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2017   |   Book 2

Case

E-21/16

Pascal NobileVDAS Rechtsschutz-Versicherungs AG

(Directive 87/344/EEC – Article 201(1)(a) of Directive 2009/138/EC – Legal expenses insurance – Free choice of lawyer)

Also available in:

DE

Table of contents


SummaryPage
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of the Judgment

1 One of the aims of Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking up and pursuit of the business of Insurance and Reinsurance (Solvency II) is to harmonise national law concerning legal expenses insurance. Article 201(1)(a) recognises the insured person’s free choice of lawyer in any inquiry or proceedings. This rule has general application and is obligatory in nature. Moreover, the context, the objective pursued and the wording of Article 201(1)(a) militate against a restrictive interpretation of the term “inquiry or proceedings”.

2 The insured person’s right freely to choose a lawyer may not be made conditional on the prior consent of the insurance undertaking. Moreover, the insurance undertaking may not reject coverage on the basis that proceedings are unnecessary, disproportionate or premature. Furthermore, it is not relevant whether specific legal assistance is compulsory under national law. Finally, the pool of eligible lawyers may not be limited to those residing in the district of the court. The insurance undertaking may not reject the lawyer chosen by the insured person.

3 However, the Solvency II Directive does not specify, in general, the insurance coverage of actual legal expenses incurred in any inquiry or proceedings. Consequently, the freedom to choose a lawyer cannot extend to obliging an EEA State to require insurers to cover inPage
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full the costs incurred by the person instructed to represent the insured person. Limitations of coverage may, for example, relate to a single claim or to the economic value of a claim. However, terms and conditions to limit the coverage may not be such as to render it impossible for the insured person freely to choose a lawyer.

4 Consequently, Article 201(1)(a) of the Solvency II Directive precludes terms and conditions in a legal expenses insurance contract that release the insurance company from its obligations under the contract if the insured person mandates an attorney to represent his interests, without the consent of the company, at a point in time when the insured person would be entitled to make a claim under the contract.

JudgmentPage
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of the Court

27 October 20171

1 Language of the request: German. Translations of national provisions are unofficial and based on those contained in the documents of the case.

(Directive 87/344/EEC – Article 201(1)(a) of Directive 2009/138/EC – Legal expenses insurance – Free choice of lawyer)

In Case E-21/16,

REQUEST to the Court under Article 34 of the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice by the Princely Court of Appeal (Fürstliches Obergericht), in a case pending before it between

Pascal Nobile

and

DAS Rechtsschutz-Versicherungs AG

concerning the interpretation of Article 201(1)(a) of Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II),

ThePage
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Court

composed of: Carl Baudenbacher, President, Per Christiansen (Judge-Rapporteur) and Benedikt Bogason (ad hoc), Judges,

Registrar: Gunnar Selvik,

having considered the written observations submitted on behalf of:

DAS Rechtsschutz-Versicherungs AG (“DAS” or “the respondent”), represented by Batliner Wanger Batliner, Rechtsanwälte AG, advocates;

the Liechtenstein Government, represented by Andrea Entner-Koch, Director, and Monika Zelger-Jarnig, Senior Legal Officer, EEA Coordination Unit, acting as Agents;

the Czech Government, represented by Martin Smolek and Jiří Vláčil, Ministry of Foreign Affairs, acting as Agents;

the Slovak Government, represented by Iveta Hricová, General Director, Ministry of Foreign and European Affairs, acting as Agent;

the EFTA Surveillance Authority (“ESA”), represented by Carsten Zatschler and Michael Sánchez Rydelski, members of its Department of Legal & Executive Affairs, acting as Agents; and

the European Commission (“the Commission”), represented by Markéta Šimerdová and Karl-Philipp Wojcik, members of its Legal Service, acting as Agents,

having regard to the Report for the Hearing,

having heard oral argument of Pascal Nobile (“Mr Nobile” or “the appellant”), represented by Isabella Ziernhöld, lawyer; the Liechtenstein Government,Page
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represented by Thomas Bischof, Deputy Director, EEA Coordination Unit, and Monika Zelger-Jarnig, acting as Agents; the Slovak Government, represented by Dominik Baco, Legal Adviser, National Bank of Slovakia, acting as Agent; ESA, represented by Michael Sánchez Rydelski; and the Commission, represented by Karl-Philipp Wojcik and Markéta Šimerdová, at the hearing on 6 July 2017,

gives the following

Judgment

I Legal background

EEA law

1 Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (OJ 2009 L 335, p. 1) (“the Solvency II Directive”) was incorporated into the Agreement on the European Economic Area (“the EEA Agreement”) by Joint Committee Decision No 78/2011 of 1 July 2011 (OJ 2011 L 262, p. 45), which added the Directive as point 1 of Annex IX (Financial Services).

2 The Solvency II Directive repeals several directives previously included in Annex IX to the EEA Agreement, including Council Directive 87/344/EEC of 22 June 1987 on the coordination of laws, regulations and administrative provisions relating to legal expenses insurance (OJ 1987 L 185, p. 77). The date of repeal, which was originallyPage
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set as 1 November 2012, was postponed twice. Most recently, Directive 2013/58/EU of the European Parliament and of the Council of 11 December 2013 amending Directive 2009/138/EC (Solvency II) as regards the date for its transposition and the date of its application, and the date of repeal of certain Directives (Solvency I) (OJ 2013 L 341, p. 1), which was incorporated into the EEA Agreement by Joint Committee Decision No 128/2014 of 27 June 2014 (OJ 2014 L 342, p. 27), set the date of repeal as 1 January 2016.

3 Recitals 82 and 83 in the preamble to the Solvency II Directive read:

(82) In the interest of the protection of insured persons, national law concerning legal expenses insurance should be harmonised. Any conflicts of interest arising, in particular, from the fact that the insurance undertaking is covering another person or is covering a person in respect of both legal expenses and any other class of insurance should be precluded as far as possible or resolved. To that end, a suitable level of protection of policy holders can be achieved by different means. Whichever solution is adopted, the interest of persons having legal expenses cover should be protected by equivalent safeguards.

(83) Conflicts between insured persons and insurance undertakings covering legal expenses should be settled in the fairest and speediest manner possible. It is therefore appropriate that Member States provide for an arbitration procedure or a procedure offering comparable guarantees.

4 Title II, Chapter II, Section 4 of the Solvency II Directive contains provisions on legal expenses insurance and comprises Articles 198 to 205.

5 ArticlePage
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 200 of the Solvency II Directive obliges the EEA States to ensure that insurance undertakings adopt at least one of three methods for the management of claims as set out in paragraphs 2, 3 and 4 of that provision. The option provided for in Article 200(4) reads:

The contract shall provide that the insured persons may instruct a lawyer of their choice or, to the extent that national law so permits, any other appropriately qualified person, from the moment that those insured persons have a claim under that contract.

6 Article 201(1) of the Solvency II Directive reads:

Any contract of legal expenses insurance shall expressly provide that:

(a) where recourse is had to a lawyer or other person appropriately qualified according to national law in order to defend, represent or serve the interests of the insured person in any inquiry or proceedings, that insured person shall be free to choose such lawyer or other person;

(b) the insured persons shall be free to choose a lawyer or, where they so prefer and to the extent that national law so permits, any other appropriately qualified person, to serve their interests whenever a conflict of interests arises.

National law

7 Article 201 of the Solvency II Directive is implemented in Liechtenstein law by Article 60 of the Insurance Contracts Act (Versicherungsvertragsgesetz, LR 215.229.1), which reads:

AnyPage
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contract of legal expenses insurance shall expressly provide that:

(a) Where recourse is had to a lawyer or other person appropriately qualified in order to defend, represent or serve the interests of the insured person in any inquiry or proceedings, that insured person shall be free to choose such lawyer or other person;

(b) The insured person shall be free to choose a lawyer or any other appropriately qualified person, to serve his interests whenever a conflict of interest arises.

II Facts and procedure

8 The respondent, DAS, is a public limited liability company under Swiss law. It has entered into a contract for legal expenses insurance with the appellant, Mr Nobile. The contract is subject to the general terms and conditions of insurance of DAS. Under those general terms and conditions, DAS grants insurance cover for legal expenses, inter alia, in tenancy disputes with landlords.

9 Article 18 of DAS’s general terms and conditions obliges the insured person immediately to inform DAS of any legal case that could give rise to its involvement under the insurance contract.

10 Article 19 of DAS’s general terms and conditions is headed “Conduct of the case” and reads:

1. The DAS legal service shall advise the insured person as to his rights, and safeguard his interests. The insured person shall provide DAS with all requisite authorisations.

2. ThePage
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insured person shall leave the conduct of the case exclusively to DAS. Without prior consent of DAS, the insured person shall not instruct any attorneys, experts, etc., nor shall he commence proceedings, take any legal steps, or agree to any settlements. The insured person shall not enter into any fee agreement with the instructed attorney.

