Insurance law and regulation in Brazil

1. Introduction

Regulation & governing bodies

The Brazilian insurance market is regulated by two governmental bodies that report to the Ministry of Finance. These are the Private Insurance National Council (CNSP) and the Superintendence of Private Insurance (SUSEP). CNSP is an inter-ministerial body composed by, inter alia, the Ministry of Finance, the Central Bank, the head of SUSEP, among others. The CNSP’s role is to provide strategic direction on insurance policy in Brazil. CNSP formulates the guidelines for private insurance policies, determines the general features of insurance and reinsurance contracts and regulates those acting as brokers for insurance and reinsurance. The role of SUSEP is to manage, supervise and monitor the operation of the insurance market in Brazil by overseeing the activities of insurance and reinsurance companies, as well as insurance and reinsurance brokers. SUSEP further regulates the guidelines enacted by the CNSP.

The contract of insurance is governed by Articles 757-802 of the Brazilian Civil Code (BCC), Commercial Code 1850 (only for maritime risks), Decree-law 73 / 66, Consumer Defence Code, CNSP resolutions and SUSEP regulations. All contracts of insurance and reinsurance are regulated, with greater protection given to contracts of insurance with consumers (within the meaning of the CDC).

Brazilian case law typically holds buyers of first party insurance to be consumers under the argument that they are protecting their own goods or assets. Nevertheless, whether or not those purchasing third party insurance will be consumers or not will depend heavily upon whether the contract shall serve the policyholder’s business or not. If it does, the CDC will be displaced.

In matters of reinsurance, the contract will be negotiated business to business. In this situation, the presumption is that the parties will be on an equal footing when entering into contracts, so they do not require the additional protections afforded to consumers. As operators of the insurance market, insurers, reinsurers and brokers are also regulated. Prior to commencing operations, each must seek prior authorisation to operate from SUSEP, as well as obtaining all applicable local business permits to operate in Brazil.

Reinsurance transactions

Until 2008, the reinsurance sector in Brazil was monopolised by the government-controlled IRB Brazil RE. The enactment of Complementary Law No. 126 / 2007 opened up the reinsurance sector in Brazil gradually to private enterprise.

Local reinsurers have a right of first refusal on risk transfers by cedants, provided they meet the exact same conditions offered in the international market.

Local reinsurers are prevented from retroceding more than 70% of their gross premium in any given year, except for financial, rural and nuclear risks, which are not subject to such limitation.

Shall direct insurers cede in excess of 90% of gross premiums in any given year, they must present justifications to SUSEP for doing so until March 31 of the subsequent year.

In the event of insolvency, extrajudicial liquidation decreed by SUSEP or bankruptcy by the cedant, the reinsurer will be allowed to pay straight to the insured.

Any risk can only be transferred to a reinsurer not duly licensed by Brazilian authorities in the event of shortage of offering by licensed local or foreign reinsurers. In any event, such a transfer must not be made to reinsurers headquartered in tax havens.

Intragroup reinsurance and retrocession contracts must follow fair competition conditions.

Reinsurance contracts are free to determine what degree of claims’ control, if any, the reinsurer will exercise when a loss is to be adjusted.

Direct insurers cannot assume under retrocession contracts more than 2% of the premium they had underwritten in any given year.

Insurance products

Historically, the content of insurance products in Brazil was highly regulated and standardised. In 2021, insurance authorities passed a series or rules eliminating much of SUSEP’s intervention in this realm and seeking to foster market innovation and the creation of more tailored products. Insurance products aimed at consumers must be previously approved by SUSEP, although under a much less stringent regime than before. Ever since 2021, insurers have had a great deal of freedom to draft custom contracts for large risk insurance lines, which are not subject to SUSEP’s prior approval.

Insurance law in Brazil may be subject to significant change in the coming years if Bill of Law no. 8,290 / 2014 is accepted by Congress. If passed, it would become the first specific Brazilian Insurance Law. The draft of this project was initiated back in 2004 (through Bill of Law no. 3,555 / 2004) and has subsequently been under discussion and evaluation by the market and relevant authorities for a considerable period of time. If approved, the new law would come into force one year after the date of its publication.

2. Effect of misrepresentation and/or non-disclosure

Under the BCC, insurers and insured parties must conduct dealings in line with the principle of utmost good faith, both before and after agreeing to the contract.

Also pursuant to the BCC, a material misrepresentation or non-disclosure by the part of the policyholder that might reasonably influence the insurer’s acceptance of the risk or valuation of the premium shall cause the insured to lose the right to indemnification. However, Brazilian courts have mitigated the harshness of this rule. They have consistently found that only a wilful omission made in bad faith as to the declaration of risk can trigger the insurer’s right to refuse payment of cover.

Similarly, the insured shall lose the right to indemnification when they intentionally aggravate the risk.

