Misleading marketing of unit-linked group insurance. Both the policyholder and the insurer are open to actions to void

5 September 2023

The Facts.

The Ninth Chamber of the Court of Justice of the European Union delivered its judgment on 2 February 2023 in Case C-208/21, which was the subject of a reference for a preliminary ruling from the Warsaw-Wola District Court. On 10 January 2012, K.D. entered, as an assured person, for a period of 15 years, into a unit-linked group life assurance contract concluded between an assurer and a bank acting as the policyholder. K.D. would pay monthly premiums that were invested by the assurer in an investment fund whose capital was established on the basis of those premiums. After being converted into units of the investment fund, the amount corresponding to these premiums was invested in certificates issued by an investment company ("the assets underlying the unit-linked group contract"), the value of which was calculated on the basis of an index. The assurer undertook to provide benefits in the event of the death or survival of the assured at the end of the assurance period. The amount of these benefits was not to be less than the nominal value of the premiums paid by the assured and was to be increased by any positive change in the value of the investment fund units. By contrast, in the event of termination of the assurance contract before the end of its term, TUŻ undertook to reimburse the assured an amount equal to the present value of his or her units in the investment fund, after deduction of a termination fee. The contractual documentation did not specify the rules governing the conversion of monthly premiums into units of the investment fund, the valuation of those units, the valuation of the net assets of the fund in its entirety, the valuation of the certificates in which the fund assets were invested, or the method for calculating the value of the index on which the payment of those certificates was based. When K.D. learnt that the value of her units in the investment fund was significantly lower than the amount of the assurance premiums she had paid, K.D. terminated the contract and demanded the return of the premiums paid, which the assurer refused.

The Court's decision.

The CJEU makes four key statements for the future of these financial products and for the shaping of consumer contract law.

1. The marketing of these investment products with omissions of key investor information constitutes a "misleading commercial practice" under Art. 7(2) of Directive 2005/29.

2. Such commercial practice can also be the basis for the contract being rendered void for vitiated consent.

3. Such voidance, not imposed by EU law, may be an effective, proportionate and dissuasive penalty within the meaning of Article 13 of the aforementioned Directive, a matter that it is for the national courts alone to assess.

4. Both the policyholder (bank) and the contracting assurer are jointly liable vis-à-vis an action to void.