Preliminary and jurisdictional considerations in insurance litigation
In what fora are insurance disputes litigated?
The Swedish Insurance Contracts Act (ICA) contains no provision regarding disputes and litigation. Instead, litigation related to the determination and settlement of insurance indemnities is governed by the procedural rules for civil law cases laid down in the Swedish Code of Judicial Procedure. For civil law cases, the competent court is in general the court of the place where the defendant resides. A corporation is considered to reside at the place where its board has its seat or, if the board has no permanent seat or there is no board, at the place from which the corporation’s administration is carried out.
Moreover, an action regarding tortious acts may be instituted in the court at the place where the act that caused the damage was performed or the damages occurred. When the act was performed or the damages occurred in two or more court districts, legal actions may be instituted in any of those districts.
According to legislation by the European Union, an insurer domiciled in a member state of the EU may be litigated in another member state in the courts of the place where the claimant is domiciled. The insured’s right to initiate proceedings before courts in the country where the insured is domiciled is mandatory, and thus cannot be contracted out through the insurance policy. However, the parties may agree that an existing dispute shall be instituted in a certain court. Such agreement is valid and enforceable. Moreover, reinsurance policies may stipulate that an exclusive court is competent, as the mandatory provisions referred to above are not applicable to reinsurance policies.
A losing party can appeal Swedish court judgments in insurance litigations in the same way as other civil proceedings. A court judgment rendered by a Swedish district court (the court of first instance) may be appealed to a court of appeal within three weeks from the judgment being rendered. If a leave to appeal is granted, the court of appeal will try the merits of the case. A judgment rendered by the court of appeal may be appealed to the Supreme Court. The requirements for a leave to appeal to the Supreme Court are high.
Moreover, an insurance policy may stipulate that disputes between the insurer and the insured shall be settled by arbitration, depending on the kind of insurance in question. Merger and acquisition (M&A) insurance and reinsurance policies are primarily referred to arbitration.
Subrogation disputes (ie, when the insurer has indemnified the insured and subrogates against a third party) are sometimes settled through arbitration. This is, inter alia, often the case in disputes between the insurer and the insured’s contractor in the field of construction. As a main principle, an arbitration clause between the insured and a contractor is also applicable to the insurer in a matter of subrogation.
Causes of action
When do insurance-related causes of action accrue?
The obligation of an insurer to indemnify the insured in respect of a claim arises when the insured event occurs and the loss is suffered and, in addition, after notification to the insurer. The insured is obligated to notify the insurer immediately when such an event occurs.
A party seeking insurance indemnification or other insurance coverage must, according to the ICA, commence legal action within 10 years from the date of occurrence of the circumstance or circumstances that form the basis for the right to such coverage under the insurance policy. According to the ICA, an additional time limitation for commencing legal action is six months from the date on which the insurer declares that it has taken a final decision in relation to the claim under the policy. Moreover, an insurance policy may, depending on the kind of insurance in question, provide for other principles of time limitation.
What preliminary procedural and strategic considerations should be evaluated in insurance litigation?
When an insured event occurs, the first step the insured party should take is to notify the insurer. When the insured is entitled to indemnification but has failed to comply with the terms and conditions of the insurance policy regarding the obligation to report insured events to the insurer within a specific time, and such failure has caused loss to the insurer, the indemnification that otherwise would have been paid to the insured may be reduced in accordance with what is reasonable in regard to the circumstances at hand. There may also be time-limitation provisions in insurance policies related to the duty to notify the insurer (eg, when the insured is a corporate entity).
Moreover, the insured should, to the extent possible, make efforts to limit the damages suffered. Any failure to take reasonable actions to limit the damages suffered may be invoked by the insurer and may be basis for reducing the insured’s right to indemnification. This may also be discussed with the insurer, and the insurer may accept to indemnify the insured for the costs associated with such actions.
Insurance litigation is, as mentioned above, subject to the same procedural rules as civil cases in general. This means, essentially, that the same procedural and strategic considerations apply. Obviously, the merits of the case, inter alia, the legal basis for a right to indemnification and the amount of loss that is recoverable under the insurance policy, should be carefully examined before commencing any legal proceedings. It is also important to take necessary steps to obtain and secure evidence for the case. It may, inter alia, be important to obtain technical investigations and expert statements without delay after the damages have occurred, as it may not be possible to conduct the same investigations at a later stage.
