Certain insurance companies show a distinct lack of enthusiasm when it comes to legislation intended to protect consumers from the type of abuse that the larger companies can have a “natural” inclination to perpetrate. One of the tools they may use occasionally could be called legal subterfuge, perpetrated with the intention of evading the consequences of legal provisions set in place to benefit the weaker contracting party.
An example of this can be seen in civil liability insurance policies for hotel establishments in which, typically, some companies have the practice of including clauses on exclusion from cover in relation to judicial claims brought abroad as part of the terms and conditions. In other words, under the guise of a cover limitation clause, they in fact introduce a clause that limits geographical jurisdiction of the courts. In doing so, consumers are prevented from bringing a claim before the Court where they are domiciled, even though this is in principle guaranteed under EU law.
Such a ruling was issued, we say wrongly, by a Judge hearing the case of Williams vs. Mapfre at Chester County Court (United Kingdom). Let us see how this came about.
- The case and ruling
In May 2012, Barbara Williams, a United Kingdom resident, spent her holidays at Hotel Pueblo, Benidorm. The chair she was sitting on broke, causing her to fall and incur serious injuries to one knee.
On her return to England, Mrs. Williams took legal action against Mapfre in the courts of her domicile address. According to the Rome II Regulation Spanish law would apply in this instance.
However – surprise, surprise!- the insurance policy included a clause that restricted cover solely to claims brought in the Spanish jurisdiction, for events that occurred in Spain and which gave rise to liabilities or other obligations imposed pursuant to current legislation in force in Spain.
Mapfre appeared in the case and argued lack of jurisdiction of the Courts of England and Wales to hear the claim on the basis of the clause limiting cover. According to the argument put forward by Mapfre, the clause concerned meant that Mapfre was only obliged to provide cover for its ensured in instances when judicial claims were brought in Spain. In other words, there was no entitlement to bring a direct lawsuit outside Spain, because that clause applies.
The Judge ruled that the clause concerned could not be deemed a clause exempting or limiting rights but that the clause in reality was a risk limitation clause included for the purpose of limiting financial cover under the policy. On that basis, the Judge upheld the clause as valid and ruled dismissing entitlement of the claimant to bring her claim against the insurance company outside Spain.
Nevertheless, and as we shall see further below, the juridical reality is somewhat different.
- The right to direct action
Law 50/1980, of 8 October, Insurance Contracts Act, Article 76, acknowledges entitlement of the harmed party to bring a direct action against the insurer requiring the latter to meet the obligation to compensate, without prejudice to entitlement of the insurer to recover from the ensured.
Direct action is therefore an entitlement that arises from a legal provision and not from the insurance contract content. Furthermore, direct action is a right that cannot be waived, in that Article 2 establishes the compulsory nature of the legal principles set down in the Insurance Contracts Act.
The outcome of applying the aforesaid legal principles is the irrefutable right of the harmed party to decide whether to bring the legal action against the insurance company or against the party liable for the harm, and this is entirely separate from any legal exceptions that may correspond to the insurer against the ensured.
This is confirmed in jurisprudence, with multiple judgments handed down such as the Supreme Court, Civil Division, sole Court ruling of 17 June 2003: on the issue of jurisdiction, No.2/2003:
“Entitlement to direct action as granted under Article 76, Insurance Contracts Act, to the harmed party against the insurer in civil liability matters does not derive from the insurance contract, given that the third harmed party was not a party to the contract itself”.
III. Juridical nature of the clause inserted by Mapfre
According to Article 3 of the Insurance Contracts Act, general terms and conditions must be signed by the ensured and both general and special terms and conditions must be precisely worded and must especially highlight any clauses that limit the rights of the ensured. Those limitation clauses must be specifically accepted in writing.
With regard to differentiating between clauses that limit rights and clauses that limit risk, there are numerous examples of Supreme Court pronouncements in that regard.
Supreme Court judgment number 543/2016 of 14 September 2016 declared that clauses on limitation of cover are those that serve to specify the contract purpose and establish the risks that will entitle the ensured to claim against the insurance as forming part of the insurance object. Limiting clauses, on the other hand, are those that restrict, apply conditions or amend the right of the ensured to compensation or to the insurance provision covered in the contract after the insured risk has occurred.
Supreme Court judgment No.853/2006, of 11 September, established as doctrine and subsequently referred to in a multitude of Supreme Court, Division 1 rulings, states as follows:
“Stipulations that limit risk are those included for the purpose of establishing the contract object limits, and specify: (i) which risks are covered; (ii) up to which amounts; (iii) over how long; and (iv) applicable to which period of time”.
The disputed clause in the Mapfre insurance policy, we should remember, establishes that cover is only provided for claims brought in the Spanish jurisdiction and for events that took place in Spain and which gave rise to liabilities or other obligations imposed in accordance with current legal provisions in force in Spain.
The clause is therefore a dual clause. The first part provides that it will only cover claims brought in the Spanish jurisdiction and therefore renders the clause as a clause limiting rights in accordance with the jurisprudence definition, given this would apply ex post and affect the right of the ensured after the event giving rise to the claim had occurred. The effect of this is to prevent legal action being brought.
