Insurance Litigation 2022 Comparisons

Swiss Federal Act on Insurance Contracts

Overview

Swiss insurance contract law – like Swiss contract law in general – provides parties with maximum autonomy and control over their contract, more than almost any other jurisdiction. The content of insurance contracts is not subject to EU law or complicated rules about general terms and conditions. At the same time, Swiss insurance contract law – like Swiss contract law in general – is based on the principle of good faith, thus protecting the parties' reasonable and fair expectations against sharp dealing. Its accessibility and predictability make Swiss law, including Swiss insurance contract law, a cost-efficient and natural choice for parties in search of a neutral and pragmatic law.

Swiss insurance contract law is codified. Insurance contracts and, thus, the relationship between insurance companies, policyholders and insureds are governed by the Swiss Federal Act on Insurance Contracts (Insurance Contracts Act ‒ ICA).

Swiss law on insurance contracts provides for a high degree of flexibility. Unless explicitly stated otherwise in the ICA, parties to a policy can agree freely on provisions that deviate from the statutory law provisions. The ICA distinguishes between so-called “mandatory provisions” (Article 97, ICA), which concern a few provisions that cannot be amended by the parties, or so-called “half-mandatory” provisions (Article 98, ICA), which can be amended for the benefit of the policyholder and/or insured.

To the extent that the ICA does not contain a provision, the provisions of the Swiss Code of Obligations (SCO) apply to the insurance contract (Article 100(1), ICA).

Social insurance (such as mandatory healthcare, mandatory disability insurance) is not subject to the provisions contained in the ICA, it is instead governed by public law.

Revision of the ICA

On 1 January 2022, a revised version of the ICA came into force. Among the main objectives of the partial revision were to increase the level of protection of policyholders and insured parties, while at the same time increasing the degree of flexibility with regard to insurance contracts with so-called “professional policyholders” such as larger companies and corporations; to increase transparency; and to enable electronic business traffic across the insurance sector.

The most important changes concern, inter alia, the following.

• Recognition of electronic commerce and communication (most declarations required in connection with insurance contracts can now be made in simple text form, including email, without the need of wet-ink signatures or qualified electronic signature).
• Insurers must provide policyholders with additional information prior to the conclusion of insurance contracts, inter alia, information on the scope of insurance coverage and the type of insurance and the policyholders' right to withdraw the insurance contract (Article 9, ICA).
• The policyholder and insureds have a right to withdraw the insurance contract within a period of 14 days (Article 2a and 2b, ICA).
• New rights of termination:
1. the policyholder and insured have a right to terminate the insurance contract if the insurer is in breach of its duty to provide information prior to the conclusion of the contract (Article 3a, ICA);
2. either party to an insurance contract (ie, both insurer and policyholder) has a right to terminate long-term insurance contracts at the end of the third year or each subsequent year, but this provision does not apply to life insurance contracts (Article 35a and 35b, ICA); and
3. the policyholder and insured have a right to terminate the most recent insurance contract within four weeks after discovering that they have unintentionally entered into double insurance (Article 46b, ICA).
• Retroactive insurance (Rückwärtsversicherung) is permitted, provided there is an insurable interest (Article 10, ICA).
• In case of the policyholder's or insured's breach of an obligation (duty) agreed upon in the insurance contract, such breach can only be held against the policyholder and insured if:
1. the breach was the result of the policyholder's or insured's fault (which was already a requirement under the old law); and
2. there was a causal link between the violated duty and the occurrence of the claim and the benefits to be paid by the insurer (Article 45 ICA).
• The limitation period for claims arising from an insurance contract is five years instead of only two years (Article 46, ICA).
• Third parties have a direct right of action against liability insurers (Article 60, ICA).
• The insurer's right of action against third parties causing the damages has been extended (Article 72, ICA).
• The revised law provides for even more contractual freedom, as “professional policyholders” are not bound by those provisions designated as “mandatory” or “half-mandatory”, ie, in contracts with professional policyholders, the parties are free to contract around all statutory law provisions (Article 98a, ICA).

Reinsurance

There are no statutory provisions governing reinsurance contracts. Reinsurance contracts are expressly excluded from the scope of application of the ICA. Reinsurance contracts, therefore, are subject to the specific agreements of the parties and the general rules of contract law set forth in the SCO. In case of gaps in the contractual arrangement, or if the reinsurance contract remains unclear, the international reinsurance practice and internal trade practice play an important role. In other words, the actual agreement is controlling. However, if the agreement does not provide any answer, the courts tend to look at reinsurance and trade practice (eg, “follow the fortunes”, “follow the settlement”).

Swiss Federal Insurance Supervision Act

Insurance and reinsurance companies are supervised by the Swiss Financial Market Supervisory Authority (FINMA).

The regulatory requirements for insurance and reinsurance companies are set forth in the Federal Insurance Supervision Act (ISA), the Federal Ordinance on the Supervision of Private Insurance Companies (ISO) and the FINMA-Ordinance on Insurance Bankruptcy (IBO-FINMA).

Swiss Code of Civil Procedure

Disputes pertaining to or arising from insurance and reinsurance contracts are – like any other disputes in connection with contracts, tort, or unjust enrichment – subject to civil proceedings dealt with by civil courts. Alternatively, the parties to an insurance or reinsurance contract can submit their dispute to arbitration.

The Swiss Code of Civil Procedure (CPC), which came into force in 2011, provides for a unified set of rules governing the proceedings for all contentious and non-contentious civil matters. Before 2011, each of the 26 cantons had a separate code of civil procedure.

Enforcement

On the territory of Switzerland, the enforcement of monetary claims – such as a claim for insurance coverage against an insurer – is subject to the Federal Act on Debt Enforcement and Bankruptcy (DEBA).

Private International Law

Civil proceedings taking place in an international context are regulated by the rules of private international law of Switzerland, codified in the Private International Law Act (PILA) and by bilateral and multilateral treaties.

The PILA governs the jurisdiction of Swiss judicial and administrative authorities, the applicable law, the conditions for recognition and enforcement of foreign decisions, bankruptcy and composition agreements, and international arbitration.

