Czech insurance companies are currently facing thousands of complaints from unhappy buyers of investment life insurances policies. But the angry buyers have been hampered by the lack of Czech rules allowing them to bring so-called group or class actions. The government is now promising to act.
They say they were duped with promises of security, savings, and relatively high returns. But the flip side of the massive sales campaigns were exorbitant fees for selling agents and charges levied by the insurance companies themselves which buyers say they were not told about. In some cases, individual losses have mounted up to hundreds of thousands of crowns.
Financial arbitrators and courts have found in some cases for the unhappy clients. Jiří Chvojka is the media representative for some of the complainants, including himself, and argues that one court decision this week raises questions over the validity of more than 700,000 insurance contracts with around eight million others in the balance as a result of other actions.
ʺAt the moment there are more than 3,000 requests to be judged by the arbiter from different clients and all of the verdicts of the financial arbiter are basically similar and all of the contracts are basically the same. As for the court decision that was published yesterday, the judge was very clear about the basic standard of the contracts.ʺ
That is disputed by the insurance companies and by the sector regulator, the Czech National Bank, which say court decisions only apply to individual cases and do not set wider precedents.
Whatever the interpretation, the case has highlighted one significant loophole in the current Czech legal framework: the absence of rules allowing consumers to bring so-called group or class actions. These allow individuals to group together and fight cases, often in such cases of consumer rights, mass sales, or major accidents, where they would probably be deterred from launching actions on their own.
On Wednesday the Czech Cabinet agreed to address that problem by coming up with legislation that would pave the way for such class actions. Justice minister Robert Pelikán explained the reasoning for the move:
ʺThis should tackle so-called diffuse damages. I will explain it this way: when someone is tricked out of a billion crowns something will probably happen. But when 10 million people lose 100 crowns and the total damage is the same nothing might happen because individuals are not willing to waste their time and incur the costs of launching court action.ʺ
The Cabinet decision is in principle only with the minister saying it will likely take until the first quarter of 2019 for legislation to be prepared for parliamentary approval.
Jiří Chvojka says some Czech insurance claimants have got together to try and get a court injunction now to stop the companies from selling the problem policies but that as far as joint action goes so far:
ʺThis is the only form of group action that is possible now under Czech law. But if there was a law to make more of it, that would be great.ʺ