Contributed By Bär & Karrer AG
The Swiss legal framework for private insurance is based on the following laws and regulations:
In addition to the core insurance laws and ordinances listed above, other bodies of law contain relevant provisions with regard to insurance and reinsurance, eg general consumer protection law, data protection law or the law against unfair competition. Furthermore, Switzerland is a party to two international treaties on direct insurance that supersede the ISA (see Section 3.1 below):
The Swiss supervisory authority, FINMA, further specifies matters of insurance regulation in numerous circulars. Given their nature as administrative directives, FINMA circulars are not binding for Swiss courts. However, as a practical matter – and acknowledging the role and standing of FINMA as the main Swiss financial regulator – the courts in Switzerland often take the circulars into account when interpreting the laws and ordinances referred to above. In addition, FINMA publishes less formal guidance documents and FAQs on supervisory matters.
Switzerland is a civil law country. However, precedent cases of Swiss courts still play an important role in interpreting and developing the statutory law (article 1, paragraph 2 of the Swiss Civil Code).
Swiss insurance supervisory law is codified in the ISA and its implementing ordinances (see Section 1 Basis of Insurance and Reinsurance Law), FINMA being the overall competent licensing and supervisory authority. In general, the ISA applies to:
Certain specific types of activities and undertakings are exempted from the scope of application of the ISA, namely:
Insurance and reinsurance undertakings that are within the scope of application of the ISA must obtain an insurance licence from FINMA before engaging in any regulated activities, that is in particular writing insurance and reinsurance business (art 3, para 1, ISA). The licence requirements include, in particular, the following:
Building on the basic regulatory requirements, certain additional requirements or reliefs apply depending on the specifics of the case or the business, such as:
Procedurally, to obtain an insurance licence, an insurance undertaking has to submit a formal application to FINMA accompanied by a regulatory business plan (art 4, para 1, ISA). The latter must include information on the type of business the insurance undertaking intends to write, its management and organisational structure, its geographic scope of business and the persons directly or indirectly owning at least 10% of the capital or voting rights of the insurance undertaking or that are otherwise able to significantly influence its business activities (art 4, para 2, ISA).
Upon being granted an insurance licence, the insurance undertaking has to comply with all licence requirements on an ongoing basis. Amendments to the regulatory business plan must be reported to (and approved or not objected to by) FINMA (see Section 4 Transaction Activity).
Insurance premium payments are subject to stamp taxes if (i) the policy is part of a Swiss portfolio of an insurance undertaking subject to Swiss insurance supervision or of a Swiss insurance undertaking enjoying public law status; or (ii) a Swiss policyholder concluded the policy with a foreign insurance undertaking not subject to Swiss insurance supervision (art 21, Federal Stamp Tax Act ("STA")). Several types of insurance are exempt from this tax, including, in particular, premiums on reinsurance policies (art 22, STA). In principle, the stamp tax amounts to 5% of the cash premium, with the exception of life insurance policies, where it amounts to 2.5% (art 24, STA).
Meanwhile, insurance and reinsurance turnovers are exempt from Swiss VAT (art 21, para 2, no 18, Value Added Tax Act).
Insurance undertakings with registered seats abroad engaging in insurance activities in or from Switzerland fall within the scope of the ISA (see 2.1 The Writing of Insurance and Reinsurance) unless an international treaty provides otherwise (see below) or an exemption under the ISA applies. An important exemption in practice concerns foreign insurance undertakings engaging only in reinsurance activities in Switzerland (art 2, para 2, lit a, ISA). Such activity does not require a Swiss insurance licence and is not subject to insurance supervision in Switzerland, regardless if conducted cross-border or through a Swiss branch office. Separately, foreign insurance undertakings that have not established any branch office in Switzerland do not require a Swiss insurance licence and are not subject to insurance supervision in Switzerland if their insurance activity in Switzerland exclusively covers (i) insurance risks in connection with ocean shipping, aviation and cross-border transports, (ii) risks located abroad or (iii) war risks (art 1, para 2, ISO). The term "risk location" is subject to interpretation and must be determined in each individual case.
Furthermore, FINMA has discretion to exempt undertakings engaging in activities that are economically insignificant or only involve a small group of insured persons from insurance supervision pursuant to a de minimis provision in the law (art 2, para 3, ISA). However, in practice, FINMA rarely, if ever, applies this exemption. In the Draft revISA that is currently under public consultation, a new exemption for innovative business models has been proposed (see 13 Other Developments).
An insurance activity is deemed to take place in Switzerland, irrespective of the place and circumstances of the conclusion of the contract, if (i) the policyholder or the insured is a natural person or a legal entity domiciled in Switzerland or (ii) the insured goods are located in Switzerland (art 1, para 1, ISO).
Foreign insurance undertakings that fall within the scope of the ISA are required to obtain a licence from FINMA prior to taking up insurance activities in or out of Switzerland (art 3, para 1, ISA) and are subject to ongoing supervision by FINMA (art 2, para 1, lit b, ISA; art 3, lit a, Federal Act on the Swiss Financial Market Supervisory Authority). Compared to a Swiss domiciled insurance undertaking (see 2.1 The Writing of Insurance and Reinsurance), a foreign insurance undertaking seeking to obtain a licence to be active in or from Switzerland has to fulfil additional regulatory requirements (subject to differing rules in international treaties; art 15, para 2, ISA). It is, in particular, required to establish a branch in Switzerland and appoint a general agent (Generalbevollmächtigter) for such branch (art 15, para 1, lit b, ISA). The general agent has to be a Swiss resident and have the knowledge necessary to operate the insurance business (art 16, ISO). Furthermore, the foreign insurance undertaking has to comply with the following additional licence requirements:
The EU Direct Insurance Treaty facilitates the access of EU insurance companies to the Swiss market. While it does not exempt them from a Swiss licence requirement in connection with the establishment of a Swiss insurance branch, reliefs apply, inter alia, regarding the obligation to establish an organisational fund as well as a security deposit.