4. In the event that there is a conflict of interests (representation of different insured persons with opposing interests) or where, in view of judicial or administrative proceedings, it becomes necessary to instruct an external lawyer (Anwaltsmonopol), the insured person shall be free to choose a legal representative with the requisite qualifications, resident in the district of the court. In the event that DAS rejects the suggested attorney, the insured person shall nominate three other attorneys from different law firms, and resident in the district of the court, from whom DAS shall select one. No reason needs to be given for rejecting an attorney.

11 Article 22 of DAS’s general terms and conditions reads:

Any culpable breach of contractual duties by the insured person shall entitle DAS to refuse its performance.

12 From 1 September 2014, Mr Nobile rented a property in Liechtenstein. The property owner terminated the tenancy agreement with effect from 30 September 2015. A dispute arose concerning the financial settlement after the termination.

13 From March 2015 onwards, there had been recurring phone contact between Mr Nobile’s spouse and DAS concerning the possible presence of mould in the property, and subsequently also concerning the property owner’s termination of the agreement and the recovery ofPage
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the deposit of CHF 1 900. DAS also corresponded with the property owner. The latter eventually returned part of the deposit.

14 In autumn 2015, without informing DAS in advance, Mr Nobile provided a lawyer, Mr Antonius Falkner, with a power of attorney. Mr Falkner subsequently requested DAS to cover the costs of legal proceedings against the property owner concerning recovery of the remaining deposit, and a retrospective rent reduction of at least CHF 500 per month due to the alleged presence of mould during the tenancy. DAS rejected this request, alleging that Mr Nobile had breached his contractual obligations by not leaving the conduct of the case exclusively to DAS.

15 Mr Nobile then lodged proceedings against DAS before the Princely Court (Fürstliches Landgericht), seeking a declaration that DAS was liable to provide legal expenses insurance cover in respect of the proceedings against the property owner. However, the Princely Court dismissed the action by a judgment of 27 July 2016. It held that the contract provision, granting DAS an exclusive right to conduct the case, was compatible with Article 60 of the Insurance Contracts Act. The free choice of lawyer only applied, as a rule, in judicial or administrative proceedings. It did not apply at the stage of notification of a claim, for the assessment of the legal and factual situation, or for any efforts to settle matters out of court. In the opinion of the Princely Court, the dispute between Mr Nobile and the property owner was still at the stage where DAS had an exclusive right to conduct the case. It therefore held that Mr Nobile had no legitimate interest in a judgment declaring DAS liable under the insurance policy.

16 MrPage
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Nobile brought an appeal against the judgment before the Princely Court of Appeal, maintaining that he has a legitimate interest in the declaration sought. According to the Princely Court of Appeal, the question whether Mr Nobile has a legitimate interest in the declaratory judgment sought depends on whether he has breached his contractual duties by instructing Mr Falkner as attorney. That, in turn, depends on the interpretation of Article 201(1)(a) of the Solvency II Directive.

17 By letters of 20 and 22 December 2016, the Princely Court of Appeal requested the Court to give an advisory opinion and to apply the accelerated procedure provided for in Article 97a of the Rules of Procedure. The following questions were referred:

1. Does Article 201(1)(a) of [the Solvency II Directive] preclude a contractual agreement between a legal expenses’ insurer and an insured person, according to which it is a breach of duty of the insured person, releasing the insurance company from its obligations, if the insured person mandates an attorney to represent his interests, without the consent of the provider of the legal expenses insurance, at a point in time when the insured person would be entitled to make a claim according to the legal expenses insurance contract?

2. In the event that question 1 is answered in the negative: In initiating litigation proceedings, when does an inquiry or do proceedings referred to in Article 201(1)(a) of [the Solvency II Directive] start, leading to the free choice of a lawyer? Is the relevant point in time solely based on the formal commencement of court proceedings (the lawsuit being filed with the court), or are prior steps also included, and, if so, which ones?

18 ThePage
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Princely Court of Appeal also referred a third question, which raised the issue of the lawfulness of the Court’s composition. The Court decided to consider that question in a separate procedure. By a decision of 14 February 2017, the Court held that the composition of the Court was lawful.

19 By an order of 20 February 2017, the President of the Court rejected the referring court’s request for an accelerated procedure since the remaining questions did not concern matters of exceptional urgency.

20 Reference is made to the Report for the Hearing for a fuller account of the legal framework, the facts, the procedure and the written observations submitted to the Court, which are mentioned or discussed hereinafter only insofar as is necessary for the reasoning of the Court.

III Admissibility

Observations submitted to the Court

21 The respondent submits that the questions referred are inadmissible because they are neither necessary to enable the referring court to give judgment in the main proceedings, nor do they concern an unclear legal situation. As regards the first question, the respondent argues that the question of the free choice of lawyer does not arise in the present case, where the provider of legal expenses insurance has refused to provide benefits for the commencement of proceedings. OnPage
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the second question, the respondent submits that there is no dispute in the main proceedings as to which elements of preparatory work are covered by the free choice of lawyer.

Findings of the Court

22 Pursuant to Article 34 of the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice (“SCA”), any court or tribunal in an EFTA State may refer questions on the interpretation of the EEA Agreement to the Court, if it considers an advisory opinion necessary to enable it to give judgment.

23 The purpose of Article 34 SCA is to establish cooperation between the Court and the national courts and tribunals. That cooperation is intended to contribute to ensuring a homogeneous interpretation of EEA law by providing assistance to the courts and tribunals in the EFTA States in cases in which they have to apply provisions of EEA law (see Case E-1/16 Synnøve Finden [2016] EFTA Ct. Rep. 931, paragraph 27 and case law cited).

24 It is settled case law that questions on the interpretation of EEA law referred by a national court enjoy a presumption of relevance. It is for the referring court to define and assess the accuracy of the factual and legislative context in the case before it. Accordingly, the Court may only refuse to rule on a question referred by a national court where it is quite obvious that the interpretation of EEA law that is sought bears no relation to the actual facts of the main action or its purpose, where the problem is hypothetical, or where the Court does not have before it the factual or legal material necessary to give aPage
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useful answer to the questions submitted to it (see Synnøve Finden, cited above, paragraph 28 and case law cited).

25 Where domestic legislation, in regulating purely internal situations not governed by EEA law, adopts the same or similar solutions as those adopted in EEA law in order to avoid any distortion of competition, it is in the interest of the EEA to forestall future differences of interpretation. Provisions or concepts taken from EEA law should thus be interpreted uniformly, irrespective of the circumstances in which they are to apply. However, as the jurisdiction of the Court is confined to considering and interpreting provisions of EEA law only, it is for the national court to assess the precise scope of that reference to EEA law in national law (see Case E-3/16 Ski Taxi and Others [2016] EFTA Ct. Rep. 1002, paragraph 27 and case law cited).

26 It is therefore not quite obvious that the interpretation of EEA law sought bears no relation to the actual facts of the main action. Furthermore, contrary to the respondent’s argument, the Court does not find any of the other exceptions to the presumption of relevance applicable. The questions referred seem to address the core of the dispute between the parties to the main proceedings, as also noted by the Commission at the hearing.

27 Based on the foregoing, it must be held that the request is admissible.

IV AnswersPage
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of the Court

The first question

28 In essence, the first question referred concerns whether Article 201(1)(a) of the Solvency II Directive permits a legal expenses insurance contract to release the insurance company from its obligations if the insured person mandates an attorney without the consent of the company, at a point in time when the insured person would be entitled to make a claim under the contract.

Observations submitted to the Court

29 DAS submits that a refusal to provide benefits in the event of a breach of contractual obligations does not restrict the free choice of lawyer in any way. Since DAS had refused to provide benefits for the commencement of proceedings under its contract with the appellant, the question does not even arise as to whether the appellant has the right to specify a legal representative of his own choosing. The reason for the refusal was that proceedings against the property owner were deemed by DAS to be unnecessary, disproportionate and premature. For disagreements of this nature, DAS’s general terms and conditions provide for an arbitration procedure as envisaged by Article 203 of the Solvency II Directive.

30 Mr Nobile submits that the Solvency II Directive does not permit a contract such as the one at issue in the present case. He contends that the free choice of lawyer would be undermined if it were made subjectPage
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to the consent of the insurer. The Liechtenstein Government, the Czech Government, ESA, and the Commission essentially support this position.

31 The Slovak Government submits that, due to the disagreement between the respondent and the appellant over how to conduct proceedings against the property owner, there was arguably a conflict of interest that would trigger Mr Nobile’s free choice of lawyer under Article 201(1)(b) of the Solvency II Directive.

32 ESA submits that a requirement to obtain the insurer’s consent before taking steps liable to generate costs, may serve the interests of controlling costs, and it may enable the insurer to make non-binding recommendations to the insured person regarding the choice of lawyer. However, in the present case, the combination of the prior consent requirement and the other limitations imposed by the insurer’s general terms and conditions are such as to render meaningless the insured person’s free choice of lawyer. Therefore, the contract violates Article 201(1)(a) of the Solvency II Directive.

