Prof. Pierpaolo MARANO*
ON UNFAIR BUSINESS-TO-CONSUMER COMMERCIAL PRACTICES IN THE INTERNAL MARKET: WHAT’S
THE IMPACT ON THE INSURANCE INDUSTRY?
Abstract: Directive 2005/29/EC of 11 May 2005 concerning unfair business-to-consumer commercial practices
in the internal market aims to achieve a high level of consumer protection by harmonizing the laws of the Member Sta-
tes on unfair commercial practice harming consumers’ economic interests. This paper introduces briefly the structure of
the Directive 2005/29/EC, stakeholders and the types of behavior prohibited. After this introduction, the paper focuses
on the possible impact of this Directive on insurance sector.
Key words: Business-to-consumers commercial practice, consumer, consumer protection, insurance intermedi-
aries, insurer, trader
Since the mid-1980s the Community legislature has adopted directives to protect the economic interests
1 2 3
of consumers with regards to fair trading, namely on misleading advertising ( ), doorstep selling ( ), television ( ),
4 5 6 7
package travel, package holidays and package tours ( ) unfair contract terms ( ), timeshare ( ), distance selling ( ),
8 9 10
comparative advertising ( ), unit prices ( ), consumer sales ( ), distance marketing of consumer financial services
( ) and consumer credit ( ).
However, Directive 2005/29/EC of 11 May 2005 concerning unfair business-to-consumer commercial prac-
tices in the internal market is far more ambitious than the older directives concerning particular forms of unfair
commercial practice. Art. 1 and Recital 15 of the Directive state that the purpose is to contribute to the proper fun-
ctioning of the internal market and achieve a high level of consumer protection by harmonizing the laws of the
Member States on unfair commercial practice harming consumers’ economic interests. Therefore the Directive ap-
plies to all business-to-consumer commercial practices – namely "any act, omission, course of conduct or represen-
tation, commercial communication including advertising and marketing, by a trader, directly connected with the
*Associate Professor of Commercial Law at the University of Calabria (Italy) and Professor of Insurance Law at the Catholic University of
the Sacred Heart – Milan, email@example.com.
Directive 89/522/EEC as amended by Directive 97/36/EC.
Directive 97/7/EC as amended by Directive 2002/65/EC.
Directive 2002/65/EC amending Council Directive 90/619/EEC and Directives 97/7/EC and 98/27/EC.
Directive 2008/48/EC repealing Directive 87/102/EEC.
promotion, sale or supply of a product to consumers" - and it intends to create total harmonization and mutual re-
cognition between States, bringing down internal market barriers.
One of the Directive’s main objectives is to open the internal market to consumers by harmonizing diffe-
rent national regimes, and as such the Directive is included in the Commission’s Internal Market Strategy 2003 -
2006. The Directive aims to clarify consumers’ rights and to simplify cross-border trade. Common rules and princi-
ples will give consumers the same protection against unfair practices and rogue traders whether they are buying
from their corner shop or purchasing from a website based abroad.
Moreover, a central benefit arising from this Directive should be a more certain and streamlined regula-
tory environment within the EU for business. The Directive should harmonize national laws on unfair practices to a
high level, accompanied by the application of mutual recognition to prevent Member States from applying different
rules and interpretations. Therefore, businesses will be able to advertise and market to all consumers in the EU, in
the same way as to their domestic customers.
As regard the structure of the Directive 2005/29/EC and the types of behavior prohibited, there is a gene-
ral clause which contains the general ban on unfair commercial practices.
Article 5 (2) states that a commercial practice shall be unfair if: (a) it is contrary to the requirements of
professional diligence, and (b) it materially distorts or is likely to materially distort the economic behavior with re-
gard to the product of the average consumer whom it reaches or to whom it is addressed, or of the average mem-
ber of the group when a commercial practice is directed to a particular group of consumers
This provision will replace Member States’ existing, divergent general clauses and thus remove internal
In addition, two main categories of unfair commercial practices are described in more detail: “misleading”
and “aggressive” practices as set out, respectively,
in Articles 6 and 7 ( ), and in Articles 8 and 9 ( ). In fact, the vast majority of practices which would be considered
Directive makes a distinction between misleading actions and misleading omissions. Article 6 defines the misleading actions as
“1. A commercial practice shall be regarded as misleading if it contains false information and is therefore untruthful or in any
way, including overall presentation, deceives or is likely to deceive the average consumer, even if the information is factu-
ally correct, in relation to one or more of the following elements, and in either case causes or is likely to cause him to take
a transactional decision that he would not have taken otherwise:
(a) the existence or nature of the product;
(b) the main characteristics of the product, such as its availability, benefits, risks, execution, composition, accessories, af-
ter sale customer assistance and complaint handling, method and date of manufacture or provision, delivery, fitness
for purpose, usage, quantity, specification, geographical or commercial origin or the results to be expected from its
use, or the results and material features of tests or checks carried out on the product;
(c) the extent of the trader’s commitments, the motives for the commercial practice and the nature of the sales process,
any statement or symbol in relation to direct or indirect sponsorship or approval of the trader or the product;
(d) the price or the manner in which the price is calculated, or the existence of a specific price advantage;
(e) the need for a service, part, replacement or repair;
(f) the nature, attributes and rights of the trader or his agent, such as his identity and assets, his qualifications, status, ap-
proval, affiliation or connection and ownership of industrial, commercial or intellectual property rights or his awards
(g) the consumer’s rights, including the right to replacement or reimbursement under Directive 1999/44/EC of the Euro-
pean Parliament and of the Council of 25 May 1999 on certain aspects of the sale of consumer goods and associated
guarantees, or the risks he may face.
