Verification of Insurance Policies and Insurance Confidentiality
My recent visit to the 12th International Transport and Logistics Fair – TransLogistica Poland – involved many discussions about transport security, including the verification of counterparties.
One topic that came up repeatedly was the verification of insurance policies directly with the insurers that issued them. Although the effectiveness of this method is significantly limited – as I explained in the article “Insurance Contracts and the Resulting Duty to Verify Carriers’ Insurance Policies” – there is no doubt that such verification requirements are being imposed increasingly often in insurance contracts entered into by freight forwarders and contractual carriers.
Example of such a requirement
Insurance contracts may impose obligations such as the following on the insured:
“to request and verify the policy referred to in point (b) by email with the insurance company that issued it, with the insurer confirming the existence and scope of the insurance contract, together with information confirming payment of the premium or any premium instalments due.”
Obtaining such confirmation is not straightforward and, in most cases, takes several days. Given the pace at which freight forwarding businesses operate, waiting several days is often simply unrealistic. The freight forwarder is then left with a choice: either decline the transport altogether or use a carrier whose policy has not been confirmed in the manner required by the freight forwarder’s own insurer.
Can a requirement to verify subcontractors’ insurance policies conflict with the law?
There is, however, another important question worth considering – can such a requirement actually be fulfilled without breaching the law?
Insurers that impose this kind of obligation appear to overlook the Polish Act on Insurance and Reinsurance Activity, in particular Article 35(1), which provides that:
“An insurance undertaking and its employees, as well as persons and entities through whom the insurance undertaking performs insurance activities, are obliged to maintain confidentiality with regard to individual insurance contracts.”
Merely contacting an insurer to request information does not itself breach insurance confidentiality.
However, the insurer’s response may do so. Legal commentary takes a very broad view of the scope of insurance confidentiality. According to The Act on Insurance and Reinsurance Activity. Commentary, edited by M. Szczepańska and P. Wajda:
“Insurance confidentiality covers the entire legal relationship between the parties. This includes not only the fact that an insurance contract has been entered into, but also information concerning the policyholder or insured party and the terms of the insurance contract itself.The Polish Supreme Administrative Court has also recognised that insurance confidentiality may cover, among other things, the wording of the insurance contract, the insurance document, information about the premium and information provided by the insured. Importantly, insurance confidentiality also covers information concerning whether insurance cover exists or does not exist, whether a party has applied for insurance, and information obtained at any stage of the insurance relationship – before the contract is concluded, during its performance and even after it has expired.”
In light of the above, an insurer may potentially breach insurance confidentiality by disclosing:
- whether it has entered into an insurance contract with a specific company,
- the scope of that insurance, for example the sum insured,
- whether the premium or any premium instalment has been paid.
The obligation to maintain insurance confidentiality may apply even where the insurance contract was never ultimately concluded.
When does insurance confidentiality not apply?
The Act on Insurance and Reinsurance Activity provides for certain situations in which an insurer is released from the obligation to maintain confidentiality.This includes, among other things, cases where information is provided at the request of a court, public prosecutor, Police, Internal Supervision Inspector, Border Guard or the Internal Security Agency. The full list of authorised entities is set out in Article 35(2) of the Act.
As the Provincial Administrative Court in Warsaw correctly stated in its judgment of 23 June 2017, case no. II SA/Wa 2091/16, the list of entities specified in Article 35 is a closed list. If a requesting party is not included in that list, the insurer is not entitled to disclose the protected information on that basis.
The insured party’s consent may also release the insurer from its obligation to maintain insurance confidentiality.
The legal commentary referred to above explains that “information protected by insurance confidentiality may be disclosed by an insurer to third parties with the consent of the person to whom the information relates, but only within the scope of the protected information relating to that person’s legal relationship with the insurer.”
Consent of the insured – how does this work in practice?
My experience of more than a decade providing legal services to companies in the TSL industry suggests that, in many cases, carriers – acting as insured parties – do not provide this type of consent at all.
And even where consent is given, there are often doubts as to whether it is sufficiently broad and legally effective.
Some policies contain wording such as: “I consent to information being provided to third parties regarding the terms of the insurance cover provided by […] under this policy.”
As a general rule, this type of consent is relatively clear and leaves little room for doubt.
However, policies issued by the same insurer may also contain wording such as: “I consent to the validity of this policy being verified by the party commissioning the transport […].”
This raises several legitimate questions:
- Is the insurer entitled to disclose any information beyond the fact that the policy is active, valid and paid?
- Can the insurer disclose, for example, whether the policy concerns carrier’s liability insurance or perhaps comprehensive motor insurance?
- Can the insurer provide information to an entity that ultimately does not commission any transport from the insured carrier?
Other carrier liability policies expressly state that disclosure to third parties requires separate consent, for example by providing that information may be disclosed to “other entities where separate consent has been granted.”
Penalties for unlawful disclosure of confidential information
A person who discloses information contrary to the law – for example without obtaining the required consent – may be subject to a fine, restriction of liberty or imprisonment for up to two years under Article 439(1) of the Act on Insurance and Reinsurance Activity.
In aggravated cases covered by paragraph 2 of that provision, the penalty may be imprisonment for up to five years.
A careful review of the applicable law, the wording of clauses imposing obligations to verify insurance policies, and the consents granted by insured carriers shows that, in many cases, the requirement to confirm the validity and scope of insurance cover may simply be impossible to fulfil properly.
Where such verification is possible – because the insurer does provide information about the validity and scope of the policy – the insurer may itself risk breaching its obligation to maintain insurance confidentiality. In practice, there is a real possibility that the information will be disclosed without the insured party’s prior consent, or on the basis of consent that later proves ineffective because it was drafted too narrowly or ambiguously. Insurers should therefore reconsider whether the verification obligations they impose are both legally compliant and realistically capable of being performed.
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