Statutory Framework

Insurance agreements

The legal arrangement between insurance companies (direct insurers), policyholders, and insureds is governed by the Swiss Insurance Contract Act (ICA) and by the rules provided by the Swiss Code of Obligations (CO). A major revision of the ICA came into force on 1 January 2022. Even though case law on the newly revised act is still very limited, this change in the landscape will without doubt also impact on insurance disputes.

Reinsurance agreements

While the ICA is applicable to direct insurance agreements, it does not cover reinsurance contracts. Therefore, reinsurance contracts under Swiss law are primarily governed by the rules outlined in the CO and reinsurance customs.

Supervisory rules

The regulatory regime for private insurance carriers is governed by the Insurance Supervisory Act (ISA), with important additional rules in the Insurance Supervisory Ordinance (ISO). A partially revised version of the ISA will come into force as of 1 January 2024.

The Swiss regulator is the Financial Market Supervisory Authority (“FINMA”).

Procedural Framework

In Switzerland, insurance disputes are either brought before the ordinary courts or – particularly in international contexts – settled through arbitration.

In 2011, the Swiss Civil Procedure Code (CPC) was introduced, establishing a uniform set of procedural rules for both contentious and non-contentious civil matters, the enforcement of non-monetary claims and domestic arbitration.

In cases where civil proceedings extend to international matters, Switzerland relies on the principles of private international law, codified in the Private International Law Act (PILA), along with bilateral and multilateral agreements (of which the Lugano Convention is the most important). The PILA governs the jurisdiction of Swiss judicial and administrative authorities, the applicable law, the conditions for recognition and enforcement, bankruptcy proceedings, composition agreements, and international arbitration. However, when applicable, multilateral or bilateral treaties (eg, the Lugano Convention) take precedence over the provisions outlined in the PILA.

The enforcement of monetary claims, including claims against insurers for insurance coverage, falls within the scope of the Federal Act on Debt Enforcement and Bankruptcy (“DEBA”).

Litigation Process

Although Switzerland has had a unified CPC since 1 January 2011, its federal system and history have left their mark on the court system, not only by providing different competent courts depending on the canton in which a claim is lodged, but also by distinguishing between the cantonal and the federal levels within the stages of a court proceeding, applying different rules to each stage.

In general, there is an obligation for the parties to enter into a mandatory conciliation procedure before being allowed to submit a claim to court. If no settlement can be made, the claimant can lodge the claim with the cantonal first instance court. A judgment from this first instance court can be appealed to the supreme court of the canton concerned. This appeal court is entitled to a full review of the first instance judgment on all legal and factual grounds. Following a judgment of the canton’s supreme court, a further appeal is possible to the Federal Supreme Court; however, only on limited grounds. In particular, while the Federal Supreme Court will in most circumstances undertake a full review of the legal issues, only manifestly incorrect factual findings can be challenged in the Federal Supreme Court. Proceedings before the Federal Supreme Court are governed by the provisions of the Federal Supreme Court Act (FSCA).

In addition to this court system, the CPC grants the cantons the option to establish commercial courts, which are competent to hear commercial claims, if at least the defendant (eg, the insurer) is registered in a commercial registry, the value of the claim (in insurance matters) amounts to CHF30,000 and the claim concerns the professional activity of at least one of the parties. Four German-speaking cantons – Zurich, Bern, St Gallen and Aargau – have all established such a court. These courts form part of the cantonal high court and serve as a court of first instance, with the Federal Supreme Court as the sole appeal court. In practice, most international commercial disputes that are not referred to arbitration are brought before such commercial courts.

As part of the ongoing revision of the CPC, which is expected to come into force in its revised form on 1 January 2025, the cantons will have the option to allow English as the language of proceedings in addition to their local official language(s). In the Canton of Zurich, the local legislator is considering establishing an International Commercial Court to take on international cases that could be led in English.

Rules on Limitation

The revised ICA, effective from 1 January 2022, introduced a new five-year statutory limitation period, thereby providing for a significant increase compared to the previous two-year limit. It covers all insurance contract-related claims, including premiums and coverage. The limitation period starts running on the date on which the insured event took place, which needs to be determined separately for each coverage. The limitation period may also start even before a claim becomes due.

Contractual agreements that shorten the limitation period for the claim against the insurance company are invalid. However, apart from a few exceptions, the revised ICA does not apply retroactively. Consequently, policies agreed upon before the revised ICA came into force on 1 January 2022 remain subject to the previous provisions on limitation. Given its nature as a half-binding provision that may not be modified to the detriment of the policyholder and/or insured, the parties are free to agree on a limitation period that is more generous.