33 The Commission submits that it is not for the insurance undertaking to assess whether court proceedings are necessary or proportionate. Under a legal expenses insurance contract, the insured person is entitled to have recourse to a lawyer of his choice to defend, representPage
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or serve his interests in any inquiry or proceedings. A requirement of prior consent is incompatible with that freedom. Moreover, the Commission submits that the arbitration procedure referred to by DAS is not mandatory. It is rather an option that is available to the insured person and applies without prejudice to any other right of judicial review provided for by national law.

Findings of the Court

34 The circumstances of the present case relate to the period prior to 1 January 2016, which is before the Solvency II Directive entered into force and repealed Directive 87/344/EEC. However, the relevant provisions of the two directives are identical in substance. Case law concerning Directive 87/344/EEC will thus be relevant in interpreting the provisions at issue. As the referring court, the parties, and other participants have argued on the basis of the Solvency II Directive, the Court will do the same.

35 As set out in recital 82 of its preamble, one of the aims of the Solvency II Directive is to harmonise national law concerning legal expenses insurance, in particular with regard to conflicts of interest. To that end, Article 199 requires a contractual separation between legal expenses insurance and other classes of insurance. Article 200 sets out alternative methods for managing claims under legal expenses insurance. Article 201(1)(b) requires a contract of legal expenses insurance to recognise the free choice of lawyer whenever a conflictPage
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of interest arises. The Solvency II Directive’s provisions on legal expenses insurance are, however, not limited to these situations. Article 201(1)(a) recognises the insured person’s free choice of lawyer in any inquiry or proceedings. Moreover, Article 203 requires EEA States to provide for arbitration or other similar procedure for the settlement of any dispute between the insurance undertaking and the insured person.

36 However, the Solvency II Directive does not seek to harmonise fully the EEA States’ legislation on legal expenses insurance contracts. The EEA States therefore remain free to determine the body of rules applicable to those contracts, as long as they comply with EEA law and, in particular, Article 201 of the Solvency II Directive (compare the judgment in Eschig, C-199/08, EU:C:2009:538, paragraphs 65 and 66).

37 At issue in the present case is the question whether Article 201(1)(a) of the Solvency II Directive permits a contractual clause releasing the insurance company from its obligations if the insured person mandates an attorney without the prior consent of the company, at a point in time when the insured person would be entitled to make a claim under the legal expenses insurance contract.

38 AccordingPage
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to Article 22 of DAS’s general terms and conditions, any culpable breach of contractual obligations by the insured person shall entitle DAS to refuse insurance cover. The alleged breach by Mr Nobile of his obligations is that he mandated an attorney to act on his behalf without seeking the prior consent of DAS, at a point in time when he was entitled to make a claim according to the legal expenses insurance contract.

39 Apart from cases of conflict of interest, a requirement to grant insured persons the freedom to choose a lawyer whenever they have a claim under the contract only exists for insurance undertakings that apply the method of claim management set out in Article 200(4) of the Solvency II Directive. According to the referring court, this method of claim management is not applied in Liechtenstein.

40 Nevertheless, Article 201(1)(a) of the Solvency II Directive recognises the insured person’s free choice of lawyer in any inquiry or proceedings. This rule has general application and is obligatory in nature (compare the judgment in Eschig, cited above, paragraph 47). Moreover, the context, the objective pursued and the wording of Article 201(1)(a) militate against a restrictive interpretation of the term “inquiry or proceedings” (compare the judgment in Büyüktipi, C-5/15, EU:C:2016:218, paragraphs 16 to 21 and case law cited).

41 In the present case, it appears that DAS’s general terms and conditions do not set out the right for the insured person freely to choose a lawyer in any inquiry or proceedings as required by Article 201(1)(a) of the Solvency II Directive.

42 First,Page
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according to Article 19(1) of DAS’s general terms and conditions, the insured person shall leave the conduct of the case exclusively to DAS. Accordingly, the insured person may not instruct an attorney without DAS’s prior consent. However, the insured person’s right under Article 201(1)(a) of the Solvency II Directive freely to choose a lawyer may not be made conditional on the prior consent of the insurance undertaking (compare, by analogy, the judgment in Sneller, C-442/12, EU:C:2013:717, paragraph 23).

43 Second, Article 19(2) of DAS’s general terms and conditions stipulates that the insured person shall not commence proceedings, take any legal steps or agree to any settlements without DAS’s prior consent. In line with this provision, DAS has argued before the Court that it denied coverage for the proceedings because it deemed such proceedings to be unnecessary, disproportionate and premature. However, as noted by the Commission at the hearing, it is not for the insurance undertaking to make such an assessment. That could motivate the insurance undertaking to reject coverage, which could deprive the insured person of the protection afforded by the legal expenses insurance contract.

44 Third, Article 19(4) of DAS’s general terms and conditions provides that the insured person’s right freely to choose a lawyer only arises where it becomes necessary to instruct an external lawyer due to the existence of a lawyer’s monopoly in the matter. However, under Article 201(1)(a) of the Solvency II Directive it is not relevant whether specific legal assistance is compulsory under national law (compare the judgment in Sneller, cited above, paragraphs 30 to 32).

45 Fourth,Page
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even in cases where, according to DAS’s general terms and conditions, it becomes necessary to instruct an external lawyer, the pool of eligible lawyers is limited to those residing in the district of the court. This is also contrary to the right freely to choose a lawyer (compare the judgment in Stark, C-293/10, EU:C:2011:355, paragraphs 29 and 30).

46 Fifth, even among the lawyers resident in the district of the court, the insured person is not entirely free to choose his lawyer. DAS may reject the suggested attorney, and it has no obligation to state its reasons for any such rejection. In such situations, the contract provides that the insured person may nominate three other attorneys from different law firms, from whom DAS shall select one. In other words, it is ultimately for DAS, and not the insured person, to choose the lawyer.

47 In view of the above, it appears that the effect of a clause such as Article 19 of DAS’s general terms and conditions is that the insured person’s right freely to choose a lawyer would consist solely of the possibility of suggesting a lawyer, the acceptance of whom would be, ultimately, at the discretion of the insurance company.

48 Thus, contractual terms and conditions, such as Article 19 of DAS’s general terms and conditions, are incompatible with Article 201(1)(a) of the Solvency II Directive. Consequently, it would also be incompatible with that provision to accept that an insurance undertaking could be released from its obligations under legal expenses insurance contracts because the insured person breached such terms and conditions.

49 ForPage
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the sake of completeness, the Court notes that the Solvency II Directive does not specify, in general, the insurance coverage of actual legal expenses incurred in any inquiry or proceedings. Consequently, the freedom to choose a lawyer within the meaning of Article 201(1) of the Solvency II Directive, cannot extend to obliging an EEA State to require insurers to cover in full the costs incurred by the person instructed to represent the insured person. Limitations of coverage may, for example, relate to a single claim or to the economic value of a claim. However, terms and conditions to limit the coverage may not be such as to render it impossible for the insured person freely to choose a lawyer (compare the judgment in Stark, cited above, paragraphs 32 and 33).

50 The answer to the first question referred must therefore be that Article 201(1)(a) of the Solvency II Directive precludes terms and conditions in a legal expenses insurance contract that release the insurance company from its obligations under the contract if the insured person mandates an attorney to represent his interests, without the consent of the company, at a point in time when the insured person would be entitled to make a claim under the contract.

51 In light of the answer to the first question, there is no need to answer the second question.

V Costs

52 The costs incurred by the Liechtenstein, Czech and Slovak Governments, ESA, and the Commission, which have submitted observations to the Court, are not recoverable. Since these proceedings are a step in the proceedings pending before the nationalPage
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court, any decision on costs for the parties to those proceedings is a matter for that court.

On those grounds,

The Court

in answer to the question referred to it by the Princely Court of Appeal hereby gives the following Advisory Opinion:

Article 201(1)(a) of Directive 2009/138/EC precludes terms and conditions in a legal expenses insurance contract that release the insurance company from its obligations under the contract if the insured person mandates an attorney to represent his interests, without the consent of the company, at a point in time when the insured person would be entitled to make a claim under the contract.

Carl Baudenbacher

Per Christiansen

Benedikt Bogason

Delivered in open court in Luxembourg on
27 October 2017.

