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The legal framework

i Sources of insurance law and regulation

Unlike some other countries in Latin America, Brazil has a highly regulated insurance sector. Basic insurance legislation is composed of several laws, as well as regulations enacted by the following federal authorities: the National Council of Private Insurance (CNSP) and SUSEP.

Decree-Law No. 73/1966, known as the Brazilian Insurance Law, created the Brazilian Private Insurance System (SNSP), which is formed by CNSP, SUSEP, accredited reinsurance and insurance companies, open private pension entities and capitalisation entities, as well as insurance and reinsurance brokers. Open private pension entities are subject to the provisions of Supplementary Law No. 109/2001, whereas capitalisation entities are governed by Decree-Law No. 261/1967.

The SNSP is composed of two governmental authorities, both of which are part of the Ministry of Finance. While CNSP has the authority to set out the general guidelines and rules of the Brazilian local insurance and reinsurance market, SUSEP has oversight over the activities of all players in this market, monitoring their respective businesses and, when applicable, giving prior approval to certain transactions involving regulated entities.

Reinsurers are classified into: (1) local (headquartered in Brazil), such as IRB Brasil Resseguros SA (IRB); (2) admitted (headquartered abroad but with a representative office in Brazil); and (3) occasional (headquartered abroad, without any representative office in Brazil). Insurance companies must be duly authorised to operate by SUSEP.

Insurance and reinsurance brokers must be duly enrolled as such with SUSEP before intermediating the sale of any insurance policy or conducting the intermediation of reinsurance treaties or contracts. In addition, reinsurance brokers’ corporate purpose must be exclusive, meaning that they cannot conduct any activity other than acting as a reinsurance broker.

It is also worth stressing the following laws, which – in one way or another – either apply directly to the entities that are part of the SNSP or otherwise have an impact on them:

  1. Supplementary Law No. 126/2007, which dismantled the IRB’s monopoly in the reinsurance market, sets out the ground rules that must be met by each type of reinsurer (as previously explained), and rules for residents in Brazil and companies headquartered in the country taking out insurance abroad.
  2. the Brazilian Civil Code (BCC), which dedicates an entire chapter to insurance contracts and the main principles that regulate the insured–insurer relationship;
  3. the Brazilian Consumer Protection Code, since the insured is considered a ‘consumer’ for legal purposes;
  4. The Code of Civil Procedure, which attempts to make litigation less time-consuming by developing and enhancing the rules related to alternative dispute resolution mechanisms (especially arbitration and mediation), rendering former court decisions by the superior courts binding and making a decision in a single case the model or precedent for other similar cases. Its rules are starting to be tested now, since it only became effective in March 2016.
  5. The BDPL, which regulates the commercial use of personal data by legal entities, adopting similar regulatory standards to those set by the European General Data Protection Regulation. In July 2019, the National Congress enacted an amendment to the BDPL to create the National Data Protection Authority, in charge of supervising and regulating the enforcement of the terms and conditions of the BDPL. The Authority will have powers to, among others, (1) request information regarding the processing of personal data by companies; (2) receive and process data breach notifications; and (3) impose administrative penalties for violations of the BDPL. Penalties or fines arising from breaches to the BDPL might reach 50 million Brazilian reais per violation.
  6. Bill of Law No. 29/2017, which sets out a whole new legal framework for SNSP players, triggering the need for new legislation to be enacted by the CNSP and SUSEP. Scrutiny of this bill by the National Congress continues during this year. (See Section V.iii.)
  7. Provisional Measure No. 881/2019, which significantly reduces bureaucracy for setting up businesses in Brazil, as well as state interference in this process. Experts understand that, whenever this provisional measure is converted into law, the relationship between market players and regulators and governmental authorities will change dramatically, improving the environment for doing business in Brazil. (See Section V.iv.)
  8. Bill of Law No. 1292/1995, which changes public procurement in Brazil and directly affects performance bonds in public works. (See Section V.v.)
ii Insurable risk

Section 757 of the BCC defines insurable risk as the legitimate interest of the insured in protecting a given asset, object or right against predetermined risks.

The legitimate interest must: (1) be licit, since the BCC prohibits any transaction concerning illicit purposes (including, but not limited to, agreements of any nature); (2) be economic, since a given value must be attributed to the object of the insurance coverage by the person retaining insurance, either limited to the sum of the value of the insured object, asset or right (when dealing with non-life insurance), or freely established pursuant to the will of the insured (when dealing with life insurance); and (3) precede the contract and remain effective throughout its term of effectiveness.

As a result of the requirements pending over the legitimate interest, illicit activities are not insurable and, as such, wilful misconduct or unlawful enrichment are standard excluded risks to all life and non-life products (BCC, Section 762). Regarding liability insurance, there is no concept of punitive damages in Brazil, since the BCC limits compensation in tort to the extent of actual damages inflicted on the victim (BCC, Section 944).

