On June 19, 2020, the Swiss Parliament approved the partial revision of the Insurance Contract Act (ICA). The revised ICA will enter into force on 1 January 2022. The following article is intended to provide an overview of some (but not all) of the changes (for the revised ICA see https://www.admin.ch/opc/de/federal-gazette/2020/5661.pdf). References to articles of the ICA are references to the revised law (unless otherwise noted).
By Reto M. Jenny (Reference: CapLaw-2020-72)
1) Other text forms as an alternative to communication in written form
For various communications under the revised ICA, as an alternative to the simple written form (article 12 et seqq. of the Code of Obligations, CO), the proof by text shall be possible. In contrast to the simple written form, this does not require a manual signature.
2) Right of withdrawal (articles 2a and 2b ICA)
The revised ICA provides for a possibility of the policyholder to withdraw, within 14 days, its offer for the conclusion of the insurance contract or the declaration of acceptance of the offer. The time limit of 14 days starts running as soon as the policyholder has submitted its offer or accepted the contract. The deadline is met where the policyholder notifies the insurance company on the last day of the deadline of his/her withdrawal or hands over his/her withdrawal declaration to the post office.
However, the policyholder’s right to withdraw does not extend to (key) contract modifications; a corresponding suggestion did not find a majority in the parliament. The right of withdrawal is excluded in the case of collective personal insurance, provisional cover notes and agreements with a term of less than one month.
The withdrawal has the effect that the offer for the conclusion of a contract or the policyholder’s declaration of acceptance is ineffective from the beginning. The parties must reimburse services already received. In line with the Supreme Court case law in connection with the right of withdrawal for door-to-door sales and similar contracts (according to the CO), such reimbursement is governed by the provisions regarding unjust enrichment.
3) Rights of termination (articles 3a, 28a, 35a, 35b, 36, and 46b ICA)
The revision also deals with rights of termination, and the amendments include the following: The revision amends the policyholder’s right of termination where the insurance company breaches its duty of information according to article 3 ICA. One amendment concerns the expiration of the termination right after two years (currently after one year) since the violation of the information duty (article 3a (2) ICA).
In the event of a significant reduction in risk, the revised ICA foresees a right of the policyholder to terminate the contract with a notice period of four weeks or to demand a reduction in premium. If the insurance company refuses a premium reduction or if the policyholder does not agree to the offered reduction, the policyholder may terminate the contract within four weeks after receipt of the insurer’s comments (article 28a ICA).
The revised ICA provides for an ordinary right of termination at the end of the third or each subsequent year with a period of notice of three months. This provision aims at insurance contracts with a duration of more than three years (article 35a (1) ICA). The contractual parties are free to stipulate an ordinary termination already before the expiry of the third year, but the notice period shall be identical for both parties (article 35a (2) ICA). For life insurance contracts, there is no ordinary right of termination according to article 35a ICA, but the policyholder is entitled, regardless of the agreed duration, to terminate the life insurance contract after one year (article 89 ICA). In case of a supplementary health insurance to the social health insurance, the ordinary right of termination and the right of termination in a loss event (cf. article 42 (1) of the current ICA), shall be available to the policyholder only. For a collective daily benefits insurance, both parties are entitled to these rights (article 35a (4) ICA).
The revised ICA stipulates also an extraordinary right of termination: As for other long-term contracts, an insurance contract may be terminated for important reasons (article 35b ICA). Any circumstance which makes, according to a good faith standard, the continuation of the contract unacceptable to the terminating person constitutes such an important reason. The same holds true for an unforeseeable change in the legal requirements, which makes the fulfillment of the contract impossible (article 35b (2) ICA). In the dispatch of the Federal Council, a change of the practice on the basis of FINMA circulars is mentioned as a possible example, while it is, at the same time, referred to the fact that extraordinary terminations should be, as a matter of principle, rather rare. Contractual provisions permitting an insurance company to unilaterally limit the duration or extent of, or to annul, periodic obligations as a consequence of illness or accident in case of termination after the occurrence of the insured event are null and void (article 35c ICA).
Further, in case of lack of the necessary license, or of its revocation, of the insurance company, the policyholder is entitled to terminate the contract at any time (article 36 ICA).
Further, the law provides for a termination right of the policyholder in case a so-called multiple insurance arises provided that the policyholder did not have knowledge of the occurrence of a multiple insurance at the time of the conclusion of the later contract (article 46b (2) ICA). The termination right is limited to four weeks since detection of the multiple insurance.
4) Non-disclosure (article 6 (3) ICA)
The revised ICA explicitly stipulates a causality requirement for benefit reductions in case of non-disclosure of material facts for the assessment of the peril: If the contract is terminated by cancellation in accordance with paragraph 1, the insurer’s obligation to pay benefits for losses that have already occurred shall lapse insofar as the occurrence or extent of such losses has been influenced by the non-disclosure or the incorrect notification of a significant risk event (article 6 (3) ICA).
