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Should the insurers return the insurance premiums?

Should the insurance premiums be returned by the insurers to the persons in institutionalised quarantine or isolation? What about the other persons whose freedom of movement was restricted?

There are some opinions and discussions these days concerning the legislative changes related to insurances, either optional or mandatory, during the state of emergency. See the relevant articles and opinions published.[1]

I might have written nothing on this topic, but I found interesting an initiative related thereto, in a European country significantly touched by the coronavirus crises and with a much more developed insurance industry than Romania, i.e. France.

Thus, on 30 April 2020, the president of the French Insurers Federation (FFA), Mr. Florence Lustman, sent an open letter [2] to Mr. Alain Bazot, president of UFC-Que Choisir – a renowned consumers protection association in France, with reference to the survey published by thus organization on 27 April 2020, urging the holders of vehicle insurance policies to request their insurers to reimburse part of their premium due to the significant fall of car accidents.

The legal basis for such an action from the consumers is, according to UFC – Que Choisir association, the provisions of article 113-4 in the French Insurance Code. This article stipulates that “the insured is entitled, if the risk becomes lower during the contract, to a reduction of the amount of the premium [...]”.

Beyond the arguments for or against expressed by the two parties, I have to say there is no such express provision in the Romanian law, but there is a series of legal arguments which, through a logic and legal interpretation of the existing regulation, could lead to such a working hypothesis, i.e. the reimbursement of part of the insurance premium. It is not the purpose of this article to go deep into details, but I would like to bring forward this topic for public analysis and comment.

As there are not always simple solutions to complex issues, I think we have to distinguish between several type of existing situations and refer to several theoretical terms related to the legal concept of insurance and risk.

In order not to be accused of inventing new terms, I have chosen to use the terminology used by the Institute of Financial Studies supervised by the Financial Supervisory Authority, as follows:

“insurable risk[3] a) *insurable risk is a future, possible risk, fortuitous, recorded in statistical evidence, whose occurrence is independent from the will of the insured or of the beneficiary of the insurance and generates material damage or affects the health condition or even the life of persons.

Essentially, for those less familiar with the legal terms, if a risk is not likely to occur, it cannot be insured.

As the legal measures imposed by the pandemic largely refer to restricting the freedom of movement of persons and goods, I am going to attempt to distinguish among several types of goods and persons which might be concerned by the above-mentioned situations:

As concerns the categories of insured who may invoke the restriction of the freedom of movement and, thus, the elimination or mitigation of the insured risk, we can distinguish, against their legal capacity in the context of the state of emergency, three large categories:

  • The persons to whom the isolation or quarantine measures apply and respectively the persons who, according to article 8 in the Military Ordinance no. 1/2020, are prohibited, as a measure to prevent the spread of COVID-19, from going out of the location where they have been placed, without the approval of the competent authorities.

  • The persons to whom the travel restriction imposed by the military ordinance no. 3/2020 applies and who are not in any of the exceptions stipulated in the ordinance, i.e.:

a) professional travel, including between the home/household and place of professional activity and back;

b) travel for the procurement of goods covering the basic needs of the persons and pets/domestic animals, as well as goods needed for the professional activity;

c) travel for medical assistance that cannot be postponed or done remotely;

d) travel for justified reasons, such as taking care/accompanying the child, assisting elderly, ill or disabled persons or death of a family member;

e) short travels, in the proximity of the place of residence/household, related to the individual physical exercise of the persons (excluding any team sports), as well as for the needs of the pets/domestic animals;

f) short travels for the purpose of donating blood, to the blood transfusion centres;

g) travel for humanitarian or volunteering purposes;

h) travel for agricultural activities;

i)travel of farmers for the sale of food products.

  • Persons with a limited right of movement – all persons travelling only for the purposes stipulated as limitations above, under points a - i.

As concerns the categories of insurance contracts (insurance policies) that are object of a special treatment, we may distinguish between:

· Mandatory policies (third-party liability vehicle insurance - RCA, professional third-party liability policies, mandatory house insurance – PAID, etc.) and

· Optional goods and persons insurance policies (CASCO, travel, movable and immovable assets, etc.)

As concerns the goods which, due to the travel restrictions, bear no or lower risk, we can distinguish among goods with wholly eliminated insured risk, meaning the means of transport stopped and immobilized, means of transport travelling along a short distance or with low mileage, against those anticipated upon the conclusion of the insurance policy or insured goods with unaffected risk. At the same time, we refer to fully stopped production lines (such as the Dacia car factory) which, in terms of certain associated and insured risks, they are no longer likely to occur. The examples are countless, mainly in the sectors covered by third-party liability insurance related to the relevant business – starting with hotels, restaurants, tourism, airlines, independent activities, transport companies, private clinics, etc.

As nobody has considered, not even hypothetically, such a situation generated by the pandemics, there is at this moment no express legal ground allowing the insured to request the reimbursement of the premiums for the periods when the insured risks were impossible to occur, without the insurers being able to oppose legal arguments to such claims. If we compared this with situations in other sectors, such as banking or utilities, we can see that such situations were expressly regulated. Such claims may be settled in court, unless the parties resort to an alternative dispute settlement system.

To close this chapter, I would like to remind something the insurance people are taught at the Institute of Financial Studies – For a risk to be insurable, it has to have the following characteristics: b) *be measurable in financial terms, occur in large and homogeneous groups, be a pure risk, be fortuitous, the probability for the damage to occur being calculable, the insurance premium has to be reasonable against the insured risk.

The only provision that could provide some indications, by analogy, as concerns the practical means through which such an action of the insured could be successful is that in the Law 132/2017 on the compulsory insurance against civil liability for the damage to third parties caused by vehicle and tram accidents: “the civil liability insurance contract may be suspended on the request of the insured having concluded a civil liability insurance contract during the suspension of the vehicle, according to the legal provisions, or during the immobilization of the vehicle, provided that the insured submit the registration plates of the vehicle to the authority having issued them.”

This hypothesis cannot unfortunately be used, the premises being different, but, unlike the previous legal provisions [4], it opens the path and the possibility for a mandatory insurance contract to be suspended. But from here up to amending such a contract in the given circumstances is I think up to the stubbornness of the insured and to the openness of the insurers. The insured may not always find the legal arguments to satisfy the insurers, but let us not forget that we live times of exception, I am sorry, exceptional.

There are always working solutions and options. Let us not forget the banking system which, although considered one of the most rigid, was open to the consumer. Because, why not, in the end we speak of the consumer? This has to do as well with one of the roles of the Financial Supervisory Authority, which has as a top priority the consumer protection. Well, gentlemen, now it is time to prove your institutional capacity and worthy of your remunerations, paid by the consumers in this industry you are supposed to regulate. Find solutions that will not give rise to frustrations for any of the players in this sector, starting with the consumers, insurers, brokers and, why not, those closing the loop.

#stayhome#online consultations

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