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7. Legal Developments
ARGENTINA
Summary of an article entitled “The Human Genome Project: its effect on employment and insurance relations” by Eduardo Mangialardi
(Please click here to view the full article in Spanish) In this article, Eduardo Mangialardi (“EM”) looks at the ethical dilemmas posed by the Human Genome Project (“HGP”) in the world of insurance and employment. EM observes that the HGP, a worldwide investigation to find the precise location of the 50,000 to 100,000 genes which are estimated make up the human genome, coupled with inadequate anti-discrimination laws, may allow sensitive genetic information regarding a person’s propensity to develop certain illnesses to fall into the hands of unscrupulous insurers and employers. EM says that this threatens to give rise to a new class of “living dead” who are denied access to insurance (certainly without paying exorbitant premiums) and employment.
EM notes that while Argentine law prohibits discrimination on grounds of race, religion, nationality, ideology, political opinion, sex, economic position, social standing and physical characteristics, it does not protect against discrimination based on genetic makeup. EM reports that various US states – namely Arizona, Florida and Wisconsin – have addressed the issue of genetic discrimination but, in EM’s opinion, unsatisfactorily. Arizona has established some protection for insureds and employees by including genetic illnesses under the prohibition of unjust discrimination, but still permits insurers to take into account genetic risks which may substantially affect their actuarial forecasts. In Florida, although DNA testing cannot be undertaken – or the results of such testing revealed – without the informed consent of the person being tested, employers and insurers are at liberty to use any results to which they are allowed access to determine eligibility and premiums. Insurers in Wisconsin have no right to make it a condition of coverage that the potential insured undergoes genetic testing, or to base premiums on the results of any genetic tests. However, these restrictions do not apply to life insurance companies – where, EM argues, genetic information acquires most relevance – whose only obligation is to behave reasonably when establishing premiums based on genetic data.
Not even UNESCO’s Universal Declaration on the Human Genome Project and Human Rights No. 29C/21 of September 1997, EM argues, subscribed to by almost 100 countries, puts individual rights ahead of business interests. On the one hand, the Declaration prohibits genetic testing without consent, unless the person in question is not able to express such consent – in which case the testing must be shown to produce a direct benefit on that person’s health. On the other hand, testing without consent may be sanctioned even where no direct benefit to the health of the person being tested may be shown, so long as the risk is “minimal”, and there would be a direct benefit for a group of people of a particular age or with similar genetic conditioning. EM notes that Argentine legislation often allows the economic interests of business entities to prevail over the personal interests of individuals.
EM concludes that the HGP represents a notable scientific advance to humanity which should not be used as a tool for discrimination.
Translated and summarised by Yasmin Lilley of Barlow Lyde & Gilbert
Insurers in Liquidation and Reinsurance Contracts
A paper published in El Derecho on 13 July 2004
(Please click here to view the article in Spanish)
In this paper, I will address some of the questions faced by insurance companies which are dissolved and put into liquidation by the National Superintendence of Insurance (articles 48 and following of Law 20.091). In such cases, a delegated representative acting on behalf of this controlling authority manages the liquidation in conjunction with an ordinary competent judge (article 51 of the above law). If the prerequisites for a declaration of bankruptcy exist, the judge will provide for the dissolution and liquidation of the entity on behalf of the controlling authority (article 51). In the specific case of a liquidation which occurs as a result of revocation of authority to operate, the controlling authority will settle accounts with creditors and will have all the powers of a liquidator (article 52).
As may be noted from these articles, the National Superintendence of Insurance has special powers where liquidated insurers are concerned. This is a result of the peculiarities of insurance business and of the public interest at stake. It may be said, therefore, that the control and supervision of insurance activity exercised by a national state organ continues even after authorisation to operate has been revoked from insurance entities which have been prohibited from pursuing voluntary administration and bankruptcy (article 51). This principle should be taken into account when considering the different situations which generally arise on the liquidation of insurance entities.
As a financial business, insurance activity demands the involvement not only of insurers, but also of reinsurers. The existence of reinsurers and the role that they play in insurance activity are little known for two reasons. The first is that until fairly recently (1992) reinsurance activity was monopolised by the National Institute of Reinsurers (NIR), a state entity now in liquidation. The second is that the reinsurer has no direct relationship with the assured, given that it enters into contracts with the insurer. Similarly, the assured lacks any legal right to bring an action against the reinsurer (article 160 of Law 17.418). The direct result of the disappearance of the NIR was that insurers turned to private reinsurers – local as well as foreign – in order to reinsurer their risks. It is appropriate at this point to explain, in general terms, the role which reinsurers play in insurance activity.
For economic, financial and legal reasons, insurers may only issue policies covering risks which their assets and reserves allow them to. Insurers may, however, take on greater risks by ceding part of the risk to a reinsurer, along with part of the premium which they receive from the assured. The diverse types and forms of reinsurance contract, and the various forms of managing the insurer-reinsurer relationship, is beyond the scope of this paper. For current purposes, it is sufficient to note what has been said above – namely that an insurer may insure all or part of the risk which it takes on with a reinsurer.
