All questions

The legal framework

i Sources of insurance law and regulation

In the Spanish legal system, insurance matters are regulated in a variety of laws and regulations, a detailed analysis of which would far exceed the scope of this chapter. For this reason, only the main pieces of legislation are addressed here.

Rules governing access to the market and insurance activities

The conditions for access to the insurance market and the performance of insurance companies’ activities are mostly regulated by Law 20/2015 of 14 July on the management, supervision and solvency of insurers and reinsurers, and Royal Decree 1060/2015 of 20 November on the management, supervision and solvency of insurers and reinsurers, which develops Law 20/2015. These regulations are the result of the transposition by the Spanish legislator of the provisions set out in the Solvency II Directive.

Rules governing the mediation and distribution of insurance

The Spanish regulation of insurance mediation and distribution activities can be found in Law 26/2006 of 17 July on private insurance and reinsurance mediation. At the time of writing, a new law replacing Law 26/2006 and incorporating the provisions laid down in the IDD is still pending. The enactment of this new law began last year. However, because of the change of government in Spain and the subsequent dissolution of Parliament, the legislative process has been interrupted.

Furthermore, Commission Delegated Regulation (EU) 2017/2359 of 21 September 2017 supplementing Directive (EU) 2016/97 of the European Parliament and of the Council with regard to information requirements and the conduct rules applicable to the distribution of insurance-based investment products is directly enforceable in Spain, as it is in all other European Union Member States.

Finally, we would highlight the recent entry into force of Law 5/2019 of 15 March, which regulates real estate credit contracts. Law 5/2019 generally prohibits ‘loan-linked’ insurance sales practices (i.e., those practices in which an insurance product is offered with a loan as an inseparable pack). However, it continues to allow ‘combined’ or ‘grouped’ sales practices (i.e., those in which loan and insurance products are offered together but can be contracted separately) but establishes the information and transparency requirements that distributors must comply with in these cases.

Rules governing insurance contracts, in their various forms

In this field, the predominant role of Law 50/1980, of 8 October, on insurance contracts (LCS) should be highlighted. The LCS contains both the general principles that apply to all insurance contracts and the specific provisions governing the main types of insurance contract that exist in Spain (e.g., damage, civil liability, fire, life and sickness). Most insurance litigation in Spain is based on the provisions of the LCS.

In Spain there are also other laws and regulations that apply to specific types of insurance contract. This is the case, for example, for civil liability insurance in respect of the use of motor vehicles (motor insurance), which is regulated in Royal Legislative Decree 8/2004 of 29 October approving the restated text of the Law on Civil Liability and Insurance for the Circulation of Motor Vehicles (LCLICMV), and Royal Decree 1507/2008 of 12 September, which approves the Regulation on mandatory civil liability insurance regarding the circulation of motor vehicles. There are also specific provisions in other regulations for ship or aircraft insurance contracts, civil liability insurance for nuclear damage, civil liability insurance for oil pollution, and export credit insurance.

ii Insurable risk

Although Spanish law does not offer an express definition of insurable risk, as a general rule, a risk is insurable as long as it:

  1. has an element of chance or uncertainty;
  2. refers to a future event, meaning that at the time of entering into the contract the damage or loss has not yet occurred or that the risk still exists. Under Spanish law, according to the general rule on civil liability for damage, the loss occurs at the moment that the action or incident that causes the damage takes place (even though the claim and, therefore, the evidence of it can take place much later in time). Thus, the contract is only valid if it refers to losses arising from actions subsequent to its signing. However, Article 73 LCS allows for contracts with ‘claims-made’ clauses that have retrospective effects. In these cases, the claim, as opposed to the actual damaging act that causes the claim, constitutes the ‘incident’;
  3. is lawful;
  4. is possible, meaning that the covered risk may potentially materialise;
  5. is fortuitous, meaning it is independent of the will of the parties or beneficiaries of the insurance contract. Two clarifications must be made in relation to this criterion:
    • Spanish law does consider the insured party’s suicide as an insurable incident, even though it is clearly the consequence of a conscious and voluntary action of the insured party. The only restriction imposed in the LCS to avoid fraudulent conduct is a time limit. Article 93 of the LCS holds that ‘unless otherwise agreed, the risk of the insured person’s suicide will be covered as of one year from the moment of the conclusion of the contract’; and
    • even though civil liability derived from wilful misconduct of the insured party cannot be insured under Spanish law, the insurer must provide compensation for the damage caused by such misconduct to bona fide third parties (i.e., those who are not involved in a fraudulent scheme with the insured party). In fact, pursuant to Article 76 LCS, these third parties may bring their claims for compensation directly against the insurer (direct claim); and
  6. is tangible, has an economic value and can be appraised based on actuarial and experience criteria. Only in this case can the insurance premium, which constitutes an essential element of the insurance contract, be calculated.

Spanish law establishes that a person can enter into an insurance contract on his or her own behalf and interest or on behalf of and for the benefit of third parties (Article 7 LCS), but, as stated in Article 25 LCS (damage insurance) and Article 83 LCS (life insurance), the validity of the insurance contract is subject to the insured party having a legitimate interest in the insurance.

iii Fora and dispute resolution mechanisms

Spanish insurance law is characterised by the protection of the rights of insured persons. For this reason, it has special provisions that, in some cases, oblige the parties to initiate out-of-court proceedings before bringing a claim to court.

For example, where the disagreement between the insurer and the insured is limited to the extent of the damage to be compensated (but there is no dispute as to the coverage of the incident or risk), Article 38 LCS provides that the insurer and the insured must resolve their dispute by means of a compulsory out-of-court procedure in which each of the parties appoints an expert and the appointed experts try to reach common ground.

If the experts reach an agreement, the procedure concludes with them issuing a report on, among other things, the amount of compensation due. If no agreement is reached, a third expert is appointed by the parties (or, if they fail to agree, by the court) so that within 30 days (or the term agreed upon) the three experts issue a final report (unanimously or by a majority vote) that is binding on the parties unless challenged in court.

If any of the parties disagree with this report, it can be challenged in court within the corresponding time limit.

Another example of these special provisions can be found in the area of civil liability regarding the circulation of motor vehicles. Specifically, Article 7 of Royal Decree 8/2004 states that the injured party must file a claim with the insurer requesting compensation and providing information about the incident. The insurer must respond within three months with an offer of reasonable compensation or a response explaining why it believes that compensation is not warranted.

Apart from these special provisions, Spanish law grants freedom to the parties to use the conflict resolution mechanism they deem most appropriate. Although empirical evidence shows that insurance disputes are usually brought before the courts, parties are free, once the extrajudicial proceedings described been completed, to resolve the disagreement using alternative conflict resolution mechanisms (e.g., conciliation, mediation or arbitration). In any case, it should be noted that for a dispute to be validly resolved by arbitration under Spanish law, both parties must consent.