Proposal of a new Norm on insurance guarantees
On the official website of the Financial Supervisory Authority (the "FSA"), there has been published for public debate a new draft norm regulating the insurance guarantees constituted as performance bonds under various types of agreements concluded by the insured (the "Norm"). The new norm shall be applicable to insurance and reinsurance companies (the "Insurance Companies").
Taking into account that the contractual insurance guarantees are eligible guarantee instruments from the perspective of the public procurement legislation, as well as other special laws, such as those on excise or customs duties, the Norm aims to clarify the differences between the conditional insurance guarantees and unconditional insurance guarantees which secure the contractual obligations under the services agreements, execution works etc.
According to the Norm, conditional insurance guarantees are those that provide the obligation of the Insurance Company to indemnify the third-party beneficiary provided that the insured risk has occurred and the insured’s main contractual obligations have not been fulfilled due to its exclusive fault.
On the other hand, unconditional insurance guarantees stipulate the payment under the indemnity to the third-party beneficiary on first demand, without any additional requirement. Although the unconditional insurance guarantees appear to be similar to bank letters of guarantee, the Norm expressly stipulates that such unconditional insurance guarantees are not considered autonomous guarantees as regulated by art. 2.321 of the Civil Code, namely letters of guarantees.
Unconditional insurance guarantees must meet certain conditions, as follows:
a) provide the obligation of the Insurance Company to make the payment under the indemnity to the third-party beneficiary on first demand and without being conditional upon:
(i) the prior establishment by the Insurance Company of the occurrence of the insured risk and of the non-compliance with the main obligations of the insured due to the exclusive fault of the latter;
(ii) the acknowledgment of the default by the insured or the approval of the insured with respect to the payment under the indemnity and / or the absence of a dispute between the insured and the beneficiary as to the validity of the request for payment and / or of the amount claimed;
(iii) the presentation by the beneficiary and / or the insured of other documents than those expressly provided for by the applicable legislation such as, but not limited to, the beneficiary's statement regarding the insured's default or the notification sent by the beneficiary regarding the obligations not fulfilled by the insured and the method of calculation of the claimed amount;
(iv) the refusal or impossibility of the insured to pay the claimed amount to the beneficiary or the commencement of the insolvency proceedings of the insured;
b) provide the obligation of the Insurance Company to make the payment of the amount claimed by the third-party beneficiary within the maximum term provided by the insurance guarantee, but not exceeding 30 days from the date of receipt of the application for payment and the documents referred to above;
c) contain the Insurance Company’s right (to be exercised after payment of the indemnity):
(i) to analyse and evaluate the facts and documents submitted by the insured and / or the beneficiary, as well as the validity of the request for payment and the amount claimed;
(ii) in order to recover the amounts paid, to be able to sue the insured, in case of the occurrence of the insured risk and non-fulfilment of the main obligations guaranteed, through the execution of the counter-guarantees granted or by other means provided by law, and / or to sue the third-party beneficiary in case of lack of validity of the request for payment or of the amount claimed, through other means provided by law.
Moreover, the Insurance Companies must implement a rigorous system of analysis and evaluation of the economic and financial situation of the insured and of its capacity to execute its main obligations and underwrite the risks related to the insurance guarantees guaranteeing that, following the performed analysis, it demonstrates that the insured has the financial and technical capacity to perform its main guaranteed obligations.
Furthermore, as regards unconditional insurance guarantees, it is stipulated that the Insurance Companies must ensure that:
a) the insured grants in favour of the Insurance Company, throughout the validity of the insurance, counter-guarantees at the value of at least the value of the insured amount;
b) the counter-guarantees granted and their issuers are of adequate quality based on the Insurance Company’s internal process of evaluation and its adopted policies and procedures, in order to minimize the risk of non-execution and / or non-collection of counter-guarantees.