Unfair determination of the degree of disability? / Insurance Law Global

Disability insurers pay out a percentage of the salary or wages that were earned before becoming disabled, based on the degree of disability to be assessed. But how is that disability determined and by whom?

Usually under Dutch law the policy wording contains a (standard) clause that states that the degree of disability – and therefore the duration and level of the benefits being paid by the insurer– is being ‘determined by an expert, appointed by the insurer'. Under such a clause the insured is fully depended on an assessment they can’t control and on an expert that doesn’t operate in their name. Is this to be considered an (unfair) imbalance in the insurance contract between insurer and insured?

In 2016 a Dutch Court of Appeal ruled that a clause - as stated above – qualified as unfair as stated in the European Directive 93/12/EEG. It was considered invalid, because of the one-sided determination of the degree of disability and the lack of the right to object.[1] That a right to object was usually offered wasn’t enough. For the clause to be valid, the right to object should be explicitly set out in the policy wording.

A recent case gave new life to the debate about the (un)fairness of this clause and led to several preliminary questions for the Dutch Supreme Court.[2] In the underlying case the degree of disability of a consultant was set at less than 25% and therefore he lost his monthly pay out under the policy. The consultant was not willing to accept this outcome and started legal proceedings against the insurer. The consultant claimed the unfairness of the clause as stated in the European Directive 93/13/EEG.

Although the policy wording mentioned a – relatively - short time limit of 30 days for filing objections, the insurance company in this case demonstrated satisfactorily that this limit wasn’t a true due date, and that it was still possible to start proceedings against the insurance company áfter that time-limit. In that way, the assessment of the unilateral-appointed expert and the position of the insurance company on the degree of disability can’t be considered definitive. Therefore, the Dutch Supreme Court ruled the presence - or absence - of a right to object to the determination of the degree of disability not relevant for the assessment of the (un)fairness of this clause.

But is the unilateral appointment of an experts by an insurance company in itself really (unreasonably) disadvantageous for the insured? Such a clause means that the insured has no say in the determination of the degree of disability which can cause a possible (appearance) of partiality. It forces the insured, who doesn’t agree with the experts assessment, to initiate proceedings on their own expense to state their view on the degree of disability and to rebut the assessment made by the unilateral-appointed expert. Does that alone make this clause unfair?

The Dutch Supreme Court has now ruled that this isn’t the case. According to the Court this clause leads to an assessment of a party-appointed expert with nonbinding evidentiary value. Compensation for the (presumed) unfairness of the clause, for instance by offering the possibility of a second opinion, isn’t necessary.

The Supreme Court does make an explicit side note that – given the interests of insured - the handling of claims by disability insurers could be improved. In the view of the Supreme Court insured should be giving a greater say in the appointment of the expert and in the way the questions to submit to this expert are put forward. However, the Supreme Court makes it clear, that it’s up to insurers – and not the judiciary system – to make this happen.

The question is whether this will - and should - lead to a change in the sector. A possible solution would be a joint appointment by the insurer and the insured of an expert for a binding opinion on the degree of disability, similar to the common procedure in general insurance. The insured would be bound by such an assessement and (future) debate on the accuracy of (previous) assessments could be prevented.

But to what extend could an insured be presumed capable of choosing such an expert and formulating the right questions as far his position under the policy is concerned? How efficient and effective is it to offer insured such a position under the policy? It could lead to an unworkable, time consuming, situation, resulting in an undesirable delay in the handling of claims. This delay could lead to an increase of costs, resulting in an increase of the – already substantial – premium for a disability insurance. Raising the threshold for consumers to take out a disability policy should not be a good outcome of this discussion. To be continued, for sure.

[1] Dutch Court of appeal Arnhem-Leeuwarden, 30th of August 2016, ECLI:NL:GHARL:2016:6941.

[2] Dutch Surpreme Court, 28th of September 2018, ECLI:NL:HR:2018:1800.
05.10.2018 | Insurance Law Global
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