Attorney Marcelo Mansur Haddad from the law firm Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados addresses the impact of Covid-10 on Brazil’s insurance claims.
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Best’s Insurance Law Podcast
The Impact of Covid-19 on Claims in Brazil
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John Zuba: Welcome to Best Insurance Law Podcast, the broadcast about timely and important legal issues affecting the insurance industry. I’m John Zuba managing editor of Best’s Recommended Insurance Attorneys. We’re pleased to have with us this morning attorney Marcelo Mansour from the Law Firm Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados in Brazil. Marcelo is a partner at the firm. He counsels insurance, reinsurance and pension companies on regulatory, transactional and claims matters. He has also authored several books and articles on insurance and reinsurance and Marcelo is also involved in the most recent significant transactions and claims matters taking place in Brazil. Marcelo, thank you so much for joining us this morning.
Marcelo Mansour: John, thank you very much. It’s my pleasure to be here with you.
John Zuba: Today’s discussion is on the impact of COVID-19 on Brazilian insurance and claims, and for our first question this morning, Marcelo, can you tell us a little bit about the current status of COVID-19 and its impact on Brazil?
Marcelo Mansour: Yes, for sure John. Yes, we have reached a point here in Brazil and I think maybe it’s a little bit different from what we see in Europe but is very similar to what we see in America. We didn’t have what people normally called the waves. We have a plateau, so we began our increase of people being infected and unfortunately diseases, and we stayed for that for a long period. Now, we are beginning to see a small reduction. In terms of numbers, we are currently reaching the number of five million infected people, and unfortunately the number of 150,000 people who died of the disease. We currently in Brazil, we are resuming slowly activities. So, people are back on the work with very-very few people, but there is one particular point that we have to talk about Brazil and maybe other countries will be similar in in the Americas is that due to our economic and social situation, we have a lot of informal work. And for people who have informal work, they cannot stay at home because they depend on their work for everyday earnings. And the help from the state was very important but took some time to start. So, we had our beginning of the pandemic very chaotic with different signals and different messages and people need to go to the street. So, that’s unfortunately the situation that we ended. So, that’s why I think different from other countries. We are in a plateau situation, not on a wave situation. So, that’s a general report of COVID-19 in Brazil.
John Zuba: Thanks Marcelo. Are there any discussions on the refund or payback of insurance premium or other types of benefits to insureds?
Marcelo Mansour: John, that’s an interesting question. We have seen that happen in other countries but we didn’t see that very strong in Brazil. I think we can think about something like auto insurance. I think the first info that I think it’s important to understand from the Brazilian market is that even though in some major cities and most of the capitals, you’re going to see a high number of insured vehicles. Generally, in Brazil only third percent of the fleet is insured. And of course, when you think about that and you think about the people that have their cars insured were using their cars to move inside Brazil, especially people that tried to go to the countryside, tried to get out of the big cities because they thought that things were getting worse in the cities. You don’t see many people asking for refunds. So, we didn’t see associations going after this fight. We didn’t see individuals going after that. So, it’s something that actually didn’t pick up in Brazil.
Any kind of refund or major refund or payback claims.
John Zuba: Marcel, on property lines, is BI coverage subject to material damages and what is the status of COVID-19 discussions in Brazil in this regard?
Marcelo Mansour: In Brazil for the time being, BI coverages are linked to material damages in the traditional concept that we have always used is that there is a machine breakdown, there is a collapse, there is something that a damage that you can see that it’s destroyed, it was in fire or something like that. And these would trigger business interruption. That has always been the case in Brazil. Policies are drafted like that. However, we have to say that we are facing something that’s totally new here and we see voices in Brazil trying to raise the argument and picking up from other countries that the material damage is what’s behind that is the usefulness of the property. So, if it’s not useful anymore, if I cannot use it anymore even though there is no material damage, there is some people, I’ll not say it’s a lot of voices. Some small voices trying to raise the argument that this would trigger BI coverages. However, just to come back to the beginning, this is not what we have today and this is not what regulators have said. Regulators have said, what is covered is covered, there’s nothing to increase coverage because of the pandemic. And that’s not what we are seeing in the courts because of different from other countries. BI coverage is not spreading in Brazil. What we’re going to have from BI coverage are normally big business, normally operational insurance or big property from factories. And really, we’re talking about for instance fires and other types of accidents but we don’t have like you see in other countries, mid-size even small or big chain foods, restaurants having BI coverage. So that’s why we don’t see that kind of discussion very much in Brazil although we can hear some noises trying to adapt the concept that’s well established in Brazil.
