The Insurance Disputes Law Review: Portugal

Overview

In Portugal, the state is the uncontested leader in dispute resolution. In fact, the majority of conflicts are resolved through the legal system, supported by a large network of courts with specific and complex procedural rules; however, the lack of efficiency in the public system means the importance of arbitration and other alternative dispute resolution methods is increasing significantly.

There are three levels of jurisdiction in Portugal: first and second instance courts and the Supreme Court. At first instance level, there are specialised courts for specific matters, such as civil, criminal, commercial, labour, family, competition and intellectual property rights courts.

Bearing in mind that the main problem of dispute resolution in Portugal is still the length of time proceedings usually take, in recent years the state has actively amended the legal system – not only implementing procedural rules, but also improving infrastructure (new courts, new technologies) and modifying the judicial structure to respond to the increase in litigation and improve the effectiveness and the degree of specialisation of the courts and judges.

There were no major judicial reforms carried out in 2020. As was the case in previous years, it was a year of stabilisation for legislation that has been in force since 2013 and 2014. This legislation is still not proving as effective in reducing the length of proceedings as expected, with the exception of procedures in the appeal courts.

The legal framework

i Sources of insurance law and regulation

The Portuguese Insurance and Pension Funds Supervisory Authority (ASF) is the competent authority for the regulation and the prudential and behavioural supervision of insurance, reinsurance, pension fund (and corresponding managing entities) and insurance and reinsurance intermediation activities.

The main goal of the ASF is to ensure the sound functioning of the Portuguese insurance and pension funds markets by contributing to the protection of the interests of the policyholders, insured persons and beneficiaries. This goal is pursued by promoting the financial stability and soundness of all institutions under its supervision, as well as ensuring the maintenance by all market operators of high standards of conduct.

The taking up and pursuit of the insurance and reinsurance business is a regulated activity reserved for duly authorised insurance undertakings by the ASF.

Statutory law is the main source of law in the Portuguese legal system. Custom is also deemed a source of law in the Portuguese legal system to the extent that it is not contrary to the general principle of good faith. However, there are very few situations in which it is accepted that an implemented solution had custom as its source. There is, therefore, a stark contrast between the importance attributed to custom and the practical relevance it actually assumes.

Case law and doctrine play a secondary role (although an important one), even where principles are concerned, as sources of law in the Portuguese legal system. They are used exclusively as a means of disclosing (or identifying or clarifying) pre-existing legal standards or solutions, generally from a legal source. Case law precedents are not binding and the very same issue could receive different treatment from one court to the next.

The main Portuguese insurance and reinsurance statutes and regulations are:

  1. Law No. 147/2015 of 9 September (Law No. 147/2015), as amended, implementing into Portuguese law the Solvency II Directive, which sets out the main rules on, inter alia:
    • authorisation of undertakings;
    • solvency and other financial guarantees;
    • suitability and appropriateness of directors;
    • acquisition of qualifying holdings;
    • systems and controls for the conduct of the insurance and reinsurance business;
    • protection of policyholders, insured persons and beneficiaries (e.g., resolution of complaints); and
    • the inspection and sanction of infractions;
  2. the Portuguese legal framework for insurance contracts, enacted by Decree-Law No. 72/2008 of 16 April (RJCS);
  3. the Portuguese Commercial Code (in respect of marine insurance);
  4. the Portuguese Civil Code;
  5. Law No. 35/2018 of 20 July,2 which implemented into Portuguese law EU Directive 2014/65/EU on markets in financial instruments and, notably, brings Portuguese legislation in line with the EU PRIIPs Regulation3 on packaged retail and insurance-based investment products;
  6. the regulations issued by the ASF;
  7. the special legislation dealing with compulsory insurance;
  8. the special legislation dealing with consumer protection (including the Portuguese unfair contract terms act); and
  9. the special legislation dealing with distance and off-premises contracts.

Furthermore, Decree-Law No. 56/2021 of 30 June recently implemented into Portuguese law EU Directive 2019/21774 and EU Directive 2020/1504,5 amending the above-mentioned Law No. 147/2015 with a view to strengthening the framework for cooperation between national supervisors and the European Insurance and Occupational Pensions Authority, particularly in relation to cross-border activity.

In addition, pension funds and their managing entities are governed by Law No. 27/2020 of 23 July implementing into Portuguese law Directive (EU) 2016/2341 on the activities and supervision of institutions for occupational retirement provision.

