Snapshot: insurance claims and coverage in Switzerland

Insurance claims and coverage

Can a third party bring a direct action against an insurer for coverage?

The obligations of insurers under insurance policies are generally only towards policyholders and insured persons. Direct actions of third parties in general require a basis in the insurance policy or statutory law, such as:

• motor liability insurance (article 65 of the Swiss Federal Road Traffic Act (as amended) (the Road Traffic Act));
• liability insurance for fuel and gas pipes (article 37 of the Swiss Federal Pipeline Act); and
• nuclear energy liability insurance (article 17 of the Swiss Federal Nuclear Energy Liability Act).

However, an injured third party (or its legal successor) has a general right to assert a claim directly against the liability insurer, without the need for a further legal basis in specific laws, subject to any defences the insurer may have under statutory law or the relevant policy.

Can an insurer deny coverage based on late notice of claim without demonstrating prejudice?

On the occurrence of the insured event, rightful claimants (eg, policyholders or insured persons) must notify insurers of the insured event as soon as they become aware of the event and their insurance claim. Notification must be made in writing if the insurance policy so provides.

If the rightful claimant has omitted the immediate notice:

• with the intention of preventing the insurer from establishing the circumstances of the insured event in a timely manner, the insurer is not bound by the insurance policy and may deny coverage;
• with (gross or light) negligence, the insurer may reduce its coverage by the amount the damage would have been reduced in the case of a timely notice; and
• without any attributable fault, the notice can be made to the insurer immediately on removal of the hindering circumstances without loss of coverage.

Is an insurer subject to extra-contractual exposure for wrongful denial of a claim?

Punitive damages are not available under Swiss law. Except in very exceptional circumstances, an insurer wrongfully denying cover does not run a risk of being held liable based on statutory law. If a court finds that the cover was wrongfully denied, the insurer must settle the claim, including any damages incurred by the delayed settlement as well as the rightful claimant’s legal expenses.

What triggers a liability insurer’s duty to defend a claim?

Insurance policies customarily stipulate that:

• the insurer must indemnify the insured person from justified third-party claims as well as costs and expenses to defend unjustified third-party claims, to the extent covered by the insurance policy;
• the insurer may handle the claims (which exceed the deductible amount) and, in particular, represent the insured person in the negotiations with the injured person; and
• the insured person must assign the necessary authority to the legal representative determined by the insurer if legal proceedings are instigated, and refrain from acknowledging a claim without the prior consent of the insurer or raising actions that contravene the provisions of the policy.

For indemnity policies, what triggers the insurer’s payment obligations?

The insurer must settle a claim if it has finally established the occurrence of an insured event and the amount of the respective damage. Indemnification payments will not become due and payable provided the policyholder has not provided all information reasonably requested by the insurer regarding the event and necessary to assess the claim. If the insurer has been provided with all relevant information, the indemnification payments will become due and payable four weeks thereafter (even if the insurer has not made its final assessment by that date). If the policyholder provides all relevant information to a single part of an insurance claim, this part will become due within the same period. In the event of an acknowledgement of the claim by the insurer, the insurance claim becomes immediately due and payable. If the insurer contests its payment obligation, the insured may request partial payments to be made by the insurer up to the undisputed amount. The same applies if it is not clear how the payment is to be divided among several insureds.

A contractual clause that provides that an insurance claim becomes due only after being acknowledged by the insurer or upheld by a court decision is null and void.

Is there a period beyond which a life insurer cannot contest coverage based on misrepresentation in the application?

There is no incontestability period under the ICA. The insurer may, in general, contest coverage based on misrepresentation in the application at any time, subject to the rules set out below:

• if the policyholder omits to notify or incorrectly notifies the insurer of a significant risk factor that he or she knew or should have known about, which he or she was questioned in writing, the insurer is entitled to terminate the insurance policy – the policyholder must not necessarily be questioned in writing and such questioning may be conducted in any other form evidenced by text;
• the termination right expires four weeks after the insurer has obtained knowledge of the breach of the notification duty; and
• if the insurer terminates the contract, its obligation to indemnify the policyholder for damage ceases (and the insurer may rightfully contest coverage and claim back payments made) if, and to the extent that, the omitted or incorrect notification of the significant risk factor has influenced the occurrence or extent of the damage.

If a life insurance policy that may be surrendered terminates, the insurer must provide to the insured person the benefits due in the event of surrender.

