Currency and Interest Rate Applicable to an Insurance Contract

On February 23, 2017, the Court of Appeals in Civil and Commercial Matters of Necochea, Province of Buenos Aires, confirmed the ruling in re “Sucesores de Juan Balbino Díaz e Hijos S. de H. v. Provincia Seguros SA re Contract Fulfillment”, with an exception regarding the applicable interest rate.

The lawsuit was filed claiming fulfillment of a hail insurance contract and the first instance judge sentenced the insurance company to settle the claim in US dollars. The judge ruled that the premium and the amount paid to the insured be deducted from this sum. In addition, the interest at the deposit rate in US dollars should be added, as from the date of the default produced when the plaintiff received the payment in Argentine pesos from the insurer.

Both parties filed an appeal: The plaintiff in connection with the interest rate applied rejecting the “punitive damages” category; the respondent, on the understanding that there was no consumer relationship and because the insurance policy had been issued in Argentine pesos.

The plaintiff requested that the highest interest rate be applied, i.e. the lending rate perceived by the Bank of the Province of Buenos Aires in discount US dollar operations. To that end, the plaintiff invoked article 565 of the Commercial Code (now repealed), which stated that if interest is stipulated without stating the amount, the parties take the interest rate charged by the public banks. The plaintiff also based the request on the reciprocity which must prevail in consumer contracts, under articles 3 and 26 of Consumer Protection Law No. 24,240 (“LDC” after its acronym in Spanish). In addition, based on article 52 bis of the LDC, the claim was that a civil penalty be applied, taking into account the professional profile of the respondent, in accordance with article 902 of the Civil Code (now repealed) and article 1725 of the Argentine Civil and Commercial Code (“CCCN” after its acronym in Spanish).

On the other hand, the respondent questioned the existence of elements of a consumer relationship, on the understanding that when insurance is taken out by commercial companies to develop their professional, industrial or commercial activity, they are excluded from the scope of the LDC. The defendant also stated that the insurance contract proposal is not mandatory for the parties and that the currency agreed in the policy was Argentine pesos, which the plaintiff did not observe within the term provided by law, as policyholder, meaning that the policy was approved in Argentine pesos.

The Court of Appeals analyzed the regulatory framework of consumer protection and the discussion on its application to business consumers, clarifying that this must be determined on a case-by-case basis.

Taking into account the provisions of articles 1092 and 1093 of the CCCN, the Court of Appeals stated that when an insured party enters into a contract for the good or service to be destined to his/her final consumption or that of his/her family group, the insured party is a consumer. Conversely, an insurance contract on assets integrated to processes of production, transformation, commercialization or provision to third parties will not be included within the legal category of consumer, “as it is not referred to assets located at the end of the economic cycle”. Considering that the plaintiff took out hail insurance as a de facto company encompassed in Chapter 1 of Section IV of the Law No. 19,550, in liquidation, whose corporate purpose was agricultural production, the Court of Appeals excluded it from the category of final consumer.

Therefore, having based the appeal on the consumer protection system, the Court of Appeals ruled that the plaintiff’s arguments be dismissed. Similarly, the Court clarified that article 565 of the Commercial Code does not provide that the lending rate necessarily be applied to all commercial obligations. However, the Court modified the ruling resolving the application of the highest  US dollar interest rate set by the Bank of the Province of Buenos Aires in their 30-day deposits, in force at the beginning of each of the periods covered, and indicating that the calculation must be made daily with an equal rate for the days that are not enough to cover that period, in accordance with articles 622 and 623 of the former Civil Code, articles 7 and 768 of the CCCN and articles 7 and 10 of the Law No. 23,928.

With respect to the ruling that sentenced payment in US dollars, the Court of Appeals did not admit the respondent’s arguments. It took into account the cost of planting and the price of the crop whose harvest was secured, against which, if the values in the policy were in Argentine pesos, “it would be securing a harvest to worthless values that would not even cover the costs of production”. It also considered that the usual practice for this type of insurance is to contract at dollar value.