Insurance Litigation 2022 Comparisons

In Argentina, the legal and procedural regime that governs the resolution of insurance disputes is regulated by Act No 17418. This federal law, which dates back to 1968, establishes in general terms the prohibition of including arbitration clauses in insurance contracts. Therefore, lawsuits involving the breach of insurance contracts are generally resolved by a competent court, mainly from the legal address of the insurer when referring to claims of contractual breach, and from the courts of the place of the event in the case of third-party claims. As third parties are not part of the insurance contract, they are not obliged to litigate in the jurisdiction agreed in the policy.

For claims initiated by the insured, the regulations specify a one-year limitation period. This rule is under discussion and the period may be extended to three years if it is a claim wherein the insured can be considered as a consumer, since the consumer defence law stipulates a three-year statute of limitations.

As well, the statute of limitations for third party claims is normally three years.

In accordance with current legislation, policyholders who intend to start a claim for breach of contract and third parties who file a claim, must apply in practically all jurisdictions to a prior mediation process in order to try to achieve an agreement. This mediation process interrupts the statute of limitation period.

Alternative dispute resolution (ADR) is gaining in popularity. However, in the field of insurance they encounter limitations imposed by the insurance law, which prohibit the inclusion of arbitration clauses in insurance contracts. Reinsurance contracts, on the other hand, permit the inclusion of arbitration clauses, provided that the arbitration must be conducted by an arbitration tribunal based in Argentina. In practice, in some cases, the arbitration tribunals also intervene in conflicts between the insurer and the insured, if the latter resolve to submit the conflict to an arbitration tribunal in an agreement executed after the issuance of the policy. The law stipulates that arbitration clauses are prohibited in an insurance contract, but not in the second step (for instance, when discussing about a claim).

Finally, arbitration is the tool of choice for almost all the resolution of disputes clauses related to share purchase agreements related to insurance and reinsurance entities.

Applicable rules to resolution of disputes related to insurance coverage will depend on whether it is a claim initiated by an insured party or by a third party. The insurance policy usually establishes a jurisdiction clause (legal address of the insurer), and an applicable law clause (Argentine law), which is generally accepted by the insured. Third-party claims, on the other hand, may be initiated before the courts of the place where the event occurred, and are also subject to Argentine law, which will apply to the interpretation of the insurance policy (Federal Insurance Law) and to the extent of liability (Federal Civil and Commercial Code).

In general terms, resolutions issued by foreign courts can be enforced in Argentina. This rule has been established by current legislation and has been expressly recognised by the Argentine Supreme Court of Justice. However, it is unlikely that there will be a judgment or arbitral award that can be enforced against an Argentine insurer. This is because Argentine insurers usually only cover risks of persons and assets located in Argentina, and for all these risks, local legislation establishes that the competent courts must be Argentine. For this reason, it is unlikely that there will be a ruling from a foreign court with relation to an insurance coverage granted in Argentina.

Insurers' litigation cases are divided into policyholder claims related to breach of contract and third-party claims. The former are normally assigned to the commercial courts of the City of Buenos Aires, while the latter are generally handled in the location of the incident or at the claimant's domicile, allowing them to be carried out in a variety of jurisdictions. The justice of every jurisdiction is authorised to indicate the interest update rate that is applied to matters pending in that jurisdiction, which implies that the criteria may differ from one jurisdiction to another.

A third type of claim is one relating to maritime insurance, which is typically heard by the Federal Jurisdiction due to the law that reserves this jurisdiction for all matters relating to maritime matters in general.

Based on the jurisdiction, the claim amount may be updated by the passive rate, the active rate, or a combination of both rates.

Typically, claims in foreign currencies (such as US dollars) are updated based upon an annual interest rate between 4% and 8%.