The second part of the same clause, however, is of an entirely different nature, in that it sets geographical boundaries to the cover and provides that the policy only covers events that occur in Spain. The contract purpose is thus specified ex ante, i.e. before the risk has arisen. According to the Supreme Court jurisprudence cited above, this then becomes a clause that limits the risk.
In this sense, the judgment issued by Balearic Islands High Court No.125/2014, Court 4, on 31 March 2014 – pointed out that it was the ensured (rather than the third harmed party) that was bringing an action to claim an amount and in which a similar clause was analysed, also in a Mapfre insurance contract,
The High Court found that the clause restricting the geographical area of the risk did not limit the rights of the ensured but nevertheless made no pronouncement on the jurisdiction clause because the legal action was brought in Spain where the ensured was domiciled.
Additionally, Article 3 of the Insurance Contracts Act cited above, expressly declares that clauses limiting rights are deemed to limit the rights of the ensured (and, in this case, the ensured is the policyholder Hotel Pueblo), furthermore establishing that such clauses limiting rights may not in any event be opposed against the harmed party due to the fact that the right of the latter does not arise from being subrogated in the position of the ensured; rather, the harmed party is a third party beneficiary who took no part in the policy content and could not, therefore, know of rights restricted therein because there had been no opportunity to expressly accept such clauses limiting rights in writing as required by law.
The Supreme Court, in judgment No. 200/2015 of 17 April 2015, identified the victim as a third party not party to the contract:
“The insurance company, when entering into a civil liability insurance and by operation of law (Article 76 LCS) assumes the obligation with regard to the victim (not a party to the contract) to compensate in all instances of civil liability arising from conduct of the ensured”.
Even if one deems this clause to be a clause limiting risk, which it clearly is not in light of the above, that exception is still not available in law to oppose the harmed party, given the legal capacity of that third party as not having been party to the contract to which such exceptions apply.
Spanish jurisprudence leans towards protecting the harmed party beneficiary in insurance contracts: as can be seen in Supreme Court judgment of 2 December 1998 which, when construing Article 76 of the Insurance Contracts Act, establishes that the exclusion can only be effective against the third harmed party whenever the exception referred to in the policy is directly related to or is a determining factor in the damaging act but not in any other instance in which the incident that occurs comprises an event deriving from a risk covered by the insurance contract.
Similarly, consolidated jurisprudence in Spain establishes that exceptions to cover for inebriation cannot be opposed against a third party. In this sense, Toledo High Court (Court 1) in the judgment of 3 April 1995, which confirmed that grounds for exclusion of cover deriving from the fact of the incident giving rise to the claim having occurred whilst the driver was drunk (an exclusion from cover expressly referred to in the general terms and conditions of the insurance policy taken out on the vehicle that caused the damage) must be decided in the sense that this exception may not be opposed by the insurer against direct action brought by the harmed party, on the basis of Article 76, Law 50/1980, of 8 October, Insurance Contracts Act.
- Acceptance of the clause by the ensured/policyholder in person
Furthermore, and insofar as presentation of the limiting clause is concerned, one should remember that it was found to be quite buried amongst the long list of items comprising the General Terms and Conditions. There is no record that such a limiting clause was duly highlighted, either in General Terms and Conditions or in the Special Terms and Conditions.
The same Article 3 establishes in order for clauses limiting rights to be deemed valid, they must be especially highlighted and specifically accepted in writing. Therefore, if the terms and conditions were only signed by the Mapfre representative, they cannot in any event be opposed against the ensured, and certainly not against the third harmed party.
Madrid High Court judgment No. 53/2015, Court 12, of 12 February 2015 goes still further, and establishes that before classifying a clause as one type or another, it is necessary, above all, to check whether the clause was duly accepted, and for that reason, duly included in the contract.
- The clause as it relates to Regulation (EC) 1215/2012
According to Transitory Provision of Article 66, in Regulation (CE) 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, the provisions of the regulation shall apply […] to legal proceedings instituted […..] on or after 10 January 2015. Thus, this Regulation applies to the case in hand rather than Regulation (EC) 44/2001 of 22 December 2000.
According to Article 11.1 of the aforesaid Regulation, direct action against the insurer may be brought before the court for the domicile of the claimant, beneficiary of the insurance.
“An insurer domiciled in a Member State may be sued: b) in another Member State, in the case of actions brought by the policyholder, the insured or a beneficiary, in the courts for the place where the claimant is domiciled”.
If one scrutinises Article 13.2, jurisdiction is not to be directly allocated; rather it is subject to wherever direct actions are permitted.
If that article is then construed in accordance with Regulation 1215/2012, Whereas: 18) which establishes that insurance contracts entered into by consumers must protect the weaker party by means of rules of jurisdiction more favourable to their interest than the provisions of general rules, and in view of the fact that the victim of the accident is in a far more vulnerable condition against the insurer, in conjunction with the fact that in a matter concerning an accident that occurs abroad the victim requires even greater protection, there is every justification for establishing the jurisdiction of the country of residence.
