Fri Jul 11 page08

ONE of your broking teams is celebrating winning a tender for a

book of business from a new client. It will bring in good revenues.

It may be that you have won the business because the

client has become disgruntled with the competitor’s broking

team. Perhaps your competitor became uncompetitive because

of the salaries and bonuses it had to pay its team. In any event,

you are looking forward to commencing work afresh on the

new business.

At that point, your competitor telephones. The message is

that when you take over the work, you will inherit the team that

handled the business at your competitor. Apparently the team

members will automatically become your employees and there is

nothing you can do about this. How can this be?

Perhaps one of the most complicated pieces of employment

legislation is known as TUPE. This stands for Transfer of Under-

takings (Protection of Employment) Regulations 2006. As the

name suggests, TUPE protects employees when an undertaking,

business or activity transfers from one entity to another.

TUPE’s three key consequences

What does TUPE actually do to protect employees? There are

three key consequences:

1) TUPE transfers the employees who are assigned to the

transferring activity with that activity. This means that when

the activity transfers, the employees go with it and the new

entity steps into the old entity’s shoes as the employer. This

includes taking on all liabilities and obligations in relation to

those employees.

2) TUPE protects the employees from being dismissed and from

having their terms and conditions changed. Unless there is a

change in the numbers or functions of the workforce, any dis-

missals in connection with the transfer will be unfair and any

changes to terms and conditions will be void.

3) TUPE imposes certain information and consultation obliga-

tions on employers. If these are not complied with the

affected employees may be awarded up to 13 weeks’ pay each

– and the liability for this can be shared between the new and

old employer.

TUPE matters when you win a book of business from a

competitor because if there was a dedicated team handling

the business at your competitor, the resulting transfer of

broking activities may well amount to a transfer of an “activ-

ity” for the purposes of TUPE. If so, TUPE will then apply to

transfer the employees.

Disgruntled with competitor’s team

This will be particularly unwelcome if the reason the client has

moved the business to you is because they were disgruntled with

your competitor’s team. Additionally, what looked like a prof-

itable piece of new business may be less attractive when saddled

with the costs of the old team.

So how can you deal with this? Unfortunately, there is no way

of contracting out of TUPE, so it is a case of being aware of it and

going into the tendering for new business with your eyes open to

the risks.

You should consider whether TUPE will apply and if so what

employees you may receive (being alert to the competitor trying

to add additional people to the team). You can then consider

what the likely expense (ie, employment cost) of the employees

may be.

TUPE does help to some degree in this regard – your com-

petitor will have to provide you with certain details regarding

the employees who will come across to you but this informa-

tion will by no means be comprehensive. Given this, you may

want to build in some headroom in your tender to allow for

unexpected expenses.

Robert Hill is the department head and Chris Holme is an asso-

ciate director in the employment and pensions team at Barlow

Lyde & Gilbert LLP

THE SWISS Federal Act on the

Insurance Contract (ICA) has

celebrated its 100th anniversary

this year. Although some revi-

sions have been made over the

last decades, a total overhaul ap-

peared necessary in recent years.

Therefore, the Swiss govern-

ment appointed a group of

experts in April 2003 which sub-

mitted its report with recom-

mendations for a new ICA in July

2006. After consultations with

the interested parties, which are

expected to commence soon, the

federal government will work out

a legislative proposal, which

then will have to be passed by

the parliament. This process will

take several more years before

the new law will finally be

brought into effect.

Although 70 years younger

than the ICA, the total revision of

the insurance supervisory law

was completed earlier. On Janu-

ary 1, 2006, a completely revised

Federal Statute on the Supervi-

sion of Insurance Entities (ISA)

entered into force.

In the course of this revision,

some of the most urgent modifi-

cations to the ICA were enacted

in advance. Probably the most

important change was article 6

of the ICA, which deals with the

consequences of pre-contractual

non-disclosure and misrepresen-

tation. The old article 6 allowed

an insurance company to avoid a

policy ab initio, even after the

occurrence of an insured event,

if any material fact were not

properly disclosed by the insur-

ance applicant in the proposal

form.

Under the new article 6 of the

ICA the insurance contract can

only be terminated with imme-

diate but no retrospective effect.

Furthermore, the payment of

losses under the policy can only

be refused in case of a causal link

between the non-disclosure or

misrepresentation and the loss.

If, for example, an insured

under a life insurance policy

failed to answer honestly the

question of whether he had ever

suffered from heart problems

and later was injured or killed in

a car accident caused by a burst-

ing tyre, the insurance company

was entitled under the old law to

avoid the policy and reclaim all

benefits already paid out under

the policy while retaining all pre-

miums paid by the insured.