Although most insurance cases are decided in court proceedings, arbitration is common in Switzerland, especially at its globally renowned arbitration centres in Zurich and Geneva. Prominent institutions and rules include the International Chamber of Commerce (ICC) Rules and the Swiss Arbitration Centre (Swiss) Rules. These frameworks offer tailored proceedings and efficient management for disputes of varying scopes and complexities. From the statistical data published by the Swiss Arbitration Centre, it appears that the institution recently saw an increase in insurance and reinsurance disputes being referred to arbitration, as 4% of the new cases relate to insurance or reinsurance matters, while between 2004 and 2020, insurance and reinsurance arbitration only made up 1% of all cases on average.

Other ADR methods play a limited role, although mediation appears to have become more popular recently, as illustrated by an increasing number of organisations offering mediation services and training, and the adoption of the Swiss Rules on Commercial Mediation by the Swiss Chambers of Commerce and Industry in 2021.

Place of Jurisdiction

In a domestic context, the place of jurisdiction is governed by the CPC. Swiss courts generally respect choice of forum clauses, allowing the parties to choose a forum in writing or through other text-reproducible means (eg, emails). Forum selection clauses can relate to an existing or future dispute. In the absence of such an agreement, the CPC provides for a bundle of provisions regarding the place of jurisdiction with the most important being at the defendant’s permanent place of residence or registered seat. Different rules apply to insurance contracts involving consumers (see 4.5 Position if Insured Party Is Viewed as a Consumer).

In international disputes, the place of jurisdiction is determined by the PILA, or in a European context, the Lugano Convention. The PILA has only one specific provision pertaining to insurance contracts in the case of a direct claim against an insurer. In general, the PILA allows for a choice of jurisdiction unless a contract qualifies as a consumer contract. The parties to an insurance contract may, therefore, submit to Swiss jurisdiction even though no party is resident in Switzerland. A sufficient connection allowing a Swiss court to accept the jurisdiction may in that case be created by the choice of Swiss law as the law applicable to the insurance contract. A somewhat different approach applies under the Lugano Convention, which provides for specific places of jurisdiction for disputes under insurance contracts and restricts, in particular, the venues available to the insurer.

Choice of Law

The general principles for determining the law applicable to an insurance contract are found in the PILA. For non-consumer contracts, the parties are free to choose the applicable law in the insurance contract. It should be noted that, although the determination needs to be clear and unequivocal, there is no requirement to make an express choice. Rather, the choice of law can also be implied (Article 116 PILA). Should the choice of law be made subsequent to the contract’s formation, it retrospectively applies from the contract’s inception.

In the absence of a definite choice, the applicable law is determined by selecting the law of the country with the closest connection to the contract. This closest connection is represented by the characteristic services (ie, in the case of insurance contracts, the services of the insurer). The Federal Supreme Court thus applies the law of the seat of the insurer to the insurance contract. The above principles may not apply to insurance contracts involving consumers (see 4.5 Position if Insured Party Is Viewed as a Consumer).

The recognition and enforcement of foreign judgments pertaining to insurance and reinsurance contracts adhere to the same regulations as those governing foreign judgments in other areas of commercial law.

To the extent that the recognition of a foreign judgment is not governed by an international treaty (ie, the Lugano Convention), the PILA is applicable. According to the PILA, a foreign judgment is recognised in Switzerland if the following criteria are met cumulatively:

• A foreign court held jurisdiction over the matter.
• The foreign judgment has become final and binding under the law of the issuing state.
• None of the grounds for refusal specified in the PILA are applicable. The PILA furnishes an exhaustive list of such grounds, encompassing breaches of Switzerland’s public order, defective service, or res judicata. Other than that, the foreign decision may not be reviewed by the Swiss court on the merits.

The Lugano Convention applies to the recognition and enforcement in Switzerland of judgments in commercial and civil matters that were rendered in another member state. As a general rule, a judgment issued in a state that is a member of the Lugano Convention is recognised in Switzerland without any special procedure being required. Swiss courts seized with a request for enforcement must declare such a judgment immediately enforceable if certain formal conditions are respected. Thereby, the courts may not, in any event, review the judgment to be declared enforceable on the merits.

Commercial Courts

In the cantons that have established a commercial court (Zurich, Berne, St Gallen and Aargau), insurance and reinsurance disputes are – if not referred to arbitration – predominantly conducted before these courts. A commercial court typically consists of both professional and commercial judges, with each canton having its own laws determining the precise composition. For example, commercial judges may be selected from a pool of industry experts, including those with backgrounds in insurance and banking, ensuring that the specific needs of each case are adequately addressed. This approach guarantees that commercial courts possess a high level of expertise in handling commercial matters.

