Insurance law and regulation in Portugal

The primary statutes applicable to the insurance business in Portugal are Law 147/2015, which regulates the activity of insurance companies and Decree-Law n. º 72/2008 1 With the amendments implemented by Law no. 147 / 2015. , which contains the law on insurance contracts.

The ‘Autoridade de Supervisão de Seguros e Fundos de Pensões (ASF)’ is the Portuguese regulatory authority tasked with supervising the activities undertaken by insurance and reinsurance companies. This does not rule out the supervision carried out by the ‘Comissão do Mercado de Valores Mobiliários’ (‘CMVM’) – the Portuguese regulatory authority responsible for the supervision of the stock market – to insurance agreements in connection with unit-linked products.

Insurance and reinsurance services in Portugal may be undertaken in Portuguese territory by the following entities:

• A public limited liability company or a mutual insurance company authorised by ASF;
• An EU-based insurance company headquartered in another EU country, provided it meets all the necessary requirements;
• Branches of EU-based insurance companies, provided it meets all the necessary requirements;
• Branches of insurance companies based in non-EU countries, which are expressly authorised under the terms of the Portuguese Insurance Law;
• Publicly funded insurance companies, created under Portuguese Law, carrying out insurance business activities in identical conditions as carried out by private companies.

Foreign EU-based insurance companies conducting activities related to mandatory insurance contracts, such as professional liability or motor-vehicle insurance, must appoint a representative to ASF residing or established in Portugal in order to be able to undertake insurance business on a freedom of services basis. Irrespective of the nature of the risk, foreign EU-based insurance companies acting on a freedom of services basis must contribute to all insurance funds intended to ensure the payment of claims.

In order to undertake insurance services through a branch established in Portugal, the foreign EU-based insurance company must request its home country’s supervisory authority to inform ASF of the insurer’s intention. Within two months from receipt of the request, ASF shall inform the relative home country authority of any special provisons that will apply to the insurance activity carried out.

For companies headquartered outside the EU, the authorisation to establish a branch must be provided, upon request, by ASF.

Finally, a special rule applies to Swiss insurance companies and requires them to conduct the process of authorisation for non-life insurance operations with ASF.

The insured is required to disclose accurately every circumstance that he knows or ought to know of and that is significant for the estimation of the risk by the insurer. Such duty applies regardless of the information being requested in a proposal form provided by the insurer.

The remedies for misrepresentation and non-disclosure are proportionate and will depend on the nature of the breach.

In cases of deliberate breach, the insurer may terminate the insurance contract upon communication to the insured of such a decision within three months from the date the insurer became aware of the breach if no trigger event has occurred. If a trigger event has already occurred, the term would be one year.

In the event that the insurer terminates the contract due to misrepresentation or non-disclosure, it may also deny liability for any claims occurred before the date the insurer became aware of the breach.

In case of a deliberate breach of duty of disclosure (and only under this circumstance) the insurer may terminate the contract and claim all the premiums due until the end of the legal periods, unless a deliberate action or gross negligence from the insurer are found.

On the other hand, where the insured negligently misrepresented or failed to disclose, the insurer may, upon notice of the insured within three months from the date it has become aware of the breach:

• propose a contractual amendment of the policy, setting a deadline of at least 14 days, for the insured to approve or, if allowed by the insurer, provide a counter-offer; or
• terminate the insurance contract, if the insurer is able to demonstrate that it would not have, in any case, entered a contract if it was aware of the non-disclosed or misrepresented fact.

The insurance contract is deemed to terminate 30 days after the notice of termination to the insured or within 20 days after the receipt of the contractual amendment proposed by the insurer if the insured fails to respond or rejects it.

In general, the insurer cannot rely upon a breach that arises out of:

• a failure to answer a question in a proposal form;
• an unclear answer to a very broad question;
• an apparent contradiction or inconsistency in an answer to a proposal form question;
• non-disclosure or misrepresentation that is known by the insurer representative at the time of conclusion of the contract; or
• a breach in connection with circumstances known to the insurer, in particular when they are public and widely known.

