C-45/85
ECLI:EU:C:1986:436
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VERBAND DER SACHVERSICHERER v COMMISSION
O P I N I O N O F MR A D V O C A T E GENERAL D A R M O N delivered on 20 November 1986*
Mr President, require that the performance of every Members of the Court, contract must at all times be guaranteed and, consequently, that every insurance company must be solvent. By virtue of those two leading principles all legislation on the 1. Every contract of insurance is based on subject comes within the field of public the promise made by the insurer that he will policy. Those principles cannot fail to have indemnify the person insured should the an impact on the Community competition event occur against which he has insured rules applicable to the undertakings himself by payment in advance of a concerned and, moreover, form the basis of premium. Consequently, for the insured the coordination directives adopted by the person the contract is a means of providing Council, in particular Directive 73/239/ against a possible future loss. EEC of 24 July 1973 on the coordination of laws, regulations and administrative provisions relating to the taking-up and That risk factor, which is peculiar to pursuit of the business of direct insurance contracts of insurance, has its effect on the other than life assurance (Official Journal business of insurance undertakings. This 1973, L 228, p. 3). peculiarity, as is shown in the present case, lies in the uncertainty affecting the determi- nation of the precise cost of the claims covered by the insurance. The insurer has to 2. The aforementioned characteristics are rely on forecasts on the basis of the prob- even more marked where, as in this case, ability of the materialization of the insured the insurance relates to the risk of industrial risk and the foreseeable extent of the loss. fire and the consequences thereof, namely interruption of business (hereinafter referred to generally as 'insurance against industrial fire risks'). Those characteristics are In those circumstances it is easy to imagine revealed by the documents before the Court. not only the importance, but also the difficulty, especially in regard to the coverage of large claims, of the calculation of the premiums which will make it possible For the insurer this class of insurance often to set aside the 'technical reserves' intended acts as an introduction since it generally to enable companies to meet in full their determines the choice of company to effect obligations to insured persons if the risk insurance against other risks. The special materializes. That is what is meant by the nature of this type of insurance has to do principle of the proportionality of the with various factors which account in premium to the risk. particular for the fact that the contracts are generally concluded for a short period. Such insurance provides indemnification against a major loss and the fact that it is extremely The aim of that type of contract and the uncertain whether or not the risk will socio-economic role of insurance in society materialize and the particularly high cost of
* Translated from the French.
OPINION OF MR DARMON — CASE 45/85
such indemnification mean that the insurer Republic the insurance sector concerned must establish substantial technical reserves with industrial fire risks undergoes periods providing him with an appropriate safety of chronic imbalance during which income margin. In addition, each contract must be from premiums no longer covers the sums tailored to the circumstances of each under- paid out on claims. taking or industry insured. Finally, it is subject to constant adjustments which are connected with the rapid alterations in the The period between 1973 and 1979 was thus pattern of risks, that is to say with their marked by a fall in average premium rates frequency and gravity, due to technological of 44% for industrial fire risks and approxi- changes. mately 5 0 % for interruption of business activities. The premiums received in respect of such insurance would not, of themselves, Consequently, the calculation of premiums have been sufficient to finance the total cost is affected by additional factors of uncer- of indemnifying insured persons and the tainty in this field. The fact is that a single operating costs of the companies. insurer alone is not in a position, on the basis solely of his own experience, to calculate adequately the appropriate premium. It is therefore necessary to It was that sectorial deficit with which the reconcile the workings of competition with Verband der Sachversicherer eV (here- the necessary pooling of factors material to inafter referred to as 'the VdS'), an asso- the making of forecasts. The latter infor- ciation representing all property insurers mation will be decisive in determining the established in the Federal Republic of policy pursued by the individual insurer as Germany, sought to deal when, in 1980, it to the technique and terms of coverage of adopted a 'non-binding recommendation to the risk. It is that information which will re-establish stable and viable conditions' in lead the individual insurer to have recourse, the class of insurance in question. The where necessary, to techniques for sharing recommendation, which was addressed to the burden of the risk, especially in order to all its members, proposed an increase in cover substantial claims. The system of premium rates in stages between 1 August co-insurance enables several insurers, of 1980 and 31 December 1982 under the whom the leading insurer determines the conditions described in the Report for the insurance conditions and premium rates, to Hearing. opt to cover the same risk for the same term under a single contract for a gross premium, without joint and several liability. It is In addition, German re-insurers decided, in pointed out in the Report for the Hearing a general manner, to include in all contracts that in the Federal Republic of Germany concluded after 1 January 1981 a 'premium more than 5 0 % of policies and 7 5 % of calculation clause' according to which premiums relate to co-insurance business. failure to comply with the aforementioned Even more widespread in the Federal recommendation would be treated as under- Republic is re-insurance which enables the rating and would lead to a proportionate direct insurer to protect himself by ceding a reduction in the coverage provided by the proportion of the risk covered by him to a re-insurer. re-insurer.
In accordance with paragraph 102 of the 3. That is the context in which the case Gesetz gegen Wettbewerbsbeschränkungen before the Court belongs. In the Federal [Law against Restraints on Competition]
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which, in the field of insurance, prohibits applicant and the intervener are based on only measures amounting to an abuse, the the risk which unlimited competition in recommendation was first notified to the regard to premiums entails for insured Bundesaufsichtsamt für das Versicherungs- persons, third parties and the public in wesen [Federal Supervisory Office for the general. In my view, those arguments, Insurance Industry] and the Bundes- looked at in isolation from the inferences kartellamt [Federal Cartel Office] and which are drawn from them, cannot be subsequently published in the Bundesan- disputed in any essential respect. zeiger [Official Gazette].
The Bundeskar- tellamt did not raise any objections with regard to the recommendation's conformity As I have pointed out, the desirable level of with paragraph 102 of the Law against premiums is the result of statistical estimates Restraints on Competition. which are subject to a large degree of uncertainty. Consequently, the possibility of 4. By its decision of 5 December 1984, a rupture in the necessary correspondence which is the subject of these proceedings, between income from premiums and the the Commission, however, considered that cost of claims cannot be excluded, especially the VdS's recommendation constituted an in the branch of insurance at issue. infringement of Article 85 (1) of the EEC Treaty and refused its application for exemption under Article 85 (3). In the calculation of the necessary premiums no insurer is secure against errors of The application lodged by the VdS and assessment. The case before the Court supported by the Gesamtverband der Ver- shows that to some extent under-assessment sicherungswirtschaft eV [General Asso- may be deliberate as the insurer is tempted ciation for the German Insurance Industry, to fix the premiums at an attractive level in hereinafter referred to as 'the intervener'] order to wrest, improve or preserve a points out the conflict to which I have competitive position on the market.
