Contributed By Nielsen Nørager Law Firm LLP
Denmark is part of the EU/EEA and is a civil law jurisdiction. Thus, the primary source of Danish law is statutory law and government orders authorised by law, supplemented by customary law and case law.
Furthermore, preparatory legislative works, legal doctrines and administrative practice are of great importance when deciding the state of the law. As a result, precedents from the Danish courts and decisions from the Insurance Complaints Board will often be of relevance when determining an insurance or reinsurance dispute.
The field of insurance and reinsurance in Denmark is regulated by the Danish Insurance Contracts Act (for insurers only), the Danish Financial Business Act, the Danish Insurance Mediation Act, the Danish Companies Act, the Danish Act on Processing of Personal Data, the Danish Securities Trading Act, the Danish Capital Market Act, the Danish Financial Business Act (for reinsurers) and the Danish Anti-Money Laundering Act.
Insurance and reinsurance businesses and enterprises in Denmark are regulated by the Danish Financial Services Authority (FSA).
The FSA monitors and regulates the financial sector in Denmark, including insurance and reinsurance companies. The purpose of the FSA is to supervise, legislate and provide information about matters such as insurance.
The FSA may prosecute, issue orders and report issues to the police, if insurers or reinsurers fail to comply with the relevant legislation that governs the industry. In this regard, it is worth noting that violations of the rules in the Danish Financial Business Act can be punishable by a fine or imprisonment of up to four months.
Those engaged in insurance and reinsurance business are required to hold a licence from the FSA.
The FSA issues the licence based on a plan of operations prepared by the (re)insurer, and the FSA establishes the rules for the information to be included in said plan. Foreign insurers and reinsurers that intend to conduct business in Denmark are also subject to supervision by the FSA.
The Danish Financial Business Act contains a number of requirements relating to the insurer's or reinsurer’s capital and solvency. The requirements are based on the Danish law implementing the EU Solvency II Directive. The Act distinguishes between two groups of companies and the requirements for each insurer's or reinsurer’s capital, solvency and organisation depend on their group.
In general, group 1 is companies classified according to their gross annual premium, and group 2 is companies that fall outside the scope of group 1.
The minimum capital requirement must not be less than 25%, or more than 45%, of the insurer’s or reinsurer's solvency capital requirement.
Insurance premiums are not subject to VAT (value added tax).
VAT is a transaction-based multi-tier consumption tax. All goods and services supplied by so-called “taxable persons” (entrepreneurs who independently carry out economic activity) are subject to VAT, unless specifically exempted.
Denmark applies a standard VAT rate of 25% and no reduced rates.
An insurer could, however, be obliged to pay tax on non-life insurances, if certain conditions are met, eg, if the risk is in Denmark etc.
There are specific rules that provide a different legal framework for EU/EEA (re)insurers on the one hand and third-country (re)insurers on the other.
For EU/EEA (re)insurers the so-called single-licence principle applies, meaning that insurance undertakings having their registered office and licence in another member state may conduct business in Denmark under the freedom to provide services or freedom of establishment. Third-country (re)insurers are subject to a stricter regime.
Companies outside the EU/EEA that want to do (re)insurance business in Denmark have to set up a branch or company in Denmark and apply for a licence from the FSA. In other words, third-country insurers cannot directly start up in Denmark.
In respect of US (re)insurers doing business in the EU, the USA and the EU reached an agreement, which came into force on 4 April 2018. The agreement intends for US insurers and reinsurers to continue writing new business in the European market without having to establish a local branch in every European member state in which they want to be active. Moreover, the agreement streamlines group supervision requirements for insurers and reinsurers operating in both jurisdictions. The provisions of the agreement are not self-implementing but require further legislation. Full implementation is expected in 2022.
As for Brexit the current status is that the UK's withdrawal from the EU will be final when the current transition period expires on 31 December 2020. After that, the EU rules will no longer apply to the UK, and the Danish FSA is expected to issue an executive order that gives already notified companies temporary permission to service existing contracts until the end of 2021.
Fronting is mostly seen when an insurer underwrites a policy and transfers the risk to a reinsurer. The company that underwrites the initial policy is the fronting company and receives a portion of the premium, despite ceding the entirety of the risk to the reinsurer.
