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Common Law, Civil Law, and the Single European Market for Insurances

Published online by Cambridge University Press:  17 January 2008

Giesela Rühl
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Abstract

Fifty years after the foundation of the European Communities, the single market for insurances has not yet become a reality. Despite the harmonization of insurance supervision law, insurance companies still essentially refrain from cross-border activity when it comes to small commercial and consumer risks. Since this finding is usually attributed to the lack of common rules on insurance contracts, this article sets out to lay the foundation for the harmonization of the corresponding national laws. By providing a comparative analysis of two of the most pervasive issues in consumer insurance contract law, the article proves that common law and civil law are not as far apart as commonly assumed. It thus refutes the widely held belief that the insurance contract laws of common law and civil law countries are too different to be harmonized.

Type
Articles
Information
International & Comparative Law Quarterly , Volume 55 , Issue 4 , October 2006 , pp. 879 - 910
Copyright
Copyright © British Institute of International and Comparative Law 2006

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References

1 Proposal for a Council Directive on the coordination of laws, regulations and administrative provisions relating to insurance contracts (OJ 1979, No C 190/2) (hereinafter Proposal).Google Scholar See for a more detailed account Section I.A of this article.

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8 (n 2).

9 (n 1).

10 Amendment of the Proposal for a Council Directive on the coordination of laws, regulations and administrative provisions relating to insurance contracts (OJ 1980, No C 355/30).Google Scholar Art 1 of the Proposal limited the scope of application to the direct insurance with the exception of life assurance, health insurance as well as marine, aviation, transportation, and some other types of insurance (hereinafter Amendment of the Proposal).

11 In the Commission's view, the obligations of the insured require harmonization before any other topic in insurance contract law. See Amendment of the Proposal, 5th recital.

12 Arts 3 and 4 of the Proposal.

13 Arts 5, 6, 10, and 11 of the Proposal.

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19 Basedow, ‘European Insurance Contract Code’ (n 4) 574Google Scholar; id ‘European Insurance Market’ (n 4) 501Google Scholar; Basedow, and Fock, (n 17) 4.Google Scholar

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24 Communication from the Commission to the European Parliament and the Council—A more Coherent European Contract Law—An Action Plan, COM (2003) 68 (12 02), nos 47–9 and 74 (hereinafter Communication from the Commission to the European Parliament).Google Scholar

25 Ibid no 74.

26 See Ibid nos 2–3 and 89–97.

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31 Both issues would also prove problematic if the European Commission decided to implement an optional European insurance contract act to realize the Single European Market for insurances.

32 Basedow, and Fock, (n 17) 5Google Scholar; Reichert-Facilides, (n 22) 129. See also Opinion of the Economic and Social Committee (n 23) nos 6.4 and 6.5.Google Scholar

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34 id (n 21) 59.Google Scholar

35 id ‘European Insurance Contract Code’ (n 4) 579–80Google Scholar; id ‘European Insurance Market’ (n 4) 507–8.Google Scholar

36 Lando, O and Beale, HGPrinciples of European Contract Law (Martinus Nijhoff Dordrecht 1993, 1999, and 2000).Google Scholar

37 Institute for the Unification of Private Law Principles of International Commercial Contracts (The Hague, London, Boston 1994).Google Scholar

38 Basedow, ‘European Insurance Contract Code’ (n 4) 579Google Scholar; id ‘European Insurance Market’ (n 4) 508–9.Google Scholar

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40 Bataller, Grau ‘Un mercado europea del seguro’ (n 22) 754–5Google Scholar; id ‘Hacia la unificación de la normative del contrato de seguro en Europa?’ (n 22) 60–1Google Scholar; Beckmann, (n 15) 820Google Scholar; Hübner, (n 22) 244–7Google Scholar and Hübner, and Matusche-Beckmann, (n 15) 263Google Scholar; Matusche-Beckmann, A ‘Die Entwicklung des europäischen Privatversicherungsrechts’ (1996) 4 Eur Riv Priv L 201, 203–4Google Scholar; Mewes, HInternationales Versicherungsvertragsrecht unter besonderer Berücksichtigung der europäischen Dienstleistungsfreiheit im Gemeinsamen Markt (Karlsruhe 1995) 5–10Google Scholar; Prölss, and Armbrüster, (n 15) 451.Google Scholar

41 Beckmann, (n 15) 820Google Scholar; Hübner, (n 22) 244–7Google Scholar and Hübner, and Matusche-Beckmann, (n 15) 263Google Scholar (arguing that the English warranties cannot be reconciled with continental European, most importantly German, law); Matusche-Beckmann, (n 40) 203–4Google Scholar (arguing that policyholder's duty of disclosure under English law cannot be reconciled with the corresponding duties under continental European law); Mewes, (n 40) 5–10Google Scholar (arguing that the English warranties do not conform with the continental European concept of consumer protection); Prölss, and Armbrüster, (n 15) 451.Google Scholar

42 See (n 30).

43 Commission on the Reform of Insurance Contract Law (Kommission zur Reform des Versicherungsvertragsrechts).

44 Final Report of the Commission on the Reform of Insurance Contract Law of 19 Apr 2004 (Abschlussbericht der Kommssion zur Reform des Versicherungsvertragsrechts vom 19 April 2004). The final report is available at <www.bmj.bund.de/media/archive/647.pdf>.

