In Brazil, the resolution of insurance disputes is governed by a combination of the Brazilian Civil Code, the Consumer Defense Code (CDC), and specific laws such as Decree-Law No 73/66, which regulate the insurance market. The Superintendence of Private Insurance (SUSEP) is the primary regulatory authority for the sector and is responsible for overseeing and regulating insurance operations. Judicial disputes are generally resolved by state or federal courts (depending on the nature of the parties and the legal issue) in accordance with the procedural regime set out in the Code of Civil Procedure.

The litigation process in Brazil is governed by the Civil Procedure Code (CPC). The parties commence proceedings through an initial petition (statement of claim), and the proceedings include specific phases for the filing of a defence, production of evidence and judgment. As a general rule, the statutory limitation period applicable to claims is one year, as set out in in Article 206, Section 1, II, of the Civil Code. The limitation period begins to run on the date the insured becomes aware of the fact that gives rise to the claim. In certain specific circumstances, a three-year limitation period applies.

While mediation and arbitration are encouraged methods of dispute resolution in Brazil, particularly for commercial disputes, their use in insurance disputes is still relatively uncommon. Arbitration is more prevalent in reinsurance contracts and in more complex disputes where the parties prefer a more specialised and expedited resolution process. There is nonetheless a general trend towards increased recourse to arbitration in insurance disputes.

Disputes regarding jurisdiction and choice of law in insurance contracts in Brazil are typically governed by the Code of Civil Procedure and the Law of Introduction to the Norms of Brazilian Law (LINDB). In cases involving foreign insurers, Brazilian jurisdiction is usually asserted when the insured risk is located in Brazil or when the contract was entered into with a party that is resident or domiciled in Brazil.

Foreign judgments can be recognised and enforced in Brazil if they are homologated (ratified) by the Superior Court of Justice (STJ). The homologation (ratification) process requires that the foreign judgment for which enforcement is sought be final and binding, issued by a competent authority, and that it does not violate Brazilian public policy.

International insurers need to be aware of strong consumer protection laws in Brazil, particularly in relation to adhesion (standard-form) contracts. The Consumer Defense Code offers various protections, including the shifting of the burden of proof in favour of the consumer. That can have a significant effect on the outcome of the litigation.

Brazilian courts recognise and enforce arbitration clauses in commercial contracts, including insurance and reinsurance contracts. The Brazilian Arbitration Law (Law No 9,307/96) governs this area, and arbitration clauses are generally upheld as long as they are clearly worded and have been duly agreed upon by the parties.

Brazil is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Arbitral awards issued in other jurisdictions can be recognised and enforced in Brazil, provided they meet the requirements for homologation (ratification) by the Brazilian Superior Court of Justice.

Arbitration is an increasingly significant form of dispute resolution in insurance, particularly in reinsurance contracts and for insurance of large-scale industrial risks. Arbitrations are governed by the Brazilian Arbitration Law, and the proceedings are generally private, with judicial review limited to issues of nullity of the arbitral award. The Brazilian Superior Court of Justice has ruled that the Civil Procedure Code does not automatically apply as a subsidiary form of regulation of the proceedings.

In Brazil, certain terms are implied in insurance contracts by operation of law. For example, good faith is a fundamental principle in insurance contracts under the Brazilian Civil Code, requiring transparency and loyalty in the formation and execution of the contract.

Insurers have the right to accurate and complete information about the risk to be insured before the inception of the policy. This in turn gives rise to a right to deny coverage or adjust the premium if the information provided by the insured was deficient.

In the past 12 months, a major theme in coverage disputes has been the issue of the COVID-19 pandemic, particularly concerning insurance cover for interruption to business activities. There has also been an increase in litigation involving cyber-insurance, given the rising incidence of cyber-attacks. Engineering insurance continues to be a growing field. In addition, issues arising out of a finding of corruption, which is not covered by insurance, is a significant and recurring matter before the Brazilian justice system.

Insurance coverage disputes in Brazil are generally resolved through judicial litigation, although arbitration is becoming increasingly common, especially in more complex contracts. In reinsurance contracts, arbitration is widely used due to the international and specialised nature of these disputes.