Under the Liechtenstein Direct Insurance Treaty (see 1 Basis of Insurance and Reinsurance Law), insurance undertakings domiciled in Liechtenstein may engage in direct insurance business in Switzerland either on a pure cross-border basis or through a Swiss branch office without requiring a FINMA licence. Liechtenstein-domiciled insurance undertakings may take up such insurance activities as soon as the Liechtenstein Financial Market Authority provides FINMA in the individual case with (art 23, Annex Liechtenstein Direct Insurance Treaty):
In Switzerland, fronting is, in principle, permitted. Swiss law does not provide for a specific retention obligation on the part of the cedent in fronting arrangements.
In recent years, transaction activities in Switzerland have been noticeably high. In the context of preparing themselves for Brexit, several insurance groups have restructured, consolidated and realigned their group operations. Further, a number of private equity investors have become very active buyers of insurance and reinsurance undertakings, including in particular businesses in run-off (and such buyers have become increasingly accepted by FINMA as significant investors in insurance undertakings). Moreover, a certain consolidation in the Swiss insurance brokerage industry has been observed.
In Switzerland, insurance and reinsurance products may be distributed directly, such as by the insurance and reinsurance undertakings themselves, or through insurance intermediaries. Insurance intermediaries in the meaning of the law are persons who offer or conclude insurance contracts in the interest of insurance undertakings or other persons (art 40, ISA). The law furthermore distinguishes between so-called tied and untied insurance intermediaries (regarding the distinction between brokers and agents see Section 6.3 below).
Untied insurance intermediaries are those that are neither legally nor economically nor in any other way tied to an insurance undertaking. They are required to register in the public register of insurance intermediaries maintained by FINMA (art 43, para 1, ISA).
In contrast, tied insurance intermediaries are those that are in a relevant manner legally or economically tied to an insurance undertaking. Tied insurance intermediaries have a right, but no obligation, to register in the public register of insurance intermediaries (art 43, para 2, ISA). The ISO provides for an exemplary list of criteria in order to distinguish between tied and untied intermediaries. For example, insurance intermediaries that generate more than 50% of their commission volume in the course of a calendar year with one or two insurance undertakings, exercise a managerial function in an insurance undertaking, have a direct or indirect holding of more than 10% in the equity of the insurance undertaking or otherwise influence the business of an insurance undertaking, are considered to be tied (art 183, ISO).
For an intermediary to be eligible for registration in the FINMA register, certain requirements must be fulfilled, including the demonstrable capacity to act (Handlungsfähigkeit), proof of appropriate professional qualifications, and professional indemnity insurance (art 44, ISA in conjunction with art 184, ISO).
In addition, insurance intermediaries (both tied and untied) are subject to information duties vis-à-vis the insured (see 6.1 Obligations of the Insured and Insurer).
Registered insurance intermediaries are not subject to ongoing prudential supervision by FINMA, but FINMA may examine them from time to time to verify their compliance with regulatory requirements. Furthermore, in case of any indication of irregularities, FINMA may take enforcement action.
Any intermediary activities in Switzerland for the benefit of insurance undertakings that fall within the scope of the ISA, but are not licensed by FINMA to carry out insurance activities in or from Switzerland, are prohibited (art 41, ISA).
When concluding an insurance contract, the policyholder has a duty of disclosure that is limited in its content and scope by the written questions provided by the insurer (art 4, para 1, ICA). The insurer has to proactively seek information as the policyholder does not have to disclose any facts that the insurer has not asked about. The policyholder must answer the questions and in this context inform the insurer in writing of all facts relevant to the assessment of the risk, to the extent and as they are known or should have been known to him or her when the contract was concluded. Facts are considered relevant for the risk assessment if they may potentially influence the insurer's decision to conclude the contract at all or on the agreed terms (art 4, para 2, ICA). The duty of disclosure is not a legal obligation to which the insurer would have an upfront enforceable claim, but rather entitles the insurer to legal remedies pursuant to article 6 of the ICA in the event of a violation (see 6.2 Failure to Comply with Obligations).
An insurer must inform the policyholder, prior to the conclusion of the contract, of (i) the identity of the insurer and (ii) the main content of the insurance contract (art 3, para 1, ICA). It may delegate its information obligations, for example to an insurance intermediary. However, in relation to third parties (including the policyholder) the insurer remains solely responsible for the performance of the information obligation as article 3 of the ICA is mandatory and cannot be contractually modified to the disadvantage of the policyholder (art 98, para 1, ICA).
Furthermore, information duties apply to insurance intermediaries who must provide their clients with information on, for example, the intermediary's identity and address, its contractual relationships with the insurance undertakings on whose behalf it acts, and the names of these insurance undertakings on a durable medium before taking up any intermediation activity (art 45, ISA).