In addition, as a main principle the losing party is liable for its own costs, as well as the winning party’s costs, for the litigation. The claimant should also take into consideration the length in time of proceedings before the courts. When a party files a statement of claim to the district court, it usually takes up to one to two years before a verdict is given, depending on the complexity of the case. If the claimant wishes to prioritise receiving indemnification as soon as possible and keeping the costs down as well as limiting the risks, the possibilities of a settlement should be considered.
What remedies or damages may apply?
The insured is entitled to indemnity for the damages suffered, meaning that the insured is to be put in the same financial position as he or she would have been should the insurer have fulfilled its obligation in accordance with the insurance policy. The amount of damages is limited to the contractual indemnity of the insurance policy, and the insurer cannot be liable for additional damages. As such, punitive damages are not available under Swedish law. The insured is, however, entitled to late payment interest at a rate fixed by law, and may potentially also be entitled to reimbursement for actual costs or loss in addition to the coverage indemnity.
Under what circumstances can extracontractual or punitive damages be awarded?
As mentioned in question 4, punitive damages are not available under Swedish law in relation to a failure to fulfil a contractual obligation. The insured shall be indemnified for the actual damages suffered in accordance with the general principles of tort law and, if applicable, Swedish contracts law.
In personal injury cases, certain principles regarding standard rates for various kinds of injury may apply in accordance with the general principles of tort law and practice within the insurance business. Compensation in relation to personal injury is fairly low in Sweden, especially in comparison with certain common law countries. Loss of income shall be indemnified related to the actual cost or loss, and the same also applies in personal injury cases. Moreover, in the insurance policy there may be certain provisions governing limits of liability, which are legally enforceable as a main principle.
Interpretation of insurance contracts
What rules govern interpretation of insurance policies?
In Swedish law, there is no legislation covering the interpretation of insurance policies, or contracts and agreements in general. In the absence of legislation concerning the interpretation of insurance policies, the principles of interpretation have instead evolved through case law and legal doctrine.
When is an insurance policy provision ambiguous and how are such ambiguities resolved?
Ambiguity ensues, inter alia, when a determined clause is hard to interpret or when two or more clauses of the insurance policy contradict one another. Ambiguity is usually resolved by interpretation of the insurance policy, and may also be based on the parties’ intentions or a reasonable conclusion regarding what their intentions must have been. Methods of interpretation include not only the written wording or express provisions of the insurance policy, any evidence in relation to the parties’ intentions and the purpose of the insurance policy, but also customs between the parties and customs within a certain line of business (eg, the insurance business). In cases when one party is solely responsible for drafting the contract, an indistinct provision therein may be held against the party who drafted the provision. Such principles could potentially be applied within the field of insurance. It may be stressed that in relation to standard insurance policies, the parties’ intentions or expected intentions may not be the main issue in a matter of interpretation. Instead, except for the wording as such, customs on the insurance market and general considerations of a fair and reasonable application of the terms at issue may be more important. However, in cases of, inter alia, a negotiated M&A insurance policy, the parties’ intentions or reasonable expectations of their intent may be of higher importance if appropriate. Thus, a matter of interpretation is certainly to a substantive extent dependent on the circumstances at hand.
Notice to insurance companies
Provision of notice
What are the mechanics of providing notice?
The ICA does not state specific mechanics for providing notice in the event of reporting a loss. This means that notice may be provided in any form the insured prefers. However, the formalities in relation to notice to the insurer may be governed by the insurance policy. The insured should comply with such terms. Moreover, it may be important to secure evidence that a timely notice has been made in accordance with the terms of the insurance policy.
What are a policyholder’s notice obligations for a claims-made policy?
This is not governed by the ICA. Instead, this shall be stipulated in the policy. Under such a policy, the policyholder is usually obligated to provide notice to the insurer within a certain time period from the event when the policyholder was subjected to a claim in written form from a third party. Moreover, in relation to claims from third parties, there are generally other formalities to be complied with by the insured.
When is notice untimely?
Untimely notice is regulated in the provisions of an insurance policy, and there may be different requirements regarding timeliness of notice.
What are the consequences of late notice?
