Enforceability of Third Parties' Coverage Limits in Automobile Civil Liability Insurance

On June 6, 2017, the CSJN resolved by majority vote, with the votes of Drs. Lorenzetti, Highton de Nolasco and Rosenkrantz, the latter with a vote of his own, in the "Flores, Lorena Romina vs. Giménez, Marcelino Osvaldo and another for damages” case, to revoke the judgment that had been issued by Room K of the National Civil Court of Appeals, and declare that the coverage limit of the mandatory insurance contract covering the defendant's civil liability could be held against third parties.

The Court of Appeals had sentenced the defendant to pay damages suffered by the plaintiff by product of a car accident and declared that the limit of coverage established in the mandatory automobile insurance policy could not be held against third parties. The Court of Appeals argued that contracts cannot be detrimental to third parties and that civil liability insurance is not only intended to protect the insured's assets but also to protect the victim and guarantee a fast and comprehensive compensation, understanding that the opposite would be the denaturalization of the social function of the insurance "which has to be considered as a consumer relationship contemplated by section 42 of the Argentine Constitution and the corresponding rules, Law 24.240 and its amendments provided by Law 26.361”.

The Court of Appeals clarified that the declaration of unenforceability of the limit against the injured third party does not prevent the right to recover any sum paid in excess of the sum insured from the insured.

In its recent decision, the CSJN considered that the Court of Appeals had disregarded the legal regulations in a dogmatic manner and without any adequate and sufficient foundation, with the mere invocation of an alleged protection to the victim and compensation of the damages unjustly suffered, and revoked the appealed decision.

The arguments of the vote subscribed by Justices Ricardo L. Lorenzetti and Elena I. Highton de Nolasco are:

1. The Court has already stated that contractual clauses in insurance contracts of public automobile transport are effective against third parties ("Obarrio" and "Gauna" judgments).
2. The Court also stated that a subsequent general law does not repeal or modify, implicitly or tacitly, a previous special law, as in the case of insurance contracts with respect to the consumer protection law ("Martinez de Costa” and “Buffoni" judgements).
3. The social function of the insurance does not imply that all damages produced to the third party must be compensated by the insurer, without regard to the guidelines of the insurance contract invoked ("Buffoni").
4. The Insurance Law states in sections 109 and 118 that the insurer undertakes to hold the assets of the insured harmless, to the extent of the insurance.
5. The constitutional acknowledgement of the right to an integral compensation of damages does not imply that the legal relationship between insurer and insured is not ruled by the insurance contract. Victims are third parties with respect to that legal relationship, so if they intend to invoke that contract they should be limited to its terms.
6. Contracts must be interpreted in their entirety, and it is not acceptable to break the agreement to apply only the stipulations favoring the third party and to dismiss those that establish limits to the insurer's obligation.
7. The freedom to contract is protected by the constitution and no one can interfere in the sphere of autonomy of the person who has entered into a contract. So it cannot be said that the limits agreed in the contract are an instrument that is detriment to third parties, but it is the reasonable exercise of a risk limitation.
8. The insurer´s obligation to compensate the damage suffered is of contractual nature; therefore, the claim that the insurer covers the loss beyond the limits of the contract lacks of legal source and cannot be the subject of a civil obligation. Otherwise, the Insurance Law would be violated and an unjustified obligation enshrined.
9. The insurance contract is based on the compliance of certain technical aspects and is subject to a law of the regulatory type that regulates it in a thorough way.

The vote of Justice Rosenkrantz, who did not form part of the Court when the rulings that preceded it were rendered, is remarkable. It adds arguments of fundamental importance to those raised by Justices Lorenzetti and Highton, as follows:

1. From the Traffic Law No. 24.449, which imposes the obligation to have automobile liability insurance, it does not appear that the coverage must be comprehensive, unrestricted or unlimited.
2. The SSN sets the insurer's maximum liability limit. In doing so, it specified that both the purpose of protecting victims and the cost of insurance to allow community access to insurance had been taken into account.
3. It is not clear that the limitation of liability denatures the social function of insurance. On the contrary, the limit should contribute to reducing the price of policies with respect to others that have no limits, which would result in a greater number of insured drivers maximizing the probability of potential victims of being compensated.
4. The constitutional principle of separation of powers prevents judges from determining, beyond the control of reasonableness established in section 28 of the Argentine Constitution, the correctness or expediency of the means arbitrated by the other powers, within the scope of its powers, to reach a particular purpose.
5. The principle of comprehensive compensation is not absolute and the legislator can opt for divergent systems of compensation, provided that these are kept within the limit of reasonability stated by section 28 of the Argentine Constitution.
6. It was not demonstrated that the limitation invoked was unreasonable, nor was the regulatory rule that established it declared unconstitutional. Neither was it proved that the plaintiff could not receive the compensation from the party direct responsible for the damage.

For all these reasons, he concluded that the Court of Appeal not only avoided contractual stipulations but also did not apply legal norms in force without declaring their unconstitutionality, which is a cause of arbitrariness. Consequently, the judgment issued by the Court of Appeal implies a violation to the insurer´s property right.

In sum, this is an important precedent that imposes clear limits contrary to recent decisions by different courts that issued judgments against insurers in excess of the terms of the policies. (See Insurance News No. 3 of April 26, 2017, "The Court of its own accord declared void the policy limit of a voluntary civil liability insurance"; Marval News No. 167 of November 30, 2016, "Once again an insurance company was condemned to pay in excess of the policy limit"; Marval News No. 163 of July 29, 2016,"Insurance company condemned to pay in excess of the coverage limit").