The International Comparative Legal Guide To: Insurance And Reinsurance 2014

Author:Ms Sharon Daly and Darren Maher
Profession:Matheson
 
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1 REGULATORY

1.1 Which government bodies/agencies regulate insurance (and reinsurance) companies?

The Central Bank of Ireland (the "CBI") is the body responsible for the authorisation and ongoing supervision of (re)insurance companies in Ireland.

1.2 What are the requirements/procedures for setting up a new insurance (or reinsurance) company?

In order to establish a (re)insurance company in Ireland it is necessary to (i) incorporate a company and (ii) secure an authorisation to conduct (re)insurance business from the CBI.

The majority of (re)insurance companies in Ireland are established as private limited companies, being the most common form of company in Ireland. The process for incorporating a company in Ireland is straightforward and involves making an application to the Companies Registration Office (the "CRO"). The company can be established within five days of making the application to the CRO.

To secure an authorisation for a (re)insurance company, it is necessary to submit to the CBI (a) a business plan (the "Business Plan") and (b) a checklist, which has been published by the CBI in respect of each type of insurance (life and non-life) and reinsurance applications (the "Checklist"). Prior to the submission of the Business Plan and Checklist, the CBI actively encourages applicants to organise a preliminary meeting with the CBI to discuss the proposal and to obtain the initial views of the CBI in relation to the application. Subsequent to the initial meeting with the CBI, the Checklist and Business Plan are formally submitted to the CBI.

In practice, the Checklist is generally used as a document map/index outlining what is required to be included in the Business Plan. Information required to be contained in the Business Plan includes the following:

detailed information about the legal structure of the company; detailed information on the company's parent company and the ownership structure of the insurance company; the organisation of the company and the corporate governance structures that it will implement (including the fitness and probity of key personnel); details of risk oversight (audit, compliance, risk management, underwriting, financial control and internal control); capital and solvency projections; and financial information and projections (i.e., financial projections for a three-year period prepared on optimistic, realistic and pessimistic bases with detailed explanations about the assumptions supporting each). Following submission of the Business Plan and the Checklist, the CBI will review the application and provide comments and seek additional information and/or documentation, where necessary.

The authorisation process usually takes between three and six months following the submission of a fully completed application to the CBI, depending on the scale and complexity of the proposal. Prior to the grant of formal authorisation, a successful applicant will be granted "authorisation in principle", when the application has been fully examined, reviewed and approved in principle by the CBI. At this stage, the (re)insurance company will address any outstanding regulatory matters, such as the introduction of capital, the appointment of directors and senior executives and confirming that it will be in a position to comply with its conditions of authorisation. Authorisation in principle does not permit the applicant to write (re)insurance business. (Re)insurance business may only be underwritten when formal authorisation is granted by the CBI and a Certificate of Authorisation is issued.

1.3 Are foreign insurers able to write business directly or must they write reinsurance of a domestic insurer?

Under the EU passporting regime, an insurance company authorised in an EEA Member State may write business directly in Ireland on a freedom of services and/or a freedom of establishment basis subject to completion of the necessary notification requirements to their home-state regulator. An insurance company authorised outside of the EEA may directly write marine, aviation and carrier's liability insurance in Ireland, provided that it complies with certain solvency requirements. Otherwise, a third-country insurer is prohibited from directly writing insurance in Ireland.

1.4 Are there any legal rules that restrict the parties' freedom of contract by implying extraneous terms into (all or some) contracts of insurance?

Yes, certain legislation and CBI codes imply terms into contracts between consumers and insurance companies, all of which are primarily aimed at protecting consumers when entering into insurance contracts.

Generally speaking, consumer protection legislation derives its origins from EU directives and includes legislation regarding unfair terms in contracts (e.g., Unfair Terms in Consumer Contracts Directive) and distance selling of insurance products (e.g., Distance Marketing of Financial Services Directive). By way of example, when an insurance contract is entered into by distance means (e.g., online or by telephone), the consumer is afforded a period of time during which the consumer may cancel the contract without penalty (i.e., cooling off rights).

The CBI's Consumer Protection Code (the "Code") also seeks to protect consumers in their dealings with financial services providers (including insurance companies) and was introduced to afford consumers a greater level of protection in the area of financial services. The Code requires insurance companies to "act honestly, fairly and professionally and with due skill, care and diligence in the best interests of consumers" and imposes certain obligations on an insurance company when writing business.

1.5 Are companies permitted to indemnify directors and officers under local company law?

Legislation in Ireland prohibits a company from including in its constitutional documents and contracts any provision which indemnifies its directors and officers from liability to the company in respect of negligence, breach of duty, default or breach of trust. There is one exception to this which provides that a company may indemnify a director and/or officer from any liability incurred by that director or officer in successfully defending civil or criminal proceedings taken against him/her.

A company is, however, permitted to purchase directors' and officers' ("D&O") insurance in relation to the negligence, breach of duty, default or breach of trust of a director. D&O policies generally cover damages awarded against the director, legal costs in relation to an action and in certain circumstances, the costs of the director in relation to any official investigation taken by the regulatory authorities in Ireland. However, D&O policies generally exclude cover for fraud and criminal fines imposed.

1.6 Are there any forms of compulsory insurance?

Yes, there are a number of types of compulsory insurance in Ireland. The most common forms of compulsory insurance are motor vehicle insurance and professional indemnity insurance for certain providers of professional services such as solicitors, accountants and insurance intermediaries.

2 (RE)INSURANCE CLAIMS

2.1 In general terms, is the substantive law relating to insurance more favourable to insurers or insureds?

The law in relation to insurance contracts in Ireland is primarily governed by common law principles, the origins of which can be found in case law. Save for the transposition of EU legislation, there have been very few substantive legislative amendments to the law in this area in recent years.

The substantive law relating to insurance tends to be more favourable to insurers. In practice, however, the Irish courts tend to take a pro-insured approach by strictly applying the legal principles set out in statute, for example under the Marine Insurance Act 1908, which sets out the law on avoidance of insurance policies for material non-disclosure of facts.

A number of common law principles apply to insurance contracts including the principle of "uberrimae fidei" which obliges both parties to disclose all material information in relation to the insurance contract. While the principle applies to both the insurer and the insured, it is generally invoked by the insurer in support of the insurer avoiding an insurance contract for material nondisclosure of fact by the insured.

An insurance contract can also be avoided by the insurer for breach of warranty with effect from the date of breach, whether or not the breach was material to the risk. As a result of this, insurers can avoid cover to insureds in certain circumstances, even when the breach of warranty did not result in the claim arising. This is an important provision for insurers and can allow them to avoid cover should the insured breach a warranty in the insurance contract.

When included in insurance contracts, a choice of law clause can also benefit insurers as it allows them to dictate which governing law applies to the contract should a dispute arise. This can benefit insurers as certain jurisdictions have more "insurer-friendly" laws than others. There are restrictions, however, where the risk in question is not a "large risk" (a consumer contract, by way of example, is generally not a "large risk").

In general terms, insurers retain significant freedom of contract, however, this has been tempered in recent years by legislation in the area of consumer protection including the Unfair Terms in Consumer Contracts Directive and the Distance Marketing of Financial Services Directive. The Unfair Terms in Consumer Contracts Directive, which was transposed into Irish law by secondary legislation, prohibits insurers from including a term in a contract which creates a significant imbalance between the obligations of the parties to the detriment of the consumer. The legislation imposes significant obligations on insurers to ensure that insurance contracts do not create onerous burdens for insureds.

The Distance Marketing of Financial Services...

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