If the policyholder breaches its information duty pursuant to article 4 of the ICA and misinforms or fails to inform the insurer of a material risk factor (see 6.1 Obligations of the Insured and Insurer), the insurer may terminate the contract by written notice within four weeks after he or she becomes aware of the breach of the information duty (art 6, ICA). The contract is terminated retroactively and the insurer is not liable to pay any benefits under the insurance contract and may reclaim insurance benefits already paid together with default interest of 5%. Even in the event of a breach of the duty of disclosure by the policyholder, an insurer may not terminate the contract in circumstances described in article 8 of the ICA, eg if the insurer knew or should have known the incorrect or concealed fact or concluded the contract even though the policyholder did not answer a question (art 8, ICA).
If the insurer fails to comply with its information duty pursuant to article 3 of the ICA, the policyholder has the right to terminate the insurance contract by written notice (art 3a, ICA). This right of termination expires four weeks after the policyholder becomes aware of the breach of duty, but no later than one year after the breach of duty.
The information duties of the insurance intermediary are supervisory duties and their breach may expose the insurance intermediary to administrative and criminal sanctions, including punishment with a fine of up to (i) CHF500,000 if the breach is committed intentionally, and (ii) CHF150,000 if committed negligently (art 86, ISA). Furthermore, such breach may also result in civil liability for the intermediary.
An insurance intermediary is either a tied intermediary or an untied intermediary (see 5 Distribution). Put simply, tied insurance intermediaries are often referred to as insurance agents and untied insurance intermediaries as insurance brokers, indicating the typical set-up of the contractual relationship between the insurance intermediaries, the insurance undertakings and/or the policyholder. However, the contractual qualifications pursuant to Swiss private law do not always correspond with the qualifications pursuant to Swiss insurance supervisory law.
An insurance agent has a dominant contractual relationship with an insurance undertaking and primarily acts in its interest and/or on its behalf. The knowledge of the insurance agent is, in principle, attributed to the insurance undertaking (art 34, ICA). The insurance undertaking pays the insurance agent the remuneration agreed in their contract.
An insurance broker is typically in a contractual relationship with both the insurance undertaking and the policyholder, but acts primarily in the interest and/or on behalf of the policyholder, to whom it owes diligent advice on suitable insurance from an adequate spectrum of available products. The knowledge of an insurance broker is, in principle, attributed to the policyholder. However, the broker's remuneration/commission is typically paid by the insurance undertaking with which the policy is ultimately concluded. The commission is typically priced into the insurance premiums the insured pays to the insurance undertaking. Consequently, from an economic perspective, it is the insured that ultimately pays the insurance broker. This regularly entails potential conflicts of interest, which must be adequately mitigated by the broker.
Under the Draft revISA (see 13 Other Developments), untied insurance intermediaries are under a duty to expressly inform the policyholder about any commissions they receive. If the amount of the commission cannot be determined in advance, the insurance intermediary needs to provide at least the applicable calculation parameters and the approximate range (art 45a, Draft revISA). Moreover, if the insurance intermediary not only receives a commission from the insurance undertaking, but also payments from the policyholder, the insurance intermediary must either pass on the commission to the policyholder or obtain an express waiver from the latter (art 45a, para 2, Draft revISA).
There is no specific statutory definition of the term “insurance” or “contract of insurance.” Based on precedent cases of the Swiss Federal Supreme Court, the following five elements characterise an insurance contract:
The first three elements are generally considered to be the defining and essential elements of an insurance contract (essentialia negotii), while the last two are particularly relevant from a supervisory law perspective.
In principle, insurance contracts are subject to the freedom of form and the freedom of content. Consequently, the insurance contract, in principle, need not comply with any particular form requirements to be valid, except for example with regard to individual life insurance, where the third person whose life is covered under the life insurance has to agree to the insurance in writing before the insurance contract is concluded (art 74, para 1, ICA). Nevertheless, the application for an insurance policy and acceptance by the insurer are usually in writing. In addition, the insurer must issue a policy to the insured stating the rights and duties of the parties (art 11, ICA) and on the insured's request and against reimbursement, the insurer must provide a copy or transcript of the insured's statement in the application, which were determining for the conclusion of the insurance contract (art 11, para 2, ICA).
Further, a number of mandatory provisions (and provisions that are mandatory for the insurer only) in the ICA limit the freedom of content for insurance contracts – for example, the statutory rules regarding the premium payment obligation upon premature cancellation of the insurance contract, the place of performance or the tacit renewal of insurance contracts, cannot be contractually modified (art 97, ICA). The statutory rules regarding, for example, the insurer's duty of information and the insured's termination right or the insurer's liability for his intermediaries cannot be modified to the disadvantage of the policyholder or the insured (art 98, ICA). Further, insurance-specific grounds for nullity, for example, the prohibition of retroactive insurance, apply (art 9, ICA; though this provision might be changed in the context of the Draft revISA, see Section 13 below), as well as general restrictions on the freedom of content (eg art 20, CO).
A collective insurance contract is generally described as a legally uniform contract that insures several persons or several independent objects (cf art 3, paras 3, 7, 31 and 87, ICA). It might be an indication of the existence of a collective insurance contract if, for example, the insured is not identical with the policyholder.
In principle, the same rules as for individual insurance contracts apply. However, there are certain provisions in the law that are specific to collective insurance, inter alia the following:
So-called "formal consumer law" that only applies to consumers as defined by the applicable acts may be distinguished from so-called "social private law" that applies to all natural and legal persons acting within its scope and generally limits private autonomy by considerations of fairness.
