Significance of the Principles of European Insurance Contract Law for the pre-contractual information duty: Experience of the Baltic States

by Olavi-Juri Luik

The provision of cross-border insurance services to consumers in the European Union is problematical as the existence of 27 different contract laws both complicates the cross-border activity and renders it expensive. The currently drafted Principles of European Insurance Contract Law, which will presumably be implemented as a ‘2nd regime’, should change this situation in principle. This article explores the differences between the Estonian Law of Obligations Act, the Latvian Insurance Contract Law and the Lithuanian Civil Code in comparison with the Principles of European Insurance Contract Law with regards to the policyholder’s pre-contractual information duty as the rights and obligations of the policyholders do change where the optional instrument is applied. The authors believe that the Principles of European Insurance Contract Law will significantly change the scope of the policyholders’ rights and obligations in the Baltic States. Compared with national laws, the relevant regulation provided in the Principles of European Insurance Contract Law is more favourable and consumer-friendly for policyholders both as regards the information duty and the consequences of breaching the duty.

The authors believe that the current differences of the Estonian, Latvian and

Lithuanian insurance legislation as regards the pre-contractual obligations of

the policyholder and the consequences of a breach of these obligations preclude

the introduction of pan-Baltic insurance products. Implementation of the

PEICL would allow cross-border insurers to provide consumers cross-border

services on the Baltic insurance market as the barriers caused by different legal

systems would be removed. The authors hold that the PEICL will significantly

alter the scope of the policyholder’s obligations in the Baltic States. As regards

the pre-contractual information duty, potential implementation of the PEICL

will affect Latvian policyholders the least. However, the situation of Estonian

policyholders will improve significantly as policyholders no longer must adhere to the so-called rule of own initiative or the standard terms and conditions of

the insurer if the insurance contract is entered into under the PEICL. The most

significant change upon the potential implementation of the PEICL will be

that if the insurer withdraws from a contract, it terminates within one month

after receipt of a notice to that effect. In addition, the deadline by which the

policyholder must respond to a breach of the information duty will be shortened

to one month in Lithuania. In Latvia, this deadline will be extended to

one month, instead of the current 15 days, the policyholder will also have one

month to agree to change the contract. Under the insurance law of Estonia, Latvia

and Lithuania, the potential implementation of the PEICL will bring along

only minor changes to the situation related to the policyholder’s breach of the

pre-contractual information duty ex post after an insured event. The regulation

of the fraudulent breach of the policyholder’s pre-contractual information

duty will change significantly. As far as the insurer is concerned, the PEICL

is much more flexible and allows more options for action in a situation where

the policyholder has committed fraud in relation to the insurance contract.

The situation of Latvian policyholders will become less burdensome because,

if the PEICL is implemented, the insurers will no longer be able to invoke gross

negligence in providing information in the pre-contractual negotiation phase.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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