However, to the extent applicable, multilateral or bilateral treaties take priority over the rules set forth in the PILA.

Litigation Process

General

The CPC governs all procedural stages of civil proceedings before cantonal courts. In general, civil proceedings, including disputes pertaining to insurance contracts, are adversarial in nature.

The CPC provides for two cantonal instances, the district courts (courts of first instance) and the high courts (also called appellate courts, second instance), which have full appellate review on the facts and the law of the case.

For most contentious matters, plaintiffs must apply for conciliation proceedings, which have the purpose of facilitating a settlement or an early disposal of claims. However, in cases with a value in dispute in excess of CHF100,000, the parties can jointly waive the conciliation proceedings. Also, a plaintiff can unilaterally waive the proceedings if the defendant is domiciled outside of Switzerland or its address is unknown (Article 197 et seqq, CPC).

Commercial courts

Cantons may designate a special court that has jurisdiction as sole cantonal instance for commercial disputes (commercial court). Currently, four cantons, namely Zurich, Berne, Aargau and St Gallen, have a commercial court. Commercial courts are part of the high court of the respective canton. If the case is lodged directly with a commercial court, no conciliation proceedings are required.

A dispute is considered “commercial” and, thus, falls within the sole jurisdiction of the competent commercial court, if (Article 6, CPC):

• the dispute concerns the commercial activity of at least one party;
• the decision is subject to an appeal in civil matters to the Federal Supreme Court, which is generally the case if the value in dispute is at least CHF30,000; and
• the parties are registered in the Swiss Commercial Registry or in an equivalent foreign registry.

If only the defendant is registered in the Swiss Commercial Register or in an equivalent foreign register, but all the other conditions are met, the plaintiff may choose between the commercial court and the ordinary court.

Swiss Federal Supreme Court

The highest court in Switzerland is the Federal Supreme Court, which can review final judgments of the cantonal high courts as to their compliance with federal law. Hence, if the case is lodged with a district court, there are two levels of appeal: first the cantonal high court and finally the Federal Supreme Court.

By contrast, if the case is lodged directly with a commercial court, the only appeal is to the Federal Supreme Court.

Proceedings before the Swiss Federal Supreme Court are subject to the provisions in the Swiss Federal Tribunal Act (SFTA).

Civil proceedings

According to the principle of party disposition, courts must not adjudicate on matters other than what the party identifies in its request for relief (Article 58, CPC).

The CPC contains an exhaustive list of procedural prerequisites (such as jurisdiction, res judicata, and other admissibility requirements), which are examined by the courts ex officio (Article 59, CPC).

The CPC provides for three types of proceedings (Article 219 et seqq, CPC):

• ordinary proceedings;
• simplified proceedings; and
• summary proceedings.

Each type of proceedings is basically structured into three main stages. In the first phase, the parties each assert their case by pleading their factual and legal arguments and adducing evidence on which they base their case (in ordinary and simplified proceedings there are two rounds of submissions: statement of claim, statement of defence, reply and rejoinder). In a second stage proceeding, the court takes evidence, followed by the post-hearing stage, in which the parties are given the opportunity to comment on the result of the evidence taken by the court.

The specific rules applicable to the proceedings, including whether the parties must plead their case by means of written submission or orally, mainly depend on the value in dispute. If the value of the claim is in excess of CHF30,000 – which is usually the case in commercial insurance disputes – the ordinary proceedings apply. If this is the case, a claim can be lodged by filing a detailed written submission (statement of claim) setting out the facts of the case and the evidence upon which the claimant bases its claim (Article 221, CPC). It is required that, following each factual allegation or paragraph containing a factual allegation, the claimant shall, whenever possible, identify the evidence adduced with precise references. Even though the courts in Switzerland apply the law ex officio (principle of iura novit curia), submissions usually contain a part towards the end of the submission setting out the legal reasoning of the claim.

Following the statement of claim, the defendant – in insurance disputes concerning the claim for coverage this is usually the insurer – can comment on the claim by filing its statement of defence within a deadline set by the court. The statement of defence is essentially structured the same way as the statement of claim (Articles 221 and 222, CPC). In the factual part, the defendant pleads its own case by setting out the factual allegations and adducing the evidence. Furthermore, the defendant has to set out in detail which of the claimant's factual allegations the defendant disputes or acknowledges. If a factual allegation of the claimant remains uncontested, such allegation is deemed acknowledged.

In the statement of defence, the defendant can file a counterclaim, provided that the same type of proceeding applies to the counterclaim (Article 224, CPC).

The language of the proceedings depends on the official language (German, French, Italian) of the canton where the court proceedings take place. In international disputes, most Swiss courts accept evidentiary documents in English, although courts may still request the parties to provide (official) translations of these documents. For witness hearings in a foreign language, courts organise accredited translators.

Rules on limitation

Under Swiss law, limitation periods are considered to be an issue of substantive rather than procedural law.

Among the changes in the revised ICA, which came into force as of 1 January 2022, is a new rule on limitation (Article 46, ICA), providing for a statutory limitation period of five years. Before the revision, the statutory limitation period was only two years.

The limitation period applies to all claims arising from the insurance contract, including the insurer's claim for premium and the policyholder's or insured's claim for coverage.

However, apart from certain exceptions, the revised ICA does not apply retroactively, meaning that policies agreed upon prior to the revised ICA coming into force are subject to prior versions of the ICA (Article 103a, revised ICA). Therefore, with regard to insurance contracts concluded prior to 1 January 2022, the limitation period of two years continues to apply.

As the statutory limitation period qualifies as a so-called “half-mandatory” provision (Article 98, ICA), the parties can agree on a limitation period that is more beneficial for the policyholder and/or insured, ie, a limitation period that is longer than provided by statutory law.

