Frequently Ignored, The Use of Bahasa in (Re)insurance Contract is Essential

The modern era of (re)insurance is growing rapidly in Europe and United States. Obviously, English is used as the governing language in almost every contract related to insurance and reinsurance. This also applies to our domestic reinsurance activities, which provide safeguards to the insurance companies. Even though no cross-border transactions are involved, this condition occurs naturally in our local reinsurance market. Currently, many reinsurance contracts are regrettably not accompanied by a translated version in Bahasa. This is frequently ignored since the parties pay more attention to the substances, as long as they are aware of one another's rights and obligations.

This behavior not just occurred in our reinsurance activities but also in other business sectors. Then, why is it so important to have translated version contracts? The obligation to use Bahasa is stipulated under Law No. 24 of 2009 regarding National Flag, Language, Emblem, and Anthem (“Language Law”), which is applicable for transactions and commercial documents. The Language Law applies to any commercial contracts involving Indonesian legal entities. It is clearly compulsory for insurance and reinsurance contracts as well. The obligation to use Bahasa in insurance policy also appeared in the Decree of Minister of Finance No. 422/ KMK.06/ 2003 regarding The Operation of Insurance and Reinsurance Company, which allows the use of foreign language accompanied by the translated version in Bahasa. Even though this regulation is not explicitly mentioning language requirement for reinsurance agreement, it is still subject to Language Law to use Bahasa in such contract.

English is the predominant daily business language in our local reinsurance market. Based on my experience in this industry, various conditions might possibly contribute to the dominance of English language in (re)insurance contracts, including (i) a lot of (re)insurance clauses and terminologies that are uncommon in Bahasa; (ii) one of the party is a joint venture that involves overseas capital and actively uses English in their internal business operations; and (iii) habitual factors that have been carried out for years. The insurance industry's stakeholders have discussed their intention to use Bahasa in the entire reinsurance contracts, particularly for general reinsurance activities.

But as of the publication of this article, there are still many reinsurance treaty agreements solely using English without any Bahasa translation. On the other side, the translated version of various insurance products are already available, including fire insurance, personal accident insurance, and others. The General Insurance Association of Indonesia (AAUI) deserves our appreciation for publishing the Bahasa version for several insurance policies, which is conveniently available on its website. People could easily find references to deepen their understanding of any insurance product.

The conditions above also raise the question of whether existing reinsurance contracts with no Bahasa translation will remain enforceable between the parties? Unfortunately, Language Law does not specify any penalty or consequences for violating a language obligation in a contract. However, related to the validity of an agreement will always refer to Indonesian Civil Code (“KUHPer”) Article 1320, whereas an agreement shall fulfill several aspects, among others:

1. Consent of the parties to be bound;

2. Legal capacity to enter into an obligation;

3. Specific subject matter; and

4. Permitted cause.

In a broad sense, failing to prepare a contract in Bahasa version might be categorized as a violation of the permitted cause requirement under KUHPer. Nevertheless, this statement could be considered debatable by law practitioners. The provision of permitted cause is listed as an objective condition that must be satisfied in an agreement. The agreement will be deemed null and void if this provision is not followed. Simply said, the contract is considered never existed and has no legal authority to bind the parties. There is a precedent that could support the above statements in the Case of West Jakarta District Court No. 451/ Pdt.G/ 2012/ PN.Jkt.Bar, which annulled a loan agreement due to failure to fulfill the obligation to prepare a contract in Bahasa version. This is a popular precedent of how an agreement might be annulled due to language issue.

According to that case, we need to raise our awareness for any potential risks associated when entering into a legal relationship which not comply with the prevailing law. The precedent for annulling an agreement due to the absence of translated version in Bahasa could possibly happen in insurance and reinsurance agreements. Associations and stakeholders could reawaken the agenda for preparing Bahasa translation specifically for reinsurance contracts in order to fulfill the requirements of the Language Law and KUHPer. At least we could start to prepare the bilingual version for the upcoming treaty renewal.