The Insurance Disputes Law Review: Denmark
In Denmark, insurance litigation usually comprises coverage disputes (i.e., disputes between the insurers and the insured) and defence instructions (i.e., disputes where the insurers instruct the counsel to defend the interests of an insured or claim recourse from potential liable tortfeasors, who may very well be insured themselves). These have been the bulk of the insurance disputes in Denmark for years. Any disputes about mis-selling of insurance have been isolated occurrences. Recent case law has, however, cast light over subjects of general interest, such as limitation, direct actions and choice of law.
In this chapter we focus on insurance disputes relating to coverage, illustrating the general principles of Danish insurance law and recent case law of interest.
The legal framework
i Sources of insurance law and regulation
Danish insurance law primarily consists of the protective mandatory Insurance Contracts Act governing insurance contracts. Like any other contract, insurance contracts are subject to the Contracts Act governing general rules of formation of contracts, as well as general principles and doctrines of contract law. Reinsurance contracts are not subject to the Insurance Contracts Act but are governed by general contract law.
No statutory law provides rules specifically designed to resolve insurance disputes in the courts. In Denmark, insurance dispute resolution is subject to the same procedural rules applying to any other civil law proceedings by way of the statutory provisions following from the Administration of Justice Act or rules on arbitration. Many commercial insurance policies adopt arbitration. Arbitration taking place in Denmark is governed by the Arbitration Act, which is partly mandatory. Arbitral awards are not usually published.
Interpretation of insurance contracts and the burden of proof
As the Insurance Contracts Act mandatorily protects the insured, interpretation of an insurance policy is made in favour of the insured whether the insured is a consumer or a commercial party. Because of this, the burden of proof is on the insurer in many circumstances.
Trigger of coverage under an insurance policy – the insurance event
In terms of triggering coverage, the burden of proof is on the insured, meaning that the insured must substantiate that the occurrence is recoverable under the policy. On the other hand, the burden of proof is on the insurer in terms of substantiating that the occurrence and subsequent damages are not recoverable under the insurance.
General grounds for refusal of cover under an insurance policy
In addition to the contractual limitations of cover, insurance cover may be refused or limited based on the Insurance Contracts Act in cases of:
- the insurance event being caused by the policyholder either deliberately or by gross negligence;
- fraud or misrepresentation;
- increase in risk or the insured's failure to comply with safety instructions; and
- disregard of the insured's duty to mitigate losses.
Insurance event caused by the policyholder deliberately or by gross negligence
According to the Insurance Contracts Act Section 18(1), the insurer is entitled to refuse cover if the insurance event was caused by the insured's intent. In cases of gross negligence, Article 18(2) coverage may be refused in part or in full, depending on the degree of gross negligence.
As in most jurisdictions, the construction of the term 'gross negligence' has given rise to numerous disputes, but generally the term is construed as acts or omissions of the insured having implied 'an obvious danger' in respect of the occurrence of the insurance event.
The burden of proof with regard to refusing or limiting cover in respect of establishing intent and gross negligence is always on the insurer and, according to case law, the requirements in terms of discharging the burden of proof are generally very strict.
Fraud or misrepresentation
Fraud and misrepresentation are strong grounds for refusal of cover and may deem the insurance contract void, although these grounds are not the most frequently used grounds for dismissal of an insurance claim.
According to Section 4 of the Insurance Contracts Act, the insurer is under no obligation to perform the insurance contract if the insured, when concluding the insurance contract, fraudulently gave untrue statements or concealed circumstances material to the insurer. Similarly, if the act or omission was of such a nature that it would infringe the general principles of good faith to rely on the contract, the insurer is also entitled to refuse cover.
Refusing cover, however, presupposes that the insured deliberately gave false information or concealed important information to cause a statement of will. The nullification of the insurance contract also applies if the insured deliberately maintains a state of ignorance that the information given was false.
The burden of proof with regard to misrepresentation is on the insurer. Generally, any false or concealed information provided to the insurer as answers to the insurer's questions in the insurance proposal is likely to be assumed to be of importance to the insurer.
However, if the insured at the time of concluding the contract was in good faith of any statements being untrue, he, she or it is entitled to cover under the policy pursuant to Section 5 of the Insurance Contracts Act.
In cases falling outside the scope of Sections 4 (fraud) and 5 (good faith) but where the insured nevertheless has presented the insurer with incorrect information before the issuance of the policy, the insurer is further free from liability in the event that it is established that the insurer would not have assumed liability had the information provided been correct. Vice versa, if the insurer is deemed likely to have been willing to assume the risk, albeit on different terms, had the information provided been correct, coverage attaches to the same extent as it would have had the insurer assumed the risk against payment of a true and fair premium fixed on the basis of having received correct information.