45 §§21 and 30 of the Proposal for a Law on the Reform of Insurance Contract Law (Entwurf eines Gesetzes zur Reform des Versicherungsvertragsrechts).

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51 If the Proposal for a Law on the Reform of Insurance Contract Law (n 45) is adopted, the corresponding provision will be found in § 21.

52 See for a detailed discussion of the origin and the nature of the duty of disclosure Bennett, H ‘Mapping the Doctrine of Utmost Good Faith in Insurance Contract Law’ [1999] LMCLQ 165, 181–97Google Scholar and Eggers, P MacDonald and Foss, PGood Faith and Insurance Contracts (Informa London 1998) 77–89, paras 4.30–4.60.Google Scholar

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56 Birds, J and Hird, NBirds' Modern Insurance Law (6th edn 2004) 114Google Scholar; Clarke, (n 20) 709–19, para 23–6Google Scholar; Ivamy, (n 55) 143Google Scholar; Legh-Jones, et al. (n 5) 424–5, para 17–35Google Scholar; Lowry, and Rawlings, (n 54) 76–7Google Scholar; Merkin, (n 55) 130, para 5–20.Google ScholarNote that the Law Commission is currently reviewing the prudent insurer test (n 46) 34.Google Scholar

57 § 16 para 1 sentence 2 VVG. See also Romer, W ‘Obliegenheiten in der Personenversicherung’ [1998] RuS 45, 46Google Scholar; Voit, W in Hansell, H (ed) Berliner kommentar zum Versicherungsverträgsgesetz (Munich 1999) s 16 para 16.Google Scholar

58 See for a detailed account, Section II.C.1.

59 See for English law: Container Transport International Insurance Company, Ltd v Oceanus Mutual Underwriting Association (Bermuda), Ltd (1984) 1 Lloyd's Rep 476, 491–5 and 510–11.Google ScholarSee for German law Oberlandesgericht (Court of Appeals, hereinafter OLG) Saarbrücken, 25 11 1992 (1994) 53 VersR 847, 848; Voit (n 57) § 16, para 25.Google Scholar

60 This was the approach under the so-called decisive-influence-test which, however, was finally discarded in Container Transport International Insurance Company, Ltd v Oceanus Mutual Underwriting Association (Bermuda), Ltd (1984) 1 Lloyd's Rep 476, 491–5, 510–11.Google Scholar

61 See for English law Glicksman v Lancashire and General Assurance Company, Limited [1925] 2 KB 593, 609Google Scholar; Ivamy, (n 55) 185Google Scholar; Park, (n 55) 79.Google Scholar See for German law: § 16, para 1, Sentence 3 VVG. See also Römer, (n 57) 46.Google Scholar

62 See Römer, (n 57) 46Google Scholar; Sieg, KVersicherungsvertragsrecht (3rd ednWiesbaden 1994) 130 and 134CrossRefGoogle Scholar; Weyers, H and Wandt, MVersicherungsvertragsrecht (3rd ednNeuwied, Kriftel, Berlin 2003) 184–5, para 501.Google Scholar

63 See for English law: Joel v Law Union and Crown Insurance [1908] 2 KB 838, 884Google Scholar; Birds, and Hird, (n 56) 108Google Scholar; Clarke, (n 20) 720, para 23–8Google Scholar; Ivamy, (n 55) 139Google Scholar; Legh-Jones, et al. (n 5) 413, para 17–19.Google ScholarSee for German law: Prölss, J, in Prolss, J and Martin, AVersicherungsvertragsgesetz (27th ednMunich 2004) §§ 16, 17, para 20Google Scholar; Römer, (n 57) 46; Voit (n 57) § 16, para 45Google Scholar; Weyers, and Wandt, (n 61) 161, para 610.Google Scholar

64 Cantiere Meccanico Brindisino v Janson [1912] 3 KB 452, 467Google Scholar; March Cabaret Club & Casino Ltd v The London Assurance [1975] 1 LILRep 169, 174Google Scholar; Birds, and Hird, (n 56) 108–10Google Scholar; Ivamy, (n 55) 140–2Google Scholar; McGee, (n 4) 63–4, para 5.14.Google Scholar

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66 BGH, 3 11 1966, (1967) 26 VersR 56, 58Google Scholar; BGH, 13 10 1982, (1983) 42 VersR 25, 26Google Scholar; BGH, 27 06 1984, (1984) 43 VersR 884, 884–5Google Scholar; BGH, 2 03 1994, (1994) 53 VersR 711, 712Google Scholar; BGH, 20 04 1994, (1994) 53 VersR 799, 800Google Scholar; Prölss, (n 62) §§ 16, 17, para 20Google Scholar; Römer, (n 57) 46.Google Scholar

67 In principle, termination of the contract under German law operates only for the future. However, due to several special provisions it is retroactive in effect. See for a more detailed account Section II.D.

