Insurance Law Bill: favorable opinion issued with substitute amendment

Bill No. 29/2017 provides for the regulations on private insurance, revoking the provisions of the Brazilian Civil Code regarding this type of contract

On November 21, 2023, Senator Jader Barbalho, rapporteur of Bill No. 29/2017, submitted his opinion in favor of this Bill. In addition, Barbalho proposed a Substitute Amendment, introducing changes to several provisions previously established in the original version of Bill No. 29/2017, including changes in the order of the articles and the wording.

Below, we highlight the main legislative changes proposed by the new version of this Bill, accompanied by our brief comments: 

• Portfolio assignment by insurers: the new version of this Bill provides for the possibility of authorization by the regulatory authority to exempt the assignor insurer from liability in the event of portfolio assignment, thus removing the need for prior agreement by the insured and beneficiaries. However, even in this case, the Bill maintained the liability of the assignor towards the assignee for the period of 24 months, which seems contradictory to us, as the assignment itself will have been previously authorized by the regulatory body.

• Application of Brazilian law: the Bill upholds the provision from its original version regarding the application of Brazilian law to insurance contracts relating to: (i) insurance contracts executed by insurance companies authorized to operate in Brazil; (ii) insured parties or proponents resident or domiciled in Brazil; and (iii) assets located in Brazil on which the interests are guaranteed by the insurance.

As for this point, the rapporteur stated that his intention is to categorically ensure that the application of the Brazilian law to insurance contract is not excepted, even if the parties have agreed to an arbitration clause, which, in our opinion, is contrary to the provision of freedom of choice as to the applicable rules governing arbitration, in accordance with article 2, paragraph 1, of the Brazilian Arbitration Law.

• Aggravation of risk: the Bill upholds the provision stating that only the aggravation of risk that is significant, intentional and possesses a causal link with the claim precludes the insured’s right to the insurance guarantee. Also, the Bill establishes that significant aggravation is only characterized as such when it represents a substantial and continuous increase in the probability of occurrence or severity of risk effects.

In addition, the Bill breaks new ground by determining that, in the case of life or physical integrity insurance, confirmation of risk aggravation will only serve to authorize collection of the difference in the premium, and not to justify a denial of the insurance coverage.

• Premium: the new version of this Bill prohibits absolutely the receipt of premium before the contract is formed, except in cases of provisional coverage. Also, the Bill incorporates into the law the currently prevailing case law on the need to notify the insured in order to constitute default, with coverage being suspended only after the period granted for settling the debt, which cannot be less than 15 days.

• Insurance policyholders: the Bill considers a collective insurance policyholder as only those parties with previous, non-insurance ties to the group of insured parties, and also establishes the need for the amounts paid to the policyholder to be clearly indicated to the insured parties in the proposals, questionnaires, and all other contractual documents.

• Duty of disclosure: under the terms of this Bill, only willful non-compliance with the duty of disclosure by the insured will result in the loss of the right to the insurance guarantee, as well as payment of the premium and reimbursement of expenses incurred by the insurer, whereas culpable non-compliance will result in a reduction of the guarantee proportionally to the difference in the uncollected premium.

• Deadline for refusal of the insurance proposal: the Bill provides for a period of 25 days to refuse the proposal by the insurer, after which it will be considered accepted. The period in question will be reset if the insurer requests clarification on the risk or requires expert examinations. The refusal will only be considered valid if it is substantiated by the insurer.

• Reinsurance: although the reinsurance provision is already addressed by Complementary Law No. 126/2007, constituting a higher tier within the hierarchy of laws and legislation, the current version of the Bill upholds Chapter XI. In addition to general provisions on the contract, the Bill introduces:

1. 1.  a 20-day period for the formation of the reinsurance contract upon reinsurer silence;
   2. the obligation of the insurer to inform the reinsurer in the event of a demand for review or enforcement of the insurance contract that had motivated the contracting of the optional reinsurance;
   3. the reinsurer’s obligation to immediately use the reinsurance installments advanced to it for payment of the indemnity;
   4. as a rule, that reinsurance will cover the entire reinsured interest, including the amounts arising from the insurer’s default, salvage expenses, and loss adjustment -; and
   5. absolute preference for credits of the insured or beneficiary over any other credits, if the insurer is under fiscal supervision, intervention or liquidation.

• Rescue and containment expenses: according to the Bill, these expenses will be settled by the insurer, up to the limit agreed to in the insurance contract, but without reducing the insurance guarantee. If no specific limit is agreed to, then 20% of the maximum indemnity limit or guaranteed capital applicable to the type of claim will apply.

