June 9th, 2011

Continental European Legislative and Judicial Trends: From Communist Economy to Full European Union Membership: The Insurance Law Perspective in Poland

Posted at 1:00 AM ET

David Lewin, Managing Director


Polish civil law, including the law of obligations and tort law, belongs to the continental law systems, as it has drawn inspiration from German, French and Swiss law. The Polish civil law system underwent a rather radical transformation after the political changes and the abolishment of the socialist system in 1989.

However, these changes did not result in the introduction of a completely new civil code. (The code of 1964 was compiled by the civil law practitioners who had received their education during the pre-communist era, so it was never fashioned on the classical Soviet solutions.) Instead, the changes in civil law were due to the elimination of the old epoch’s relics and the introduction of a series of amendments and additional acts.

In relation to Poland’s accession to the European Union, a number of additional regulations that impacted civil law relations were introduced, including those in the area of consumer protection.

Insurance and Reinsurance in Poland: General Issues

In turn, Polish law regulates the issues related to insurance activities (including reinsurance) by the Act on Insurance Activity of May 22, 2003 (Journal of Laws of 2010, no. 11, item 66) and is fully compliant with the corresponding European standards in this scope.

The insurance activity in Poland, as in the majority of European countries, concentrates on personal insurance (including life insurance, marriage insurance, birth insurance, annuity insurance, accident insurance and sickness insurance) and property insurance (including motor insurance, goods-in-transit insurance, insurance against damages caused by natural forces, civil liability - including various professionals - and financial risk insurance).

However, until recently (June 2009), Polish law had no regulation whatsoever related to the scope of reinsurance activity. This changed on June 18, 2009, when an amendment on the Act of Insurance Activity and certain other acts became effective. The amendment adjusted Polish law to the requirements of European law through the implementation of “Directive 2005/68/EC of the European Parliament and of the Council of 16 November 2005 on reinsurance and amending Council Directives 73/239/EEC, 92/49/EEC as well as Directives 98/78/EC and 2002/83/EC”. Until the amendment became effective there was no basis for recognizing reinsurance as an insurance activity. 

In addition to the mandatory implementation of Directive 2005/68/EC, in keeping with the possibility provided by Annex no. I to this directive, the Polish legislature provided for a specific legal form that is “a mutual reinsurance society” for the purpose of conducting reinsurance activities. Due to the fact that the provisions regarding reinsurance activity and its statutory form are relatively new, we have yet to see any significant publications dealing with these issues. There is not any substantial case law from the courts in this area.

The significance of property and personal insurance increases with economic devel- opment, and the advantages of diverse insurance forms are becoming increasingly known in the marketplace. During several decades of the so-called socialist system in Poland, the insurance market did not exist in practice - only state insurance institutions were allowed to operate, and the main focus of their operations was communication insurance (which was mandatory in regards to civil liability insurance) and transport insurance. After 1990, in the free market economy, private insurance entities and institutions began offering diversified types of insurance, both in terms of conditions as well as prices.

Regulatory Changes in the State’s Compensatory Liability: A Significant Impact on the Insurance Market

The increasing significance of insurance in Poland, especially property insurance, is associated with the momentous changes in the regulation of the State’s compensatory liability for damages inflicted in the performance of a variety of tasks. Over the last half century, specific acts and the 1964 Civil Code have set out an extraordinarily vast scope for the State’s tortious liability for damages inflicted by State officers in their activities.

In the communist state, the state monopolized practically all instruments of power, administration and economy. As a consequence, practically all employees were “officers of the State” because the State and its agencies were the only employers, with the exception of individual farmers. Hence, the officers for whom the State was held liable were not only those employed directly in government positions, but also doctors, teachers, municipal services employees and others.

Tortious compensatory liability was, and is still, based on the principle of full compensation (Article 361 of the Civil Code), extending to the loss and to lost profits. The State Treasury (the State as a civil law entity) was no doubt a solvent entity - encumbering it with this liability was broader than it would have been in the case of insurance, since it extended the burden of damages to a large number of citizens.

With the new Constitution going into effect in 1997, Article 77 provided that the State be held fully liable for damages inflicted by unlawful actions in the exercise of public authority. The constitutional regulation and case law of the Constitutional Tribunal based on this regulation forced the amendment of the provisions on tortious liability of the State Treasury. The Act of June 17, 2004 changed the then current wording of Articles 417-419 of the Civil Code, adjusting the regulation included in the Civil Code to the provisions of the Constitution.