In terms of the regulation of insurable risk, in spite of legislation prohibiting coverage for illicit purposes, SUSEP allows coverage of civil and administrative sanctions in directors and officers (D&O) insurance (SUSEP Circular No. 553/2017). The term ‘civil and administrative sanctions’ means any penalty except for those arising from criminal offences (such as imprisonment). In this type of insurance, there is no restriction on anticipating defence costs, given that litigation in criminal cases is common and widely used. SUSEP has also stated that coverage for ransoms does not breach applicable law, as long as the insurance product has previously been approved by SUSEP (pursuant to SUSEP DETEC Letter No. 07/2008).

iii Fora and dispute resolution mechanisms

Insurance disputes in Brazil are heard before ordinary courts of the judiciary system or arbitration courts.

The judiciary system is divided into specialised courts and ordinary courts. Specialised courts include military, electoral and labour courts, while ordinary courts have jurisdiction to adjudicate all other issues. Since specialised courts do not exist for insurance matters, ordinary courts have jurisdiction over insurance disputes.

The ordinary courts are subdivided into federal and state courts. The jurisdiction to hear insurance disputes depends on the parties involved: federal courts have jurisdiction to hear cases involving the government and government-controlled corporations, and state courts adjudicate cases that do not fall within the jurisdiction of federal courts.

It is important to consider that both federal and state courts have two levels: (1) trial, where cases are filed and ruled by a single judge; and (2) appellate, where appeals are taken by panels usually comprising up to three justices, who are free to assess matters of fact and law.

Trial judges take office after passing a public examination. Justices are appointed to appellate courts based on criteria such as merit and length of service. One-fifth of appellate court seats are mandatorily fulfilled by members of the public prosecutor’s office and practising attorneys.

There are 27 state appellate courts (one for each state and the federal district) and five federal appellate courts in Brazil. Appeals against appellate court decisions may be filed with the Superior Court of Justice or the Federal Supreme Court, or both. If an appellate court decision arguably violates the federal law or the Federal Constitution, it may be challenged by appeals filed before the Superior Court of Justice or the Supreme Court.

The Superior Court of Justice is restricted to evaluating matters of law and it rules appeals against appellate court decisions that have arguably violated federal law or have given federal law an interpretation that differs from that handed down by another appellate court.

The Superior Court of Justice comprises 33 justices who are appointed by the President upon approval by the Senate, observing the following rules: (1) one-third of the justices must come from federal appellate courts; (2) one-third of the justices must come from state appellate courts; and (3) one-third of the justices must be private practitioners or public prosecutors.

The Supreme Court rules appeals against appellate court decisions that have arguably violated the Federal Constitution and to be given leave to appeal the appellant is required to provide evidence that the constitutional issues addressed in the appeal would have widespread repercussions.

The Supreme Court comprises 11 justices appointed by the President upon approval by the Senate.

It should be noted that Brazilian civil courts do not hold jury trials, as juries are only permitted in specific criminal proceedings, so insurance disputes are not subject to juries. Insurance disputes may be also subject to arbitration procedures, as they involve rights that can be the object of a transaction (see Section 1 of the Brazilian Arbitration Law).

The Brazilian Arbitration Law was inspired by the UNCITRAL Model Law, adopting a regime favourable to arbitration and following international standards, such as the separability of the arbitration agreement, the Kompetenz-Kompetenz principle and the impossibility of reviewing the arbitral award on the merits. Also, Brazilian courts have been very supportive to arbitration, offering a safe and favourable environment to its adoption. Domestic arbitral awards are considered final and binding on the parties and do not require recognition or confirmation by a court to be immediately enforced by the parties.

The annulment of domestic awards may be sought under very limited circumstances, within 90 days of the receipt of an award or a decision clarifying the award. Among the reasons for annulment or setting aside an arbitral award, we highlight the following:

  1. the arbitration agreement is null and void;
  2. the award was rendered by a biased arbitrator;
  3. the award exceeds the limits of the arbitration agreement;
  4. the award was rendered under nonfeasance, extortion or corruption;
  5. the award was rendered after the time limit; and
  6. due process was not observed during the arbitral proceedings.

Therefore, arbitration has been increasingly adopted in Brazil as a dispute resolution method compatible with insurance disputes.

Besides the judicial claims, there are administrative insurance disputes pending before regulatory agencies, such as SUSEP, the Consumer Protection Office (PROCON) and the National Supplementary Health Agency (ANS), which is the regulatory agency for private health insurance and private health plans. These agencies are responsible for reviewing administrative procedures concerning breaches of their respective regulations by insurers, reinsurers and brokers, triggering the imposition of penalties and other sanctions, as the case may be.