The ICA itself forms part of the social private law and aims to protect the insured through, for example, information duties of insurers and insurance intermediaries and mandatory and half-mandatory provisions that limit the contractual freedom of insurance undertakings (see 6.1 Obligations of the Insured and Insurer, 6.2 Failure to Comply with Obligations and 6.4 Legal Requirements and Distinguishing Features of an Insurance Contract)
above). In addition, the ISA aims to protect the insured against the insolvency risk of insurance undertakings and against abuses (art 1, para 2, ISA).
Some provisions of formal consumer law are expressly not applicable to insurance contracts, such as the right of revocation for door-to-door sales and similar contracts (art 40a, para 2, CO).
So far, various insurance law revisions with more consumer protection have failed in parliament. However, currently, the ICA is being revised also with regard to certain aspects of consumer protection (see 12 Recent and Forthcoming Legal Developments).
Reinsurance is the insurance of the risk assumed by an insurer. The defining characteristic of reinsurance contracts is the transfer of risk within the insurance industry against a premium payment. Consequently, a reinsurance contract consists of the same basic elements as an "ordinary" insurance contract (see Section 6.4 above).
In Switzerland, as in many other countries, there is no specific and distinct reinsurance contract law. Reinsurance contracts are excluded from the scope of the ICA (art 101, ICA) and governed by the general provisions of the CO and by generally (and often internationally) recognised reinsurance customs and standards. The latter are applied based on the general Swiss law principle that a court must in the absence of any express, contractual or statutory, provisions determine the content of the contract with due regard to the nature of the transaction (art 2, para 2, CO). Reinsurance customs and standards may in practice supersede certain statutory provisions in the CO to the extent they are not mandatory law. On the other hand, the parties to a reinsurance contract may in the individual case agree on provisions that deviate from the recognised reinsurance customs and standards.
The reinsured insurer/cedent is subject to an information duty that is based on a special relationship of trust vis-à-vis the reinsurer. The latter must rely on the reinsured insurer's/cedent's careful selection of the risk, the competent settlement of claims and the correct preparation of accounts. Because of this special relationship of trust, the reinsured insurer/cedent (in contrast to an insured under article 4 of the ICA) is obliged to disclose information about the risk that is relevant for the reinsurers' underwriting on its own initiative and not solely upon request.
Alternative Risk Transfer (ART) includes, in particular, the passing on of insurance risks to investors on the capital market through securitisation, including the issuance of insurance linked securities (ILS) such as catastrophe bonds (Cat Bonds) or industry loss warranties (ILW). In many cases, the risk transfer is effected by way of the conclusion of a risk transfer contract between the (re)insurer and a special purpose vehicle (SPV) specially created for this purpose. The (re)insurer transfers its own risk while the SPV agrees to pay an agreed amount upon occurrence of a certain trigger. The SPV then issues bonds in the capital market, the term, interest and repayment of which are linked to the occurrence of the trigger.
The exact legal nature of the contracts between (i) the (re)insurer and the SPV, and (ii) the SPV and investors is controversial in Swiss legal literature, as is the question whether the SPV and/or investors are subject to insurance supervision. The contract between the (re)insurer and the SPV on the one hand will generally fulfill all requirements of a (re)insurance contract (see 6.4 Legal Requirements and Distinguishing Features of an Insurance Contract and 6.6 Consumer Contracts or Reinsurance Contracts), at least in such cases where no or only a low risk remains with the (re)insurer. As Swiss law does not provide for a tailored regulatory regime, nor for a specific exemption from insurance supervision for (insurance) SPVs, ART securitisations are typically handled through other financial centres. The contract between the SPV and investors on the other hand is rather unlikely to qualify as an insurance contract under Swiss law.
A risk transfer agreement is treated as a reinsurance contract under Swiss law if it fulfills all five insurance contract criteria (see 7.1 ART Transactions). This is generally the case for ILS transactions. The place of domicile or the qualification of the counterparty as a (regulated) reinsurer abroad is not decisive.
The SST explicitly provides for the recognition of reinsurance and retrocession in the context of quantified risk transfers (art 46, para 4, ISO). Consequently, if the risk transfer through ILS fulfills the requirements of a reinsurance contract, the cover claims against SPVs may, in principle, be credited to the (re)insurance undertaking's solvency capital.
Moreover, the risk transfer through ILS may be credited to the insurance-related reserves or, if the transfer agreement cannot be qualified as a reinsurance contract, it may be treated as a derivative financial instrument. Because reinsurance companies in Switzerland – unlike direct insurance companies – do not have to form tied assets, it is much easier for them to effectively resort to risk transfer through ILS.
The rules applying to the interpretation of insurance contracts and general insurance terms and conditions (GTC) under Swiss law correspond with those applicable to the interpretation of contracts in general (art 100, para 1, ICA). The same applies to reinsurance contracts (art 101, para 2, ICA). This means that the starting point of every interpretation is the wording of the agreement (ie grammatical interpretation), based on the usual meaning of the words and expressions used. Furthermore, not only the wording but the mutually agreed true intention of the parties is decisive (art 18. para 1, CO). To establish the true intention of the parties under Swiss law, all relevant circumstances must be taken into consideration. These include, in particular, (i) the place, time and other circumstances of the formation of the contract, (ii) the behaviour of the parties previous to the formation of the contract and during contract negotiations, including possible drafts of the contract, (iii) the behaviour of the parties after the formation of the contract, such as performance of an obligation under the contract, (iv) the interests of the parties at the formation of the contract, and (v) the prevailing custom in the industry. The relevant clause must not be interpreted separately, but within the context of the entire agreement. If the true intention of the parties cannot be established, their behaviour must be interpreted in accordance with the principle of good faith – the true intention is replaced by the intention that reasonable parties would have agreed on.