68 Greger, R in Zöller, RZivilprozessordnung (23rd ednKöln 2002) vor § 284, para 19.Google Scholar

69 See for English law McCormick v National Motor & Accident Insurance Union, Ltd (1934) 49 LIL Rep 361, 363Google Scholar; Roberts v Plaisted [1989] 2 Lloyd's Rep 341, 347.Google ScholarNote that the Law Commission is currently discussing whether the insurer should be obliged to ask questions concerning facts that he commonly deems material (n 46, 34–5).Google ScholarSee for German law: Hofmann, EPrivatversicherungsrecht (4th ednMunich 1998) 115–16Google Scholar; Prölss, (n 62) §§ 16, 17, para 1.Google Scholar Note that according to § 21 (1) of the Proposal for a Law on the Reform of Insurance Contract Law (n 45), the policyholder is only required to disclose material facts that have been the subject of questions of the insurer. According to § 21 (5) of the Proposal, the insurer may, however, invoke non-disclosure if the policyholder was fraudulent in the non-disclosure of a material fact the insurer did not ask for.

70 Carter v Boehm (1766) 3 Burr, 1905Google Scholar; Ivamy, (n 55) 157–8Google Scholar; Birds, and Hird, (n 56) 110Google Scholar; Legh-Jones, et al. (n 5) 442, para 17–72, 442–3, para 17–73, 443, para 17–74,445, para 17–81, 446, para 17–83Google Scholar; McGee, (n 4) 74, para 5.39 and 75, para 5.40.Google Scholar

71 Hofmann, (n 64) 115–16Google Scholar; Rühl, (n 4) 70Google Scholar; Schimikowski, PVersicherungsvertragsrecht (2nd ednMunich 2001) 109, para 183.Google Scholar

72 So-called breach of the duty to ask further questions (Nachfrageobliegenheit). See for a more detailed account Prölss (supra n 62) §§ 16, 17, para 24–25Google Scholar; Römer, (n 57) 48–9Google Scholar; Voit, (n 57) § 16, para 90.Google Scholar

73 BGH, 25 03 1992, (1991) 50 VersR 603, 604Google Scholar; BGH, 11 11 1992, (1993) 52 VersR 871, 872Google Scholar; BGH, 2 11 1994, (1995) 54 VersR 80, 81.Google Scholar

74 Law for the Implementation of EC Directives Relating to the Principle of Equal Treatment of 14 Aug 2006 (Gesetz zur Umsetzung europäischer Richtlinien zur Verwirklichung des Grundsatzes der Gleichbehandlung). Federal Gazette, Part I (Bundegestzblatt, Teil I, hereinafter BGB1.I), No 39 of 17 08 2006, 1897 et seq.Google Scholar

75 See Art 1 § 1 and § 19 (1) No 2 of the Law. However, as regards insurance contracts less favourable treatment is not unlawful according to § 20 (2) of the Law if one of the above mentioned factors is both decisive for the assessment of the risk and based on relevant and precise statistical data.

76 Section 20 of the Race Relations Act 1976; s 29 of the Sex Discrimination Act 1975; s 20 of the Disability Discrimination Act 1995.

77 Carter v Boehm (1766) 3 Burr 1905, 1909Google Scholar; 97 ER 1162, 1164; Birds, and Hird, (n 56) 106Google Scholar; Harriett, (n 41) 400Google Scholar; Ivamy, (n 55) 174Google Scholar; Legh-Jones, et al. (n 5) 415–16, para 17–16.Google Scholar Note that the Law Commission is currently reviewing whether the policyholder's fault should be considered in the determination of the effects of non-disclosure (n 46, at 36).

78 The policyholder's fault gains importance only if the insurer decides to avoid the contract. This is because the insurer has to return the premiums where non-disclosure was innocent or merely negligent, whereas he may keep the premiums where the policyholder acted wilfully or fraudulently. See British Equitable Insurance v Musgrave (1887) 3 TLR 630Google Scholar; Legh-Jones, et al. (n 5) 422, para 17–29Google Scholar; Park, (n 55) 12.Google Scholar See for the effects of breach Section II 4.

79 From 2000 through 2005 the Codes of Practice of the General Insurance Standards Council (GISC) were additionally in place. However, the GISG was dissolved in 2005 and the Codes of Practice repealed.

