The Argentine Supreme Court Upholds Liability Limit in Mandatory Civil Liability Insurance Contract Covering an Educational Establishment

On August 12, 2021, when deciding the case of Gómez Rocca, Javier Hernán et al. v. Creatore, Víctor Juan et al. on damages (File: 63965/2005), the Argentine Supreme Court overturned the Civil Court of Appeals’ June 2, 2014 ruling. The case at law concerns three children who contracted hemolytic uremic syndrome.

The children contracted the infection in 2005 at an unsanitary swimming pool in an educational establishment providing summer camp services. The Civil Court of Appeals made its judgement jointly and severally applicable to the insurer by impleading the insurer as a party defendant in the suit. In its judgement, the Court did not take the liability limit into account. According to the Court, when insurance contracts are mandated by statute, low liability limits are void; as in the present case, where the liability limit was ARS $ 200,000 (approximately USD 2,000, at the present official exchange rate). The insurer appealed to the Supreme Court.

On appeal, the Supreme Court referred to the legal doctrine in “Buffoni” and “Flores,” clarifying that “the insurer's obligation to repair the damage is 'contractual' in nature (…). Thus, the compensation claim against the insurer 'beyond the quantitative limits established in the contract' lacks any legal grounds and, therefore, cannot be the subject-matter of a civil obligation.”

The Court added that “… the fact that statute-mandated civil liability insurance for educational establishments (…) has not been specifically regulated by the Insurance Authority and no minimum liability limit has been determined cannot mean for the insurer to have to pay a higher amount than that insured for the premium paid by the educational establishment.” The Court thus also rejected the notion that a disregard of the liability limit can be justified under the best interests of the child principle because “Applying that principle as a direct source for integrating new patrimonial benefits into the insurance contract entered into by third parties would imply, on the one hand, overreaching far beyond art. 3 of the Convention on the Rights of the Child (328: 2870), and, on the other hand, distorting the reasonable predictability that is at the core of how contracts function as a fundamental instrument through which the parties outline their future, manage their resources, order their preferences and control their risks.”

In the “Flores” case (which we outlined in Marval News No. 173 in June 2017), the Supreme Court ruled by a majority made up of Justices Lorenzetti, Highton de Nolasco and Rosenkrantz, that contractually convened liability limits are enforceable against the injured third party; thus, in that case, the Court exonerated the insurer from paying compensation beyond the contracted cap.

Justices Ricardo L. Lorenzetti and Elena I. Highton de Nolasco held in their vote in the “Flores” case that:

1. The social function of insurance does not imply that all third-party damages must be compensated by the insurer regardless of the provisions in the insurance contract at law (see “Buffoni” case).
2. Argentina’s Insurance Law states in sections 109 and 118 that insurers must undertake to hold the insured harmless to the extent of the convened coverage.
3. The fact that the Constitution enshrines a right to full compensation for damage does not mean that the legal relationship between insurer and insured is not governed 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.
4. Contracts must be interpreted in their entirety, and the agreement cannot be severed so as to apply only provisions favoring the third party while dismissing those that cap the insurer's obligations.
5. 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. Therefore, it cannot be argued that caps convened in the contract are detrimental  to third parties; they  are instead a reasonable exercise of a risk limitation.
6. The insurer’s obligation to compensate is contractual. Therefore, the claim that the insurer compensate beyond the contractual limit is legally unfounded and cannot be the subject-matter of a civil obligation. The contrary would violate Insurance Law and constitute an unjustified obligation.
7. Insurance contracts are subject to certain technical requirements and regulatory law, which thoroughly governs them.

Justice Rosenkrantz added the following:

1. The source of the insured’s obligation differs in nature from that of the insurer. The first arises from the breach of the general duty not to harm. The second may arise from the law or the contract.
2. Insurance is governed by special regulations that must be observed as a whole. Therefore, it is not possible to determine the obligations of the parties based on contractual guidelines alone.
3. The constitutional principle of separation of powers prevents judges from determining, beyond the reasonableness standard contained in article 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.
4. Additionally, it is not clear that the limitation of liability denatures the social function of insurance. On the contrary, the cap should contribute to reducing coverage pricing compared to non-capped coverages, which may result in a greater number of insureds, maximizing the probability of potential victims entitled to compensation.
5. The principle of comprehensive compensation is not absolute, and the legislator can opt for divergent systems of compensation, provided that these are consistent with the reasonability standard contained in article 28 of the Argentine Constitution.
6. The insurance contract cannot be detrimental to the victim, but nor can it be beneficial beyond its terms and the provisions of the other rules that govern it.

In sum, the Supreme Court of Argentina ratified once again its precedents in “Buffoni” and “Flores,” whereby liability limits in mandatory civil liability insurance are enforceable against third-party victims, particularly with respect to civil liability insurance for educational establishments. Thus, insurers are only liable within the limit of the terms convened in the insurance contract.