In light of the above, one must ask what exactly—that is, which elements of the contract—define the nature of the insurance relationship. First and foremost, the essence of an insurance contract lies in establishing a relationship between the insured and the insurer in which the insurer assumes the risk that it may have to pay the insured a sum greater than the premiums received should an (insured event) specified by the insurance relationship, which, depending on the type of insurance contract, may be a traffic accident, death, etc.
Therefore, if the terms and conditions of insurance are formulated in such a way that the insurer does not in fact bear any risk associated with the insurance cover, this must be regarded as contrary to the nature of the insurance contract. A typical example of this is where the insurance contract is structured in such a way that the insurer is liable for the occurrence of an event covered by the insurance only up to an amount approximating the insurance premiums paid.
Contradictions with the law rendering an insurance contract void often also concern those provisions which broadly exclude the insurer’s liability in cases that constitute a breach of the nature of the insurance contract.
What is the consequence of specific provisions of an insurance contract being contrary to the provisions governing the nature of the insurance relationship? They are invalid, and the provisions of generally applicable law apply in their place.
The above is an example of grossly incorrect drafting of contracts with counterparties by insurance companies. Apart from these, by no means rare, cases of improper practices by insurance companies, one can point to more widespread instances of abuse of a dominant position in the insurance relationship, namely through the inclusion of so-called prohibited clauses in insurance contracts. Such clauses are not binding on the other party.
The definition of an unfair term is set out in Article 3851(1) of the Civil Code, which states:
Provisions of a contract concluded with a consumer which have not been individually agreed are not binding on the consumer if they shape his rights and obligations in a manner contrary to good practice, grossly infringing his interests (unlawful contractual provisions). This does not apply to provisions specifying the main obligations of the parties, including the price or remuneration, if they have been formulated unambiguously.
To assess whether the terms of the contract have been formulated in a way that allows them to be classified as prohibited, a case-by-case analysis is always necessary to determine whether the conditions set out in the aforementioned provision are met.
What should certainly raise doubts at first glance are provisions that are contrary to good practice or grossly contrary to the interests of the insured regarding:
- withdrawal from the insurance contract (e.g. a cancellation fee);
- the collection of handling and administrative fees separate from insurance premiums;
- benefits to the insurance company that are grossly disproportionate to the insurance risk;
- the introduction of numerous conditions exempting the insurer from providing cover, which are not justified by the nature of the insurance relationship
- combining an insurance contract with another contract (e.g. an investment contract) in a manner that minimises the significance of the insurance cover or renders it fictitious.
*The content of this article reflects solely the author’s views. The author accepts no responsibility for the factual content of this article or for the use made of the information contained therein.
Frequently asked questions
What determines the nature of an insurance contract?
The essence of the contract is to shape a relationship in which the insurer assumes the risk of paying compensation higher than the collected premiums upon the occurrence of an event. If the company does not bear actual risk, this contract is contrary to the nature of insurance. In such case, the provisions may be deemed invalid.
Can an insurer pay compensation equal to the amount of premiums paid?
No, this is a typical example of a practice contrary to the nature of an insurance contract. The insurer must bear the risk of paying funds exceeding the value of premiums in case of event materialization. Such formulation of conditions is invalid, and generally applicable law provisions apply instead.
What are prohibited clauses in insurance contracts?
These are provisions not individually negotiated that shape rights and obligations in a manner contrary to good practices or grossly violate the client’s interests. Such clauses do not bind the insured, unless they concern the main performances of the parties and are formulated unambiguously. Such provisions do not bind the consumer.
What examples of provisions may be deemed prohibited?
Such practices include liquidation fees upon withdrawal from the contract or charging additional handling fees. Gross disproportions between the company’s benefits and risk or artificial limitation of insurance protection are also prohibited. Combining insurance with another contract in a fictitious manner may also be challenged.
What are the legal effects of provisions contrary to the nature of an insurance contract?
Such provisions are invalid, which means they do not produce the intended effects for the parties to the contract. In their place, appropriate regulations contained in generally applicable law provisions apply. This is a mechanism protecting the insured against abuse.
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