Insurance contract law in the single European market

Abstract

The European Community' s programme for the creation of the Single Market is now largely complete. Two specific objectives underlie the measures which have been adopted in the field of insurance. The first is the application of the principle of "mutual recognition" to prudential supervision. This is intended to allow insurers to conduct business throughout the Community subject only to the control of their home State. The second objective is that purchasers of insurance should be offered greater choice through the freedom to purchase insurance from any authorised insurer within the Community.

The introduction of the Single Market in insurance raises two important issues in the field of contract law. First, the law applicable to the contract must be clearly determined. Secondly, consideration needs to be given to the impact which differences in contract law among the Member States have on the functioning of the Single Market. In addressing these issues, the Commission initially focused on the need for harmonisation of insurance contract law. However, as it was not possible to reach agreement among the Member States, the harmonisation proposals were abandoned in favour of choice-of-law rules. These rules will not result in any material change in the rules of English or Scots law as regards the law applicable to insurance contracts. In most cases the common law principle allowing a free choice of law will be preserved. However, the implications of a choice of English or Scots law as the applicable law will vary according to whether or not the insured is resident in the United Kingdom.

The Community's approach to insurance contract law can be criticised on two grounds. First, the complexity of the choice-of-Iaw rules makes it difficult for the parties to cross-border insurance transactions to determine their rights and obligations. Secondly, choice-of-law rules do not address the issue of the impact which differences in insurance contract law have on the functioning of the Single Market. The French, German and British models illustrate that there are fundamental differences among the laws of the Member States. If the benefits of the Single Market are to be realised it may be necessary to revert to the policy of harmonisation. This would permit a simpler approach to the determination of the applicable law and would also make it easier for business to be transacted on a cross-border basis. However, the original proposals may require substantial amendment if harmonisation is to make a material contribution to the achievement of the objectives of the Single Market in insurance.