PORTUGAL Law and Practice Contributed by: Leonor Futscher de Deus, Broseta Abogados, SLP
appropriate risk tolerance limits and risk profile, also including rules to be applied in selecting reinsurance counterparties and risk mitigation counterparties. 7.2 Foreign ART Transactions There are no restrictions specifically applicable to reinsurance and alternative risk mitigation techniques underwritten in other jurisdictions. 8. Interpreting an Insurance Contract 8.1 Interpretation of Insurance Contracts and Use of Extraneous Evidence The fundamental principle governing the Insurance Contract Law is the freedom of contract, whereby the parties are free to negotiate and define the terms and conditions of the insurance policy. This principle is likewise enshrined in the Portuguese Civil Code (CC) and applies generally to all contractual insurance rela- tionships. However, there are some exceptions to this principle, namely in what regards consumer contracts and com- pulsory insurance. In the case of insurance contracts concluded with consumers in which the policyholder lacks any real negotiation power regarding the contractual terms, besides mandatory rules under Insurance Contract Law (see 6.6 Consumer Contracts or Reinsurance Contracts ), the rules provided for in the Standard Contractual Clauses Law shall apply: in addition to prohibiting certain types of clauses, considered unfair under certain terms (eg, insurer’s unilateral right to amend or cancel the policy), the Standard Contractual Clauses Law provides that the clauses of an insurance policy should be interpreted pursuant to the general rules of civil law, while duly considering the context in which the policy was construed and accepted by the parties, in particular, the most vulnerable party. In the case of compulsory insurance, there are some types of cover that are subject to clauses pre-approved by the legislator or the ASF (eg, motor vehicle liability insurance). These clauses are presumed to be more favourable and protective of the policyholder/insured.
Interpretation of insurance contracts is undertaken in accordance with the provisions of the CC, which require that contracts be construed from the stand- point of an “average person” (that is, an individual without specialised or technical knowledge of the subject matter) when hypothetically placed in the position of each party to the insurance contract. Moreover, mandatory pre-contractual information supplied by the insurer, policy terms and conditions and any information provided by the policyholder/ insured at policy subscription are all elements bearing significant relevance in what refers to the interpreta- tion of an insurance contract. 8.2 Warranties With regard to mass-risk insurance, it is not common to include representations and warranties clauses in insurance policies in the same terms as said clauses are included in other types of contracts. Typically, mass-risk insurance shall include risk disclosure statements from the policyholder/insured (see 6.1 Obligations of the Insured and Insurer ). Failure to comply with said risk disclosure statements shall have the legal consequences provided for in the law (see 6.2 Failure to Comply With Obligations of an Insur- ance Contract ). However, with regard to large-risk insurance, depend- ing on the coverage and the insured capital (which can be substantial), representations and warranties claus- es may be appropriate in the context of the insurance relationship. Breach of warranties by either party shall be considered a breach of contract and may imply declination of cover by the insurer. 8.3 Conditions Precedent All terms and conditions that may give rise to an exclusion or limitation of the insurer’s liability must be expressly set out in the pre-contractual information and incorporated into the policy’s general terms and conditions. The limitation of the insurer’s liability can be restricted either by the scope of coverage (clear listing of the risks covered by the insurer), obligations imposed on the policyholder/insured (eg, obligation to pay the pre- mium, duties of conduct, and obligation to maintain
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