by EU law. In order to enable a consumer to "be provided with whatever information is necessary to enable him or her to choose the contract best suited to his or her needs", the Third Non-life Insurance Directive (92/49/EEC), consolidated by the EU Insurance Mediation Directive (2002/83/EC), details the information which must be transmitted to the individual before signing the contract.
Furthermore, the directive reinforces the insurance intermediary's duty of caveat, which includes serving a document to the policyholder that specifies:
"in particular on the basis of information provided by the customer, the demands and the needs of that customer, as well as the underlying reasons for any advice given to the customer on a given insurance product."
The EU Markets in Financial Instruments Directive (2004/39/EC) narrows the duty of caveat, requiring the investment firm to:
"obtain the necessary information regarding the client's or potential client's knowledge and experience in the investment field relevant to the specific type of product or service, his financial situation and his investment objectives so as to enable the firm to recommend to the client or potential client the investment services and financial instruments that are suitable for him."
The creation and reinforcement of the duty of caveat in EU law has led to the drafting of several bills on the subject in France.
Article 39 of the June 2006 Development of Employee Shareholding Bill defined the duty of caveat which applies to insurance establishments and intermediaries within the framework of life insurance policies. It suggested the introduction of the new Article L132-27-1 to the insurance code and took up Directives 2002/83/EC and 2004/39/EC on the duty of caveat of insurance intermediaries and establishments. However, the National Assembly, Parliament's lower house, decided to scrap the article due to the imminent tabling of a bill concerning consumer protection.
Article 27 of the November 2006 Consumer Bill similarly defined the duty of caveat, in conformity with the texts of the two EU directives. However, the bill was withdrawn by the executive on January 1 2007.
In light of these setbacks, Article 19 of the Bill for Consumer Credit Reform authorized the executive to issue orders which normally emanate from the legislature, but which were necessary in the domain of financial products and services, specifically in the insurance sector. Thus, the executive ratified Ordinance 106/2009 on the Marketing of Life Insurance Products, Employee Contingency Insurance Plans and Insurance. The ordinance, which created Article L132-27-1 of the Insurance Code, aims to reinforce policy subscribers' protection in terms of commercialization of life insurance products. It extends the duty of caveat as it applies to insurance establishments and intermediaries in the sale of life insurance policies, and reinforces the requirement to convey exact, clear and unambiguous content.
Case law is likely to narrow the framework of the duty, as it has in the banking sector. In an April 30 2009 decision the First Civil Division of the Cour de Cassation established a bank's duty of caveat towards a debtor during a loan subscription, despite the presence of an informed person, third party or party to the transaction during the subscription. This may also apply in the insurance field, anticipating the insurer's duty of caveat towards the life insurance policy subscriber, despite the fact that the subscriber has been counselled before, during or after the signing of the life insurance policy.
For further information on this topic please contact Carole Sportes at BOPS (SCP Bouckaert Ormen Passemard Sportes) by telephone (+33 1 70 37 39 00), fax (+33 1 70 37 39 01) or email (firstname.lastname@example.org). The BOPS website can be accessed at www.bopslaw.com.
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