Peicl: the principles of european insurance contract law

The aim of the Principles of European Insurance Contract Law (PEICL) is to establish a voluntary insurance contract law regime across the EU.

Although progress has been made towards a single European insurance market, relatively little cross-border insurance business is actually being done outside the field of large commercial risks. Differences in national laws and regulations mean that insurers still need to tailor their wordings to meet local requirements.

The Restatement of European Insurance Contract Law project group hopes to change this by allowing parties to opt out of national law regimes and agree that the insurance contract will be governed by the PEICL.

European contract law

The PEICL project is part of a wider program set up some years ago to create a Common Frame of Reference (CFR) for European general contract law.

Progress on this had stalled somewhat but, in November 2009, the European Parliament passed a resolution calling on the Commission to step up its work on developing the CFR as an optional instrument.

In May 2010, the Commission convened a new expert group to transform the draft CFR into a "user-friendly workable solution". The European Commission is currently consulting on what form that solution should take.

Various alternatives are considered, including a resource available on a website for people to use, a binding or non-binding "toolbox" for EU lawmakers, or an optional European contract law which could be chosen by the parties. Two options which seem unlikely are a full harmonization of European contract law or some sort of European civil code.

The Commission's Green Paper also asks what the scope of the instrument should be: whether it should cover business-to-consumer and business-to-business and cross-border as well as domestic contracts.

Another possibility being considered is that the CFR should include sections for specific types of contracts, such as for the sale of goods or contracts of insurance. In this regard, the paper suggests, draft principles already drawn up by project groups such as the PEICL "could serve as an inspiration."

The PEICL were first published and presented to the European Commission in December 2007, and reproduced in substantially the same form in August 2009.

Part I is a general section applicable to all types of insurance and Part 2 focuses on indemnity insurance. Parts 3 and 4 have yet to be produced but will cover life insurance and liability insurance. It is intended that the final version will be accompanied by comments and notes referring to parallel provisions of national insurance contract law.

Voluntary

The PEICL would be optional, in that the parties would be able to choose whether or not the insurance contract would be governed by them. Once chosen, however, the principles would apply as a whole and no exclusions of particular provisions would be allowed (1.102).

In order to avoid a confusing mixture of laws applying to the contract, no recourse to national law would be permitted (1.105). Any questions arising from the contract that are not expressly dealt with by the PEICL would be decided according to common principles of European contract law (presumably as will be set out in the CFR) or failing that, under general principles common to the laws of the member states.

There is some flexibility, however, in that any provision in the PEICL not designated mandatory can be derogated from, as long as it is not to the detriment of the policyholder, the insured or beneficiary (1.103(2)).

In the case of large commercial risks, such as transport (aircraft, ships, rail and goods in transit) and risks where the policyholder carries on a business over a certain size, derogation is allowed for the benefit of either party.

The August 2009 version of the PEICL identifies as mandatory the provision stating that the principles apply as a whole, the provision allowing insurers to avoid the contract for fraudulent breach and other articles regulating fraudulent behaviour.

Scope

The principles are comprehensive, covering the relationship between the parties before, during and after the insurance contract is entered into.

Many provisions find their closest UK equivalent in insurance regulation, such as the information to be provided pre-contract (2.201) and included in the contract (2.501), or the obligation to notify the insured of any change in the insurer's address or legal status (2.701).

The general rules also reiterate current European anti-discrimination law on gender, nationality and race (1:207). Terms in the contract that breach these requirements will not be binding and will entitle the policyholder to terminate the policy on notice. This will eventually need updating to include age discrimination if and when the new Equal Treatment Directive comes into force.

In addition, the draft PEICL cover legal issues addressed by the English and Scottish Law Commissions in their ongoing review of insurance contract law (such as damages for late payment of insurance claims) and others outside the scope of that review (such as conditions precedent to the insurer's liability).

Unlike the Law Commissions' proposals, however, no distinction is drawn between consumer and business insurance - other than the provision allowing derogation in the case of large commercial risks.