Insurance claims and coverage

Third-party actions

Can a third party bring a direct action against an insurer for coverage?

As a general rule, third parties cannot bring a direct action against an insurer for coverage. However, in cases of liability insurance, the Insurance Contracts Act provides that a third party can bring a direct action against the insurer where liability insurance is required by statute. Liability insurance is required for certain professions as well as for motor vehicles. Also, a third party can bring a direct action under a liability insurance policy if the insured is bankrupt, subject to court-ordered liquidation or is a legal person that has been dissolved.

In a recent judgment, the Swedish Supreme Court ruled that the third party’s claim against the insurer was ancillary to a claim that the insured had under the policy. Therefore, the same limitations in terms of, for example, late notices of claims applicable for the insured apply in relation to the third party.

Further, in the case of liability insurance and where the insured is a natural person, a third party may bring a direct action against an insurer to the extent that damages cannot be claimed directly from the insured.

Late notice of claim

Can an insurer deny coverage based on late notice of claim without demonstrating prejudice?

The terms and conditions of insurance provided to consumers as well as to businesses often stipulate that the insured must notify the insurer of an insured event within a certain period. If the insured negligently fails to notify the insurer in time, the insurer may deny full or partial coverage to the extent the insurer has incurred damage as a result of the late notice, and it is deemed appropriate taking into account the particular circumstances of the case. However, regarding insurance provided to businesses, the insurance contract may include a requirement that the claim must always, and regardless of any negligence or damage incurred by the insurer, be notified to the insurer within a certain period for the insured to be entitled to compensation. This period may not be shorter than one year from the event that entitles to insurance cover occurred.

The statutory period of limitation for claims under a consumer insurance policy is 10 years from the date the insured became entitled to indemnification under the terms and conditions of the insurance policy (most often, the occurrence of an insured event). If the insured has notified the insurer of the claim within 10 years of that date, the insured shall have at least six months from the date of the final decision of the insurer to commence legal proceedings against the insurer, even if the insurer has made its final decision more than 10 years after the date of the occurrence of the insured event.

The statutory period of limitation of 10 years is applicable also with regard to insurance provided to businesses. However, upon written notice to the insured under a business insurance, the insurer may require the insured to commence legal proceedings regarding a claim within a certain period even if the statutory period of limitation has not ended. The period given to the insured in such a notice must not be less than one year.

Wrongful denial of claim

Is an insurer subject to extra-contractual exposure for wrongful denial of a claim?

An insurer would not be subject to extra-contractual exposure for wrongful denial of claims. If a court finds that a claim has been wrongfully denied, the insurer will be ordered to pay the claim and interest thereon. If the insured has suffered damage as a result of the wrongful denial, the insurer may also have to pay compensation for the damage. As a general rule, the insurer would also have to pay the policyholder’s legal expenses in the court proceedings.

Defence of claim

What triggers a liability insurer’s duty to defend a claim?

There are no specific statutory provisions on this matter. The terms and conditions of the individual policy will establish under which circumstances the insurer must defend the insured against a claim before a court or in arbitration proceedings.

Indemnity policies

For indemnity policies, what triggers the insurer’s payment obligations?

The insurer’s payment obligation is triggered when it has been established that an insured event, as defined by the terms and conditions of the insurance policy, has occurred. The policyholder has the burden of proof concerning the occurrence of the insured event, whereas the insurer has the burden of proof concerning exclusions that may apply.

As a general rule under the ICA, the insurer must indemnify the insured no later than one month after the insured has notified the claim and put forth reliable evidence of its right to indemnification unless the indemnification shall be paid out periodically under the terms of the policy. If the exact amount of the indemnification is uncertain but the insured is clearly entitled to at least some indemnification, the insured may request a partial payment of the final settlement.

Incontestability

Is there a period beyond which a life insurer cannot contest coverage based on misrepresentation in the application?

The insurer may only deny coverage based on misrepresentation if the death occurs within five years of the date when the information was provided by the insured, or if the insurer notifies the insured that it has become aware of the misrepresentation within the same period. The insurer may not deny coverage based on misrepresentation if the insurer was aware or reasonably should have been aware of the misrepresentation at the time the information was provided by the insured. Regardless of the foregoing, a life insurer can always deny coverage based on fraudulent deceit or if the insured has acted in bad faith.

Punitive damages

Are punitive damages insurable?

