Alerts
- 6 November 2024
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Bill No. 2.597/2024 approved: Brazilian Insurance Law will go forward for Presidential sanction
Yesterday, on November 5th, the House of Deputies approved Bill No. 2,597/2024, known as the “Brazilian Insurance Law.”
The Brazilian Insurance Law aiming to amend provisions of the Civil Code, the Commercial Code, and Decree-Law No. 73/1966.
After discussions in the House of Deputies, the original text (Bill No. 3555/2004 of May 13, 2004) was replaced by Bill (PLC) No. 29/2017, which, after substantial amendments, was approved in the Federal Senate and in the plenary session of the House of Deputies. With the approval, the Brazilian Insurance Law goes to presidential sanction, which should occur within 15 business days.
Lefosse’s Insurance, Reinsurance, and Private Pension practice has been following discussions throughout the Bills and will present an informative guide to the market regarding the main implications and recommended measures related to the changes set out by Brazilian Insurance Law.
Without prejudice to the content that will be covered in the informative guide, we briefly highlight the main points that will impact (re)insurance activities compared to what is currently stipulated in legislation and the main regulations in force, especially the ones issued by the National Council of Private Insurance (“CNSP”) and the Superintendence of Private Insurance (“Susep”).
GENERAL ASPECTS
- No distinction between mass and large risk insurance
Despite the regulation in force (CNSP Resolution No. 407/2021), which provides for such difference, Brazilian Insurance Law gives equal treatment to mass and large risk insurance policies, without imposing any distinction in treatment derived from the complexity of the contracts that currently comprises the last group.
- Risk Aggravation
The concept know is based on the notion of “significant aggravation of the risk”, i.e., a substantial and continuous increase in the probability of the occurrence of the insured risk disclosed in the questionnaire/proposal or in the severity of its effects (Art. 13, §1). The insured must immediately notify the insurer of the significant increase if the risk, and the insurer may, within 20 days, either charge an additional premium or terminate the contract, which will only be considered terminated after 30 days from the date the insured receives the termination notice sent by the insurer (Art. 14).
If the premium increase is greater than 10% of the original amount, the insured has the option to terminate the contract. If there is a significant reduction in risk, the premium must be adjusted proportionally, while also respecting the insurer’s right to reimbursement of contracting expenses (Art. 18).
- Proposal acceptance/assessment periods
Insurance contracts will be considered tacitly accepted in case of silence from the insurer after 25 days from the proposal’s receipt by the insurer (Art. 49). Reinsurance contracts will be considered tacitly accepted if there is no response from the reinsurer after 20 days from the date the reinsurance proposal is received (Art. 60, §1). The supervisory insurance authority may extend the period for the reinsurer to analyze the risk in cases of “proven technical necessity” (Art. 60, §2).
- Transfer of insured interest
The transfer of guaranteed interest (risk) implies the assignment of the corresponding insurance contract (Art. 108). However, if the assignee engages in an activity that increases the risk or does not meet the “requirements demanded by insurance practices”, the original insured must request for a previous consent of the insurer. In this situation, the insurance will be canceled with a proportional refund of the premium, while the insurer retains the right to claim any incurred expenses (§1).
LOSS PORTFOLIO TRANSFER
The assignment of a contractual position, in whole or in part, by insurers will depend on the prior consent of all known insured parties and beneficiaries (Art. 3), in addition to the already required prior authorization from Susep (as per Susep Circular No. 456/2012). The assignor will be jointly liable with the assignee if those contractual position transfers are carried out without such regulatory consent.
Furthermore, regardless of the prior consent of insured parties, beneficiaries, and the authorization of the supervisory body, Brazilian Insurance Law establishes that the portfolio transfer holds the assigning insurer jointly liable with the assignee if the later becomes or is found to be insolvent during the insurance validity period or within 24 months from the portfolio transfer, whatever is shorter (Art. 3 caput, §§ 1 and 2).
REINSURANCE
When an insurer is sued regarding the review or fulfillment of an insurance contract that involves facultative reinsurance, it must notify the reinsurer, either judicially or extrajudicially, about the action within the defense period, unless the contract stipulates otherwise (Art. 62).
Payments in advance made by the reinsurer to the insurer for financial support to comply with the insurance contract must be promptly destinated by the cedant to pay indemnification to the insured party, beneficiary, or affected third party (Art. 63).
Unless stated otherwise, reinsurance should cover the full extent of the reinsured interest. According to Brazilian Insurance Law, this encompasses the insurer’s interest in recovering losses from delays in fulfilling insurance contracts, along with salvage expenses and costs related to claims regulation and settlement. (Art. 64).
CLAIMS ADJUSTMENT AND PAYMENT
- Assessment and settlement period
Third parties hired to perform claims adjustment and settlement activities will be jointly liable for any damages resulting from delays in responding to the insured regarding the claim adjustment (Art. 78). A response regarding coverage assessment must be provided within 30 days from the date the claim or notice of loss is submitted, under penalty of the insurer being prevented from denying coverage for the claim.
For cases requiring more complex investigations, the insurance supervisory authority may extend this period, respecting a limit of 120 days (Art. 86, §5).
If additional documents are requested, the 30-day period is “suspended” but only up to twice, restarting on the first business day after the requested documents are provided. For motor vehicle claims and cases where the insured amount does not exceed 500 times the current minimum national salary, suspension is allowed only once, and the countdown resumes from the next business day (Art. 86, §4).
