Continental European Legislative and Judicial Trends: European Free Trade Association Court Defines “Durable Media” in Directive on Insurance Mediation
On January 27, 2010, the European Free Trade Association (EFTA) Court handed down a judgment (1) defining and explaining the criteria by which Internet sites can qualify as “durable medium” under Directive 2002/92/EC of the European Parliament and the Council on Insurance Mediation.
Directive 2002/92/EC on Insurance Mediation
The Directive specifies rules for the taking up and pursuit of insurance and reinsurance mediation activities by natural and legal persons established in a European Union (EU) member state or who wish to become established in one. Therefore, the Directive is relevant to intermediaries of liability insurance and liability reinsurance, as well as other kinds of insurance.
Enacted to allow insurance intermediaries to establish themselves and provide services in the EU, the Directive also guarantees a high level of protection for customers. The Directive introduces a registration system for all insurance intermediaries in their member states of origin and sets forth registration requirements concerning intermediaries’ professionalism and competence, including their knowledge level and reputation.
Moreover, the intermediaries must be covered by professional indemnity insurance for professional negligence and have sufficient financial capacity to handle customers’ money. The Directive allows intermediaries to carry out their business in member states other than their home countries or to open a branch in another EU member state.
Articles 12 and 13 of the Directive specify extensive and specific information requirements for insurance intermediaries. All information must be provided to customers on paper or any other “durable medium” available and accessible to the customer in a clear and accurate manner. The information must be comprehensible to the customer and in an official language of the member state where the commitment is taking place or in any other language agreed upon by the parties.
Article 2 (12) of the Directive defines the term “durable media” as follows:
” ‘durable medium’ means any instrument which enables the customer to store information addressed personally to him in a way accessible for future reference for a period of time adequate to the purposes of the information and which allows the unchanged reproduction of the information stored.
In particular, durable medium covers floppy disks, CD-ROMs, DVDs and hard drives of personal computers on which electronic mail is stored. It excludes Internet sites, unless such sites meet the criteria specified in the first paragraph.”
Following a request by the Appeals Commission of the Financial Market Authority of Liechtenstein, the EFTA Court further defined and elaborated on this definition. The case concerned Inconsult Anstalt, a private entity based in Liechtenstein, and the Financial Market Authority of Liechtenstein. Inconsult contested an order issued by the Financial Market Authority whereby the Authority required Inconsult to comply with the information obligations of the Directive, which are also incorporated into Liechtenstein law. Inconsult offered the required information on a website and claimed that this met the requirements as stated in the Directive and Liechtenstein legislation.
In its advisory opinion, the court stated that, for the purposes of consumer protection, the criteria as laid down in the Directive are minimum obligations that must be fulfilled. The court then specified the following three criteria:
- The instrument must enable the customer to store information addressed personally to the customer.
- The court held that this term includes information such as the address of the insurance intermediary, which remains the same regardless of whether it is published on a website freely accessible to the general public or sent only to a specific customer. In other words, “information addressed personally” to the customer need not be confidential.
- The issue of whether information published on a website freely accessible to the general public may qualify as information “personally addressed” to a specific customer is linked to another element of Article 2(12) of the Directive, i.e., that the customer must be able to store this information. The court found it difficult to conceive of a website that allows a customer to reproduce the unchanged information without first receiving some kind of personalized message containing or referring to the information in question.
- The court concluded that in order to qualify as a “durable medium,” a website must enable the customer to store the information listed in Article 12 of the Directive.
- Accessibility for a period of time adequate to the purposes of the information.
- The court found that, in order to qualify as a “durable medium,” an Internet site must enable the customer to store the information required by the Directive in a way that makes it accessible for as long as it is relevant to the customer. This will protect the customer’s interests in relations with the insurance intermediary. This period may cover the time during which contractual negotiations were conducted even if they did not result in completion of an insurance contract, the period during which an insurance contract is in force and, to the extent necessary, the period after such a contract has lapsed.
- Unchanged reproduction of the information stored.
- The court noted that the protection of consumers concluding insurance contracts via insurance intermediaries is one of the key objectives of the Directive. This means, inter alia, that the information provided must be stored in a way that makes it impossible for the insurance intermediary to change it unilaterally. There may be several technical methods available for guaranteeing unchanged reproduction, and the insurance intermediary may decide which one to use in each case.