Gunnar Selvik
Registrar

Carl Baudenbacher
President

OrderPage
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of the President

20 February 2017

(Statute of limitations – Integrity of the Court – Denial of request for accelerated procedure)

In Case E-21/16,

REQUEST to the Court under Article 34 of the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice by the Fürstliches Obergericht (Princely Court of Appeal) of Liechtenstein, in the case between

Pascal Nobile

and

DAS Rechtsschutz-Versicherungs AG

concerning the interpretation of the Agreement on the European Economic Area, in particular Article 3 thereof, and the interpretation of Article 201(1)(a) of Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II),

ThePage
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President

makes the following

Order

I Facts and procedure

1 By a letter of 20 December 2016, registered at the Court on the same day, the Princely Court of Appeal of Liechtenstein made a request for an Advisory Opinion in a case pending before it between Mr Pascal Nobile and DAS Rechtsschutz-Versicherungs AG (“DAS”). The case before the national court concerns the interpretation of Article 3 of the Agreement on the European Economic Area (“EEA” or “the Agreement”) and Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (the “Solvency II Directive”) as adapted to the EEA Agreement by Decision No 78/2011 of 1 July 2011 of the EEA Joint Committee (OJ 2011 L 262, p. 45, and EEA Supplement No 54, p. 57).

2 Mr Nobile, the Appellant, held a policy for legal expenses insurance with DAS, the Respondent. Article 19(2) of the Policy’s terms and conditions provides: ‘The insured person shall leave the conduct of the case exclusively to DAS. Without prior consent of DAS, the insured person shall not instruct any attorneys, experts, etc., nor shall he commence proceedings, take any legal steps, or agree to any settlements. The insured person shall not enter into any fee agreement with the instructed attorney.’

3 WithPage
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effect from 1 September 2014, Mr Nobile rented a single-family home in Eschen, for which he provided a deposit. With effect from 30 September 2015, the landlady terminated the tenancy agreement. It is alleged that the property suffers from mould. In this regard, legal advice was sought from DAS. Following correspondence between DAS and the landlady, the landlady informed DAS that while the deposit would be repaid, deductions would be made for the costs of water and community fees. On 18 November 2015, Mr Nobile’s wife informed DAS that the landlady had returned the deposit, save for the abovementioned deductions.

4 Subsequently, Mr Nobile provided his current lawyer, Mr Falkner, who works in Liechtenstein, with a power of attorney with a view to bringing legal proceedings against the landlady seeking repayment of the elements of the deposit withheld, and a retrospective rent reduction. He did not, however, inform DAS of this in advance.

5 By a letter of 2 December 2015, Mr Falkner wrote to DAS requesting coverage of the costs of the legal proceedings. DAS refused that request. Subsequently, Mr Nobile initiated proceedings against DAS before the Princely Court (Fürstliches Landgericht). He sought a declaration that, under his legal expenses insurance policy, DAS was liable to provide legal expenses insurance cover in respect of the proceedings against the landlady and that the insurance policy covered those legal proceedings. The Princely Court dismissed the action. In its reasoning, the Princely Court held that the exclusive right of DAS to conduct a case, as had been agreed in the general terms and conditions of insurance, was compatible with Article 60 of the Liechtenstein Insurance Contracts Act (Versicherungsvertragsgesetz). Article 60 of the Liechtenstein Insurance Contracts Act implements Article 201(1)(a) of the Solvency II Directive in national law. The provision concerns the free choice of a lawyer. Mr Nobile brought an appeal against that judgment before the Princely Court of Appeal.

6 OnPage
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1 December 2016, upon a proposal of the Norwegian Government, the Governments of the EFTA States issued ESA/Court Committee Decision No 5 of 1 December 2016. By this Decision, the EFTA States decided to re-appoint the incumbent Norwegian Judge Per Christiansen for a period of three years with effect from 17 January 2017. According to the Decision’s recitals, Judge Christiansen’s appointment was stated as being “for a non-renewable term of three years, until he reaches the age of 70, which is the statutory retirement age for Norwegian Supreme Court Judges” and the decision itself as being “without prejudice to the term of office of any judge who may be reappointed in the future”.

7 On 4 December 2016, seven Norwegian academics lodged a complaint with the EFTA Surveillance Authority (“ESA”) against ESA/Court Committee Decision No 5 of 1 December 2016, asserting that it breached the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice (“SCA”). Following the complaint, ESA treated the matter as a priority and requested information of the Governments of the EFTA States.

8 In its request of 20 December 2016, the Princely Court of Appeal referred three questions to the Court. The first two seek to clarify requirements of substantive EEA law concerning the free choice of lawyer provided for in Article 201(1)(a) of the Solvency II Directive.

9 The third question concerns the interpretation of Article 3 EEA. This question raises, in essence, the issue whether, from 17 January 2017, the Court would be lawfully composed in a manner which ensures its independence and impartiality. The third question reads as follows:

In the event that questions 1 and 2 are answered after 16 January 2017:

a) Does the principle of loyalty laid down in Article 3 of the EEA Agreement preclude national courts, in all circumstances, from calling the validity of decisions of the EFTA Court into question?

b) InPage
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the event that question 3a is answered in the negative: Which circumstances would allow national courts to question the validity of decisions of the EFTA Court, without thereby being in breach of the principle of loyalty laid down in Article 3 of the EEA Agreement?

10 The referring court states that the grounds for raising this question are, inter alia, as follows:

… the judge of the EFTA Court, Mr Per Christiansen, has been reappointed with effect from 17 January 2017, but only for a three-year term of office. However, Article 30(1) of the Surveillance and Court Agreement (SCA) provides that the Judges of the EFTA Court are appointed by common accord of the Governments of the EFTA States for a term of six years.

This raises the question, if, in the event the EFTA Court only issues its advisory opinion with respect to questions 1 and 2 after 16 January 2017, any such advisory opinion, issued according to Article 34 SCA, and constituting a decision of the EFTA Court, would even be valid for the purposes of Article 29 SCA.

11 On the same date, Norges Juristforbund, the Norwegian Judges’ Association, wrote an open letter to the Norwegian Government expressing its concerns regarding ESA/Court Committee Decision No 5 of 1 December 2016.

12 On 22 December 2016, the Princely Court of Appeal submitted a request to the Court for an accelerated procedure to be applied in this case, pursuant to Article 97a of the Rules of Procedure (“RoP”). As regards the first two questions, the request refers to the fact that, in the national proceedings, Mr Nobile had indicated his need for a speedy resolution of the matter. The request states further that Mr Nobile urgently requires the insurance cover claimed in order to pursue the legal matters affected by it, as well as to avoid any negativePage
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consequences, such as the possibility of the claim becoming statute barred or to prevent evidence for subsequent proceedings from being lost. DAS, too, in its previous submissions, had informed the national court that it was not least in Mr Nobile’s interest to obtain legal certainty as soon as possible. Finally, the Princely Court of Appeal made reference to the Order of the President of 30 September 2014 in Case E-18/14 Wow air ehf [2014] EFTA Ct. Rep. 1304.

13 As regards the third question referred, the national court stated:

If the decisions of the EFTA Court (and accordingly also advisory opinions issued pursuant to Article 34 SCA) were invalid, due to the circumstances raised in the request, and if the referring court was entitled to address this, the request for a preliminary decision would, in any event, be irrelevant for the appeal proceedings in respect of questions 1 and 2, and would only constitute an unnecessary delay of the proceedings. Thus, it is imperative also with regard to the questions referred to at point 3 of the request that they are dealt with by way of accelerated procedure, in accordance with Article 97a of the Rules of Procedure, which is hereby expressly requested.

14 On 11 January 2017, the Court ruled that the third question referred was to be addressed separately as a preliminary matter in the form of a decision. The President and Judge Per Christiansen were recused for that part of the case (see Decision of the Court of 14 February 2017 in Case E-21/16 Nobile, paragraph 11). They were replaced by ad hoc Judges Martin Ospelt and Siri Teigum respectively, pursuant to the fourth paragraph of Article 30 SCA. In the respective proceedings, the two ad hoc judges sat together with Acting President Páll Hreinsson.

15 OnPage
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13 January 2017, the ESA/Court Committee adopted Decision No 1 of 2017 on the re-appointment of a Judge to the EFTA Court. ESA/Court Committee Decision No 5 of 1 December 2016 was repealed and Per Christiansen was unconditionally re-appointed as a Judge of the Court under the terms of the SCA for a period of six years with effect from 17 January 2017. The new Decision did not set out any reasons why ESA/Court Committee Decision No 5 of 1 December 2016 was repealed and replaced.

16 On 14 February 2017, the Court rendered its Decision in Case E-21/16 Nobile. It held in paragraphs 16 to 23 of this Decision:

16. Any assessment of the lawfulness of the Court’s composition, particularly concerning its independence and impartiality, requires that due account is taken of several important factors. First, the principle of judicial independence is one of the fundamental values of the administration of justice. This principle is reflected, inter alia, in Articles 2 and 15 of the Statute of the Court and Article 3 RoP. Second, it is vital not only that judges are independent and fair, they must also appear to be so. Third, maintaining judicial independence requires that the relevant rules for judicial appointments, as set out in Article 30 SCA, must be strictly observed. Any other approach could lead to the erosion of public confidence in the Court and thereby undermine its appearance of independence and impartiality.