There is no general statutory or regulatory prohibition on fronting in Denmark.
Warranty and indemnity (W&I) insurance is a well-known product. It covers damages resulting from breaches of warranties and indemnities given by the seller in an M&A transaction.
The W&I insurance market in Denmark has increased during recent years, and as an example, in June 2020 the Danish private equity fund, FSN Capital, was awarded EUR50 million in insurance coverage.
The insurance company Tryg is the largest company in Denmark, and they also own the insurance company Alka. Tryg acquired Alka in 2018.
On 18 November 2020 Tryg and Canadian insurance company Intact submitted a cash offer of about DKK60 billion for British RSA, which inter alia owns Swedish Trygg-Hansa as well as Danish and Norwegian Codan.
The transaction has not yet been finalised, but the board of RSA recommended Tryg and Intact’s cash offer.
If the transaction is completed, Tryg will acquire Trygg-Hansa and Codan – together with their approximately 1.3 million customers and 1,500 employees in Norway – making Tryg the largest P&C insurance company in Scandinavia.
Intact will take over RSA's Canadian, UK and international activities.
Introduction of the Insurance Distribution Directive (IDD)
On 23 February 2018, the Insurance Mediation Directive (2002/92/EC) (IMD) governing the distribution of insurance products by insurance intermediaries was repealed and replaced by the Insurance Distribution Directive (EU/2016/97) (IDD).
The IDD is broader in scope and introduced a wide range of requirements in respect of a distributor’s registration, organisational structure, conduct of business, insurance-based investment products, sanctions and data protection. The Directive aims, overall, to afford greater protection to customers and to achieve further harmonisation in insurance distribution throughout the EU member states. It now explicitly also refers to the distribution of reinsurance.
The Directive only provides minimum standards, meaning that member states may implement stricter rules where they consider it necessary for consumer protection reasons.
The Danish Insurance Mediation Act
On a Danish national level, the new rules have been incorporated into the Danish Insurance Mediation Act. The Act applies to all brokers and other parties who sell insurance commercially. It follows from the Act that all insurance intermediaries, including brokers, agents and subagents, have to obtain a licence from the FSA in order to sell insurance commercially.
The FSA issues a licence if certain requirements are fulfilled, including that the registered office of the enterprise is in Denmark, that the enterprise has liability insurance or a corresponding guarantee against claims for damages, that the enterprise has measures in place ensuring that customers are protected against the enterprise’s inability to pay, and that the enterprise has management fulfilling the requirement to ensure the suitability, integrity, responsibility and efficient operation of the intermediaries.
Enterprises selling goods or services, and selling insurance in connection with the sale thereof, such as travel agents and car dealers, are exempt from the licence requirement. Such enterprises must, however, be registered with the FSA.
When signing the insurance company’s standard form, the insured is obliged to answer the questions in good faith.
The Danish Insurance Contracts Act establishes that an insurance contract will be deemed void if the policyholder fraudulently fails to disclose information that should have been assumed to be essential for the insurer.
Furthermore, the policyholder is obliged to pre-contractually disclose the risk factors known to them that are relevant to the insurer’s decision to conclude the contract and which the insurer has asked for in the insurance proposal form.
A party that fails to comply with its obligation to provide information during the negotiation of an insurance contract will face the consequences set out in the Danish Insurance Contracts Act.
Hence, if the insured submits incorrect information about a product or person etc, the company must consider whether the insured is covered by the insurance and/or if the insurance company is bound by the agreement.
Also, if an insured, in bad faith, submits incorrect information or fails to disclose information of circumstances that must be assumed essential to the insurer, the contract will be deemed void.
The Danish Insurance Contracts Act does not govern reinsurance. However, it follows from Section 30 of the Danish Contracts Act that fraudulent misrepresentation, including nondisclosure, will deem a reinsurance contract void.
The FSA is responsible for monitoring insurance brokers and issuing licences to sell insurance commercially.
According to the FSA’s regulation on insurance mediation in Denmark, an intermediary must have general knowledge of insurance mediation and theoretical training in, and practical knowledge of, insurance mediation activities.
