Life Insurance and Freedom to Provide Services - International Law Office

Legal Framework
Facts
Proceedings
Decision
Rationale

In a decision of June 14 2007 (FS P+B, Sté Generali Lloyd v Bonnet ), the Second Civil Division of the Supreme Court confirmed that the obligation for an insurer established in a member state other than France and wanting to insure a risk located in France first to obtain accreditation from the French administration is not a restriction on the freedom to provide services.

Legal Framework

The following provisions are those resulting from the legislation dates December 31 1989 that adapts the Insurance Code to the opening of the European market. They are no longer in force, but they still applied to the case in question because the life insurance contract was signed in 1991:

• Article L351-1 of the Insurance Code defines a transaction carried out under freedom of services as a transaction whereby an undertaking established in an EU member state covers from its registered office or a branch located in a member state a risk located in another member state.

• Article L310-10 of the Insurance Code (Article 18 of the Law of December 31 1989) prohibits the underwriting of direct insurance for a risk concerning a person, property or liability located within the territory of the French Republic with foreign undertakings that do not comply with Articles L321-1 and L321-2.

• Article L321-1 of the Insurance Code provides that the undertakings referred to in Article L310-1 may start doing business only after being granted the administrative accreditation.

• Article L321-2 of the Insurance Code provides that undertakings established outside the European Union may start doing business within the French Republic only after being granted specific authorized agents.

Facts

In 1991, through a brokerage firm, two individuals living in France took out a mortgage loan in Germany with a German bank and a life insurance policy with a German insurer established in Germany.

Noticing mismanagement of their mortgage loan, after an unsuccessful attempt to renegotiate the insured stopped paying back the loan and in 1995 brought an action against the bank, the insurer and the brokerage firm before the Strasbourg Regional Court.

The claimants asked the court to declare the forfeiture of the right to interest and, alternatively, the nullity of both the loan and the life insurance policy for vitiated consent, as they denied having received information enabling them to understand their commitments.

Moreover, they considered the life insurance policy void because the German insurer had not received, contrary to Article L310-10, the administrative accreditation required before carrying on its activity in France.

The claimants also held the three defendants liable for failure to comply with their duties of information and advice.

Proceedings

On January 24 2002 the Strasbourg Regional Court dismissed all claims brought by the insured. The insured lodged an appeal.

On May 12 2005 the appeal court, on the specific point of accreditation, found for the appellants and declared the life insurance policy void as the German insurer could not prove that it was exempted from accreditation.

On June 14 2007 the Supreme Court upheld the appeal court's decision.

Decision

To affirm the appeal court's decision the Supreme Court adopted a two-step reasoning.

Firstly, the court tried to localize the risk as Article 18 of the Law of December 31 1989 concerns risks located in France only.

In doing so the court stated that in matters relating to life insurance, the risk rests on the natural person - a life insurance contract is a contract whose effects depend on human life. The risk, which is the aleatory occurrence covered by the contract, rests on the natural person only.

Since the insureds resided in France, the risk was located in France, regardless of where the contract was signed and the premiums paid.

Two member states were concerned as a consequence: Germany, as the home country of the insurer, and France, as the member state where the risk was covered.

Secondly, the court stated that the present case satisfied all criteria established in Article L351-1 of the Insurance Code for a transaction made under freedom of services: an undertaking established in a member state (the German insurer) that covers or assumes from its registered office or a branch located in a member state (Germany) a risk located in another member state (France).

The life insurance policy contracted between the German insurer and the two individuals living in France was a transaction made under the freedom of services.

Therefore, the court deduced from that characterization that Article L310-10 of the Insurance Code was applicable. In accordance with the provision which refer to Articles L321-1 and L321-2, the foreign undertaking had to obtain accreditation from the French administration before carrying out its activity in France.

It emerged from the hearing that the German insurer could prove neither the existence of such an accreditation nor an exemption from it.

The German insurer was not authorized to provide services in France. Consequently, the Supreme Court upheld the court's decision to make the contract void.

Rationale

Nonetheless, a question arises: are the provisions an intolerable restriction on the fundamental principle of freedom to provide services?

Articles 59 and 60 of the EC Treaty require the abolition not only of all discrimination against service providers on the grounds of their nationality, but also of all restrictions on their freedom to provide services imposed by reason of the fact that they are established in a member state other than that in which the service is to be provided.

Moreover, the applicants on a point of law asserted that the German system of accreditation was as protective as the French one and conducted supervision equivalent to that conducted by the French authority.

The Supreme Court rejected this argument and referred to the judgment given by the European Court of Justice (ECJ) on December 4 1986.

In that case, after reiterating that the freedom to provide services is one of the fundamental principles of the treaty, the ECJ stated:

"This principle may be restricted only by provisions which are justified by the general good and which are applied to all persons or undertakings operating within the territory of the state in which the service is provided insofar as that interest is not safeguarded by the provisions to which the provider of a service is subject in the member state of his establishment."

The ECJ added:

"Such requirements must be objectively justified by the need to ensure that professional rules of conduct are complied with and that the interests which such rules are designed to safeguard are protected."

In a word, the ECJ allows internal provisions restricting the freedom to provide services provided that they are justified by the general good and are objectively necessary.

On the specific question of accreditation, the ECJ declared:

"Only the requirement of an authorization, which it is for the member state in which the services are provided to grant and withdraw, can provide an effective means of supervision and is therefore permissible. The authorization must be granted on request to any undertaking established in another member state which meets the conditions laid down by the legislation of the state in which the service is provided ."

Thus, the ECJ holds the accreditation requirement lawful, provided it meets certain conditions.

That is why the Supreme Court upheld the appeal court's decision in considering that accreditation is an admissible restriction on the principle of freedom to provide services established in the EC Treaty and consequently declared void the life insurance policy contracted between the two individuals and the German insurer.

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) or by fax (+33 1 70 37 39 01) or by email (carole.sportes@bopslaw.com).