In such already referred between the general a case the undertaking is, in a way, requirements relating to the principle of free 'gambling' not only on the unlikelihood of competition and the specific requirements of claims but also on the possibility of the insurance industry. The Commission concluding new policies and of using the considers that the conflict must be resolved interest on its capital investments. That within the framework of the Community situation is, moreover, reinforced by the rules governing competition. The applicant special nature of industrial risks insurance and the intervener deny, in the first place, which is a class of insurance by means of that the rules on competition apply to the which insurance undertakings try to attract insurance industry and, secondly that, even clients and secure their loyalty. if they do so apply, the recommendation may be regarded às an agreement, decision or concerted practice within the meaning of Consequently, there is the danger, as this Article 85 (1); finally and in the alternative, case shows, that undertakings may they contend that, if it is so regarded, it knowingly maintain an imbalance between may not be refused the benefit of an income and expenditure in the sector in exemption under Article 85 (3). question if they are guided solely by the rules of competition with regard to I — Does Article 85 of the EEC Treaty premiums. It is true that the solvency of apply to the insurance industry? each undertaking as a whole is subject to verification.
That is precisely the aim of 5. In the case of insurance against industrial Directive 73/239 and the German legis- fire risks, the arguments submitted by the lation implementing and expanding on it, in
OPINION OF MR DARMON — CASE 45/85
particular with regard to the security of '2. . . . in particular: capital investments (paragraph 54 of the Versicherungsaufsichtsgesetz [Insurance Supervision Law]). (c) to define, if need be, in the various branches of the economy, the scope of the provisions of Articles 85 and Nevertheless, the materialization, even 86'. exceptionally, of a major risk which cannot be covered by adequate reserves available immediately could affect the general equi- The meaning and scope of Article 87 must librium of an undertaking so far as to bring be determined in the context of the whole about its insolvency. In that connection the body of the Treaty provisions on compe- autonomy of the various classes of insurance tition. appears to be the best guarantee that contracts of insurance will be fulfilled. That would appear to be the concept on which The position of Article 85 in the EEC Directive 73/239 is based (sixth recital in Treaty is significant. It forms part of Part the preamble thereto and Articles 7 (2) and Three of the Treaty, entitled 'Policy of the 14). Community', and of Title I thereof, which sets out the 'common rules'. Together with Article 86 it lays down the competition rules For all the foregoing reasons the problem applicable to undertakings. posed by this case relates in particular to the determination of the appropriate means of avoiding an under-assessment of the As we know, Community competition necessary premium rate, which supplement policy is based on the principle of the the supervisory measures already provided prohibition of all cartels and the prevention for by the national legislation in conformity of any abuse of a dominant position. Article with the same directive. 85 (3) authorizes the Commission, which is entrusted with the task of ensuring compliance with the rules in the matter, to Nevertheless, whilst the premise on which modify the application of that principle the arguments of the two associations are where this appears necessary in order to based may be accepted, I am unable to attain certain objectives which are exhaus- agree with the inferences they draw from it tively laid down in that provision and does with regard to the inapplicability of Article not entail the elimination of competition in 85 of the EEC Treaty, since the interpre- all essential respects. tation which they propose should be given to Article 87 (2) (c) in that connection is not supported by either the wording, the scheme Article 85 therefore meets two or the spirit of the rules laid down in the requirements: on the one hand the need Treaty in the field of competition. 'to eliminate . . . the obstacles to the free 6. Article 87 (1) provides that the Council, movement of goods within the common acting on a proposal from the Commission, market and to confirm and safeguard the is to unity of that market',
' 1 . . . . adopt any appropriate regulations or directives to give effect to the principles and on the other hand the need to permit set out in Articles 85 and 86', 'the Community authorities to carry out in order, certain positive, though indirect, action with
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a view to promoting a harmonious devel- claimed by the applicant and the intervener, opment of economic activity within the that provision is in the nature of a · whole Community, in accordance with preliminary requirement. Article 2 of the Treaty' (Case 14/68 Wilhelm [1969] ECR 1, paragraph 5 of the judgment). 7. Is it necessary, in the light of the scheme of the provisions for the implementation of In the light of the essential role of the Anieles 85 and 86, to take the view that the Community competition rules in the estab- system of transitional rules laid down in lishment and development of the common Anicie 88 in conjunction with the provisions market, it is obvious that any exception to of Article 89 has been maintained in force, the set of fundamental rules so established in relation to insurance business, by Article can exist only by virtue of an express 88 'until the entry into force of the provision of the EEC Treaty which will provisions adopted in pursuance of Article necessarily fall to be interpreted narrowly. 87'?
Thus in its recent judgment of 30 April 1986 As is clear beyond all doubt from the (Joined Cases 209 to 213/84 Asjes and Court's judgment of 6 April 1962 (Case Others [1986] ECR 1425, paragraph 40 of 13/61 Bosch [1962] ECR 45), the transi- the judgment) the Court pointed out that: tional period came to an end on the entry into force of Regulation N o 17 of the 'where the Treaty intended to remove Council of 6 February 1962, which was the certain activities from the ambit of the first regulation implementing Articles 85 and competition rules, it made an express dero- 86 of the Treaty (Official Journal, English gation to that effect'. Special Edition 1959-62 p. 87). It is true that the adoption of that regulation has not Article 42 is an instance of this. Acccording prevented the continued application of the to that article the competition rules apply to system of transitional rules to the transport agricultural undertakings only 'to the extent sector. However, it is not possible to draw determined by the C o u n c i l . . . , account from this any conclusions for the insurance being taken of the objectives set out in sector. For the effect of Regulation N o 17 Article 39'. to be neutralized in relation to the transport sector it was necessary for an express Since the Treaty does not provide for any provision to be adopted, namely Regulation express derogation of this kind for the No 141 of the Council of 26 November insurance sector the Community compe- 1962 (Official Journal, English Special tition rules must, in principle, apply to Edition 1959-62, p. 291), which was undertakings operating in that economic adopted under Article 87. The system of sector in the terms laid down by Anicie 85 transitional rules laid down in Articles 88 et seq. of the EEC Treaty. That, moreover, and 89 of the EEC Treaty now applies only was the solution adopted by the Court in its to transport by sea and air, in respect of judgment of 9 June 1977 (Case 90/76 Van which definitive competition rules, such as Ameyde [1977] ECR 1091) where the Court those adopted for transport by rail, by road considered whether or not the business of and by inland waterway in Regulation national motor vehicle insurance bureaux (EEC) No 1017/68 of the Council of 19 was compatible with Articles 85 and 86. July 1968 (Official Journal, English Special Edition 1968 (I), p. 302), which was itself Consequently, it is now necessary to adopted pursuant to Anicie 87 (see consider the scope of Article 87 (2) (c) and, paragraph 51 of the judgment in Asjes, cited in particular, to determine whether, as is above), have not been adopted.