A further explanation is now necessary in order to understand the questions which arise with regard to the contractual relationship between a liquidated insurer and its reinsurer. Law 20.091 grants authority to the National Superintendence of Insurance to control and supervise all legal, contractual, economic, financial and accounting aspects of insurance activity. This Law obliges insurers to inform the National Superintendence of Insurance of the types of reinsurance contracts which they enter into, in compliance with regulatory rules on acceptable reinsurers, the intervention of registered intermediaries and other information on such contracts. In addition, accounts with these reinsurers should be registered in the insurers’ commercial records. Reinsurance contracts are generally for an extended duration, or for a duration capable of being extended, so that for as long as insurers are “in bonis” and there is no rescission, a stable and long-lasting relationship may be established between the parties.
When an insurer is put into liquidation by a decision of the controlling authority, the situation changes dramatically. In addition to the natural effects of the liquidation on existing contracts, the result is that final accounts remain pending – i.e. the settlement of debits and credits resulting from the contract. From the insurer’s point of view, it is not possible to make payments to its reinsurer, but the obligations deriving from existing contracts remain until a declaration of liquidation has been made.
This is where liquidation leads to hurdles, as the bankrupt insurer usually lacks the documentation permitting the controlling authority – which, as has been noted earlier, carries out the role of liquidator – to work out the credits and debts of the liquidated entity vis-à-vis its reinsurers with any certainty. In addition to the lack of supporting documentation, it is also impossible to reconstruct it. The only certain and legal figure arises from the balance sheets which the insurers are obliged to file with the controlling authority. However, this sheds little light on determining the insurers’ credits and debts vis-à-vis reinsurers, as the balance sheets are usually presented and published in circumstances where there is a considerable delay between the liquidation being ordered by the Superintendence and the moment at which they are considered judicially. On the other hand, reinsurers generally prefer to cut their losses by payment of an agreed sum. I will return to this point below.
By virtue of its legal powers and obligations, the National Superintendence of Insurance decided to confront the situation where liquidated insurers are in credit with their private reinsurers (as opposed to the NIR). To that end, discussions were entered into with various reinsurers to try to find ways of liquidating existing accounts between reinsurers and the liquidated insurers. I return here to something which I mentioned beforehand, which deserves an explanation. As with every contract, a reinsurance contract can be set aside by the parties where the way of doing so is set out in the contract itself. The parties can rescind a contract expressly or impliedly, but where the contract is of a conditional nature, with obligations fulfilled and not fulfilled by the parties – but which will reasonable be fulfilled in the future – there are special situations in the case of insurers “in bonis” which become complicated in the case of liquidated insurers.
How does a reinsurance contract normally work? Remember that the obligations of the reinsurer are to pay the insurer part of the claims of the insurer’s insureds or third parties so as to satisfy the relationship between the insurer and its insured. In addition to paying the price (premium) of the reinsurance to its reinsurer, the main obligation of the insurer is to inform the reinsurer, within contractually established periods, of the existence of claims (accidents) made by the insureds or third parties. When the reinsurer indemnifies its reinsured (insurer), this means that part of the reinsured sum is consumed. If the insurer wishes to maintain the originally agreed figures, then another credit is generally created in favour of the insurer.
As has been said, in the case of insurers “in bonis”, any rescission (which in insurance jargon is referred to as “cut-off”), is carried out with reference to all the documentation necessary to prove the existence of claims by insureds or third parties and their communication to the reinsurer by the insurer, and to the settlement of accounts between insurer and reinsurer. Finally, the parties agree a sum which discharges the reinsurer from any further liabilities. This sum should at least correspond with the reserve put aside for accidents which have occurred and been informed (on this issue see the valuable contribution to the national doctrine made by Domingo M. López Saavedra and Héctor A. Perucchi in “The reinsurance contract and issues of public liability and insurance”, edited by La Ley in 1999, especially pages 149 and 150).
However, in the case of reinsurance contracts covering risks which can go on in time (known as “long tail” risks), there is usually added to the figure agreed between the parties another figure, which varies according to the risks and market concerned, to cover accidents which may have happened and which have not been communicated to the insurer. This figure is known by the initials IBNR, which stands for “incurred but not reported”, and refers to accidents which may have occurred but not been informed. This is how “commutation agreements” between insurers and reinsurers are entered into. As pointed out above, the work necessary to reach a decision in the case of liquidated insurers – especially on whether or not they are in credit with their reinsurers – becomes impossible in the absence of documentation and a person with knowledge of the facts (liquidators appointed by the Superintendence, for example, lack the information which is necessary in order to act).
