Insurance law and regulation in Poland

1. Introduction

Insurance activity in Poland is undertaken by establishing a local joint-stock company or mutual insurance company and obtaining a permit from the Polish Financial Supervision Authority (PFSA). Although there are certain advantages to establishing a local insurance company (it is perceived by the market as demonstrating a commitment to Poland), it is an expensive course of action.

The legal and actuarial fees are relatively high and there is a minimum capital requirement. It is also necessary to go through a lengthy and cumbersome licensing process, which may take several months. Finally, a domestic insurance company is subject to regulation by the PFSA.

Foreign insurers from EU and EEA countries may also undertake activity in Poland through a branch on the freedom of establishment basis or directly on the freedom-of-services basis. They are then permitted to carry out activities in Poland to which they are entitled in their home country on the basis of a relevant permit from the supervising authority of their home country. Insurers that intend to benefit from the freedom-of-services may start operating in Poland after the PFSA has received a notification from the relevant home country supervising authority. Insurers, who intend to establish a branch on the freedom of establishment basis, to start providing services, must additionally receive information concerning the conditions governing insurance activity in Poland.

Regarding operational aspects, a branch works in the same way as a local company. However, the costs are much lower – a branch does not require any initial capital and has a simplified organisational structure. Foreign insurers from EU and EEA countries that conduct activity in Poland on a freedom of establishment or freedom-of-services basis are regulated by their home country supervisory body. However, they have to follow general good rules which protect policyholders, insureds and beneficiaries under insurance contracts. Nonetheless, the Polish regulator is empowered to audit such foreign insurance companies except for their financial management. It can also enforce general ‘best practice’ rules, which are designed to protect policyholders, insureds and beneficiaries under insurance contracts.

Foreign insurers from countries outside the EU and EEA may undertake insurance activity in Poland only through a ‘main branch’ subject to a permit issued by the PFSA, or establish a subsidiary insurance company in Poland. The procedure of establishing a ‘main branch’ differs significantly from the procedure of establishing a branch of a foreign insurer from an EU or EEA country.

2. Effect of misrepresentation and/or non-disclosure (retitled)

Before the execution of an insurance contract, the policyholder and the insured (where different) must disclose all matters indicated in the motion for execution of insurance contract (or other insurer-produced form), which are relevant to the insurer’s assessment of risk. Non-disclosure of material circumstances will release the insurer from the obligation to provide indemnity for any loss suffered if there is an adequate connection between the undisclosed circumstances and the loss.

3. Effect of breach of warranty and condition precedent

Polish insurance law does not recognise legal constructions such as warranties and conditions precedent in the meaning of common law. Therefore, it also does not provide for any remedies connected with the infringement of warranties and conditions precedent. However, the insurer may impose on the policyholder or on the insured particular duties related to the performance of an insurance contract (e.g. duty to secure car keys or duty to comply with fire regulations) that are similar to warranties and conditions precedent. If the insured or the policyholder breaches the above duties, the insurer is free from liability for damage adequately connected with the breach.

In addition, regulations regarding the payment of insurance premiums are similar to conditions precedent. Polish insurance law provides that the insurer’s liability does not start, if the premium or its first instalment is not paid. It means that if damage is caused before the payment of the premium, the insurer is free from liability. However, the parties may agree otherwise and stipulate that the insurer is liable also for damage caused before payment.

4. Consequences of late notification

Under an insurance contract or general insurance terms and conditions, the policyholder and the insured (where different) may be obliged to notify the insurer about an insured event within a specified time. The insurer is allowed to reduce the indemnity in cases of intentional or grossly negligent failure to give notice of an insured event as required, as long as the failure to give notice either increased the loss or made it impossible for the insurer to establish the circumstances of the event’s occurrence and its consequences.

5. Entitlement to bring a claim against an insurer

In general, only an insured has a right to raise a claim resulting from an insurance contract directly against an insurer. However, in the case of third-party liability insurance, a prospective third-party claimant who has suffered a loss as a result of the actions and/or omissions of the insured, which are covered by the liability policy, has a right to raise a claim directly against the insurer (so-called actio directa).

6. Entitlement to damages from an insurer for late payment of claim

As a rule, the insurer is obliged to complete loss-adjustment proceedings and make a payment within 30 days of receiving a notification of an insured event. If this is not possible due to the complex nature of the claim or any other reasons, the insurer is obliged to inform the claimant. Then the insurer must complete the loss-adjustment proceedings within 14 days of the day the insurer clarified the circumstances necessary to determine its liability or the amount of the indemnity. However, any non-disputed parts of the indemnity should be paid out within the original deadline, i.e. within 30 days of receiving the notification of the insured event. If the insurer does not pay damages within the above period, the policyholder or the insured is entitled to receive interest for the late payment of claim.

7. General rules concerning the limitation period for claims

There are two separate statutes of limitation. The first pertains to the insured’s claims against the insurer. These claims are time-barred three years after the day on which they became enforceable. The second pertains to the third-party claimant’s right to claim against the insurer under the actio directa principle (see above). These claims are subject to the same rules as those governing the statute of limitation of the third-party’s claims against the insured. As a result, a third-party claimant’s claim against the insurer becomes time-barred when it is also time-barred in relation to the insured. For example, if the third party’s claim is based on the tort liability of the insured, it becomes time-barred three years after the date that the third party became aware of both the damage and the person responsible for redressing it (i.e. the insured). However, this period cannot be longer than ten years after the occurrence of the event that caused the damage (this long-stop date does not relate to personal injuries).

The limitation period for a claim for indemnity against an insurer ceases to run if the claim or the insured event is reported to the insurer. The limitation period re-commences on the day the party reporting the claim or the insured event receives written notification from the insurer either granting or refusing indemnity under the policy.

8. Policy triggers with respect to third-party liability insurance

The occurrence of an insured event is a default policy trigger in third-party liability insurance. However, it is possible for the parties to base third-party liability insurance entirely on other triggers, such as when the loss occurred or manifested itself or when a claim is made.

9. Recoverability of defence costs

Defence costs are not recovered to the policyholder under standard insurance contracts in Poland. To have defence costs recovered, in practice the policyholder must extend cover under third party liability insurance to such costs. It is also possible to purchase legal expenses insurance, which may include, in particular, expenses related to defence in criminal proceedings or associated with representation of the insured before civil, criminal and administrative courts.

10. Insurability of penalties and fines

There are no Polish legal provisions that explicitly prohibit insurers from insuring penalties and fines. However, it is deemed that criminal penalties and fines are non-insurable. This conclusion derives from the personal nature of the criminal liability. On the other hand, the insurability of administrative penalties and fines is not questioned under Polish law. In practice, many insurance products (e.g. D&O insurance) cover damage associated with such penalties and fines.