The insurer incorrectly notified the insured of the general conditions of insurance. Could this result in the insurer being required to pay compensation, even though the general conditions of insurance state that there is an exception excluding the insurer’s liability?
In our practice, we encountered an issue surrounding the need to notify the insured of the general conditions of the insurance contract. This question was referred to us by an insurer in connection with pending court proceedings in France. The insured was a Polish company that entered into a contract with an insurer under Polish law. In the proceedings before the commercial court in France, the insurer argued that the event was not covered by the insurance, as the risk defined in the general conditions of the insurance contract had not occurred. According to the insured, this was irrelevant because it had not been properly notified of the general conditions of insurance.
The insurer has a notification obligation. If the notification was lacking or incorrect, it may result in coverage and the need to pay compensation, even if no insured event occurred.
Insurer’s notification obligation
For the general conditions of insurance, which in practice are unilaterally established by the insurer, to bind the insured, two conditions must be met:
- The general conditions of insurance must be delivered or made available in such a way that the interested party can easily learn of their contents
- This must happen before conclusion of the contract.
The requirement of prior delivery (or making available) is not controversial, and flows from the logical assumption that the parties must be able to examine the content of the contract and its general terms and conditions before deciding to enter into it (C-92/11, RWE Vertrieb AG). The hard part only happens latter.
Delivery of the conditions can be replaced by making the conditions available (in an appropriate manner) only if use of a model contract is customary practice under the given circumstances. The use of general conditions is considered to be accepted, for example, when concluding contracts for insurance, banking or transportation. However, if the insurer, as a professional entity, enters into a contract with a consumer, it cannot use the simplified mode of being bound by general terms and conditions.
How to notify the insured of the general conditions of an insurance contract
First, the insurer’s statement of intent must be made in a specific manner, i.e. individually delivered to the other party (or duly made available) in traditional or electronic form. Whether the other party has actually read the general conditions of insurance is irrelevant. Second, the statement will have legal effect only if an insurance contract is concluded.
It should not be forgotten that both the insurance contract and the general conditions of insurance must be worded clearly and understandably. Otherwise, they will be interpreted in favour of the insured, according to the principle that an instrument should be construed against its drafter.
Incorporation of general conditions vs. new technologies
To be sure that the electronic delivery is effective, it should be determined that the counterparties usually make deliveries electronically, or consent to this method of delivery should be obtained. Otherwise, electronic delivery may be considered ineffective. Additionally, if the insurer uses general conditions of insurance in electronic form, it should make them available to the other party before conclusion of the contract in such a way that the other party can store and reproduce the template as needed going forward.
Every insurer now also has a duty to post general conditions on its website. But performance of this duty does not replace the need to deliver the general conditions to the insured. Nor does mere posting automatically mean that the insurer has ensured that the general conditions can be easily read or made available to the other party so that it can store and reproduce the template. Some argue that it is not easy to find the general conditions applicable to a specific contract on an insurer’s website, due to the complex structure of such sites and constant modification of content posted on the internet.
But in practice, the regulations do not keep pace with the customs and new technologies adopted in the insurance industry.
Currently, it is rightly permitted in the insurance industry to prepare documents related to conclusion and execution of an insurance contract in electronic form. Electronic delivery of the contract with the general conditions in a medium allowing preservation of the document and reproduction of the document at any time meets the conditions for delivery. In our opinion, these principles should also be applied more broadly, taking into account the specifics of the parties to the insurance contract. Posting the general conditions on a website in a form that can be saved to a computer and printed, and indicating to the insured the direct link for access, could be considered sufficient to meet the requirements for making the general conditions available.
Effect of failure to notify the insured of the general conditions of insurance
Once the notification obligations have been fulfilled, both parties are bound by the general conditions of insurance. The insured does not have to additionally agree to be bound by these conditions. However, if the general conditions have not been properly notified to the insured, they are not binding on the parties and are considered ineffective.
Ineffectiveness of the general conditions of insurance is directly related to the insurance contract itself. If the conditions merely supplement the contract, then, in principle, the contract remains binding on the parties. But if the general conditions of insurance contain essential provisions of the contract, the contract will be treated as not entered into if the general conditions have not been notified to the insured. This can have serious consequences, leaving the insured unprotected. It could also render the insurer’s exclusion of liability ineffective and, as a result, unintentionally expand the limits of insurance protection.
Monika Hartung, attorney-in-law, Dr Marta Kozłowska, adwokat, Dispute Resolution & Arbitration practice, Insurance practice, Wardyński & Partners