John Zuba: Marcelo, is COVID-19 force majeure on the Brazilian law and what is its impact in surety bonds and would it be force majeure for future policies?
Marcelo Mansour: Yeah, this is an important point as well. So, for sure COVID-19 falls into the definition of force majeure in Brazil. It’s something that we could not predict or foresee. It’s unexpected that we cannot avoid. So, I think it fills all the requirement but one thing is to be. One thing is to be force majeure and the other thing is to be a force majeure event that exempts someone from the obligation to fulfill a given obligation, a given duty. And here is where we have to make the DNS assessment especially for surety bonds. So, the fact that behind that is that even though COVID-19 may be considered force majeure, when we make an assessment of surety bonds, we normally exclude force majeure events. We have to understand first of all what is the impact of that force majeure in the obligation that has not been fulfilled. So, we have to make a step-by-step analysis to see first of all whether such obligation was in default before COVID-19 heated. Secondly, we need to see whether such an obligation became really impossible or simply burdensome. Because then we we’re going to apply different type of theories, the hardship theories or force majeure theory. And we have to establish very clear a link between the impossibility of that obligation and the COVID-19. Maybe the COVID-19 had no actual impact in the fact that the obligation became impossible and the impossibility comes from other reasons. So, this relationship between COVID-19 which is a force majeure event and the impossibility of fulfilling a certain obligation has to be clearly established so that we have a force majeure event preventing you and using as our argument that you cannot fulfill the obligation.
And for future policies, I think we can say today that for COVID-19 is not force majeure because not expected. So, what expected today is that people will have fallback plans, emergency situation studies that whenever we have second hit or something like that, companies will be prepared to deal with that. First of all,
they need to be prepared to deal with COVID right now. Secondly, they need to be prepared if there is a second hit or something like that. Unless, there is something out of the extraordinary. There is a new type of virus that nobody could expect and comes and hits strongly, then we could even argue that there is a second force majeure. But once the event of COVID-19 is there, it’s difficult to argue that this would be force majeure for the purpose of contractual obligations and insurance.
John Zuba: Marcelo, how are COVID-19 claims aggregated for reinsurance purposes?
Marcelo Mansour: Yeah, we have seen in Brazil very few discussions about that. But they are, and they are not easy to deal with. First of all, because aggregation, the discussion of aggregation will vary a lot. Depending on the type of coverage that you’re talking, if it’s life, if it’s property, if it’s BI, if it’s liability or casualty. So, this is the first thing. Secondly, we have to understand what we are talking about. We are talking about a region, a country, what time frame we are trying to encapsulate here. So, there are lots of things that you have to consider when aggregating claims for insurance purpose. And just to give an example, maybe we can aggregate hospital liability discussions when for instance in the beginning of the pandemic, the hospital didn’t take the right measures to protect their own employees and people that were going to the hospitals to receive treatment. So, maybe we can aggregate all these policies triggering from the event that they know that the COVID happened, but it’s the rate of the country, but they were not fully prepared to deal with that. On the other hand, we cannot aggregate things that are happening in other parts of the country because this is a disease that comes bit by bit, and there is a huge variation from different cities and different states here in Brazil. If you remind what happened, so first of all, the COVID hit countries that were receiving people that were coming from outside the country. So, people that were hubs for airports. Then it started to spread inside the country in different ways with different severities. And with that, it makes very complicated to make aggregation tests or aggregation analysis. So, the recommendation here is to try to analyze on a case-by-case base, considering different type of coverage you’re talking and what happened actually in the country, in the state, or even in the city to take into consideration geographical area and the time that we are considering.
John Zuba: Marcelo, what’s the position of lawmakers and regulators and what are the tendencies of some of the local insurance players in Brazil?
Marcelo Mansour: I’ll begin with regulators, so our regulators, we have a regulator currently that has a very liberal approach. So, they simply said it’s covered what’s covered. You have to read your policy. I’m not going to get involved on that. So, that’s their tendency. We had in the past some regulators who are more consumer-driven, it’s not the case of ours, of course they have consumer protection. We have consumer protection. That’s not necessary under the insurance regulator. But that was the position of regulator so far. On the lawmaking area, so in the very beginning of the pandemic, lawmakers were concerned about two things.