Instead of the requirement of written questions and answers, the revised law stipulates that questions and answers can either be in writing or in any other form allowing proof by text (e.g. online or by email).
5) Retroactive insurance (article 10 ICA)
Further, the revised law provides that the effects of the insurance contract can be referred back to a point in time before its conclusion, provided that an insurable interest exists. Such retroactive insurance is void if only the policyholder or the insured knew or had to know that an insured event had already occurred (article 10 ICA). In contrast, the current law provides, with basically the exception of fire and transport insurance, for the nullity of such retroactive insurance, which triggered wide criticism from legal scholars. By abolishment of the old provision, the revised law provides more legal certainty, in particular for claims-made policies and addresses cases such as the polyarthritis case of the Supreme Court (BGE 127 II 21): In that case, an insured concluded a supplemental health insurance contract and notified, upon conclusion of the insurance contract, her illness. At that moment, she had been pain-free for a prolonged period. Shortly after conclusion of the contract, however, the illness broke out again. The insurance company denied coverage, and the Supreme Court protected that decision, holding that the insured peril has materialized prior to the contract conclusion.
6) Breach of obligations (article 45 ICA)
The law currently in place has already provided for a requirement of fault: Negative consequences of a breach of obligations by the policyholder/beneficiary agreed upon by the parties could only be held against the policyholder/beneficiary to the extent that such violation was made by fault. According to the current Supreme Court case law, however, an insurer could have denied coverage where no causal requirement was explicitly agreed upon (i.e., the policy remained silent on that issue) to the extent that the law does not otherwise provide for such a causality requirement (as in the case of the current article 38 (2) ICA). The revised law now provides for a causality requirement for the breach of contractual obligations by the policyholder or the insured: To the extent that the policyholder proves that the violation had no influence on the occurrence of the insured event and on the scope of the benefits owed by the insurance company, an agreement burdening the insured with a legal disadvantage in case of non-compliance would be invalid (article 45 (2) (b) ICA).
7) Down payments (article 41a ICA)
The revised ICA contemplates a beneficiary’s right to request down payments for the amount undisputed by the insurance company once its claim is due.
8) Limitation period (article 46 ICA)
The revised ICA stipulates for a longer limitation period of five years (instead of two years), starting to run from the moment in time when the event triggering the insurer’s indemnification duty occurs. An exception exists for claims arising from the contract of collective daily sickness benefit insurance: The limitation period is two years in such cases. The revision has not modified the moment in time when the limitation period starts running (dies a quo).
9) Direct right of action for liability insurance (article 60 ICA)
A fundamental change of the revised law includes the direct right of action in the field of liability insurance: The damaged third party or his legal successor may directly claim, within the scope of any existing insurance cover and subject to the objections and defenses which the insurance company can hold against him based upon law or the contract, against the insurance company (article 60 (1bis) ICA). Such direct right of action is not alien to Swiss law, but has so far been limited to a few instances, e.g. in the ambit of the Road Traffic Act.
In the case of compulsory liability insurance, defenses arising from gross negligence or willful causation of the insured event, breaches of contractual obligations, non-payment of premiums or a contractually agreed upon deductible cannot be held against the damaged third parties (article 59 (3) ICA).
Other changes for the liability insurance concern the extension of cover to all employees of the insured company for business liability insurance (Betriebshaftpflichtversicherung; article 59 (1) ICA) as well as the clarification that recourse claims of third parties are covered, too (article 59 (3) ICA).
10) Right of recourse
The new law provides for a right of recourse of the non-life insurer. Prior to the Supreme Court decision of the year 2018 (BGE 144 III 209), the insurance company was considered – in terms of recourse pursuant to article 51 (2) CO – a person liable according to contract and could not take recourse against such persons who were liable based on law (with no fault; Kausalhaftung). Based on the new law, the insurance company will be able to take recourse against all persons liable to pay compensation/damages, i.e., also against such who face contractual or causal liability. According to legal scholars, liability insurers, however, do not have an integral right of recourse, but their position is still limited by article 51 (2) CO.
11) The professional policyholder (article 98 (2) ICA)
The revised ICA introduces the notion of the professional policyholder. With respect to them, the prohibition to contractually deviate from certain absolutely mandatory provisions (article 97 ICA) or, to the detriment of the policyholder or the insured, from other provisions (article 98 ICA) does not exist, i.e., where the contract is concluded with a professional policyholder, the parties may derogate from such mandatory provisions (cf. article 97 and 98 ICA). The term professional policyholder is defined by law (article 98 (2) ICA) and includes, inter alia, companies with a professional risk management (article 98 (2) (f) ICA) and companies that exceed two of the following three criteria: (i) balance sheet total of CHF 20m; (ii) net revenue of CHF 40m; and (iii) equity/net assets of CHF 2m (article 98 (2) (g) ICA).
Reto M. Jenny (reto.jenny@prager-dreifuss.com)