Additionally, the criterion of protecting the financially weaker party has already been enshrined in ECJ jurisprudence by means of multiple judgments on construing jurisdiction in insurance matters both in the light of the 1968 Brussels Convention and Regulation 44/2001 (e.g. in judgments such as C-412/98 and C-112/03).
- The clause and the principle of equality and non-discrimination
Both the European Union Charter of Rights in Articles 20 and 21, as well as Article 18 of the Treaty on the functioning of the European Union, of 12 June 1985, recognise the principle of equality and the right to non-discrimination, stipulating that all persons are equal before the law and prohibiting any discrimination on the basis of nationality within the scope of application of the European Union Treaty and the aforesaid Treaty, without prejudice to special provisions established in those Treaties.
According to ECJ jurisprudence, the principle of non-discrimination is one of the juridical foundations on which EU Law rests (ECJ judgment, 201/85, of 25.11.1986 Klensch, and ECJ judgment C-2/1992, of 7.7.1992 Bostock).
Thus, the ruling discriminated against Mrs. Williams by failing to apply Regulation 1215/2012 in this case, given that it is compulsory to apply the Regulation and that any European citizen is entitled, in matters of civil liability, to bring a direct action for damages whenever such action is recognised in the insurer’s Member State of Origin and may do so before the courts of the Member State for the victim’s domicile.
VII. Mrs. Williams deserves protection under consumer legislation
The General Law on the defence of Consumers and Users, Law 1/2007, of 16 November gathers together and transposes community directives issued on consumer and user protection.
The aforesaid legislation applies to this case, given that the beneficiary of the insurance must certainly be deemed a user and consumer, according to the definition established in Article 3, which literally states as follows:
“Individuals acting with a purpose not related to their commercial or business activity, job or profession are deemed to be consumers or users. Legal persons and entities without juridical personality acting not-for-profit in an area not related to a commercial or business activity shall also be deemed consumers for the purposes of this regulation”
Likewise, the preamble to the cited legislation clarifies the content of this definition, when it identifies the user or consumer as the end user:
“The consumer and user, as defined in law, is deemed to be an individual or legal person who acts in a capacity not related to business or professional activities. In other words, who takes part in consumer relations for private purposes, contracting goods and services as the end user, without including these either directly or indirectly into production or marketing procedures, nor providing them to third parties”.
According to Article 10 of the aforesaid law, recognised consumer and user rights are compulsory and may not be waived, and any prior instance of waiving such rights acknowledged in law is deemed void.
The fundamental rights of consumers and users listed in Article 8 include: the protection of their lawful economic and social interests, and the inclusion of abusive clauses in contracts, where the latter are deemed void ab initio as acknowledged in Article 83.
Article 48 establishes that all stipulations not individually negotiated and all practices not expressly consented to shall be deemed abusive if, contrary to the requirements of good faith, they bring about significant disequilibrium of rights and obligations of the parties, to the detriment of the consumer and user, as arising from the contract. Clauses that contravene regulations on competition and applicable law are deemed abusive clauses at all events.
Article 90 provides that the Court corresponding to the consumer’s domicile is deemed to have jurisdiction, and declares all clauses expressly submitting jurisdiction to a different court to be abusive.
The Law on Consumers and Users has repeatedly been applied in jurisprudence to adhesion contracts such as insurance contracts and has to do with the special protection granted to consumers in legal principles such as Article 80.2 of the Law on Consumers and Users, which establishes:
“In the event of doubt as to the meaning of a clause, the interpretation most favourable for the consumer shall prevail”.
In this sense, the judgment issued by La Coruña High Court, Court 5, No.9/2017, on 12 January 2017 and Madrid High Court Judgment No. 53/2015, Court 12, of 12 February 2015 apply the aforesaid principle of most favourable interpretation in relation to the special protection granted in law to consumers.
The following conclusions may be drawn in view of the above:
- The disputed clause is not just a clause that limits the risk, but rather clearly limits rights and cannot therefore be opposed against the insured party, unless it was expressly signed and sufficiently highlighted. Under no circumstances can the clause be opposed against the third-party beneficiary of the policy, and especially not when that third-party beneficiary is a consumer.
- To prohibit the consumer from exercising his or her jurisdictional rights established in Regulation (EU) 1215/2012, amounts to breach of the principle of equality and non-discrimination established in the European Union Charter of Rights and in the Treaty on the Functioning of the European Union, which prohibits all discrimination among member states.
iii. To conclude, Judge Halbert was not correct in his interpretation and application of Spanish law and EU law, probably due to insufficient or incomplete information from the parties. We would hope that the justice system of England and Wales has an opportunity to correct this error in the near future.
Author: Carlos Villacorta Salís
Partner Director BCV Lex.
 Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (Rome II)
 Ley de Contratos de Seguro – LCS [Insurance Contracts Act]
 REGULATION (EU) No 1215/2012 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters