Commercial interest rate not applicable to compensations paid by insurers

Commercial interest rate not applicable to compensations paid by insurers

On 3 December 2015 (link in Dutch), the Constitutional Court ruled that the commercial interest rate does not apply to compensations paid out (late) by insurers.

Under the Act of 2 August 2002 on combating late payment in commercial transactions, the so-called "commercial interest rate" applies to all late payments on business transactions for the late-payment interest that is owed. For the second half of 2015 this interest rate amounts to 8.5% (see overview).

This interest rate is not applicable to payments under insurance policies, not even to property insurance policies such as fire or comprehensive building site policies. For these the principle applies that the judge himself must determine an adequate compensation if there has been late payment. In practice, the "statutory interest" (for the year 2015 2.5% (see overview), see art. 1153 of the Civil Code and the Act of 5 May 1865 on interest-bearing loans) is used to this cause, or double that in the event of fire insurance (art. 121, § 7 Insurance Policies Act).    

The French-language Commercial Court of Brussels raised the issue of whether this distinction does not entail an unconstitutional discrimination. Insurers are merchants, after all, and compensation of damage is the quid pro quo for payment of the premium by the policyholder.

The Constitutional Court however has found that this distinction is based on an objective criterion. The compensations to be paid by the insurer will only be determined after (and are indeed contingent upon the occurrence of) a loss event, and thus they differ in kind from compensations for business transactions, the amount of which is already firmly established right from the start. The Court also referred to the European directive on which the commercial interest rate is based, in order to conclude that a reasonable justification exists for the distinction and that there is no impermissible discrimination.

So for the time being the commercial interest rate remains inapplicable to compensations paid by insurers.

For more information on this topic, you can consult Ewoud Willaert (the author) and Siegfried Busscher (head of the Insurance Law department).