GTC form an integral part of the insurance contract if the parties have accepted them in the context of the conclusion of the insurance contract in advance. Acceptance of GTC in practice typically takes the form of global acceptance where the policyholder has not necessarily read or understood the entire GTC. However, global acceptance is limited in that it does not include "unusual clauses" (in the meaning of the court practice) that have not been separately pointed out or highlighted. In terms of interpreting the terms that have been validly accepted and agreed between the parties in GTC, generally the same rules apply as for individually drafted contractual clauses (see above). However, specifically, if neither the true intention nor the intention that reasonable parties would have agreed on can be ascertained, the rule of ambiguity (Unklarheitsregel) applies, ie ambiguous statements are constructed to the disadvantage of their author in case of doubt (in dubio contra stipulatorem). This general law principle has further implications in insurance contract law as the insurer is, in principle, liable for all events that bear the characteristics of the insured risk, unless the contract excludes specific events in a certain, unambiguous way (art 33, ICA).
Moreover, the insurer is under an insurance-specific duty to provide the GTC to the policyholder before the conclusion of the contract (art 3, para 2, ICA). If the insurer fails to do so, the policyholder may terminate the insurance agreement (art 3a, ICA; see 6.2 Failure to Comply with Obligations).
In the context of consumer contracts, the use of GTC that, to their detriment and contrary to the requirement of good faith, provide for a significant and unjustified imbalance between contractual rights and contractual obligations, is prohibited by unfair competition law (art 8, Swiss Federal Act against Unfair Competition).
Swiss law does not require warranties to be specifically identified as such.
In Switzerland, parties may agree that the liability of the insurer is subject to the condition that the policyholder has complied with certain specific obligations. However, the insurer may not deny coverage based on a breach of a condition precedent, if the breach cannot be regarded as the fault of the policyholder (art 45, para 1, ICA). The insurer may not deny coverage if the policyholder's breach of its duty to reduce the risk or to prevent an increase in risk did not influence the occurrence of the feared event and/or the scope of the insurer's obligation (art 29, ICA).
The ICA itself provides for certain obligations of the policyholder. Accordingly, the insured is obliged to notify the insurer as soon as he/she becomes aware of the occurrence of the insured event and of the claims under the insurance policy (art 38, para 1, ICA). In principle, late notification does not have any legal consequences for the insured except where it is at fault and the delay leads to an increase in the loss. In severe cases, the compensation may be forfeited entirely. Furthermore in the event of gross negligence causing the insured event, the insurer may reduce the compensation (art 14, para 2, ICA). If the insured event is caused intentionally, the compensation can be refused entirely (art 14, para 1, ICA).
In Switzerland, the parties to an insurance contract often seek out-of-court settlements and litigation or arbitration is relatively rare. Consequently, disputes between the insurer and the policyholder or beneficiary in many instances are resolved bilaterally. An insured may also consult the Swiss Ombudsman of Private Insurance and of Suva ("Ombudsman") if the insurance undertaking is a member company. However, the Ombudsman has no decision-making powers and consequently, solutions can only be found on a voluntary basis.
If no out-of-court settlement can be reached, claims under insurance contracts need to be settled in civil proceedings. They are, in principle, subject to the jurisdiction of the civil courts (art 85, para 1, ISA), unless the contract provides for an arbitration clause (see 9.5 The Enforcement of Judgements).
In a domestic context, the general rules of the Swiss Civil Procedure Code ("CPC") apply and, in principle, the ordinary court at the domicile or registered office of the defendant or at the place where the characteristic performance must be rendered has jurisdiction (art 31, CPC). There are only a few insurance-specific (art 38, para 1, CPC with regard to motor vehicle or bicycle accidents) and consumer-specific provisions (art 32, para 1, CPC). The Swiss cantons (or "states") are, in principle, obliged to provide two court levels – a district court and a superior court – for civil jurisdiction; so-called "double instance," before a dispute may be brought before the Swiss Federal Supreme Court, the highest court in Switzerland.
However, four cantons (Zurich, Berne, Aargau and St Gallen) have established a specialised Commercial Court that, in general, decides in disputes if both parties are registered in the Swiss commercial register or in an equivalent foreign register. Under certain conditions, the commercial court can also be chosen by a non-registered claimant (art 6, CPC) and insurance matters are often dealt with in the Commercial Court. The Commercial Court is an exception to the double instance principle as it is the first and only cantonal court to decide on the matters brought before it.
In a domestic context, choices of forum are, in principle, admissible (art 17, CPC). However, if an insurance contract qualifies as a consumer contract under article 32 of the CPC, a choice of forum can be concluded only after a dispute has arisen (art 35, para 1a and para 2, CPC).