As has been pointed out, it is not possible to include an arbitration clause in insurance contracts. It is possible, however, that after the issuance of the insurance policy, in which the arbitration clause cannot be included, the issue that generates the discussion between the parties occurs, for example, a loss. In that case, the intervention of an arbitral tribunal can be agreed between insurer and insured (or even a third party). Likewise, in reinsurance contracts, the insertion of an arbitration clause is allowed as long as the arbitration court is domiciled in Argentina. In case of non-compliance, the resolution issued by the arbitration tribunal can be enforced by allowing for the intervention of the ordinary justice. It can only be rejected if there are formal errors in the arbitration decision.

Foreign arbitral rulings and awards may be recognised and enforced in Argentina under the terms of the treaties entered into with the country from which such decisions have originated, such as the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York, 1958.

In the event that there are no treaties in force, at the federal level and in the City of Buenos Aires, the rules of the Civil and Commercial Code of Procedure of the Nation will be applied. Sections 517 to 519 bis therein establish different requirements.

In order to recognise or enforce foreign judicial rulings, the following requirements must be met:

• the ruling must be issued by a competent court according to the Argentine rules of international jurisdiction and must be related to a personal action or an action on personal property transferred to Argentina during or after the foreign trial;
• the defendant has been personally summoned and his defence has been guaranteed;
• upon review, the judgment meets the necessary requirements to be considered as such in the place where it was issued;
• the judgment does not affect the principles of public order of Argentine law; and
• the ruling is not incompatible with another pronounced, previously, or simultaneously, by an Argentine court.

In the case of foreign arbitration awards, in addition to the above requirements, it is necessary that:

• the extension of jurisdiction in favour of the foreign arbitral tribunal has been valid (that is to say that it deals with exclusively patrimonial matters of an international nature and that it does not deal with cases where the Argentine courts have exclusive jurisdiction or cases where the extension is prohibited by law); and
• the issues are subject to arbitration in accordance with Argentine law (basically they are issues that may be subject to a transaction).

The enforcement of judicial decisions or arbitration awards must be requested before a judge of first instance through a procedure called exequatur, along with a translated and legalised copy of the decision or award, as well as elements that prove that the award or decision is final and that it meets the above requirements.

As described in previous answers, arbitration in Argentina is very common in the area of reinsurance, while it is rarely practiced in disputes related to insurance contracts. Nevertheless, it is also included in share purchase contracts and the intervention of arbitral tribunals have been very helpful in avoiding lengthy litigation and higher costs.

Federal Law 17418, enacted in 1968, establishes some minimum requirements and some inalienable clauses that the insurance contract must contain. Among them, the most important are those related to the possibility of the insured to terminate the insurance contract without prior notice, the limitation period of one year, and other conditions that cannot be modified or can only be modified in favour of the insured. The said clauses, even if they were not incorporated into the insurance contract, are considered part of it since they are mandatory.

Insurers can submit insurance proposals to potential policyholders. They may also receive requests from potential policyholders, which will not be considered accepted until the insurer issues a coverage certificate or an insurance policy. The insurer is not obliged to accept or reject the request for coverage, and the lack of response to said request may be construed as a refusal to provide coverage.

Insurers have also the right to verify the risk prior to the inception of the policy. In life insurance, depending on the insured amount, it is normal to ask for information about medical condition and conduct a medical examination.

In the last 12 months, the most common disputes regarding insurance coverage between the insurer and the policyholder have been mainly related to the following issues:

• In the all operational risk coverage, the business interruption due to the COVID-19 pandemic has generated claims. Due to the type of coverage issued in Argentina, such claims are in most cases excluded, since local policies only cover physical damages and not interruption of access. Nevertheless, some insureds have considered that the interruption of access to the premises may be considered similar to a physical damage and have claimed the loss of benefits for all the time they could not operate.
• In the D&O coverage, it has also been discussed whether the policy covers fines and penalties, since in some cases the fines and penalties are not based on the personal responsibility of the directors but are rather based on their position at the board. This is an issue that will surely continue to develop in the future, since the position of the insurance companies differ.
• In maritime transport coverage, and due to the difficulties that exist to replace the damaged merchandise at the same value (due to inflation and international logistics problems), the terms in which the insurer will indemnify said merchandise are also a subject of discussion.