Settlement Discussions

Regarding the commercial court of the Canton of Zurich in particular, it can be stated that the court usually holds a settlement hearing following the initial round of written submissions. In order to enable the judges to provide a detailed assessment of the case, it may be beneficial to the parties to fully state their respective positions and to submit the available evidence in the first round of written submission. Due to this approach, a significant part of the proceedings initiated before the commercial court of the Canton of Zurich may be resolved via settlement.

No Discovery

As in many other civil law jurisdictions, there is no discovery in Swiss state court proceedings. The CPC only foresees a general duty to co-operate in the collection of evidence and to hand over precisely identified documents. This regime generally saves time, and therefore leads to more cost-effective proceedings.

Cost Allocation

Once the claimant has submitted the statement of claim, the court usually orders the claimant to advance the court fees. Upon termination of the proceedings, in accordance to the loser-pays principle, the losing party then has to reimburse the prevailing party for both its court costs and its attorneys’ fees. Both are based on the cantonal tariffs related to the amount in dispute and in proportion to the parties winning or losing, respectively. As a consequence of these cost barriers, claimants tend to hesitate to commence proceedings unless and until they have sufficient means of evidence (see also 5.3 Trends in the Cost or Complexity of Litigation).

Switzerland is an arbitration-friendly jurisdiction, and arbitration is widely used to resolve commercial disputes in both domestic and international matters. From an international perspective, it can be stated that Switzerland is among the most popular seats for arbitration. Consequently, state courts are adept at handling and enforcing arbitration provisions in commercial contracts (ie, in insurance and reinsurance disputes).

Swiss federal law, as enshrined in Article 61 CPC for domestic arbitration and Article 7 PILA for international arbitration, establishes an arbitration-friendly principle: if parties have referred an arbitrable dispute to arbitration, the state courts will decline jurisdiction, unless one of the following exemptions is applicable (Article 61 CPC, Article 7 PILA):

• the defendant has proceeded on the merits without reservation;
• the court finds that the arbitration agreement is null and void, inoperative or incapable of being performed; or
• the arbitral tribunal cannot be constituted for reasons that are clearly attributable to the defendant in the arbitration.

Switzerland has signed and ratified the New York Convention (NYC). Foreign arbitral awards rendered by arbitral tribunals not seated in Switzerland will therefore be recognised pursuant to the rules of the NYC. Arbitral awards rendered by tribunals seated in Switzerland are enforced in the same way as judgments of Swiss state courts, meaning that they are automatically enforced and no additional exequatur (recognition procedure) is necessary.

Significance

In Switzerland, no official statistic offers insights into the prevalence of arbitration clauses within insurance and reinsurance contracts. Although insurance disputes, even those of a complex nature with international dimensions, frequently find their way to the Swiss commercial courts, parties involved in commercial insurance arrangements occasionally favour arbitration as their chosen dispute resolution mechanism. In the context of reinsurance contracts, it is fair to state that arbitration is the absolutely dominant mode for resolving disputes.

Appeal

International awards rendered in Switzerland may be appealed before the Swiss Supreme Court within 30 days upon receipt of the award. The (limited) grounds for appeal are set forth in Article 190 paragraph 2 PILA, according to which, an arbitral award may only be set aside:

• where the sole member of the arbitral tribunal was improperly appointed or the arbitral tribunal was improperly constituted;
• where the arbitral tribunal wrongly accepted or rejected jurisdiction;
• where the arbitral tribunal ruled beyond the claims submitted to it, or failed to decide one of the claims;
• where the principle of equal treatment of the parties or their right to be heard in an adversary procedure were violated; and/or
• where the award contravenes Swiss public policy.

In addition, if none of the parties has their domicile or place of business in Switzerland, the parties may waive any or all grounds for an appeal. Such waiver may be agreed upon in the arbitration agreement or by subsequent written consent.

In the realm of domestic arbitration, the arbitral award may, in addition, also be set aside if the award is arbitrary (in contrast to the public policy-criteria in international disputes) or if the costs and compensation fixed by the arbitral tribunal are obviously excessive.

Freedom of Contract

Generally speaking, the principle of freedom of contract is upheld in Switzerland for both insurance and reinsurance contracts. The parties are therefore, in principle, free to autonomously determine the content of an insurance contract. If the insurance contract leaves particular matters unaddressed, the general contractual provisions of the Swiss Code of Obligations (SCO) and the more specific provisions of the ICA will be implied.

