The Legal Situation
The Swiss Insurance Contract Act, dated April 2, 1908 (Versicherungsvertragsgesetz — VVG; SR 221.229.1), governs the contractual relationship between policyholders and insurers. The VVG proved its worth for many years, but over the last decade it has come under criticism. As a result, a partial revision of the VVG was made and entered into force on January 1, 2006, with the goal of strengthening the position of the policyholder. The Insurance Supervising Act (Versicherungsaufsichtsgesetz — VAG) and the attendant Supervising Regulation (Aufsichtsverordnung — AVO) have also been revised.
Even though the partial revision of the VVG in 2006 succeeded in strengthening the legal position of the policyholder, the ranks of those calling for further and more extensive revision swelled quickly. Consequently, the Department of Justice and Police, which was responsible for insurance legislation at that time, assigned a commission of experts to compose a draft bill as well as an explanatory report. The main aims were the alignment of Swiss insurance law with that of neighbouring states — and a further improvement of the policyholder’s legal position.
In August 2006, a commission of experts submitted a draft bill to the Department of Finance, which by that point had been given responsibility for insurance legislation. Based on that draft, the Federal Office of Private Insurance was tasked with finalizing a bill (Entwurf zum Versicherungsvertragsgesetz — E-VVG) for the consultation (Vernehmlassung) that closed on July 31, 2009. The consultation is part of the legislative process in Switzerland, providing the Cantons, the Council of States, and the political parties with an opportunity to comment on the bill. The final review of the statements made during the consultation is still pending, and it is not yet foreseeable when the review will be concluded. The next step in the legislative process will be the presentation of a definitive bill, including an explanatory report, by the Swiss Federal Council.
The Partial Revision of 2006
In the partial revision of 2006, particular attention was given to ensuring a significant and immediate improvement of the policyholder’s position. For instance, formerly, insurance companies were allowed to rescind an insurance contract in total in case of a concealment of facts (all-or-none-principle – “Alles-oder-Nichts-Prinzip”). Now the insurer may only refuse compensation if the policyholder conceals facts that influenced the insured event (Art. 6 and 8 VVG). Furthermore, the insurer has to refund a premium proportionately if the insurance contract is terminated before the agreed date (Art. 24 VVG). Another important regulation stipulates that the policyholder has to be informed about the product in a transparent and intelligible way (Art. 3 VVG).
In summary, the partial revision includes some new regulations which apply to all types of insurance contract — not just casualty insurance. The relevant version of the VVG still includes just two articles that specifically address casualty insurance: Art. 59 VVG stipulates the scope of casualty insurance, and Art. 60 VVG gives the damaged third party a lien to ensure its claim against the insurer.
Intentions of the Current Total Revision
The currently proposed version of the VVG includes many important modifications. According to the Principles of European Contract Law, the E-VVG is distinguished by a replacement of the above mentioned all-or-none principle, whereby in the event of concealment of facts the insurer may rescind the insurance contract in its entirety. In addition, the scope of the insurer’s obligation to provide information will be widened. Furthermore, the E-VVG entitles the policyholder to revoke (widerrufen) the contract within an appropriate timeframe and makes it easier to close a reinsurance contract. Moreover, essential improvements for the policyholder in the E-VVG are made with regard to the limitation and the consequences of defaulting on a premium payment. Finally, it has been proposed to restrict the costs resulting from loss prevention or mitigation of damage to the sum insured.
The E-VVG is divided into four divisions and two attachments. The first division (general provisions), which applies to all insurance contracts, includes the following chapters: scope and peremptory norms, conclusion of contract, insurance premium, insured event, contract amendment, termination of contract, enforcement, limitation, insurance broking, and privacy. The second division (specific provisions) is subdivided into two chapters. The first deals with provisions for all classes of insurance and establishes a distinction between indemnity insurance and insurance on a fixed-sum basis, thereby modifying the previous differentiation between indemnity insurance and personal insurance. The second chapter includes provisions for specific classes of insurance, and one section deals specifically with casualty insurance (Art. 90 to 94 E-VVG). The third division covers regulations concerning international relationships, and the fourth division includes final and temporary provisions. The attachments give an overview of mandatory and half-mandatory norms, as well as federal law (other than insurance law) which needs to be changed in light of the proposed total revision of the VVG.
Effects on the Casualty Insurance Industry
The revisions pertinent to the casualty insurance industry can be found primarily in Art. 90 to 94 E VVG, which apply exclusively to casualty insurance contracts. Within this section, two stipulations deserve closer attention: according to Art. 91 E-VVG the damaged third party will be entitled to a direct claim against the insurer, and the previous lien will be abolished. This is intended to strengthen the legal position of the third party and facilitate the payment of the claim. Nevertheless, problems could arise; for example, if the policyholder keeps affirmative defenses towards the insurer. It thus remains to be seen if the claims settlement process will really become easier and less complicated.
Of further relevance to the policyholder and insurer is Art. 94 E-VVG, which seeks to streamline the claims settlement process by committing the insurer to offer the third party a claim for adjustment within three months. Should the insurer fail to make such an offer, there will be a shift of the burden of proof in favor of the policyholder. In this case, it is assumed that a liability in the amount of the claim exists.