Furthermore, the intermediary must comply with certain reporting and disclosure duties set out in Chapters 2 and 3 of the Danish Insurance Mediation Act.
If the intermediary fails to act in accordance with these standards, this can eventually result in the cancellation of their licence to sell insurances.
In Denmark, insurance contracts are concluded in accordance with the general principles under Danish contract law.
This means – among other things – that the contract does not need to be in writing in order to be considered valid. It is, however, customary that the insurance company is required to prepare an official insurance policy.
As regards the specific requirements of the policy terms, there may be requirements depending on the specific insurance product, but there are no general requirements with regard to the content of the policy, unless the policy is considered a consumer contract.
If this is the case, certain information must be included in the policy according to the Danish Insurance Contracts Act. This could be information on how to cancel the policy etc.
The requirements for contract conclusion generally also apply in scenarios with multiple insured parties or multiple beneficiaries.
Danish legislation contains a number of rules in order to protect consumers, and among other regulations, the Danish Insurance Contracts Act has, for example, sections regarding the cancellation of policies.
The Danish Consumer Complaints Board and the Danish Insurance Complaints Board are entitled to handle claims on an independent basis.
As for reinsurance, a similar consideration is not necessary, as the reinsurance industry is not considered to have the same need for “protection”. Hence, the reinsurance industry relies on the wording of the insurance contract and case law from the Danish trade organisation Insurance & Pension.
Alternative Risk Transfer contracts are not (yet) very common in Denmark.
Hence, no special regulation has been made.
There is no available information regarding this topic.
The contractual interpretation of insurance contracts is, as a starting point, similar to any other contracts.
Naturally, there could be a difference in the contractual structure between insurance contracts and other contracts, but the way of interpreting them remains similar.
The source for determining the content of an insurance contract is considering the common intention of the parties, the wording of the insurance policy and how the provision relates to the other provisions of the policy. It should also be taken into account which interpretation of the contract gives a fair and reasonable result.
General rules of contract law, case law, trade usage and other legal interpretations will also be taken into consideration when interpreting insurance contracts.
Extraneous evidence can be used when there are insurance contract disputes, eg, when determining the meaning of the contract. For example, prior negotiations or written communications relating to the agreement could be taken into account.
In Denmark, there is no special regulation on warranties in an insurance contract. Warranty terms will be interpreted like any other contractual clause.
Overall, conditions precedent will be considered like any other contractual clause.
The Danish Insurance Contracts Act includes some mandatory obligations, which cannot be derogated from, and it is fair to call them conditions precedent.
These include, for example, obligations regarding duty to give notice to the insurer without delay, if the insured wants to file a claim etc.
Disputes over coverage vis-à-vis consumers are dealt with at the Insurance Complaint Board established in 1975.
Complaints for the Board include all legal issues arising from the relation between the insured and the insurance company as long as the dispute concerns an issue relating to the law of property and obligations, which means that the dispute has to be of a financial nature. Complaints regarding solely ethical issues, for example, will not be dealt with by the board.
It is only possible to complain about insurance companies established in Denmark. If a complaint concerns a foreign insurance company, the complaint must be made to the relevant foreign board.
Complaints for the Insurance Complaint Board must be submitted in writing and are subject to a small fee.
The limitation period for making a claim is three years from the earliest point in time that the insured could file the claim. However, the limitation period is ten years in relation to personal insurance.
In this respect, it follows from the Danish Insurance Act 29(5) that when a loss has been reported to the insurance company, before the lapse of the limitation period, statutory limitation of a claim resulting from that loss shall not occur earlier than one year after the date on which the company informed the insured that it refused the claim in full or in part.
It must be emphasised that the Complaints Board will only consider complaints concerning insurance taken out by private individuals (consumer insurance). Hence, professional parties must complain to the ordinary civil courts or by arbitration, if the parties have agreed to that.
In respect of disputes over jurisdiction in Denmark, the Brussels I regulation (recast) applies and is adopted in the Danish Administration of Justice Act.
According to this Act, the main rule is that litigation may be instituted by a court at the place where the insurance event took place.
