On September 7 2011 the Federal Department of Finance published an advance version of the parliamentary bill on the total revision of the Insurance Contract Act. On October 25 2011 the official text was published in the Federal Gazette.(1)
The existing act was enacted on April 2 1908 and has been partially revised several times since. On February 11 2003 an expert commission was formed with the mandate to establish a proposal for a totally revised act. The commission submitted its proposal to the Federal Department of Finance in August 2006, after which preparations were made for the consultation procedure. It began with the publication of the draft for a new Insurance Contract Act in January 2009 and ended on July 31 2009. The bill was then drafted on the basis of the findings of the consultation procedure.
The revised act is divided into four sections and 16 chapters, and consists of 131 articles. It has two annexes. The first annex lists the semi-mandatory provisions (which are amendable only in favour of the insured), while the second contains provisions of other federal acts that will be amended in the context of the revision (eg, a number of provisions of the Insurance Supervisory Act, some of which are mentioned below).
The draft act contained 126 articles, of which 113 were mandatory or semi-mandatory. As a consequence of widespread criticism during the consultation procedure, the revised act is less strict. Apart from a few (organisational) articles, it no longer contains mandatory provisions, while only 57 semi-mandatory provisions are now included. In the case of 'large risks' (the definition of which corresponds more or less to that used in the European Union), the parties are free to amend or disregard the semi-mandatory provisions (Article 2) and they are also entitled to choose the applicable law.
Nothing will change in relation to reinsurance. As is the case under the existing act, the revised act will not apply to reinsurance contracts. Its scope of application is limited to direct insurance (Article 1(2)).
Article 130 of the revised act deals with issues of transition. It states in its first paragraph that the revised act will apply to all insurance contracts concluded after its entry into force. Contract amendments that take place after the date of the enactment also fall under the revised act (Article 130(2)), while a limited number of provisions which are listed in Article 130(3) will immediately apply to all contracts.
Discussed below are selected provisions that introduce new elements into the act or are of general interest.
Right of revocation (Articles 7 and 8)
Under the new act, a policyholder will be entitled unilaterally to revoke the contract in writing within two weeks of the date of its conclusion. This right of revocation is granted to all policyholders (not only consumers) and with regard to all types of insurance (not only life insurance, as is the case generally in the European Union). The right of revocation is excluded for group insurance, preliminary confirmation of coverage and policies of less than one month.
Insurer's pre-contractual duty to inform (Articles 12 to 14)
The insurer's pre-contractual duty to inform the policyholder on a number of factors was introduced in the partial revision of act in 2006. This duty has now been extended. New duties include the duty to inform the policyholder of:
- the right of revocation;
- the fact that coverage will begin only upon payment of the premium (if it has been made part of the contract (Article 26));
- the timeframe within which a notice of loss must be filed (if such a timeframe is stipulated in the contract (Article 34)); and
- the consequences of the policyholder's failure to inform the insurer of an aggravation of risk in a timely manner (Article 45).
Such information must be provided in writing and in such a manner that the policyholder is able not only to take note of it before the contract is concluded, but also to understand it. The policyholder may terminate the contract if the insurer violates its information duty (Article 14).
Policyholder's pre-contractual duty to inform (Articles 15 to 22)
The proposed regulation concerning misrepresentation and non-disclosure corresponds in essence to that which was implemented in 2006, which introduced a new requirement that there be a causal nexus between the misrepresented or undisclosed fact and the subsequent loss, and substituted the insurer's right of termination for its right to revoke the contract. Article 19 removes the insurer's former right to refuse payment completely in case of misrepresentation or non-disclosure. Such refusal will be admissible only if the misrepresentation or non-disclosure was committed wilfully and knowingly, or if the insurer can prove that it would not have covered the risk had it known the non-disclosed or misrepresented fact. In all other cases, the insurer may merely reduce its payment in proportion to the gravity of the policyholder's fault.
Retroactive cover (Article 24)
Pursuant to Article 24, the parties may validly enter into an insurance contract that provides for retroactive cover. Article 9 of the existing Insurance Contract Act declares such a contract to be null and void. Under the revised act, this will be the case only if the policyholder (but not the insurer) knew or should have known that the loss had already occurred.
Default (Article 30)
The policyholder is in default if the premium is not paid either on a certain date agreed by the parties or upon receipt of a written reminder from the insurer. If the policyholder is in default, the insurer may request in writing that the premium be paid within a time limit of at least four weeks (ie, two weeks more than required by the existing Article 20), and may declare at the same time that in the case of non-payment the contract is terminated with effect from the end of that time limit. Thus, the default rules that apply to insurance contracts are brought further into line with those that apply in regard to the other types of contract.
Premium adaption clause (Article 48)
A contract clause that entitles the insurer unilaterally to adapt (ie, increase) the premium during the policy period may be applied only if there has been an unforeseeable change of relevant facts and if the extent of the increase is "objectively justified". The policyholder may in turn terminate the contract on the date on which the premium increase would have become effective.