Switzerland is a contracting state of the Lugano Convention on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters ("Lugano Convention"). The Lugano Convention applies if there is, inter alia, a connecting factor to a contracting state. The connecting factors need to be determined separately for each provision in the Lugano Convention. The Lugano Convention provides for special jurisdiction rules with regard to insurance matters (art 8, et seq, Lugano Convention; however these provisions do not apply to reinsurance matters). It provides, in particular, that the policyholder, insured or beneficiary, may also sue an insurer domiciled in a contracting state in the courts at their own domicile. If the (defendant) insurer is not domiciled in a contracting state, a fiction of domicile is assumed nonetheless in case of a branch, agency or other establishment in the contracting state (art 9, para 2, Lugano Convention). A choice of forum is only possible to a limited extent, for example only if the choice of forum was concluded after the dispute has arisen (art 13, Lugano Convention).
In the context of a dispute that does not fall within the scope of the Lugano Convention, the general provisions of the Swiss Private International Law Act ("SPILA") apply. The jurisdiction pursuant to the SPILA is determined on the basis of the contractual agreement (art 112 and 113, SPILA) and choice of forum clauses are generally admissible (art 5, SPILA). However, if an insurance contract qualifies as a consumer contract pursuant to article 120 of SPILA, the consumer cannot waive in advance the jurisdiction at his domicile of residence or usual place of residence (art 114, para 2, SPILA).
When determining the choice of law in an international dispute, Swiss courts apply the SPILA, except where the special provisions of article 101b and 101c of ICA apply (as this is currently only the case with regard to the Principality of Liechtenstein we will not discuss it in detail). Under the SPILA, choice of law clauses are generally admissible (art 116, SPILA), if they are explicit or clearly evident from the contract or the circumstances. However, if an insurance contract qualifies as a consumer contract, choice of law clauses are inadmissible (art 120, para 2, SPILA).
In principle, before the commencement of litigation proceedings, a conciliation proceeding (Schlichtungsverfahren) has to take place (art 197 et seqq, CPC). If no agreement can be reached during the conciliation proceedings, the conciliation authority grants authorisation to proceed with the litigation proceedings. Within three months, the plaintiff has to initiate proceedings before the ordinary court by filing the statement of claim (arts 209, 220, CPC). An exchange of written submissions (arts 221, 222, 225, CPC) is in general followed by the main hearing, where the parties present their claims and legal arguments and evidence is taken (art 228 et seqq, CPC). Afterwards, the court renders the final decision (art 236, CPC).
The losing party may file an appeal (Berufung) against a final decision of the ordinary court with the superior cantonal court within 30 days (art 311, para 1, CPC) if the amount in dispute amounts to at least CHF10,000 (art 308, CPC). Such appeal may be filed on grounds of incorrect application of the law or incorrect establishment of the facts (art 310, CPC). Alternatively, if the amount in dispute is less than CHF10,000 (art 319, lit a, CPC), the losing party may file an objection (Beschwerde) with the superior cantonal court within 30 days (art 311, para 1, CPC). The objection may only be filed on grounds of an incorrect application of the law or obviously incorrect establishment of the facts (art 320, CPC).
Final decisions of the superior cantonal court are subject to appeal before the Swiss Federal Supreme Court if (i) the amount in dispute amounts to at least CHF30,000 or (ii) the legal question is of fundamental importance (art 74, Swiss Federal Supreme Court Act (“FSCA”)). The Swiss Federal Supreme Court has full cognition with regard to allegations of infringement of federal law. Meanwhile, factual findings of a prior instance may only be overruled if they are obviously wrong (art 105, para 2, FSCA).
Rules that differ from the procedure described above apply, in particular, to proceedings before a Commercial Court (see 9.1 Disputes Over Coverage), where, inter alia, no conciliation proceedings are required (art 198, lit f, CPC) and – because it is the only cantonal court – the decision may only be appealed directly to the Swiss Federal Supreme Court. Further differences apply to, for example, disputes in simplified (art 243 et seqq, CPC) or summary proceedings (art 248 et seqq, CPC) as opposed to ordinary proceedings.
The enforcement procedure in Switzerland differs depending on the judgment to be enforced. The enforcement of cash and surety payments is governed by the Swiss Federal Debt Enforcement Bankruptcy Act ("DEBA"; art 335, para 2, CPC), while any other claims must be enforced in accordance with the CPC (art 337 et seqq, CPC). In order to enforce claims under insurance contracts, which are typically cash payments, the creditor has to file an application for debt enforcement (art 67, para 1, DEBA) and take further steps under the DEBA.
With regard to the enforcement of foreign judgments, Switzerland is inter alia a contracting state of the Lugano Convention. Under the Lugano Convention, as a general principle, a judgment of a contracting state is enforceable in any other contracting state, where the creditor requests a declaration of enforceability. The procedure to gain a declaration of enforceability could be described as follows. The creditor must produce a copy of the judgment that satisfies the conditions necessary to establish its authenticity (art 41 in conjunction with art 53, Lugano Convention). At this stage, the debtor does not participate in the proceeding and therefore cannot raise any objections and the decision is declared enforceable without delay (art 41, Lugano Convention). However, both parties may appeal against the decision (art 43, no 1, Lugano Convention). In this second proceeding, any potential objections of the debtor (eg if the recognition of the judgment is manifestly contrary to public policy) are examined (art 45, para 1 in conjunction with art 34, Lugano Convention). However, the foreign judgment may not be reviewed as to its substance (art 45, para 2, Lugano Convention). Moreover, in principle, the jurisdiction of the foreign court is not reviewed, with the exception of insurance matters (art 35, Lugano Convention). Therefore, a review of the jurisdiction takes place for insurance contracts, but not for reinsurance contracts. The actual enforcement of the judgment itself is not subject to the Lugano Convention but rather to the law of the state enforcing the judgment, ie with regard to Switzerland pursuant to the DEBA or the CPC (see above).