Regardless of the length of the limitation period, the period starts running on the date on which the so-called “insured event” takes place (Article 46 CPC). The ICA does not contain a provision that defines the term “insured event”. However, according to the Swiss Federal Supreme Court's practice and academic writers, the term “insured event” refers to the event that is relevant to trigger the insurance coverage as agreed on under the insurance policy at issue. Put differently, the “insured event” occurs when the risk materialises against which the insurance policy protects the insured with coverage. As there are various types of insurance contracts providing coverage for different types of risks, the meaning of the term “insured event” depends on the nature of the insurance contract at issue (eg, liability insurance, property insurance, business interruption, life assurance, casualty insurance).

For example, in the realm of liability insurance, it is tried law that the “insured event” triggering the limitation period is the point when the policyholder and/or insured becomes liable vis-à-vis a third party by means of adverse judgment or settlement.

If different types of claims for coverage arise from the same insurance contract, the “insured event” and, thus, the point triggering the limitation period, must be defined with regard to each type of insurance claim separately.

Statutory law provides for different time- and cost-efficient ways to interrupt the running of the limitation period. The applicable provisions are codified in the SCO. The creditor – such as the policyholder and/or insured with regard to its claim for coverage against the insurer – can interrupt the limitation period (Article 135 SCO):

• if the debtor (ie, the insurer in a claim for insurance coverage) acknowledges the claim, either by explicit acknowledgement, by making interest payments, by paying instalments, by giving a pledge or by providing a security; or
• by initiating debt enforcement proceedings (ie, issuance of a formal payment order by the debt enforcement office), by initiating conciliation proceedings, by lodging a claim with a court or arbitral tribunal, or by filing a petition for bankruptcy.

Once a claim has been made and is pending with a court or arbitral tribunal, a new limitation period of ten years begins to run only upon the completion of the proceedings by means of decision or settlement (Articles 137 and 138, SCO).

Furthermore, the parties can agree in writing (an exchange of emails is not sufficient) that the limitation period does not start or should pause during the course of settlement discussions, mediation proceedings or other procedures for the out-of-court settlement of disputes (Article 134, SCO).

Lastly, a debtor may waive the right to raise a plea of limitation by means of a written waiver. However, the written form requires a wet-ink signature and email is not sufficient (Article 141, SCO).

Arbitration

The most important form of alternative dispute resolution (ADR) is arbitration. Since Switzerland is one of the leading places for arbitration worldwide, with its hubs in Zurich and Geneva, arbitration is also often chosen for disputes arising from insurance contracts, in particular in the realm of commercial insurance in an international context.

Switzerland has a long tradition of international and domestic arbitration, with two sets of arbitration laws: the uniquely liberal Chapter 12 of the Swiss Private International Law Act (PILA) for international arbitration, and Part 3 of the Civil Procedure Code (CPC) for domestic arbitration.

In force since 1989 and updated in 2021, Chapter 12 of the PILA provides a framework to support parties and arbitral tribunals in efficiently resolving disputes, with minimal interference except to ensure the essential integrity of the process. Chapter 12 of the PILA, because of its characteristics (in particular its flexibility and autonomy in how proceedings are structured), can be used – and is often used – for very different types of arbitration proceedings, including insurance and reinsurance disputes.

The arbitration institutions and rules most chosen in Swiss international arbitration are the International Chamber of Commerce (ICC Rules) and the Swiss Arbitration Centre (Swiss Rules), the latter being the successor of the Swiss Chambers' Arbitration Institution.

The legal framework and its institutions provide for proceedings tailored to the needs of the parties, with an efficient administration of all types and sizes of disputes. For instance, under the Swiss Rules of International Arbitration, disputes with a value up to CHF1 million are subject to expedited proceedings which are dealt with within a period of six months only. The parties are free to opt for expedited proceedings also for larger disputes.

Furthermore, arbitration in Switzerland provides, if opted for by the parties, for multi-party arbitration. This is a feature that can be of interest in the context of large commercial insurance programmes involving multiple insured entities and/or insurance carriers.

Challenges against arbitral awards are decided directly by the Swiss Federal Supreme Court (Article 191, PILA), and in only six months on average. In about 93% of the cases, the Federal Supreme Court upholds the award, only sanctioning serious irregularities, such as violations of due process or lack of jurisdiction. More specifically, the grounds of appeal are very limited, as an arbitral award may be set aside only (Article 190, PILA):

• where the sole member of the arbitral tribunal was improperly appointed or the arbitral tribunal was improperly constituted;
• where the arbitral tribunal wrongly accepted or denied jurisdiction;
• where the arbitral tribunal ruled beyond the claims submitted to it, or failed to decide one of the claims;
• where the principle of equal treatment of the parties or their right to be heard in an adversary procedure were violated; and
• where the award is incompatible with public policy.

Since 2021, submissions filed with the Swiss Federal Supreme Court in the context of setting aside proceedings can be filed in English, making such proceedings more accessible for foreign parties (Article 77, SFTA).

Mediation

Switzerland has a long-standing international reputation in mediation, diplomacy and the offering of good services. Therefore, mediation is another form of ADR encouraged and used in Switzerland, often combined with state court litigation and arbitration.

Mediation is a very flexible means of dispute resolution that is particularly suitable for complex and international conflicts of all sizes. It is particularly suitable when the parties in dispute hope to preserve, or to renew, their commercial relationships. It can be of particular interest for insurers/reinsurers and policyholders that have had long-standing business relationships with long-term or annually renewed insurance programmes.

The parties are entirely free to agree on the format, style, and rules of a mediation. A legal framework often used is the Swiss Rules of Mediation drafted by the Swiss Arbitration Centre (SAC), based on decades of experience and best practices. The modern and adaptable Swiss Rules of Mediation encourage parties to find an amicable and efficient solution to their dispute with the assistance of a qualified neutral, either using evaluative mediation (conciliation) or interest-focused mediation. The Swiss Rules of Mediation suggest ways of combining mediation with arbitration.

There is case law of the Swiss Federal Supreme Court setting clear guidelines as to the conditions under which a mediation clause (in the context of arbitration also called a pre-arbitration clause) can become binding on the parties so that they have to adhere to it before launching a dispute with a court or arbitral tribunal.