80 They were introduced in 1977 by the British insurance industry to avoid the inclusion of insurance contracts in the Unfair Contract Terms Act 1977 and to mitigate some of the severity of the English law of insurance contracts. See for a detailed account of the Statements of Insurance Practice, Birds, ‘Self-Regulation and Insurance Contracts’ in FD, Rose (ed) New Foundations for Insurance Law (London 1987) 2Google Scholar; Birds, ‘Codes of Practice, The Statement of Insurance Practice— A Measure of Regulation of the Insurance Contract’ (1977) 40 MLR 677, 678Google Scholar; Hodgin, RWInsurance Law (London/Sydney 1989) 109–10Google Scholar; Legh-Jones, et al. (n 5) 455–6, paras 17–102–17–105Google Scholar; McGee, (n 4) 81–7, paras 5.48–5.56.Google Scholar

81 Para 3 (a) Statement of Long-Term Insurance Practice; Para 3 (a) Statement of General Insurance Practice; Rule 8A.2.6 (2) (a) COB. Note that the Statement of General Insurance Practice has been replaced by the Handbook of Rules and Guidance of the Financial Services Authority as of 15 Jan 2005.

82 English insurance companies usually comply with the provisions of the Statements of Insurance Practice. See the study of Cadogan, I and Lewis, R ‘Do Insurers Know Best? An Empirical Examination of the Extent that Insurers Comply with their Statements of Practice and Whether they are a Satisfactory Substitute for Reform of the Law’ (1992) 21 Anglo-Am L Rev 123.Google Scholar

83 The Financial Ombudsman Service was established in 2001 and replaced the Insurance Ombudsman Bureau that had been introduced in 1981 for the handling of consumer complaints in insurance cases. It is governed by the Handbook of Rules and Guidance of the Financial Services Authority, notably the chapter Dispute Resolution: Complaints (DISP). See for a more detailed account McGee, (n4) 289–94, paras 21.5–21.11.Google Scholar

84 Rule 3.8.1 DISP.

85 Ombudsman News (07 2001) 17–18, available at <www.financial-ombudsman.org.uk>..>Google ScholarSee also Lowry, and Rawlings, (n 54) 79Google Scholar; Park, (n 55) 260–1. See for a more detailed account of the effects of non-disclosure Section II.D.Google Scholar

86 Compared to the age of the duty of disclosure, this requirement for a defence of non-disclosure is rather young. It was first mentioned in Berger and Light Diffusers Pty Ltd v Pollock [1973] 2 Lloyd's Rep 442Google Scholar and fully recognized by the House of Lords only in Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1994] 3 WLR 677.Google ScholarIt was approved and further developed by the Court of Appeal in St Paul Fire Marine Insurance Co Ltd v McDonnell Dowell Constructors Ltd [1995] 2 Lloyd's Rep 116, 124, and 127.Google Scholar

87 Clarke, (n 20) 719, para 23–7BGoogle Scholar; McGee, (n 4) 77–80, para 5.46Google Scholar; Park, (n 55) 155.Google Scholar Whether and to what extent the insurer must have been induced to enter the contract was in discussion already in the 19th century. However, before Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd, actual inducement was not recognized as an independent requirement for avoidance of the insurance contract based on non-disclosure.

88 See BGH, 10 11 1984, (1985) 44 VersR 154, 155Google Scholar; BGH, 11 07 1990, (1990) 49 VersR 1002, 1003Google Scholar; BGH, 3 04 1996, (1996) 55 VersR 830, 831Google Scholar; Prölss, (n 62) § 21, para 1Google Scholar; Voit, (n 5) § 21, para 4.Google Scholar Note, however, that § 21 (4) sentence 1 of the Proposal for a Law on the Reform of Insurance Contract Law (n 45) does not allow the insurer to terminate the contract for non-disclosure if he would have entered the contract anyway. According to § 21 (4) sentence 2 of the Proposal, he may only request a retroactive change of the terms of the contract. By way of exception, a right to termination is granted despite lack of actual inducement if non-disclosure was fraudulent, intentional or reckless.

89 There is only one exception to this rule if the insurer wants to avoid the insurance contract for fraudulent non-disclosure on the basis of § 123 of the German Civil Code (Bürgerliches Gesetzbuch—BGB). For the defence to succeed, the insurer has to prove that he entered the contract but for the fraudulent non-disclosure. See OLG Düsseldorf, 26 04 994, (1995) 54 VersR 35, 36Google Scholar; Voit, (n 57) § 22, para 32.Google Scholar

90 See Section II.A. 1.

91 Ibid.

92 St Paul Fire & Marine Insurance Co (UK) Ltd v McConnett Dowell Constructors Ltd [1995] 2 Lloyd's Rep 116, 117Google Scholar; Legh-Jones, et al. (n 5) 421, para 17–28Google Scholar; Eggers, P MacDonald in HG, Beale (ed) Chitty on Contracts, Volume 2 (29th ednSweet & Maxwell London 2004) 1177, para 41–035 n 274.Google ScholarBut see the critical view of Clarke (n 20) 699–70, para 23–2A.Google Scholar

93 Seaman v Fonereau (1743) 2 Stra, 1183Google Scholar; Lynch and Jones v Hamilton (1810) 3 Taunt 37Google Scholar; Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1994] 3 WLR 677, 692Google Scholar; Merkin, (n 55) 131, para 5–20Google Scholar; Park, (n 55) 78.Google Scholar Note that the Law Commission is currently discussing whether such a causal link should be required (n 46, 36).