If no international or bilateral treaty applies, a foreign judgment is only enforceable in Switzerland if it has been recognised pursuant to article 25 et seqq. of the SPILA. A foreign judgment is recognised if (i) the courts or authorities of the country where the decision was rendered had jurisdiction from a Swiss law perspective, (ii) the judgment is final and absolute and (iii) there are no grounds for refusal (art 25, SPILA). Upon request of the creditor, the recognised judgment is declared enforceable (art 28 and 29, SPILA). The actual enforcement is governed by the DEBA or the CPC (see above).
Only in the event that neither international treaties nor the SPILA provide otherwise, the CPC applies for the recognition, declaration of enforceability and enforcement of foreign judgments as so-called lex fori (art 335, para 3, CPC).
In Switzerland, in principle, any monetary claim can be submitted to arbitration proceedings in an international context (art 177, para 1, SPILA). The admissibility to arbitration in a domestic context requires an arbitrable claim (art 354, CPC). Consequently, arbitration clauses in insurance and reinsurance agreements are generally enforceable, if the arbitration clause is in writing or in any other form allowing it to be evidenced by text (art 7 and art 178, para 1, SPILA; arts 61 and 358, CPC).
Arbitral awards rendered by an arbitral tribunal seated in Switzerland are enforceable like judgments of state courts (see 9.4 The Enforcement of Judgements).
Regarding enforcement of foreign arbitral awards the Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("NYC"), to which Switzerland is a party, applies. The NYC applies irrespective of whether the award is rendered in another contracting state or not (art 194, SPILA). Foreign arbitral awards have to be recognised in principle (art III, NYC). However, the NYC also provides for grounds of objections against the enforcement (art V, NYC). Grounds pursuant to paragraph 2 must even be observed ex officio (ie they do not have to be put forward by the other party). The requesting party must submit the duly authenticated signature of the award and the signature of the arbitration agreement together with the application for recognition or enforcement (art IV, para 1, NYC). Moreover, if the arbitral award is not written in an official language of Switzerland, a translation must be enclosed. According to the Swiss Federal Supreme Court, awards in English do not have to be fully translated, a translation of the holdings of the court is sufficient. The procedure for the enforcement of the foreign arbitral award is governed by domestic law, ie in Switzerland by the CPC or the DEBA (art III, NYC; see above).
Alternative dispute resolution is steadily gaining in importance and is ideally suited for large liability cases where very unequal parties are involved and the injured party tends not to be able to afford long disputes.
If the insurance undertaking is a member company, the insured may refer to the Ombudsman before commencing litigation proceedings (see 9.1 Dispute Over Coverage). There have been attempts in the past to strengthen the position of the Ombudsman, for example by providing that insurance undertakings are required by law to become a member company. Under the Draft revISA, a similar provision is proposed (see 13 Other Developments).
In Switzerland, mediation, where an impartial third party helps to resolve disputes by facilitating settlement negotiations, is not very established in commercial matters (including insurance and reinsurance matters). The mediator has no decision-making power. Upon request of all parties, mediation may replace conciliation proceedings (art 213, CPC). The parties may also request mediation at all times during the court proceedings (art 214, para 2, CPC). However, the court cannot oblige the parties to mediate their dispute but only recommend to do so (art 214, CPC); moreover, it is for the parties to organise the mediation (arts 214, 215, CPC). Mediation is non-binding; however, the parties may jointly apply for approval of the agreement reached in mediation by a court, which gives the approved agreement the effect of a legally binding decision (art 217 CPC).
Punitive damages are not available under Swiss law. However, there are certain specific provisions under Swiss law that generate results that may, however only to some very limited extent, seem similar, such as for example the disgorgement of profits under supervisory law.
Further, a Swiss court, in principle, cannot award or enforce the full award of punitive damages even if the applicable foreign substantive law provides for those damages as this usually constitutes a violation of Swiss public policy.
An insured's claim becomes due four weeks after the date on which the insurer has received sufficient information in order to assess whether the claim is correct (art 41, para 1, ICA). As soon as the claim is due, the insured may demand payment from the insurer and may put the insurer in default by sending a reminder (art 102, para 1, CO). No reminder is necessary, if an expiry date has been agreed (art 102, para 2, CO). Default triggers the obligation to pay interest that amounts to 5% per annum in the absence of any other agreement (art 104, CO) and possibly further damages that arose because of late payment, such as, for example, the cost of obtaining "replacement money" (art 103, CO).
InsurTech combines traditional insurance business with modern technologies and fosters alternative business models and distribution channels, inter alia, in the following areas:
Furthermore, InsurTech encompasses new technology solutions for insurance undertakings, enabling them to increase efficiency of their own value chain through the use of artificial intelligence, blockchain applications or "Internet of things" devices. In Switzerland, the B3i Initiative, cardossier or Fizzy are examples of blockchain-based InsurTechs that, in particular, aim at automatising the insurance business.
If an insurance undertaking participates in an InsurTech start-up, the licensing and information requirements pursuant to the ISA must be observed (see Section 4 above). Moreover, insurance undertakings have to obtain FINMA permission to conduct non-insurance business (art 11, ISA).