About health and life. On the health side, the regulators simply said on day one, said it doesn’t matter what happens. COVID is covered. So, it was very clear. So, you have to understand that in brazil the health regulator that regulates health insurance companies, we have what we call health plan operators because they are not only insurance companies, it’s one. The insurance regulator is another one. So, from the health regulators, it’s fully covered. So, it’s fully covered, including there was some discussions about testing, but most of the testing are covered right now. On the lawmaking side, there is a bill that’s going on and the idea of the bill, it’s not approved yet. So, the idea of the bill is to say that everything that’s related to pandemic must be covered on life and on health as well. It doesn’t talk about property; it doesn’t talk about casualty. It doesn’t talk about BI. The lawmaker was exclusively focused on the life and health portion of protections. And I think this law, it may it may be approved. It would have retroactive effect; it will deal with everything but I think it’s already too late. Because once the regulator on life, on health has already said it’s covered, on life, what happened? Even for policies that had a clear exclusion, the life players in the market decided to pay for COVID deaths. For a multitude of reasons, but some of them are at the time and even now, but at the time it was more complicated. It was very difficult to establish that the death was a death by COVID-19. And we have to differentiate death by COVID-19 and death because of COVID-19, which are different. But most of the death certificates did not even mention COVID-19. Because the physicians didn’t even know for sure what was the cause of death, so normally it was a general statement. Secondly, because the penetration of life insurance in Brazil is not high, it’s low. So, even paying losses that technically would not be covered, the loss ratio would not be huge. And secondly, there was an assessment that disputing this kind of exclusions would be very difficult because of the situation we had in Brazil, because you couldn’t deep assess what was the cause of death. You’re going to expose people doing these assessments, sending them to the streets and hospitals to make investigations. So, the market took the approach that say it’s better to pay than to discuss. And that’s what happened in the life. The tendency by now is whether players would put a time period during which you cannot claim death for COVID, but even that has not been implemented. So far people are leaving with that and the tendencies to continue paying, maybe at some point in time this will change. It will change, basically make it more clear for future pandemics, not for this one but that’s what we have seen in local players. So, if there is some tendency, maybe at some point in time we are going to see maybe some more clear exclusions because people know what the disease is, or maybe you’re going to see some time periods that for during which you will not be able to claim a policy for death related to COVID-19.
John Zuba: Marcelo, are there any major cases under discussion in Brazil courts right now?
Marcelo Mansour: No, not different from what we see in France, different from what we saw in Germany. We have the FCA UK discussions and we have the discussions in the US as well. In Brazil, because life players have dealt with the situation as I have described, because for health everything is covered and now, we are talking about casualty and property. So, the only case that hit the press amazingly was the filmmaking industry.
And maybe because we have some famous case in the US and these cases are replicating in Brazil, they basically deal and this is public, they basically deal not with this discussion on coverage but basically the discussion on renewal. Because all these filmmaking productions have to be postponed. And sometimes even postponed they have to be extended in time because if they needed six months to do that, because of the pandemic, maybe they will need eight months, ten months, a year which increases budget as well. So, the discussion we are having here in courts are much more focused on how insurers can extend it, if they can impose conditions or not impose new conditions and how they deal with COVID-19 in the future. That’s the discussion that we have seen in courts. Otherwise, what we expect is that in the future and you have to understand that this takes some time, we may see some surety bonds discussions based on what we have discussed before, surety bonds claims discussions in court if the parts do not settle when allocating the risk what is covered by COVID, what’s impact of force majeure, what’s not an impact in force majeure and should be paid by the insurer. So, it’s possible that in the future, we are going to have some discussions about surety bonds. I think at this very time people are trying to solve the problems and see if there is a claim to be argued, and if there is a claim, and if the claim is not paid, this this will possibly go to court. You have to understand that the insurance piece is normally the last one to move. People will try to understand what has happened. They will read their policies. They will reach the conclusion that they are possibly covered. They will ask for the payment of the claim. The claim will be adjusted or not. The claim will be paid or not, and only if the claim has been adjusted and not paid is the time when we go to court. So, we have a long day here. That’s why in court we have today basically discussion on renewals, because these are the first discussions that will come when facing COVID-19 insurance related issues.
John Zuba: Marcelo, thank you very much for joining us today.
Marcelo Mansour: John, it was my pleasure. It was a pleasure talking to you.
John Zuba: That was attorney Marcelo Mansour who is a partner at the Law Firm of Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados in Brazil. And special thanks to today’s producer, Frank Vowinkel. And thank you all for joining us for Best Insurance Law Podcast. To subscribe to this audio program, go to our web page www.ambest.com/claimsresource. If you have any suggestions for a future topic regarding an insurance law case or issue, please email us at [email protected]. I’m John Zuba, and now this message.
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