Conclusion of an Insurance Contract – or rather not?

The new right of revocation of the policyholder leads to some uncertainties which are discussed by attorney-at-law Dr. John Trachsel in the following guest article.

The Problem

In contract law ever since the principle pacta sunt servanda (engl. contracts are to be complied with) applies which expresses the principle of contractual fidelity. To some extent, however, the Insurance Contract Code (ICC) opens the door to trial and error. As of 1 January 2022, a general right of revocation in favor of the policyholder has been added to the ICC.

The new rules of articles 2a and 2b of the revised ICC in summary provide that the policyholder may revoke their offer or acceptance to conclude the contract in written within 14 days. Such a revocation makes the offer or the acceptance to conclude the contract inviable from the very beginning on (ex tunc). Then, the parties have to reimburse each other benefits already received (for the full content of articles 2a and 2b ICC see the official text of the ICC).

A much-discussed problem is the potential of abuse that the right of revocation bears. Theoretically, it is thinkable that a policyholder concludes an insurance contract for an activity (i.e. vacation) and, having gotten through the activity without any damage, revokes it within the 14-day-deadline. If, though, the damaging event had happened, of course the policyholder would not have revoked the contract.

Possible Solutions

As the new right of revocation in principle must not be changed one-sidedly to the detriment of the policyholder (article 98 ICC), this raises both for insurance companies as well as for policyholders the question, to which extent this so called “partially mandatory” right of revocation allows it to insurance companies to take measures against such potential of abuse (regarding credit- or deposit insurances, as far as insurances of professional or commercial risks are concerned, regarding transport insurances and insurances with professional policyholders, the right of revocation is not partially mandatory; article 98a ICC).

For economic reasons, the insurance company may want to demand compensation from the policyholder as a result of the revocation. However, against this approach speaks the fact that the right of revocation is free of compensation by law (article 2b para. 3 sentence 1 ICC) and that – else than in other legal systems – the insurance company is not entitled to a pro rata-premium. Although the new right of revocation provides that the parties have to reimburse benefits already received from each other (article 2b para 2 ICC), this provision focusses on the reimbursement of the premium. The abstract insurance cover, according to the legal doctrine, is not considered as a reimbursable benefit. Just costs for special examinations that the insurance company has arranged in good faith with regard to the contract conclusion are reimbursable in accordance with equity (article 2b para. 3 sentence no. 2 ICC). These may be, for instance, costly medical or technical examinations. In principle however, the insurance company must not claim compensations, penalties or similar from the policyholder who has made use of their right to revoke.

Another possibility is that the insurance company limits the term of the insurance contract to less than one month. Then, there is no right of revocation (article 2a para 4 ICC). Especially regarding short-term contracts this may be interesting. Like this, it can be prevented that a policyholder concludes some sort of “instant-insurance” with regard to an imminent risk for free by revoking it after the risk has not materialized. But in many cases a longer-term insurance contract may be asked for. In that case, inevitably the question arises whether the option of an automatic prolongation of an initially to less than a one month-term limited insurance contract may violate the partially mandatory nature of the right of revocation (see above). The legal doctrine does not think so. It remains to be awaited whether courts share this view resp. how such prolongation-clauses have to be formulated to make sure that this is the case. Another question is what the invalidity “from the beginning on” according to article 2b para. 1 ICC means if the revocation is declared after the prolongation: Does the invalidity take effect from the very beginning of the contractual relationship on or at the point in time when the duration of one month was reached (article 2a para 4 ICC)? Considering that the right to revoke an initially to less than a one month-term limited insurance contract started to exist when the contract-duration of one month was reached, in my opinion it is only consequent to also let the revocation take effect at the point in time when the duration of one month was reached.

Another option is that the parties agree to let the insurance cover start at a point in time after the statutory revocation period has already expired. Especially in situations where the policyholder does not need an “instant-insurance” this option is interesting. In my view, such an approach is legal, as the legislator let the revocation period start irrespective of whether the insurance contract has already been concluded or not (article 2a para. 2 ICC). If even the possibility to revoke is independent of the conclusion of the contract, all the more this possibility has to be irrespective of the start of cover. But other reasonings are thinkable too.

Summary

The right to revoke gives to the policyholder more freedom but also bears a potential of abuse. The insurance company cannot address the latter by imposing on the policyholder an obligation to compensate because of the revocation. However, regarding insurance contracts that are limited to a period of less than one month there is no right to revoke. If such contracts include an option of prolongation, the revocation period may well start when the minimum duration of the contract of one month is reached. Furthermore, in my view it is legal to let the insurance cover start at a point in time after the statutory revocation period has already expired.

Dr. John Trachsel

RA Dr. John Trachsel: After completing his Master of Law in Jahr 2016 at the University of Zurich, John Trachsel obtained his doctorate at the same alma mater in 2019 with a dissertation on tort law. John Trachsel has been practicing law since 2017. After working in the judiciary (District and High Court of Zurich) and the advocacy (attorney-at-law in a business law firm), he has been practicing as an independent attorney-at-law from Zurich since 2024. He remains committed to liability law and private insurance law not only in practice, but also as a part-time lecturer on the subject of “Damage” at the University of Zurich.

This article is not a substitute for legal advice, but is part of a free legal discourse of opinion. Accordingly, any liability for the opinions expressed in this article is excluded.

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