- The court differentiates between three types of websites. There are “ordinary” websites that, generally, may be freely changed by the website proprietor. There are “sophisticated” websites, which either act as a portal for the provision of information on another instrument, which, in turn, may qualify as a “durable medium,” for example, storage of an e-mail attachment on the customer’s computer. Or, those “sophisticated” websites that may themselves constitute “durable media.”
- Whereas an “ordinary” website can never be regarded as “durable medium,” the “sophisticated” websites may qualify as such, depending on the kind of website.
- One kind of “sophisticated” website acts as a portal for the provision of information. In order to communicate information on a “durable medium,” it must contain features that would lead the customer almost certainly to either secure the information on paper or store it on another “durable medium,” such as the customer’s own hard disk drive.
- The other alternative for a “sophisticated” website contains a secure storage area for individual users that is accessible by a user code and password. Provided that this method also excludes any possibility for the insurance intermediary to change the information, it can be compared to the user’s own hard disk drive and, therefore, fulfills the requirement of a “durable medium.”
Finally, the court held that for an Internet site to qualify as a “durable medium,” it is irrelevant whether the customer has expressly consented to the provision of information through the Internet.
The European Economic Area and the EFTA Court
The European Economic Area (EEA) consists of the European Union, Norway, Iceland and Liechtenstein. It extends the Internal Market of the European Union to the EEA states, thus creating a customs union larger than that of the EU. The EEA covers 30 states where residents enjoy the same rights of free movement of goods, services, persons and capital.
As with the EU member states, the EEA states must implement EU legislation pertaining to the internal market, including the Directive on Insurance Mediation. Disputes in the EEA states concerning such legislation are resolved by the European Court of Justice (ECJ) where EU member states are also concerned, or by the EFTA Court, where only EEA States are concerned. The EFTA Court may, thus, be called on to interpret EU directives.
While the judgments of the EFTA Court do not bind the ECJ, the interpretations of the EFTA Court exert a certain influence on the ECJ, which has previously followed the EFTA Court’s interpretations. Therefore, they are of interest to insurance and reinsurance companies established in the EU.
This case gave the EFTA Court the opportunity to specify the term “durable media” in relation to Internet sites under Article 2(12) of Directive 2002/92/EC on Insurance Mediation. It provides additional guidelines, especially on the period of time the information must be available, and describes categories of websites, some of which qualify as “durable medium.” This provides clarity for insurance and reinsurance intermediaries offering contracts through the Internet.
The guidance is fairly flexible and allows insurance intermediaries to use websites as a “durable medium” and allows for different website designs. The court has struck a good balance by maintaining consumer protection and allowing insurance intermediaries to remain flexible as they adapt to market and customer needs.
 Judgment of the EFTA Court of January 27, 2010; Case E-4/09; Inconsult Anstalt v. the Financial Market Authority (Finanzaufsicht).
Securities or investments, as applicable, are offered in the United States through GC Securities, a division of MMC Securities Corp., a US registered broker-dealer and member FINRA/SIPC. Main Office: 1166 Avenue of the Americas, New York, NY 10036. Phone: (212) 345-5000. Securities or investments, as applicable, are offered in the European Union by GC Securities, a division of MMC Securities (Europe) Ltd., which is authorized and regulated by the Financial Services Authority. Reinsurance products are placed through qualified affiliates of Guy Carpenter & Company, LLC. MMC Securities Corp., MMC Securities (Europe) Ltd. and Guy Carpenter & Company, LLC are affiliates owned by Marsh & McLennan Companies. This communication is not intended as an offer to sell or a solicitation of any offer to buy any security, financial instrument, reinsurance or insurance product.
Guy Carpenter & Company, LLC provides this report for general information only. The information contained herein is based on sources we believe reliable, but we do not guarantee its accuracy, and it should be understood to be general insurance/reinsurance information only. Guy Carpenter & Company, LLC makes no representations or warranties, express or implied. The information is not intended to be taken as advice with respect to any individual situation and cannot be relied upon as such.
Readers are cautioned not to place undue reliance on any historical, current or forward-looking statements. Guy Carpenter & Company, LLC undertakes no obligation to update or revise publicly any historical, current or forward-looking statements, whether as a result of new information, research, future events or otherwise.
Statements concerning, tax, accounting, legal or regulatory matters should be understood to be general observations based solely on our experience as reinsurance brokers and risk consultants, and may not be relied upon as tax, accounting, legal or regulatory advice which we are not authorized to provide. All such matters should be reviewed with your own qualified advisors in these areas.