As insurance and reinsurance markets and market participants become increasingly globalised, Eversheds’ insurance and reinsurance specialists across its network of offices handle high value and complex international insurance and reinsurance disputes and provide legal and regulatory advice in a global context.
In a series of articles we look at some of the principles of insurance law in a selection of key jurisdictions across Europe, the Middle East and Asia, including:
This article provides a high level summary of insurance laws in each of these jurisdictions in relation to insurance contract terms. For further detail please do not hesitate to contact a member of Eversheds’ Insurance Team.
Future articles in this series will look at:
- insurance claims and coverage
- remedies where there is a breach of an insurance contract.
Insurance contract terms
Some terms are implied into insurance contracts, such as:
- Utmost good faith
- Generally applies to all forms of insurance, particularly in relation to the provision of pre-contractual information, but note that for consumer policies, the Consumer Insurance (Disclosure and Representations) Act 2012 requires consumers to take reasonable care not to make a misrepresentation to the insurer before a consumer insurance contract is entered into or varied.
- In all other policies the duty requires the insured to disclose to the insurer, before the insurance contract is concluded, any circumstances that are material to the insurer’s appraisal of the risk which are known or deemed to be known by the insured but neither known nor deemed to be known by the insurer. The Insurance Act 2015 will change the duty of disclosure for non-consumers to a duty to make a “fair presentation of the risk”.
- Protection of third parties: in certain types of compulsory insurance (such as motor and employers' liability), where the policy is designed to meet the liability of the insured to third parties, terms are implied by statute and insurers' right to take defences are restricted.
- Other implied terms: other terms can be implied into a contract of insurance, depending on the nature of the policy and its express terms (for example, subrogation rights for an insurer who pays a claim, and in consumer contracts the Unfair Terms in Consumer Contracts Regulations will apply).
In addition, insurers and intermediaries must comply with applicable Financial Services rules and guidance.
- Utmost good faith: The key term implied into insurance contracts is the duty of good faith, which requires parties to engage in mutual fair dealing. The duty of good faith forms the basis of the Civil Code's provisions concerning material change in risk and misrepresentations by the insured.
- Protection of third parties: For protection of third parties, in certain types of insurance (such as motor liability insurance) where the policy is designed to meet the liabilities of the insured to a third party, terms can be implied by statute.
- Other implied terms: Certain other terms can be implied into a contract of insurance, for example subrogation rights for an insurer who pays a claim. In addition, implied terms require insurers and intermediaries to:
- act with diligence, fairness and transparency towards policyholders and insured persons;
- acquire from policyholders the information necessary to evaluate their insurance or pension needs and to keep them appropriately informed;
- make arrangements to identify and prevent (where reasonably possible) conflicts of interest and, in cases of conflict, alert policyholders of the possible adverse effects. They must also manage conflicts of interest to exclude any detrimental consequences for policyholders;
- achieve independent, proper and prudent financial management and take adequate measures to safeguard the rights of policyholders and of insured persons.
Insurers must also comply with precise drafting criteria. For example, clauses providing for forfeiture, avoidance, limitation on coverage, and costs to be borne by the policyholder or insured party, must be shown in highlighted text.
In addition, insurers and intermediaries must comply with IVASS (the Italian Insurance Supervisory Authority) Regulations.
- Utmost good faith: Applies to all insurance contracts and requires the insured to disclose to the insurer all facts of which the insured is aware which may affect the insurer’s decision to enter into the insurance contract or the terms on which it is prepared to do so. Breach of this duty allows the insurer to avoid the policy (provided it establishes inducement).
- Other implied terms relate to the need for an insurable interest; the existence and identification of the subject matter of the insurance; and insurers’ subrogation rights.
Additionally, an insurer cannot exclude or limit its liability for the actions of its appointed insurance agent in connection with the issuing of contracts of insurance.
- Good faith: The Swiss Civil Code states that every person must act in good faith in the exercise of their rights and in the performance of obligations.
- Other terms: Certain provisions of the Insurance Contract Act cannot be contractually modified, including those relating to: the premium payment obligation upon premature cancellation of a policy; the place of performance; the due date of insurance claims ; tacit renewals; over-insurance or double insurance; replacement value; assessment of damage; assignment and pledge of personal insurance claims; insurance policies on the life of another person.
Other provisions of the Insurance Contract Act can be modified provided the modification is not to the disadvantage of the insured, such as the provisions relating to: the application for insurance; insurers’ duty to provide information to insureds; insureds’ rights to cancel; issuing of policy documentation; consequences of default in the payment of premium; place of payment; aggravation of risks with or without the policyholder involvement; insurers’ liability for intermediaries; proof of insurance claims; partial damage; the Statute of Limitations; a statutory pledge of the injured third party in the area of indemnity insurance; insurers’ rights of recourse against persons residing with the beneficiary or for whose acts the beneficiary is responsible; policyholders’ right of withdrawal in the area of life insurance; and the conversion and surrender of life insurances.