In the case of one liquidated insurer, the National Superintendence of Insurance considered it appropriate (using its legal powers and obligations outlined above) to agree a cut-off with one of the reinsurers involved. In order to do this, it took into account certain peculiarities of the case of the liquidated insurer and the result of the process of checking the credit status. The insurer in question had been through a long period of voluntary liquidation – through the procedure set out in article 50 of Law 20.091 – after which forced liquidation was ordered. This meant that documentation such as notices of accidents to reinsurers was not available. However, the last published and available balance sheet was significant. The figure which was finally agreed covered all of the verified credits, took into account the credit registered in the last published balance sheet and, finally, incorporated the Superintendence’s statistics which compared the percentage of verified accidents against the figure for reserved accidents set out in the balance sheet. As a result, the figure for accidents duly reported – and therefore capable of being demanded of the reinsurer as its only contractual obligation – was much lower than the sum agreed between the reinsurer and the Superintendence.
In conclusion, the system of control and supervision of insurance activity in our country, which stands governmental authority (the power and obligation to protect public confidence and its diverse interests, among other things) on its head, coupled with the peculiarities of the process of insurance liquidation, makes it necessary and appropriate that the National Superintendence of Insurance should be the body to reach reasoned decisions on the appropriateness of the commutation agreements entered into between liquidated insurers and reinsurers, leaving legal control in the hands of the intervening judge.
Guillermo V. Lascano Quintana
Rosario
Translated from the Spanish by Yasmin Lilley of Barlow Lyde & Gilbert
CZECH REPUBLIC
Transfer of Rights to the Insurer according to § 33 of the law on Insurance Contract, No. 37/2004 Coll., which shall come into effect on 1 January 2005.
(1) If the beneficiary, the insured or a person that incurred salvage costs became entitled, in connection with an impending or existing insured event, to damages payable by another party or to another similar right, this right shall be transferred to the insurer upon the payment of insurance benefits up to the amount paid by the insurer under the private insurance to the beneficiary, the insured or the person that incurred salvage costs.
(2) If the right referred to in paragraph 1 was transferred to the insurer, the stipulation of § 450 of the Civil Code shall apply adequately for its exercising. For reasons which merit special consideration, a court shall make a reasonable reduction in the compensation for damage. No decrease may be applied if the damage was intentionally caused.
(3) The rights referred to in paragraph 1 shall not be transferred to the insurer against individuals who share a household with the beneficiary, the insured or the person that incurred salvage costs or who are dependent upon them. However, the above shall not apply if such individuals caused the insured event deliberately. According to § 115, a household consists of natural persons who live together permanently, and jointly cover the costs of their daily needs.
(4) The beneficiary, the insured or a person that incurred salvage costs shall be obliged to behave in such a manner so as to allow the insurer to exercise, against a third party, his right to damages or another similar right arising in favour of the beneficiary, the insured or the person that incurred salvage costs in connection with the insured event.
(5) If the beneficiary, the insured or a person that incurred salvage costs waived their right to damages or other similar right or failed to exercise this right in time or otherwise frustrated the transfer of their claims on to the insurer, the insurer shall be entitled to reduce insurance benefits up to the amount that he might have otherwise recovered unless provided otherwise by this Act.
(6) If the consequences of the behaviour referred to in paragraph 5 are manifested only after the payment of insurance benefits, the insurer shall be entitled to a refund of insurance benefits up to the amount that he might have otherwise recovered.
M.Wawerkova
Prague, August 2004
GREECE
Recent developments in the Greek legal system regarding supervision of insurance companies
A recent Greek Law, 3229/2004, on State Supervision of Private Insurance establishes a new public body named “Supervisory Commission on Private Insurance”, which undertakes supervisory duties over insurance and reinsurance companies performed until recently by the Direction of Insurance Companies and Actuaries, of the Ministry of Development. It will consist of the Board of Directors, the Chairman of Board of Directors and the General Manager and is expected to become operational during 2004. The Introductory Report of the Law points out that the establishment of a public body, which would undertake supervision of the whole banking-finance sector - including banks, insurance and reinsurance companies and the capital market - could not be fully implemented either at present or in the near future. The new Act administers supervisory duties to a more independent public body, though by no means fully independent, and as a result, grants powers needed to carry out its role of supervising insurance and reinsurance companies.
However, it is rather doubtful whether the new body will perform its duties impartially. First of all, the Board of Directors consists of seven members, among which one is a representative of the Insurers’ Union and one represents the Actuaries’ Union. There has been severe criticism on the grounds that a conflict of interest might arise, since supervisory responsibilities are delegated to a representative of the insurance industry. Taking into account that this public body does not need approval or permission from the competent Minister in order to impose sanctions, it can be pointed out that it delegates supervisory duties and powers of a public nature to individuals who may have financial interests that conflict with the new commission’s supervisory mission. Moreover, it is funded primarily by way of contributions of the Insurers’ Union, a fact that, although it ensures the allocation of additional funds for the purposes of supervision, jeopardizes its independence.
What is apparent from this new Act is that strong attention is being given to the subject-matter of supervision of insurance companies, and that additional funding is being allocated; it is estimated that the total budget will exceed by far the present one. The latter will result in a quality improvement of the supervision of insurance companies.
Emmanouil Tountas
IK Rokas & Partners, AIDA Greek Chapter
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