All questions

Recent cases

Our experience tells us that the majority of dispute resolution in the insurance field is a result of insufficient or erroneous information made available by policyholders or insured persons at the time of conclusion of the insurance agreement.

The Portuguese higher courts have taken a significant number of decisions regarding the initial risk disclosure obligation. This disclosure obligation means that the policyholder or the insured person must accurately disclose all known circumstances that may be significant for the risk valuation, even if it is not requested in the questionnaire provided by the insurer – the existence of the questionnaire does not minimise the disclosure obligation. Thus, the insured person or the policyholder shall not omit or respond with imprecision, or be inconsistent or contradict themselves.

In one court decision, it was ruled that when concluding an insurance contract, the insured person, knowing about a disease, even if its severity was not yet diagnosed, should have informed the insurer about it and about the subsequent diagnostic process. Therefore, the court decided that at the time a contract is concluded, all the circumstances that may make the claim more likely or its consequences wider shall be declared. Consequently, the intentional and conscious omission of a fact that is essential to the risk evaluation is fraudulent. Hence, pursuant to Article 25 ICL, the insurer has the legitimate right to invoke the nullity of the insurance contract so it can refuse the payment of the insured sum.

In another case, the court found that the insurance contract nullity, in accordance with Article 429 of the Portuguese Commercial Code, does not necessarily require a causal link between the content of the insured person's inaccurate declaration and the insured claim. The causal link to be established shall instead be between the omitted fact and the conclusion of the insurance agreement in its precise terms. The question to be asked is: if the insurer knew about the omitted fact, would it still have entered into the same insurance agreement?

Nevertheless, the fact that a death is caused by an intentionally omitted disease does not preclude the nullity effect. In fact, in that case, a causal link should be established between the omitted disease that caused the death and the terms in which the contract was concluded, in such a way that it can be declared that the contract would have been concluded, or not, should the insurer have known about the disease.

This burden of proof lies on the insurer. The insurer has to claim and prove that the omitted statements were effectively made, that the circumstances were already affecting the insured and that the insurer would not have entered into the insurance agreement in the same terms, not covering, therefore, the risks.

Conversely, insurers are subject to a general duty of information and notification. As the superior courts have stated, the obligation to notify corresponds to the obligation of the insurer to disclose, in due course, the full content of the contractual terms to the insured person, in terms that they are completely and effectively known by the latter; on the other hand, the information duty is essentially the explanation of the contents of the insurance agreement, when no real understanding is expected by the applicant or insured person – its main purpose is the understanding of the content. Communicated terms of the insurance agreement in a way that restricts the information duty, resulting in the effective understanding not being expected, shall be excluded and cannot be enforceable against the insured person, pursuant to the Portuguese Unfair Contract Terms Regime.

However, there is no breach of the information and communication duties if the contractual provisions are drafted in a clear manner and in a way that the insurer does not have to provide for any additional clarification to the insured.

Another commonly debated subject in the superior courts is the automatic termination of the contract resulting from the lack of payment of the insurance premium. According to the superior courts, in the event of non-payment, on one hand, risks are no longer covered; on the other hand, the debt ceases to exist and, as a consequence, payment can no longer be demanded by the insurer. Therefore, this lack of payment leads to the automatic termination of the contract on the payment due date, and no further amounts are due.

In turn, a Portuguese superior court has ruled that to assess the scope of the coverage provided by the insurance agreement it is necessary to review the agreement and the policy's covered risks. The policy shall expressly provide for the risks that are covered and, conversely, the ones that are excluded – all the remaining risks not expressly excluded will be considered covered.

Finally, another superior court has made it clear that the main goal of the insurance agreement shall be construed according to the view of an 'average' policyholder put in the actual policyholder's position. In the event of doubt, any given provision shall be construed in a manner favourable to the policyholder's interests. In the particular case at hand, the risk exclusion clause, according to which a claim would be excluded if it were caused by a person not legally qualified to drive, should be disregarded if the relevant non-qualified driver acted against the will of the car owner. In such cases, the insurer shall be required to pay the claim.

Trends and outlook

The greatest criticism of the Portuguese legal system is the length of time proceedings take. Furthermore, during the past decade, the annual number of actions filed before court has increased dramatically. In light of the above, both the civil society and the government have been encouraging the promotion of alternative dispute resolution (ADR) mechanisms; namely arbitration, mediation, conciliation and resolution by justices of the peace. In 2001, the government created the Cabinet for Alternative Dispute Resolution, a department of the Ministry of Justice exclusively dedicated to ADR.

Besides arbitration, mediation and conciliation, the most popular form of ADR is conducted by a justice of the peace, who is governed by Law No. 78/2001 of 13 July 2001 (as amended by Law No. 54/2013 of 31 July, which widened the scope and jurisdiction of justices of the peace), and numerous centres have been created under the supervision of a special commission. Justices of the peace are only available to settle disputes among individuals and have jurisdiction on civil matters purporting to small claims (up to €15,000). Under the legal framework on justices of the peace, legal persons may now resort to mediation (excluding for class actions) and preliminary injunctions are now available.

In Portugal, the Information, Mediation, Ombudsman and Arbitration Insurance Centre functions as a private non-profit association with the purpose of making available alternative dispute resolution mechanisms for insurance-related matters. To this effect, this Centre created two independent and autonomous procedures: an Insurance Mediation and Arbitration Service and an Insurance Customer's Ombudsman Service.

Since the entry into force of Law No. 7/2019, all insurance distributors (i.e., any insurance intermediary, ancillary insurance intermediary or insurance undertaking) must be registered with an ADR service, as defined under Law No. 144/2015 of 8 September, which implemented into Portuguese law Directive 2013/11/EU on alternative dispute resolution for consumer disputes.

Apart from the above matters, the current year, much like the previous one, has not seen many legislative reforms to the judicial system.

By way of example, a Law was passed towards the end of 2017 reinstating over 20 first instance courtrooms with a view of reducing the number and duration of civil actions in civil courtrooms.

However, and notwithstanding the slight improvement observed in recent times, this is still an unresolved issued that insurance undertakings have to deal with in the Portuguese market.

Footnotes