Increase in risk or insured's failure to comply with safety instructions
Another fairly common ground for refusal of cover giving rise to disputes is cases where the insured has participated in increasing the risk of the insurance event occurring.
In such cases, the insurer is entitled to refuse cover pursuant to Section 45 of the Insurance Contracts Act. Section 45 provides that cover may be refused if actions committed by the insured after the conclusion of the insurance contract increase the risk of a certain insurance event occurring. The right to refuse cover is, however, conditional upon the specific risk stated in the insurance contract and the insurer establishing not to have wanted to insure the risk under the given terms if the insurer had known about the circumstances leading to the increase in risk at the time the policy was concluded.
Consequently, coverage may be refused only if four cumulative criteria are met:
- the risk must be specified in the policy;
- the risk assumed by the insurer must have been increased as a result of the subsequent events referred to;
- the increase in risk must exceed what the insurer could have foreseen and taken into consideration when assuming the risk; and
- the increase in risk must wilfully have been caused by the insured.
Of practical relevance, Section 46 of the Insurance Contracts Act states that if the insured becomes aware of such an increase in risk and does not inform the insurer thereof, it is to be considered that the increase in risk was wilfully caused by the insured.
Insurance policies may furthermore impose obligations on the insured to observe certain safety instructions to prevent or limit certain risks or events from occurring. In the event that the insured negligently fails to observe these requirements, cover may be refused or limited, unless it is found that the occurrence of the insurance event and subsequent damage were not caused by any such non-observance.
The burden of proof in respect of refusing cover because of an increase in risk or the insured's failure to comply with safety requirements rests with the insurer. Refusal of cover is conditional upon the wording of the policy imposing the obligation on the insured being both unambiguous and clear.
Disregard of the insured's duty to mitigate losses
The insured has a general obligation to prevent or mitigate losses claimed under the policy. Furthermore, Section 51(1) of the Insurance Contracts Act imposes obligations on the insured to limit the extent of the insurance event. In the event of failure to fulfil this obligation the insurer's liability may diminish or cease entirely. Consequently, the insured must to the best of his or her ability take steps to prevent or limit the loss resulting from an insurance event. The loss prevention measures are to be instigated when the incident has occurred or when imminent risk of this exists. If the insured wilfully or grossly negligently fails to fulfil his or her obligations, the insurer is relieved from its liability in respect of covering the part of the damage caused by this omission.
Vice versa, if expenses are associated with fulfilling the insured's duty to mitigate the loss, the expenses will be recoverable under the policy.
Limitation in respect of insurance claims and direct claims
Insurance claims are subject to the statutory provisions of the Limitation Act, according to which claims are time-barred after three years, unless otherwise specified in other mandatory provisions. Insurance claims are furthermore subject to the specific rules on limitation provided for in Section 29(2)–(6) of the Insurance Contracts Act, which provides exceptions to the general rule applying specifically to insurance claims. In particular, Section 29(5), which implies an extension of the limitation period of notified insurance claims, has recently been subject to interpretation by the courts.
ii Insurable risk
According to Section 35 of the Insurance Contracts Act, any legal interest capable of being financially estimated may be made subject to indemnification by insurance. Danish law does not elaborate on or define when an interest may be deemed insurable. Therefore, general moral principles are often applied as guidance providing that it is, for instance, not possible to insure losses resulting from own criminal offences, payment of fines, etc., just as sentimental value cannot be made subject to insurance.
iii Fora and dispute resolution mechanisms
As briefly touched upon in the introduction to this chapter, insurance disputes are subject to the same provisions as other civil lawsuits. The relevant provisions are found in the Administration of Justice Act containing, inter alia, rules on court structure and venue. Accordingly, insurance disputes are settled in the same way as other civil disputes.
Rules on court procedure in Denmark
The Danish court system consists of 24 city courts, the Maritime and Commercial High Court, the High Courts of Eastern and Western Denmark and the Supreme Court. Provided that the claimant possesses procedural capacity, legal proceedings may be instituted by the filing of a writ of summons with the relevant competent court. Generally, the first court of instance will be the competent city court, unless the case, at the request of either of the parties or the city court itself, is referred to one of the two high courts. Referral is possible if the dispute in question is of fundamental legal importance and of general importance to the application and interpretation of the relevant law, or has significant societal implications in general. The Maritime and Commercial High Court is also regarded as a common court aligned with the city courts, although it is the only court in Denmark that specialises in, and therefore only deals with, certain types of commercial cases, typically involving foreign parties, which are commonly seen in insurance disputes.
