Partial nullification of the new Insurance Act with regard to the obligations of intermediaries

Partial nullification of the new Insurance Act With regard to the obligations of intermediaries

With the new Insurance Act of 4 April 2014 [1] , the legislature also ratified and introduced certain new information obligations and rules of conduct for insurance intermediaries (Chapter IV of part 6 on insurance mediation and distribution). One of the aims of this change in law was the implementation of the (consumer-oriented) provisions of the Solvency II Directive [2].

The Professional Association for Insurance Intermediaries - FEPRABEL (Fédération des Courtiers d´Assurances et Intermédiaires Financiers de Belgique) - and broker A. Van Ingelgem & Fils petitioned the Constitutional Court, seeking nullification of several of these provisions of the new Insurance Act. With some provisions, rules of conduct of the banking and financial sector were inadequately (or wrongly) applied to insurance mediation. The time period for the entry into force was also objected to.

The Constitutional Court found itself in partial agreement on this and nullified several provisions of the new Insurance Act with regard to insurance mediation (link to decision: http://www.const-court.be/public/n/2016/2016-089n.pdf).

With the new Insurance Act, the legislature had ratified article 4, 4° of the Royal Decree Level 1 (art. 350 of the Insurance Act) that excludes the application of article 27, § 6, of the Act of 2 August 2002 on the Supervision of the Financial Sector and Financial Services for insurance intermediaries and insurance companies. This article concerns information and assessment obligations (the "suitability test") for investment services and grants an « execution order only » that makes it possible to depart from this suitability test. FEPRABEL and the broker pointed out that various investment products can, however, be distributed by both insurance intermediaries and investment undertakings.

The Constitutional Court finds that neither the preparatory activities of this ratified Royal Decree, nor the Parliamentary preparation of the Insurance Act that ratifies the Royal Decree, nor the Council of Ministers in the procedure, clearly present reasons that could justify non-application to service providers with regard to insurance policies of art. 27, § 6 of the Act of 2 August 2002, namely the possibility to depart therefrom, in light of the objective of the legislature, which is to introduce a "level playing field". Consequently, according to the Court, article 350 of the new Insurance Act must be nullified in so far as it ratifies article 4, 4°, of the RD Level 1 (B.9.3.4 and B.9.3.5).

Furthermore, with the new Insurance Act, art. 27, § 3, of the Act of 2 August 2002 was also adapted to the insurance sector in order to provide clients of this sector with suitable information. The Court finds that this change does not oblige the service providers to immediately communicate to the clients all offered insurance contracts or the savings or investment insurance policies and the proposed savings or investment strategies, but rather to provide information about the types of services that might be suitable, so that these clients are reasonably able to understand the nature of the offered insurance mediation service and of the specifically-offered insurance contract, as well as, with regard to the savings or investment insurance policies, to understand the related risks and therefore to knowledgeably decide whether or not to conclude a certain type of insurance contract. This information may be provided in standardised form. The Court hereby emphasises that this provision would not impose any disproportionate obligation on the insurance sector, once again taking into account the legislature’s objective, namely the introduction of a "level playing field". In this interpretation, the Court finds that the provision in question is not discriminatory (B.9.4.4 and B.9.4.5).

The plaintiffs then point out that the way in which article 27, § 11 of the Act of 2 August 2002 is applied to the banking and financial sector authorises categorising clients according to whether they can be described as either « non-professional clients » or « professional clients ». The adaptation for the specificity of the insurance mediation sector was done by deleting the explicit reference to a categorisation of the clientele for the insurance intermediaries and the insurance companies. As a result, the challenged provision of the new Insurance Act, according to the plaintiffs, expands the scope of application of the MiFID rules of conduct, such as was initially provided therein by article 27 of the Act of 2 August 2002, without this being justified by the specificity of the sector of insurance mediation and of the insurance sector. The challenged provision would thus impose disproportionate obligations on the insurance intermediaries vis-à-vis clients who possess the necessary experience, knowledge and expertise to take insurance decisions on their own and to adequately estimate the risks incurred by them. Moreover, in this way there would be created a discrimination between the credit institutions and investment undertakings, on the one hand, and the insurance intermediaries and insurance companies, on the other (B.9.5.1).        

