Towards the end of last year bankruptcy proceedings were initiated against Plus Forsikring AS, a relatively new Danish non-life insurance company. A number of policyholders were left without insurance cover, as attempts to persuade other insurance companies in Denmark to take on Plus Forsikring's portfolio had failed.

No guarantee fund exists to protect policyholders in the event that an insurance company goes bankrupt. Instead, the Danish Insurance Association offered Plus Forsikring's customers compensation for legitimate claims that were not addressed by the company's bankruptcy estate.

Although the company's bankruptcy is only the second case of its kind since 1904, and the first example of a bankruptcy within the insurance industry in 23 years, a debate quickly ensued about the need for a guarantee fund. As a result, the Danish Financial Supervisory Authority introduced a bill on behalf of the Ministry of Economic and Business Affairs, which was submitted for hearing and is expected to be tabled in Parliament on March 12 2003 with a view to speedy adoption.

The purpose of the bill is to establish a private, independent fund to deal with insurance claims that are not covered in the event of the bankruptcy of a non-life insurance company. All non-life insurance companies set up in Denmark must be a member of, and submit financial contributions to the fund.

However, the bill contains a number of limitations. It applies only to non-life insurance companies that write direct insurance and that are declared bankrupt. Furthermore, claims for compensation must arise out of insured risks located in Denmark. Thus, foreign activities of Danish non-life insurance companies through branches or cross-border trade in services will not be covered.

In addition, claims for compensation are limited to the following groups of persons:

  • holders of private insurance policies;
  • third parties who are insured against personal injury and/or property damage under motor vehicle liability insurance policies; and
  • third parties who are insured against personal injury under other liability insurance policies.

A claim must have accrued prior to the bankruptcy of the non-life insurance company or within four weeks of the claimant being notified of the bankruptcy by the trustee of the bankruptcy estate.

The bill contains essential elements of consumer protection, but the intention is not that the fund will take over the portfolio of the bankrupt company. Rather, the fund will contribute towards the settlement of the bankrupt company's liabilities towards policyholders.

Policyholders will still be required to take out new insurance as quickly as possible after bankruptcy, including statutory and voluntary insurance policies.

Once a bankruptcy order has been issued, the Financial Supervisory Authority must publish an advertisement in the daily newspapers detailing:

  • the bankruptcy itself;
  • the discontinuation of insurance cover;
  • the requirement to take out new statutory insurance and other comparable insurance; and
  • the notification of the claim to the guarantee fund.

The new fund may be used to reimburse the Danish Insurance Association for claims it has compensated by it in connection with teh bankruptcy of Plus Forsikring AS.

For further information on this topic please contact David Rubin or Thomas Birch at Bech-Bruun Dragsted by telephone (+45 7227 0000) or by fax (+45 7227 0027) or by email ([email protected] or [email protected]).