94 Under German law the insurer may ask for unlimited repayment for losses only where the policyholder holder was fraudulent in not making full disclosure. See Section II.D.

95 In principle, the right to terminate the insurance contract under German law is only a right to terminate the contract for the future (Rücktrittsrecht). According to § 20 (2) VVG, however, termination effectively operates ab initio.

96 See for English law Anderson v Pacific Insurance (1872) 7 CP 65, 68Google Scholar; Inversiones Manria SA v Sphere Drake Insurance Co Plc—The ‘Dora’ [1989] 1 LIL Rep 69, 97Google Scholar; Clarke, (n 20) 761, para 23–17Google Scholar; Ivamy, (n 55) 174Google Scholar; Legh-Jones, et al. (n 5) 422, para 17–29Google Scholar; Lowry, and Rawlings, (n 54) 78–9Google Scholar; Merkin, (n 55) 116, para 5–03Google Scholar; Park, (n 55) 12.Google Scholar Note that the Law Commission is currently reviewing whether avoidance is an appropriate remedy in all cases. More specifically, the Commission is discussing the introduction of the proportionality principle that is successfully applied by the Financial Ombudsman Service (n 46) 35–6. See for German law: § 20 (2) VVG. See also Röhr, WDie vorvertragliche Anzeigepflicht (Karlsruhe 1980) 232Google Scholar; Römer, (n 57) 47Google Scholar; Sieg, (n 61) 133–4Google Scholar; Weyers, and Wandt, (n 61) 161, para 610.Google ScholarBut see Imperial Court of Justice (Reichsgericht, hereinafter RG), 21 11 1930, 130 RGZ 271, 273.Google Scholar

97 See for English law: Legh-Jones, et al. (n 5) 422, para 17–29Google Scholar; Merkin, (n 55) 116, para 5–03.Google ScholarSee for German law: Rühl, (n 4) 76–8Google Scholar; Weyers, and Wandt, (n 61) 161–2, paras 610–11.Google Scholar

98 See Section II.B.

99 Ibid. Note that § 21 (3) of Proposal for a Law on the Reform of Insurance Contract Law (n 45) grants the right to terminate the insurance contract only where the policyholder acted either fraudulently, intentionally or recklessly. Mere negligent non-disclosure, in contrast, does not provide the insurer with such a right. Instead, he may cancel the contract which has less severe effects than termination.

100 See for a detailed account Prölss (n 62) §§ 16, 17, para 40Google Scholar; Sieg, (n 61) 134Google Scholar; Weyers, and Wandt, (n 61) 161–2, para 611.Google Scholar

101 Cornhill Insurance Company v Assenheim (1937) 58 LI L Rep 27, 31Google Scholar; Clarke, (n 20) 763, para 23–17CGoogle Scholar; Park, (n 55) 12.Google Scholar Return of the premiums is only excluded where it has been contractually stipulated or where the policyholder has acted fraudulently in the non-disclosure of material facts.

102 See Section II.B.

103 Ibid. All in all, the Financial Ombudsman Service renounces application of the all-or-nothing principle and applies the so-called proportionality principle which provides for different remedies depending on the degree of the policyholder's fault. Since this principle is also envisioned by § 21 (3) of the Proposal for a Law on the Reform of Insurance Contract Law (n 45) English and German law—better: English practice and German law—will move even closer if the Proposal is adopted.

104 Promissory warranties are to be distinguished from an affirmative warranty whereby the policyholder promises that certain statements of fact are accurate. See Legh-Jones, et al. (n 5) 223, para 10–2;Google ScholarMcGee, (n 4) 234, para 17.3, and 235, para 17.4;Google ScholarMerkin, (n 55) 143, para 6–07.Google Scholar

105 Technically, obligations (Obliegenheiten) in insurance contract law must be distinguished from contractual duties in general (Pflichten). The main difference between the two is that obligations—in contrast to contractual duties in general—cannot be enforced by the other party. Instead, the insurer may raise breach of an obligation merely as a defence against any claim of the policyholder.