2. A commercial practice shall also be regarded as misleading if, in its factual context, taking account of all its features and
circumstances, it causes or is likely to cause the average consumer to take a transactional decision that he would not have
taken otherwise, and it involves:
(a) any marketing of a product, including comparative advertising, which creates confusion with any products, trade-
marks, trade names or other distinguishing marks of a competitor;
(b) non-compliance by the trader with commitments contained in codes of conduct by which the trader has undertaken
to be bound, where:
(i) the commitment is not aspirational but is firm and is capable of being verified, and
(ii) the trader indicates in a commercial practice that he is bound by the code.”
Article 7 defines the misleading omissions as follows:
“1. A commercial practice shall be regarded as misleading if, in its factual context, taking account of all its features and circumstances and
the limitations of the communication medium, it omits material information that the average consumer needs, according to the con-
text, to take an informed transactional decision and thereby causes or is likely to cause the average consumer to take a transactional
decision that he would not have taken otherwise.
2. It shall also be regarded as a misleading omission when, taking account of the matters described in paragraph 1, a trader hi-
des or provides in an unclear, unintelligible, ambiguous or untimely manner such material information as referred to in that
paragraph or fails to identify the commercial intent of the commercial practice if not already apparent from the context,
and where, in either case, this causes or is likely to cause the average consumer to take a transactional decision that he wo-
uld not have taken otherwise.
3. Where the medium used to communicate the commercial practice imposes limitations of space or time, these limitations
and any measures taken by the trader to make the information available to consumers by other means shall be taken into
account in deciding whether information has been omitted.
4. In the case of an invitation to purchase, the following information shall be regarded as material, if not already apparent
from the context:
(a) the main characteristics of the product, to an extent appropriate to the medium and the product;
(b) the geographical address and the identity of the trader, such as his trading name and, where applicable, the geographi-
cal address and the identity of the trader on whose behalf he is acting;
unfair would fall under these provisions. When applying the above provisions, practices are assessed in light of the
effect they have, or are likely to have, on the average consumer.
Finally, there is a Black List which contains the list of those practices which shall, in all circumstances, be regarded
as unfair and thus banned. These are the only commercial practices which can be deemed to be unfair without a case-by-ca-
se assessment against the provisions of Articles 5 to 9, namely without applying the average consumer test. As explained by
Recital 17, the rationale of this list is to provide greater legal certainty, where such a list may only be modified by revision of
With reference to the consumer, the Directive reflects a market-oriented approach and a belief in the in-
formation paradigm, which underlines transparency as the main method of consumer protection and its provisions
are essentially based on the belief that only informed choices lead to efficient choices ensuring maximization of
consumers’ collective interest. The regulation of unfair trade practices is thus linked to the consumer’s right to self-
determination, namely the right to determine freely and with full knowledge whether or not to enter into a particu-
(c) the price inclusive of taxes, or where the nature of the product means that the price cannot reasonably be calculated in
advance, the manner in which the price is calculated, as well as, where appropriate, all additional freight, delivery or
postal charges or, where these charges cannot reasonably be calculated in advance, the fact that such additional char-
ges may be payable;
(d) the arrangements for payment, delivery, performance and the complaint handling policy, if they depart from the requi-
rements of professional diligence;
(e) for products and transactions involving a right of withdrawal or cancellation, the existence of such a right.
5. Information requirements established by Community law in relation to commercial communication including advertising or
marketing, a non-exhaustive list of which is contained in Annex II, shall be regarded as material.