“Absolutely Binding” and “Relatively Binding” Provisions

There are, however, various limitations to the parties’ ability to freely determine the content of their agreement. The amended ICA consists to a large extent of mandatory provisions that either may not be amended at all (they are “absolutely binding provisions” as designated in Article 97 ICA), or at least, may not be amended to the detriment of the insured (they are “relatively binding provisions” as designated in Article 98 ICA). Provisions of the insurance agreement that contravene a binding provision are void.

For instance, it is generally no longer permissible for retail insurance contracts to draft obligations of the insured as condition precedent. Thus, the breach of such an obligation will have no consequence if the insured can establish that a breach had no negative impact on the occurrence of the insured event and on the amount of the insurance payment.

“Professional Policyholders”

The revised ICA, however, acknowledges that not all insureds are in need of such protection, and introduced the concept of so-called “professional policyholders”. For these insureds, the provisions of the amended ICA are not mandatory. This concerns not only credit insurance but also, some types of “large risks”, in particular regulated financial intermediaries, pension funds, entities with a professional risk management function and entities that fulfil two of the following three criteria: total assets of CHF20 million, net turnover of CHF40 million, and net assets or equity of CHF2 million.

Reinsurance Contracts

Reinsurance contracts do not fall within the scope of application of the ICA, but are mainly governed by the general principles of Swiss contract law set forth in the Swiss Code of Obligations (CO). The drafting of reinsurance contracts is therefore left to the private autonomy of the parties, with the reinsurance contract being the main source for the assessment of the legal relationship between the insurer and the reinsurer.

The ICA sets out certain pre-contractual disclosure duties of the applicant when negotiating the insurance contract (Article 4 et seq). The applicant’s foremost duty is to answer the written questions of the insurer on all material facts affecting the risk, as far as they are known or ought to be known to the applicant. The ICA requires a disclosure on the basis of a questionnaire or any other written question. According to case law and the prevailing legal doctrine, the applicant’s pre-contractual disclosure duty is limited to the facts covered by the written questions of the insurer. Put differently, the scope of the duty of disclosure depends on the questions of the insurer. Unlike in other jurisdictions, Swiss insurance law does not provide for an additional duty to spontaneously disclose such facts based on the general obligation to act in good faith.

The sanctions for a breach of duty are strict. The insurer has a right to terminate the insurance contract by written declaration within a deadline of four weeks after the insurer has become aware of the breach of the duty of disclosure. In addition, the insurer is released from its obligation to provide indemnification for damages that have already occurred, the occurrence or extent of which was influenced by the fact affecting the risk incorrectly disclosed or withheld.

As an exception, despite the breach of the duty to disclose, the insurance company is not entitled to terminate the contract if:

• the concealed or incorrectly disclosed fact ceased to exist before the occurrence of the insured event;
• the insurance company has caused the concealment or incorrect disclosure;
• the insurer has or must have known the concealed fact;
• the insurer was or must have been aware of the incorrectly disclosed fact;
• the insurer has waived the right of termination; and
• the person obliged to notify fails to answer a question submitted by the insurer, and the insurer has nevertheless concluded the insurance contract.

Pursuant to the prevailing legal doctrine, the insurer may also demand compensation for the damages suffered under culpa in contrahendo, which is a case law-developed concept to address issues that have occurred in the negotiation phase.

Identifying significant trends is challenging, as official statistics on insurance coverage litigation are lacking. It is, however, fair to assume that in the past 12 months the number of COVID 19-related coverage disputes has begun to flatten out and that pending proceedings will predominantly be resolved via settlement, as case law has recently provided legal certainty in some core areas (see 7.3 Coverage Issues and Test Cases).

Private law disputes between insurers and insureds and between different insurers, respectively, are subject to the jurisdiction of civil courts. Thereby, no specific procedural rules apply on insurance coverage litigation. However, in the Canton of Zurich, where the bulk of Swiss-based insurance companies are domiciled, coverage disputes are predominantly litigated before the commercial court.

Distinguishing features of civil proceedings conducted before the commercial courts are, in particular, an acceleration of the proceedings, as there is no prior conciliation hearing, and no appeal at the cantonal level. Also, the bench in the commercial courts includes specialised judges, who have expert knowledge in the field concerned (eg, in the insurance industry). A further key feature is the strong commitment of the court to conduct settlement discussions. Throughout civil proceedings, the court has the authority to convene a so-called “instruction hearing”. This session aims to facilitate settlement discussions and gather specific evidence. The commercial court commonly provides a preliminary, non-binding assessment of the claim (a risk assessment) and proposes a settlement, often leading to the resolution of even complex disputes at an early stage and with reasonable costs.