Since 2016, the Swiss Federal Council has gradually introduced regulatory reliefs for fintech and InsurTech businesses.
In particular, under the Draft revISA, a new rule has been proposed which would enable FINMA to exempt insurance undertakings with innovative business models from supervision (see 13 Other Developments).
Emerging risks are new risks that are not recognisable or only recognisable to a very limited extent. Their damage potential is difficult to estimate and there is often a long time gap between the cause and the occurrence of the consequences or the realisation of the risk. The full damage potential usually only crystallises at a later point in time. Dealing with emerging risks poses a major challenge for society, the regulator and the insurance industry.
Examples of emerging risks include risks in the technology sector (eg cyber, Internet of Things, fracking and nano-risks), health risks (eg health risks from electromagnetic fields, antibiotic resistance) and environmental risks (eg natural disasters). Probably the most prominent emerging risk from the past is asbestos, which for a long time was regarded as the perfect material, especially for façade cladding and panels. The serious health risks were only discovered around 100 years after asbestos was used professionally for the first time.
In connection with emerging risks, the question arises in particular as to who should be liable for risks that were not identifiable when they were placed on the market according to the current state of the art in science and technology (so-called development risks). In Switzerland, liability may inter alia arise from contractual law, the Swiss Federal Product Safety Act (ProdSA), the Swiss Federal Product Liability Act ("PLA") or the employment relationship. In this context, the statute of limitation plays a major role. Under present regulation, the statute of limitation is relatively short in Switzerland (general non-contractual liability: one year after the injured party has become aware of the damage and of the liable person or ten years after the date on which the damage was caused; product liability: three years after the injured party has become aware of the damage, the mistake and of the person of the producer (art 9, PLA) or ten years after the date on which the product that caused the damage was placed on the market (art 10, PLA); contractual liability: ten years (art 127, CO)). However, upon the entry into force of the amended CO, which is not expected before 2020, the absolute statute of limitations will rise from ten to 20 years with regard to claims in connection with long-term health damages or death (eg asbestos; art 60, para 1bis revCO; see also 12 Recent and Forthcoming Legal Developments).
Generally speaking, measures to address emerging risks can be taken at the level of the legislator or by the insurers themselves. Risks can be countered by means of regulatory prohibitions, restrictions or conditions regarding the handling of certain technologies or, indirectly, by the introduction of strict liability in favour of the injured (such as is the case in the field of nuclear energy).
From the perspective of the insurers, new policy types have been developed in respect of emerging risks, such as policies to cover computer and network hacking risks, data or identity theft or loss of reputation. The Swiss market still shows substantial room for development in the area of emerging risks.
At the time of writing, a partial revision of the ICA is being deliberated in the Swiss parliament after it rejected the proposal of a total revision of the ICA in March 2013. The Swiss Federal Council issued the proposed Draft revICA together with the dispatch to the Draft revICA on 28 June 2017. The Economical Affairs and Taxation Commission of the Swiss National Council ("Commission") deliberated on the issue and adopted the proposal on 24 October 2018. The Draft revICA in particular proposes to introduce a number of consumer-friendly provisions, such as the introduction of a right of revocation (art 2a and 2b, Draft revICA), the elimination of deemed approval rules adversely affecting consumers (abolishing art 12, ICA), the extension of the statute of limitations from two to five years (with some exceptions, art 46, Draft revICA) and the introduction of an ordinary right of termination (art 35a, Draft revICA). In addition, the Commission requested inter alia that (i) the information duty of the insurance undertakings pursuant to article 3 of the ICA (see 6.1 Obligations of the Insured and Insurer) should include information on the calculation basis of the premiums, including any premium differences due to the sex, age and nationality of the insured, and (ii) the absolute statute of limitation regarding claims arising from a breach of information should be set at two years (article 3a of the ICA currently provides for one year, while article 6 of the ICA currently does not provide for an absolute statute of limitations; see 6.2 Failure to Comply with Obligations). The Draft revICA further partially admits retroactive cover (art 10, Draft revICA) and introduces more relaxed rules for "professional policyholders," such as, inter alia, financial intermediaries pursuant to the Swiss Federal Banking Act and Swiss Federal Collective Investment Schemes Act, other insurance undertakings pursuant to the ISA or companies with professional risk management (art 98a, Draft revICA; eg the mandatory and semi-mandatory provisions in the ICA will not apply). It is currently expected that the revised legislation will not enter into force before 2020.
Moreover, the amended CO will, inter alia, extend the absolute statute of limitations from ten to 20 years with regard to claims in connection with long-term health damages or death (eg asbestos; art 60, para 1bis, revCO). This may also affect insurance undertakings. The date of its entry into force has not yet been determined but it is not expected before 2020.
The Swiss Federal Council instructed the Swiss Federal Department of Finance to draft a legislative proposal of the ISA in September 2016. On 14 November 2018 the Swiss Federal Council issued the Draft revISA. The consultation process will last until 28 February 2019. The Draft revISA, in particular, proposes to introduce the following provisions:
Further, the amended Private International Law ("PILA") that will enter into force on 1 January 2019 will, in particular, simplify the recognition of foreign bankruptcy decrees. The PILA only applies if the ISA does not provide for special rules and the revised provision of the PILA, therefore, will only apply to this extent.