The insurer has also duties towards the policyholder to provide information or clarification regarding the conditions of the contract, namely in respect of insurance coverage, limits and exclusions, premium payment conditions, duration and applicable law.

Finally, the insurer is also required to inform the insured of the duty of disclosure / not to misrepresent and the consequences of breach of such duty.

If the insurer fails to comply with the above duties, it will be liable to the insured for damages.

The Portuguese Insurance Law does not provide any specific effects of breach of warranty and / or condition precedent. The effects have to be determined case by case through the relevant rules of interpretation applicable.

Notwithstanding please note that the payment of the premium, although it is not a condition for the effect of the insurance contract, is a condition for the effectiveness of the risk coverage. This means that if the insured fails to pay the initial premium or the first instalment of it, it determines the automatic termination of the insurance contract.

The insured is required to notify the insurer in accordance with the deadline set forth in the insurance contract or, in its absence, within eight days after acknowledging the insured event.

The notification claim shall address the material circumstances that gave rise to the triggered event, the possible causes thereof and any relevant damages/consequences. In addition, the insured is required to comply with further enquiries carried out by the insurer in connection with the insured event and consequences thereof.

There are no legal or statutory penalties for late notifications, but the insurance contract may include a term that establishes that the insurer may offset the damages caused by the late notification in the amount to be paid for the claim and/or the avoidance of the claim, when the breach arises from a deliberate action and results in substantial damage for the insurer.

However, the insurer cannot rely upon the referred terms when it was made aware of the trigger of cover by any other means besides the insured’s notification and within the period applicable thereof, or when the insured is able to provide evidence that the notification could not have been brought sooner.

In any case, the late notification is not enforceable against a third-party claim under compulsory third-party liability insurance, without prejudice of the insurer’s rights of recourse against the liable party for the payments made under the claim.

The general rule under Portuguese Law is that only the insured is entitled to raise a claim against the insurer under the insurance contract, even when the insurance contract is on behalf of a third person, in which case a claim by the policyholder can only be sought with the insured’s consent. However, for compulsory third-party liability insurance, the injured third party is allowed to seek relief directly from the insurer. Additionally, in liability insurance contracts, the parties may expressly provide the third party the right to bring a claim against the insurer, solely or jointly with the insured.

Concerning an indemnity insurance, the insurer is only liable to pay the loss suffered / caused up to the amount covered, whereas in life insurance the policy may be written on a contingency basis, where the parties may establish a sum to be paid upon the occurrence of the insured event.

In the event the insurer fails to comply with the terms set out in the contract and does not provide the payment of claim in time, interests shall accrue according to the general terms of the Portuguese civil law.

However, there are certain insurance contracts that foresees that in case the insurer fails to comply with the payment of compensation within the specific deadline previewed in the insurance contract or by the court, interest shall accrue of twice the statutory rate applicable to the case. This is the case of compulsory motor insurance.

The limitation period for claims that arise from the breach of the insurance contract is five years from the date the claimant becomes aware of the breach and must be sought within twenty years from the occurrence of the insured event.

In case of liability insurance, the claim must be brought three years running from the knowledge of the event by the third party.

Unless otherwise agreed, the trigger for third party liability coverage is written on an occurrence basis. Thus, the insurance contract covers the losses for which the insured is liable during the policy period regarding claims presented after the term of the policy.

Nonetheless, the parties may agree in defining the cover period considering the cause or demonstration of the loss and the claim notification (claims-made policy). 

In case of claims-made policy, unless otherwise stated by law or statute and provided that the risk is not cover by a subsequent insurance contract, the insurance contract covers insured events that occurred unnoticed during the policy period, even if the claim is brought in the year that follows the term of the insurance contract.

As a general rule, the losing party shall bear the court costs incurred by the counterparty during proceedings. Therefore, the law allows the successful party to recover from the losing party the court costs disbursed in advance and a certain amount for lawyers’ fees based on a percentage of the court fees paid, which is related to the claim value.

The Portuguese law expressly prohibits insurance coverage of criminal, administrative or disciplinary liability. Therefore, fines and penalties cannot be insured.

This is related to the principle established under the Portuguese law that the insured must have an interest worthy of legal protection regarding the risk covered.