According to the present regulation, the State Treasury or a territorial government unit is held liable for damages inflicted by an unlawful action or desistance in the exercise of public authority. Admittedly, the notion of “acts of public authority” is understood broadly since they are not solely actions related to the exercise of the state imperium in the strict meaning of the phrase, but also include other acts and actions characteristic of the bodies of public authority.

Overview of Recent Issues

The role of insurance has been a momentous influence shaping “legal and economic security” in several areas of the community and economic life. The following are examples:

  • Health Services: As in other European countries, health services institutions of various types that remain in the hands of territorial governments (municipalities) struggle with financial problems that are difficult to overcome. While a number of hospitals, outpatient clinics and inpatient clinics provide good medical assistance for patients, several others do not. Personal damages to patients occur across the board, only with more frequency in weaker institutions, resulting in disability or the loss of health or life. The compensatory liability in these circumstances may be assumed by the health institutions and, in some cases, by doctors.
  • Admittedly, the compensation awarded has yet to reach the amounts granted to injured patients in such countries as Germany, France or the UK. However, under Polish conditions, the awards are already very high and continue to increase. Moreover, the necessity to pay these awards may endanger the financial stability of a given institution and may ruin a medical practitioner who may be held personally liable for damage.
  • The personal liability of a doctor is becoming a common phenomenon in the areas of medicine that have been privatized to a large extent, first and foremost, dentistry and cosmetic medicine. Under current circumstances insurance becomes the sole means of providing security to doctors and owners of private health service institutions when turning to the public purse is no longer possible.
  • Floods: Over the last 10 years, several floods have afflicted vast areas of Poland on a scale that has not been recorded in several decades. Thousands of people lost all of their property in very brief periods of time. People across the country underestimated - some to the point of negligence - the necessity of securing insurance in order to protect their property from the effects of natural disasters. Because of Poland’s past history, many assumed and expected that damages would be compensated by the State.
  • In fact, a previous prime minister told flood victims that the State would come to their aid as it was able but noted that they “should have purchased insurance policies.” This message may have contributed to his defeat in an election several months later.
  • In the recent past, people have become only slightly more aware of the need to purchase insurance, particularly in areas frequently threatened by flooding. This was made evident when floods ravaged vast areas of the Wisla (Vistula) Valley in spring 2010. The number of policyholders increased but not to the extent where it would be considered a widespread phenomenon. Moreover, insureds were rather frugal in their insurance outlays and the sums insured were often much lower than the damages sustained as a result of the flood.
  • The bitterness of the injured parties continued to be aimed at the State, which was charged with the failure to fulfill a number of its public law obligations. The victims thought the State should have done more to prevent flooding or reduce the scope of its disastrous effects.
  • In 2010 the injured parties were equipped with a new weapon in their legal struggle against the State Treasury. As of July 19, 2010, the Act on Class (Group) Action (The Act) became effective in Poland. The Act allows a class action lawsuit to be filed when at least 10 persons pursue claims of one type, based on the same factual basis (Act on Class Action, Article 1, Item 1), while the amount of claims pursued by each member of the “plaintiff group” shall be made uniform to one sum or to sums for subgroups consisting of at least two people.
  • The first class action suits have been concerned precisely with the compensatory claims against the State Treasury and the territorial administration units regarding the impact of floods. The insurance and reinsurance sector has been viewing this situation with interest, and the introduction of a new institution may force a reaction on the part of the insurance market.

Legal Backyard

The number of attorneys, legal counsels, notaries, tax advisors and recovery offices that provide broadly understood legal services is increasing. As a result, legal assistance is becoming more readily available and cheaper, even though the quality of such services is frequently insufficient.

The number of clients dissatisfied with the services of lawyers is increasing rapidly, and more and more clients are coming forth with compensatory claims. For this reason, territorial organizations that bring together attorneys, legal counsels and notaries have introduced the obligation to conclude civil liability insurance agreements and specify the minimum of sums insured. Simultaneously, lawyers are encouraged to purchase additional insurance policies for sums exceeding the mandatory level. A noted majority of renowned law offices do this to protect the interests of clients and themselves.

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Guy Carpenter & Company, LLC provides this report for general information only. The information contained herein is based on sources we believe reliable, but we do not guarantee its accuracy, and it should be understood to be general insurance/reinsurance information only. Guy Carpenter & Company, LLC makes no representations or warranties, express or implied. The information is not intended to be taken as advice with respect to any individual situation and cannot be relied upon as such.

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Statements concerning, tax, accounting, legal or regulatory matters should be understood to be general observations based solely on our experience as reinsurance brokers and risk consultants, and may not be relied upon as tax, accounting, legal or regulatory advice which we are not authorized to provide. All such matters should be reviewed with your own qualified advisors in these areas.

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