• Loss Adjustment and settlement: the Bill provides for a chapter dedicated to this topic, stating that the loss adjustment and settlement must be carried out, whenever possible, simultaneously. The Bill also establishes that the insurer must advance the indemnity amounts to the insured or beneficiary within 30 days, whenever partial amounts have been determined.

• Loss adjustment and settlement report: established as a document common to the parties. Also, in the case of denial of coverage, the insurer must deliver to the insured or beneficiary the documents that support its decision, whether produced or obtained during the regulatory process, except for documents confidential by law.

• Denial of insurance coverage: regarding the rules of coverage denial, the Bill introduces a number of new developments:

1. 1. a period of 30 days for the insurer to deny coverage, under penalty of forfeiture of its rights, counting from the submission of the claim or loss notice accompanied by “all the elements necessary to decide on the coverage, which must be provided for in the contractual documents”;
   2. the insurer’s deadline for making a statement on the coverage will be suspended in the event of a request for additional documents for a maximum of two times, and for which the period will be resumed on the first working day following that on which the insured responds to the request;
   3. the 30-day period, however, can only be suspended once in claims relating to car insurance or other insurances for which the insured amount does not exceed 500 minimum wages;
   4. the supervisory authority can set a period of more than 30 days for denial of insurance coverage for more complex types of insurance, observing a maximum of 120 days; and
   5. the denial must be express and reasoned, and the insurer cannot introduce new developments as to the reasons for refusal, except in relation to new facts.

• Payment of insurance indemnity: in the event of payment, the Bill establishes:

1. 1.  a maximum period of 30 days for payment by the insurer;
   2.  the insurer or liquidator can request additional documents to quantify the amounts due. In this case, the 30-day period will be suspended for a maximum of two times, and will be resumed on the first working day following that on which the insured responds to the request;
   3.  the 30-day period, however, can only be suspended once in claims relating to car insurance or other insurances for which the amount insured does not exceed 500 minimum wages; and
   4.  the supervisory authority can set a period of more than 30 days for the payment of the insurance indemnity if the settlement of the amounts involves complexity, observing the maximum period of 120 days.

• Fine for late payment of insurance indemnity: the Bill provides for a 2% fine on the insurance indemnity, adjusted to reflect the inflation and legal interest rates, if the insurer fails to make timely payment of the indemnity, in addition to liability for potential losses and damages caused.

• Obligation to provide a specific limit for defense expenses in civil liability Insurance: the Bill establishes that a specific guarantee limit must be established for defense expenses in civil liability insurance, which must be different from the limit for indemnifying injured third parties.

• Non-renewal of individual life and physical integrity insurance in force for more than 10 years: in this case, the insurer must notify the insured at least 90 days in advance as well as offer new insurance that contains a similar guarantee and a premium that is actuarially reconsidered according to the situation and balance of the portfolio.

• Limitation period: the annual limitation period applicable to insurance contracts in general was upheld by this Bill. However, a number of conditions for its incidence were included, as well as new developments regarding the methodology used for counting. Therefore, the one-year period will apply to:

• • claims by the insurer to collect the premium against the insured or the policyholder;
  • claims by insurance brokers, agents or representatives and policyholders to collect their remuneration;
  • claims of co-insurers against each other;
  • claims between insurers, reinsurers and retrocessionaires; and
  • the insured’s claim for insurance indemnity, insured capital, mathematical reserve, overdue installments of temporary or life pensions and refund of premium, calculated from the date of receipt of the insurer’s express and reasoned denial. This provision is general, and the current version of the bill does not address a distinctive starting point (summons to the insured or agreement) for the limitation period of claims in civil liability insurance.

For beneficiaries, the Bill provides for the application of a three-year period to file their claim against the insurer, starting from the moment they become aware of the triggering event.

Another new development of this Bill is that it provides for the suspension of the limitation period for insurance indemnity claims from the moment the insurer receives a request for reconsideration until the response is received, limited to a single instance.

To date, 3 amendments have been introduced to this Bill, including the proposal to exclude Chapter XI, on reinsurance, as the matter is already regulated by Complementary Law No. 126/2007.

The Substitute Amendment proposed by the reporting officer is awaiting inclusion in the agenda of the Brazilian Commission of Constitution, Justice and Citizenship. If approved, the Substitute Amendment will be forwarded to the Senate for voting.

Demarest’s Insurance, Reinsurance, Health and Private Pension team is monitoring the repercussions of PLC No. 29/2017, as well as the impacts of the regulation on the entire insurance market, and is available to provide any further clarifications on the subject.