Article 8 defines the aggressive commercial practices as follows:
“A commercial practice shall be regarded as aggressive if, in its factual context, taking account of all its features and circum-
stances, by harassment, coercion, including the use of physical force, or undue influence, it significantly impairs or is likely to
significantly impair the average consumer’s freedom of choice or conduct with regard to the product and thereby causes him
or is likely to cause him to take a transactional decision that he would not have taken otherwise”; while Article 9 describes
the use of harassment, coercion and undue influence stating that:
“In determining whether a commercial practice uses harassment, coercion, including the use of physical force, or undue in-
fluence, account shall be taken of:
(a) its timing, location, nature or persistence;
(b) the use of threatening or abusive language or behavior;
(c) the exploitation by the trader of any specific misfortune or circumstance of such gravity as to impair the consumer’s jud-
gment, of which the trader is aware, to influence the consumer’s decision with regard to the product;
(d) any onerous or disproportionate non-contractual barriers imposed by the trader where a consumer wishes to exercise
rights under the contract, including rights to terminate a contract or to switch to another product or another trader;
(e) any threat to take any action that cannot legally be taken.”
Recital 18 of the Directive states that it is appropriate to protect all consumers from unfair commercial practices
where, for the purposes of the Directive, consumer means "any natural person who, in commercial practices covered by this
Directive, is acting for purposes which are outside his trade, business, craft or profession" [see Article 2 (a)].
However, the Court of Justice has found it necessary in adjudicating on advertising cases since the enac-
tment of Directive 84/450/EEC to examine the effect on a notional, typical consumer ( ). Therefore, in line with the
principle of proportionality, and to permit the effective application of the protections contained in it, Directive
2005/29/EC takes as a benchmark the “average consumer”, who is reasonably well informed and reasonably obser-
vant and circumspect, taking into account social, cultural and linguistic factors, as interpreted by the Court of Justi-
The above Recital also points out that the average consumer test is not a statistical test. National courts
and authorities will have to exercise their own faculty of judgment, having regard to the case-law of the Court of Ju-
stice, to determine the typical reaction of the average consumer in a given case.
Moreover, the Directive also contains provisions aimed at preventing the exploitation of consumers whose
characteristics - such as age, physical or mental infirmity or credulity - make them particularly vulnerable to unfair
commercial practices. In this case, the Directive provides protection at two levels. Certain commercial practices are in-
cluded in the list of practices which are in all circumstances unfair (i.e. Black List); while, if a trader could reasonably
foresee that a commercial practice is likely to distort the economic behavior only of such consumers, the impact of
this practice is to be assessed from the perspective of the average member of that group.
As mentioned, the Directive is a total harmonization Directive. It is stated in Recital 13 that "it is necessary to repla-
ce Member States’ existing, divergent general clauses and legal principles. The single, common general prohibition establis-
hed by this Directive therefore covers unfair commercial practices distorting consumers’ economic behavior". Therefore
Member States cannot adopt national provisions either stricter or more lenient, except where the Directive explicitly provi-
des for an exception to this principle. It means that consumers are entitled to no less, but also no more, than the Directive
provides; while, outside the harmonized field of the Directive, Member States retain their freedom to regulate according to
primary and other secondary EU law. In addition, several Member States now have an integrated business-to-consumer and
business-to-business approach. Implementing the Directive, they may decide to extend it to business-to-business relation-
ship, or they must give up their integrated approach.
Article 3(4) states that, in case of conflict between the provisions of this Directive and other Community
rules regulating specific aspects of unfair commercial practices, the latter shall prevail and apply to those specific
aspects. Recital 14 refers to the existing Community law which expressly affords Member States the choice betwe-
en several regulatory options for the protection of consumers in the field of commercial practices. In particular, Di-
rective 2005/29/EC should be without prejudice to Article 13(3) of Directive 2002/58/EC of 12 July 2002 concerning
the processing of personal data and the protection of privacy in the electronic communications sector. Moreover,
Recital 15 states that, where Member States have introduced information requirements over and above what is
specified in Community law, on the basis of minimum clauses, the omission of that extra information will not con-
stitute a misleading omission under this Directive. By contrast Member States will be able, when allowed by the mi-
nimum clauses in Community law, to maintain or introduce more stringent provisions in conformity with Commu-
nity law so as to ensure a higher level of protection of consumers’ individual contractual rights.
See: Case C-315/92, Verband Sozialer Wettbewerb eV v. Clinique Labatories SNC and Estée Lauder Cosmetics GmbH (1994)
ECR I-317; Case C-210/96, Gut Springheide GmbH v. Oberkreisdirektor des Kreises Steinfurt (1998) ECR I-4657.
