Commercial Aviation Insurance

The Second Division of the Federal Civil and Commercial Court of Appeals(the “Court of Appeals”) has recently confirmed a ruling that declared sections 2 of emergency decrees 1654/02 and 1012/06 (judgment dated February 8, 2013, in re “Argentina Association of Insurance Companies and Others vs. Argentine Government”) to be unconstitutional.

In the recitals of decree 1654/02, the Argentine Government explained that the measure is required to ease the serious crisis suffered by the airlines as it refers to compulsory coverage they must take out. The crisis is said to be caused as a result of the terrorist attack in September 11, 2001, when insurers increased policies’ costs due to the existence of new risks.

Given that aviation insurance has a significantly lower cost abroad, the emergency decree 1654/02, passed on September 4, 2002, declared commercial aviation to be in a state of emergency and exempted Argentine aviation companies from the requirement to take out insurance from Argentine insurance companies, as mandated by Law 12,988.

The emergency decree 1012/06, passed on August 7, 2006, with similar grounds, declared that the state of emergency continues and ratified the exemption.

The Argentine Association of Insurance Companies and some of the most important Argentine insurers filed an action to obtain a declaration of unconstitutionality of section 2 of the decrees because they infringe sections 2 and 3 of Law 12,988, section 192 of the Aviation Code and Law 20,091.

The first instance judge held that the factual circumstances that emergency decrees must meet pursuant to section 99, subsection 3, of the Argentine Constitution, were not met, and declared them unconstitutional. The Argentine Government appealed.

The appeals court affirmed the lower court ruling. The Court of Appeals emphasized that the Argentine Constitution permits the issuance of emergency decrees only when due to exceptional circumstances the ordinary procedures to enact laws cannot be followed. The appeals court recalled that the Argentine Supreme Court of Justice allowed the executive branch to perform legislative functions only under rigorous conditions and subject to exceptional material and formal requirements, which constitutes a limitation and not an extension of that practice. Moreover, the Argentine Supreme Court of Justice requires the existence of any of the following circumstances: (i) the impossibility of passing a law following the regular procedures established in the Argentine Constitution; and (ii) that the situation calls for an urgent legislative answer not consistent with the terms demanded by the regular process for the enactment of laws.

From the recitals of decree 1654/02, the Court of Appeals pointed out that only under circumstances of disorder threatening the safety or public or economic order, should these extraordinary measures be taken. This sector crisis could have been addressed through the regular system for drafting and enacting laws.

In this regard, Justice Alfredo S. Gusman recognized that the existing tourism boom in Argentina aims to reverse the critical diagnosis of the commercial aviation sector that was stated in the recitals of the decrees.

The appeals court also took into consideration the lack of legislative ratification, required by constitutional law, since the first challenged decree was issued, given that legislative ratification has been held an inevitable requirement in other Argentine Supreme Court of Justice precedents (see Marval News # 94 – “Financing and Restructuring of Insurance Companies”).

Finally, the Court of Appeals confirmed the lower court ruling and held that the challenged decrees do not meet the Argentine Constitution’s requirements for emergency decrees.

The Argentine Government filed an extraordinary appeal against this judgment. The case has not yet been sent to the Argentine Supreme Court of Justice.

For more information, please contact:

• Alberto C. Cappagli
• Elias F. Bestani
• Gimena A. Del Rio