Insurance law and regulation in Bulgaria

Bulgaria has a well-developed insurance market. At the beginning of 2016, a new Insurance Code was adopted and entered into force implementing all requirements under the EU Directive Solvency II and other fundamental EU Regulations and Directives. According to the Insurance Code, there are several ways to undertake insurance activity in Bulgaria.

The first option is by incorporating a company in Bulgaria and obtaining the necessary licence from the Bulgarian Financial Supervision Commission (FSC). An insurer can provide only the types of insurance that are permitted by its license. A single insurer is not allowed to provide both life and non-life insurance (with one exception: life insurers can also be licensed to sell non-life “Accident” and “Illness” insurance). Insurance companies must be joint-stock companies with registered book entry shares and must meet certain capital and liquidity requirements.

Another common option available to foreign (non-EU) insurers is the incorporation of a local branch office. The branch shall obtain a licence in order to provide insurance services in Bulgaria. The branch can provide only those types of insurance which its parent company provides in its jurisdiction and must comply with certain requirements regarding the branch’s financial resources and manager(s). Opening a branch is a more simplified procedure than incorporating a new company, with fewer stipulated requirements as to the financial resources and general management. Because a branch is not a separate legal entity but represents a subsidiary unit of its parent company, it has a simpler organisational and management structure.

An EU insurer may undertake in Bulgaria the activity for which it has been licensed in its home country, either on a freedom-of-services basis or by establishing a local branch. For this purpose, a procedure of exchange of information between the supervising authority in the home member state and the FSC must be completed. The FSC exercises supervision over insurance and reinsurance companies from EU member states, which operate in Bulgaria, save for supervision over their financial stability, which is performed by the supervising authority in the home country.

The Insurance Code also introduced the option for establishing a captive insurance company and/or a captive re-insurance company. A captive insurer is a joint-stock insurance company owned by (i) a financial undertaking, which is not an insurer or a reinsurer, or (ii) an insurance or a reinsurance group, or (iii) a non-financial undertaking, whereby the joint-stock company concerned has the objective of providing insurance coverage exclusively for the risks of its owner/s or the person/s from the group to which the captive insurer belongs. The provisions applicable to joint-stock insurance companies or to reinsurers respectively shall also apply to captives.

A European company (SE), Self-insurance cooperative, or European Cooperative Society (SCE) may also conduct insurance business in Bulgaria, subject to obtaining the necessary licence.

The effect of misrepresentation or non-disclosure is different depending on whether this was deliberate or unintentional.

Wilful misrepresentation or non-disclosure of material circumstances will release the insurer from the obligation to provide indemnity where there is a connection between the misrepresented/undisclosed circumstances and the insured event. If the misrepresented/undisclosed circumstances have resulted only in an increase to the loss, then the insurer is entitled to reduce the payment accordingly. If the insurer becomes aware of the misrepresentation or the non-disclosure prior to the occurrence of the insured event, the insurer is entitled to terminate or require an amendment of the policy accordingly.

In the case of unintentional misrepresentation or innocent non-disclosure, the insurer is entitled to reduce the payment by taking account of the circumstances, but cannot refuse indemnity.

The Bulgarian Insurance Code does not envisage the terms “warranty” and “condition precedent”. Generally, the insurance contract may not impose conditions and requirements (including those related to the insured event and its ascertainment) if it may be assumed that such conditions and requirements are not significant to limiting the risk of the insured event occurring or its ascertainment or are legally prohibited or factually impossible. The specific consequences of misrepresentation or non-disclosure have been outlined in question two above.

In life insurance there are few clauses regulating the effect of breach of condition precedents. Life or accident insurance policies that cover the death of an under-aged person or a person under custody, or the risk of miscarriage or stillbirth are invalid by operation of law. In case of wilful non-disclosure/breach the insurer has the right to deduct the value of the expenses incurred in concluding the insurance contract from the premium which is subject to reimbursement. In another case, when the age of the insured person (which is condition precedent) is falsely stated, the payment by the insurer shall change in the ratio of the premium that would have been due and payable for the true age to the premium agreed upon in the contract. In the case of falsely stated age, the insurer may terminate unilaterally the contract, as long as the insurer would not have concluded the contract were the true age of the person stated.

In property insurance, the insurer is allowed to refuse to provide indemnity in the event of the insured’s failure to notify it of an insured event within the specified term, if (i) this was done with the intention to impede the insurer’s verification of the relevant circumstances of the event’s occurrence and its consequences; or (ii) this has made it impossible for the insurer to verify the circumstances of the event’s occurrence and its consequences.

The general rule is that the insured has the right to raise a claim resulting from an insurance contract directly against the insurer. However, there are some exceptions, namely where the creditor of an insured can make a claim and in third-party liability insurance. A prospective third-party claimant who has suffered loss as a result of the actions and/or omissions of the insured, which are alleged to be covered by the liability policy, has a right to step into the position of the insured under the insurance contract and to raise a claim directly against the insurer. The third party’s insurer also has a right of regress claim.

Importantly, the Insurance Code requires that insurance claims must mandatorily be filed in writing first with the insurer and then, if not satisfied, with the court.

In terms of bankruptcy proceedings against an insurer, these can be initiated only upon an application of the FSC to the court. The court will then institute proceedings on the day of receipt of the application and will schedule a hearing no later than fourteen days thereafter. 

As a general rule, the insurer is obliged to indemnify the insured according to the policy within a term not exceeding 15 business days from the date of receiving the insured’s claim and all necessary evidence under the policy terms, if cover is confirmed. If all the required documents were not provided to the insurer, the insurer must render its decision within six months as of the filing of the claim in the general case; or within three months in case of motor third-party liability insurance. These rules do not apply for high risk insurance.

In case of late payment, the insured or the third-party beneficiary shall have the following rights: (i) to file a complaint against the insurer before the regulator be it the Bulgarian Consumer Protection Commission or the FSC; and/or (ii) to seek damages in court, i.e. a compensation in the amount of the statutory interest for delay.

The limitation period for an insured’s claim against an insurer is five years following the occurrence of an insured event of life, accident, illness and third-party liability insurance; or three years following the occurrence of an insured event for other classes of insurance. The limitation period for claims for interest on the insurance indemnification is also three years.

As a general note, Bulgarian law does not explicitly regulate policy triggers. The Insurance Code refers to an “insured event” which is defined as the occurrence of a covered risk during the insurance coverage period. It is generally accepted that whether this event is the occurrence of the loss or the claim depends on the drafting of the policy and the intention of the parties to it. In general, claims-made policies are less common in Bulgaria than occurrence-based policies.

Motor third-party liability insurance is deemed triggered with the occurrence of the damage, caused by the insured’s vehicle to a third party during the policy period.

There is a stand-alone class of insurance covering legal expenses and expenses related to litigation. The insurer covers the insured’s costs incurred in non-insurance related litigation. 

Another case is the third party liability insurance, where the insurer would defend also its own interest in litigation.  As per the Insurance Code, the third-party liability insurer is obliged to cover the defence costs of the injured party, up to the limit of coverage, and if the insurer was involved in the litigation.

Penalties, fines, confiscation and other pecuniary damages imposed by the state or municipal authorities are not insurable in Bulgaria.

Contractual liability might be covered as an exception, subject to an agreement with the third-party liability insurer.