When it comes to disputes over jurisdiction, the Danish courts will ex officio ensure that the said court has proper jurisdiction. If the court has assumed jurisdiction over the dispute, and the defendant wishes to object to this, the objection – as a main rule – must be made in the statement of defence at the latest. If the objection is not made in the statement of defence, the court will be deemed to be the proper forum.
Regarding choice of law, Denmark is not a party to the Rome Regulation I and II. Consequently, the choice of applicable law on contractual obligations is determined in accordance with the Rome Convention on the law applicable to contractual obligations, while the choice of law applicable to non-contractual disputes is determined on the basis of Danish case law.
The courts of Denmark are vested with judicial powers and their administrative functions include probate matters, bankruptcy, bailiff’s court, land registration and general administration.
The Danish courts are primarily composed of the Supreme Court, two high courts, the Maritime and Commercial Court, and 24 district courts.
The litigation process in Denmark regarding civil lawsuits, including lawsuits concerning insurance disputes, is set out in the Administration of Justice Act.
The process consists of two phases; a pre-trial phase and a hearing. During the pre-trial phase the parties exchanges documents with their view on the case and attached evidence. Then there will be a preliminary hearing, where the oral hearing will, as a rule, be scheduled.
The oral hearing finalises the case and approximately four weeks thereafter, the judgment will be delivered to the parties. The judgment can be appealed to a higher court according to the two-instance principle, which governs the Danish Litigation System.
Judgments can be enforced, and the enforcement takes place at the bailiff’s court. The bailiff’s courts are divisions under the district courts.
The bailiff’s courts help enforce claims, eg, claims for payment according to a court ruling or an instrument of debt. The enforcement courts are also involved in forced sales of real property. Hence, the enforcement courts have the power to collect money from a debtor by granting the creditor a charge on the debtor’s assets or, for example, by selling the debtor’s car at an auction in order to pay the creditor.
To determine whether a foreign judgment can be enforced in Denmark, the bailiff’s court will make a specific assessment of the judgment compared with applicable law.
Judgments of Nordic Countries
If a judgment is rendered by one of the other Nordic countries, it is as a rule enforceable in Denmark. That is, a judgment from a Norwegian court, concluding that a Danish company should pay an amount to a Norwegian company, could be enforced by a Danish bailiff’s court, without the Norwegian company having to file a lawsuit in Denmark.
This access is ensured through the combination of a common Nordic treaty, the individual countries' co-operation agreements with Denmark, and the membership of the EU and EFTA. These rules ensure mutual recognition of judgments of the other Nordic countries. Thus, Danish judgments will vice versa be enforceable in the same way in Sweden, Norway and Finland.
Judgments of EU, EFTA and EEA Countries
In respect of EU, EFTA and EEA countries, judgments from countries that are members of the EU and EFTA (not Nordic countries) as well as the EEA zone will also as a rule be enforceable in Denmark, according to the European Regulations and International Conventions (primarily the Brussels I Regulation (recast), the Lugano Convention and the Hague Convention on Choice of Court Agreement).
The Regulation ensures mutual recognition of the judgments of the other member states. The procedure for enforcing foreign judgments is the same as for domestic judgments. However, foreign judgments pursuant to the Lugano Convention and the Hague Convention must be declared enforceable before they can be enforced (the exequatur procedure). A request for such a declaration is submitted to the bailiff’s court. Application for enforcement of the judgment can be made at the same time.
Judgments of Non-EU, EFTA, EEA and Nordic Countries
Judgments from countries outside the EU, EFTA, EEA and the Nordic countries are, as a starting point, not enforceable in Denmark.
If a judgment cannot be enforced in Denmark, the person or company that wishes to make a claim will have to bring the case before the Danish courts in order to obtain a Danish judgment for the claim, which can be enforced in Denmark. In such a case, the foreign judgment will be included as evidence, but the courts are not bound thereto.
Arbitration clauses in commercial insurance and reinsurance contracts are enforceable in Denmark according to the New York Convention, which sets out that a court must refer the parties to arbitration unless the arbitration agreement is invalid.
Hence, if a case which includes a valid arbitration clause is brought before one of the Danish courts, the said court will ex officio ensure the proper jurisdiction.