If the insurance policy for a consumer includes terms and conditions under which the insured has to report insured events to the insurer within a specific time, a party otherwise entitled to indemnification but that has failed to report such events may see the indemnification that would otherwise have been awarded reduced in accordance with what is reasonable under the circumstances of the failure to report.
If an insurance policy for a company includes terms and conditions under which the insured has to report insured events to the insurance company within a specific time, but the insured has failed to report such events within such period, the right to indemnification may be time-barred according to the policy. Such time period, which may be the basis for time limitation, shall not be shorter than one year from the date of occurrence of the circumstance that forms the basis for the right to insurance coverage under the insurance policy.
Insurer’s duty to defend
What is the scope of an insurer’s duty to defend?
As regards liability insurance, the insurer generally has a duty to defend the insured against certain kinds of claims from third parties. The insurer’s obligation should be specified in the insurance policy, especially in complex liability insurance indemnifying corporate entities for liability claims from third parties.
The insurer should generally be under the obligation to pay for any liability towards the third party (ie, which is covered by the policy), to investigate if there is basis for the insured being liable, to negotiate with the third party and to defend the insured in case of legal proceedings. Generally, the duty to defend is wider than the requirements for the insured being liable to a third party. Thus, the insurance company should defend the insured also in cases when the third party seems not to have any real substance for the claim. It should be enough that a third party has made a claim or filed a lawsuit for the insurer to be under the obligation to defend the insured. Generally, insurance policies should provide that the insurer has a right to substantial influence of the pleading of the case and to appoint counsel, etc. If this is not governed by the insurance policy, it is uncertain to what extent the insurer, between the parties, should have the right to decide upon, inter alia, the strategy of the defence or whether any judgment should be appealed. These issues are usually agreed upon by the parties. Case law in relation to the duty to defend is limited.
Failure to defend
What are the consequences of an insurer’s failure to defend?
The insurance company should be liable. Such liability may cover the insured’s costs for engaging a law firm and other costs in the legal proceedings to the extent reasonable, inter alia, for legal investigations and technical experts.
Standard commercial general liability policies
What constitutes bodily injury under a standard CGL policy?
Insurance policies usually do not contain definitions of injuries, etc; the definition of when liability arises is instead covered within Swedish principles of tort law. Swedish principles of tort law attribute all sorts of harm caused by physical means as well as diseases, both physical and psychological, to ‘bodily injury’. Psychological shock arising without connection to physical injury may also be considered a bodily injury.
What constitutes property damage under a standard CGL policy?
The typical definition of property damage in Swedish tort law is damage to, as well as loss of, property. Loss of property and movables may be considered property damage even if the loss is temporary, such as when the stolen object is recovered. Aesthetic changes without loss of functionality to an object may also be considered property damage. Damages to computer systems, such as a virus damaging the system, should also be considered as damage to property under Swedish law.
What constitutes an occurrence under a standard CGL policy?
In general, an occurrence is the event that is claimed to be covered by the insured and accepted (or not) by the insurer according to the specific policy in question. It may include bodily injury, property damage, or any financial or pecuniary loss to a third party caused by the insured.
How is the number of covered occurrences determined?
The number of covered occurrences arising from an event is determined by the wording and interpretation of the insurance policy in question, and is determined through several criteria. One fundamental criterion is ‘cause’. In order for several events to be subsumed under one occurrence, all of these events must originate from the same cause. Time is also relevant; if two events occur within a short time frame, the chances are higher that these will be considered a single occurrence than if the events take place further apart in time.
What event or events trigger insurance coverage?
The event triggering insurance coverage depends entirely on the type of insurance and the particular policy. Generally, the insurance coverage is triggered by the damage-causing event. In the case of a claims-made policy, insurance coverage is triggered by the policyholder being notified of the claim by the third party.
How is insurance coverage allocated across multiple insurance policies?
When the same interest has been insured against the same risk by several insurance companies, each insurance company shall be liable to the insured as if that company alone had issued insurance. However, the insured shall not be entitled to an aggregated amount of indemnification from the companies in excess of the actual indemnification for the damage. Where the amount of liability exceeds the amount of damage, liability shall be allocated among the insurance companies in proportion to the amount of liability.
First-party property insurance
What is the general scope of first-party property coverage?
