Insurance law and regulation in the Netherlands

Under Dutch law, the parties that have rights under a contract are those that are expressly party to it. These are the policyholder and the parties entitled to coverage in accordance with the terms and conditions of the insurance contract (the insured parties). The policyholder pays the premiums to the insurer, but the insured parties do not necessarily pay. The policyholder and the insured are the parties entitled to claim under the insurance contract.

Before concluding an insurance contract, the policy holder must disclose to the insurer all information which he knows or ought to know and which may be material to the decision of the insurer to underwrite the risk or to underwrite it on particular terms.

Where the cover relates to the interests of a third party whose identity is known, the policy holder is also required to disclose facts which the third party knows or ought to know and which will be material to the decision of the insurer wen entering into the contract.

These disclosure obligations do not extend to facts which the insurer already knows or ought to know, facts which would not have a detrimental effect on the policy terms and conditions for the insured, and facts which are confidential under the Medical Examinations Act. The insured is obliged to disclose facts concerning their or a third party’s criminal history dating back eight years before inception of the policy, and this only if the insurer has expressly raised a question in unambiguous terms about such history.

The insurer may only invoke the consequences of non-disclosure if the insurer has informed the policyholder of the breach within two months after the discovery thereof, including the possible consequences of non-disclosure.

The consequence of non-disclosure with intent to mislead the insurer is termination of the insurance contract with immediate effect, within two months after the discovery. Where the insurer would not have concluded the insurance contract if he had been aware of the true state of affairs, the insurer may also terminate the contract. This termination becomes possible two months after the discovery of the breach of the obligation to disclose.

In case of innocent non-disclosure regarding the assessment of the risk, the agreed payment must be made in full. Furthermore, if the insurer would have stipulated a higher premium or stipulated a lower repayment sum had been aware of the true state of affairs, the payment shall be proportionally reduced.

However, no payment will be due if the insurer would not have concluded the contract had he been aware of the true state of affairs.

If risk is evaluated on the basis of a questionnaire drafted by the insurer (as most policies are), the insurer cannot decline a claim on the basis that questions were not answered, or that facts in respect of which no question was raised were not disclosed, or that the answer to a question couched in general terms was incomplete, unless there was intent to mislead the insurer. A general catch-all question (‘Are there any facts or circumstances that may be important to the insurer that you have not mentioned so far?’) does not resolve this lack of information.

Dutch insurance law does not recognize the concept of conditions precedent and warranties as such, which is why it is a matter of interpretation of the insurance contract on how condition precedents and/or warranties precisely work and what the consequences of a breach are.

In this respect, the difference between primary coverage descriptions and secondary coverage descriptions could be relevant. If a condition precedent and/or a warranty can be qualified as a primary coverage description, the insurer may be able to deny coverage. Courts are reluctant to overthrow such denial on the part of the insurer because an insurer should be able to define the boundaries wherein the insurer is prepared to provide coverage. In exceptional cases, a court might regard breaches of a condition precedent unacceptable according to the principles of reasonableness and fairness. 1 DSC 23 April 2010, ECLI:NL:HR:2010:BL:6024.

Condition precedents might also be interpreted as forfeiture clauses in which case it is possible that an insurer can only rely upon the consequences of a breach if the insurer is prejudiced by the breach of the condition precedent.

In light of the abovementioned, it is important that insurers check whether the description of conditions precedent are defined in accordance with the risk they are prepared to cover.

A breach of warranty does not always represent a valid reason for the insurer to deny coverage. Only in cases whereby the breach of a warranty and the damage causing event are causally linked is the insurer allowed to deny coverage. 2 DSC 27 October 2000, ECLI:NL:HR:2000:AA7915.

From the moment the policy holder or the insured knows or ought to know of the occurrence of the insured event, he is obliged to notify the insurer, as soon as reasonably possible. The insured must provide the insurer with all the information and relevant documents within a reasonable period to enable the insurer to consider the claim.

When the insured fails to notify the insurer on time, the insurer may reduce the insurance payment by any loss he suffers as a result of the late notification. The insurer may only stipulate that the right to payment will lapse on failure to perform these if a reasonable interest is prejudiced.

Furthermore, if the insured fails to notify on time or to provide adequate information with the intention to mislead the insurer, the insurer is not obliged to pay the claim (unless this is inequitable).

For liability insurance involving claims for personal injury and/or death, once the insurer has been notified of the claim and is liable to pay the claim, a third party can request the insurer pay the claim directly to the third party. The insurer may still rely on the terms and conditions of the insurance contract. If the third party commences proceedings against the insurer, the third party must ensure that the insured is summoned in time to appear at the proceedings.

If the third party has not exercised this right, the insurer may pay the insured and be released from its obligation to provide indemnity, however, only if it first requests the third party to confirm whether the third party will exercise or waive such a right, and the insurer receives no response within four weeks of the request. The insured may not settle the claim with the insurer to the detriment of the third party, if the claim relates to a loss resulting from death or injury.

Under Dutch law insurers can be liable for damage caused by late payment of a valid claim, either on the basis of breach of insurance contract or on the basis of tort. Article 6:119 DCC provides that damage due to delay in the payment of a sum of money shall consist of statutory interest on that sum over the period in which the obligor has been in default of payment. This means that in principle the amount of damages is fixed on the statutory interest and no other damages may be awarded.

However, this can be different if there are additional circumstances and other allegations against the insurer than just late payment of the claim. If the additional circumstances justify compensation of extra costs the standards of reasonableness and fairness provide that such compensation is allowed. However, this is a high threshold which will not easily be met.

A right of action against the insurer for obtaining payment expires three years from the day after the insured became aware of the payment becoming due. Limitation shall be stayed by the insured demanding payment from the insurer in writing. A new limitation period starts running the day after the insurer either admits or denies the claim in unambiguous terms.

In the case of liability insurance, the limitation period shall be stayed by every negotiation between the insurer and the insured or the third party. A new limitation period of three years will commence the day after the insurer either admits the claim or notifies the other party – and if that is not the insured also the insured – ending the negotiations in unambiguous terms.

The limitation period for claims under a life insurance is five years from the day after the insured became aware of the payment becoming due and payable.

All kinds of policy triggers with respect to third parties are allowed. In particular, claims-made coverage is allowed under Dutch law.

The Dutch Code of Civil Procedure provides the main rules. As a starting point, the losing party shall pay the costs of the court and the costs of the other party, but these costs are fixed within certain boundaries. As a result, the recoverability of defense costs is, in principle, limited. These rules are also applicable in disputes regarding insurance contracts.

Whether it is possible to insure penalties and fines will depend on the circumstances of the case. Insurance coverage for wilful misconduct and violation of criminal laws is against public policy and the obligation to pay is therefore void (art. 3:40 DCC). However, the Dutch Supreme Court argued that certain degrees of wilful misconduct are insurable. Actions whereby the insured caused the damage with an intention to do so are not insurable. Actions of the insured that would constitute a possible or probable consequence of the damage are insurable. Some authors argue that regulatory fines are insurable, however there is no case law that confirms this view.