Once the claim is confirmed and partial amounts to be paid are determined, the insurer must adjust its reserves and make “advance payments” towards the final payment to the insured or beneficiary within 30 days (Art. 77, sole paragraph).
- Claims adjustment proceeding’s documents and coverage declination
In the event the insurer total or partial declines coverage in respect to a given claim, it must provide the interested party with all documents produced and obtained during the claim adjustment and settlement proceeding able to justify the non-payment decision (Art. 82). The insurer is not required to disclose documents deemed confidential or secret, i.e. either those that could harm third parties ore the ones considered confidential by law, except when there is a judicial or arbitral decision providing otherwise(Art. 83).
The declination of coverage must be explicit and justified, and the insurer cannot later change the reason based on which the claim was declined unless new facts are discovered after the initial refusal (Art. 86, §6).
- Claims assessment expenses
The insurer is responsible for all expenses related to the adjustment and settlement of the claim, except for those necessary for submitting documents required to report the incident and prove the identity and legitimacy of the interested party, as well as other documents typically in the possession of the interested party (Art. 84).
- Salvage charges
Expenses for containment or salvage measures shall be borne by insurers up to the policy limit, without reducing the insurance coverage amount. These obligations apply even if the damages fall below the deductible or if the measures are proven ineffective (Art. 67 caput and §1).
The insurer is not required to pay for clearly inadequate measures, considering specific guarantees contracted regarding an imminent or verified claim (Art. 67, §3).
If there is no specific limit, reimbursement for containment or salvage expenses will be up to 20% of the maximum indemnity or guaranteed capital applicable to the type of imminent or verified claim (Art. 67, §4). However, the insurer must cover all expenses for explicitly recommended measures, even if they exceed the agreed-upon limit.
LIFE INSURANCE
The insurer’s refusal to renew an individual life insurance policy will not be permitted if the policy has been renewed continuously and automatically for more than 10 years unless the insurer ceases operations in that line or modality of business. In such cases, a prior notice must be given to the insured along with an offer of another insurance policy with similar coverage, being prohibited, in such scenario, establishing new waiting periods or denial based on pre-existing health conditions (Art. 124).
If, after becoming aware of the claim, the insurer cannot identify the beneficiary or the dependent of the insured within the statute of limitations for the respective claim, the insured capital must be paid to the government and allocated to the National Fund for Public Calamities, Protection, and Civil Defense (Funcap) (Art. 115, §4).
STATUTE OF LIMITATION
- 1-Year Statute of Limitation, counted from the knowledge of the triggering event (items I and II of Article 126):
- The insurer’s right to claim premiums or any other claim against the insured and the policyholder;
- The right of the insurance broker, agents, and representatives to claim their compensation, a provision newly introduced in legislation;
- Claims among co-insurers and claims among insurers, reinsurers, and retrocessionaires.
- 1-Year Statute of Limitations, counted from the knowledge of the insurer’s explicit and reasoned claims’ declination: The insured’s right to demand indemnity, capital, mathematical reserve, overdue payments of temporary or lifetime annuities, and premium reimbursement.
- 3-Year Statute of Limitations, counted from the knowledge of the triggering event: The right of beneficiaries or affected third parties to demand indemnity, capital, mathematical reserve, and overdue payments of temporary or lifetime annuities from the insurer (item III of Article 126).
The statute of limitations for the right to receive indemnity or insured capital will be suspended only once when the insurer receives a request for reconsideration the claim declination’s decision, with this suspension ending on the date the insurer informs the interested party of its final decision (Article 127).
There is no longer a specific provision regarding the starting point of the statute of limitations for liability insurance policyholders who have been sued by third parties.
DISPUTE RESOLUTION, JURISDICTION, AND APPLICABLE LAW
The parties are permitted to choose alternative dispute resolution methods in insurance contracts, formalizing this decision in a signed document. However, the chosen resolution must occur exclusively in Brazil, following Brazilian legal procedures and rules, including arbitration, which is also subject to these rules (Article 129).
Susep is responsible for disclosing conflicts and decisions related to these disputes, ensuring that such information is presented in an accessible manner for interested parties without identifying the involved parties (sole paragraph of Article 129).
The Brazilian judiciary holds exclusive jurisdiction to resolve disputes related to insurance contracts subject to the provisions of Brazilian Insurance Law (Article 130).
In cases of lawsuits and arbitrations among insurers, reinsurers, and retrocessionaires, involving conflicts that may directly impact the execution of insurance contracts subject to the provisions of Brazilian Insurance Law, judicial or arbitration discussion must take place in Brazil (Article 131, sole paragraph).
FINAL PROVISIONS
Brazilian Insurance Law goes now to presidential sanction and repeals item II of § 1 of Article 206 and Articles 757 to 802 of the Civil Code, as well as Articles 9 to 14 of Decree-Law No. 73/1966. It will enter into effect one year from its official publication.
Lefosse’s Insurance, Reinsurance, and Private Pension Practice is closely monitoring the progress of the Insurance Bill and its impacts on the (re)insurance market. Soon, it will release detailed material covering the proposed changes concerning the aforementioned topics, their implications, and points that will require the attention of the entire sector.
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