Further to the first instalment of this QuickStudy Series of June 2013 – An Introduction to (Re)Insurance Claims in Latin America, this second instalment focuses on Insurance Claims Handling in Brazil.
Brazil is a U.S. $2.4 trillion economy constituted as a federal republic with 26 states and a federal district, Brasilia. Sao Paolo and Rio de Janeiro in the southeast are the country’s power houses.
Insurance Legal Framework
The cornerstone is Decree No. 73/66, together with its statutory instrument 60.459/67, which created the National Private Insurance System, made up of a national council in charge of public policy in this sector (“CNSP”), the council’s executive branch (“SUSEP”) and by all of the authorised (re)insurers and brokers. In 2007, a complementary decree was enacted (No. 126/2007) to regulate the reinsurance industry, putting an end to the 68-year monopoly exercised by the Brazilian state through the Brazilian Institute of Reinsurance (“IRB”) which is now privately owned.
In 2004, the Insurance Contract Law Bill (No. 3555) was introduced to codify the various legislative provisions and it includes a chapter on claims adjustment. A special commission was created within Congress to consider the bill which is still undertaking consultations with relevant stakeholders.
Non-marine insurance contracts are governed by Chapter XV of the Brazilian Civil Code (“BCC”) and marine insurance contracts by Part VIII of the Commerce Code. With the exception of reinsurance policies, an insurer’s standard wording (known locally as general conditions) are filed with SUSEP before these can be marketed or, alternatively, insurers can operate with standard forms owned by SUSEP called planos de seguros padronizados.
In 2012, SUSEP disallowed the registration of tailor-made policies for specific insureds. The local market practice is for insurers to file several types of “special conditions” along with the general conditions to offer flexible products.
An additional layer of regulation may apply, depending on whether or not the wording is substantially modified by a policyholder. Unless it is substantially modified, an insurance policy is considered a regulated “contract of adhesion” by the Consumer Protection Act (“CPA”). This is because the CPA is applicable to both corporations and individuals who purchase a service contract, although there is a live debate whether this extends to reinsurance contracts - a matter that has not been determined by the judiciary and is of relevance because it affects arbitration clauses within reinsurance policies and, to a certain degree, D&O policies.1
At the reinsurance level, wordings must contain certain mandatory clauses required by Chapter VIII of CNSP’s Resolution No. 168 of 2007. For instance, this provides that disputes concerning reinsurance contracts covering risks located in Brazil have to be determined by Brazilian courts, except where there is an arbitration clause.
Chapter XV of the BCC that deals with non-marine insurance contracts is divided into three sections (45 provisions in total) as follows: (1) general provisions such as good faith and disclosure duties; (2) non-life insurance; and (3) life insurance2.
Given that there are only 11 provisions within the BCC concerning indemnity insurance contracts, these are further regulated by SUSEP’s Circular No. 256 of 16 June 2004 (“Circular 256”). Amongst other things, the Circular specifies the basic provisions that indemnity insurance policies must contain.
The non-payment of premium by a due date does not trigger automatic cancellation of the policy3. Generally speaking, unless the delay in payment is substantial, insurers are obliged to pay covered losses that took place before a payment demand was served on the insured or before the credit period is over.
The BCC provides that losses must be notified to insurers as soon as the insured has knowledge of the same, having the duty to take immediate steps to mitigate the loss. For liability insurance, notice must be given once the insured realises that any of its acts is likely to trigger a covered risk.
Circular 256 contains claims handling duties. It provides that the policy must specify the basic documents that are required to claim an indemnity under each of its insuring sections. It is only in instances where the insurer has a “justifiable suspicion” that it is entitled to request additional documents.
Insurers are required to pay claims within 30 days from the date in which the insured presents to them all of the basic documents set out in the policy. This period is suspended until any further additional documents requested are delivered to insurers and penalty interest (around 12 percent), allowing for inflation, starts accruing once the period concludes.
At present loss adjustment services are unregulated in Brazil. Under the BCC non-marine insurance claims have a special limitation period of one year during which a policyholder can claim against an insurer, determined as follows:
- 3rd Party liability insurance –time starts running from when the insured is served with a claim by the 3rd party or when the 3rd party is indemnified with the insurer’s agreement (and the CPA allows insureds to join insurers to the proceedings4 ).
- 1st Party insurance – time starts running from the time when the insured is aware that the claim has been rejected.
For reinsurance contracts, the general limitation period under the BCC is often said to be 10 years, although whether this is correct remains a matter of argument.
Circular 256 provides that insurance policies should establish that court proceedings must be issued at the insured’s local court. The exception to this rule is for contracts where the insured is deemed to be sophisticated and has the same bargaining power as the insurer.
Brazilian insureds have the duty to notify insurers as soon as they are aware of any matter capable of substantially increasing a covered risk. Within 15 days insurers can terminate the contract, effective 30 days later, even if the risk alteration was not caused by the insured. The pro-rata element of the premium needs to be reimbursed.
State courts are responsible for the adjudication of commercial disputes, including insurance matters, but final appeals concerning the interpretation of federal legislation (except the Constitution) are dealt with by the Superior Tribunal de Justiça (“STJ”).
In view of the fact that insurance regulations are federal in nature, the source of relevant case precedents in this field is the STJ. Notwithstanding that the bulk of them concern consumer insurance policies, the principles are nevertheless relevant to commercial insurance.
As a matter of procedural law the onus of proof that an exclusion or condition applies is placed on insurers. Given that both the CPA and the BCC provide that “contracts of adhesion” ought to be interpreted in favour of consumers, whenever a clause is ambiguous, case law has generated a series of STJ precedents where exclusions have been considered “abusive” and as such void.
Further, the STJ has determined that insurers have the onus of proving that: (1) the insured was aware that its indemnity claim was rejected for the purposes of determining the limitation period5, (2) the insured acted in bad faith6; (3) the insured risk had been altered7; and (4) that they, the insurers, have been prejudiced as a result of a late notification of a loss8.
However, the STJ has recently been prepared to distinguish between standard and corporate consumers. In Trans Guaira Ltda. v Bradesco Seguros S.A.9 the STJ determined that whilst the claimant, a transport security company, was a consumer it was not at a disadvantage with the insurer and as such a term excluding theft of unescorted cargo was enforceable.
The STJ has also allowed the reversion of the onus of proof of the quantum of the loss where there are justifiable suspicions that the loss does not tally with the sum at risk10. With the dissolution of IRB’s monopoly over the local reinsurance market the Normas Gerais de Resseguro y Retrocessao (“NGRR”) -a body of mandatory rules and standard reinsurance wordings- lost their binding nature and became merely a reference of local uses and practices11.
The vacuum of case law concerning reinsurance contracts in Brazil has caused the Instituto Brasileiro de Direito do Seguro to criticise the usage of arbitration and foreign courts determining disputes under these contracts. This position was adopted in light of the English Court of Appeal decision in Sulamerica Cia Nacional de Seguros SA v Enesa Engenharia SA  EWCA Civ 638 – it held that the arbitration clause is subject to English law despite that the policy provided for the application of Brazilian law.