The parties to an insurance coverage dispute are free to agree on arbitration instead of state court litigation. Arbitration is typically the preferred choice in reinsurance matters and for companies engaging in international business and seeking to have sensitive information kept private and confidential.

Mandatory Provisions

As pointed out above (see 4.1 Implied Terms), the ICA consists to a large extent of mandatory provisions that either may not be amended at all (“absolutely binding provisions”), or at least not to the detriment of the insured (“relatively binding provisions”). These are mainly consumer protection provisions encompassing, for instance, minimum information requirements, a 14-day withdrawal right for new insurance contracts, and a termination right for long-term insurance contracts.

Place of Jurisdiction

Swiss civil procedural law provides some privileged provisions that strengthen the consumer’s position regarding the place of jurisdiction. According to these provisions, claims concerning consumers must generally be filed with the competent court at the consumer’s domicile. The consumer can thus impose the jurisdiction provided by the CPC, even though the parties have entered into an exclusive jurisdiction agreement. The consumer may only agree to a different jurisdiction after the dispute has arisen. Moreover, in international disputes, the PILA and the Lugano Convention provide for similar privileges regarding the place of jurisdiction in consumer-related matters.

Choice of Law

As regards the choice of law in cross-border matters, the PILA contains certain provisions concerning the applicable law for consumer contracts, ie, contracts pertaining to goods or services of ordinary consumption intended for a consumer’s personal or family use and not connected with the consumer’s professional or business activity. In a nutshell, the parties cannot waive the applicability of the law of the state of the consumer’s place of habitual residence if:

• the supplier received the order in that jurisdiction;
• the contract was concluded after an offer or advertising in that jurisdiction and the consumer performed the necessary steps towards contracting in that jurisdiction; or
• the consumer was induced by the supplier to go abroad in order to place an order.

Unfair Competition Act

Furthermore, the use of general terms and conditions (referred to as “GTC”) by insurance companies is subject to Article 8 of the Unfair Competition Act (UCA). The revised provision came into force more than a decade ago, as of 1 July 2012. It foresees that the use of GTC that, to the detriment of consumers and in violation of the principle of good faith, results in a significant and unjustified imbalance between the rights and obligations set out in the contract, is prohibited. In contrast to the European Directive 93/13/EEC on unfair terms in consumer contracts, Article 8 of the UCA does not enumerate unfair terms in a catalogue. It is also important to note that Article 8 of the UCA specifically applies to consumers and does not extend to individuals using insurance services for their commercial or professional activities. From what has been observed in the last decade, however, Article 8 of the UCA has in practice not substantially altered the legal landscape in insurance litigation.

The revised ICA (that came into force on 1 January 2022) introduced a direct right of claim against the insurer in the area of third-party liability insurance. Up to that point, a direct claim against the insurer had only been provided in very limited sectors of insurance , the most important being motor insurance. According to the new law, the third party suffering damage or its legal successor has a direct right of claim against the insurer within the framework of any existing insurance cover; however, this is limited by the objections and defences that the insurance company may hold against the insured on the basis of the ICA or the insurance contract.

In the realm of mandatory liability insurance, the third-party claim’s right goes even further, by denying the insurer defences arising from:

• negligent or intentional causation of the insured event;
• breach of obligations;
• failure to pay the premium; or
• contractually agreed deductible.

From the damaged party’s point of view, the recently introduced direct right of claim offers some advantages. Most notably, the risk of insolvency of the liable insured is fully shifted to the insurer. To facilitate enforcement, the new ICA also grants the damaged party a right of information. Accordingly, the damaged party is entitled to request from the liable insured or from the competent supervisory authority the disclosure of the insurance company. The latter is obliged to provide information on the type and extent of the insurance cover.

The general duty to act in good faith is a cornerstone in Swiss law. From this general principle, a number of specific duties of conduct have been derived by case law. In an insurance context, for example, liability arising from the breach of a pre-contractual duty is generally referred to as “culpa in contrahendo” (see 4.2 Rights of Insurers). There is, however, no particular bad faith concept giving rise to claims for damages in the context of the claims-handling process (see 4.8 Penalties for Late Payment of Claims).

According to the ICA, the claim arising from the insurance contract becomes due four weeks after the insurance company has received information that allows the verification of the claim. A contractual agreement between the parties that the insurance claim only becomes due after recognition by the insurance company or after a final and binding judgment against the insurance company, is invalid. If the insurer disputes its duty to pay, the beneficiary can demand payments on account up to the undisputed amount after expiry of the same four-week period.