Jurisdiction

In a domestic context, the determination of the place of jurisdiction in civil proceedings is subject to the rules in the CPC. Primarily, the place of jurisdiction depends on the parties' choice, as the parties are generally free to select a forum for their existing or future disputes. The choice of a forum must be agreed upon in writing or by another form allowing it to be evidenced and reproduced in text form (eg, emails without the need of wet-ink signatures) (Article 17, CPC). In the absence of a choice of forum, disputes concerning an insurance contract fall under the CPC's general rules, pursuant to which the court with jurisdiction is the following:

• the court of the domicile or registered office of the defendant; and
• in the case of contracts, including insurance or reinsurance contracts, the court at the place where the characteristic performance of a contract must be rendered has jurisdiction over actions related to such a contract (Article 17, CPC).

In an international context, with certain relevant aspects of the contractual relationship lying outside Switzerland (eg, if either the insurer or the policyholder and/or insureds have their domicile/seat outside Switzerland) the place of jurisdiction is subject to the PILA. Under the PILA, as in domestic matters, the parties have wide autonomy to agree on the place of jurisdiction in cases that involve the parties' economic matters, such as claims in connection with insurance or reinsurance contracts. As under the CPC, the choice of forum must be done in writing or in another form allowing it to be evidenced and reproduced in text form (eg, emails without the need of wet-ink signatures). The chosen court may not decline jurisdiction if a party has its domicile/seat in the canton of the chosen court or if, pursuant to the PILA, Swiss substantive law is applicable to the dispute (Article 5, PILA).

Absent a choice of forum, the PILA contains a similar rule as the CPC. The Swiss courts at the domicile/seat of the defendant have jurisdiction to hear actions arising out of a contract. Furthermore, if the characteristic obligation of the contract is to be performed in Switzerland, the action may also be brought before the Swiss court at the place of performance. These general principles equally apply in insurance contracts (Articles 112 and 113, PILA).

Specific rules apply in case of contracts with consumers (Article 114, ICA).

However, if applicable, multilateral or bilateral treaties providing for the recognition and enforcement of foreign judgments take priority over the rules in the PILA (Article 1, PILA).

From a practical point of view, the most relevant multilateral treaty is the so-called Lugano Convention (ie, the Convention on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters dated 30 October 2007), agreed between Switzerland, the European Union, Norway and Iceland. The Lugano Convention is, in essence, the equivalent of the Brussels I Regulation of 2001 (ie, Council Regulation (EC) No 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters).

The Lugano Convention (LC) contains a special set of rules for matters relating to insurance, providing the policyholders, insureds and beneficiaries with several alternative places of jurisdiction (Article 8 et seqq, LC). The principle is that an insurer domiciled in a state bound by the LC can be sued either:

• in the courts of the state where the insurer has its domicile/seat;
• in another state bound by the LC, in the case of actions brought by the policyholder, the insured or a beneficiary, in the courts of the place where the plaintiff is domiciled; or
• if they are a co-insurer, in the courts of a state bound by the LC in which proceedings are brought against the leading insurer (Article 9, LC).

Apart from that, the LC provides for several other alternatives, including the following:

• an insurer that is not domiciled in a state bound by the LC but that has a branch, agency or other establishment in one of the states bound by the LC shall, in disputes arising out of the operations of the branch, agency or establishment, be deemed to be domiciled in that state (Article 9, LC);
• in respect of liability insurance or insurance of immovable property, the insurer may in addition be sued in the courts of the place where the harmful event occurred (Article 10, LC);
• the same applies if movable and immovable property are covered by the same insurance policy and both are adversely affected by the same contingency (Article 10, LC); and
• with regard to certain types of risks and losses, such as large risks or losses pertaining to ships and aircrafts, parties are free to contract around the provisions set forth in the LC even before the dispute has arisen (Article 14, LC).

Unless otherwise agreed by the parties, the choice of forum is deemed exclusive. This holds true under the CPC, the PILA and the LC.

Applicable Law

The PILA contains rules on the applicable law (Article 1, PILA). Swiss law explicitly permits the freedom to choose the applicable law for contracts, including insurance and reinsurance contracts. Therefore, the starting point is that insurance and reinsurance contracts are governed by the law chosen by the parties. The choice of law must be express or result (with certainty) from the provisions of the contract or from the circumstances. The choice of law may be made or changed at any time. If a choice of law is made after the conclusion of an insurance or reinsurance contract, it has retroactive effect as of the time of conclusion of the contract (Article 13 et seqq, PILA).

In a choice of law clause, it must be made clear whether substantive Swiss law or Swiss law including its conflict of laws principles shall apply. Otherwise, the result may be a so-called renvoi to a law that neither of the parties had anticipated, let alone wished, to apply (Article 14, PILA).

In the absence of a choice of law, contracts – including insurance and reinsurance contracts – are governed by the law of the country with which they have the closest connection. Such a connection is presumed to exist with the country of the domicile/seat of the party that has to perform the characteristic obligation or, if that party has concluded the contract in the exercise of business activity, with the country where such party has its establishment. Specific rules apply in case of contracts with consumers (Article 120, ICA).

Foreign judgments, either against an insurer (eg, a claim for coverage) or a policyholder (eg, a claim for premium), can efficiently be recognised and enforced in Switzerland. In a domestic context, a judgment rendered by any Swiss court is enforceable in the whole of Switzerland without the need of any additional prior proceedings for the recognition and enforcement.

There are no special rules or treaties for the recognition and enforcement of foreign judgments concerning disputes in connection with insurance or reinsurance contracts. Rather, the recognition and enforcement are subject to the same rules applicable to foreign judgments concerning other areas of commercial law.

The recognition and enforcement of foreign judgments is governed by the rules set forth in the PILA, pursuant to which a foreign judgment is enforceable in Switzerland under the following preconditions (Articles 25 et seqq, PILA).