When the insured is considered a consumer, the rules of the Consumer Defense Code apply. These rules generally favour the insured. The provisions include protections such as the reversal of the burden of proof and the possibility of judicial review of contractual clauses deemed abusive.

The current position of the Brazilian Supreme Court of Justice is that a third party is not entitled to enforce an insurance contract or sue an insurer directly (STJ Ruling No 529).

There is no specific concept of bad faith. Nevertheless, it is important to highlight that the Brazilian system is based on good faith, and certain specific standards are set out in law as a corollary of the fundamental duty of good faith.

Brazilian law imposes penalties for the late payment of claims. If payment is not made within the stipulated period (usually 30 days after the submission of all necessary documentation), the insurer may be ordered to pay interest and/or monetary correction.

In Brazil, the insured is bound by representations made by its insurance broker, who is considered the insured’s formal representative. However, if the broker acts outside their authority or contrary to the interests of the insured, the insured may have legal recourse against the broker.

Delegated underwriting is not allowed in Brazil. However, claims handling authority arrangements are relatively common. Normally, insurers delegate these functions to third parties.

In Brazil, insurers typically fund the defence of insureds in cases involving liability insurance, such as third-party liability for damage, professional liability, and directors’ and officers’ (D&O) liability insurance. The term for this protection under the insurance policy is “defence costs coverage”.

In the coming years, we may see changes driven by the increasing complexity of risks, such as cyber liability and environmental liability. These emerging risks could lead to more nuanced coverage requirements and a greater emphasis on specialised defence strategies. Additionally, regulatory changes and judicial decisions may further shape the obligations of insurers to fund defences, especially in sectors where new liabilities are developing.

Over the past few years, there has been a noticeable trend toward increased costs and complexity in litigation, particularly in cases involving corporate liability and environmental claims. This is due to a combination of factors, including more stringent regulatory environments, the growing importance of compliance, and the rise in class actions. These trends are expected to continue, with litigation costs likely to rise as cases become more complex and require more specialised legal expertise.

Claimants can buy protection against costs risks in connection with such claims. This is typically done through insurance coverage known as defence costs.

Brazilian law provides insurers with the right of subrogation, allowing them to recover sums from third parties responsible for causing an insured loss.

The right of subrogation, specifically in relation to insurance rights, is set out in Article 786 of the Brazilian Civil Code, which states that the insurer, upon payment of the indemnity, is subrogated to the rights of the insured against the third party responsible for the loss.

The pandemic is a past issue. However, environmental disaster-related matters have had a significant impact on the insurance industry, especially in agricultural insurance. Recently, the state of Rio Grande do Sul, in southern Brazil, experienced an environmental catastrophe that will have repercussions in the insurance sector, as, amongst other matters, numerous food crops were lost or damaged.

The trend, with respect to 7.1 Type and Amount of Litigation, is unlikely to change since this is a recent event.

The factors mentioned have given rise to specific coverage issues and test cases of significant importance. For instance, environmental disasters like the recent catastrophe in Rio Grande do Sul have led to disputes over the interpretation of policy terms, particularly regarding the scope of coverage for agricultural losses.

In response to the scenario noted in 7.1 Type and Amount of Litigation, insurers have improved policy wording, terms, and adjustment proceedings, including the use of satellite technology.

ESG factors are increasingly influencing both the underwriting and litigating of insurance risks. Certain risks may be declined if the applicant company lacks an acceptable ESG policy.

The Brazilian General Data Protection Law (LGPD) has led to new procedures for the handling of data and a need for extra caution and care. Insurers handle sensitive data and other information provided directly by the insured and requiring the maintenance of confidentiality.

Recent legislative and regulatory developments in Brazil have had a notable impact on insurance coverage and litigation. The introduction of the LGPD has imposed new compliance requirements on insurers, particularly regarding the handling of personal data.

A draft Civil Code is currently being examined by Congress and, if passed, it may have a significant impact on provisions of insurance law.

Draft Law No 29/2017, currently before the Brazilian Congress, sets out certain key provisions for insurance relations in Brazil and certain proposed amendments to insurance law provisions of the Brazilian Civil Code. The bill is being debated and may undergo significant changes before its final approval.