Contract termination (Article 52)
Every insurance contract may be terminated after three years, irrespective of whether the contract provides for a longer insurance period. The notice period is three months. On the other hand, the parties' right under the existing Article 42 to terminate the contract in case of a partial loss will be abolished. Article 52 does not apply to life insurance and sickness insurance.
Statute of limitations (Article 64)
While the existing prescription period for claims of the insured is two years (Article 46), the draft act proposed a prescription period of five years. Article 64 now prolongs that period to 10 years (which corresponds to the general prescription period that applies in regard to most types of contract). However, the prescription period begins not on the date on which the insurer's obligation becomes due, but rather on the date of the loss. With regard to premium payments, the prescription period is five years.
Third-party liability insurance (Article 91)
Article 91 entitles the injured party not only to be informed by the insured of the existence of third-party liability insurance coverage, but also to bring a direct claim against the insurer. In that case, the insurer may also rely on those defences which would have been available had the insured brought the claim. Article 91 does not apply to non-mandatory liability insurance that covers financial loss.
Special provisions in treaty matters (Articles 118 to 128)
Articles 119 to 128 contain detailed provisions with regard to the applicable law and choice of law in non-life and life insurance. Pursuant to Article 118, these provisions apply only if a treaty exists which provides for mutual recognition of supervisory requirements and ensures that the other state applies rules that are equivalent to those in Switzerland. To date, Switzerland has concluded such a treaty only with Liechtenstein.
New rules have been introduced for insurance intermediaries and, in particular, for brokers. These rules are contained in Articles 65 to 70. Regrettably, the revised act has – contrary to the demands of the insurance industry in the consultation procedure – not standardised the terms used for agents and brokers. Instead, the revised act uses the terms 'agent' and 'broker', while the Insurance Supervisory Act in its present and its revised version uses the terms 'tied insurance intermediary' and 'non-tied insurance intermediary'. Neither body of law provides a clear definition; the new Article 40 of the revised Insurance Supervisory Act (which is titled "Definition") states merely that non-tied insurance intermediaries are neither legally nor economically tied to an insurer, and that all other insurance intermediaries are deemed to be tied insurance intermediaries. It also provides that the Federal Council must regulate the details (presently contained in Article 183 of the Insurance Supervisory Ordinance). More clarity and certainty with regard to both terminology and definition would have been desirable – particularly in view of the fact that Article 41 of the revised Insurance Supervisory Act prohibits non-tied insurance intermediaries from acting as tied insurance intermediaries, and vice versa.
Remuneration of brokers (Article 66)
The requirement that the broker be paid by its client (ie, the policyholder) which was initially contained in Article 68 of the draft Insurance Contract Act has been dropped in light of intense criticism from the market. Article 66 now demands merely that the commission payment, if paid by a third party (notably the insurer), be fully and completely disclosed. This information must be given to the policyholder in writing before the insurance contract is concluded or amended. In particular, the broker must state the exact amount or, if that is not yet possible, the detailed formula as to how the amount will eventually be calculated. On the other hand, the revised Insurance Supervisory Act introduces a ban on contingent commissions (which was not part of the draft version of the act). Article 45(a) of the revised Insurance Supervisory Act prohibits agreements on the payment of additional commissions that depend on volume, growth or loss. However, prohibited are only payments of contingent commissions to brokers or non-tied insurance intermediaries respectively. No such prohibition exists for payments to agents (or tied insurance intermediaries respectively).
Information duties of the insurance intermediaries (Article 69)
Article 69 stipulates the duty of both brokers and agents to provide their clients, on the occasion of first contact, with written information on at least the following:
- its identity and address;
- whether the insurance intermediary is a broker or an agent;
- whether the insurance intermediary has been included in the register and, if so, in what capacity;
- whether the products offered in a certain insurance class are those of one or more insurers, and the identity of those insurers;
- the person that may be held liable in connection with the insurance intermediary's activity; and
- the handling of personal data including the purpose and type of data collection as well as data recipients and data storage.
The bill will eventually be discussed by the two parliamentary chambers, the National Council and the Council of States. Which chamber will start the debate is undecided. The debates are likely to begin in the Spring session (in February or March 2012), but this date is also yet to be confirmed. Following debates and votes in both chambers, the resulting differences will be resolved in a so-called 'differences procedure'. Once the final votes have been taken, the revised act may be enacted. The earliest that the revised act could take effect is January 1 2013, but a more realistic date is January 1 2014. Furthermore, should a referendum be demanded, the process will be delayed for another year or two. The revised act may yet undergo considerable changes during the course of the parliamentary debates.
For further information on this topic please contact Stefan Knecht at BADERTSCHER Rechtsanwälte AG by telephone (+41 44 266 20 66), fax (+41 1 266 20 70) or email ([email protected]).
(1) BBl 2011 7705 to 7864.