Validity of claims-made clauses

On May 2, 2006, in Barral de Keller Sarmiento, Graciela v. Guevara, Juan Antonio et al., Tribunal C of the Civil Court of Appeals ruled against the validity of a claims-made clause in a professional liability insurance agreement for medical doctors.

The defendant, who was found liable for professional malpractice, requested Florencia Compañía de Seguros Generales S.A. (merged into La Ibero Platense Compañía de Seguros S.A.) to cover the loss pursuant to the terms of the insurance policy taken by Asociación de Médicos Municipales, of which the defendant was a member.

The insurance company denied liability for the loss on the grounds of the claims-made clause.  According to the insurance company, the insurance policy provided that the insurer would indemnify the members of the Asociación de Médicos Municipales against claims notified to the insurer during the term of the policy (or any of its successive extensions), arising from acts or omissions of the insured incurred during the term of the policy.

The Court of Appeals held that the claims-made clause was invalid because the essence of professional liability insurance is that the insured is covered for losses which arise from an event occurred while the policy is in force, regardless of when the claim is actually made.  The Court of Appeals observed that by limiting the insurer’s indemnity in a way not provided by law, the claims-made clause violates the Consumer Protection Law consumer protection regulations inasmuch as it inequitably broadens the rights of the insurer while restricting those of the insured.  The court concluded that this is against the nature of professional liability insurance.  The National Superintendence of Insurance’s approval of the insurance plans would not be sufficient to validate these types of clauses.

The Court of Appeals appears to allow the possibility of validating claims-made clauses when the insurance company shows that sufficient alternative coverage was offered to the insured.  In the instant case, however, the court found that the insurer had not shown that the insured had been offered alternative coverage at the time of executing the insurance agreement.

The court indicated that French and Spanish case law take a similar position and, further observed that claims-made clauses are derived from common law countries—particularly the United States—and are foreign to our law and contractual practices.  In the Court of Appeals’ opinion, different social realities are involved with different parameters, judicial precedents and judicial awards.

Finally, the Court of Appeals rejected the need to admit these types of clauses due to the allegedly long term provided by the statute of limitations for medical malpractice actions (according to some precedents, an action is barred after ten years).  In the medical domain where the post-intervention period and the patient’s evolution requires a long period of time to determine if the medical act and the circumstances surrounding it were properly performed, the clause is contrary to the nature of the event covered by the insurance agreement.

This precedent is important because there is very little Argentine case law referring to the validity of claims-made clauses.  Also the application of the Consumer Protection Law to the insurance contract is not admitted by some authors. However, this precedent is not sufficient to indicate which trend the courts will follow in regard to this matter.  Legal commentators, which tend to have a more persuasive effect on Argentine courts than it is customary in common law jurisdictions, are divided among those who admit and those who reject the validity of these clauses.