106 See for English law: Clarke, (n 20) 630, para 20–2AGoogle Scholar; Legh-Jones, et al. (n 5) 232, para 10–22.Google ScholarSee for German law: Schwintowski, HP in Honsell, H (ed) Berliner Kommentar zum Versicherungsvertragsrecht (Berlin/Heidelberg 1999) § 6, para 37.Google Scholar

107 See for English law Routledge v Burrell (1789) 1 Hy B 254Google Scholar; Worsley v Wood (1796) 6 TR 710Google Scholar; Lothian v Henderson (1803) 3 Bos & PNR 499, 509Google Scholar; Sillem v Thornton (1854) 3 E & B 868, 880Google Scholar; Clarke, (n 20) 630, para 20–2AGoogle Scholar; Legh-Jones, et al. (n 5) 232, para 10–22.Google ScholarSee for German law: Schwintowski, (n 105) § 6, para 37.Google Scholar

108 Joel v Law Union and Crown Insurance Company [1908] 2 KB 431, 437Google Scholar; Condogianis v Guardian Assurance Company Ltd [1921] 2 AC 125, 129–30Google Scholar; Hussaln v Brown [1996] 1 Lloyd's Rep 627, 627Google Scholar; Birds, ‘Warranties in Insurance Proposal Forms’ [1977] JBL 231, 231Google Scholar; Clarke, (n 20) 630, para 20–2A1 and 635, para 20–2B2Google Scholar; Legh-Jones, et al. (n 5) 232–3, para 10–22 and 225, para 10–28Google Scholar; Lowry, and Rawlings, (n 54) 124Google Scholar; Merkin, (n 55) 148, para 6–18.Google Scholar In its 1980 report the Law Commission recommended prohibition or limitation of basis of the contract clauses (n 47, 90–2, paras 7.2–7.3, and 92, para 7.5). Since this recommendation did not trigger any legislative response, the Law Commission has recently decided to review their use once again (n 46, 39–40).

109 See Prölss, (n 62) § 6Google Scholar, para 2 who argues for creation of obligations in the proposal form. But see OLG Breslau, 20 02 1923, [1924] JW 326Google Scholar and Deutsch, EVerslcherungsvertragsrecht (5th ednKarlsruhe 2005) 133, para 202, who both argue against it.Google Scholar

110 Prölss, (n 62) § 6, para 2.Google Scholar

111 Rules 5.2.9 and 5.5.5 ICOB. See also Rule 2.1.1 of the Principles for Businesses (PRIN) in the Handbook of Rules and Guidance of the Financial Services Authority.

112 Rule 8A 2.6. (2) (c) (ii) COB; Para 3.2. (b) Statement of Long-Term Insurance Practice.

113 See for English law: Birds, and Hird, (n 56) 147–9Google Scholar; Legh-Jones, et al. (n 5) 223, para 10–2Google Scholar; McGee, (n 4) 234, para 17.3 and 235, para 17.4Google Scholar; Merkin, (n 55) 143, para 6–07Google Scholar; Soyer, B ‘Defences Available to a Marine Insurer’ [2002] LMCLQ 198–213.Google ScholarSee for German law: W Römer in Römer, W and Langheid, TbVersicherungsvertragsgesetz (2nd ednMunich 2003) § 6 para 2Google Scholar; Schwintowski, (n 105) § 6, para 15.Google Scholar

114 See for English law Anderson v Fitzgerald (1853) 4 HL Cas 484, 503Google Scholar; Condogianis v Guardian Assurance Company Ltd [1921] 2 AC 125, 129Google Scholar; Dawsons, Ltd v Bonnin [1922] 2 AC 413, 428–9Google Scholar; Allen v Universal Automobile Insurance Company, Ltd (1933) 45 LI LRep 55, 58Google Scholar; Birds, and Hird, (n 56) 152–4Google Scholar; Legh-Jones, et al. (n 5) 239–40, para 10–38Google Scholar; Merkin, (n 55) 146, para 6–15Google Scholar; Soyer, (n 113) 204–5.Google ScholarSee for German law: Rühl, (n 4) 205Google Scholar; Weyers, and Wandt, (n 61) 110, para 413.Google Scholar

115 Council Directive 93/13/EEC of 5 Apr 1993 on unfair terms in consumer contracts (OJ 1993 No L 95/29).Google Scholar

116 SI 1999, No 2083.

117 Birds, and Hird, (n 56) 93–94Google Scholar; Clarke, (n 20) 617, para 19–5A3Google Scholar; McGee, (n 4) 225, para 16.26 and 240–1, para 17.10.Google ScholarSee also Legh-Jones, et al. (n 5) 231, para 10–19.Google Scholar

118 Clarke, (n 20) 617–18, para 19–5A3.Google Scholar

119 Originally, the provisions implementing the EC-Directive on unfair terms in consumer contracts were to be found in the Law on General Conditions of Contracts (Gesetz über Allgemeine Geschäftsbedingungen, hereinafter AGBG). With the coming into force of the Law for the Modernisation of the Law of Obligations of 26 Nov 2001 (BGBI I, No 61 of 29 11 2001, 3138 et seq)Google Scholar these provisions were incorporated into §§ 305–10 of the German Civil Code. At the same time the AGBG was repealed. The substance of the provisions, however, has essentially remained the same.