However, the Danish courts can assume jurisdiction over certain matters relating to the arbitration, eg, they can rule on the arbitral tribunal’s jurisdiction (prior to the commencement of the arbitration proceedings); determine whether the subject matter of the dispute in question can be decided by arbitration; or order an interim measure of protection or enforcement.
Arbitration decisions from other countries made by a foreign arbitral tribunal are, as a rule, enforceable in Denmark by the bailiff’s court. This applies regardless of in which country the arbitral tribunal was established. This is ensured both by the Danish Arbitration Act and by the New York Convention.
However, an arbitral award may be refused enforcement if one of the reasons for refusal in Section 39 of the Danish Arbitration Act applies. The reasons for refusal correspond to the exceptions in Article 26 of the UNICITRAL Model Law. Consequently, an award is not enforceable in Denmark, if – among others:
Arbitration (both ad hoc and institutional) is commonly used in insurance and reinsurance disputes in Denmark, and a clause requiring this form of dispute resolution to be used may be contained in the policy.
An insurance or reinsurance contract might also require resolution of a dispute through another form of alternative dispute resolution than arbitration, eg, mediation.
All 24 district courts in Denmark have, since 2008, offered mediation in civil, probate and enforcement cases. On 1 July 2014, new rules were introduced with the intention to encourage judges and attorneys to focus more on settlement and mediation. However, the use of mediation is still not very widespread in Denmark.
The courts will encourage mediation before litigation for both insurance and reinsurance contracts. Mediation is, however, a voluntary process and there is no sanction if a party refuses to mediate. Furthermore, there is generally nothing preventing parties from agreeing on, and independently appointing, a mediator themselves.
Although it is common that insurance disputes are settled in good faith between the parties, practical experience suggests that straightforward meditation between parties in dispute over, for example, insurance coverage, is rare in Denmark.
According to the Danish Insurance Contracts Act, any payment of an insurance claim must be made within 14 days of it being possible for the insurance company to obtain the information necessary to assess the insurance event and calculate the policyholder’s claim.
However, if the insurance policy between the parties contains a provision setting out when a payment for a claim must be made, that will be taken into count.
It is important to know the point in time from which a payment should have been made in order to calculate the interest the policyholder is entitled to receive according to the Danish Interest Act.
The beneficiary under third-party liability insurance is entitled to claim interest in accordance with the Danish Interest Act, as from 30 days after the insurer was able to obtain the information necessary for assessing the insurance event and calculating the claim.
If the beneficiary suffers a loss because of the insurer’s delay in settling the claim, said person may be entitled to damages in accordance with the general Danish rules on liability in damages. Consequently, they will have to show a loss, a causal link, foreseeability, negligence and that there was no fault on their part.
In Denmark an insurance company, after paying the claim under an insurance policy, may have the right to intervene in the insured's rights and enforce the insured's rights against the third party (subrogation) responsible for the loss.
A number of new companies have tried to challenge the insurance industry by introducing new ideas, methods and technologies to drive the insurance industry forward through technological innovation.
The five most notable insurtech companies in Denmark are Undo, Scalepoint, GoBundl, Penni and Insurwave.
The biggest Danish insurance company, Tryg, has invested in Undo and owns half of the company.
Undo reaches their customers through an app, as well as online, with the claim that a policy can be bought within five minutes, a proposition designed to appeal to the tech-savvy millennial generation used to near-instant service from all smartphone-based transactions.
Policies are underwritten by Tryg and are paid on a monthly subscription basis, with policyholders able to cancel at any time rather than being tied to a long contract.
The oldest insurtech, Scalepoint, was founded in 2001. The Copenhagen-based company focuses on process automation to increase the efficiency of claims for health, property and motor providers.
GoBundl has high ambitions to provide insurance for small societies by allowing users to pool their money with others in the neighbourhood and eliminate the need for an insurer to provide financial capacity for claims.
Penni has worked with Topdanmark, also one of Denmark’s largest insurance providers, to integrate its service with its partner COOP, to form the brand COOP Insurance.
Insurwave was created to test the application of block chain-based insurance in the marine space, for both companies and multiple collaborators, including the Danish shipping giant Maersk and Microsoft Software.
Naturally, the FSA also regulates, monitors and supervises the insurtechs.
