Preliminary ruling on the mediation of capital life assurances 24 July 2018

The Court of Justice of the European Union (CJEU) in its judgement taken in Case C-542/16 interpreted the concept of insurance mediation with respect to capital life assurances in more aspects. The request for a preliminary ruling has been made in a dispute comprising two cases. The clients in both cases realized the loss of sums invested in products in the context of capital life assurance taken out through insurance intermediary companies. The insurance intermediaries involved had taken out professional indemnity insurance with the same insurance company. 

In the first dispute, the managing director of the insurance intermediary had appropriated those sums that, over the years, a number of clients entrusted to the insurance intermediary in order to be invested in relation to a capital life assurance. Since the clients were seeking compensation under the professional indemnity insurance taken out by the insurance intermediary, it was a relevant question whether the concept of ‘insurance mediation’ covers work preparatory to the conclusion of an insurance contract, even in the absence of any intention of the insurance intermediary concerned to conclude a genuine insurance contract.

On the above question, the CJEU ruled that the lack of intention of the intermediary to conclude insurance contracts is irrelevant for the purpose of classifying that activity as insurance mediation. Consequently, the concept of ‘insurance mediation’ includes work preparatory to the conclusion of an insurance contract, even in the absence of any intention on the part of the insurance intermediary concerned to conclude a genuine insurance contract.

In the second dispute, following advice given by an employee of an insurance intermediary, a client invested, in the framework of his capital life assurance, in an investment certificate, which is a structured financial instrument that subsequently lost its entire value. Since the client was seeking compensation under the professional indemnity insurance, it was a relevant question whether the financial advice relating to the placement of capital given as part of insurance mediation concerning the conclusion of a capital life assurance contract falls within the scope of the Directive on insurance mediation (2002/92/EC) or of MiFID I Directive (2004/39/EC) and, should they fall within the scope of each of those directives, whether the application of one of those directives should take precedence over the other.

On the above question the CJEU held that in the given case the placement of capital in an investment certificate formed an integral part of the insurance contract and that, consequently, the investment advice relating to that placement constituted work preparatory to the conclusion of that insurance contract. The CJEU also observed that although the financial advice being the subject of the basic procedure may fall within the scope of MiFID I Directive, however, such advice is excluded from the scope of this directive when it is given in the context of insurance mediation as part of professional activity relating to the conclusion of a capital life assurance contract.  Consequently, the financial advice relating to the placement of capital in the context of insurance mediation relating to the conclusion of a capital life assurance contract falls within the scope of the Directive on insurance mediation and not that of the MiFID I Directive. This, as referred to by the CJEU, is also in line with the MiFID II Directive (2014/65/EU), which was not in force at the time of the facts in the main proceedings. The above interpretation shall naturally apply to all insurances (particularly to unit-linked insurances) that involve an investment element.

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