The pursuit, on a professional basis, of insurance distribution activity in the Portuguese territory is deemed a regulated activity reserved exclusively to duly authorised insurance distributors. Foreign distributors may only pursue insurance distribution activities within the Portuguese territory if the corresponding procedure for the pursuit of the insurance distribution business under the freedom to provide services or right of establishment rules (as the case may be) is duly met (in accordance with the single-licence principle).

Insurance and reinsurance distribution activities are governed by Law No. 7/2019. The ASF is currently working on the revision of several regulations regarding insurance and reinsurance distribution activities following the entry into force of Law No. 7/2019.

ii Insurable risk

Under Portuguese law, the risk can be defined as the future and uncertain event whose materialisation is represented by the claim.

Although usually identified as a detrimental event resulting in damages, the risk may correspond to the occurrence of a predetermined event that may not necessarily give rise to damages (e.g., the survival of the insured person in a life insurance contract).

The existence of risk is essential for the insurance contract: the insurance contract is null and void if, at the time the contract was concluded, the insurer was aware of the termination of the risk or if the insured person or the policyholder was aware of the existence of the claim.

In essence, there is no insurance without risk.

However, given that the risk is essential to the validity of the insurance, it is also subject to negative constraints.

First of all, insurable risks must fall within the classes expressly provided for in the legislation; therefore the risks in each class will not be covered by insurance policies from another class.

Aside from this generic limitation, the conclusion of insurance contracts with respect to the following risks is prohibited by law:

  1. criminal, administrative or disciplinary liability (this prohibition does not extend to any civil liability arising therefrom);
  2. kidnapping, illegal restraint and other crimes against personal liberty;
  3. possession or transportation of narcotics or drugs not allowed for consumption; and
  4. the death of children under 14 years of age or the death of those who, because of cognitive impairment or other causes, are unable to govern their person (note that insurance against the risk of death of a child under 14 years of age as a result of an accident is not prohibited, provided it is concluded by educational, sporting or similar institutions that do not benefit from it).

The prohibition referred to in points (b) and (d) above do not cover the payment of strictly compensatory benefits.

Only limited liability companies by shares, mutual or public institutions may obtain an insurance authorisation from the ASF. Companies that take the form of a European company may also pursue insurance and reinsurance activities.

Insurance undertakings based in the EU that are duly authorised for the pursuit of their insurance activity within their country of incorporation may pursue that insurance activity in Portugal under the EU freedom of establishment regime (as a branch) or on a freedom to provide services basis (without a permanent establishment in Portugal) without the need to obtain a specific authorisation from the ASF. The only requirement is that the ASF is duly notified of the establishment of the branch or the commencement of activity on a freedom to provide services basis by the competent supervisory authority of the relevant home Member State, in line with the EU passporting regime.

In turn, if an insurance undertaking incorporated outside the EU wishes to establish a branch in Portugal, it is required to obtain prior authorisation from the ASF.

Notably, following Brexit, UK insurance undertakings no longer benefit from the European passporting regime and therefore need to obtain prior authorisation from the ASF to operate in Portugal by means of a third-country branch.

The fact that an insurance undertaking is operating on a cross-border basis has no material impact on dispute resolution except for the fact that, as a general rule, the insured person may elect to bring a claim against the insurer in its home country.

iii Fora and dispute resolution mechanisms

Portuguese insurance undertakings must receive and resolve any claims or complaints that are filed against them within the deadlines imposed by law. To this effect, insurance undertakings are required to put in place a written internal regulation on the management and settlement of complaints.

If the insurance undertaking fails to reply within these deadlines, or denies the claim or complaint, the interested party may file an appeal with the consumer ombudsman (who must be appointed by the insurance undertaking or a group of insurance undertakings), who must handle and resolve the claims and complaints submitted to him or her within the deadlines imposed by law. Insurance undertakings must appoint a preferred interlocutor between the ASF and the consumer ombudsman, and the identity of the consumer ombudsman must be disclosed to the policyholders, insured persons, beneficiaries or any other interested party. After this period has elapsed, if the insured's claim or complaint is not answered or is dismissed, the claimant can submit a grievance to the complaints service of the ASF. The policy must indicate the insured's right to proceed in this way.

Also, any insurance undertaking with customer service desks in Portugal must have a complaints book available to all customers at each service desk.