No special rules apply (yet) to insurtechs, but they have to fulfil the same legal requirements that apply to traditional insurance companies in their application for authorisation as an insurance undertaking.
FSA released a report on insurtechs in March 2018. The report concluded that insurtechs should continuously focus on the technology-related risks that affect the business model.
Furthermore, insurtechs must be aware of the operational risks associated with processes based on algorithms, machine learning and artificial intelligence. They must prevent and remedy any programming and system errors, and they must consider technology-related operational risks when preparing the annual assessment of own risk and solvency.
Insurtechs must also have the necessary remedies to detect and manage technology-related risks, and they must ensure that they have the authority to do so before using customer data for sales and advice. The handling of data must be done safely, and companies have an ongoing obligation to minimise errors in their data.
On the basis of the report and the development of the insurance market, the FSA will be looking at new regulative actions.
The emerging risks that affect the market in Denmark are mainly cyber risks, climate change and severe regulation.
In respect of cyber risks, the global cost of cybercrime is enormous and is expected to rise.
Naturally, COVID-19 has illustrated that pandemic risk insurance might be a risk to take into consideration going forward.
As mentioned above, and based on information from the insurance market in Denmark, insurance companies are very much aware of the situation with new risks approaching. Thus, there has been an increase in the number of companies entering the market for insurances regarding cyber risks, etc.
Naturally, COVID-19 has given rise to various considerations in the insurance industry.
Until recently, there does not seem to have been any political or regulatory pressure on insurers to accept that the lockdown of enterprises due to COVID-19 constitutes “damage” in respect of insurance coverage.
However, in November 2020, Denmark’s government told all mink farmers to kill their stock because of concern that a mutated form of coronavirus was spreading more quickly than previously thought.
This action has, to some extent, resulted in the end of the mink industry in Denmark, and as Denmark is the world’s largest producer of mink fur, this will have massive consequences for the people working in the industry and for industries related to the mink business.
As the developments are still quite new, there is no legal practice about the topic as yet, but it must be expected that this could influence the insurance industry.
Furthermore, there has been some focus on companies’ inability to pay their insurance premiums due to economic difficulties as a result of COVID-19.
Normally, this would be handled by the insurance companies offering to adjust the payment terms. Furthermore, the state has offered to compensate companies by up to 80% of their overhead expenses, which includes insurance premiums.
In addition, compulsory insurance for occupational injuries has been debated in the insurance industry following COVID-19.
The Labour Market Insurance
These injuries are subject to assessment by a public authority called the Labour Market Insurance (Arbejdsmarkedets Erhvervssikring) in accordance with the Workers' Compensation Act.
Recently, the Labour Market Insurance prepared guidance for assessing workers’ compensation claims related to COVID-19. This guidance concludes, eg, that a decision as to whether COVID-19 can be recognised as an occupational disease is based on an overall, concrete assessment that includes the following elements:
The basic conditions also apply in relation to recognition as an industrial accident.
The guidance describes in more detail how these elements are incorporated in the assessment of compensation.
Furthermore, in relation to assessment of compensation, it is noted in the guidance that in COVID-19 cases, it will be extremely difficult to determine which symptoms are due to competing personal circumstances, and accordingly could justify a limitation of, or refusal to, provide compensation.
When considering the question of compensation, the workers’ compensation authorities must make an overall assessment of the specific case of COVID-19 disease and the related consequences, including a concrete assessment of the causes of the consequences, where the presence of pre-existing illnesses may mean that the right to compensation may be limited or possibly refused under Section 12, if the sick person’s health-related consequences cannot exclusively be attributed to the recognised COVID-19 disease. A case in point could be a person suffering from functional impairment due to serious lung disease, but who continues to work.
The guidance also contains a description of how the Labour Market Insurance processes claims related to COVID-19 disease. When a claim is received in which a sick person is seriously ill with COVID-19, the question of recognition is processed according to a special fast-track procedure. This means that the question of recognition and compensation is dealt with on a daily basis. The question of assessment of compensation is processed on a fast-track basis to the extent possible, ie, among other things, the consequences of the disease for the sick person must be established.
Besides the COVID-19 developments, there were no significant legislative or regulatory developments within the industry in 2020.