OPINION OF MR DARMON — CASE 45/85
Since no rules of that type have been economy, taking account of the special adopted in relation to insurance, the characteristics of that branch. insurance sector and the transport sector are not really analogous. Even if the need for special rules adopted pursuant to Article 87 (2) (a) is accepted in principle by the institutions, Articles 85 and 8. Is it possible to conclude from the content 86 continue to apply as long as the special of Article 87 that the Council is obliged to competition rules to be adopted have not adopt a regulation or directive every time entered into force. The enabling power that an adjustment of the competition rules granted by Article 87 (2) (c) cannot
is necessary? determine the applicability of the principles set out in Articles 85 and 86 which the Court has consistently held to be of Article 87 must be interpreted in immediate and direct effect (see Case conjunction with Articles 85 and 86, the 13/61, cited above, at p. 103 and the application of which it is intended to Opinion of Mr Advocate General Lagrange, facilitate, since it provides that the Council at p. 64). In fact, Article 85 contains all the is to 'adopt' any 'appropriate' measures to machinery necessary for encompassing, by that end. means of Article 85 (3), the particular characteristics of cooperation in a specific economic sector in accordance with the Despite the mandatory nature of the objective of Article 2 of the EEC Treaty. enabling power granted by Article 87 (1), it is necessary to note in the first place the flexible nature of the period prescribed, the Thus in a well-established body of case-law only effect of its expiry being on the method the Court has repeatedly affirmed the of voting, and, in the second place, the principle that the effectiveness of Treaty margin of discretion given to the institution rules which have direct effect cannot be with the power of decision and to the impaired by delay on the part of the institution with the power to submit institutions or the Member States in proposals, that is to say the Commission, in adopting implementing measures which are the matter of the appropriateness of the solely intended to make it easier to give measures to be adopted. The same element effect to the rules and not to be the of uncertainty is to be found in Article 87 condition on which implementation depends (2) (c) since the scope of the provisions of (see, for example, Case 2/74 Reyners [1974] Articles 85 and 86 in the various branches of ECR 631, paragraphs 26 and 27 of the the economy is to be defined only 'if need judgment, Case 33/74 van Binsbergen be'. [1974] ECR 1299, paragraph 26 of the judgment, and Case 43/75 Defrenne [1976] ECR 455, paragraphs 32 to 34 of the
judgment). Whether or not special competition rules are necessary in a particular branch of the economy therefore depends upon the discre- Nor is it conceivable that the prospect of tionary assessment of those institutions. It is the eventual approximation of national laws solely for the Commission, which has the relating to competition between insurance power to submit proposals, and for the companies can have the effect of deferring Council, which enacts legislation, to judge the implementation of the principle of whether it is appropriate to adopt special prohibition (subject to exemption) laid provisions giving effect to Articles 85 and 86 down in Article 85 and thereby jeopardize in relation to a particular branch of the the realization of the objectives of a unified
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market and the free movement of goods the provisions of Article 85 to the insurance pursued by that provision. In that sector it would be substituting itself for the connection the Court has stated as follows: legislature.
'The fundamental principle of a unified The second reason concerns the primacy of market and its corollary, the free movement Community law. As the Court pointed out of goods, may not under any circumstances in its leading judgment in Wilhelm, be made subject to the condition that there should first be an approximation of national 'the EEC Treaty has established its own laws, for if that condition had to be fulfilled system of law, integrated into the legal the principle would be reduced to a mere systems of the Member States, and which cipher' (Case 193/80 Commission v Italy must be applied by their courts' [1981] ECR 3019, paragraph 17 of the judgment). so that
It seems to me that that statement of the 'it would be contrary to the nature of such a law, which was made in connection with the system to allow Member States to introduce relationship between Articles 30 and 100 of or to retain measures capable of prejudicing the EEC Treaty, can be transposed to the the practical effectiveness of the Treaty". field with which the present case is concerned. This is because
9. As Community law now stands, the 'the binding force of the Treaty and of insurance sector is therefore governed by measures taken in application of it must not the general rules contained in Articles 85 differ from one State to another as a result and 86, as implemented by Regulation N o of internal measures, lest the functioning of 17. The argument that the Commission the Community system should be impeded might, by means of individual decisions and the achievement of the aims of the adopted on the basis of Article 85 (3), Treaty placed in peril'. jeopardize the future harmonization of the rules relating to competition and the Consequently, insurance industry under German law, and thus the economic policy choice underlying 'conflicts between the rules of the it and the legal certainty guaranteed by it, Community and national rules in the matter cannot be accepted, even on the assumption of the law on cartels must be resolved by that such a fear is well founded, for two applying the principle that Community law reasons which are inherent in the takes precedence' (Case 14/68, cited above, Community legal order. paragraph 6 of the judgment).
The first reason concerns respect for the For the rest, 'there is no evidence to show powers of the Community legislature. In the that the fears of the applicant and the absence of any express provision in the intervener are well founded. What is more, Treaty the Community legislature alone has individual decisions granting or refusing the power to adopt exceptional provisions exemption under Article 85 (3) may reveal within the framework of the enabling power the need for and give impetus to the granted by Article 87. If the Court were to drawing-up of special provisions, the main accept the aforementioned argument by themes of which they would have made it setting aside temporarily the application of possible to bring to light.