17. The ESA/Court Committee decided on 1 December 2016 to re-appoint Judge Per Christiansen for a non-renewable period of three years with effect from 17 January 2017. It was this event that led the referring court to raise the third question, since the first paragraph of Article 30 SCA provides that Judges shall be appointed for a term of six years.

18. ThePage
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preamble to ESA/Court Committee Decision of 1 December 2016 does not explain why a reference is made in the recitals to the statutory retirement age for Norwegian Supreme Court Judges. The SCA and the Statute of the Court do not contain a corresponding provision.

19. The statement in the recitals of the ESA/Court Committee Decision of 1 December 2016 that the decision “is without prejudice to the term of office of any judge who may be reappointed in the future” raises questions whether the original decision to re-appoint Judge Christiansen was made on an objective basis.

20. Most importantly, the ESA/Court Committee Decision of 1 December 2016 did not address the grounds on which a term of three years could be reconciled with Article 30 SCA, which expressly provides for a term of six years, both for the appointment and the re-appointment of a Judge. This term aims at protecting the independence of the Judges.

21. Irrespective of those considerations, the Court must take account of ESA/Court Committee Decision 2017 No 1 of 13 January 2017, which repealed the ESA/Court Committee Decision of 1 December 2016 and re-appointed Judge Per Christiansen for a term of six years. The new decision is unambiguous and provides for a term that is in accordance with Article 30 SCA. Consequently, there can be no doubt as to the lawfulness of the Court’s composition from 17 January 2017.

22. It follows that, after this decision has been rendered, the substantive part of the present proceedings, namely the first two questions referred, may be addressed by the Court’s three regular Judges.

23. The Court therefore concludes that, from 17 January 2017, it is lawfully composed in a manner that ensures its independence and impartiality.

II FindingsPage
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17 Article 97a(1) RoP provides that at the request of the national court the President may exceptionally decide, on a proposal from the Judge Rapporteur, to apply an accelerated procedure derogating from the provisions of these Rules to a reference for an advisory opinion, where the circumstances referred to establish that a ruling on the question put to the Court is a matter of exceptional urgency. In that event, the President may immediately fix the date for the hearing, which shall be notified to the parties in the main proceedings and to the other persons referred to in Article 20 of the Statute when the decision making the reference is served (see Order of the President in Wow air ehf. cited above, paragraph 6).

18 As a matter of principle, the spirit of cooperation between the Court and the national court speaks in favour of granting the request (see Order of the President in Wow air ehf. cited above, paragraph 7).

19 However, having heard the Judge Rapporteur, the President, pursuant to Article 97a(1) RoP, has decided not to apply an accelerated procedure, on the basis that a ruling on the questions referred is not a matter of exceptional urgency, for the reasons set out below.

20 As regards the first two questions referred by the Princely Court of Appeal, the circumstances are not such as to constitute a matter of exceptional urgency. The underlying case concerns insurance cover for the legal expenses in a tenancy dispute. Although the issue whether the Appellant is entitled to a free choice of lawyer pursuant to Article 201(1)(a) of the Solvency II Directive is certainly important, the outcome of this case – whatever it may be – will in all probability not prevent the Appellant from pursuing an action against the landlady.

21 ThePage
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third question, whether the Court is lawfully composed from 17 January 2017 onwards, would, however, in principle, be a matter of exceptional urgency because it touches upon the Court’s integrity.

22 There are indications that the nomination of Judge Christiansen for an abridged term by the Government of Norway was not free of political considerations. (See the description of events and the conclusions of Mads Andenæs and Halvard Haukeland Fredriksen in their article “EFTA-domstolen under press”, forthcoming in Europarättslig tidskrift No 1 2017.)

23 In Europe, concerns as to the independence of adjudicating bodies have recently been voiced in public debate and the utmost importance attached to the guarantees securing the independence of adjudicating bodies has been addressed in judicial proceedings on several occasions (compare, for example, the judgment in Commission v Hungary, C-288/12, ECLI:EU:C:2014:237; Commission v Hungary, C286/12, EU:C:2012:687; and the Order of the President in the same case, applying an expedited procedure: EU:C:2012:469; see also the judgments of the European Court of Human Rights of 23 June 2016 in Baka v. Hungary, Application no. 2061/12, and 9 June 1998 in Incal v. Turkey, Application no. 22678/93).

24 The provisions of the EEA Agreement are, to a great extent, intended for the benefit of individuals and economic operators throughout the European Economic Area. Therefore, the proper functioning of the Agreement is dependent on those actors being able to rely on the rights intended for their benefit (see Case E-9/97 Sveinbjörnsdóttir [1998] EFTA Ct. Rep. 95, paragraph 58). Accordingly, Article 108(2) EEA provides that the EFTA States shall establish a court of justice. This is not only important for individuals and economic operators of the EFTA States, but also, on a reciprocal basis, for their counterparts in the EU Member States.

25 Consequently,Page
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the Court assumes an essential role in the EEA legal order and the proper composition of the Court is key to the observance of the rights and obligations flowing from the EEA Agreement. Without an independent court, the purpose of the Agreement would be rendered nugatory and the EFTA States would fail to safeguard the protection of the rights of individuals and economic operators. To maintain the independence of the judiciary is not a privilege for judges, but a guarantee for the respect of these rights and a bulwark of the democratic order.

26 The first and second paragraphs of Article 30 SCA provide that the judges to the Court shall be appointed or re-appointed for a term of six years. This six-year term is mandatory and constitutes a minimum protection of judicial independence. It is an essential part of the judicial constitution (known in German as Gerichtsverfassung) of the EFTA pillar. The right to a six-year term cannot be waived by individual judges.

27 Therefore, any doubts raised as to the independence or impartiality of the Court demand swift resolution in order to ensure the proper functioning of the EEA Agreement and in particular the respect for its fundamental principles.

28 However, the consequences of the Court’s findings in its Decision of 14 February 2017, as set out in paragraph 16 above, are such that the circumstances that existed when the national court lodged its request for an accelerated procedure no longer exist.

29 As a result, the request to apply an accelerated procedure, pursuant to Article 97a RoP, derogating from the provisions of the Rules of Procedure to a reference for an advisory opinion is denied.

OnPage
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those grounds,

The President

hereby orders:

The request to apply an accelerated procedure, pursuant to Article 97a of the Rules of Procedure, derogating from the provisions of the Rules of Procedure to a reference for an advisory opinion is denied.

Gunnar Selvik
Registrar

Carl Baudenbacher
President

ReportPage
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for the Hearing

in Case E-21/16

REQUEST to the Court pursuant to Article 34 of the Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice by the Princely Court of Appeal (Fürstliches Obergericht), in a case pending before it between

Pascal Nobile

and

DAS Rechtsschutz-Versicherungs AG

concerning the interpretation of Article 201(1)(a) of Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II).

I Introduction

1 By a letter of 20 December 2016, registered at the Court on the same date, the Princely Court of Appeal (Fürstliches Obergericht) made a request for an advisory opinion in a case pending before it between Mr Pascal Nobile (“the appellant”) and DAS Rechtsschutz-Versicherungs AG (“DAS” or “the respondent”).

2 The case before the referring court concerns the scope of DAS’s obligation under a legal expenses insurance entered into with Mr Nobile. Under the terms of the insurance, the insurer is released from its obligation under the insurance if the insured person mandatesPage
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an attorney to represent his interests without first obtaining the consent of the insurer. The referring court wishes to know whether such a contractual agreement is compatible with Article 201(1)(a) of Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) (OJ 2009 L 335, p. 1) (“the Directive”).

II Legal background

EEA law

3 The Directive was incorporated in the Agreement on the European Economic Area (“the EEA Agreement” or “EEA”) by Joint Committee Decision No 78/2011 of 1 July 2011 (OJ 2011 L 262, p. 45), which added it as point 1 of Annex IX (Financial services). The Directive repeals several directives previously included in Annex IX to the EEA Agreement. The date of repeal, originally set to 1 November 2012, was postponed twice. Most recently, Directive 2013/58/EU (OJ 2013 L 341, p. 1), which was incorporated to the EEA Agreement by Joint Committee Decision No 128/2014 of 27 June 2014 (OJ 2014 L 342, p. 27), set the date of repeal to 1 January 2016. Consequently, Council Directive 87/344/EEC of 22 June 1987 on the coordination of laws, regulations and administrative provisions relating to legal expenses insurance (OJ 1987 L 185, p. 77) was repealed with effect from 1Page
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 January 2016. The facts of the present case took place prior to 1 January 2016. However, the relevant provisions of Directive 87/344/EEC and Directive 2009/138/EC are in substance identical.

4 Recitals 82 and 83 in the preamble to the Directive read:

(82) In the interest of the protection of insured persons, national law concerning legal expenses insurance should be harmonised. Any conflicts of interest arising, in particular, from the fact that the insurance undertaking is covering another person or is covering a person in respect of both legal expenses and any other class of insurance should be precluded as far as possible or resolved. To that end, a suitable level of protection of policy holders can be achieved by different means. Whichever solution is adopted, the interest of persons having legal expenses cover should be protected by equivalent safeguards.