Punitive damages in a narrow sense – namely, not including administrative penalty fines, contractual penalty fines, etc – are not awarded under Swedish law. Damages that are similar to punitive damages can be awarded for infringements of certain laws, such as labour laws, intellectual property law and the Trade Secrets Act. Whether and to what extent punitive damages in the narrow sense are insurable under Swedish law is a debated and complex issue. Regardless, the terms and conditions of most liability insurance policies exclude administrative penalty fines, contractual penalty fines and punitive damages. However, in this regard, the Swedish Supreme Court held in a recent case that a clause in a liability insurance policy, which excluded contractual penalty fines, was not applicable regarding the relationship between a policyholder and the third party that had incurred a contractual penalty fine as a result of an act committed by the policyholder.

Excess insurer obligations

What is the obligation of an excess insurer to ‘drop down and defend’, and pay a claim, if the primary insurer is insolvent or its coverage is otherwise unavailable without full exhaustion of primary limits?

There is no statutory requirement for an excess insurer to ‘drop down and defend’ and pay a claim under these circumstances. The obligation of an excess insurer to provide coverage that would have otherwise been provided by the primary insurer will be regulated by the terms and conditions of the individual insurance policy.

Self-insurance default

What is an insurer’s obligation if the policy provides that the insured has a self-insured retention or deductible and is insolvent and unable to pay it?

If the insurance concerns the policyholder’s own risk, the insurer is only obliged to cover the amount exceeding the retention or deductible. In the case of liability insurance, where the insurer covers a third party’s claim against the insured, the insurer’s obligations depend on the type of insurance. In the case of motor vehicle insurance, the insurer will indemnify the third party in full and have a claim against the policyholder for retention or deductible, although this claim might be unenforceable if the insured is insolvent. In other cases, the terms and conditions of the policy will often hold that the insurer is liable only for the amount exceeding the retention or deductible. The third party will then have a claim against the insured for the remaining amount.

Claim priority

What is the order of priority for payment when there are multiple claims under the same policy?

In the case of liability insurance, where multiple parties have claims concerning the same occurrence and under the same policy, and the claims exceed the cover amount of the policy, each party shall be indemnified pro rata in relation to their claim.

Regarding other types of insurance, there are no statutory provisions on the priority between different claims under the same policy.

Allocation of payment

How are payments allocated among multiple policies triggered by the same claim?

If an insured event is covered by multiple policies, the insurers are jointly and severally liable to indemnify the insured to the extent the loss is covered by the individual policies. Thus, the insured may choose the insurer he or she wishes to make a claim against. The total indemnification from all insurers may not exceed the total loss of the insured. The insurers may agree on how the liabilities will be distributed between themselves. If the different insurers have not agreed otherwise, they will liable between themselves in proportion to the cover they have granted in the individual policies.

Disgorgement or restitution

Are disgorgement or restitution claims insurable losses?

Disgorgement and restitution claims generally have a punitive function under Swedish law and may, therefore, not be considered as an insurable interest.

Definition of occurrence

How do courts determine whether a single event resulting in multiple injuries or claims constitutes more than one occurrence under an insurance policy?

There is no statutory definition of ‘occurrence’ under Swedish law. Therefore, the definition of ‘occurrence’ will often be given in the terms and conditions of the insurance policy, although that is not always the case. In general, multiple injuries or claims will be considered as one occurrence if they are closely connected to each other in terms of time, place and reasonable causality. The extent to which these factors are taken into consideration and assessed by courts in the event of a dispute will vary greatly depending on the insurance line, types of injuries or losses and the particular circumstances of the case.

Rescission based on misstatements

Under what circumstances can misstatements in the application be the basis for rescission?

If the insured has fraudulently deceived the insurer or acted in bad faith by making misstatements in the application, the contract is considered void and the insurer is released from all its obligations under the contract, regardless of whether the insured is a consumer or business.

Regarding consumer insurance, wilful or neglectful misstatements in the application will otherwise be a basis for rescission if they constitute a gross breach of the insured’s obligation to disclose all relevant information in the application. Misstatements may also be the basis for full or partial denial of a claim to the extent the misstatements have had significance for the insurer’s assessment of the insured risks and approval of the application.

Regarding business insurance, wilful or neglectful misstatements in the application will be a basis for rescission if they constitute a significant breach of the disclosure obligation. These wilful or neglectful misstatements will also release the insurer from some or all of the obligations under the contract to the extent it can be shown that insurance would not have been approved, or would have been approved under different terms and conditions, if the correct information was provided. The threshold for when the contract may be rescinded is thus somewhat lower in relation to insurance for businesses.

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