Reinsurance - 30 days to repudiate liability for a claim

1. The Legal Framework of Reinsurance

The legal framework of reinsurance in Argentina has barely been developed. Insurance Law has a few provisions specific to reinsurance. Hence the doubts on which rules govern this type of contract, in the absence of agreement by the parties.

It is sometimes held that given the few rules specific to reinsurance, reinsurance contracts must be governed by analogy by the provisions applicable to insurance contracts.

For instance, Insurance Law establishes that the insurer must communicate a decision on the right of the insured’s to be indemnified under the insurance contract within thirty days after the insurer received all the information and documents requested by the insurer in order to investigate the loss. If the insurer fails to communicate its decision within thirty days, liability for the loss is tacitly admitted by the insurer. Then the question is if such provision of the Insurance Law must also be applied in an insurer-reinsurer relationship.

That was the question put to the Civil and Commercial Federal Court of Appeals if the reinsurer under a reinsurance contract must communicate the decision on its liability for the loss within thirty days on pain of tacitly admitting liability.

2. The case

Mapfre Aconcagua Compañía de Seguros S.A. filed a claim against its reinsurer the Instituto Nacional de Reaseguro –“INdeR” (National Institute of Reinsurance), claiming that the INdeR should pay its share in a loss that the insurer had, in turn, paid to the insured.

At first instance, the judge admitted that a contract of insurance and a contract of reinsurance had existed and held that the INdeR had not communicated its decision on Mapfre’s right to be compensated under the reinsurance policy within the thirty day term. Consequently, INdeR tacitly admitted Mapfre’s right.

INdeR filed an appeal, denying that the thirty day term is applicable to reinsurance contracts. INdeR argued that the thirty day term is provided for in Insurance Law for insurance contracts only, therefore it may not be applied to reinsurance contracts. INdeR also alleged that Mapfre had carried out a negligent defense of its position before the insured, and refused to pay the share demanded by the claimant.

The Civil and Commercial Federal Court of Appeals held that, since the reinsurance contract is a type of insurance contract and shows the main characteristics of one, it is in essence an insurance contract. Therefore, unless otherwise provided for by the parties, the rules governing insurance contracts must by analogy be applied to reinsurance contracts. In the case analyzed, this meant that the reinsurer should have communicated its decision within thirty days after having received the information and documents relevant to investigate the loss, otherwise liability for the claim was tacitly admitted. In consequence, judgment was rendered against INdeR.

3. Final Comments

The case above confirms a decision already taken by the same division of the Civil and Commercial Federal Court of Appeals in the “La Buenos Aires Cía. de Seguros c/ Instituto Nacional de Reaseguros” case. It is one of the few court decisions that have dealt with the issue until now. Nevertheless, the judgment is not binding on other judges.

Until now, the few reinsurance cases have mostly been dealt with by the Civil and Commercial Federal Court of Appeals. This will change in the future. Until the early 1990s there was a state reinsurance monopoly (INdeR), so disputes between insurers and their reinsurers had to be decided by the Civil and Commercial Federal Court of Appeals. Now that the state reinsurer is gone, the relationships between insurers and reinsurers have become relationships where no government entities are involved. Therefore the Federal Courts will no longer have jurisdiction and in the City of Buenos Aires their disputes will have to be resolved by the Commercial Courts.