United Arab Emirates
- Utmost good faith: the duty of utmost good faith is not expressly stated to be implied in insurance policies, but insurers may avoid cover for non-disclosure.
- Other terms: Provisions are implied by law into policies issued by an Insurance Authority-authorised insurer:
- the insurer must immediately indemnify the insured for the sum agreed in the insurance contract when an insured accident or risk occurs;
- on payment of a claim, the insurer is subrogated to the rights or obligations of the insured (or beneficiary);
- mandatory pricing requirements apply in motor insurance policies;
- the Insurance Authority can set and monitor the level of certain types of premiums.
DIFC: There is no requirement for DIFC law to apply to insurance policies issued by an insurer authorised by the Dubai Financial Services Authority (DFSA). However, if DIFC law applies, the following terms are implied:
- Utmost good faith: the insured must disclose all relevant facts related to a contract of insurance, and parties have a duty to act honestly and with utmost good faith in relation to the insurance contract.
- Other implied terms: DIFC Law implies terms as to reasonable price, time of performance, force majeure, termination, set-off, assignment of rights and obligations, novation of contracts and third party rights.
Commonly found clauses
In practice most policies contain clauses which fall within the following categories:
Insuring clauses stipulate the perils insured against. In property insurance, the insuring clause specifies whether it is “all risks” or “named perils” insurance. In liability insurance, the clause specifies which types of liability are insured. The onus of proving that a loss falls within the insuring clause rests with the insured.
Exclusions: The policy will usually set out an exhaustive list of the types of loss or liability that are excluded from cover. The onus of proving the application of an exclusion rests with the insurer.
Warranties: Policies usually contain warranties (contractual promises by the insured that a given state of affairs exists or that something will be done or not done). Breach of warranty entitles the insurer to treat himself as discharged of liability under the policy as from the date of the breach, even if the breach did not cause any loss which is claimed under the policy. When it comes into force the Insurance Act will change the existing law so that insurers can only rely on breaches of warranty that are continuing at the time of a loss and which increased the risk of that particular loss.
Claim conditions: The policy will usually stipulate what the insured is to do in the event of a loss, or (in the case of liability business) upon becoming aware of a claim or circumstances likely to give rise to a claim. They generally require prompt notification (often as a condition precedent), so that the insurer is excused of liability for the claim in the event of breach.
Governing law and dispute resolution: Policies usually specify their governing law and set out how disputes are to be resolved between the parties. This can include a submission to the Courts of England and Wales, or the policy may contain a clause referring disputes to arbitration or some other form of alternative dispute resolution.
Complaints: Policies should explain what insureds should do if they wish to make a complaint. In consumer policies this will include reference to the Financial Ombudsman Service.
The most common clauses in insurance policies differ between life insurance and non-life insurance policies. However, both life and non-life policies contain provisions relating to:
- the insured risk
- indemnity exclusions
- policy limits
- claims made/loss occurrence clauses
In addition, insurance policies usually include a warning that misrepresentations by the insured can affect the validity of the contract.
Life insurance policies typically include certain statements from the insured in relation to his or her health.
There are no statutory requirements for the form and content of insurance policies, save in relation to life insurance, motor vehicle insurance, employees' compensation insurance, marine insurance and investment-linked insurance.
However, a valid insurance contract must contain agreed terms in relation to:
- subject matter of the policy
- obligation to indemnify (other than for life contracts)
- duration of the risk
- premium amount
- sum insured
Most insurers use their own general insurance terms and conditions as a basis for their insurance contracts. The Insurance Contract Act requires that the following key elements of the contract must be explained to the insured:
- the insured risk
- the scope of cover
- the premiums due and other policyholder duties
- the duration and methods of terminating the contract
- the methods, principles and bases for calculating and distributing surplus profits
- the surrender and transformation values
- the handling of personal data, including purpose and type of data collections as well as data recipients and data storage
United Arab Emirates
UAE: Insurance policies must be:
- drafted in Arabic. An accurate translation of the policy can be attached but in the event of a conflict the Arabic text prevails;
- printed in bold and colour font and initialled by the insured (in the case of clauses exempting or limiting insurer liability);
- actively approved by the policyholder.
Insurance policies typically contain standard clauses that are a matter for negotiation between the parties. However, motor insurance policies must include certain standard policy terms. Any agreement to arbitrate contained in the policy’s general conditions is void unless set out in a separate agreement.
DIFC: The DFSA does not impose specific content requirements for insurance policies. Policies issued by DFSA-authorised insurers typically contain standard clauses that are a matter for negotiation between the parties.