(83) Conflicts between insured persons and insurance undertakings covering legal expenses should be settled in the fairest and speediest manner possible. It is therefore appropriate that Member States provide for an arbitration procedure or a procedure offering comparable guarantees.

5 Title II, Chapter II, Section 4 of the Directive contains provisions on legal expenses insurance. Its scope is defined in Article 198. Paragraph 1 of that provision reads:

1. This Section shall apply to legal expenses insurance referred to in class 17 in Part A of Annex I whereby an insurance undertaking promises, against the payment of a premium, to bear the costs of legal proceedings and to provide other services directly linked to insurance cover, in particular with a view to the following:

(a) securingPage
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compensation for the loss, damage or injury suffered by the insured person, by settlement out of court or through civil or criminal proceedings;

(b) defending or representing the insured person in civil, criminal, administrative or other proceedings or in respect of any claim made against that person.

6 Article 200(1) of the Directive obliges the EEA States to ensure that insurance undertakings adopt at least one of three methods for the management of claims as set out in paragraphs 2, 3 and 4 of that provision. The option provided for in Article 200(4) reads:

The contract shall provide that the insured persons may instruct a lawyer of their choice or, to the extent that national law so permits, any other appropriately qualified person, from the moment that those insured persons have a claim under that contract.

7 Article 201 of the Directive reads:

Free choice of lawyer

1. Any contract of legal expenses insurance shall expressly provide that:

(a) where recourse is had to a lawyer or other person appropriately qualified according to national law in order to defend, represent or serve the interests of the insured person in any inquiry or proceedings, that insured person shall be free to choose such lawyer or other person;

(b) thePage
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insured persons shall be free to choose a lawyer or, where they so prefer and to the extent that national law so permits, any other appropriately qualified person, to serve their interests whenever a conflict of interests arises.

2. For the purposes of this Section ‘lawyer’ means any person entitled to pursue his professional activities under one of the denominations laid down in Council Directive 77/249/EEC of 22 March 1977 to facilitate the effective exercise by lawyers of freedom to provide services.

8 Article 203 of the Directive reads:

Arbitration

Member States shall, for the settlement of any dispute between the legal expenses insurance undertaking and the insured and without prejudice to any right of appeal to a judicial body which might be provided for by national law, provide for arbitration or other procedures offering comparable guarantees of objectivity.

The insurance contract shall provide for the right of the insured person to have recourse to such procedures.

National law

9 Article 201 of the Directive is implemented in Liechtenstein law by Article 60 of the Insurance Contracts Act (Versicherungsvertragsgesetz, LR 215.229.1), which reads:

AnyPage
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contract of legal expenses insurance shall expressly provide that:

(a) Where recourse is had to a lawyer or other person appropriately qualified in order to defend, represent or serve the interests of the insured person in any inquiry or proceedings, that insured person shall be free to choose such lawyer or other person;

(b) The insured person shall be free to choose a lawyer or any other appropriately qualified person, to serve his interests whenever a conflict of interests arises.

III Facts and procedure

10 The respondent, DAS, is a public limited liability company under Swiss law. It entered into a contract for legal expenses insurance with the appellant, Mr Nobile. The contract is subject to the general terms and conditions of insurance of DAS. Under those terms and conditions, DAS grants insurance cover for legal expenses inter alia in tenancy disputes with landlords.

11 Article 18 of the terms and conditions obliges the insured person immediately to inform DAS of any legal case that could give rise to its involvement under the insurance contract.

12 Article 19 of the terms and conditions is headed “Conduct of the case” and reads:

1. The DAS legal service shall advise the insured person as to his rights, and safeguard his interests. The insured person shall provide DAS with all requisite authorisations.

2. ThePage
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insured person shall leave the conduct of the case exclusively to DAS. Without prior consent of DAS, the insured person shall not instruct any attorneys, experts, etc., nor shall he commence proceedings, take any legal steps, or agree to any settlements. The insured person shall not enter into any fee agreement with the instructed attorney.

4. In the event that there is a conflict of interests (representation of different insured persons with opposing interests) or where, in view of any inquiry or proceedings, it becomes necessary to instruct an external lawyer (Anwaltsmonopol), the insured person shall be free to choose a legal representative with the requisite qualifications, resident in the district of the court. In the event that DAS rejects the suggested attorney, the insured person shall nominate three other attorneys from different law firms, and resident in the district of the court, from whom DAS shall select one. No reason needs to be given for rejecting an attorney.

13. Article 22 of the terms and conditions reads:

Any culpable breach of contractual duties by the insured person shall entitle DAS to refuse its performance.

14 From 1 September 2014, Mr Nobile rented a flat in Liechtenstein. The tenancy agreement was terminated by the property owner with effect from 30 September 2015. A dispute arose concerning the financial settlement after the termination.

15 From March 2015 onwards, there had been recurring phone contact between Mr Nobile’s spouse and DAS concerning the possible presence of mould in the flat, and subsequently also concerning the property owner’s termination of the agreement and the recovery of thePage
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deposit of CHF 1 900. DAS also corresponded with the property owner. The latter eventually returned part of the deposit.

16 In autumn 2015, without informing DAS in advance, Mr Nobile provided a lawyer, Mr Antonius Falkner, with a power of attorney. Mr Falkner subsequently requested DAS to cover the costs of legal proceedings against the property owner concerning, first, recovery of the remaining deposit, and second, a retrospective rent reduction of at least CHF 500 per month due to the alleged presence of mould during the tenancy. DAS rejected this request, alleging that Mr Nobile had breached his contractual obligations by not leaving the conduct of the case exclusively to DAS.

17 Mr Nobile then lodged proceedings against DAS before the Princely Court (Fürstliches Landgericht), seeking a declaration that DAS was liable to provide legal expenses insurance cover in respect of the proceedings against the property owner. However, the Princely Court dismissed the action by a judgment of 27 July 2016. It held that the contract provision granting DAS an exclusive right to conduct the case was compatible with Article 60 of the Insurance Contracts Act. The free choice of a lawyer only applied, as a rule, in judicial or administrative proceedings. It did not apply at the stage of notification of a claim, for the assessment of the legal and factual situation, or for any efforts to settle matters out of court. In the opinion of the Princely Court, the dispute between Mr Nobile and the property owner was still at the stage where DAS had an exclusive right to conduct the case. It therefore held that Mr Nobile had no legitimate interest in a judgment declaring DAS liable under the insurance policy.

18 MrPage
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Nobile brought an appeal against that judgment before the Princely Court of Appeal, maintaining that he has a legitimate interest in the declaration sought. The respondent rejects this view.

19 According to the Princely Court of Appeal, the question whether the appellant has a legitimate interest in the declaratory judgment sought depends on whether he has breached his contractual duties by instructing Mr Falkner as attorney. That, in turn, depends on the interpretation of Article 201(1)(a) of the Directive.

20 By letters of 20 and 22 December 2016, the Princely Court of Appeal requested the Court to give an advisory opinion and to apply the accelerated procedure provided for in Article 97a of the Rules of Procedure (“RoP”). The following questions were referred:

1. Does Article 201(1)(a) of [Directive 2009/138/EC] preclude a contractual agreement between a legal expenses’ insurer and an insured person, according to which it is a breach of duty of the insured person, releasing the insurance company from its obligations, if the insured person mandates an attorney to represent his interests, without the consent of the provider of the legal expenses insurance, at a point in time when the insured person would be entitled to make a claim according to the legal expenses insurance contract?

2. In the event that Question 1 is answered in the negative: In initiating litigation proceedings, when does an inquiry or do proceedings referred to in Article 201(1)(a) of Directive 2009/138/EC start, leading to the free choice of a lawyer? Is the relevant point in time solely based on the formal commencementPage
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of court proceedings (the lawsuit being filed with the court), or are prior steps also included, and, if so, which ones?

21 The Princely Court of Appeal also referred a third question. That question raised the issue of the lawfulness of the composition of the Court. The Court decided to consider that question in a separate procedure before answering the first two questions referred. By a decision of 14 February 2017, the Court found that the composition of the Court was lawful.

22 By an order of 20 February 2017, the President of the Court held that a ruling on the remaining questions was not a matter of exceptional urgency and therefore denied the referring court’s request to apply the accelerated advisory opinion procedure.

