Bancassurance – Liability of a bank that had taken out a group voluntary insurance cover for its clients

In the case analysed by the Court of Appeals, a client of the bank was an assured under the group life insurance taken out by the bank. After the cover had been in force for several years, the insurer was liquidated and merged with a new insurer. The new insurer decided to rescind the covers of those assureds older than 65. The policy had a clause that allowed the insurer to rescind the insurance on the date each premium was due, with a 30 day notice. A client older than 65 who had been covered for eleven years, sued the insurer and the bank for the unilateral rescission of his life insurance cover plus moral damage, adjusted for inflation and, in subsidy, adjusted by CER (see “The Reference Stabilization Ratio (‘Coeficiente de Estabilización de Referencia’ or ‘CER’)” in Marval News # 6 of April 19, 2002).

At first instance, the insurance company and the bank were found jointly and severally liable and were ordered to maintain the plaintiff’s cover in force and, in subsidy, to pay damages plus moral damage. The judgment was appealed. The Court of Appeals basically confirmed the first instance judgment.

To reach such decision, the Court of Appeals considered that the policy clause that allowed the insurer to rescind the cover was null on the basis of Section 18 of the Insurance Law, which provides that “ ..in spite of the term stipulated by the parties, and with the exception of life insurance covers, it may be agreed that any of the parties will have the right to rescind the contract...”. When the insurer informed that it had rescinded the cover, the bank only notified this to its assured clients older than 65. According to the Court of Appeals, the bank should have objected the rescission of the cover. Consequently, since the bank was fully conscious of the damage that the rescission produced to clients older than 65 for they were not able to take out other insurance covers, the bank had not acted diligently as a “good professional”.

The Court of Appeals held that since the bank had taken out the insurance as policy holder, it should have adequately protected its assured clients’ interests given that the clients could not object the contract because they were not a party to it. The bank, as policy holder, with particular experience and management of the business, was obliged with respect to the insurer to take all the measures necessary to guard the rights of the assureds.

The Court of Appeals found that, although the assured could not object the contract because he/she was not a party to it, he/she had a course of action against the policy holder (in this case, the bank) for the prejudicial consequences derived from the policy holder’s conduct.

The judgment established that this obligation of the policy holder bank derives from the duties ancillary to the contract between the client/assured and the bank/policy holder which require that the bank does something more than what is expressly stated. The lives and goods of the bank’s clients must be protected with respect to the damages that may be caused to them by the contract. This obligation is based on the principle of good faith (Section 1198 of the Civil Code) and especially on the imperative principles of consumer protection regulations.

Thus the Court of Appeals confirmed the first instance judgment against the policy holder bank, for the surrender value and moral damage.

The insurer was found jointly and severally liable along with the bank on the basis of Section 40 of the Consumer Protection Law that makes all those who take part in a production and sales chain of products or services jointly and severally liable for damages caused by the product or service.

Finally, the Court of Appeals denied the plaintiff’s demand that the claim be adjusted for inflation or by CER. On the one hand, the Court held that any type of monetary adjustment is expressly forbidden by Law No 25,561. On the other hand, the Court found that the adjustment by CER could not be admitted either given that such adjustment is only applicable when the original debt is denominated in US dollars, something that had not occurred in the case under analysis since the contract had been agreed in pesos.