• The foreign court had jurisdiction.
• The foreign judgment is final, meaning that no ordinary appeal can be lodged against the judgment.
• No grounds for refusal apply. The PILA contains an exhaustive list of such grounds, ie, violation of Switzerland's public order, defective service, or res judicata. These limited grounds for refusal are aimed at preventing the contradiction of fundamental principles. Apart from this, Swiss courts must not review the merits of the case.

As in other areas, international treaties providing for the recognition and enforcement of foreign judgments take priority over the rules in the PILA, to the extent such treaties are applicable (Article 1, PILA).

Under the LC, which is of particular importance in practice, Swiss courts must, upon request by a party, immediately recognise and declare enforceable a judgment rendered by a court in one of the member states to the LC, including all member states of the European Union, if the preconditions set forth in the LC apply. As under the PILA, Swiss courts must not review the merits of the case, but they can deny the recognition and enforcement if the foreign judgment constitutes a violation of Swiss ordre public or if the foreign judgment is in conflict with an earlier judgment in the same cause of action and between the same parties (res judicata), provided that this earlier judgment could be recognised in Switzerland (Article 32 et seqq, LC).

The Swiss Civil Procedure Code (CPC), in conjunction with Federal Act on Debt Enforcement and Bankruptcy (DEBA) applicable for the enforcement of monetary claims, provides for uniform enforcement proceedings throughout Switzerland.

In general, the recognition and enforcement of a foreign judgment does not require a separate procedure. Instead, a state court competent in connection with enforcement proceedings will examine whether the conditions in the applicable treaty (or in the PILA) are met as a preliminary question within the specific enforcement procedure.

Four cantons (Zurich, Berne, St Gallen and Aargau) have a commercial court (handelsgericht). Commercial courts are composed of professional judges and commercial judges. The specific composition of commercial courts is subject to the laws of each canton which has established a commercial court. In the canton of Zurich, for example, the commercial court comprises of two professional judges, who are members of the high court, and three commercial judges. The three commercial judges are selected from a list of experts from different industries, for example insurance and banking. The selection of the commercial courts is made on a case-by-case basis to make sure that the needs of each case are best met and that those commercial judges with the industry expertise required in a given case are on the bench. Therefore, commercial courts are recognised for their expertise in commercial matters due to the high level of qualification of their members.

At any time of the proceedings, including the first stage (in which the parties plead their cases), the court is free to call the parties for a so-called “instruction hearing” aimed at holding settlement talks and/or taking specific evidence. In particular, commercial courts tend to hold court-led settlement talks after the first round of written submissions, in which the presiding judge gives the parties a preliminary (without prejudice) assessment of the claim (ie, a chance/risk-assessment) and puts forward a settlement proposal. This can help settle even large and complex disputes at an early stage at relatively low costs.

Another feature that can help keep proceedings less costly and burdensome than in other jurisdictions is the fact that US-style discovery or extensive exchange or production of documents is alien to the Swiss civil procedure system.

Furthermore, it is worth noting that in Swiss civil proceedings other than arbitration, the parties cannot appoint their own experts to appear in court. Instead, it is for the court to decide whether it is required to seek the expertise of an outside pundit. If so, the expert is appointed and instructed by the court. However, due to the parties' fundamental right to be heard, the parties are given the opportunity to give input as to the expert to be selected and the questions the experts are asked. In any event, the expert must be independent and, thus, free from any conflict with any of the parties involved.

In terms of arbitration, Switzerland is not only well-known for its wide scope of party autonomy and legal certainty, but also for the “arbitration-friendliness” of its institutions and courts. Therefore, arbitration provisions in commercial contracts, including insurance and reinsurance contracts, are honoured by the state courts and, thus, readily and uniformly enforceable.

On the one hand, it is a fundamental principle that arbitral tribunals have “competence-competence” so that the tribunal has the power to decide on its own jurisdiction. On the other hand, the federal lawmaker has enshrined both in the CPC (for domestic arbitration) and in the PILA (for international arbitration) the basic principle that if the parties have concluded an arbitration agreement, a state court shall decline jurisdiction and refer the parties to arbitration (Article 61, CPC) (Article 7, PILA).

The CPC and the PILA each only provide for three limited exceptions (Article 61, CPC) (Article 7, PILA):

• the defendant submits to the state court proceedings without reservation;
• the court finds that the arbitration agreement is null and void, inoperative or incapable of being performed; or
• the arbitral tribunal cannot be appointed for reasons that are clearly attributable to the defendant in the arbitration proceedings.

Swiss arbitral awards, meaning arbitral awards rendered by an arbitral tribunal with its seat in Switzerland, are enforceable in the territory of Switzerland in the same way as judgments of a Swiss state court. There is no separate procedure for the recognition and enforcement required. The same principles apply if an award concerns a dispute on insurance or reinsurance contracts.

The recognition and enforcement of foreign arbitral awards is subject to the rules of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (NYC). Switzerland has, as most countries in the world, signed and ratified the NYC. Accordingly, the PILA only contains a short reference to the NYC. Enforcement of a foreign award does not necessarily require a separate recognition procedure. Instead, a state court competent in connection with enforcement proceedings will examine whether the conditions set forth in the NYC are met as a preliminary question within the specific enforcement procedure.

There are no official statistics available in Switzerland that would give an indication as to the frequency of arbitration clauses in insurance and reinsurance contracts. While insurance disputes, including complex matters with an international angle, are regularly tried before the Swiss commercial courts, it must be rightly assumed that the parties to commercial insurance programmes equally often opt for arbitration. Regarding reinsurance contracts, it is probably right to say that arbitration has been the standard means of dispute resolution.

It is a fundamental principle of Swiss contract law, which equally applies to insurance and reinsurance contracts, that for a consensus required for the conclusion of a contract, the parties must only agree on the basic points of the contract (essentialia negotii), while less important points can be left open.

To the extent that the parties' insurance contract leaves issues unaddressed, statutory provisions set forth in the ICA will apply by default. Put differently, only if the parties have not agreed on specific provisions in their contract, the statutory law rules serve to complete the contractual terms and, thus, apply by operation of law.

