What general rules, requirements and procedures govern the conclusion of (re)insurance contracts in your jurisdiction?
The rules of Maltese contract law apply to (re)insurance contracts and accordingly, for a valid contract to be concluded:
- the parties must have capacity to contract;
- there must be the consent of the parties;
- there must be a certain element which constitutes the subject-matter of the contract; and
- a lawful consideration.
In (re)insurance contracts, there must also be an insurable interest. For the purpose of the conclusion of the contract, the prospective insured would typically conclude a proposal form for the consideration of the prospective insurer.
Are (re)insurance contracts subject to any mandatory/prohibited provisions?
In terms of Maltese law, the parties to a contract are free to agree on the terms to be included in the contract between themselves, provided that the parties do not contract out of the provisions which are intended for the protection of the consumer or agree to clauses which would be considered invalid or unenforceable on the basis of public policy considerations.
Can any terms be implied into (re)insurance contracts (eg, a duty of good faith)?
Maltese jurisprudence has established the importance of the common law principle of ‘uberrima fidae’ (utmost good faith), which obliges both parties to enter into an insurance contract in good faith through the disclosure of all material information related thereto. While this principle is applicable to both the insurer and the insured, it is generally the insurer that invokes this principle when seeking to avoid an insurance contract on the basis of non-disclosure of a material fact by the insured.
The provisions of the Civil Code relating to contracts apply to all contracts generally, including (re)insurance contracts. The obligation to carry out contracts in good faith is implied into (re)insurance contracts. In addition, in terms of the Civil Code, contracts are binding not only in regard to the matter therein expressed, but also in regard to any consequence which, by equity, custom or law, is incidental to the obligation, according to its nature.
What standard or common contractual terms are in use?
An insurance policy typically includes clauses relating to:
- policy limits;
- excesses and general exclusions;
- the amount and period of cover;
- warranties; and
- the procedure for giving the insurer notice of a claim.
What is the state of development in your jurisdiction with regard to the use of ‘smart’ contracts (ie, blockchain based) for (re)insurance purposes? Are any other types of financial technology commonly used in the conclusion of (re)insurance contracts?
While smart contracts are not as yet widely used for (re)insurance purposes among domestic insurers, the utilisation of blockchain-based contracts has attracted much interest among local start-up companies and authorities, with the government of Malta having launched the implementation of its national blockchain strategy by introducing a new legislative regime which aims to encourage the use of blockchain technology and innovative technology arrangements. This was complemented by the establishment of a new authority – the Malta Digital Innovation Authority (MDIA) – which is the primary authority responsible for promoting all governmental policies that promote Malta as the centre for excellence for technological innovation, while setting and enforcing standards that ensure compliance with any other international obligations. The MDIA seeks to protect and support all users and also encourages all types of innovation, by allowing for maximum flexibility when it comes to the certification of innovative technology arrangements.
In this context the Malta Financial Services Authority (MFSA) has shown itself to be amenable to financial technology (fintech) innovation and has adopted a proactive approach towards the implementation of this type of technology. The MFSA has demonstrated its willingness to understand proposed applications of the technology and encouraged the development of fintech products.
At this point in time, (re)insurers are precluded from dealing in virtual currencies for their clients or their own account; however, the use of the technology is encouraged by the regulator, subject to that (re)insurer meeting its compliance obligations under the existing regulatory framework.
What rules and procedures govern breach of contract (for both (re)insurer and insured)?
In the event of a breach of contract, the remedy available will depend on the breach sustained, as well as on who the perpetrator and injured party are.
Insurer If the insurer breaches a contract, the insured may proceed against the insurer for such breach and seek either the performance of the obligation in question or payment of damages resulting from non-performance of the obligation.
Insured General law of contract requires that the consent of a party to a contract is not vitiated. An error of fact would not void the contract unless it affects the substance of the thing which is the subject-matter of the agreement – this is taken into account in cases of misrepresentation or non-disclosure by the insured. Misrepresentation or non-disclosure by the insured may render a contract of insurance void.
Judgments of the Maltese courts have reiterated the principle that parties to contracts of insurance are bound by the duty of utmost good faith.
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