According to Article 4, Member States shall neither restrict the freedom to provide services nor restrict the
free movement of goods for reasons falling within the field approximated by this Directive. This rule links the total
harmonization with the principal of mutual recognition and of home country control, because the total harmoniza-
tion character should imply a de facto presumption that traders who comply with their home Member State law
will not be in breach of the laws in other Member States. This presumption can be rebutted by the other Member
States only if particular circumstances justify their review of the compliance checks effectuated in the Member Sta-
te of origin.
Finally, the Directive applies to all sectors of economic life, without any exception. However, Member States
may impose requirements which are more restrictive or prescriptive than the Directive in relation to (immovable pro-
perty and) financial services. Directive 2005/29/EC does not provide a definition of “financial services”. It can be assumed
this concept is that offered by the Article 2(b) of the Directive 2002/65/EC concerning the distance marketing of consu-
mer financial services, which defines this notion as "any service of a banking, credit, insurance, personal pension, invest-
ment or payment nature". Therefore, for financial services (and immovable property), there is not a total harmonization
of the law on commercial practices.
Regarding the enforcement, Recital 21 and Article 11 state that persons or organizations, including competitors, re-
garded under national law as having a legitimate interest in the matter must have legal remedies for initiating proceedings
against unfair commercial practices, either before a court or before an administrative authority which is competent to deci-
de upon complaints or to initiate appropriate legal proceedings. It shall be for each Member State to decide which of these
facilities shall be available and whether to enable the courts or administrative authorities to require prior recourse to other
established means of dealing with complaints, including those referred to in Article 10. These facilities shall be available re-
gardless of whether the consumers affected are in the territory of the Member State where the trader is located or in anot-
her Member State.
While it is for national law to determine the burden of proof, it is appropriate to enable courts and administrative
authorities to require traders to produce evidence as to the accuracy of factual claims they have made. Member States shall
confer upon the courts or administrative authorities powers enabling them in the civil or administrative proceedings provi-
ded for in Article 11: (a) to require the trader to furnish evidence as to the accuracy of factual claims in relation to a commer-
cial practice if, taking into account the legitimate interest of the trader and any other party to the proceedings, such a requi-
rement appears appropriate on the basis of the circumstances of the particular case; and (b) to consider factual claims as
inaccurate if the evidence demanded in accordance with (a) is not furnished or is deemed insufficient by the court or admini-
Nevertheless, the Directive 2005/29/EC provides a role for codes of conduct, which enable traders to apply
the principles of this Directive effectively in specific economic fields. Recital 20 states that in sectors where there
are specific mandatory requirements regulating the behavior of traders, it is appropriate that these will also provi-
de evidence as to the requirements of professional diligence in that sector. The control exercised by code owners
at national or Community level to eliminate unfair commercial practices may avoid the need for recourse to admi-
nistrative or judicial action and should therefore be encouraged. With the aim of pursuing a high level of consumer
protection, consumers’ organizations could be informed and involved in the drafting of codes of conduct.
Therefore, according to Article 10, this Directive does not exclude the control, which Member States may
encourage, of unfair commercial practices by code owners and recourse to such bodies by the persons or organiza-
tions referred to in Article 11 if proceedings before such bodies are in addition to the court or administrative proce-
edings referred to in that Article. Recourse to such control bodies shall never be deemed the equivalent of forego-
ing a means of judicial or administrative recourse as provided for in Article 11.
Outlined the regulatory framework established by the Directive, the question is: What’s the impact on the
Insurance services could be the recipients of more restrictive or prescriptive rules than the Directive, if adopted by
each Member State to protect “its” consumers. Consequently, the insurers should also take into account different national
rules of consumer protection, when they conduct their business across the Single Market. A commercial practice can be fair
in the Member State of origin, but the same practice could be conflicting with a more restrictive rule laid down by the other
Member State where the insurer or the intermediary is doing business under the freedom of establishment or to provide
services. In addition, national legislations could extend the concept of consumer accepted by the Directive to include, e.g., all
policyholders or those who enter into insurance contracts covering the so-called mass risks.
As mentioned, the Directive applies to business-to-consumer commercial practices, so it does not extend to consu-
mer-to-consumer nor business-to-business commercial practices. However, each Member State may decide to extend the
unfair commercial practice rules, in whole or in part, to business-to-business relationship. In addition, a commercial practice
must be directly connected with the promotion, sale or supply of a product.
Therefore, commercial practices carried out between reinsurers and insurers, such as between insurers
and intermediaries do not seem to come within the scope of the Directive which covers only to the direct relation-
ship between the trader and the consumer. However, the Directive states that "trader" means "any natural or legal
person who, in commercial practices covered by this Directive, is acting for purposes relating to his trade, business,
craft or profession and anyone acting in the name of or on behalf of a trader".
