Duty of the insurance distributor to honest, fair and professional dealing


The first section of the paper author has dedicated to studying corrective and regulative functions from the Article 17(1) of the new Insurance Distribution Directive regulating distributors’ duties when performing insurance distribution to act honestly, fairly and professionally in accordance with the client best interest; to areas and some examples in the few areas of distribution to which this principle is applicable; to a number of principles in the Serbian law and some other jurisdictions for which it may be considered that they are equivalent to the principle of the said article in this Directive; reasons why the term “fair”, for the purpose of Directive transposition in our law, should be replaced / translated by the term “conscientious” or“righteous” and why it is justified to concretize said principle according to the objective criteria in the areas regulating contract conclusion between distributors with clients, discharging their duties and the enforcement of their rights against clients by the distributors’ code onthe honest, fair / conscientiousand professional dealing.
In the second section, category of “the best client interest” as the goal for a honest, fair / conscientious and professional performance of the insurance distributor and method for avoiding prospective abuse in dealing with insurance distribution to the detriment of the client is explored. Author is particularly focused onanalyzing methods for specifying this category in the Directive at the contract conclusion between distributor and client, performing his specific duties and enforcement of their rights against clients. Particular attention has been dedicated to exploring the importance of the said category for a delimitation of the principles from Article 17(1) and the principle of conscientiousand honesty of the national laws and other similar principles like the principle of the equity.
In third section author consider the most important distributor duties introduced by the Directive against the client, which are not of contract or tort nature after which accrues its duty to provide client with specific information relating fulfillment of those duties in the way sanctioned by the Article 17(2) of the said Directive. From these duties and information the distributor has duty to inform the client after their fulfillment, by far the largest space is dedicated to the duty and information material for undertaking, by the distributor,of the measures for preserving efficient organizational and administrative procedures for prevention of the conflict of interest between distributor and the client and duty and information regarding cross-selling practice. After this examination, the author opens a question of the method for sanctioning of the distributor for breaching provision of the said information to the client and proves that, without special regulation in the national legislation of these breaches, they may be sanctioned as any breach of the duty of informing envisaged in the national contract and tort laws when there is a contractual relationin which each party owes duty towards the other one to advise him / her on the facts of importance for their mutual relation. As an example for this, the author takes the Article 268 of the Serbian Law on Contracts and Tort.
In the fourth section, the authorexaminesespecially unwanted and frequent forms of the distributors’ abuse to detriment of the client in managing of the insurance distribution as one of the possible ways of the unfair product distribution to the buyer / client / insured. Central place in that section is the author’s discussion and positions in the comparative literature on the methods for determination of the indemnity amount to be awarded to the insured in case of the unfair dealing. The main point of the author’s disagreement with the positions taken is that they do not take into account possible varieties of such distributionand attempt to reach a universal rule on the indemnity amount, regardless of the distribution form, that the distributor owes to the client / insured.
In the fifth section, the author consider limitations for the unique application of the principle of the Article 17 of the Insurance Distribution Directive in the member states that derive from the lingual divergence of the texts it was published, then limitations because of the rights that in Directive application the host member state has against the insurance intermediaries of the domicile member state when they discharge insurance distribution on their territory and from disparity in interpretation and application of the specific provisions from the mentioned article between courts and insurance supervisory authorities.
The paper’s last section comprises of the eight reasoned conclusions that the author reached after examination carried out in the previous sections, such as the duties, which, in the rank and meaning of the principle introduced for insurance distributors by the Article 17 of the Directive, are the most important level raised for the consumer protection independently from the protection guaranted to the insurance intermediaries by the Insurance Mediation Directive; that the duty of informing on the distributors’ duties, which concretize the principle from the Article 17 and prevent possible distributor abuse to the client detriment during insurance distribution, being unfair dealing as the most serious, represent the second level of the high protection ensured by the Directive; that one of the basic goals for adoption of this Directive was to establish then unknown principle in the Community law of insurance distribution formulated by the mentioned article and that in its transposition in the Serbian insurance law it is neccessary to keep supervision principle of the competent authority over insurance sector based on the regulations insted of supervision based on this principle.