Since the current ICA does not contain a specific provision on late payments of claims by the insurer, the provisions of statutory contract law are applicable on the basis of the reference in Article 100 paragraph 1 ICA. According to these provisions, notice is required in order to put the debtor in default. Thereby, the mere fact that the four-week period for the verification of the claim has lapsed, does not constitute an expiry date that would make a notice superfluous.

From the date the insurer has been put in default, interest at 5% per annum (or at another contractually agreed percentage) begins to accrue on the outstanding amount of the claim. Where the insured party has suffered additional damages due to late payment by the insurer, it may further claim to be compensated for such damages.

Under Swiss law, the insured is, in principle, bound by representations made by its broker vis-à-vis the insurer. This follows from the general principles of Swiss agency law, according to which the rights and obligations arising from a contract made by an agent in the name of another person accrue to the person represented (insured or policyholder), and not to the agent. Representations made by a broker are therefore legally binding for the insured provided there is an agreement on representation between the insured and the broker. Also, the knowledge of an insurance broker is, in principle, attributed to the insured.

Delegated underwriting or claims handling for insurance intermediaries is in general permitted in Switzerland, and is not uncommon. There are also various types of insurance intermediaries available.

The current amendment of the ISA is likely to bring some considerable changes in the future concerning intermediaries. The notions of tied versus non-tied insurance intermediaries are redefined and intermediaries can no longer act simultaneously as tied and non-tied intermediaries. The registration of non-tied intermediaries is subject to new requirements including the proof of guarantee of irreproachable business activity and the proof of sufficient education and advanced training. Tied insurance intermediaries can no longer be registered with the public FINMA register for intermediaries, unless they demonstrate that they wish to take up an activity abroad for which the relevant state requires an entry in the Swiss register. Also, according to the ISO, the provision of a website through which insurance contracts can be concluded (including comparison portals) will also be considered insurance mediation in the future.

In third-liability insurance, the insurer typically promises to defend the insured against unjustified claims. Depending on the contract, Swiss insurers provide this defence directly or fund the defence costs of policyholders or insureds, including lawyers’ fees, court fees and party compensation fees.

Directors’ and Officers’ (D&O) Liability Insurance

D&O liability insurance has become increasingly important in Switzerland, extending beyond publicly traded companies to small and medium-sized, non-listed enterprises. These policies are typically purchased by corporations, with the premium considered a tax-deductible expense. Deliberate wrongful acts or legal violations are typically not covered and indemnification may also be reduced if a director has acted with gross negligence. The insurance regularly excludes penalties, punitive damages, claims connected to social security contributions, and tax claims.

Legal Protection Insurance

It is common in Switzerland for policyholders to rely on legal protection insurance. The coverage provided by this insurance encompasses a wide spectrum of services, ranging from offering advice and legal assistance to covering legal expenses and attorneys’ fees. For instance, the policy extends protection in legal matters related to areas such as tenancy law, patient law, and employment law, falling within the scope of private legal protection. Additionally, it includes legal disputes arising from road traffic incidents, such as those following a traffic accident or in connection with vehicle leasing, purchasing, or repairs, falling within the scope of traffic legal protection.

No significant change is expected in relation to the funding of the defence of insureds.

The Swiss Civil Procedure Code (CPC) is currently under revision, with lawmakers aiming to introduce provisions to lower the bar for a claimant to initiate litigation.

• Claimants are currently required to pay the full amount of the expected court costs upfront when lodging a claim. Additionally, even if the court orders the opposing party to cover the court costs, the advance paid by the claimant is deducted from the total costs, leaving the claimant responsible for potentially collecting these costs from the other party.
• The revised CPC introduces changes aimed at reducing financial barriers for claimants. Under the revised CPC, courts should generally only require claimants to pay half of the expected court costs upfront. However, there are exceptions, such as cases falling under the jurisdiction of international commercial courts and appeal proceedings, where claimants may still be asked to pay the full expected costs.
• Regarding cost allocation, under the revised CPC, court costs will still be offset against the advance payments made by the party responsible for these costs. However, if the party not responsible for the costs has made an advance payment, it will be refunded, and any remaining costs will be sought from the party responsible for covering the court costs. This shift means that the state, rather than the claimant, now bears the risk of collecting outstanding court costs.

It can also be stated that there has been a slight trend in referring complex cases to arbitration rather than to state court litigation. See 1.3 Alternative Dispute Resolution (ADR).

There is generally no prohibition of third-party litigation funding in Switzerland.

