III. Classification in Europe
V. Non-life Classification in Particular
1. Accident
The category of indemnity insurance in the European classification system includes personal accidents. The definition of personal accidents also includes injuries and illness occurring during and occasioned by the execution of an employment contract. The special risks that can be covered totally or partially by this class of insurance are the following: fixed pecuniary benefits, benefits in the nature of indemnity, combinations of the two and, finally, injury to passengers.
It should be noted that the first subclass has a character more suited to the life category, but this is the exception to the rule that fixed sums are connected to life insurance, while indemnity is connected to non-life. Illness that occurs during and occasioned by employment is characterized as accident and not as illness. The significant factor in sickness insurance is the cause of illness. If the cause of illness is found in the conduct of an employment contract, the legislation treats this kind of illness as accident. The relation between insurance classification and private rights/obligations is obvious. Classification is closely related with private rights and obligations and not only with the similarity of risks.
The second subclass refers to the costs, which are explicitly related to the accident.
The fourth subclass refers only to the accidents caused to persons during their transportation and not to the liability of the carrier. The European classification does not distinguish whether this latter risk is covered on the basis of indemnity system or a fixed sum, thus both systems of payment can be agreed.
2. Sickness
The class of sickness has the same structure with the class of accident. In case of the occurrence of sickness, which has been agreed to be covered by the insurance contract, the insurer may agree to cover the risk by a fixed sum. The insurer may also agree to pay as an indemnity the particular amount of costs (i.e. the cost of treatment in hospital). The payment can be also a combination of both a fixed sum and indemnity (third case).
General remark which refers to both accident and sickness:
1. The first two classes of the non-life category concern personal insurance. Because of their mixed character they can also be by a life insurance company. This means that although the regime of separation exists (life/non-life), a life insurance company that has obtained a licence for health insurance of the category of life is allowed to conduct non-life insurance business for accident and sickness. This is irrespective of the fact that in such a case the life insurance company is granting coverage for accidents and sickness of an indemnity nature.
2. It is obvious but worth noting that an insurance company that covers accident and illness can include many other types of coverage in the same policy. For the authorization of a licence for accident and illness the Supervision Authority checks only the nature of the coverage, whether it is fixed, indemnity, a combination of both or transportation of persons. Thus, for instance, if an insurance company has a licence for sickness it can agree that the injured person will be paid either the cost of the hospital treatment (the percentage that is not covered by social insurance), or a fixed sum for each day that he is not working or treated in the hospital or a return of a percentage of the premium after x years of non occurrence of the insurance event, or any other cover which may be agreed. The Supervision Authority that grants the licence does not intervene in the policies of the company. It checks the product as presented to the Authority at the time of establishment. On its own responsibility the insurance company having the licence for accident and illness may grant every kind of coverage at a later stage within the scope of its licence.
Another rule must be considered by the insurance company that has the licence for illness and accident. By the construction of modern, sophisticated, insurance products, it is possible (actually very common) that the coverage actually refers to other classes of insurance for which the company has no licence. The insurance company does not necessarily need to have a different licence in order to grant a new companion product. Based on the principle of ancillary risks (introduced by the EU by the first generation of directives in the 1970’s) the insurance companies can cover risks for which no licence has been granted if those risks are (1) connected with the principal risks and (2) if they are provided by the same insurance contract.
The question is what happens if the insurance company covers risks which do not fulfil the abovementioned two preconditions. The answer is that this does not affect the validity of the insurance contract. The rights and obligations of the insurer and the insured remain the same. There are some exceptions if the insurer has promised to the insured by policy to
cover liability, for instance, when it has no licence for it. If the insurance company grants liability coverage as a connected risk when it is not an ancillary risk but the main risk, the company violates the law by conducting business outside the framework of the official licences granted. It violates the obligation which it has vis a vis the supervision authorities (public law provision), but also violates its promise to the insured, because it misleads the insured about the existence of an authorisation which it does not possess. So in this case the general rules of law of contract find application. Whether the policy is invalid or not, and to what sanctions the insurance company will be liable, depends on the circumstances of the case, and whether the misrepresentation is important or not. The sanctions are of public law. It is at the discretion of Member States to provide flexible or inflexible sanctions on the insurer in such circumstances.
3. Land vehicles
The class of land vehicles refers to damage to land motor vehicles or land vehicles, which do not move by their own power. The risk, which is covered, is not defined by the directive, so any kind of risk which results to the damage of the physical, mechanical, optical (theft) or the existence of damage to the body of such vehicles is covered. Thus, the class of land vehicle is “all risk” insurance. The principle criterion for this class of insurance is the fact that the vehicle is in a state of movement. It is also evident that the consumer and other insureds do not have any concern to separate different risks but they have an interest to insure all of them, which is a matter of commercial logic.