Are punitive damages insurable?

Punitive damages are not available under Swiss law. Further, Swiss courts may be precluded from awarding punitive damages even if the applicable foreign substantive law provides for those damages owing to Swiss public policy or if in connection with product liability according to article 135, paragraph 2 of the Swiss Federal Private International Law Act (as amended).

What is the obligation of an excess insurer to ‘drop down and defend’, and pay a claim, if the primary insurer is insolvent or its coverage is otherwise unavailable without full exhaustion of primary limits?

Swiss statutory law does not provide for ‘drop down’ of insurance coverage of an excess insurer if the primary insurer is insolvent or its coverage is otherwise unavailable without full exhaustion of primary limits. Unless otherwise agreed in the policy, the excess insurer is liable towards the policyholder only for its own share and entitled to provide for its own defence, regardless of the primary insurer’s insolvency.

What is an insurer’s obligation if the policy provides that the insured has a self-insured retention or deductible and is insolvent and unable to pay it?

Swiss law does not regulate retainer amounts or deductibles. Deductibles are commonly agreed in Switzerland. Insurance policies customarily contain the right of insurers to pay out the full indemnification amount directly to injured persons, and to request policyholders to reimburse without objection any deductible not applied. Insurers ultimately bear the risks that policyholders become insolvent and thus are unable to repay the deductible. Self-insured retentions are not customary in Switzerland.

What is the order of priority for payment when there are multiple claims under the same policy?

There is no general Swiss law rule as to the priority for payment for multiple claims under the same insurance policy. Under the Road Traffic Act, if the policyholder caused damage to several persons, which in total exceeds the insured sum set out in the insurance policy, the claim of each injured person against the insurer is reduced proportionally, and the insurer or the initial claimant may cause the competent court to request other injured persons to raise their claims in the same court proceedings.

How are payments allocated among multiple policies triggered by the same claim?

Both cumulation (ie, the insured receives multiple payments based on multiple policies) and coordination (ie, the insured receives only one payment based on multiple policies) exist in Swiss law depending on the type of insurance policy triggered by a claim and the interaction with coverage of the same claim by other liable persons.

For indemnity insurance, if a policyholder has obtained cover for the same risk from more than one insurer, and if the total cover exceeds the insurance value (multiple insurances), the policyholder must notify this to each insurer in writing or, in any other form evidenced by text (and the insurer may deny coverage if he or she does not do so with the intention of obtaining an unlawful monetary advantage), and each insurer is liable only proportionally (individual cover divided by the total cover) while being entitled to the entire agreed premium. Only if an insurer becomes insolvent are the other insurers liable for the insolvent insurer’s share proportionally to their insured sums, each to the extent of the insured sum. Further, an indemnity insurer may also deny coverage in the case of double insurance in bad faith by the insured with the intent of obtaining an unlawful monetary advantage.

If the policyholder is at the time of conclusion of another insurance contract not aware of the occurrence of multiple insurance, he or she may terminate the contract leading to such multiple insurances within four weeks of respective discovery.

Are disgorgement or restitution claims insurable losses?

Swiss law is silent on whether claims comparable to disgorgement or restitution under Swiss law (ie, claims that involve a repayment of profits gained in bad faith on the part of the insured party) are insurable. Although the loss of profit can be insured, the law is silent on whether this is also the case if such profits were made in bad faith. Generally, gross negligence can be (and regularly is) insured, while intent can be insurable (but is insured only in very rare circumstances), but there is a risk under Swiss law that insurance of intent or claims caused in bad faith may be considered contrary to general principles of law or public policy, similar to the insurance of monetary fines, which is not permissible.

How do courts determine whether a single event resulting in multiple injuries or claims constitutes more than one occurrence under an insurance policy?

Whether a single event resulting in multiple injuries or claims constitutes one or more occurrences under a policy is determined by courts based on an interpretation of the applicable insurance policy. Insurance policies under Swiss law regularly include wording to the effect that a single event resulting in multiple claims constitutes only one occurrence under the policy.

Under what circumstances can misstatements in the application be the basis for rescission?

An insurer may withdraw from a contract if the insured has made misstatements after the conclusion of the insurance contract. This is the case if the insured has miscommunicated or withheld a significant risk. The insurer has a right of rescission even when the insured is not at fault for the misstatement. The insurer must give notice of rescission in writing or, in any other form evidenced by text, within four weeks after it has received knowledge of the misstatement.