Information asymmetry and protection of clauses in insurance contracts

Insurance Litigation Alert

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Following Decision 9140 by the Joint Sections of the Supreme Court on May 6 2016, information asymmetry and the protection of insurance contract clauses became widely debated topics.

While the court focused on the need to assess the validity of claims-made clauses on a case-b y-case basis, this approach could also be applied in principle to any insurance contract clause that is not regulated by the Civil Code or other legislation.

The court affirmed this potentially systemic principle without providing a precise indication of the criteria that should be used to conduct a validity test under Article 1322 of the Civil Code1.

Is a clause invalid only when it violates mandatory rules, public order or public morality, as per Article 1343 of the Civil Code2? Can a clause be held invalid if it violates the Constitution's basic principles? Is a clause unworthy of protection in all cases where the interests of the parties to the contract or single covenant are tipped in favour of the stronger party, particularly where the contract or covenant is characterised by information asymmetry in the stipulation phase?

The absence of court guidance in this regard could result in uncertainty, as seen in decisions issued by the merit courts following Decision 9140. A number of courts ruled that the claims-made clause subject to scrutiny was lawful in the given circumstances, while others ruled on the contrary, relying on the absence of the validity requirement.

In this context, it cannot be overlooked that, since 2010, strict and wide-ranging pre-contract information duties have been introduced by the Italian insurance regulator to reduce information asymmetry, which is typical in insurance contracts3.

The introduction of such duties and the opportunity for proposers to focus on the main aspects of a contract (including exclusion and limitation clauses) before concluding could, in principle, play an important role in the discussion of the validity principle between insurers, insureds and judges.

If the proposer is given a comprehensive explanation of the contract, including its main features and relevant limits, and the insurer can provide evidence in this regard, the scope for challenging an insurance contract's ex-post clauses under the validity principle should be reduced.

These points underline the importance of drafting clear and unambiguous policy wording, arranging clear and exhaustive pre-contract information and supervising the sale of insurance products by distribution networks.


1 Article 1322 of the Civil Code stipulates that parties are free to enter into a contract different from those specifically set out by the Civil Code, provided that the contract aims to regulate interests that are worthy of protection.
2 Article 1343 of the Civil Code stipulates that a contract is null and void if it violates mandatory rules, public order or public morality.
3 See, in particular, IVASS Regulation 35/2010 regarding pre-contract disclosure duties for proposers implementing Article 185 of the Insurance Code, which provides as follows:

"1. Italian insurance undertakings and foreign insurance undertakings carrying out business in the territory of the Italian Republic under the right of establishment or the freedom of services shall submit to policyholders, prior to the conclusion of the contract and along with the policy conditions, an information note drawn up in compliance with the provisions of this article. 2. The information note shall contain the information, other than advertising, which is necessary, based on the characteristics of the products and of the insurance undertaking, for policyholders and insured persons to come to a reasoned conclusion about contract rights and obligations and, where appropriate, about the undertaking's financial position. 3. ISVAP shall, by its own regulation, lay down rules on the contents and model of the information note, which shall contain not only information on the undertaking, but also information on the contract, with special regard to guarantees and commitments covered by the undertaking, voidness, lapses, exclusions and limitations of covers as well as recourse, rights and obligations during the term of the contract and, in case of accident, the applicable law and limitation periods, the procedure to follow in case of complaint and any competent body or authority."