There may be a question concerning a policy in which the insurance company has a licence to insure against fire, which threatens all the movable and immovable assets of an enterprise. Insurance companies may be unsure as to whether the coverage includes damage to the vehicles of an enterprise, which are damaged by fire, or should this risk be excluded because this damage is covered by the classification of motor vehicle ‘own risk’ insurance. The answer depends on the role of classification and its impact on the insurance contract. The insured is not obliged to find out the risks for which an insurance company has a licence. From the other side, if the insurance policy is not clear whether it covers all the movable or immovable assets of an enterprise, the insurer has to grant coverage. He is not entitled to argue that his licence does not include this risk in his contractual obligations. By this occasion it is good to see why it is advisable for insurers to state in their policies detailed description of the assets, which are covered. This reflects the importance of the principle of the separation of risks and assets that are covered. This principle is enhanced by the detailed classification of risks. For example, if an insurer insures a warehouse against fire, he cannot deny payment for a van also destroyed by the fire.
4. Railway rolling stock
The classification of railway is based on the same philosophy as the class of land vehicles. The body of any rolling stock is covered. It makes no difference whether or not it moves on rails, has an engine, whether it is electrical or not, or if it is underground or not.
5. Aircraft
The Directive does not make a distinction if the aircraft is in service or not or if it is under construction. It does not make any differentiations between various kinds of aircraft, but it does not include spacecraft.
6. Ships
Close to the class of aircraft damage or losses is the class of ship damage. This class covers all damage to the body of vessels (hull). The same “all risk” principle applies to vehicles, railway, aircraft and ships for all kinds of damage.
7. Goods in transit
The last class, which has to do with movable assets, is the class of goods in transit. The all risk principle for all kind of damage again finds application. The characteristic of this coverage is that it covers all kinds of risks, which threaten the goods for all kinds of damage. No distinction is made if the goods in transit are merchandise or not, are packaged or not, are in the form of money or other valuable things, or whether or not they are carried by a professional carrier.
It is important to mention here that the goods, packages and merchandise are covered under this class of insurance only if they are in transit. But the characterization of what is transit or not is a question of private law. So, the contract of transport is going to characterize at the end of the day whether the damage falls under this class. The legislation on the transport of goods and contracts internationally characterize the beginning of transport as the day on which the carrier has the right of disposition of the goods, which is usually earlier than the day of shipment and later than the day of discharge. So the goods are covered under class 7
even if they are not actually in transit, but would be defined as such under the above distinction. But moreover the insurer can define as transit a specific time before the shipment (60 days) in order to cover the risks while the goods are in warehouse. The question is if the insurer who has no licence for fire and natural forces has the right to cover the damage of goods caused by fire in the warehouse based on his policy which grants coverage a couple of days after the discharge of the goods. The answer is that the insurer does not violate the law, firstly because this extension of coverage is close to the nature of transport of goods and the needs of the transport business and secondly, at the end of the day the principle of ancillary risks applies if fire coverage is regarded as ancillary.
8&9. Fire and natural forces
The oldest kind of modern insurance is for fire. Fire includes explosion, storm, natural forces other than storm, nuclear energy and land subsidence. EU law provides explicitly that this class of insurance does not include the classes of motor vehicle, aircraft, railway, vessels and goods in transit. But, however, as noted before, coverage of such ancillary risks is on occasions unavoidable. For the insurance contract this class is very important, together with class 9, because it includes the regulations, which are applicable to all kinds of damage to goods. It is worth mentioning that an insurance policy described as fire insurance usually includes many other risks that threaten other goods. Also, it is notable that legislation regulates, in particular, the fire insurance contract and the same regulations are applied by analogy also for coverage of goods against risks other than fire. Every insurance of goods is insurance against fire.
10. Motor vehicle liability
The class 10 includes two types of coverage. The first is the well-known, extremely important class of the civil liability of the driver and owner in using motor vehicle. The second is the liability of the professional that exercises the profession of transportation of goods. This kind of insurance can be ancillary to fire.
11. Aircraft liability
This is the well known, extremely important class of the civil liability of the pilot and owner in using an aircraft and also the liability of the professional that exercises the profession of transportation of goods by air. This kind of insurance can also be ancillary to fire.
