New Brazilian Laws on Choice of Forum May Have an Impact on Transnational Reinsurance Disputes

Two new Brazilian Laws, No. 14,879/2024 and No. 15,040/2024, have introduced significant changes that together may affect the choice of law and jurisdiction impacting transnational reinsurance disputes.

The principle of freedom of contract allows parties to decide where and how to resolve disputes, subject to the social function of the contract. However, the freedom to choose a non-Brazilian law and jurisdiction may be affected by the combination of these two new laws. 

Whilst these laws aim to protect a contracting party which is in a disadvantageous position (e.g. a weaker bargaining position), the laws may apply indiscriminately.

Subject to clarifications from the Regulator and the Courts, Brazilian law and jurisdiction may apply to disputes between Brazilian assureds, insurers and reinsurers, or in relation to reinsurance contracts with risks in the Brazilian territory.

Context 

According to Brazilian legislation, as a general rule, a reinsurance contract is a legal relationship where both parties are equal. Parties to reinsurance contracts generally choose arbitration as a dispute resolution mechanism.

The autonomy of the parties to choose the applicable law and jurisdiction for dispute resolution is essential for the effectiveness of reinsurance, especially in an international context, where different jurisdictions have a variety of legal and procedural approaches.

However, the new provisions of Laws No. 14,879/2024 and No. 15,040/2024 arguably erode this autonomy, by potentially imposing Brazilian law and jurisdiction for the resolution of reinsurance disputes, even where sophisticated parties elect for arbitration.

Existing Rules

The main Brazilian regulation for the choice of forum in reinsurance contracts is Article 11 of CNSP Resolution 451. This treats contracts which are subject to arbitration and the Brazilian Arbitration Act (Law No. 9,307/1996 “BAA“) differently from those which are subject to the jurisdiction of the Brazilian courts.

The BAA allows the parties to choose the law governing the resolution of disputes if the parties elect for arbitration, provided there is no violation of good customs and public order. Articles 21 and 25 of the Brazilian Code of Civil Procedure (“CCP“) exclude Brazilian judicial authorities from judging disputes arising from international contracts with exclusive foreign jurisdiction clauses. Articles 9 and 12 of the Law of Introduction to the Rules of Brazilian Law (Law No. 4,657/42) contain similar provisions.

Against this background, there was a reasonable argument that a contract between a Brazilian cedant and a foreign reinsurer could validly provide for the submission of disputes to arbitration outside Brazil, subject to foreign law and the rules of foreign arbitration institutions.

New Rules

Law No. 14,879/2024, which is already in force and amended Article 63 of the CCP, asserts judicial control over the validity of declarations of will in private contracts in relation to choice of forum. The new rules state that choice of forum is only valid when there is “pertinence” or a “linkage” with the domicile of one of the parties, or the “place of the performance the obligation” contained in the contract. In principle, this should not concern reinsurance contracts which specify arbitration as the mechanism for dispute resolution.

However, the changes to Article 63 CCP cause concern when considered in conjunction with the changes contained in the new Law No. 15,040/2024, which will come into force in December 2025. Articles 129 and 131 of the new law will restrict the autonomy of the parties to insurance contracts, and potentially reinsurance contracts, even though the parties to a reinsurance contract are seldom if ever in a technical, economic, or legally unequal position, which requires the law to protect one of them.

These provisions suggest that Brazilian law and jurisdiction would apply to reinsurance disputes, even those where the parties have elected to arbitrate. Article 131 specifically provides that “[insurers, reinsurers and retrocessionaires] for actions and arbitrations promoted between themselves, in which conflicts that may directly interfere with the execution of insurance contracts subject to this Law are discussed, they respond in the forum of their domicile in Brazil.”

Potential Issues 

Although it is too early to be certain how Law No. 15,040/2024 will impact transnational reinsurance arbitral disputes, a combined reading of the new s1 and s5 of Article 63 CCP with Article 131 of the New Legal Framework for Insurance suggests that there is scope for a judge to find that a reinsurance contract underwritten by a non-Brazilian domiciled reinsurer is subject to Brazilian law and jurisdiction. 

If the Brazilian courts become a mandatory venue for transnational reinsurance disputes, the following points of concern arise:

• the lack of technical specialisation, in the local courts (as distinguished from arbitration), to deal with complex reinsurance disputes;
• uncertainty regarding the criteria that will be adopted to evaluate the concepts of “linkage” or “pertinence” to the “domicile” or “place of performance of the obligation,” which are contained in Law 14,879/2024; and
• increased transaction costs, impacting the pricing of reinsurance and, by extension, insurance.

Conclusion

Sophisticated international entities, which are a party to complex contracts, negotiated between equal parties in a commercial context, should have autonomy to choose the applicable law and jurisdiction to resolve their arbitration disputes.

However, the changes in law bring uncertainty from the existing regime more sharply into focus.

As these legislative changes are still very recent, it is necessary to await the approach to Law No. 15,040/2024 by the Brazilian insurance regulators (SUSEP and CNSP), and to monitor how the Courts treat the issue.

HFW has a cooperation arrangement with Brazilian law firm Costa, Albino & Rocha Sociedade de Advogados (CAR). Together, HFW and CAR are uniquely placed to advise clients in Brazil and throughout Latin America on complex international insurance and reinsurance coverage disputes; high-value energy, marine and aviation claims; insurance adjustment, coverage, and defence; and transactional and regulatory insurance. To find out more about CAR, visit: https://www.car-law.com.br/.