Protection against costs risks in the form of legal expense insurance is widespread in Switzerland (see 5.1 Main Areas of Claims Where Insurers Fund the Defence of Insureds). According to the data company Statista, the revenues from legal expense insurances in Switzerland have increased consistently over the last decade, amounting to a total of CHF709.84 million in 2021.

Prior to the revision of the ICA in 2022, Swiss law was generally hostile to the recovery of losses paid by insurers. Recourse was governed by a complex system of case law on a double basis of subrogation into the insured’s claims and the original right of recourse of the insurer. In general, the recourse possibilities were limited by the legal ground due to which a third party would have been liable for the loss, and differed also for first-party loss and liability insurers. This recourse system may still be in force for contracts which came into force prior to the amendment of the ICA.

Contrary to this, the revised ICA supports the recourse rights of the insurer, who subrogates at the time and to the extent of its payment into the claims of its insured against third parties, this for the items of damage of the same type it covers. Put differently, once an insurer has indemnified its insured and has been subrogated into its rights, the ICA provides insurers with a right of action to recover sums from third parties causing an insured loss to an insured.

The subrogation of the insurer is set out in Article 95c ICA. The insurer exercises the rights of recovery in its own name.

The COVID-19 pandemic has led to a temporary increase in insurance-related litigation in Switzerland. In particular, it has been highly controversial whether business interruption losses resulting from COVID-19 shutdowns are subject to coverage under “epidemic insurance” wordings. Epidemic insurance is often added as an extension to basic property business interruption insurance. In a high-profile judgment, the Swiss Federal Supreme Court rejected insurance coverage for such losses (for more details, see 7.3 Coverage Issues and Test Cases).

As far as can be seen, the outbreak of war in Ukraine and the sanctions imposed on Russia in the Swiss Ordinance on Measures in Connection with Ukraine (SR 946.231.176.72) have not yet produced any insurance-related court decisions in Switzerland. Nevertheless, they have raised coverage issues among (re)insurers and insureds regarding, inter alia, war exclusions and other definitions, particularly in the property and political risks lines of business. It is, however, difficult to predict whether, and if yes to what extent, these developments will affect the amount of litigation in insurance matters in Switzerland in the mid-term.

As regards general macroeconomic developments, it is not expected that the Swiss insurance market will deviate significantly from global trends. While in the recent past, the pandemic has taken a central role in the insurance sector, court decisions have in the interim provided legal certainty regarding some core issues and it can be expected that going forward, the number of coverage disputes in pandemic-related matters will decline significantly.

As is the case in other jurisdictions, there’s a growing expectation that in the post-pandemic era a rise in D&O liability claims as well as in cyberinsurance matters may be expected. In addition to this, insurers are likely to witness a surge in demand for coverage against climate-related risks. In this context, there might also be a rise in discussions around the exclusion of these risks in many negotiations on new reinsurance contracts, as well as litigation related to such matters.

In a judgment that has received considerable attention among practitioners, the Swiss Federal Supreme Court rejected insurance coverage under “epidemic insurance” wordings for business interruption losses due to COVID-19 shutdowns. The following describes what happened in more detail.

A restaurant company concluded a business insurance policy for small- and medium-sized enterprises (SMEs). The policy included, inter alia, property insurance, which covered losses of income and additional costs arising out of an epidemic. The general terms provided under the headings “not insured are” and “epidemic” listed various exclusions in the event of an epidemic. In particular, losses caused by pathogens for which the World Health Organisation (WHO) pandemic phases 5 or 6 were applicable, at the national or international levels, were excluded from coverage. As a result of the (first) nationwide shutdown ordered by the Federal Council from 17 March 2020 until the end of April 2020, the restaurant company suffered an estimated loss of income of about CHF75,000.

In a first step, the Swiss Federal Court ruled that the exclusion had become part of the insurance contract. Also, the exclusion clause was not deemed objectively unusual and had, thus, validly been included in the insurance contract. In a next step, the court had to assess the meaning of the exclusion. Although it was uncontested between the parties that the corona pandemic (COVID-19) fulfilled all the requirements of a phase 6 pandemic according to the relevant WHO definition, the issue remained that the policy effectively referred to a definition that was no longer in use. The Federal Supreme Court clearly held that the construction of a clause cannot stop at the wording: doing so would denude the exclusion of any applicability. Rather, the Federal Supreme Court found a clear intention to exclude high-scale pandemics, a level that COVID-19 had reached. Against this background, the Federal Supreme Court also refused to give importance to the fact that no authority had formally relied on the WHO definition of pandemic levels. Rather, the court concluded that the construction of the exclusion clause led to an unambiguous result. By this finding, the court could desist from examining whether an ambiguity had to be held against the insurer.