The expression used by the Directive excludes from its scope the relationship between insurer and reinsu-
rer, although this relationship may affect that between the insurer and the consumer especially if national legisla-
tion extends consumer’s definition given by the Directive.
Conversely, a commercial practice could be unfair where the insurance intermediary is acting in the name
of or in behalf of an insurer, as an insurance agent or a bank. A condition required by the Art.5 is that commercial
practice must be directly connected with the promotion, sale or supply of a product to consumers. This means that
the agent or bank is liable to the customers, if they put in place the practice. The question called for national legi-
slations (and the European Court of Justice) is whether the consumer is entitled to sue also the insurer, especially
when the commercial practice is a direct consequence, e.g., of instructions, contract documents, commercial com-
munications that the insurer has given the agent or the bank.
The contrast with the requirements of professional diligence is a condition considered by the Article 5(2) to deter-
mine whether a commercial practice is unfair. The professional diligence of insurers and insurance intermediaries is expec-
ted as higher than other sectors of economic life, because specific professional skills are required to access these activities.
Therefore, their conduct will be evaluated more severely by the courts or authorities that will enforce the national rules tran-
sposing the Directive 2005/29/EC.
The Directive takes into consideration the “average consumer” as a parameter to assess the conduct of
traders. Applying this concept to the insurance market, a distinction should be made between compulsory insuran-
ce, such as vehicle insurance (also known as auto insurance, car insurance, or motor insurance), and facultative in-
surance, such as homeowner insurance or unit and index linked policies.
All policies mentioned above can be signed by the consumer described in Directive, but the “average con-
sumer” is somewhat different. All car holders must sign a vehicles insurance; while the insurance is neither compul-
sory for the homeowners, nor the only (financial) product available to the investors.
It is stated in Recital 18 that the average consumer test is not a statistical test. However, this does not mean that
the number of the policyholders is irrelevant. The car is widespread among all social classes and is owned by young and
old, men and women, educated and uneducated. All these persons are required to get an auto insurance and this could
be at the same time, their only insurance coverage and contact with the insurance industry. A commercial practice sho-
uld be evaluated more severely if it is directed toward such a consumer, because the distortion of its economic behavior -
the behavior of such an average consumer - could be reached more easily than other insured.
Moreover, insurance industry could be a candidate to adopt a code of conduct. However, there is a risk
that these codes are different between them, if their adoption is on a national basis. Therefore, the business practi-
ces of the domestic insurance industry could be interpreted by the courts/administrative authorities according to
the strictest standards contained in the codes adopted by insurers (and customer associations) in other Member
States, because those standards are still consistent with the rules of the Directive that sets the maximum or total
Finally, the Black List qualifies as aggressive commercial practice "Requiring a consumer who wishes to cla-
im on an insurance policy to produce documents which could not reasonably be considered relevant as to whether
the claim was valid, or failing systematically to respond to pertinent correspondence, in order to dissuade a consu-
mer from exercising his contractual rights".
This practice is in all circumstances considered as unfair, where the rationale of the Black List is to provide grea-
ter legal certainty. However, the above definition contains notions which appear vague, such as “reasonably consider”,
“systematic failure” or “pertinent correspondence”. Diverging interpretations on the precise meaning of such vague noti-
ons may arise in both codes of conduct, or in decisions of the national courts/administrative authorities. Above all, such
expressions do not end up fulfilling the task of the Black list because they add, and not dissolve, legal uncertainty.
As already shown by the above clause, it is important to stress that either the general clause and the two
main categories of unfair commercial practices - misleading and aggressive – refer to business practice that may ta-
ke place before the conclusion of the contract or during its execution. In Italy, for example, the Antitrust authority
which is responsible for investigating and punishing such practices, has already sanctioned five cases of unfair trade
practices in the insurance sector. Two of these were related to the contract ( ) and the other three for its executi-
on ( ).
Consumers were already protected against misleading advertising by the EU rules prior to the Directive on
unfair business-to-consumer commercial practices, so Directive 2005/29/EC has “refined” their pre-contractual
protection. The Directive, however, sets the standards of behavior that seem likely to dramatically improve the pro-
tection of consumers during the contract term, at least in the insurance industry that is somewhat lacking of har-
monized rules on this profile. This, despite the shortcomings of the Community legislature.
Provvedimento n. 20399 of 22 October, 2009; Id. n. 17957 of 31 January, 2008.
Provvedimento n. 20158 of 29 July, 2009; Id. n. 19655 of 19 March, 2009; Id. n. 19501 of 5 February, 2009