First-party property insurance coverage is common on the Swedish insurance market. For consumers signing a householder’s comprehensive insurance, first-party property coverage insurance is usually available as an add-on option to most insurance policies. The objective of first-party property insurance within Swedish law is to cover the interest of the insured rather than a third party in situations where the insured causes damage to his or her own property. First-party property insurance can also be invoked by the insured in cases where damage is caused by a third party to the insured’s property.
How is property valued under first-party insurance policies?
When an event triggering first-party property insurance occurs, the evaluation process commences with the insured notifying the insurer of the lost or damaged property, and providing information in relation to the damaged property. The insurer thereafter values the property on the basis of, inter alia, the information received from the insured and according to certain parameters stipulated in the insurance policy. Parameters taken into account include, first and foremost, the type and age of the property lost or damaged and, in addition, the cost for replacement, but also circumstances such as whether the property has been, will be or will not be replaced. Moreover, the insurer may potentially conduct certain investigations. Such investigations may also be conducted by a third party on behalf of the insurer. In the case of large-scale damages to, inter alia, industrial equipment, the insurer may conduct thorough technical investigations.
Is insurance available in your jurisdiction for natural disasters and, if so, how does it generally operate?
Insurance covering natural disaster is generally available in Sweden. How it operates varies depending on the type of business (ie, applicable to commercial insurance). Some insurance policies generally include coverage for natural disasters (eg, standard homeowners’ insurance policies and most forest insurance policies). Moreover, the insurance may cover investment loss (ie, in addition to expenses and other costs). Coverage may be limited to a certain amount per disaster.
Directors’ and officers’ insurance
What is the scope of D&O coverage?
According to the Swedish Companies Act, inter alia, a member of a board of directors or a managing director who, in the performance of his or her duties, intentionally or negligently causes damage to a company shall compensate such damage. This shall also apply where damage is caused to a shareholder or other person as a consequence of a violation of the Companies Act, the applicable annual reports legislation or the articles of association.
Situations where the managing director or members of a board of directors are held responsible for damages caused to the company due to negligence are usually covered by D&O insurance. The aim of a D&O insurance policy is to protect the management from personal liability in situations where damage has been caused to the company or to a third party. D&O insurance, by nature of the circumstances under which it is usually invoked, usually only covers pure economic loss (ie, excluding bodily injury and property damage).
What issues are commonly litigated in the context of D&O policies?
Litigation under D&O policies in Swedish courts may concern situations where members of the board of a company, covered under a D&O insurance policy, provide misinformation in the annual report or in a prospectus regarding subscription of shares (ie, in cases where liability in relation to a prospectus is covered by the specific insurance policy). Shareholders or other investors may then sue for damages for which the directors and officers may be held personally responsible, which in turn triggers the D&O policy.
Other cases commonly subject to litigation include situations where a company initiates an action against its own directors and officers where they have caused damage to the company through their negligence. Such cases may involve a breach of the company’s articles of association or internal policies in relation to, inter alia, investment policies or lending policies in financial institutions.
What type of risks may be covered in cyber insurance policies?
Cyber insurance policies are a relatively new type of insurance in Sweden. Where it is offered, it generally includes both first-party property coverage and coverage for indemnifying losses caused to third parties.
First-party property coverage may include:
- losses as a result of data loss from property damage, hacker attacks or physical sabotage;
- loss of data access;
- disruption damage resulting from security flaws in IT systems; and
- extortion relating to destruction of data.
Indemnification for losses caused to third parties may include claims arising from hacking attacks resulting in theft or publication of personal data and information, disclosure of business secrets and spreading of computer viruses.
What cyber insurance issues have been litigated?
To date, there have been no public cases in relation to cyber insurance in Sweden.
Is insurance available in your jurisdiction for injury or damage caused by acts of terrorism and, if so, how does it generally operate?
Several of the major insurance companies regulate in their policies for both private and company insurances that damages or injuries due to certain acts of terrorism are excluded from coverage, such as injuries or damages that occur from terrorist acts that involve chemical or nuclear substances. However, insurances for private persons may, inter alia, cover to relocate from an area that is unsafe because of acts or threats of terrorism. Moreover, there are insurers that offer certain insurance coverage for companies related to damages caused by acts of terrorism, for example through special terrorism-insurances. Such insurances may cover damages to property and loss of profit because of acts of terrorism. The insurance companies present their own definitions of acts of terrorism in their policies.