Insurance and reinsurance law
i Sources of law
The Maltese legal system has foundations in both English common law and civil law. The basis of insurance law is general contract law. There is no generic insurance contract law. However, in 2005, a number of amendments were added to the Maltese Civil Code aimed at regulating life insurance contracts.
Case law precedents are not binding and courts are free to interpret the law, which could result in the same issue being treated differently by the courts.
The elements of contract law are governed by civil law doctrine contained in the Civil Code.12 The IBA and IDA and the rules and regulations issued thereunder by the MFSA also deal specifically with compulsory insurance.13
ii Making the contractEssential ingredients of an insurance contract
A contract of insurance means an agreement in which an insurer agrees, for a consideration, to pay to or for the account of the insured a sum of money or other consideration, whether by way of indemnity against loss, damage or liability or otherwise, on the happening of a specified event with respect to which there is an element of uncertainty as to when or whether it will take place.14
The rules of contract law apply to contracts of insurance and reinsurance. Hence, for a contract to be valid the following essential elements must be satisfied:
- the parties must have capacity to contract;
- there must be the consent of the parties;
- there must be a certain element that constitutes the subject matter of the contract; and
- there must be a lawful consideration.
Together with the Civil Code elements, Maltese jurisprudence has established the importance of the common law principles of insurable interest and utmost good faith in contracts of insurance.
Recording the contract
Generally speaking, a contract can be concluded verbally;15 however, the IBA requires a written policy document to be issued by the insurer to the policyholder.
iii Interpreting the contractGeneral rules of interpretation
Insurance and reinsurance contracts are subject to the same general rules of interpretation that apply to other contracts, as provided for in the Civil Code. Where the terms of an agreement are clear and words in the agreement are attributed the meaning attached to them by usage at the time of the agreement, there shall be no room for interpretation.16 Where the literal meaning differs from the common intention of the parties as clearly evidenced by the whole of the agreement, preference shall be given to the intention of the parties.17 In case of any doubt, the agreement shall be interpreted against the obligee (insurer) and in favour of the obligor (insured).18
Types of terms in insurance contracts
It is common practice for an insurance policy to include clauses relating to policy limits, excess amounts and other general exclusions, indemnity limit and period of insurance, warranties, conditions precedent and consumer complaints’ process.
iv Intermediaries and the role of the broker
The IDA regulates insurance brokers, insurance agents, tied insurance intermediaries and insurance managers. Insurance distribution activities means the activities of introducing, proposing or carrying out other work preparatory to the conclusion of contracts of insurance or of concluding such contracts or of assisting in the administration and performance of such contracts, in particular in the event of a claim.19
Insurance agents are persons appointed by an insurer to be its agent with the authority to enter into contracts of insurance on its behalf. Insurance brokers are those who acting with complete freedom as to their choice of insurers, bring together persons seeking insurance and insurers, who carry out work preparatory to the conclusion of insurance and reinsurance contracts and who assist in the administration and performance of such contracts, in particular in the event of a claim.
Tied insurance intermediaries are defined as persons carrying on insurance intermediary activities for or on behalf of one or more insurers in the case of insurance products that are not in competition. These persons may collect premiums or amounts intended for the policyholder; however, they cannot make any insurance commitments towards or on behalf of the public. Insurance brokers are prohibited from appointing tied insurance intermediaries but can set up branches and appoint introducers. Under the IDD, insurance brokers are now permitted to appoint AIIs.
An AII is not considered to be an insurance intermediary but a specific type of intermediary operating under specific conditions (e.g., a travel agent, car rental company or motor vehicle dealer). The activities of AIIs are described as the activities of persons who, for remuneration, take up or pursue insurance distribution activities on an ancillary basis, acting under the full responsibility of authorised undertakings, for the products that concern them, provided that all the following conditions are met:
- the principal professional activity of the natural or legal persons does not comprise insurance distribution activities;
- the natural or legal persons only carry out insurance distribution activities in relation to certain insurance products that are complementary to a good or service; and
- the insurance products concerned do not cover long-term insurance business or liability risks, unless that cover complements the good or service that the natural or legal persons provide as their principal professional activity.
Insurance managers can provide services to either an insurer or an insurance broker. In the former case, an insurance manager can accept an appointment from an insurer to manage any of its business and may have the authority to enter into contracts of insurance on behalf of the insurer. Insurance managers may also accept an appointment from an insurance broker with certain limitations specified in the law.
The procedure for filing insurance claims is typically set out in the insurance contract itself. It is common practice for contracts of insurance and reinsurance, especially liability policies, to require that the insured notifies his or her insurer of a claim within a given time frame for the claim to be valid. Prompt notification of an event that may or is likely to give rise to a claim is usually included in the contract as a condition precedent.
In terms of the Civil Code, the prescriptive period for filing a judicial action for damages for breach of contract is typically five years. If the damages are in tort, the prescriptive period is two years, which may be extended if the action for compensation is related to a personal injury. The aforementioned periods may be suspended or interrupted in certain cases as prescribed by law.
Good faith and claims
The insured is required to provide the insurer with full, complete and correct information both pre-contractually and at claims stage. Providing false information will result in the denial of claim, cancellation ab initio of the policy and could give rise to criminal liability for insurance fraud.
Set-off, funding and reinstatement
Article 1166(c) of the Civil Code grants the insurer an automatic right of subrogation on payment of an indemnity. Nonetheless, a subrogation clause is included in most insurance contracts. Upon payment of an insurance claim by the insurer, the insurer may claim indemnity from a third party for the loss covered by the insurance contract. An act or omission on the part of the insured that could prejudice the insurer’s subrogation rights may forfeit policy coverage.