New EU insurance sector block exemption adopted

On 24 March 2010, the European Commission announced that it has adopted a new insurance sector block exemption regulation (BER).  The new insurance BER came into force on 1 April 2010 and will last until 31 March 2017.  The insurance BER exempts certain aspects of the insurance industry from the EU prohibition on restrictive agreements.

The headline points of the new insurance BER are that it:

• renews exemption for joint compilations, tables and studies;
  
• renews exemption for co-(re)insurance pools, subject to some amendments;
  
• no longer exempts standard policy conditions; and
  
• no longer exempts agreements on security devices.
  

 

This should not come as a surprise as it is effectively what the European Commission set out in its consultation draft of the insurance BER in October 2009, although there were some slight amendments.

The Commission observed that standard policy conditions are used in other sectors, such as banking, without the need for a specific block exemption.  It reasoned that to give the insurance industry special treatment could result in unjustified discrimination against other sectors which do not benefit from a sector-specific BER.  Security devices and their installation were found to fall into the general domain of standard setting.

Standard policy conditions

The exclusion of standard policy conditions and provisions on security devices from the BER does not mean that they are necessarily illegal - rather a regular competition analysis is required.  This will consider whether the particular arrangements do actually comprise a restriction of competition, whether any other block exemption could apply (e.g. the vertical agreements block exemption) and/or whether the particular arrangement merits an individual exemption.

Associations and their members will need to carry out a self-assessment in relation to proposed standard policy conditions and their terms of use as for any other association activity.

The Commission plans to offer more guidance on standard policy conditions for all sectors (not just insurance) in its guidelines on horizontal agreements which it is currently reviewing and on which it plans to consult "in the first half of 2010".

Joint studies

Key changes to the exemption regarding joint compilations, tables and studies are:

• a new right of access to the results for customer and consumer organizations, subject to an exception on the grounds of public security (e.g. where information is related to the security systems of nuclear plants or the weakness of flood prevention systems); and
  
• clarifications to the scope of the exchange of information covered by the BER.
  

 

Pools

Key changes to the pools exemption are:

• market share calculation now covers gross premium income earned within and outside the pool by participating undertakings – bringing this area into line with other general and sector-specific competition rules; and
  
• a broadening of the definition of "new risks" to cover risks the nature of which has changed so materially that it is not possible to know in advance what subscription capacity is necessary in order to cover such a risk.
  

 

The Commission emphasized that the pools exemption is not a "blanket" exemption and that careful legal assessment is required of whether a pool complies with the conditions of the BER.  It intends to monitor their operation closely. 

Subscription market co-(re)insurance agreements

The Commission has also underlined that ad-hoc co-(re)insurance agreements on the subscription market have never been covered by the insurance BER and remain outside the scope of the new regulation.

Transitional provisions

It is useful to note that there is a 6 month grace period until 30 September 2010 for agreements which comply with the expiring insurance BER but not the new insurance BER.  This gives industry a little more time to adapt their agreements to bring them into line with the new rules.

New Mediation Rules in Russia

On 11 March 2010, draft regulations establishing mediation as alternative procedure for the settlement of disputes were introduced to the Russian Parliament. Assuming they are accepted, they will come into force on 1 January 2011.

Mediation has not previously been expressly provided for in Russian legislation nor has any law contained a detailed description or procedure for it.

In most cases, mediation allows parties to reach the best possible, and a mutually beneficial, compromise without involving judicial bodies or reducing the effectiveness of the settlement process.

The draft regulations contain complex and detailed legal mechanism for mediation, as well as various amendments and additions to civil law, civil procedural law and arbitration procedural law.

It is assumed that mediation can be initiated by agreement between the parties. A mediator may arrange meetings with both sides jointly or individually. This may culminate in the resolution of their dispute, which may be formalized in a civil law contract or an amicable settlement approved by a judge if the dispute has been already submitted to the court.

If the dispute is not resolved, the participants may not disclose during judicial proceedings any information provided by another party to conclude a mediation agreement or about their intentions to do so. They are also prohibited from disclosing any opinions or suggestions made by the parties during the mediation process and any information about a party's readiness to accept any suggestions. The mediator may not provide the parties with legal counseling or other help.

The individual or organization providing mediation services is not authorized to disclose any information about the mediation procedure unless it is expressly permitted by the parties.

The draft regulations also contain certain quality requirements and procedures for the provision of mediation services, as well as some features of mediation in the course of initiated proceedings in arbitration tribunals and courts of common jurisdiction.

Guest Post: Builders and Economic Loss

(This post is provided by UK colleague Nadia Lucherini with CMS/Cameron McKenna in Bristol.)

Does a building contractor owe his client a concurrent duty of care in tort and in contract in relation to economic loss? This age-old question was recently addressed by the Manchester TCC in Robinson v P.E. Jones (Contractors). The decision is likely to be of interest to builders as it clarifies the extent of their exposure to claims.

In 1991, P E Jones entered into an agreement with Mr Robinson whereby P E Jones would build and sell him a house. The house featured gas fires in two rooms which were served by chimney flues that P E Jones constructed. In 2006, two years after the gas fires failed a safety test, Mr Robinson started proceedings against P E Jones, claiming that the chimney flues had not been constructed properly.

The claim was well outside the limitation period for a claim in contract. So Mr Robinson was forced to argue that the building company owed him a duty of care in tort.

P E Jones argued that there was no duty of care and that it was an economic loss. The building company argued, relying upon the House of Lords case of Murphy v Brentwood, that a builder did not owe a duty of care in tort to an owner or an occupier where the loss was an economic loss.  

In his judgement, Judge Davies sought to reconcile the case law. He stated that the general rule, on which P E Jones sought to rely, that a builder does not owe a duty of care to owners or occupiers is not intended to exclude circumstances where there was a "special relationship of proximity" for example, when the builder is also in a contractual relationship with a client. 

In general terms, therefore, the Judge held that, in principle, a builder will owe a tortious duty of care to his client, concurrent with his duty in contract, in relation to economic loss. Practically, this ruling means that claimants are able to take advantage of the remedy, either under contract or tort, which is most favourable to them, making it easier for them to recover economic loss.

However, unfortunately for Mr Robinson, Judge Davies held that P E Jones had, through its Building Conditions, successfully excluded any duty in respect of any defect, error or omission in the execution or completion of the works save for the ten-year period covered by the National House Building Council's agreement (which was, by that point, time-barred).  Judge Davies held that Mr Robinson could not challenge the efficacy of the clause in the Building Conditions as it operated precisely to prevent a duty in tort arising. Mr Robinson's assertion that the clause fell foul of the Unfair Contract Terms Act 1977 also failed as P E Jones pointed to an exception which states that the Act does not apply to "any contract so far as it relates to…an interest in land."

This decision acts as a useful reminder that a builder will owe a concurrent duty of care to its client in relation to economic loss. This means that they can be liable in tort long after the expiry of the contractual limitation period in circumstances where discovery of damage happens years down the line. However, the case also shows that a builder can reduce this risk by incorporating a contractual term that limits the tortious duty.