Palermo High Court, Decision no. 1676/2021, 19 April 2021.
In Italy, insurance intermediaries have important obligations to provide information and a duty of care when a policy is first taken out and also throughout its life, in particular requiring them to check periodically the adequacy of the contract in respect of their clients’ circumstances.
An Italian territory, the Regional Province of Sicily – now known as the Municipal Consortium – took out an insurance policy through an agent, the return on which was linked to the insurance company’s management of financial products with a high risk profile. During the period of the contract, the Province realised that it had suffered severe losses during the period of time since the policy was taken out, and requested a number of partial buy-backs.
The insurer refused to agree to these buybacks at the level requested, as a clause in the policy provided the option only of full redemption at maturity. In consequence, the Province asked for the policy to be declared null and void due to the clause cited by the insurer and demanded full reimbursement of the premium paid under the policy. It also held the intermediary liable for not having arranged a policy in line with its demands and needs and for not having alerted it to the poor performance of its investments, even though it had lost the equivalent of 50% of the initial money paid.
The Court of Palermo refused to declare the contract null and void, finding that the clause in question was perfectly valid, and simply set out the basis of the insurance. The judges further considered that the intermediary had not fulfilled its duties in not keeping the Province regularly informed of the poor performance of its investment, and stated that “the duty to inform does not end at the time of taking out a policy, but continues throughout its lifetime”. However, they did not find against the agent and placed the onus of the non-performance of the said duty solely on the insurer. They also found that the Province had not stated its risk appetite sufficiently clearly at the time the policy was taken out.
This decision is interesting in that it provides clarity about the duration of intermediaries’ duty of information, which does not terminate immediately after a policy is taken out. It also clarifies that the duty of care on intermediaries involves periodically checking that the performance of a policy meets the needs of the policyholder throughout its lifetime.