In this bulletin, we address a number of the discussion points from the William Fry Insurance, Pensions and Employment’s “Test Achats” roundtable session of Thursday 11 October 2012.

Background

The Court of Justice of the European Union’s judgment in the Test Achats case has removed the exemption for insurance services from the Gender Directive with effect from 21 December 2012.  Life and non-life undertakings are actively focused on the need for gender equality in areas such as pricing, contractual documentation, marketing and operational policies. 

What is the current position?

Irish equality law regarding the provision of goods and services is contained in the Equal Status Act 2000, which implemented the EU Gender Directive.  It is not yet clear whether, or what, change is needed to this Act to reflect the Test Achats decision.  The detail from the State authorities is awaited.

European Directives usually need to be transposed into domestic law by the national legislature.  However, some recent European Court judgments (the Kücükdeveci and Mangold cases) determined that similar Directives (the Equal Treatment Directive, in regard to age, in these cases) may have “horizontal direct effect” in local bilateral arrangements where the national law is not meeting the Court’s interpretation. Therefore, the undertakings in these cases were said to have discriminated even though they followed the domestic legal requirements. 

The wording in Section 5(1) of the Equal Status Act prohibiting gender discrimination in goods and services is general.  There is no insurance specific guidance. Conversely, Article 5(1) of the Gender Directive contains more fulsome insurance related provisions. Based on the recent cases, there is a possibility that Article 5(1) of the Gender Directive could be similarly applied – meaning a direct effect on Irish policies.

Undertakings must therefore have regard directly to Article 5(1) of the Gender Directive, and any decisions of the European Court in relation to it, when making decisions that may touch upon the area of gender equality. This will probably remain the case even if the Equal Status Act is amended to address the Test Achats judgment in near future.

What happens if someone complains?

A likely route for an Irish policyholder to take for a complaint of breach of the Gender Directive will be use of the Equality Tribunal. There is relative ease in bringing a claim in this forum and a complainant need only fill out an online form.  In addition, the parties bear their own costs so there is no real risk to a complainant in taking the complaint.

A claimant must show a prima facie case of discrimination based on gender in the provision of the insurance services.  It is then the responsibility of the insurance undertaking to prove that:

• there was no discrimination;
• where the discrimination claimed is “indirect discrimination”, that there was a legitimate aim for different treatment and that the difference is reasonable and proportionate to attain this legitimate aim; or
•  the discrimination is not protected by the Equal Status Act or the Gender Directive, as the claim relates to an existing contract prior to 21 December 2012. 

The current waiting list to hear a claim in the Equality Tribunal is about two years.  However, it is possible for Equality Officers to apply the Test Achats case from 21 December 2012. Theoretically, the prohibition on using gender in insurance could apply to existing claims. 

The Equality Tribunal in an individual case has power to award up to €6,348.69 or make a direction for the undertaking to take a specified course of action.  An Equality Officer’s power to order directions may be where the risk lies for insurers (e.g. it may cost more, and have a breadth of scope).

The second route for a complainant is an action in the Circuit Court. Complainants may be less likely to take this route.  Unlike in the Equality Tribunal, they will have to have legal representation and there are costs.  There is a risk of an award of costs against the losing party. The Circuit Court has unlimited jurisdiction in gender equality cases, however, the Judge is likely to have regard to the impact of the discrimination on the plaintiff (i.e. meaning damage levels may be limited).

The Financial Services Ombudsman has been suggested as another route for complainants.  The Ombudsman may however steer away from this given the Equality Tribunal has specific jurisdiction under the Equality Acts in the area.

While the Central Bank of Ireland has not yet made any particular comment on the Test Achats decision, it has recently indicated that one of the projects next year will be to look at insurance policy wordings from a Consumer Protection Code perspective. If the Central Bank wishes to ensure appropriate application of the Test Achats judgment, it could do so as part of this project.  The Central Bank has not traditionally become involved in equality issues. 

What about marketing and advertising?

In relation to marketing the Equal Status Act goes further than the Gender Directive which had largely carved-out the area.  The Irish Act considers any advertisement which indicates an intention to engage in “prohibited conduct” (i.e. including gender discrimination) grounds for a criminal offence.  While the European Commission’s Guidance on the Test Achats judgment states that the Gender Directive does not apply to the content of media and advertising, Irish insurers will need to carefully adhere to the national law in this area.

What records should be kept?

The importance of detailed records of the decisions undertakings make as regards equality in insurance services (right through to the individual underwriting decisions) cannot be over-emphasised.  Should a complaint be brought in any of the forums mentioned the undertaking will need to rebut the prima facie complaint of discrimination.  Good paperwork will also evidence that there has been advance thinking and good advice taken in regard to the subtle complexities of Test Achats.  It should help to mitigate, and avoid, any awards.

What happens with changes to a contract mid-term?

Each undertaking will have to look to its individual policy wording to see when a “new contract” could be triggered.  The European Commission in its Guidelines (while not legally binding) highlights that the distinction between a “new” and existing contract must be based on criteria that avoids undue interference with existing rights and preserve the legitimate expectations of all parties. The initial forum for any complaint in relation to mid-term adjustments will be a national one so an undertaking must not ignore its contractual obligations to existing policyholders which were formulated on Irish contract law.

If the European Court follows the European Commission’s Guidelines and implements an “autonomous concept of an EU contract law” it will be setting a new path in relation to contract law.  Contract law has to date always existed primarily on national, and not European, legal principles.

Are all pensions within the scope of the Gender Directive?

While it appears that Test Achats has no direct impact on DB schemes, there is a level of uncertainty regarding the effect of the judgment on DC schemes where annuities are bought from an individual’s DC retirement fund.  A particular concern is that annuities purchased either in the name of the trustee of a DC scheme (i.e. whereby all payments are made by the insurance company to the scheme albeit that the benefit is then passed on to the member) or in the name of a DC member (i.e. whereby the benefit is provided by the insurance company directly to the member) may, from 21 December 2012, have to be priced on gender neutral terms. 

The Test Achats judgment will otherwise have a direct impact on pensions that are private, voluntary and separate from the employment relationship, such as ARFs and PRBs.

Where to next?

The judgment in the Test Achats case is evidence of the European Court’s intention to expand the boundaries of equality.  It may only be a matter of time before discrimination on age and disability in insurance could be prohibited conduct. In the event of this occurring, could we be moving towards a community rated insurance market – all in the name of equality?

How can William Fry help?

The William Fry team is available to offer comprehensive advice and guidance in relation to the implications of the judgment.

For further information please contact our Partners and Associates listed below, or your usual contact at William Fry:

Eoin Caulfield – Partner – Insurance & Reinsurance

Michael Wolfe – Partner – Pensions

Kerrie Glynn – Associate – Insurance & Reinsurance

Anne O’Connell – Associate – Employment & Benefits