IV Written observations

23 In accordance with Article 20 of the Statute of the Court and Article 97 RoP, written observations have been received from:

the respondent, represented by Batliner Wanger Batliner, Rechtsanwälte AG, Rechtsanwälte;

the Liechtenstein Government, represented by Dr. Andrea Entner-Koch, Director, and Monika Zelger-Jarnig, Senior Legal Officer, EEA Coordination Unit, acting as Agents;

thePage
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Czech Government, represented by Martin Smolek and Jiří Vláčil, Ministry of Foreign Affairs, acting as Agents;

the Slovak Government, represented by Iveta Hricová, General Director, Ministry of Foreign and European Affairs, acting as Agent;

the EFTA Surveillance Authority (“ESA”), represented by Carsten Zatschler and Michael Sánchez Rydelski, members of its Department of Legal & Executive Affairs, acting as Agents; and

the European Commission (“the Commission”), represented by Markéta Šimerdová and Karl-Philipp Wojcik, members of its Legal Service, acting as Agents.

V Summary of the arguments submitted

The respondent

24 The respondent submits that the case merely concerns a disagreement between the parties about the provision of benefits for the commencement of proceedings. The issue of the free choice of a lawyer only arises if such benefits are provided. In the present case, the respondent refused to provide such benefits on the basis of the appellant’s breach of contractual obligations. Consequently, the respondent argues that an answer to the first question is not necessary for the referring court to give judgment.

25 ShouldPage
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the Court consider the first question admissible, the respondent submits that it should be answered in the negative. The provision on the free choice of a lawyer does not answer the question whether an insurer may refuse to provide benefits in the event of a breach of contractual obligations. Nor does such a refusal restrict the free choice of a lawyer in any manner. The respondent has refused to provide benefits for the conduct of proceedings, without the question even arising whether the appellant has the right to specify a legal representative of his own choosing.

26 The respondent emphasises that it has acknowledged and provided general insurance coverage, that is clarification of the factual and legal situation and settlement attempts with the property owner. It only refused the specific benefits related to the conduct of proceedings. The reason for that refusal was that such proceedings were deemed to be unnecessary, disproportionate and premature. For this kind of disagreement, the respondent’s terms and conditions provide for an arbitration procedure as envisaged by Article 203 of the Directive. However, this has nothing to do whatsoever with the free choice of lawyer.

27 Turning to the second question referred, the respondent contends that the free choice of lawyer applies in view of any inquiry or proceedings, as clarified in its general terms and conditions. The right freely to choose a lawyer does not apply at the stage where the case is notified, the factual and legal position are assessed and in efforts out of court. Those steps are included in the phase in which the respondent has an exclusive right to conduct the case.

28 ThePage
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respondent argues that there is no dispute in the main proceedings as to which elements of preparatory work are covered by the free choice of a lawyer. The crucial issue in the main proceedings is whether the appellant breached his contractual obligations entitling the respondent to refuse benefits. In the respondent’s view, that question can and must be answered without an interpretation of the Directive. As with the first question, an answer to the second question referred is therefore not necessary to enable the referring court to give judgment.

29 Should the Court consider the second question admissible, the respondent submits that the insured person’s right freely to choose a lawyer is not triggered only when the proceedings are formally commenced, but also includes the preparatory work necessary to pursue the appropriate legal claim. However, the insured person cannot determine arbitrarily and without consultation of the insurance undertaking the time from which this right applies. Moreover, the right freely to choose a lawyer cannot come into play until the insurance undertaking has in fact provided an assurance of cost coverage for the commencement of proceedings. It is the prerogative of the insurance undertaking to determine whether to provide such coverage although in the event of a dispute an arbitration procedure is available.

30 The respondent proposes that the Court should:

… reject as inadmissible or unjustified the questions referred by the Princely Court of Appeal since the requirements of Article 34 SCA (i.e. that an answer to the question is necessary to enable the national court to give judgment and that the legal situation is unclear) are not satisfied. If the EFTA Court chooses to answer both questions, the defendant contends that the first question should be answered in the negative and the second question to the effect that in litigation proceedings an inquiry orPage
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proceedings does not begin only on its formal commencement (the filing of the lawsuit with the court) but already with the preparatory work necessary to pursue the appropriate claim.

The Liechtenstein Government

31 The Liechtenstein Government submits that the Directive is governed by the spirit of consumer protection. The free choice of lawyer provided for in Article 201(1)(a) of the Directive is an explicit guarantee that insurers must comply with in all contracts for legal expenses insurance at all times for the protection and benefit of policy holders.1

1 Reference is made, inter alia, to the judgments in Massar, C-460/14, EU:C:2016:216, paragraph 23, and Büyüktipi, C-5/15, EU:C:2016:218, paragraph 21 and case law cited.

32 The Liechtenstein Government submits that, according to the wording of Article 201(1)(a), the free choice of lawyer applies in order to defend, represent or serve the interests of the insured person in any inquiry or proceedings. This cannot mean that insured persons are entitled to choose their lawyer only once the proceedings have started. The free choice of lawyer in view of representation in court or administrative proceedings implies that the freedom of choice must be assured prior to such proceedings in order to prepare them. The performance of activities such as the collection of information, the assessment of the legal situation and finally the preparation of proceedings or the drafting of a lawsuit are all carried out in order to represent an insured person in civil, criminal, administrative or other proceedings.2

2 Reference is made to the judgment in Massar, cited above, paragraph 20.

33 Consequently,Page
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the Liechtenstein Government contends that mandating a lawyer prior to any proceedings in order to prepare them and to protect the rights of the insured person has to be seen as an integral part of the freedom to choose a lawyer under Article 201(1)(a) of the Directive. It would undermine this right if the choice was made subject to the consent of the insurer. On the other hand, the freedom of choice does not necessarily oblige the insurer to offer full coverage when the insured person selects a lawyer who is more expensive than the insurer’s own preferred in-house or external lawyer.3

3 Reference is made to the judgment in Sneller, C-442/12, EU:C:2013:717, paragraph 27 and case law cited.

34 The Liechtenstein Government submits that the insurance contract in the present case appears not to conform to the requirements of the Directive or Article 60 of the Insurance Contracts Act on the free choice of lawyer. The disputed provisions of the terms and conditions are therefore not valid and cannot release the respondent from its obligations to ensure coverage.

35 The Liechtenstein Government proposes that the Court should give the following answer to the questions referred:

1. Article 201(1)(a) of [Directive 2009/138/EC] must be interpreted as precluding a contractual agreement between a legal expenses insurance and an insured person, according to which it is a breach of duty of the insured person, releasing the insurance company from its obligations, if the insured person mandates a lawyer to represent his interests, without the consent of the legal expenses insurance at aPage
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point in time when the insured person would be entitled to make a claim according to the legal expenses insurance contract.

2. In the light of the proposed answer to the first of the referred questions, it is no longer necessary to consider the second question.

The Czech Government

36 The Czech Government limits its observations to the first question referred. It submits that the Directive precludes contractual agreements of the kind referred to in that question. First, the right of the insured person to choose a lawyer pursuant to Article 201(1)(a) applies, according to its wording, in any inquiry or proceedings. By contrast, the insurance contract at issue allows for the insured person to be represented only by the insurer itself, unless the insurer agrees otherwise. Such a provision completely deprives the insured person of the freedom to choose a lawyer.

37 Second, the Czech Government points to the systemic structure of the Directive. The Directive provides for only one exception to the freedom to choose a lawyer, namely in cases arising from the use of road vehicles, as set out in Article 202.

38 Third,Page
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the Czech Government submits that the Directive’s purpose of protecting the interests of insured persons, as interpreted by the Court of Justice of the European Union (“the ECJ”), must lead to the conclusion that the Directive precludes the contractual agreement in question.4

4 Reference is made to the judgments in Eschig, C-199/08, EU:C:2009:538, paragraph 39, and Sneller, cited above, paragraphs 24 and 25.

39 The Czech Government proposes that the Court should give the following answer to the first question:

Article 201(1)(a) of [Directive 2009/138/EC] precludes a contractual agreement between a legal expenses insurance and an insured person, according to which it is a breach of duty of the insured person, releasing the insurance company from its obligations, if the insured person mandates an attorney to represent his interests, without the consent of the legal expenses insurance, at a point in time when the insured person would be entitled to make a claim according to the legal expenses insurance contract.

The Slovak Government

40 The Slovak Government acknowledges that the ECJ has ruled several times in favour of an extensive interpretation of Article 4(1)(a) of Directive 87/344/EEC, which corresponds to Article 201(1)(a) of the Directive.5 According to that interpretation, the free choice of a legal representative is excluded only until the moment when the insured personPage
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decides to instruct a chosen lawyer to bring an action. In the present case, the intention of Mr Nobile to instruct his lawyer to bring an action against the property owner appears also to activate his freedom to choose a lawyer.

5 Reference is made to the judgments in Eschig, cited above, Stark, C-293/10, EU:C:2011:355, and Sneller, cited above.

41 The Slovak Government stresses nonetheless that Article 200(2) to (4) of the Directive sets out three alternative solutions that insurance undertakings may adopt for the avoidance of conflicts of interest. In its view, too extensive an interpretation of Article 201(1)(a) of the Directive puts the independent significance of Article 200(2) and (3) seriously at stake.