OPINION OF MR DARMON — CASE 45/85
In addition, the adoption for a branch of Volk v Vervaecke [1969] ECR 295, the economy of rules adapting the principle paragraph 7 of the judgment). of prohibition set out in Article 85 (1) pre- supposes, in the interests of consistency, that due regard is had for the framework estab- In view of its special features, the relevant lished by Article 85 (3). Article 87 (2) (c), market for the purposes of the application let us remember, only provides that the of Article 85 (1) in this case must first be regulations or directives are 'to define, if analysed. need be, in the various branches of the economy, the scope of the provisions of Articles 85 and 86' (emphasis added). That wording presupposes that the Community A — The relevant market competition rules constitute a homogeneous system. In reality, where the free operation of competition alone does not lead to the 11. The relevant market is, as we know, the optimum economic results, Article 87 (2) (c) market in insurance against industrial fire makes it possible to provide, on the general risks in the territory of one of the Member level, a specific response of the same type as States. It is a national market. that provided for, on the particular level, by Article 85 (3). Consequently, it appears that any specific rules applicable to a particular As the Commission stated in its Thirteenth branch must, with certain exceptions, Report on Competition Policy, observe the same limits and pursue the same aims as those set out in the latter provision. 'the major external factor affecting the industry is close government regulation. Consequently, the first argument submitted Besides seeking to guarantee the solvency of by the applicant and the intervener must be insurers and to prevent bankruptcies and rejected. It is now necessary to examine fraud, in most Member States regulation is their second submission which is that the also prompted by a desire to monitor the requirements set out in Article 85 (1) are nature and terms of insurance policies' not satisfied in this case. (Commission of the European Com- munities, 1983, p. 229).
II — Are the requirements of Article 85 (1) Although Council Directives 73/239 and satisfied? 73/240/EEC of 24 July 1973 (Official Journal 1973, L 228, p. 20), which apply in particular to those risks, respectively coor- 10. The application of the prohibition set dinated national monitoring provisions out in Article 85 (1) is based on the relating to the taking-up and pursuit of the fulfilment of three conditions: cooperation business of direct insurance other than life between undertakings which has as its insurance and abolished restrictions on object the restriction of competition seen as freedom of establishment in that business, affecting trade between Member States. The insurance undertakings remain governed to fulfilment of those conditions must be a large extent by domestic law. verified 'by reference to the actual circum- stances' of the agreement between under- takings, a decision by associations of under- In that connection two sets of provisions of takings or a concerted practice (Case 5/69 German law are particularly significant. In
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the first place, paragraph 106 (2) of the 29 March 1983, which implemented Council Insurance Supervision Law imposes a Directive 78/473/EEC of 30 May 1978 on preliminary obligation on insurers estab- the coordination of laws, regulations and lished in another Member State to establish administrative provisions relating to a branch office within the territory of the Community insurance (Official Journal Federal Republic of Germany when they 1978, L 151, p. 25). wish to engage in direct insurance business through an intermediary.
That requirement effectively prevents all foreign insurers from Finally, it should be pointed out, in relation offering insurance services directly on the to re-insurance, that there is freedom to German market except in certain limited provide that service in the Federal Republic cases such as insurance by correspondence. in accordance with the principle laid down The provision is, as we know, the subject of by Article 3 (a) of Council Directive proceedings against the Federal Republic of 64/225/EEC of 25 February 1964 on the Germany for failure to fulfil its Treaty obli- abolition of restrictions on freedom of gations, which are pending before the Court establishment and freedom to provide (Case 205/84 Commission v Federal Republic services in respect of re-insurance and retro-
of Germany). The view expressed by cession (Official Journal, English Special Advocate General Sir Gordon Slynn in his Edition 1963-64, p. 131). Consequently, Opinion delivered on 20 March 1986 was foreign re-insurers are able to provide their that the provision is contrary to the services directly to a German ceding insurer. principle of freedom to provide services. I agree with that view. The Commission nevertheless considers that there is also a German re-insurance market In the second place, insurance undertakings as a result of the supervision by the German operating in the Federal Republic do so authorities of German ceding insurers, under a set of rules which derogate from which is concerned in particular with the the general competition rules. Paragraph financial position of the re-insurer, and as a 102 of the Law against Restraints on result of the strong position of German Competition prohibits only restrictions of re-insurers on that market.
I find myself competition which amount to an abuse. unable to share that view. The adminis- trative supervision referred to by the Commission may be traced in particular to For the same reasons the co-insurance of the First Coordination Directive itself and risks situated in the Federal Republic of its effect extends to all re-insurers regardless Germany is carried out within the national of their nationality. It requires each insurer framework. During the period when the wishing to establish himself in a Member recommendation at issue was in force State to indicate, in a 'scheme of operations' insurance undertakings from other Member submitted to the national supervisory auth- States wishing to take part in such business orities for their approval, 'the guiding prin- were subject to the same requirement of ciples as to re-insurance' (Articles 8 (1) (c), establishment.