The competent court for any dispute arising out of or in connection with an insurance contract shall be the court of the defendant's domicile. Alternatively, for any dispute filed by the policyholder, the insured or the beneficiary against the insurer, the competent court shall be that of the plaintiff's address.

Insurance-related disputes are subject to the general Portuguese civil procedure, which may be characterised as an adversarial procedure with a preference for oral expression and observing certain fundamental principles, such as the right of access to justice, the right to a reasonable duration of proceedings and the right to a fair trial (the principle of equity).

Both civil and criminal proceedings comprise a series of different stages. Generally, proceedings are initiated by the parties submitting pleadings, followed by a stage at which evidence is provided. Subsequently, the trial takes place and the court issues its decision. Finally, the parties can appeal the judgment, provided that certain conditions are met.

Despite the above, the new Civil Procedure Code stipulates that all witnesses must be presented at the time of the submission of the pleadings.

There are two kinds of civil proceedings: declarative and enforcement. Through the former, the court's decision has res judicata effect and the court decides on the merit of the litigation between the parties. Enforcement proceedings may serve three purposes: the payment of an amount; the delivery of a certain object; or forcing the counterparty to carry out a certain action.

Ordinary declaratory proceedings in Portugal may take from one to three years until a final court decision is issued, while enforcement proceedings may take from one to two years.

Subject to the exceptions provided for in the law, each party bears the burden of proving those facts supporting his or her claim in the proceedings.

The courts have wide discretion when assessing evidence, subject to reasoning founded on the applicable law and the relevant facts.

Court costs are to be advanced by both parties. The winning party may claim from the losing party the judicial fees that were paid during the proceedings. The winning party may have to pay additional amounts at the end of the proceedings and claim the corresponding reimbursement from the losing party.

Arbitration continues to flourish in Portugal. Parties have progressively added arbitral agreements to contracts and there is a general sense that Portugal may become a privileged forum for arbitrations between companies based in Portuguese-speaking countries such as Brazil, Angola and Mozambique. On 15 March 2012, a new Arbitration Law entered into force, replacing the former Portuguese Arbitration Act.

The 2012 Arbitration Law was rather innovative, drawing inspiration from the 2006 version of the UNCITRAL Model Law, and it introduced provisions intended to grant more flexibility with regard to the formal validity of an arbitration agreement, making it simpler to comply with the written form requirement.

After almost nine years since the entry into force of the Arbitration Law, it is reasonable to state that it has increased flexibility in Portuguese arbitration and facilitated the increasing number of arbitral agreements included in contracts.

The leading arbitral centre is the Arbitration Centre of the Portuguese Commercial Association. With regard to foreign arbitration, Portugal is party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

Although alternative dispute resolution is starting to develop in Portugal (both mediation and, in particular, tax arbitration), it is rarely used in insurance matters.

Recent cases

Pursuant to Decree-Law No. 446/85 of 25 October establishing the legal framework applicable to standard contract terms and conditions (LCCG), for a contractual term to be deemed as being subject to this legal framework, the addressee must be unable to influence the content of that term.

According to Article 3 of the RJCS, the LCCG is applicable to insurance agreements. However, any clauses that do not qualify as general contractual terms (i.e., clauses that are not of a general nature and that have been individually negotiated with the client) are excluded from the scope of application of the LCCG and, consequently, exempted from its requirements.

In this context, there are certain types of specific documents commonly used in insurance, such as payment notices and premium receipts, accident reports and indemnity receipts, account statements, any general statements of a scientific or technical nature, miscellaneous correspondence, etc., which do not, as a rule, contain contractual terms and therefore would not fall within the scope of application of the LCCG in principle.

As these clauses are not negotiated in advance, compliance with the information and communication duties imposed by the LCCG is fundamental, especially with insurance, as Article 22 of RJCS imposes specific rules on these matters.

In one recent case, a declaratory action was brought by a temporary employment company against an insurance undertaking, seeking a declaration that there was no right to payment under the premium adjustment clause of an insurance contract, because of a breach of the information and communication obligations. For this purpose, the plaintiff claimed that it never actually became aware of the problematic adjustment clause altering the contract, as it was included in a small section called 'Other declarations'.

