Unlike previous decisions rendered over the past years, in which the Supreme Court merely referred to the lower courts the task of assessing the features of the disputed policies so as to verify whether they could be considered as financial or insurance products, this time the Supreme Court set out detailed and precise guidelines.
In particular, the judgement upheld the petition filed by a policyholder who claimed the nullity of a unit-linked policy – whose benefits were linked to the Madoff's fund – because of the absence of the coverage of a demographic risk and argued that there was therefore no "insurance" nature and purpose for the contract, as provided by Italian law and regulations. The policy at issue provided a death cover equal to 0.1% of the counter-value of the units of the fund linked to the policy and in this regard the Supreme Court objected that such amount compared to the premium amount paid by the policyholder was not enough for the balance of the obligations of the parties under the contract.
More specifically, the Supreme Court:
- considered that the arguments raised in the appealed judgement to classify the policy as insurance product were not convincing, since the Court of Appeal did not evaluate that the contractual provisions were in breach of the general principles governing unit-linked policies in Italy as set out by IVASS regulations;
- declared that unit-linked policies have a mixed legal purposes (financial and life insurance) and even if the financial purpose prevails over the life insurance one, this latter must in any event be compliant with the general principles set out by the Italian Civil Code, by the Insurance Code and by IVASS regulations, with specific reference to the cover of a demographic risk, to be considered in light of the premium paid and the type and time horizon of the linked investment;
- annulled the decision and
- sent the case back to the Court of Appeal of Turin to assess the nature of the policy and decide the case, taking into account the above indications and guidelines.
The Supreme Court rejected other claims raised by the policyholders regarding – among others – the breach of transparency requirements and conduct rules and the breach of Italian regulatory provisions that prevent insurers from including hedge funds in the underlying assets of their internal linked funds. In this specific regard, it is worth noting that the Supreme Court clearly affirmed that the "home country control principle" provided for by the EU insurance directives as implemented by Italian law would apply in this case, as a result of which Italian regulatory limits on investments do not apply to unit-linked policies issued by an EU life insurance undertaking but only to those issued by domestic insurers.
We remain at your disposal for any clarification you may need.
Authored by Silvia Lolli, Andrea Atteritano and Jeffrey Greenbaum