The derogation with regard 9 (c) and 11 (c) of Directive 73/239). With to foreign co-insurers, the compatibility of regard to the strong position alleged to be which with Articles 59 and 60 of the EEC held by German re-insurers on the market, Treaty is also contested in Case 205/84, quite apart from the fact that it may appear referred to above, since it does not extend questionable whether that strong position to the leading insurer, only came into effect exists in view of the extent of foreign with the adoption of the Fourteenth Law competition with regard to re-insurance, it amending the Insurance Supervision Law of was not ultimately regarded by the
OPINION OF MR DARMON — CASE 45/85
Commission as a 'decisive factor' in its (i) Does the VdS's recommendation appraisal of the recommendation at issue. constitute a decision by an association Whatever may in this respect be the reper- of undertakings? (B) cussions of the provisions at issue on the cost of the service provided, it is not possible to state that there is a national (ii) If so, does it have as its object or effect market for re-insurance. the restriction of competition within the common market? (C) Consequently, the market to be taken into consideration is the market in direct insurance and co-insurance business carried (¡ii) If it does, is it capable of affecting out in the Federal Republic of Germany by trade between Member States? (D) both German insurance undertakings and foreign insurers acting as direct insurer, ordinary co-insurer or leading insurer and B — Does the Verband's 'non-binding recom- to whom the recommendation of the VdS mendation' constitute a decision by an asso- was addressed. ciation of undertakings}
The Commission has stated, without being contradicted, that the VdS includes in its 12. Article 85 is intended to encompass membership nearly all the 126 insurance every concordance of wills and every type undertakings which cover industrial fire of concertation between undertakings risks and that the registered offices of 17 of designed to produce the consequences them are situated in another Member State. which it seeks to prohibit, whether in the It has also stated that the latter operate in form of an agreement between undertakings the Federal Republic through a branch or a decision by associations of under- office and conduct most of their business by takings or a concerted practice. means of co-insurance under the direction of a German insurance undertaking. In addition, it has stated that their share of the As Mr Advocate General Mayras expressed market is less than 3 % of annual gross it, premium income. Finally, it has emphasized that three-quarters of annual gross premium income for industrial risks accrues to the 10 'decisions by associations of undertakings largest German insurance undertakings and differ from simple agreements in that, by more than half to the five largest of them. belonging to the association, traders, whether natural or legal persons, accept its constitution and its discipline and are bound I should add that the insurance market is by majority decisions adopted by the characterized from the point of view of advisory or executive organs of the asso- competition by a structural imbalance ciation' (Case 8/72 Vereniging Cementhan- between supply and demand, as supply is delaren [1972] ECR 977, at p. 999). virtually unlimited as regards quantity and value, whereas demand is much more stable. Competition on prices is therefore particularly keen. In other words, although the binding nature of an agreement results from the direct exchange of consents by the parties, it is the It is in the economic and legal context of consent expressed by membership of an that oligopolistic market that the following association, on which the undertakings three questions arise: which are members thereof have conferred
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through its statutes a power to adopt (Report of the Bundeskartellamt, cited binding decisions, which is indicative of the above). decision of an association of undertakings. Consequently, what is decisive for the application of that concept is that the cooperation between the undertakings It is difficult to believe that such results from membership of the association requirements would be imposed in respect under which they are grouped and which of a recommendation if it were not binding. defends their interests and that the statutes of the association imply their consent to the measures adopted by the association. This brings me to my second observation. The existence of a decision by an asso- ciation of undertakings within the meaning of Article 85 (1) cannot depend on the fact That leads me to make two observations. that its members do in fact apply its The designation given to the measure is, in provisions. It is necessary to take account of itself, of just as little decisive importance as the actual conduct of the undertakings the statement that it is non-binding in solely where the measure adopted by the
nature. The various designations depend association is not, as such, in the nature of a upon the rules of each Member State, and decision because the association's statutes, indeed of each association. The uniform the means by which the measure was application of the Community competition adopted and its contents leave complete rules in all the Member States cannot freedom to the undertakings concerned. In depend on them. That interpretation is also such a case Article 85 would not be dictated by the concern to ensure workable applicable unless the measure adopted by competition in accordance with the the association were to serve as the basis for objective of Anicie 85 regardless of vagaries a concertation which had the effect of of terminology. making something binding in fact when it was not so in law.
There would then be a concerted practice. It is, moreover, known that by virtue of paragraph 102 of the Law against Restraints on Competition, the recommendations of It is consequently necessary to regard as a associations of insurance undertakings, decision of an association of undertakings where they seek to restrain competition, both the measure adopted by such an asso- must contain a proper statement of the ciation and binding on its members by virtue reasons on which they are based and must of its statutes and any other measure having first be notified to the Bundeskartellamt a like effect, the undertakings moulding their before being published in the Bundesanzeiger conduct so as to conform with it and in order to enable the undertakings thereby supplying it with the final elements concerned and insured persons to raise needed to confer on it the character of a objections within a period of three months decision. (Report of the Bundeskartellamt for the years 1979-80, p. 106).
It is also known that the derogation provided for by paragraph It is therefore necessary to look in the first 102 applies only if the restriction does not place at the statutes to see if the measure in constitute an abuse, that is to say, in question was binding in nature. If it was particular, if it does not trigger 'an not, it will be necessary to determine automatic process leading to concerted and whether or not the measure was binding in uniform conduct on the part of insurers' fact.
OPINION OF MR DARMON — CASE 45/85
13. According to paragraph 2 (3) of its All this makes it sufficiently clear that these statutes the VdS may not measures can be imputed to the insurance undertakings concerned which belong to the 'exercise any powers of a public-law nature VdS and can be made binding on those in regard to its members or exercise any undertakings, as an expression of their control, of whatever nature, over their common will through their representatives business activity'. on the committee and as the consequence of their acceptance of the statutes of the VdS which involves subjection to the coordi- In fact such powers would not be necessary. nation set up .by the VdS. The undertakings which are members of the VdS are bound to comply with its statutes which confer on various organs a genuine In other words, regardless of the desig- decision-making power. Paragraph 5 of the nation given to them within the association, statutes provides as follows: such measures, duly adopted within the framework of the technical studies which '(1) Members are under an obligation to are entrusted to the specialist committee, are support the Association in the discharge not of a preparatory and purely internal of its duties. nature but are definitive and mandatory: they therefore amount to decisions by an (2) Members shall comply with the statutes association of undertakings. of the Association.' That is precisely the procedure which led to In addition, paragraph 3 (5) (b) provides for the adoption of the measure at issue. the expulsion of a member for 'serious or Formulated and drafted by the specialist repeated failure to comply with the statutes' committee after consultation with the circles or 'conduct which is grossly contrary to the concerned, the 'non-binding recommen- interests of the Association'. dation' was notified in its definitive version 'to the boards of directors of those members An analysis of the VdS's statutes also gives providing fire insurance services'.
The letter rise to the following observations. The asso- dated 13 June 1980 from the director of the ciation is empowered to coordinate the acti- association, to which the recommendation vities of its members, especially in relation was annexed, stated that, in view of the to competition (paragraph 8 (6) and (7)). approval of the national supervisory auth- More particularly, the specialist committee orities, the recommendation could be put on insurance against industrial fire risks, the into effect immediately. That letter closes in committee on industrial fire and conse- the following terms: 'We hereby issue the ' quential loss insurance, is empowered by the non-binding recommendation to proceed statutes to coordinate the policy of the asso- with Sections I, IV and V of the Annex ciation's members with regard to premium hereto forthwith'. rates since it includes a standing committee on rates (paragraph 10 (2) (a)).