To clarify these information and communication obligations, the court ruled that it is important to take into account not the subjective level, but rather an objective parameter that corresponds to a standard of reasonableness and that is proportionate to the consequences the parties may suffer as a result of the disparity between them in terms of power.

The court also clarified that, in light of the principle of reasonableness, the information must be transmitted by efficient means and its content must be adequate, and the court reaffirmed the importance of a 'broad concept of informing', encompassing not only the duty to inform strictu sensu (merely informing the counterparty of the essence of the clause), but also the duty to advise (providing guidance on the best conduct to adopt) and the duty to warn.

Recently, Law No. 32/2021 of 27 May (Law No. 32/2021) amended the LCCG by imposing new formal requirements that, basically, specify a formal aspect of the duties of information and communication.

In particular, Law No. 32/2021 establishes that general contractual terms written (1) in a font smaller than size 11 or 2.5 millimetres, and (2) with a line spacing of less than 1.15 are absolutely prohibited. From a literal interpretation of this provision, a general contractual term would only be deemed prohibited if it failed to meet both requirements (i.e., font smaller than size 11 together with line spacing of less than 1.15).

However, as regards pre-contractual information, certain provisions of the RJCS require the insurer to provide the potential policyholder with a significant amount of information in writing before the latter becomes contractually bound.

Nevertheless, in this context, according to a reputed Portuguese legal scholar, the new format requirements introduced to the LCCG by Law No. 32/2021 are not applicable to pre-contractual information, given that the purpose of this information is to apprise the prospective customer about the contract rather than govern the relationship between the parties.

The international arena

As a general rule, the parties are entitled to agree on the jurisdiction to settle legal or contractual disputes, provided that the dispute concerned is connected to more than one legal jurisdiction. However, this freedom of choice does not allow a competent jurisdiction to be chosen if it puts one of the parties at a material disadvantage in relation to the other party and that other party has not stated a legitimate interest in that choice of jurisdiction.

The international jurisdiction of the Portuguese courts is subject to the following requirements:

  1. the defendant is, or some of the defendants are, domiciled in Portugal, except in the case of actions relating to rights in rem or personal rights to make use of immovable property located in a foreign country (a legal person whose registered office or effective centre is located in Portugal, or that has a branch, agency or subsidiary in Portugal, is considered to be domiciled in Portugal);
  2. the action should be proposed in Portugal, in accordance with the rules of territorial jurisdiction established under Portuguese law;
  3. the fact that constitutes the cause of action, or facts contributing to it, has or have been performed in Portugal; and
  4. the right invoked cannot be enforced except by means of an action proposed in Portugal or (if there is no legal requirement for the claimant to pursue the action abroad) the subject matter of the dispute and the national legal order have some important personal or real connecting factor (in accordance with Article 62 of the Portuguese Code of Civil Procedure).

International jurisdiction is governed at the Community level by the 1968 Brussels Convention on jurisdiction and the enforcement of judgments in civil and commercial matters (the Brussels Convention).

The Brussels Convention is applicable in the following situations:

  1. in a civil or commercial matter;
  2. in a dispute that has an international element;
  3. when the defendant is domiciled in a contracting state, otherwise the jurisdiction shall be regulated by the contracting state's law;
  4. when a matter is not regulated by another specific convention; or
  5. when it is not a bankruptcy or arbitration matter.

Articles 7 to 12-A are devoted to jurisdiction in matters relating to insurance and they are drafted with the purpose of protecting the policyholder, as shown below:

  1. the insurer domiciled in a contracting state may be sued in the courts of the mentioned state, the courts where the insurer is domiciled or, in the case of a co-insurer, the courts of the contracting state where the action is going to be taken;
  2. in the case of indemnity or real estate-related insurance, the insurer may be sued in the courts of the state where the harmful event occurred;
  3. in the case of indemnity insurance, the insurer may also be sued in the courts where the action was proposed, provided that the law of the court permits it; and
  4. the insurer can only bring proceedings against the defendant (policyholder, insured or beneficiary) in the courts of the contracting state in which the defendant is domiciled.

It is not clear whether the jurisdiction in matters relating to the insurance section of the Brussels Convention applies only to direct insurance or whether it extends to reinsurance. However, the section related to insurance is specifically dedicated to the policyholder's protection, which is of particular relevance in direct insurance, whereas, in contrast, in cases of reinsurance there is no substantial difference between the parties' interests to warrant an emphasis on policyholder protection (which could merely be inferred from the Convention).