As reinsurance contracts are exempted from the ICA, general rules of Swiss contract law set forth in the SCO or developed by case law can apply by default in reinsurance contracts.

Prior to the conclusion of an insurance contract, the insurer has the right to enquire about all material facts. Swiss insurance statutory law contains specific rules on misrepresentation in the realm of insurance contracts (Articles 4–8, ICA). Statutory law provides that the applicant (ie, the prospective policyholder) must inform the insurer in writing of all facts material to the assessment of the risk, insofar as and in such a way as they are known or must be known to them at the time of conclusion of the contract, by means of an insurer's questionnaire or upon other written questioning by the insurer. Material facts of risk are those that are likely to influence the insurer's decision to conclude the contract at all or under the agreed conditions. The facts of the risk to which the insurer's written questions are directed in specific, unambiguous terms are presumed to be material (Article 4, ICA).

If the policyholder has unduly disclosed or concealed a material fact of risk of which the policyholder was aware or should have been aware and about which the policyholder was asked in writing, the insurer is entitled to terminate the insurance contract by written declaration within a deadline of four weeks after the insurer has become aware of the breach of the duty of disclosure (Article 6, ICA).

If the contract is terminated by notice of cancellation, the insurer's obligation to pay benefits for losses that have already occurred and whose occurrence or extent was influenced by the non-disclosed or incorrectly disclosed material fact of risk shall also cease. In so far as the obligation to pay has already been fulfilled, the insurer is entitled to reimbursement (Article 6, ICA).

Despite the breach of the duty of disclosure (Articles 4 and 6, ICA), the insurer may not terminate the contract (Article 8, ICA):

• if the concealed or incorrectly disclosed fact ceased to exist before the feared event occurred;
• if the insurer has caused the concealment or incorrect disclosure;
• if the insurer knew or must have known of the concealed fact;
• if the insurer was or must have been aware of the incorrectly disclosed fact;
• if the insurer has waived the right of termination; and
• if the person obliged to notify fails to answer a question submitted by the insurer, and the insurer has nevertheless concluded the insurance contract.

Identifying trends and developments is generally a challenging task as there are no official statistics available in Switzerland as regards litigation on insurance coverage. Yet, it is probably fair to say that not only in the past 12 months, but in recent years policyholders and insureds have developed a stronger appetite for litigating their claims in court rather than settling out of court for a low amount or even accepting the insurer's denial of coverage. Furthermore, there has been an ongoing trend that disputes pertaining to larger insurance programmes for companies with international commercial activities are usually submitted to arbitration.

Disputes on insurance contracts are subject to the same set of procedural rules as disputes on other matters of contract or tort law. However, disputes on insurance contracts are often tried before the commercial courts, giving the parties the benefit of several (procedural) advantages, such as:

• the particular expertise of the judges presiding over the case;
• the tradition of court-led settlement negotiations that usually take place after the first round of submissions;
• that claims can be filed directly with the commercial courts without the need of first applying for conciliation proceedings that are usually led by lay judges; and
• that commercial courts are the only courts on cantonal level and, thus, that judgments rendered by commercial courts can directly be appealed against with the Federal Supreme Court.

Although the same holds true for reinsurance contracts, it seems fair to say that in practice reinsurance contracts are almost always subject to arbitration. This contributes to the fact that only a small amount of case law from state courts in Switzerland covers reinsurance matters. Nonetheless, the Federal Supreme Court has already addressed reinsurance contracts in a few cases which provide practitioners with certain helpful guidelines.

Swiss contract law – including insurance and reinsurance contracts – upholds the principle of party autonomy and, thus, freedom of contract. Hence, it is the parties' freedom to conclude or not to conclude a contract and freedom of choice of the partner. There is no obligation to enter a contract (exceptions exist only in highly regulated areas such as healthcare, public transportation, or based on antitrust law). Furthermore, there is freedom to establish the content of the provisions of an insurance contract.

In general, the same principles apply in the realm of insurance contracts concluded with consumers. There is no separate code or law specifically aimed at protecting the interests of consumers buying insurance products. Furthermore, the ICA does not distinguish between consumers and non-consumers, but the revised ICA only grants opt-out privilege to so-called “professional policyholders”. Lastly, as Switzerland is not a member of the EU, the EU Directive on “Insurance Distribution”, aimed at strengthening consumer protection, does not apply in Switzerland.

However, there are five caveats to this.

• First, the CPC, PILA and the Lugano Convention contain provisions concerning the place of jurisdiction for matters pertaining to “consumers” (as defined in the CPC, PILA and LC) which cannot be waived by the consumer before the dispute has arisen.
• Second, the PILA contains provisions concerning the choice of law for matters pertaining to “consumers” (as defined in PILA) which cannot be waived by the consumer
• Third, general terms and conditions of an insurance contract, ie, insurance terms and conditions that have not been individually negotiated with the insurer, are subject to the Swiss Act against Unfair Competition, which provided that general terms and conditions must not:
1. be to the detriment of consumers;
2. be against good faith; or
3. contain a significant and unjustified imbalance between the policyholders' rights and obligations.
• Fourth, statutory law provides that, in general, the insurer is liable for all events that display the characteristics of the risk for which the insurance was taken out unless the insurance contract excludes particular events from the insurance in a precise and unambiguous way (Article 33, ICA). Hence, to the extent that coverage is not explicitly excluded, there is a certain presumption for coverage concerning the type of risk insured under an insurance contract.

• Fifth, even though the parties to an insurance contract are generally free to agree on contractual provisions that deviate from Swiss insurance statutory law, there are certain boundaries which should guarantee a certain level of protection for policyholders. Articles 97 and 98 of the ICA contain exhaustive lists of certain statutory law provisions defined as either “mandatory” (which means that the parties to an insurance contract must not contract around these provision) or “half-mandatory” (which means that the parties can only agree on a provision that is more beneficial for the policyholder or insured than the statutory law provision), respectively.

For example, under the revised ICA, in force since 2022, it is a mandatory (ie, non-amendable) statutory law provision that either of the parties to an insurance contract has the right to terminate the insurance contract at the end of the third year, even if the insurance contract had been agreed for a period longer than three years.