120 BGH, 28 11 1990, (1991) 50 VersR 175, 176Google Scholar; BGH, 23 06 1993, 123 BGHZ 83, 84Google Scholar; BGH, 13 07 1994, 127 BGHZ 35, 41Google Scholar; BGH, 17 03 1999, (1999) 58 VersR 745, 747.Google ScholarSee also Kieninger, ‘Die Kontrolle von leistungsbeschreibenden Versicherungsbedingungen nach der AGB-Richtlinie—Fortschritt oder Rückschritt?’ (1994) 2 ZEuP 277, 277–9.Google Scholar

121 Basedow, in Rebmann, K (ed) Münchener Kommentar zum Bürgerlichen Gesetzbuch, Volume 2a (4th ednMunich 2003) § 307, para 186Google Scholar; Hofmann, (n 64) 22; Prölss (n 62) Vorbem I, para 47.Google Scholar

122 Hofmann, (n 64) 22–3.Google ScholarSee also Kieninger, (n 119) 282.Google Scholar

123 The reason for the different views in England and Germany is probably that para 19 of the Directive—which prescribes that provisions defining the subject matter of the insurance contract are exempt from scrutiny—is differently worded in the English and the German versions: In German, para 19 reads that terms which clearly define or circumscribe the insured risk and the insurer's liability shall not be subject to the assessment of fairness in so far as these restrictions are taken into account in calculating the premium paid by the consumer. In the English version, on the other hand, it reads that the corresponding terms are exempt since they are taken into account in calculating the premium. See for a detailed account of the problem Basedow, (n 120) § 307, para 188Google Scholar; Kieninger, (n 119) 280–2.Google Scholar

124 Clarke, (n 20) 638–40, paras 20–4Google Scholar; Legh-Jones, et al. (n 5) 242–3, para 10–44Google Scholar; MacDonald, Eggers (n 91) 1194, para 41–054.Google Scholar

125 Anderson v Fitzgerald (1853) 4 HCL 484, 507Google Scholar; Thomson v Weems (1884) 9 App Cas 671, 687Google Scholar; Simtnonds v Cockell [1920] 1 KB 843, 845Google Scholar; De Maurier (Jewels) Ltd v Bastion Insurance Company, Ltd [1967] 2 Lloyd's Rep 550, 559–60Google Scholar; Birds, and Hird, (n 56)154Google Scholar; Clarke, (n 20) 640, para 20–4CGoogle Scholar; Legh-Jones, et al. (n 5) 245–7, paras 10–53–10–56 and 257–8, paras 10–80–10–83Google Scholar; MacDonald, Eggers (n 91) 1194, para 41–054.Google Scholar

126 Shaw v Robberds (1837) 6 Ad & Ed 75, 82–3, ER 112, 29, 32Google Scholar; Birds, and Hird, (n 56) 130–1Google Scholar; Lowry, and Rawlings, (n 54) 90.Google Scholar

127 Shaw v Robberds (1837) 6 Ad & Ed 75, 82–3, ER 112, 29, 32.Google Scholar

128 Provincial Insurance Company, Ltd v Morgan [1933] AC 240.Google Scholar

129 Ibid 254–5.

130 See for a detailed account Deutsch (n 108) 134–8, paras 207–13Google Scholar; Prölss, (n 62) § 6, para 91 and paras 116–23Google Scholar; Römer, (n 112) § 6, paras 70–88Google Scholar; Schwintowski, (n 105) § 6, paras 54–6Google Scholar; Sieg, (n 61) 114–16Google Scholar; Weyers, and Wandt, (n 61) 113–14, paras 424–9.Google Scholar

131 Philips v Baillie (1784) 3 Doug KB 374Google Scholar; Thomson v Weems (1884) 9 App Cas 671, 682 and 688; at 119Google Scholar; Lowry, and Rawlings, (n 54) 120Google Scholar; MacDonald, Eggers (n 91) 1195, para 41–055Google Scholar; Merkin, (n 55) 144, para 6–10.Google Scholar Only where performance was impossible or illegal at the time when the contract was made the insurer will be barred from relying on the breach of warranty. See Clarke, (n 20) 652–3, para 20–6B2Google Scholar; Ivamy, (n 55) 311Google Scholar; Merkin, (n 55) 154, para 6–29.Google Scholar

132 See Section III.A and B.

133 Weyers, and Wandt, (n 61) 166, para 627.Google Scholar

134 See, eg, BGH, 22 05 1967, [1967] VersR 745Google Scholar; BGH, 20 12 1974, [1975] VersR 366.Google Scholar

135 Woolmer v Muilman (1763) 3 Burr 1419, 1420, 97 ER 905, at 906Google Scholar; Thomson v Weems (1884) 9 App Cas 671, 685Google Scholar; Yorkshire Insurance v Campbell (1917) App Cas 218Google Scholar; Forsikringsaktieselskapet Vesta v Butcher [1989] 1 Lloyd's Rep 331, 334Google Scholar; Hussain v Brown [1996] 1 Lloyd's Rep 627, 630Google Scholar; Clarke, (n 20) 635, para 20–3 and 637, para 20–3BGoogle Scholar; Legh-Jones, et al. (n 5) 240, para 10–39Google Scholar; Lowry, and Rawlings, (n 54) 120Google Scholar; MacDonald, Eggers (n 91) 1195, para 41–005Google Scholar; Merkin, (n 55) 146, paras 6–15.Google Scholar

136 Note that the Law Commission is currently in the process of reviewing whether a causal connection should be required (n 46, 38–9). It had already suggested changing the law to this effect in its 1980 report n 47, 89, para 6.22).Google Scholar However, this suggestion was ignored by English legislators.