Within the EU, Council Regulation No. 1215/2012 of 12 December 2012, as amended, sets out the conditions on which a judgment (concerning civil and commercial matters) issued in one Member State can be enforceable in another.

Therefore, pursuant to this Regulation, a judgment issued in a Member State and enforceable in that Member State may be enforceable in Portugal when, upon application by the interested party, it has been declared enforceable. The application for enforceability is filed with the competent superior court.

Without prejudice to international conventions and treaties in force (for instance, the Lugano Convention), under Portuguese law, it is generally possible to enforce foreign court civil judgments provided that they are subject to a prior confirmation procedure before a Portuguese court. The confirmation will be granted whenever:

  1. there are no well-grounded doubts concerning either the authenticity of the submitted documents or the soundness of the decision;
  2. the decision is final according to the law of the country where the judgment was rendered;
  3. the object of the decision does not fall within the exclusive international jurisdiction of Portuguese courts and the jurisdiction of the foreign court has not been determined fraudulently;
  4. there are no other proceedings between the same parties, based on the same facts and having the same purpose, and no ruling on the same case has been issued by a Portuguese court;
  5. the defendant was duly notified of all the proceedings according to the law of the country where the judgment was rendered;
  6. the foreign court proceedings complied with the procedural law requirements and each party received an adequate opportunity to present its case fairly; and
  7. the acknowledgement of the decision is not patently incompatible with the public policy of the Portuguese state.

Trends and outlook

The greatest criticism of the Portuguese legal system is the length of time proceedings take. Furthermore, during the past decade, the annual number of actions filed before court has increased dramatically. In light of the above, both civil society and the government have been encouraging the promotion of alternative dispute resolution (ADR) mechanisms, namely arbitration, mediation, conciliation and resolution by justices of the peace. In 2001, the government created the Office for Alternative Dispute Resolution, a department of the Ministry of Justice exclusively dedicated to ADR.

Apart from arbitration, mediation and conciliation, the most popular form of ADR is conducted by justices of the peace, who are governed by Law No. 78/2001 of 13 July 2001,6 and numerous centres have been created under the supervision of a special commission. Justices of the peace are only available to settle disputes among individuals and have jurisdiction on civil matters purporting to small claims (up to €15,000). Under the legal framework on justices of the peace, legal persons may now resort to mediation (excluding class actions) and preliminary injunctions are now available.

In Portugal, the Insurance Information, Mediation and Arbitration Centre functions as a private non-profit association with the purpose of making available alternative dispute resolution mechanisms for insurance-related matters. To this effect, the Centre created two independent and autonomous procedures: an insurance mediation and arbitration service and an insurance consumer ombudsman service.

Since the entry into force of Law No. 7/2019, all insurance distributors (i.e., any insurance intermediary, ancillary insurance intermediary or insurance undertaking) must be registered with an ADR service, as defined under Law No. 144/2015 of 8 September, which implemented into Portuguese law Directive 2013/11/EU on alternative dispute resolution for consumer disputes.

Apart from the above matters, the current year, much like the previous one, has not seen many legislative reforms to the judicial system.

By way of example, a law was passed towards the end of 2017 reinstating over 20 first instance courtrooms with a view to reducing the number and duration of civil actions in civil courtrooms.

However, notwithstanding the slight improvement observed in recent times, this is still an unresolved issued that insurance undertakings have to deal with in the Portuguese market.

Footnotes

1 Pedro Ferreira Malaquias is a partner and Hélder Frias is a counsel at Uría Menéndez – Proença de Carvalho.

2 Among other things, Law No. 35/2018 establishes that the ASF is the supervisory authority for unit-linked life insurance contracts and operations.

3 Regulation (EU) No. 1286/2014 of the European Parliament and of the Council on key information documents for packaged retail and insurance-based investment products (PRIIPs).

4 Directive (EU) 2019/2177 of the European Parliament and of the Council of 18 December 2019 amending Directive 2009/138/EC on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II), Directive 2014/65/EU on markets in financial instruments and Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money-laundering or terrorist financing.

5 Directive (EU) 2020/1504 of the European Parliament and of the Council of 7 October 2020 amending Directive 2014/65/EU on markets in financial instruments.

6 As amended by Law No. 54/2013 of 31 July, which widened the scope and jurisdiction of justices of the peace.

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