An Insurance Company was Compelled to Pay Punitive Damages and a Fine

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

According to the plaintiff, the defendant rejected the loss (theft of the plaintiff’s vehicle from a supermarket parking lot) because of a hypothetical lack of coverage by the time the event occurred. On the other hand, the defendant answered the complaint and denied having entered into an insurance contract with the plaintiff, issuing the policy, and also denied the loss itself.

The first instant judge admitted the lawsuit, emphasizing in the decision that the insurance company had submitted to the accountant expert a policy’s front cover which differed from the one attached by the plaintiff in the complaint, and that the insurer –apparently– modified the beginning of the policy period to one day after the loss. Additionally, the judge also emphasized the fact that the policy was not registered in the books of the defendant until six months after its issue.

On this basis, the judge understood that when the loss took place the insurance contract was fully in force and therefore, the insurer had entailed an economic benefit in its favor due to the delay in the payment of the insured amount. Thus, the judge admitted the lawsuit for the claimed amounts, and also sentenced the defendant to pay punitive damages, based on the fact that in the same Court there was another trial where the same insurer rejected a loss based on identical grounds.

The case came to the knowledge of the Commercial Court as a result of the appeal filed by the plaintiff against the first instance ruling. On July 2, 2013, Division F of the Commercial Court stated: (i) to increase the sums established for damages (including the punitive damages); (ii) that the insurance company behavior was reckless, sentencing it to pay a fine equivalent to 50% of the amount of the judgment; and (iii) to the irregularities found in the insurer’s books, to report the decision to the Argentine Superintendence of Insurance.

To render this judgment, the Commercial Court took into consideration that the insurer had issued a policy with a false period of validity to support a purported lack of coverage, as well as the fact that the insurer evidenced reckless behavior since the “non-insurance” defense had grounds on a fake fact that the defendant could not be unaware of.

To convict the defendant for punitive damages, the Commercial Court also pointed out that the insurer had experienced an economic profit as a consequence of the time elapsed since the loss and the devaluation of the amounts claimed, as well as the likelihood that not all the insured people in similar situation would claim their rights through a legal procedure.

Lastly, the Commercial Court decided to report the decision to the Argentine Superintendence of Insurance in order to investigate eventual irregularities in the insurer’s books and, if applicable, to take the measures that may correspond.

This ruling could be pointed out as a leading case in connection with punitive damages and fines imposed to insurance companies based on practices that do not meet with insurance and consumer protection legal framework.