The Court follows the petitioners here: once again, there is no justification for this distinction. Given that the objective of the legislature is to introduce a "level playing field" between the banks and the insurance companies and intermediaries by expanding the rules of conduct that are imposed on the financial sector to the insurance sector and adapting them to the insurance sector, there is no reasonable justification for the King not to be authorised to define different rules for the insurance sector depending on whether professional or non-professional clients are involved, while the federal government is allowed to do precisely that for the financial sector. According to the Court, this measure overshoots the striven-for objective. Article 350 of the new Insurance Act must be nullified in so far as it ratifies article 4, 10°, of the RD Level 1 to the extent that that article does not allow the King to define different rules according to whether professional or non-professional clients are involved (B.9.5.5 and B.9.5.6).

With regard to the liability of insurance agents, the Constitutional Court does not follow the plaintiffs. They asked the Court to test the constitutionality of the new provision on liability (art. 279 of the new Insurance Act) and the ratified RD no. 3 in so far as these provisions expressly limit the liability of the insurance companies to any action or omission of their affiliated insurance agents to the extent that this action or omission relates to the rules of conduct referred to in article 279, § 1, of the new Insurance Act, which specifies that the affiliated insurance agent too remains responsible if there is a manifest fault, while insurance agents and insurance brokers who collaborate with insurance subagents would remain completely and unconditionally responsible for any action or omission of those insurance subagents who act for their account, and those insurance subagents are not responsible for their manifest faults (B.10.3).

The Court, however, found that the legislature, with the challenged provisions, had specifically intended the insurance companies that work together with affiliated insurance agents and made these companies responsible for a coherent implementation of the rules of conduct, given that the affiliated agents act on behalf of and for the account of these companies and are obliged to follow the procedures that the company has introduced with a view to compliance with the rules of conduct. According to the Court, this liability regulation does not affect the common-law liability regulation and does not release the affiliated insurance agent from the obligation to comply with the rules of conduct. Paragraph 1 of the challenged provisions expressly establishes the liability of the affiliated agents who commit a manifest fault. Paragraph 2 of the challenged provisions does not offer a specific provision in order to ensure the compliance of the rules of conduct in the relation with the insurance subagents, but it does recall the liability regulation that is specific to the relationship between insurance agents and brokers who work together with insurance subagents. According to the Court, with the challenged provisions the legislature thus brought together the liability regulation of the affiliated agents and this liability regulation. According to the Court, the fact that paragraph 2 of the challenged provisions did not expressly take over the rule according to which "the [insurance subagent] too [remains] responsible if there is a manifest fault" did not prevent the common-law liability rules from applying. The objective of the provisions does not consist in abolishing the client’s recourse against the insurance subagent or the affiliated insurance agent, but in making possible for him an additional recourse against the insurance intermediary or the insurance company. The legislature thus was not obliged to expressly recall the rule of the personal liability of the insurance subagent in accordance with the common law (B.10.6).  

The petitioners also argued that the entry into force of the new Insurance Act as of 1 November 2014, entailed a discrimination vis-à-vis the period of adaptation to the MiFID rules that was granted to the credit institutions and investment undertakings, which was longer (at the very least one year and three months). They complained that the entry into force of the new Insurance Act as of 1 November 2014 made it impossible for the insurance intermediaries to properly prepare themselves for their new obligations. The Court referred to its decision no. 86/2015 where it inter alia nullified the entry into force of the insertion of book VI "Market practices and consumer protection" into the Economic Law Code and the insertion of the definitions and the law enforcement provisions specific to this book and to the books I and XV. The Court concludes that in order to enable the insurance intermediaries to adapt themselves to the rules of conduct deriving from the RD´s and the ratification act, the entry into force of the new Insurance Act must be nullified in so far as it makes articles 277, 273, § 3, and 279 of this Act enter into effect on a date prior to 1 May 2015 (B.11.4.4 and B.11.5).

The Court thus nullifies:
- art. 350 of the new Insurance Act in so far as it ratifies the following provisions: art. 4, 4° of the Royal Decree of 21 February 2014 on the rules for the application of articles 27 to 28bis of the Act of 2 August 2002 on the insurance sector, as well as art. 4, 10° of that same RD in so far as it does not authorise the King to define different rules depending on whether professional or non-professional clients are involved;
- article 352 of the new Insurance Act in so far as it makes the articles 273, § 3, 277 and 279 enter into force before 1 May 2015; as well as in so far as this also makes article 350 enter into force before 1 May 2015, in so far as this article ratifies new rules of conduct that are contained in the RD´s of 21 February 2014

For more information on this topic, you can consult Siegfried Busscher (author and head of insurance law unit).


[1]  Act of 4 April 2014 on insurance policies, Belgium Official Journal of 30 April 2014
[2] Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance