Nullity of a deductible of an insurance policy

In re: “Barreiro, Jorge Andrés c/Transportes Metropolitanos Belgrano Sur s/ordinario”, on July 20, 2006 Tribunal A of the Court of Appeals in Commercial Matters of the City of Buenos Aires held that the deductible agreed in liability policy was null and void.

The case had derived from a railway accident occurred on July 29, 1997. A train belonging to Transportes Metropolitanos Belgrano Sur ran into the plaintiff, who was on a motorbike, as he went over the railway crossing.

The first instance judge admitted the claim against the railway company but rejected it against the latter’s insurance company on the basis that the indemnification for the damage did not exceed the US$ 300,000 deductible agreed in the policy.

The Court of Appeals held that such deductible was not valid against the plaintiff and therefore revoked the first instance judge and admitted the claim against the defendant’s insurer.

The reason to so decide was that in the Licence Agreement entered into between the Argentine Government and the railway company it had been set forth that the railway company had to take out liability insurance. Such duty had not been complied with in good faith by the parties (i.e., insured and insurer) inasmuch as the insurance policy had set an unreasonably high deductible, knowing that most of the claims derived from railway accidents would not exceed such deductible.

The Court of Appeals found that deductible was an absolute nullity and therefore should be regarded as if it had never existed. The Court also held that, even if the contractual conditions had been approved by the Argentine Superintendent of Insurance (which had not been proved in this case), the tribunal could still control their validity.

Having decided ex officio on the absolute nullity of the deductible, the Court found that insurance contracts are also reached by the provisions of the Consumer Protection Law No 24,240. Pursuant to its Section 37, the courts may adapt a contract in the event any of the stipulated clauses is found to be null. In consequence, the Court established that that the deductible to apply was that inserted in the general conditions of the policy and applicable to any liability insurance contract in the absence of any special condition to the contrary.