Members are represented on the specialist committees The mandatory nature of the 'recommen- by representatives elected by them dation' emerges plainly from the provisions (paragraph 10 (3)). The committee's relating to the upward adjustment of 'decisions' or 'recommendations' are premium rates, the wording of which leaves regarded as definitive unless they are the recipient no choice. But that is not all. If referred to the bureau for approval at the one places the recommendation in its request of one of the organs so empowered economic context, one cannot imagine, by the statutes (paragraph 10 (5)). given the state of crisis that existed in the
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fire insurance sector, that such a measure C — Does the recommendation have as its was not formulated and adopted with a object or effect the restriction of competition} view to its application by all members of the VdS. It is, frankly speaking, necessary to look beyond the formal legal status of 14. Under Article 85 (1) it is necessary to the recommendation and take into consider whether or not the decision of the consideration the economic factors which VdS had as its Object or effect the determine its nature and scope. Since the prevention, restriction or distortion of market in question is an oligopolistic competition'. That condition lays down market, the adoption of such a measure in requirements which the aforementioned circumstances neces- sarily amounts to exercising economic coercion even if, in law, the measure is merely exhortatory in nature. The asso- 'are not cumulative but alternative ciation represents the common will of the requirements, indicated by the conjunction principal undertakings in the sector in "or", [which fact] leads first to the need to question. Membership of the association consider the precise purpose of the obliges them to comply with its statutes. agreement, in the economic context in The statutes provide that measures are to be which it is to be applied' (Case 56/65 adopted by the association by majority Société technique minière [1966] ECR 235, at decision. Finally, the association is intended, p. 249). at the very least, to coordinate the commercial activity of its members with regard to competition and premium rates. In other words,
Consequently, there emerges from the 'there is no need to take account of the statutes of the association, the procedure concrete effects of an agreement once it under which the recommendation was appears that it has as its object the formulated, the contents of the recommen- prevention, restriction or distortion of dation and the context in which it was competition' (Joined Cases 56 and 58/64 adopted a coherent body of evidence which Consten and Grundig [1966] ECR 299, at warrants the conclusion that the recommen- dation constitutes a decision by an asso- p. 342; see also Case 123/83 Bureau ciation of undertakings within the meaning national interprofessionnel du Cognac [1985] of Article 85 (1). The recommendation falls ECR 391, paragraph 22 of the judgment). to be construed as the expression, through the statutes of the VdS, of the common will of the undertakings in the sector in question It follows both from its content and the to which it was addressed for the purpose of economic and legal context in which it was assisting towards the stabilization of that adopted that the object of the 'non-binding sector. recommendation' of the VdS was to restrict competition between insurance companies in the branch of insurance against industrial It is therefore unnecessary to consider fire risks. whether the formal link created between the insurers by means of a unilateral measure adopted by the association established by The documents before the Court, especially them has been reflected in reality by the expert reports produced by the applicant conduct in conformity with the provisions and the report of the Bundeskartellamt for set out in the recommendation. the years 1979-80, show that the recom-
OPINION OF MR DARMON — CASE 45/85
mendation was intended to set limits to in order to direct competition towards competition on premiums in the sector in aspects other than premium rates, for question. It must be remembered that the example the quality of the service provided. requirements of paragraph 102 of the Law As was pointed out by the Commission, the against Restraints on Competition, which extent of the restriction envisaged in the were satisfied by the recommendation at recommendation resulted from the scope issue, are imposed on insurance companies ratione personae and ratione tnateriae and 'where they propose to adopt measures also from the territorial scope of the restricting competition' (aforementioned measure, since it was addressed to all report of the Bundeskartellamt, p. 106). T o insurance undertakings in the sector in be precise, the purpose of the recommen- question and applied to all contracts of dation of the VdS was to put on a sound insurance and co-insurance concluded on footing the financial position of the under- German territory, that is to say a substantial takings which had been affected by the part of the common market. Finally, its insufficiency of premium income with effect on competition could be further regard to the foreseeable cost of claims. strengthened by the operation of the 'premium calculation clause' whenever recourse was had to a German re-insurer. To that end, the recommendation tackled the cause of that imbalance, namely compe- tition by means of ever lower premiums, There is therefore no need to consider whether the recommendation, coupled with (a) by increasing the rates appreciably, since that clause, in fact produced the intended the normal rate of increase of 10% in result. In the light of all the foregoing the first two years was to be raised to considerations, it is sufficient to state that 20% in 1982, and such an effect was sought by the association as an expression of a need accepted by its members and formalized in accordance with (b) by increasing them on a selective basis, the rules laid down in the statutes. The since the normal rate of increase was to recommendation therefore did indeed have be 2 0 % or 3 0 % where there was a as its object the restriction of competition particularly great imbalance in the on premiums on a market, namely the contract (points 1 and 2 of Section II of insurance market, where supply already the recommendation). exceeded demand, as I have already pointed out. It should be pointed out that those increases were minimum increases, applicable not It therefore remains to determine whether only to policies approaching expiry but also or not the recommendation affects trade to all multiannual contracts in respect of between Member States. which a claim could have given rise to a deficit on payment (Section III). D — Does the recommendation affect trade between Member States} The recommendation, the binding nature of which I have emphasized, was a measure which, to take up one of the examples given 15. The Court's case-law has clarified the in Article 85 (1), meaning and scope to be attributed to this requirement. '(a) directly or indirectly fixfes] purchase or selling prices or any other trading It is a criterion which delimits the respective conditions', fields of application of Community and
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national competition rules (Case 56/65, The guidelines provided by the firmly estab- cited above). The agreements, decisions and lished case-law of the Court lead me to the concerted practices covered by Article 85 view that the recommendation satisfies the are those which are 'incompatible with the third requirement laid down by Article common market'. That requirement must be 85 (1). regarded as satisfied whenever there is a risk of incompatibility between the proposed agreement, decision or concerted practice 16. Let us recall to mind the substance of and the economic objectives pursued by the the arguments developed by the two associ- Community. ations in order to show that the recommen- dation has no extra-territorial effect, in particular on the competitive position of Thus it was that the Court stated in its insurance companies from other Member judgment in Hugin that States whose branches are members of the VdS. 'Community law covers any agreement or any practice which is capable of constituting In the first place they maintain that as a threat to freedom of trade between regards insurance against industrial fire risks Member States in a manner which might there is no 'trade between Member States' harm the attainment of the objectives of a because foreign insurers are not in a single market between the Member States, position to provide their insurance services in particular by partitioning national directly on German territory. markets or by affecting the structure of competition within the common market' Secondly, they dispute the significance of (Case 22/78 Hugin, [1979] ECR 1869, the various factors put forward by the paragraph 17 of the judgment). Commission as evidence demonstrating the 'foreignness' of the branches, to which its For that purpose it is necessary, but also decision is confined, in order to bring out sufficient, that it is possible the fact that, unlike subsidiaries, they are legally and economically dependent upon their parent companies. In that respect, the 'to foresee with a sufficient degree of prob- associations allege that the two forms of ability on the basis of a set of objective secondary establishment are similar both in factors of law or of fact that [the fact and in law. agreement, decision or concerted practice] may have an influence, direct or indirect, actual or potential, on the pattern of trade 17. It is necessary, at the outset, to remove between Member States'. any ambiguity with regard to the scope of the preliminary requirement which is laid down by paragraph 106 (2) of the Insurance It should be considered whether, in that Superivision Law and which, moreover, has sense, the agreement, decision or concerted been the subject of criticism. It in no way practice precludes the existence of trade between Member States with regard to insurance 'is capable of bringing about a partitioning services. of the market in certain products between Member States and thus rendering more Like the Commission, I think that the difficult the interpénétration of trade which arguments put forward in that connection the Treaty is intended to create' (Case by the applicant and the intervener are 56/65, cited above, at p. 349) (emphasis based on an unduly narrow view of the added). concept of trade, seen as confined to the
OPINION OF MR DARMON — CASE 45/85
case of services offered directly from its case of the subsidiary, to its probable principal establishment by an insurance dependence on the foreign company. So far company from another Member State. as branches are concerned, the matter of dependence is not one of mere probability but of absolute certainty.
