An Insurance Company Must Pay Punitive Damages and a Fine

On July 2, 2013, the Commercial Court of Appeals (the “Commercial Court”) confirmed the first instance judgment that had admitted a claim brought against an insurance company seeking to obtain a compensation for breach of an insurance contract.

According to the plaintiff, the defendant had invalidly repudiated liability for a loss (theft of the plaintiff’s vehicle from a supermarket parking lot). Upon answering the claim, the defendant denied having entered into an insurance contract with the plaintiff, having issued a policy, and also denied liability for the loss itself.

The first instance judge admitted the claim, emphasizing in the decision that the insurance company had produced to the expert witness appointed by the court a front of policy which differed from that attached by the plaintiff to the claim, and that the insurer had altered the inception date of the policy to one day after the loss. Additionally, the judge also emphasized that the policy had not been registered in the books of the insurer until six months after it had been issued.

On this basis, the judge understood that when the loss took place the insurance contract was in full force and that the insurer had obtained a benefit as a consequence of the delay in the payment of the insurance monies. The judge admitted the lawsuit and also sentenced the defendant to pay punitive damages, based on the fact that the same court had a similar claim brought by another plaintiff where the same insurer had repudiated liability for a loss on identical grounds.

The case was sent to the Commercial Court as a result of an appeal filed by the plaintiff. On July 2, 2013, Division F of the Commercial Court resolved: (i) to increase the sums established for damages (including those for punitive damages); (ii) to impose a fine on the insurer equal to 50% of the amount for damages, as a consequence of the reckless conduct of the insurance company, and (iii) to report the decision to the Argentine Superintendence of Insurance.

The Commercial Court took into consideration that the insurer had issued and submitted to the court a policy with an untrue inception date to support a purported lack of coverage, and that the insurer had incurred in reckless conduct since it could not be unaware of the lack of substance of its lack of coverage defense.

To impose punitive damages, the Commercial Court also pointed out that the insurer had obtained an economic benefit as a consequence of the time run since the date of the loss and the effects of the devaluation of the sums claimed, and had benefitted from the fact that only some insureds under a situation similar to that of the plaintiff would bring legal proceedings.

Lastly, the Commercial Court decided to report the decision to the Argentine Superintendence of Insurance so that the administrative authorities investigate potential irregularities in the insurer’s account books and ultimately take the pertinent measures.

This ruling is certainly a leading case on punitive damages and fines imposed to insurance companies for practices that do not conform to insurance and consumer protection regulations.