The Court of Justice of the European Union (CJEU) recently delivered a judgment (available here) in relation to unfair terms in group insurance policies. The judgment will serve as a warning to insurers and policyholders of group insurance policies, as they must make sure that consumers who are covered by the policy are notified of all exclusions and limitations prior to conclusion of the contract.
The underlying proceedings were a case in the Portuguese courts between Ocidental-Companhia Portuguesa de Seguros de Vida SA (Ocidental) and LP, a consumer. LP had taken out a loan with a bank and alleged that she was required by the bank to become party to an Ocidental group insurance contract (with the bank as policyholder) for payment protection insurance. If LP became permanently incapacitated, Ocidental would repay the loan.
When LP became incapacitated, Ocidental refused cover on the basis of non-disclosure of a prior medical condition, which was excluded from cover under the group policy. However, LP disputed this, as she alleged that she had not completed a medical questionnaire and the medical information forming part of the proposal had been completed by a bank employee who had simply presented the contract to her for signature. Critically, LP claimed that no exclusions were read or explained to her at the time.
Under Portuguese law, it was not clear whether the insurer was obliged to notify consumers of the conditions and exclusions of the group policy or if the duty was on the bank (as policyholder) to do so. Also, there was a question as to whether the consumer could rely on the bank's failure to discharge its duties in a claim against the insurer.
The CJEU held that if a consumer is not afforded the opportunity to become acquainted with a contractual term prior to conclusion of a contract, this is an essential element in the assessment as to whether a term is unfair. In such circumstances, consumers might assume obligations which they would not otherwise have agreed to, which risks creating a significant imbalance in the obligations of the parties.
In this case, the court held that LP had no opportunity to become acquainted with the exclusion or limitation clauses when the contract was concluded. In those circumstances, the term excluding or limiting cover against the insured risk was unfair and could not be enforced against her, and that finding could not be called into question by national law. However, that finding was without prejudice to the possible civil liability of the group policyholder (here, the bank) to the insurer, for failure to notify the consumer of the exclusions and limitations.