The legal system is based upon a two-tier principle entailing that a party dissatisfied with a first instance ruling may appeal the decision to a higher court for a second hearing. Consequently, the judgments delivered by the city courts and the Maritime and Commercial High Court may be appealed to one of the two high courts, whereas judgments delivered by the high court may be appealed to the Supreme Court. Permission to appeal a case to the Supreme Court as a third-instance court requires permission from the Appeals Permission Board and may be obtained only if certain material requirements are met.
Principles of publicity, immediacy, contradiction and disposal
Disputes brought before a Danish court are subject to the principles of orality and publicity. These principles imply that legal proceedings are mainly carried out orally in hearings open to the public. Danish procedural rules are furthermore based upon a principle of immediacy of evidence and the parties' right to dispose of the matter in dispute. The parties preserve the right to decide which evidence to submit or witnesses to hear, etc., and only limited means in respect of disclosure of evidence are provided for (as opposed to the full discovery principles applicable in other jurisdictions).
Subsequently, the court is, in general, restricted to base its decision solely on the specific legal submissions and evidence presented by the parties. Furthermore, the parties may also decide to settle a dispute pending before the courts before the court proceedings are concluded.
Submission of evidence and use of expert opinions
Expert opinions may be obtained unilaterally by one of the parties, or at the request of one of the parties to the court. In the latter circumstance, the court appoints an expert to perform an expert opinion based on the parties' mutual questionnaire to be submitted to the court. The use of expert opinions in court cases has until recently been limited to the use of court-appointed expert opinion as provided for in the Administration of Justice Act. The courts put great emphasis and very often rely exclusively upon such court-appointed expert opinions to assess the facts when rendering decisions.
On 1 July 2017, changes to the regime of expert opinions came into effect. The aim of the amendments was to make the rules more flexible, implying that a party may now request the court to commission an expert opinion based on a set of questions provided solely by one of the parties. The other party may then present its own set of questions to the expert. Furthermore, the material matter may be made subject to more than one expert opinion if the court finds it justified. With the amendments, extended access was introduced to request a new expert opinion (second opinion). The assignment can either be carried out by the same expert or another court-appointed expert. In addition, the parties may under certain circumstances submit expert opinions to the court on technical matters commissioned unilaterally by a party. Such expert opinions may, however, be dismissed by the court if deemed factually or scientifically unreliable or of no practical relevance to the case.
Time frames for court hearings
In 2019, the average processing time of court hearings at the City Court of Copenhagen, including preparatory work, was 10 months. For appeal cases pending before the high courts, the average processing time was approximately 14 months. For disputes pending before the Supreme Court, the average processing time was approximately 10.5 months. Notwithstanding the above, more recent cases show that owing to the increasing complexity of insurance disputes, often involving foreign parties and substantial amounts of evidence, etc., these cases tend to take several years before the courts are able to hand down a decision.
If agreed upon between the parties, insurance disputes may be made subject to arbitration proceedings. Arbitration clauses concluded between an insurer and an insured consumer will, however, only be given legal effect if concluded after the occurrence of the event leading to the dispute. If the arbitration clause has been adopted into the insurance contract, any legal proceedings instituted before the courts will be dismissed.
i British American Tobacco v. Gerling Verzekeringen NV
The case brought before the Maritime and Commercial High Court concerned a Danish branch of British American Tobacco (BAT) that entered into a contract of carriage with Exel Europe LTD (Exel) for the transport of a shipment of cigarettes from Hungary to Denmark. The carriage was performed by Kazemier Transport BV (Kazemier). In Denmark, the goods were stolen during transport. Kazemier went bankrupt and BAT filed a lawsuit against Exel and Kazemier in England. The English courts dismissed the claim against Kazemier owing to lack of jurisdiction. BAT consequently brought a direct claim against Kazemier's liability insurer, Gerling Verzekeringen NV (HDI), in Denmark. The insurance contract contained a choice of venue and law clause stipulating Dutch law and courts. There is no legal basis for a direct action according to Dutch law.
The injured party relied upon Section 95(2) of the Insurance Contracts Act, which in some circumstances allows the injured party to bring a direct action against the insurer of the insolvent tortfeasor.
