Insurance law and regulation in Serbia

1. Introduction

Under currently applicable legislation, there is only one way to undertake insurance activity in Serbia and that is to establish a local insurance company. A local insurance company must be organised in the form of a joint-stock company and it must meet the prescribed minimum capital requirements. An insurance company can only undertake insurance activities that it has been licensed for by the regulator. The same insurance company cannot undertake life insurance and non-life insurance activities.

Establishing a local insurance company is a somewhat burdensome and time-consuming procedure. Legal and actuarial fees may be high while the licensing process with the National Bank of Serbia which acts as the regulator and supervisor, may take up to several months.

2. Effect of misrepresentation and/or non-disclosure

Prior to the conclusion of an insurance contract, the policyholder is obliged to disclose to the insurer all circumstances which are material for assessing the risk, and which were known, or could not have been unknown, to the policyholder. The consequences of non-disclosure of relevant circumstances depend on whether the relevant circumstances remained undisclosed intentionally or unintentionally. In the first case, the insurer may request an annulment of the contract and retain the premiums paid. In the latter case, the insurer may request termination of the insurance contract or request a premium increase.

3. Effect of breach of warranty and condition precedent

Effects of breach of warranty and condition precedent are regulated in each separate insurance agreement.

4. Consequences of late notification

A policyholder is obliged to notify the insurer of the occurrence of an insured event within three days of the date the policyholder becomes aware of the occurrence of an insured event. If the policyholder fails to notify the insurer of the occurrence within the above period, the policyholder is obliged to compensate the insurer for the loss they sustained due to the late notification. However, the insurer may not refuse to provide indemnity under the insurance policy.

5. Entitlement to bring a claim against an insurer

Generally, only an insured or a life-insurance beneficiary is entitled to raise direct claims against the insurer. Exceptionally, in case of third-party liability insurance, a direct claim against the insurer can also be raised by a third party who has suffered a loss due to the activities of the insured covered by the policy.

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

The insurer is obliged to indemnify the insured within the period stipulated in the contract, which should not exceed 14 days, counting from the day the insurer receives notification of the occurrence of the insured event. However, if determining the existence or the amount of the claim requires time, the said period shall run from the day which the existence and the amount of the claim have been determined.

If only the amount of the claim is uncertain, the insurer is obliged to pay the indisputable part of the amount of the claim as in advance.

If the insurer does not pay the amount of the time claim within in the provided period, the insured has the right to statutory default interest which can be claimed before the competent court.

7. General rules concerning the limitation period for claims

Claims of the insured or beneficiaries under life insurance contracts have a five-year time bar while, under other insurance contracts, there is a three-year time bar, starting from the first day following the calendar year in which the respective claim was incurred. Nevertheless, if an interested party is able to prove that they were not aware of the occurrence of the insured event, such time starts running from the day they become aware of the occurrence. Absolute time limitation is set to years under life insurance contracts and five years under other insurance contracts, from the first day following the calendar year in which the respective claim was incurred. Claims of the insurer under insurance contracts have a three-year time bar.

A direct claim of a third party which sustained loss towards the insurer in third-party liability insurance is subject to the same statute of limitation rules governing third-party claims against the insured.

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

In third-party liability insurance, coverage is triggered by the occurrence of an insured event.

An insured event is usually defined either as an act committed or occurrence of loss. Claims-made coverage is not common and there are concerns it may not be in compliance with mandatory provisions of Serbian law, particularly in relation to the limitation periods.

A direct claim of a third party which sustained loss towards the insurer in third party liability insurance is subject to the same statute of limitation rules governing third-party claims against the insured.

9. Recoverability of defence costs

Defence costs may be recovered in line with the terms and conditions agreed between the parties. The insurer shall reimburse all costs of civil proceedings if the insurer pursued the lawsuit or if it gave approval to the insured to pursue the lawsuit, even in the case the claim was unfounded. If the lawsuit was pursued without the insurer’s knowledge and approval, insurance shall cover costs of the lawsuit only within the limits of the sum insured, and only if pursuing of the lawsuit and the incurred costs were justified. Upon discharge of his obligation by paying out the sum insured and appropriate portion of costs, the insurer shall be exempt from further duties for reimbursement of costs per single insured event.

10. Insurability of penalties and fines

In Serbia, insurance coverage is not available for fines and penalties.