137 See for a detailed account Prolss (n 62) § 6, paras 91–94aGoogle Scholar; Römer, (n 112) § 6, paras 32–44Google Scholar; Sieg, (n 61) 116–17Google Scholar, Schwintowski, (n 105) § 6, paras 50–3 and paras 108–16Google Scholar; Weyers, and Wandt, (n 61) 115–16, paras 434–5.Google Scholar Note that § 30 (3) of the Proposal for a Law on the Reform of Insurance Contract Law (n 45) extends this rule to all contractual obligations. More specifically, it prohibits the insurer from refusing payment of the insurance sum if the policyholder can prove that the breach did not influence the occurrence of the insured event or the extent of the insurer's liability. However, the insurer may still be allowed under § 30 (1) of the Proposal to cancel the contract.

138 Para 2 (b) (iii) Statement of General Insurance Practice; Para 3 (b) Statement of Long-Term Insurance Practice; Rule 8A.2.6 (2) (c) COB. An exception is allowed only for cases where fraud on the part of the policyholder is involved. See Para 2 (b) (iii) Statement of General Insurance Practice; para 3 (b) Statement of Long-Term Insurance Practice; Rule 8A.2.6 (2) COB. See for more exceptions for long-term insurance contracts Para 3 (b)(i) and (ii) Statement of Long-Term Insurance Practice; Rule 8A.2.6 (2) (c) (i) COB.

139 See Cadogan, and Lewis, (n 81) 133–4.Google Scholar

140 See § 30 of the Proposal for a Law on the Reform of Insurance Contract Law (n 45).

141 The Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd—The ‘Good Luck’ [1991] 2 WLR 1279.Google Scholar

142 Ibid.

143 Clarke, (n 20) 627, para 20–1 and 653–6 para 20–6CGoogle Scholar; Lowry, and Rawlings, (n 54) 120.Google ScholarAccording to Birds, and Hird, (n 56) 145–7Google Scholar; Birds, ‘The Effect of Breach of an Insurance Warranty’ (1991) 107 LQR 540, 542Google Scholar the insurance contract, in practice, will usually, but not necessarily come to an end. But see Legh-Jones, et al. (n 5) 266, para 10–104Google Scholar; McGee, (n 4) 233, para 17.2 and 238, para 17.6.Google Scholar

144 Birds, and Hird, (n 56) 146–7Google Scholar; Birds, (n 142) 544Google Scholar; Clarke, (n 20) 654, paras 20–6CGoogle Scholar; Legh-Jones, et al. (n 5) 261–2, paras 10–92.Google Scholar

145 Hussain v Brown [1996] 1 Lloyd's Rep 627, 628, and 630Google Scholar; Birds, and Hird, (n 56) 142, 143–7Google Scholar; Birds, (n 142) 544Google Scholar; Clarke, (n 20) 627, para 20–1, and 653–6, para 20–6CGoogle Scholar; Clarke, ‘Breach of Warranty in the Law of Insurance’ [1991] LMCLQ 437, 438Google Scholar; Hird, ‘Warranties—Better in the Future’ [1996] JBL 404, 404–5Google Scholar; Legh-Jones, et al. (n 5) 261–62, para 10–92.Google Scholar

146 Note that § 30 (1) of the Proposal for a Law on the Reform of Insurance Contract Law (n 45) grants the right to terminate only where the policyholder acted either fraudulently, intentionally or recklessly.

147 Clarke, (n 20) 657–8, para 20–7AGoogle Scholar; Legh-Jones, et al. (n 5) 265–76, paras 10–101–10–124Google Scholar; MacDonald, Eggers (n 91) 1196–7, para 41–058. Most authors, however, prefer to speak of (equitable) estoppels.Google Scholar

148 Note that, according to § 30 (2) of the Proposal for a Law on the Reform of Insurance Contract Law (n 45), the insurer may only refuse payment of the insurance sum if the policyholder acted fraudulently or intentionally. In case of reckless breach of a contractual obligation, the proportionality principle applies, according to which the insurance sum is reduced in relation to the significance of the breach. Mere negligent breach does not free the insurer from payment.

149 See Basedow, ‘European Insurance Contract Code’ (n 4) 581Google Scholar; id ‘European Insurance Market’ (n 4) 509Google Scholar; Basedow, and Fock, (n 17) 5.Google Scholar