The Court decided that Danish law was to apply in respect of the question of jurisdiction and found that Section 95(2) of the Insurance Contracts Act allowed BAT to bring its direct action suit against HDI, in accordance with Article 13(2) and Article 12 of the Council Regulation. The Court referred to the Court of Justice of the European Union (CJEU) ruling in the Assens Havn case and the fact that the jurisdiction agreement between the insurer and insured did not apply to the injured party. Thus, the injured party was entitled to bring proceedings against insurers in Denmark according to national (Danish) law. The Maritime and Commercial High Court noted, in line with the Supreme Court, that the CJEU's decision to set aside the jurisdiction agreement was not conditional upon the injured party being financially or legally a weaker party. The fact that the injured parties were large international corporations had no bearing on the assessment. The decision was appealed directly to the Supreme Court; however, the Supreme Court refused to admit the appeal, stating that the requirements for allowing direct appeal on the grounds of principle and public interest had not been met.
ii Concordia Forsikring A/S and Tryg Forsikring A/S v. Danish State Railways
In a very recent matter of principal interest arising between the Danish State Railways (DSB) and two liability insurers, the Danish Supreme Court ruled on whether the DSB, a public institution, is to be considered a self-insurer as understood in the Liability for Damages Act Section 20 (compare with Section 19(1)).
In the case, a train owned by the DSB had collided with an untethered horse and the DSB suffered a property and business interruption loss of approximately 800,000 Danish kroner. The DSB had taken out business interruption and property insurance, but as the deductible under the policy was 25 million kroner and thus much higher than the 800,000 kroner claimed as damages, the claim was not covered by the business interruption and property insurance. The horse owner had taken out mandatory liability insurance. Consequently, the DSB raised a claim in tort against the horse owner's liability insurers.
The liability insurers claimed that because of the high deductible of 25 million kroner, the DSB was to be considered a self-insurer, and thus according to the Liability for Damages Act Section 20 (compare with Section 19(1)), the claim in tort against the horse owner would lapse. Hence, the question for the Supreme Court was whether the high deductible made the DSB a self-insurer despite having a comprehensive insurance programme.
The Supreme Court ruled that the DSB was not to be considered a self-insurer. According to the preparatory works, a public institution is self-insured, in general, if it consequently refrains from taking out insurance. On that basis, a public institution is not generally to be considered self-insured if it takes out insurance with a high deductible, taking on the risk of losses below the deductible.
The international arena
The jurisdiction of the Danish courts to settle insurance disputes involving an insurer situated in an EU Member State is regulated by the Brussels I Regulation, whereas the jurisdiction of the Danish courts to decide on the matter is regulated by the Administration of Justice Act, provided that the company is situated outside the EU.
ii Choice of law
Insurance disputes often involve parties from different jurisdictions. However, the Insurance Contracts Act does not contain any provision stating to which extent the law applies to insurance contracts entered into with companies in foreign jurisdictions. Therefore, Danish private international law on insurance contracts is applicable.
Choice of law clauses in contracts are usually governed by the Rome Convention. However, insurance contracts are governed by EU directives. The directives have been implemented by a ministerial order providing that the rules of the EU directives precede the choice of law rules laid down in the Rome Convention. Consequently, if the insurance company is situated in another EU Member State, the choice of law is governed by EU Directives, whereas the choice of law in respect of companies situated outside the EU is governed by the Rome Convention.
iii Enforcement of foreign judgments and arbitration awards
Denmark has ratified the Convention on the Recognition and Enforcement of Foreign Arbitral Awards from 1958 (the New York Convention), which renders it possible to enforce foreign arbitral awards in Denmark.
As of 1 September 2018, the new Hague Convention of 30 June 2005 on Choice of Court Agreements has been in force in Denmark. It matches the main structure of the New York Convention to the effect that foreign judgments rendered in countries that have ratified the new Hague Convention may also be enforced in Denmark. Because of the rules in the Brussels I Regulation regarding insurance contracts, Denmark and the rest of the European Union have agreed to issue a declaration in which they exclude cases concerning insurance contracts to ensure that the Brussels I Regulation will not be circumvented.
Trends and outlook
As it appears from the above, recent cases have revolved around choice of law and jurisdiction clauses in insurance contracts and whether these apply to third-party actions. Owing to the bankruptcy of Gable Insurance AG and a Danish political agreement to intervene and protect 26,000 Danish homeowners from being left without insurance coverage, the Guarantee Fund for Non-life Insurance has initiated legal proceedings before the City Court of Copenhagen against the estate of Gable Insurance AG and others. The claim is announced to be for 96 million kroner. The Eastern High Court has accepted the matter as a matter of principle and public interest and the case is now pending before the Eastern High Court. These proceedings will comprise issues in respect of choice of law and how to apply international private and procedural law in cases where the insurance company is bankrupt. Thus, insurance litigation in Denmark will continue to explore the field of insurance law.