At the same time, however, the revised ICA has introduced the concept of so-called “professional policyholders”, for which the “mandatory” and “half-mandatory” provisions contained in the ICA do not apply (Article 98a, ICA). Hence, in an insurance contract between an insurer and a professional policyholder, the parties have almost full contractual freedom, limited only by principles of general contract law (eg, good faith). Pursuant to the definition contained in the revised ICA, a policyholder qualifies as “professional” if the policyholder, inter alia, has a “professional risk management”, or exceeds two of the following three criteria:

• balance sheet total of CHF20 million;
• net revenue of CHF40 million; and
• equity/net assets of CHF2 million.

The revised ICA, which came into force in 2022, introduced a direct right of action for third parties (or their legal successors) against the liability insurer (Article 60, ICA). This newly introduced right applies to all types of liability insurance contracts, and it applies regardless of whether or not the liability insurance is compulsory. However, the third party may claim for insurance coverage only within the scope of liability insurance cover that exists between the insurer and the policyholder. Hence, the insurer’s obligation to provide coverage is subject to the same objections and defences that the insurer may raise by virtue of the statutory law or the contract against the policyholder. Put differently, the third party suing an insurer for coverage does not benefit from more beneficial coverage conditions than the policyholder. Furthermore, third parties have only very limited (and in the case of non-compulsory liability insurance almost no) rights to obtain information about the insurer and/or the insurance contract, which usually puts thirds parties at a significant disadvantage.

Prior to the revised ICA, only a limited number of special laws requiring compulsory liability insurance in the areas such as motorised vehicles, ships, airplanes, railway, hunting, or nuclear plants provided a direct right of action against the liability insurer. Apart from these statutory law provisions, a third party could only be entitled to sue an insurer if entitled by means assignment of a claim for coverage.

It is a fundamental principle of Swiss law that every person must act in good faith in the exercise of their rights and in the performance of their obligations. Accordingly, the manifest abuse of a right is not protected by Swiss law. This principle is enshrined in the Swiss Civil Code (CC) and applies in all areas of civil law, including contract law. Therefore, it equally applies in the realm of insurance and reinsurance contracts.

The principle of good faith is of comprehensive importance throughout contract law and, thus, equally applies in the realm of insurance and reinsurance contracts.

For example, good faith is of utmost importance for contract interpretation. In the event the court cannot ascertain from the evidence submitted the real mutual intent of the parties, the court has to resort to an “objective interpretation” based on good faith. Such interpretation is also called the reliance test, in which the court determines the concurring intent of the parties by asking how the recipient of the communication, which includes the wording of a policy, acting in good faith had to understand such communication, taking into consideration all circumstances.

However, the principle of acting in good faith already exists at the time before a contract is concluded, ie, at the stage of contractual negotiations, and is known as culpa in contrahendo. It requires that parties negotiate in good faith and that they do not breach certain limited pre-contractual duties in bad faith.

The CPC explicitly reiterates that the principle of acting in good faith equally applies to all parties that participate in civil proceedings.

It derives from contractual freedom that the parties can agree freely, within certain limits (such as abusively high default interest), when a party should be considered in default with the performance of its contractual duties and/or which legal consequences should apply in the event of default.

In the absence of an individually agreed arrangement, statutory contract law provides that a debtor in default on payment of a pecuniary debt must pay default interest at 5% per annum. This statutory provision applies to any type of contract governed by Swiss law, including insurance and reinsurance contracts, and, thus, any type of claim for payment. Hence, it equally applies to the policyholder’s or insureds claim for the payment of insurance coverage as well as for the insurer’s claim for the payment of premium.

Whether or not an insurance broker's activities, including representations made by a broker, are binding on an insured is subject to the provisions on general Swiss agency law set forth in the Swiss Code of Obligations (Articles 32 set seqq, SCO). Swiss agency law provides that the rights and obligations arising from a contract made by an agent in the name of another person accrue to the person represented, and not to the agent. The scope of the authority conferred to the agent primarily depends on the instructions given to the agent.

Therefore, to the extent that an insurance broker acts as the policyholder's representative in the meaning of Swiss agency law, the policyholder and insureds are generally bound by a brokers' representations.

It is quite common in Switzerland that insurance brokers advise and represent policyholders, in particular companies seeking to buy or renew insurance coverage. Especially where there are complex losses, the services of external loss adjusters are often retained to support and facilitate the claims handling process.

Situations involving an insurance broker or external loss adjuster only very rarely give rise to litigation. Accordingly, there is almost no case law concerning disputes with insurance brokers or loss adjusters.

Insurers have to fund defence costs of policyholders or insureds only if there is an insurance policy in place obliging the insurer to cover such cost risks. Put differently, without the insurer having agreed to fund defence costs for the insured or to defend the insured, there is no such obligation on the insurer.

In practice, private individuals and companies buy legal expense insurance (Rechtschutzversicherung). Furthermore, liability insurance contracts, for private persons and companies of all sizes, often provide for the coverage of defence costs or even impose a duty to defend. Other types of commercial insurance contracts that often provide for the coverage of legal costs are D&O policies, business interruption policies and cybersecurity insurance.

In disputes between insurer and policyholder or insured, an insurer can also be bound by the court to pay the policyholder's or insured's cost of litigation. In Swiss civil proceedings, as under the English cost rule, the party losing in court pays the other party's legal costs and the court fees.

In general, and compared with other jurisdictions, it is fair to state that Switzerland does not have a litigious culture. Therefore, with regard to the Swiss domestic market, it is not expected that there will be more funding for the defence of insureds in future than there is at present.

What might be possible, however, is that Swiss companies operating on foreign markets, which are therefore exposed to legal risks of jurisdictions that are more prone to litigation, will try to adapt their international insurance programmes by seeking to extend the scope of coverage for legal risks and defence costs.

Although Switzerland does not have an overly litigious culture, in recent years there has been a trend towards more litigation, as companies tend to be more willing to litigate their claims in court rather than reaching a weak settlement.

