Risk drive

For a few complex insurance products, Belgian brokers and policyholders are obliged to turn to the international markets. The Anglo-Saxon policies ensuing from this present several legal pitfalls that can seriously damage insurers.

Being a small country, the Belgian market for complex industrial risk and financial lines insurance products is dominated by just a few brokers and insurance companies. For some products, such as construction all-risk insurance, the underwriting capacity of the insurers active on the Belgian market is so limited that brokers and policyholders have to seek cover outside of the country.

This has rather risky consequences. In a few cases it can lead to situations in which third-country insurers without a European licence or passport, or pure reinsurance-retrocession companies, act as co-insurers on policies covering Belgian risks.

No wonder many of these policies with Belgian policyholders are drafted in English, in accordance with Anglo-Saxon legal concepts and standards. Nevertheless, these policies often stipulate – for commercial reasons – that they are governed by Belgian law, with disputes being settled through arbitration or the Belgian Courts.

As experienced lawyers know, the use of common law concepts is very difficult in any contract that is governed by a civil law legal system, and not only in the case of insurance contracts. What complicates the situation even more for Belgium insurance contracts is the existence of mandatory insurance contract law called the 25 June 1992 Statute on non-marine insurance contracts, of which any insurer doing business in Belgium must respect the mandatory provisions.

With the exception of transport and reinsurance policies, the non-marine insurance contract law applies to all types of insurance policies taken out by corporate policyholders – all-risk property, construction all-risk, product liability, professional indemnity, directors and officers liability, fraud – and thus applies also to industrial risk and financial lines insurance products.

The problem now is that the existence of these mandatory provisions in the non-marine insurance contract law is often ignored in Anglo-Saxon type policies. As a result, the policy clause will be declared null and void by arbitrators or courts. This way, insured parties will be able to rely on the much broader protection offered by the applicable provision of the non-marine insurance contract law. A few examples serve to illustrate this. The non-marine insurance contract law, for instance, provides for the obligation for the insurers to cover salvage costs, interests and legal expenses above the insured limit in the policy. Insurers do have the right to limit their intervention in these costs to the amounts exceeding the insured limit up to specific amounts laid down in law. But such limitation is only valid and enforceable if it is expressly stipulated in the policy conditions. Many insurers forget to include this, or include wording that is too vague, and hence will not be able to rely on it in case of dispute.

Probably the most striking example of where Anglo-Saxon policy clauses do not work in Belgian policies are the so-called ‘premium payment warranty clauses’. The mechanism behind such clauses is that the policy will be automatically terminated – without any further initiative to be taken by the insurer – if the policyholder does not pay the premium within the delay defined in the policy. This simply does not work in a policy governed by Belgian law. Indeed, the non-marine insurance contract law requires the insurer to put the policyholder in such a case on notice by registered mail and grant him a final delay that may not be shorter than 15 days to pay the outstanding premium – otherwise coverage will be suspended or the policy will be terminated.

And then there are the arbitration clauses. Although they are allowed in industrial risk and financial lines insurance policies, experience shows that they are often drafted in such a way that one doubts whether the parties truly had the intention to opt for arbitration, or whether they even understood arbitration as a dispute resolution mechanism as opposed to the ordinary courts.

Indeed, many arbitration clauses provide that they apply to disputes about the amount of a loss or damage. This is, however, not a legal dispute, but an adjustment issue that can be entrusted to a third party (an ‘adjuster’) who can take a decision binding for both parties on this issue of fact, depending on the policy conditions.

Other arbitration clauses provide that the parties must first go through arbitration before they can go to the courts. Again, this shows a lack of understanding of how arbitration works. It is either arbitration or jurisdiction of the ordinary courts. In other words, arbitration cannot be a condition precedent before starting litigation before the ordinary courts. Perhaps the drafters of these kinds of clauses have confused arbitration with mediation. Mediation can indeed be included in an insurance policy as a condition precedent for both parties before they will be allowed to go through either arbitration or ordinary courts.

When Anglo-Saxon policies are submitted to Belgian law, insurers and brokers must carefully assess which clauses must first be modified to be in accordance with the mandatory provisions of the non-marine insurance contract law. At the very least they should know which of the policy clauses are at risk in case of dispute with the insured or policyholder.

Hugo Keulers is a commercial and litigation partner at Lydian