Portugal: New Insurance Contract Act

A full revision of the Portuguese regime on contracts of insurance was completed in April 2008. The new regime will come into force on 1 January 2009.

On 16 April 2008, the Portuguese Official Gazette published the Decree Law 72/2008, which regulates the new regime on contracts of insurance in Portugal. This Act is the result of more than a year’s work and pulls together the provisions governing contracts of insurance, which previously were disseminated in several laws.

The new Act focuses on improved transparency and consumers’ rights and
protection, in order to ‘rebalance’ the position of insurers and insureds. It also
reinforces the information duties for insurers and regulates certain types of
insurance such as collective and capitalisation insurance, which, although
documented, were not covered by a legal regulation.

The Act is divided into 217 articles, classified under three sections: General
Provisions, Damage Insurance and Personal Insurance. Some of the provisions that it has introduced include:

  • Mandatory provisions. The new Act distinguishes between “absolute” mandatory provisions, which the parties cannot waive or amend in any circumstance, and “relative” mandatory provisions, which the parties may amend in favour of the policyholder/insured or beneficiary. Within the first group, the duty for the insurer to provide a written, dated and signed contract of insurance to the policyholder or the provisions about lack of payment of the premium can be found. Relative mandatory provisions would include amongst others, provisions regarding contracts of insurance entering into force or the provisions about initial risk disclosure.

 

  • Language of the contract. Contracts of insurance should be drafted in comprehensible, clear and rigorous terms, using clear and unambiguous language. A contract may be drafted in a foreign language, at the request of the policyholder, subject to an agreement to that effect being entered into between the parties prior to the execution of the contract of insurance. In the case of compulsory insurance, a Portuguese version must be provided in any case, which will prevail over any other version.

 

  • Clauses excluding or limiting cover must be highlighted by using larger typeface. This rule also applies to clauses regulating contracts’ nullity, suspension or cessation.

 

  • Automatic renewal. The Act expressly provides that, unless otherwise agreed, the contract of insurance will be for one year and will automatically be renewed for the same period.

 

  • Duty for insurers to provide pre-contractual information. This duty exists under the current legislation, but the new Act expands the minimum pre-contractual information and provides – only for special complex cases – the duty for the insurer to advise the policyholder about the most suitable form of insurance for the intended coverage. The consequence of the lack of provision of pre-contractual information would be cancellation of the contract and the return of premiums.

 

  • Initial risk disclosure. As in the current regime, the policyholder must disclose any relevant information for the risk’s assessment. However, the new Act will improve the insurer’s diligence as it must inform policyholders of their duty of disclosure. The insurer cannot take advantage of any policyholder’s vague and contradictory responses or their failure to respond to the questions.

Classes of insurance

The new Act devotes 95 articles to detail rules applicable to liability, fire, harvest and cattle, transportation, credit and surety-ship, legal defence and assistance insurances as well as personal ones (life, accident and health insurance).

Timings and transition rules

The Insurance Contract Act will come into force on 1 January 2009. However, existing contracts of insurance subject to automatic renewal will be subject to the new Act as from the renewal date falling on or after 1 January 2009. Contracts of insurance that are not subject to automatic renewal and cover non-personal risks will continue to be governed by the current legislation; in contrast, personal insurance will be amended on or before 1 January 2011.

For further information, you may contact either LITA (LITA@lloyds.com) or Juan Arsuaga (juan.arsuaga@lloyds.com) or Beatriz Ramirez (beatriz.ramirez@lloyds.com), at Lloyd’s Iberia.
Last updated on 27 Aug 2008