A gateway to more complex and, thus, more costly litigation could be the introduction by new possibilities of collective redress into the Swiss civil procedure system. However, the Swiss system of civil procedure does not yet provide for class actions. In a report published in 2013, the Swiss Federal Council (Switzerland's federal government) recognised that Switzerland's mechanisms for collective redress are insufficient. The Federal Parliament rejected a first attempt to improve the legal framework. Although the latest proposal to increase the level of collective redress was made in 2021, it is rather uncertain whether this will result in an effective mechanism. The latest proposal essentially only provides for:

• an extension of so-called “group actions” (Verbandsklagen), ie, actions filed by non-profit organisations that are authorised by their articles of association to protect the interests of a certain group of individuals; and
• an introduction of court-approved collective settlements.

Apart from insurance products provided by the regulated insurance industry, an alternative option for plaintiffs to protect themselves against cost risks in connection with claims before state courts or arbitral tribunals is third-party litigation funding.

In 2004, the Swiss Federal Supreme Court held that litigation funding provided by third-party funders is permissible in Switzerland provided that the funder is independent from the plaintiff's counsel. So far, third-party litigation funding is not subject to specific provisions in the CPC or in any other act. Instead, the contents of funding agreements are primarily subject to the parties' agreement and, by default, the general rules of Swiss contract law.

In recent years, several Swiss and also non-Swiss (in particular German, English Dutch and French) funders have been active in Switzerland. As all funders usually require a certain value in dispute, funding is mostly only a viable option for larger cases with a value in excess of CHF300,000 – a number often exceeded in disputes pertaining to commercial insurance.

Pursuant to Swiss statutory insurance law, casualty insurers have a right of action to recover sums from third parties causing an insured loss to an insured. However, the insurer is not given more rights vis-à-vis a third party than the insured. Instead, to the extent that there is coverage, the insurer assumes the insured's rights vis-à-vis the third party. Under the revised ICA, which came into force in 2022, the insurer's right of action exists with regard to any type of claim (tort, including fault-based and strict liability, and contract). By contrast, under the old law, the insurer's right of action was limited to tort claims and, until 2018, to fault-based liability.

The insurer's right of action to recover sums from third parties is codified in Article 72 of the ICA.

As Swiss law, including Swiss civil procedure law, is characterised by stability and continuity, it is difficult to discern new trends that would fundamentally alter the nature of the system currently in place.

However, since the global COVID-19 pandemic struck Switzerland, its people and its economy, the pandemic also had a significant impact on Switzerland's insurance market. Even though the number of coverage claims filed with Swiss courts has been relatively low compared with other jurisdictions, there has been litigation in connection with COVID-19 and business interruption. Often, however, insurers and policyholders have found ways to settle claims outside of court.

Russia's war against Ukraine, along with the various sanctions imposed in response, has caused significant turmoil on the markets, which in turn has entailed complex legal questions. Among the issues are questions as to the scope and extraterritorial application of certain sanctions. Certain examples show that some banks in Switzerland seem to have taken an overly careful approach aimed at mitigating their own risks to the detriment of clients. Other industries and sectors have been similarly affected. This has inevitably caused contentious situations which either already have or will result in litigation. Ultimately, this has the potential to spill over into the insurance market as some companies might try, depending on their insurance coverage, to pass on some of their losses to their insurers.

Given the current geostrategic and political situation, in particular if combined with a significant economic downturn, it is possible that there might be an increase in litigation in the near future.

It is not clear that the current macroeconomic factors have already given rise to specific coverage issues or test cases in Switzerland.

There are no specific examples available in which the current macroeconomic factors have affected the scope of insurance cover available or changed appetites for risk. However, insurers have certainly been monitoring the current situation more closely and, where necessary, will adapt their coverage conditions to new types of risks. This might be the case in the realm of business interruption policies.

In recent years, ESG risks, including the examination of a company's environmental, social, and governance practices, their impacts, and the company's progress against benchmarks, have gained relevance in Switzerland's corporate landscape they have on an international scale. In 2020, Switzerland's people were given the opportunity to vote on the so-called “corporate responsible business” initiative aimed at amending the Swiss federal constitution and which would have laid the legal basis to sue companies before Swiss courts for violations of international human rights or environmental laws committed abroad by themselves, their subsidiaries or suppliers. The Swiss electorate voted against the initiative. Yet, as a counter-proposal to this initiative, the Swiss federal parliament introduced new ESG reporting standards for large, public interest companies on environmental and social matters. In addition, new diligence requirements will affect all Swiss companies, regardless of their size, if these companies:

• import or process minerals or certain metals from conflict regions; or
• offer products or services where there are reasonable grounds to suspect child labour.

Against these global and domestic developments, ESG risks are certainly being monitored and taken into consideration in the underwriting procedures by insurers in Switzerland, as they are by insurers in other important markets.

However, it is worth noting that there has not been ESG-related litigation in Switzerland (like there has been other jurisdictions such as the Netherlands) in which Swiss courts have sentenced corporations to pay damages for their business activities.

There have not been significant legislative or regulatory developments that are expected to significantly affect insurance coverage, insurance litigation or claims that insurers will fund the defence of.

Swiss contract law, including the laws on insurance contracts, is notable for its stability, continuity and, thus, its predictability. The revised ICA, which came into force in 2022, does not mark any change to this even though the partial revision introduces several new amendments. However, there is no basis to assume that the revised law would entail an extension of insurance coverage or give rise to more insurance litigation.

Quite to the contrary, the revised law provides for more clarity regarding certain areas. For example, the revised law codifies regulation on provisional coverage notes (in practice often referred to as insurance binders or insurance slips), by clarifying that provisional coverage notes already impose a performance obligation on the insurer and, thus, already constitute an insurance contract, provided that the insured risks and the scope of the coverage can at least be determined. If the provisional coverage note does not contain an agreement on it duration, either party has the right to terminate the provisional coverage at any time with a notice period of 14 days. In any case, the provisional coverage ends with the conclusion of a final insurance contract.