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Timeframes for payment of claims (cont.) 3 Default of the insurer The insurer will default if he does not pay the final indemnity within 3 months from the loss, or when he has not paid the mínimum amount payable within 40 days from the claim. Damages: the legal interest rate increased by 50% the first two years the payment is in arrears, and no less than 20% per annum thereafter. Draft Commercial Code reduces 20% interest to twice the interest of the first two years. Interest will accrue from the date of loss, or from the date the claim was reported if it was reported late. Nature of damages: punitive rather than compensatory which is the general rule under Spanish law. There is no relation between the punitive interest rate and the actual market cost of money. Personal scope of default: the policyholder, the insured, the injured third party in civil liability insurance and the beneficiary in life insurance.
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LC RodrigoAbogados
Damages for Late Payment of Insurance (and Reinsurance) claims
Jorge AngellMadrid, España
under Spanish LawDecember 2, 2015
AIDA Europe, Reinsurance Working Group, Paris
• The insurer must pay once the investigations and adjustments required to establish the existence of the loss and the indemnity thereof have been concluded. Seven days or longer policy term to report loss.
General Rule
• However, in any event, 40 days from the claim, the insurer must pay what he believes is the mínimum amount payable under the circumstances known to him.
• Final settlement: 3 months from the loss.• Parties to large risks as defined may agree otherwise or even derogate
these rules.
Peculiarities
Reaseguro y Arbitraje
Timeframes for payment of claims2
Timeframes for payment of claims (cont.)
3
Default of the insurer
• The insurer will default if he does not pay the final indemnity within 3 months from the loss, or when he has not paid the mínimum amount payable within 40 days from the claim.
• Damages: the legal interest rate increased by 50% the first two years the payment is in arrears, and no less than 20% per annum thereafter. Draft Commercial Code reduces 20% interest to twice the interest of the first two years.
• Interest will accrue from the date of loss, or from the date the claim was reported if it was reported late.
• Nature of damages: punitive rather than compensatory which is the general rule under Spanish law. There is no relation between the punitive interest rate and the actual market cost of money.
• Personal scope of default: the policyholder, the insured, the injured third party in civil liability insurance and the beneficiary in life insurance.
Timeframes for payment of claims (cont.)
4
Exception to default and damages
• Damages are not payable if and when the delay in settling the claim obeys to justified reasons which have to be proven by the insurer.
• Factual question, to be resolved on a case by case basis.
• Justified reasons: Coverage issues, quantum?
• Restrictive interpretation of courts: the approach of courts is generally restrictive.
Damages in the context of cedants/reinsurers
5
IssuesCan the punitive interest be passed on to reinsurers?
Does the punitive interest apply to late payment of claims by reinsurers?
• Principles of reinsurance: utmost good faith, act in a business like manner, follow the fortunes.
• The cedant’s conduct and the reinsurance contract. Key point: who controls claims?
• Scope of cover of contract: is the insurer’s negligence covered? The absence of a specific exclusion of the punitive interest means it is covered?
• Reasonableness of denial or delay of payment by the cedant. Retrospective analysis, without the benefit of hindsight.
Can punitive interest paid by the cedant be passed on to reinsurers?
• Not black and white issue.• It is likely that the reinsurer should not bear the punitive interest.
Conclusions
Damages in the context of cedants/reinsurers (cont.)
6
Damages in the context of cedants/reinsurers (cont.)
7
Can punitive interest be charged by cedant in the event of late payment of the claim by reinsurers?
• Assumptions: no punitive interest has been paid by cedant and there is no express covenant in this regard in the reinsurance contract.
• Potential analogical application of punitive interest provisions: reinsurance is a form of casualty insurance. Analogy requires two situations, one regulated and one not regulated, the rationale of which is nevertheless identical.
• Not the case. The situation regulated by the law (the default of the insurer) and the one not regulated by the law (the default of the reinsurer) do not share the same rationale.
• The rationale of the law is the protection of the insured, the injured third party in civil liability and the beneficiary in life insurance. This rationale cannot be predicated of the relationship between the cedant and the reinsurer.
Can punitive interest be charged by cedant in the event of late payment of the claim by reinsurers?
• Punitive interest does not apply in the context of cedants/reinsurers unless the parties would have agreed so.
Conclusion
Damages in the context of cedants/reinsurers (cont.)
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Lagasca, 8828001 Madrid - Spain
Phone: (+34) 914 355 412 Fax: (+34) 915 766 716
JORGE ANGELLSenior Partner