But let us not deceive ourselves about this. The preliminary requirement concerning the setting-up of an establishment is merely the 18. But let us go further. Even in the legal projection of a competition which absence of such a provision — and this is none the less remains foreign. Thus the fact the essential point — the recommendation that insurance companies from other would still have affected intra-Community Member States, if they wish to offer a more trade. Although the German legislation competitive service on the German market, approximated the legal statuses of branches are required to set up secondary estab- and subsidiaries, it did not render them lishments there is shown in the last analysis indistinguishable. to be a demonstration of the very existence of an intra-Community trade, the formal procedures of which are regulated by that requirement. Although they are unable to confer legal personality on branches, the obligations imposed by the German legislation, in accordance in this respect with Directive So far as the alleged similarity between 73/239, are intended to localize the subsidiaries and branches is concerned, it guarantee in the place where the risk cannot have the effect the applicant and the materializes. In fact the administrative, intervener are counting on. Both types of accounting, financial and procedural obli- establishment are merely the legal guise, gations which the legislation imposes on the necessitated by the requirement of a undertakings of the other Member States secondary establishment, in which foreign are essentially intended to force them, when insurance companies compete. In view of they establish branches, to centre the acti- the expense entailed by such an estab- vities concerned on the German market so lishment, the economic dependence of a that, in case of need, insured persons do not subsidiary and of a branch will be such that, have to turn to the foreign company itself in in all probability, its legal independence will order to press claims. Far from demon- appear artificial from the point of view of strating the autonomy of branches, the competition. requirements show, on the contrary, that branches are, as the Commission has pointed out, merely the 'extended arm' of the foreign company. The upshot of the examination of the scope of paragraph 106 (2) of the Insurance Supervision Law is thus, one the one hand, that the creation in the Federal Republic of Thus the Hauptbevollmächtigte [principal a secondary establishment by a foreign agent] acts on behalf of the foreign insurer is to be regarded as the manifes- company which is bound by the rights and tation of trade between Member States with obligations contained in the contracts of regard to insurance and, on the other, that insurance concluded by him. Such legal the form of such an establishment should be dependence in principle assumes concrete accorded less importance by pointing, in the form specifically when the company issues
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instructions, in particular to its branches, the economic point of view, the liability to concerning the commercial policy to be indemnify actually lies may be established in applied on the German market. With regard another Member State. It was therefore to the latter point Circular N o 1/62 issued contrary to the rules laid down in Article 85 on 22 February 1962 by the Bundesauf- (1) to impose on that undertaking, by means sichtsamt states that: of a recommendation binding on its branch, an increase in premiums. With regard to the fact, referred to by the Commission, that as 'the principal agent is responsible for all regards co-insurance the leading insurer is business and investment policy . . . , albeit generally a German insurer, this confirms that the issue of internal directives by the the recommendation's impact on trade, general management would seem to be since foreign insurers thus find themselves permissible'. required, through the recommendation, to apply the increases for which it provides. In addition there is, finally, the danger that this trend will be further consolidated as the In the same connection it has not been result of the operation of the 'premium disputed that both the profits and the losses calculation clause' in view of the well-estab- of the branch may be transferred to the lished commercial relations which probably company. With regard to the latter's repu- exist between such leading insurers and tation, that is bound to reflect on the German re-insurers. branch.
As was pointed out by the Commission, the One therefore arrives at the view that the extent of any effect on trade as thus defined activities of the German branches of foreign is proportionate to the volume of trade insurance companies are to be regarded as between the Federal Republic of Germany constituting the expression of trade between and the other Member States. The recom- Member States. mendation covered all contracts concluded by the branches of foreign insurers in the branch of insurance in question, which amounted in fact to virtually the whole of 19. Consequently, there can be no doubt the volume of that trade at the time. That that the recommendation was apt to have an proportion means that trade is affected to a influence, direct or indirect, actual or significant extent. potential, on the trade which has been described.
Finally, it appears that, in the present state Such a measure obliged the branches to of German law, the recommendation of the negotiate contracts of insurance or VdS, together with the preliminary co-insurance on the basis of prescribed requirement of a secondary establishment, increases in premiums and in that way had had an impact on the competitive position of those foreign insurers who were in a position to offer a more competitive service. 'by its very nature the effect of reinforcing In that respect, the localization of the risk the compartmentalization of markets on a in the Federal Republic does not exclude the national basis, thereby holding up the possibility of there being intra-Community economic interpénétration which the Treaty trade, since the undertaking on which, from is intended to bring about' (judgment of 11
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July 1985 in Case 42/84 Remia [1985] ECR Ill — Are the requirements for exemption 2545, paragraph 22 of the judgment). under Article 85 (3) satisfied?
20. As a preliminary point, I would like to However, even if that legislative provision recall that by virtue of Article 4 of Regu- did not exist, the effect on trade would still lation N o 17 the question of any exemption be undeniable. The Court has emphasized under Article 85 (3) arises only in respect of that: the period after the notification of the recommendation on 23 September 1982.