12. Liability for ships (sea, lake and river and canal vessels)
According to the well known legislation of marine insurance in many countries if the insurance contract covering hull insurance does not mention anything concerning coverage of risks other than hull, it automatically includes civil liability arising out of ship collision on the open sea, even if the insurance company has no licence to conduct the business class of civil liability arising out of the use of the vessels going on sea, rivers, lakes and canals. Again here the principle of ancillary risks finds application. The insurers who cover hull insurance and who do not have a licence to conduct business for civil liability do not violate the law if they cover civil liability for ship collision in compliance with the maritime law, because this will be regarded as an ancillary risk. Again the fact that the insurer has no licence for the civil liability class for ocean-going vessels etc cannot use this as an argument against his client who has a claim based on civil liability for ship collision.
13. General liability
Any kind of civil liability that does not fall under the above-mentioned three classes falls under this general classification. It goes without saying that the insurance company that has obtained approval to conduct this class of business is not obliged to conduct all possible kinds of general civil liability and can conduct only one kind, such as professional error and omission insurance. It is also obvious that the civil liability insurance, which is compulsory for the insured to be concluded, can fall in any kind of four classes of civil liability insurance. So, if the insurer wants to cover civil liability for notary publics (which is compulsory in many jurisdictions) as well as MTPL, it must have obtained the licence for these two classes of insurance respectively (MTPL and general liability). But, if somebody is covered by general liability insurance coverage this insurer cannot grant MTPL coverage at the same time, if he has no licence for MTPL, because MTPL insurance is granted always by separate insurance policy and thus cannot be conducted as an ancillary risk. The same remark is valid for civil liability for aircrafts and ships.
14&15. Credit - Insolvency (general)
The particularity of this class of insurance is that it can never be covered as an ancillary risk. The insurer must always possess a special licence for credit business. The same applies to the class 15 suretyship (direct). The reason why the European legislator obliges the insurance company to have a special licence for this type of insurance business is the high risk which is involved in credit and suretyship insurance. It is also to be noted that for the classes of credit and suretyship, EU legislation requires a higher amount of solvency margin and share capital than for the classes of accidents, illness and modes of transport, fire, miscellaneous financial losses and assistance.
16. Miscellaneous financial loss - employment risks
This includes loss of income (general), bad weather, loss of benefits, continuing general expenses, unforeseen trading expenses, loss of market value, loss of rent or revenue, indirect trading losses other than those mentioned above, other financial loss (non-trading) and other forms of financial loss. It is important to underline that among the risks that are included in class 16 is the well-known business interruption insurance as well as the risk of indirect trading losses. The indirect losses are mentioned as the 9th risk included in this class, because in that way also from the point of view of classification and of the point of view of law and supervision of insurance and private insurance, the important principle of private insurance law emerges that only direct losses are covered. All the losses that can be covered by the classification of risks mentioned above refer to direct losses and if indirect losses are to be covered the insurance contract must explicitly cover them and fall under the specific class 16.
17. Legal expenses
Legal expense insurance includes the costs of litigation. It should be mentioned here that legal expenses insurance is by its nature also partially included in any civil liability insurance according to the well-known contract law legislations. But the civil liability coverage covers only the expenses for the defence of the insured (plus, of course, the expenses of the compensation of third party), while the legal expenses insurance covers also the legal expenses to bring an action against a third party. The fact that it can overlap with civil liability coverage and legal expenses is of no relevance for the granting of the licence.
This class has the lowest guarantee fund requirements.
18. Assistance
Assistance insurance has an important peculiarity. This is the only class of business of the insurer, which does not fall under the category of financial services. It includes material rendering of services, such as the carriage of the car from one place to another place, repair of car (car service), direct medical assistance, domestic services, etc. Another peculiarity is
also that there are two kinds of assistance, the so-called ‘small assistance’ which can be granted also by non insurance companies and for which there is no need for a licence. The small assistance activity takes place within a small geographical area of the country and the turnover of the companies does not exceed 2000 euros yearly. Mainly, this happens if the kind of assistance involves local repair of motor vehicles mostly by the means of the assistant company and the carriage of the vehicle from the place of the accident or break down of the car to the place of the insured. If the above small insurance business is conducted by insurance companies, they need to have a licence. Thus, there is a discrepancy that is logical. If the same business is conducted by an insurance company, a licence is necessary and if there is no licence, sanctions are imposed. If the same business is conducted by a non-insurance company, no licence is needed. This discrepancy is due to the fact that the EU legislation has not been progressive so as to include simple assistance business. Member States are free to impose rules for the conduct of such small assistance business concerning inspection and conditions applicable to the conduct of the business. If someone wants to conduct the so-called large assistance business, this may be done only by the company, which is covered by EU legislation. This is not necessarily an insurance company. If a big company specializes in assistance and does not exercise other types of insurance this company cannot necessarily be called an insurance company.