Ambiguities and imbalances in contracts of insurance should be avoided as judicial interpretation of clauses tends to favour the insured rather than the insurer (contra proferentem doctrine).

A contract guaranteeing a risk arising out of a wilful act of the insured shall be null and void.

When seeking to sustain an omission, a material misrepresentation or even the intentional aggravation of risk, the insurer will bear the burden of proof to demonstrate that the insured has failed to act in utmost good faith under the specific circumstances.

3. Effect of breach of warranty and condition precedent

Conditions precedent and warranties are not specifically provided for under Brazilian law as such. Yet, courts interpret them just like any other contractual obligations. Courts will investigate whether they clearly established obligations to either party and their impact for the contract to attain its goal. The principle of utmost good faith will permeate all the analysis.

4. Consequences of late notification

Where an insured suffers loss as a result of an insured event, the insured should make a claim as soon as they become aware of the occurrence of the loss. Failure to do so, if gross, may lead to the insured losing the right to be indemnified for the loss. The law does not set out a longstop deadline by which a claim should be notified to the insurer. Consequently, the Brazilian courts will only enforce the forfeiture of the insured’s rights where the insurer proves that the impact of the late notification led to an increase in the insured’s covered loss. The loss may be considered amplified where the claims adjuster is no longer able to properly handle it. Alternatively, where the late notification of the loss hinders or prevents the insurer’s investigation this may also result in the insurer validly refusing to pay the coverage.

5. Entitlement to bring a claim against an insurer

For non-compulsory third party insurance contracts, third parties who have suffered an injury may bring a direct lawsuit against the insurer, provided that the insured is also a named co-defendant in the dispute.

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

SUSEP regulates the maximum time period for the claims adjustment proceedings to take place. The time limit varies depending on the type of insurance product under which the claim is being brought. Insurers usually have a period of thirty days in which to carry out the claims adjustment procedure. The thirty days commences on the date which the insurer receives documents requested from the insured or the beneficiary of the insurance. During the claims adjustment proceedings, the previously noted window will be suspended when the insurer justifiably requests further documentation and shall end when these documents are supplied to the insurer.

According to the BCC, the insured can claim extra contractual damages (such as loss of profit and interest) arising from late payment, as long as such delay is considered a separate tort.

7. General rules concerning the limitation period for claims

The general time limit for the insured to file an insurance claim is one year (art. 206, BCC).

For third party non-compulsory insurances, the one-year statute of limitations period starts to run from the date the insured is summoned in connection with a third-party claim, or from the date the insured indemnifies the third-party, duly authorised by the insurance company.

As for first party insurances, the start date from which this limitation period runs is unclear as it is not formally set out in the BCC. In cases where an insurer formally declines coverage, the limitation period starts from this point.

A special period of three years applies to claims brought by (i) a beneficiary or (ii) third parties in compulsory liability insurance. For cases involving life insurance, the time limit is extended to five years.

In what is considered a somewhat controversial decision of the Brazilian Superior Court (STJ), contracts of reinsurance were held to be contracts of insurance and therefore subject to the same one-year limitation period as detailed above (Special Appeal 1.170.057 / MG).

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

The general rule in insurance contracts is that occurrence of the loss to the insured is what triggers the claim. Also, the policy in force at the time of the loss occurrence shall be the one implicated.

It turns out that in liability insurance, identifying the trigger (and thus the triggered policy under a series of continuous policies) can be a very complex task.

The time at which the loss occurred and when the insured became aware of it are determinations that may rest on circumstances outside of the parties’ reasonable control or knowledge. Equally, it can be hard to correctly predict or quantify the extent of the damage the insured has suffered immediately. Therefore, in practice, most liability policies are written on a claims-made basis with limitation periods, although liability policies on an occurrence basis are also lawful and available for commercialisation.

9. Recoverability of defence costs

Liability insurance in Brazil must always cover the loss of the insured in connection with an award, whether judicial or arbitral, that has held the insured liable towards the third-party claimant, or the settlement made between the latter and the insured, provided that the insurer has previously approved the payment.

The insured can recover defence costs when these are covered by the policy. Typically, they are. When defence costs are covered, the policy must tell whether the insured will be entitled to choose their counsel freely or with reference to a list provided by the insurer. When defence costs coverage is provided, the policy shall provide the insurer with the right to subrogate against the insured, in situations where it is later found that the damages have resulted from a wilful act or when the insured acknowledges their liability for intentional or fraudulent acts.

10. Insurability of penalties and fines

Liability policies may also cover fines or penalties applied against the insured. In most cases, such cover is excluded and can be written back into the policy through a specific endorsement.

In any event, fines and penalties are administrative in nature and are not to be confused with liquidated damages, which remains outside the scope of liability policies written in Brazil.