ESA

42 ESA suggests dealing with the two questions together. The first issue to be considered is whether the right conferred by Article 201(1)(a) of the Directive arises before the formal commencement of court proceedings, which requires an interpretation of the terms inquiry and proceedings under this provision. The second issue is the extent to which contractual provisions such as those at issue, and in particular the requirement for prior consent in order to instruct a lawyer, undermine the free choice of lawyer.

43 ESA submits that Article 201(1)(a) of the Directive should be given a wide interpretation. The wording of that provision indicates that the right to choose a lawyer is not necessarily linked to the beginning of proceedings. Mandating a lawyer for the purpose of bringing an action before a court falls within the wording “in order to defend, represent or serve the interests of the insured person in any … proceedings”.Page
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Neither the Directive nor the former Directive 87/344/EEC distinguishes between the preparatory stage and the decision-making stage of inquiries and proceedings.6 Therefore, ESA submits that the right freely to choose a lawyer cannot be limited to the decision-making stage of proceedings, but also includes the preparatory stage.

6 Reference is made to the judgments in Massar, cited above, paragraph 21, and Büyüktipi, cited above, paragraph 19.

44 Considering the context and the objectives pursued by the rules of which the free choice of lawyer forms part, ESA observes that Article 201(1)(a) of the Directive seeks to protect broadly the interests of insured persons. The right to a free choice of lawyer is of general application and is obligatory in nature.7

7 Reference is made to the judgments in Eschig, cited above, paragraph 47; Stark, cited above, paragraph 29 and Sneller, cited above, paragraph 25.

45 ESA argues that, to the extent that court proceedings require representation by a qualified lawyer, instructing a lawyer is an indispensable preliminary stage for bringing an action to court. The freedom to choose a lawyer under Article 201(1)(a) of the Directive must therefore apply at the very least from the moment when the insured person instructs a lawyer for the purpose of initiating legal proceedings which require representation by a lawyer. In ESA’s view, the freedom should apply even if representation by a lawyer is not formally required in the national procedure concerned.8

8 Reference is made to the judgment in Sneller, cited above, paragraphs 30 to 32.

46 TurningPage
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to the contractual provisions at issue, ESA submits that the right to choose a lawyer does not necessarily in itself impinge on the insurer’s possibility to impose an obligation on the insured person to obtain its prior consent before taking steps – such as instructing a lawyer – liable to generate costs. Such a requirement may serve the interests of controlling costs, and it may enable the insurer to make non-binding recommendations to the insured person based on its expert knowledge of the market for lawyers’ services. However, the insurer cannot purport to exercise a contractual prerogative to control the conduct of the case if that has the effect of depriving the insured person of his ability to determine his legal representation freely.9

9 Reference is made to the judgment in Sneller, cited above, paragraph 23.

47 In ESA’s view, the insurance contract at issue appears to be in clear breach of the Directive, as well as Article 60 of the Insurance Contracts Act. The policy’s terms and conditions do not provide expressly, or even implicitly, for the insured person’s right freely to choose a lawyer. On the contrary, Article 19(4) of its terms and conditions of insurance allows DAS to reject any lawyer proposed. From a list of three provided by the insured person, it is then for DAS to choose the lawyer. In other words, the right freely to choose a lawyer is reversed to the benefit of DAS. In that context, ESA submits that to enforce a term requiring prior consent from DAS before instructing a lawyer would undermine the effectiveness of the right guaranteed by Article 201(1)(a) of the Directive, all the more so if accompaniedPage
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by a right for the insurer to decline cover in case of non-compliance, as envisaged in Article 22 of the terms and conditions of insurance.

48 ESA proposes that the Court should give the following answers to the questions referred:

1. Article 201(1)(a) of [Directive 2009/138/EC] must be interpreted as guaranteeing a free choice of lawyer from the moment when an insured person has a need of legal protection in an indispensable stage of proceedings or an inquiry.

2. Article 201(1)(a) of Directive 2009/138/EC must be interpreted as precluding the enforcement of contractual provisions which fail to expressly provide that the insured person shall be free to choose a lawyer, which purport to impose limitations on the freedom to choose a lawyer, and which purport to release the insurance company from its obligations if the insured person instructs a lawyer without prior consent of the insurer.

The Commission

49 As regards the first question, the Commission submits that a broad interpretation of Article 201(1)(a) of the Directive is called for, bearing in mind the provision’s purpose. Consequently, an insured person must have the freedom to choose his own lawyer for the purposePage
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of any judicial or administrative proceedings. This freedom protects broadly the interests of insured persons, is of general application and is obligatory in nature.10

10 Reference is made to the judgments in Eschig, paragraphs 45 to 47, Stark, paragraphs 28 and 29, Sneller, paragraphs 24 and 25, Massar, paragraphs 22 and 23, and Büyüktipi, paragraph 21, all cited above.

50 On the Commission’s understanding, the contractual agreement at issue appears to require the insured person to notify the insurer of the claim and the intention to instruct an external lawyer, after which the insurer can give or withhold its consent to mandate an external lawyer and to the particular lawyer proposed.

51 In relation to these elements of the agreement, the Commission submits, first, that it is not compatible with Article 201(1)(a) of the Directive to let the insurer decide whether recourse to an external lawyer is necessary in order for the requisite cover to be provided under the contract.11

11 Reference is made to the judgment in Sneller, cited above.

52 Moreover, the Commission contends that a contractual clause imposing a system whereby the insurer can veto a proposed lawyer and instead chooses a lawyer from three others proposed by the insured person, which the insured person must comply with in order to obtain insurance cover, is precluded by Article 201(1)(a) of the Directive. Such a system would in the Commission’s view generate the same effects already addressed in Sneller.

53 ThePage
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Commission finally observes that notification requirements are not normally as such automatically precluded by Article 201(1)(a) of the Directive. Nevertheless, such requirements are only permissible to the extent that they do not render the principles laid down by the Directive meaningless.12 In particular, they must not de facto render impossible a reasonable choice of lawyer or representative by the insured person.13

12 Reference is made to the judgments in Eschig, paragraphs 65 and 66, Massar, paragraph 27, and Büyüktipi, paragraph 25, all cited above.

13 Reference is made to the judgments in Stark, paragraph 33, and Sneller, paragraph 27, both cited above.

54 Turning to the second question, the Commission submits that it does not follow from the wording of Article 201(1)(a) of the Directive that proceedings have to already have commenced for the right freely to choose a lawyer to be triggered. Article 201(1)(a) does not distinguish between the preparatory stage and the decision-making stage of an inquiry or proceedings.14 The words “in order to” suggest that free recourse to a lawyer must be possible when the objective for the involvement of a qualified person was, in the mind of the insured person, to defend, represent or serve his interests.

14 Reference is made to the judgments in Massar, paragraph 21, and Büyüktipi, paragraph 19, both cited above.

55 In the Commission’s view, such an interpretation is also supported by the objective of Article 201(1)(a) of the Directive.15 Bringing an action to a civil court requires a fair amount of preparation and the determination of a number of legal questions, which is dependent on legal knowledge. It would be neither procedurally economic, nor would it sufficiently protect the interests of the insured if during the decisivePage
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phase of the preparation of an action the insured could not freely choose his lawyer or representative, but was only entitled to do so once the lawsuit had been filed.

15 Reference is made to the judgment in Massar, cited above, paragraph 23.

56 On the other hand, the Commission submits that a purely subjective interpretation of when the right freely to choose a lawyer starts could lead to an unwarranted overextension of the scope of this right. In the Commission’s view, recourse may be had to a lawyer only when there are objectively identifiable factors indicating that the legal issue for which the insured person needs protection could, with a reasonable degree of probability, result in formal administrative or legal proceedings. Consequently, the extent to which “proceedings” should be interpreted as encompassing matters occurring before the formal commencement of legal proceedings might vary from case to case. However, the right freely to choose a lawyer should at a minimum include all indispensable preliminary stages to formal legal proceedings, where the insured person has a need for legal protection.

57 The Commission proposes that the Court should give the following answers to the questions referred:

1. Article 201(1)(a) of [Directive 2009/138/EC] should be interpreted as precluding a contractual agreement concerning legal expenses insurance according to which it is a breach of contract, releasing the insurer from performance of its obligations, if the insured mandates an external lawyer to represent his or her interests without the consent of the insurer, at a point in time when the insured person would be entitled to make a claim under that legal expenses insurance.

2. ArticlePage
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 201(1)(a) of [Directive 2009/138/EC] should be interpreted in that sense that the right freely to choose a lawyer does not take effect only at the moment of the commencement of formal legal proceedings through for instance filing a lawsuit in court, but already starts whenever an insured person would reasonably have recourse to a lawyer or representative with the intention to defend, represent or serve his interests in proceedings when there are objectively identifiable factors that the issue for which the insured person has a need for legal protection could with a reasonable degree of probability result in formal administrative or legal proceedings.

Per Christiansen
Judge-Rapporteur