'even where there is no partitioning of Under Article 85 (3) a declaration of the markets an agreement on prices concluded inapplicability of the prohibition set out in between undertakings established in a Article 85 (1) is subject to the concurrent Member State and covering only the market fulfilment of four conditions. The of that State affects trade between Member Commission must be accorded a wide States, within the meaning of Article 85 of discretion in applying that provision. the Treaty, if it concerns, even partly, a Judicial review is limited to 'an examination product imported from another Member of the relevance of the facts and of the legal State, even where the parties to the consequences which the Commission agreement obtain the product from a deduces therefrom' (Consten and Grundig, company belonging to their own group' cited above, at p. 501). Consequently, it is (judgment of 10 December 1985 in Joined necessary to verify, in this case, whether, in Cases 240 to 242, 261, 262, 268 and 269/82 deciding that the recommendation of the Stichting Sigarettenindustrie [1985] ECR VdS did not meet the conditions for the 3831, paragraph 49 of the judgment, grant of an exemption, the Commission emphasis added). manifestly exceeded the discretion vested in it.
That conclusion is equally valid for a 21. In view of the special characteristics of recommendation of the type at issue in this the insurance industry, the degree of uncer- case which is applicable not to products but tainty affecting the assessment of the to services provided by undertakings (Case frequency and extent of claims and 22/79 Greenwich Film Production [1979] therefore of the sums which an insurer must ECR 3275, paragraph 11 of the judgment). have in reserve in order to meet them when they arise necessarily implies access to meaningful statistics which are sufficiently general to enable average values to be The recommendation of the VdS therefore obtained from them. constituted a decision of an association of undertakings which affected trade between Member States and had as its object the Of itself that necessity does not arise from restraint of competition, contrary to Article the pure logic of free competition, the effect 85 (1). of which would be in extreme cases that undertakings which were unprofitable, in particular on account of bad management, would go out of business. Without It remains to consider whether the recom- excluding that possibility, it is necessary, mendation could qualify for exemption whilst having due regard for the principle of under Article 85 (3). competition, to endeavour to prevent it. The
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interests of persons who have suffered loss the reliability of the calculations in such a and who have insured against it and, more field is decisive. generally, those of the public which would have to intervene in the event of the insurer's insolvency, require this. Only 22. Nevertheless, all these considerations compliance with the contractual guarantee cannot provide justification, on the basis of ensures that the social cost of a claim is not Article 85 (3), for every stabilizing measure passed on to the public. A balance must adopted by undertakings with a view to therefore be found between the regulating competition in a given sector. requirements of the normal operation of competition and those of the public interest which demand that a contract of insurance It is, admittedly, hardly open to doubt that must always be honoured. the recommendation of the VdS is intended, for reasons of the public interest, to put on an economic footing a class of insurance in which, as a whole, the necessary balance In that respect the national supervisory between the cost of claims and premium provisions, as partially coordinated by the income was no longer being achieved. First Council Directive, No 73/239, of 24 However, the method used to achieve that July 1973, are intended to ensure the aim — a flat-rate and across-the-board solvency of insurance undertakings. T o that increase in insurance premiums — does not end the directive imposes the following obli- seem to me to be justified by the objective gations on insurers: pursued.
(i) To establish 'sufficient' technical The increases laid down relate to premiums reserves matching the underwriting actually agreed in contracts of insurance liabilities (Article 15); expiring during the period in which the recommendation is in force. As with all prices, an insurance premium may be (ii) T o establish a supplementary 'solvency broken down logically into three parts: the margin' intended to provide against income intended to guarantee that the 'business fluctuations' (ninth recital in subject-matter of the insurance is covered, the preamble and Article 16); operating costs and, finally, the insurer's profit. Only the first two parts are affected by a planned stabilization. However, the rates of increase prescribed by the recom- (iii) To establish a 'minimum guarantee mendation applied to the gross premium, fund' related to the size of the risk that is to say to all three parts without present in the classes undertaken (tenth distinction. In that connection the table of recital in the preamble and Article 17). average operating costs for 1980 produced by the VdS at the Commission's request clearly shows the existence of considerable The directive therefore imposes an obli- differences between companies amounting gation to establish reserves to provide cover, in some cases to more than 100%. which is subject to verification by the Member States. It does not, however, bring to an end the uncertainty with regard to the Thus, applied to gross premiums, the basis for the calculation of the premiums, in increases prescribed could find no justifi- proportion to which the technical reserves cation in the sense of being strictly are assessed. For the reasons given above necessary for the realization of the objective
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of stabilization. Those undertakings whose could accept that an association of operating costs were low could find in the insurance undertakings should require its increases a source of additional profit. members, on the basis of an objective calcu- Those whose financial position was charac- lation of the level and likely trend of terized by heavy expenses might lose any materialized risks and of the needs for incentive to put their operations on a more cover, 'to apply net premium tariffs or economic footing. In either case, since part minimum premium tariffs'. of the income obtained from the premium increases was not automatically assigned to the technical reserves for the purpose of The problem should have been resolved by meeting claims, the recommendation could, the fixing of net reference tariffs. Such a to that extent, entail no appreciable solution would have limited the regulation objective advantage to those whom it was of competition to what was strictly supposed to benefit, namely insured persons necessary. Although the improvement and third parties. desirable in insurance services in the fire insurance branch cannot be achieved without some degree of regulation, the Since the increase in gross premiums was method used in this case cannot be regarded general and undifferentiated it could not be as showing 'appreciable objective advantages regarded as intended exclusively for the of such a character as to compensate for the improvement of insurance services. I agree disadvantages which they cause in the field with the Commission that, on the contrary, of competition' (Joined Cases 56 and 58/64, in order to avoid under-assessment of the cited above, p. 502). proportion of premiums necessary to cover the costs arising at any given time from the materialization of insured risks, it would It is therefore not possible to grant the VdS have been sufficient to take steps with the benefit of the provisions of Article 85 regard to net premiums, that is to say after (3) in respect of the recommendation at deduction of operating costs and profits. In issue which provides for a flat-rate and that connection the Commission stated in its graduated increase in insurance premiums in decision and confirmed at the hearing that it the branch in question.
23. I therefore p r o p o s e t h a t the application be dismissed and that the applicant be o r d e r e d to pay the costs with the exception, however, of the costs i n c u r r e d by the intervener which must be b o r n e b y it.