Under the new law the insur-

ance company would only be

released from its obligations if

the non-disclosure regarding the

insured’s earlier heart problems

had an impact on the risk that

materialised, eg, if the accident

resulted from the insured suffer-

ing a heart attack.

Although intensively dis-

cussed among legal experts for

years, the four-week time period

within which an insurer must

declare the termination of an

insurance contract after discov-

ery of a misrepresentation or

non-disclosure remained

unchanged in the 2006 revision.

The government’s expert

commission now proposes to

extend this period to eight

weeks. It is triggered as soon as

the insurer is in possession of

reliable information on the non-

disclosure or misrepresentation,

ie, has come to know the viola-

tion of the disclosure obliga-

tions. Mere suspicions are not

sufficient.

The extension of the four-

week deadline to eight weeks is

obviously not the only relevant

modification which the expert

commission proposes. Its report

includes a draft of an en-tirely

new ICA with 113 articles, as well

as proposals for various amend-

ments to the ISA and a new pro-

vision on general terms and con-

ditions to be included in the

Code of Obligations.

The latter provision is aimed

at introducing into Swiss law a

control of the contents of stan-

dard contract terms; terms and

conditions which unfairly dis-

criminate against the counter-

party shall be invalid.

The idea of consumer protec-

tion which is reflected in this

provision is also contained in

numerous other articles of the

proposed new ICA which are

either absolutely mandatory or

at least “relatively mandatory”,

ie, which cannot contractually

be modified to the disadvantage

of the policyholder or the

insured person. Also the existing

ICA contains numerous such

provisions.

What is new, however, is that

so-called large risks – among

them are liability risks with in-

sureds which exceed two of the

following three criteria: (i) total

assets of

€6.2m; (ii)net turnover

€12.8m and (iii) 250 full time

employees on average – shall be

exempted from these restrictions

on contractual freedom. Thus,

quite differently from the exist-

ing law, the proposed new ICA

distinguishes between consumer

contracts and industrial risks.

As already is the case in the

field of automobile liability

insurance, the expert commis-

sion suggests giving an injured

party a right to claim its dam-

ages directly from the tortfea-

sor’s liability insurer.

If the damages caused by a

tortious act exceed the limits of

the tortfeasor’s liability insur-

ance, the insurance proceeds will

be divided among the damaged

parties pro rata. In this connec-

tion, an entirely new feature is

proposed to be included in the

ICA: an involved party (or the

competent court in its own dis-

cretion) can invite all injured

parties to participate in legal pro-

ceedings initiated against the

tortfeasor’s insurer.

If a party does not follow such

invitation, it will be excluded

from the distribution of the in-

surance proceeds and forfeits its

claim against the tortfeasor’s

insurer. However, its direct claim

against the tortfeasor remains

intact.

This new procedural concept

has already been called a mild

form of class action by some

commentators. It remains to be

seen how this concept of direct

claims and compelled partici-

pation in legal proceedings will

be received in the consultation

proceedings and the debate in

parliament.

The following further propos-

als of the expert committee’s

report are also worth mention-

ing:

• Prohibition of compensation

of the broker by the insurer;

• A duty of the insured to take

steps to avoid losses when a

threat to the insured property

becomes clear (in addition to

the existing mitigation

duties), with a corresponding

duty of the insurer to cover

the costs involved;

• The breach of a contractual

obligation by the insured may

only lead to a reduction of

insurance benefits if there is a

causal link between such

breach and the loss;

• The right of the insurer to

demand information about

the loss from the insured is

restricted to information that

is “necessary” to assess the

loss rather than “useful”, as is

presently the case; and

• Extension of the limitation

period for claims under the

ICA from two to five years.

As under the existing law, the

new ICA would only be applied to

reinsurance contracts by anal-

ogy, where considered appropri-

ate by a court.

LEGAL

BRIEF

TUPE: taking on

transfer teams

Revamp of Insurance Act

gives Swiss much to do

FRIDAY 11 JULY 2008 INSURANCE DAY 7

LEGAL FOCUS

CHRISTOPH GRABER and CHRISTIAN

LANG consider the forthcoming revision

of the Swiss Insurance Contract Act and

the implications this will have for firms

Dr Christoph K Graber is a

partner and Christian Lang

LLM a senior associate in

the insurance and

reinsurance law team of

Prager Dreifuss, Zurich,

Switzerland

The hills are alive: to the sounds

of change in Swiss insurance law