A new bill aimed at replacing the Brazilian insurance law will soon be submitted to the Senate and a new insurance law is likely to be enacted in 2017.
The bill received input from market and insurance institutions such as:
- the National School of Insurance;
- the National Federation of General Insurance;
- the Sao Paulo Union of Insurance Brokers, Insurance Brokers, Reinsurance, Health, Life, Capitalisation and Private Pension Plans;
- the National Consumer Office;
- The National Confederation of General Insurance Companies, Private Pension and Life, Supplementary Health and Capitalisation;
- the National Federation of Private Insurance and Reinsurance Agents, Capitalisation, Private Pension, Insurance Brokerage and Reinsurance Companies; and
- the Superintendence of Private Insurance.
In general, the bill is exceedingly protectionist towards insureds and so overly detailed that it creates a framework of rules that is confusing and conflicts with other existing laws and regulations not only of an insurance nature, but also of a civil procedure one (eg, the Arbitration Act and the Consumer Defence Code).
The insurance bill's 129 articles have been divided into six main topics:
- Title I: general provisions (Articles 1 to 92);
- Title II: non-life insurance (Articles 93 to 109);
- Title III: life insurance (Articles 110 to 122);
- Title IV: mandatory insurance (Article 123);
- Title V: statute of limitations (Articles 124 to 125); and
- Title VI: final and transitory provisions (Articles 126 to 129).
The general provisions deal with the following matters:
- object and scope;
- insurance in favour of a third party;
- coinsurance and cumulative insurance;
- parties to the contract;
- formalisation and term of the contract;
- proof of contract;
- interpretation of the contract;
- claims; and
- claims regulation and adjustments.
While the non-life insurance chapter is divided into three topics (general provisions, liability insurance and transfer of interest), the remaining chapters are straightforward.
The bill expressly revokes the chapter of the Civil Code regarding insurance, as well as some articles on the statute of limitations.
Among the many changes introduced by the bill, the following are particularly noteworthy:
- The bill expressly establishes that the insurer's activities, in addition to insurance contracts, must include the contracts necessary for their full fruition (eg, reinsurance and retrocession).
- The bill introduces the mechanics for the assignment of contractual provisions of insurance.
- The bill introduces the concept of 'relevant' risk aggravation.
- The bill creates specific rules regarding the late payment of premiums, differentiating between the termination of a contract and its suspension and establishing the need to notify insureds that they must remedy a default within 15 days.
- The bill creates a condition for the foreclosure of a premium if the notification made to the insured is unsuccessful.
- The bill allows a sponsor to act as a substitute for the insured and beneficiary in litigation matters, so that the sponsor can demand the performance of the agreement.
- The bill defines 'sponsor' as the person which has an earlier and non-insurance relationship with the group of persons in whose benefit the insurance is contracted, without which the insurance will be considered individual.
- The bill determines that the leading co-insurer should replace other insurers in claims adjustments, arbitrations and judicial proceedings. In relation to co-insurance, although the bill expressly states that there is no joint liability among co-insurers, it creates a de facto joint liability by establishing that a breach of obligations by a co-insurer will not harm the insured, beneficiary or third party, which will be paid by the leading co-insurer.
- The bill establishes a maximum period of five business days for the insurance broker to provide any data that it receives to the parties of the relationship (ie, insured, insurer or third parties).
- The bill determines that the existence of an insurance contract may be proved by any legal means, not exclusively by testimony, and establishes that insurance contracts must be consensual and non-formal.
- The bill contains an extensive chapter on reinsurance, which establishes, among other things, that:
- the payment made directly by the reinsurer to the insured when the insurer is insolvent is valid, without differentiating whether it is an automatic or optional reinsurance contract, which conflicts with the existing legislation (Complementary Law 126/07); and
- reinsurers may be a party to an insurer's litigation as an assistant.
The relevant chapter contains several other procedural and material provisions that will significantly interfere with the existing system.
- The bill contains several rules on claim adjustments, with the provision that in case of doubt with respect to which criteria and formula should be applied, whatever option is more favourable to the insured should be adopted.
- The bill creates new rules regarding the statute of limitations with regard to:
- insurers when collecting premiums or any other claims against insureds and insurance sponsors;
- insurance brokers when collecting commissions;
- disputes between co-insurers;
- disputes between insurers, reinsurers and retrocessionaires; and
- the requirement for insureds to pay indemnity, capital, mathematical reserve, overdue instalments of temporary or life annuities and restitution of the premium.
- The bill determines that the Brazilian courts have exclusive jurisdiction to resolve disputes relating to insurance in Brazil. This directly conflicts with the Arbitration Act, which allows parties to choose foreign law and jurisdiction whenever arbitration is chosen as a form of dispute resolution.
- The bill determines that Brazilian jurisdiction is exclusive in relation to disputes between insurers, reinsurers and retrocessionaires, whether the dispute is in court or through arbitration. This also directly conflicts with the Arbitration Act.
The bill is not only overly protective of insureds to the detriment of insurers, but also conflicts with a number of existing laws and regulations.
Arguably, this version of the bill is diametrically opposed to what is desired in a new insurance law – that is, clear and straightforward minimalist legislation. It is hoped that the Senate will review the bill carefully, at least in order to remove the contradictions with other laws, as these provisions will only create unnecessary confusion and legal instability.
Once the Senate approves the bill, the new insurance law will come into force one year after its publication.
For further information on this topic please contact Marcio Mello Silva Baptista or Barbara Bassani de Souza at TozziniFreire Advogados by telephone (+55 11 50 86 50 00) or email (firstname.lastname@example.org or email@example.com). The TozziniFreire Advogados website can be accessed at www.tozzinifreire.com.br.
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