The judgment was of great significance in relation not only to the settlement of many COVID-19 shutdown losses in Switzerland, but also in the interpretation of insurance contracts and their general terms and conditions.

The aforementioned decision of the Swiss Federal Supreme Court (see 7.3 Coverage Issues and Test Cases) is likely to have a massive impact on COVID-19-related litigation, as many policies will have similar wording to the one assessed by the Federal Supreme Court. A considerable decline in coverage disputes related to business interruption losses resulting from COVID-19 shutdowns is therefore to be expected.

In Switzerland, as in many countries, ESG issues are largely considered a potential source of emerging liability for directors and officers. Investors, employees and consumers expect that companies will increasingly actively address ESG considerations. Moreover, potential exposure for companies may come from claims of “greenwashing” or “climate-washing” litigation, where a company is sued by investors for unsubstantiated or misleading ESG claims, or the failure to meet net zero commitments. Against this background, an increase in ESG-related disclosure requirements and regulation for companies is to be expected in the near future, leading to a new field for insurance litigation, in particular in the realm of D&O liability insurance.

As a Side Note

The relevance of ESG-related topics in Switzerland is illustrated by the fact that FINMA has recently issued a communication on preventing and combating greenwashing, as well as a circular on the disclosure obligations of banks and insurance companies. Therein, FINMA explains that greenwashing, or at least, a greenwashing risk, can be assumed if terms such as “zero carbon” or “impact” are used without being measurable or verifiable. In the circular on disclosure requirements, FINMA specifies the disclosure requirements of banks and insurance companies with regard to climate risks. According to the recommendations of the Task Force on Climate-related Financial Disclosures (“TCFD”), a description of the short-, medium- and long-term climate-related financial risks and their impact on business and risk strategy, as well as the effects on existing risk categories, must be disclosed.

The use of customer data is subject to the Data Protection Act (DPA) and its underlying ordinance, the Data Protection Ordinance (DPO). As of 1 September 2023, a revised version of the DPA came into force. The main principles applicable to data processing are set out in Article 6 DPA. As a general principle, data processing must be carried out in good faith and must be proportionate. Personal data may only be processed for the purpose indicated at the time of collection, as evident from the circumstances, or as provided for by law. Furthermore, the collection of personal data and, in particular, the purpose of its processing must be evident to the data subject.

Compliance with the DPA is subject to supervision by the Federal Data Protection and Information Officer. Unlike the previous DPA, the revised version defines clear sanctions. It foresees that individuals who intentionally breach the DPA may be fined up to CHF250,000.

In court proceedings, data protection is not governed anymore by the DPA, but by the respective procedural act.

Tailor-Made Provision for Lloyd’s

Asserting a claim against Lloyd’s under current law may be associated with certain procedural pitfalls, as Lloyd’s is not the party subscribing to the policy nor is it contractually liable for the indemnification. From a procedural perspective, a Lloyd’s syndicate does not have the legal capacity to act as a party, which under Swiss law is a requirement for the court to consider an action.

The legislator has addressed this particular issue in the course of the revision of the Insurance Supervision Act (ISA), which is set to come into force on 1 January 2024. The draft of the ISA contains, inter alia, a special provision regarding the specific features of Lloyd’s as a unique insurance market. According to the draft, the general representative of Lloyd’s Switzerland will have standing in all proceedings concerning claims arising from insurance contracts, in place of the Lloyd’s insurers involved. The newly introduced provision will help to create welcome legal certainty in civil and supervisory proceedings in the future.

Direct Right of Claim for Liability Insurance

As pointed out above, the revised ICA provides for a direct right of claim against the insurer in the area of third-party liability insurance (see 4.6 Third-Party Enforcement of Insurance Contracts). The new law might provide for an increase in litigation, particularly in cross-border matters, as potentially more lawsuits against Swiss insurers may be filed abroad. Whether the direct claims right will lead to remarkably higher claims activity in general remains to be seen. A claim against the insurer still requires the potential liability of the insured and the frequency of events potentially giving rise to liability will not be affected by the revision of the ICA. In addition, (unsuccessful) claimants in Switzerland face considerable cost risks in the form of party compensation and court costs.

Subrogation

As described in 6.1 Right of Action to Recover Sums From Third Parties, the revised ICA provides for a fundamental change in the field of the insurer’s recourse. With the new regime, Swiss insurance law shifts from being a rather recourse-hostile environment to being a recourse-friendly one. Going forward, recourse proceedings are, therefore, likely to be conducted more frequently (and more successfully).