As mentioned above, insurance coverage disputes are generally resolved through the intervention of the Commercial Courts due to the fact that insurance policies cannot include an arbitration clause.

Mediation, however, is also an alternative method of conflict resolution available in Argentina, and is also mandatory in the City of Buenos Aires as a prerequisite to initiating legal action in many cases.

In accordance with Act 26589 that regulates mediation in the City of Buenos Aires, all information disclosed in the framework of mediation is confidential.

The agreements concluded within the framework of a mediation that have the signature of the mediator will be enforceable before the judicial courts.

In the event that no agreement is reached, the plaintiff will have free rein to file a legal claim.

Although this process is not mandatory in all the jurisdictions, all the most important provinces have regulated this prior mediation hearings.

Arbitration clauses are valid in reinsurance contracts, and disputes are resolved by arbitration awards.

Although insurance regulations are specific and are considered to have pre-eminence over consumer protection regulations, many court decisions have established that the insured can be considered a consumer and therefore consumer protection regulations are applicable to the insurance contract. An example of the discussion about the applicability or not of consumer regulations has to do with the limitation period of the action. According to insurance regulations, the insured has one year from the occurrence of the loss to make a claim, while consumer protection regulations grant him three years. For this reason, in cases in which the year has elapsed without the action having been initiated, it is common for the insured to file a claim stating their position as a consumer in order to maintain the right to claim.

The Appeal Courts are divided in their interpretation about applicable law to insurance customer, and it is a matter that will continue generating judicial precedents until the Supreme Court adopts a final criterion.

Third parties do not have direct action against the insurer. For this reason, in general, the third party initiates the lawsuit against the insured, who in turn summons the insurer to the lawsuit requesting recognition of coverage.

Despite this, since the validity of the law that establishes the mandatory prior mediation process, it is common that in some cases in which the insurer has already appeared at mediation, a third party initiates the lawsuit against the insured and activates the summons against the insurer (who is already a part of the process as it participated in the mediation hearing), preventing the insured from seeking the insurer to represent them.

In Argentine regulations, the concept of bad faith is expressly recognised, and, in particular, in the insurance industry, the principle of contractual good faith governs the legal relationship. The conduct of the insured must be examined within this framework when declaring a risk, when reporting a claim, and when interpreting the terms of the contract to determine whether to grant coverage.

The insurer has a period of 30 days to define whether to grant coverage or reject the claim, and also to define the amount to be paid. After that period, the insurer must pay the amount of the claim within 15 days of recognising the compensation.

If the insurer does not comply with this last term, it will be in default, and from that moment it will be subject to the payment of punitive interest for the delay, as well as in an eventual judicial resolution, the insurer may be forced to pay a penalty for non-compliance with the terms of the contract.

Therefore, if the insurer does not comply with the obligations included in the policy, rejecting a claim without enough arguments, it could be subject to interests and fines.

In Argentina, intermediation is carried out by insurance brokers, regulated by Federal Act 22400. The brokers cannot, in principle, obligate the insurer, as they are only intermediaries, and it is ultimately the insurer who commits to insure a risk or pay a claim. However, there are jurisprudential cases that attribute the broker to the role of an insurer's representative. Therefore, the broker's action can be presumed to be binding for the insurer, which is why it is imperative for the broker's contract with the insurer to clearly outline the limitations on the broker's actions and the consequences of non-compliance with those provisions. In fact, if the broker is held responsible, the insurance company will have to respond before the insured, but maintaining the possibility of claiming the broker for the amounts paid.

Delegated underwriting or claims handling authority arrangements are valid in Argentina. However, the control of compliance with this type of agreements cannot be delegated by the insurer, who is responsible for the underwriting errors or for the settlement of claims that imply a loss for the company. The company will be responsible for losses related to these errors but will also respond before the superintendency of insurance for non-compliance with local regulations, in case the responsible company for handling claims does not answer in due course to the insureds and third parties as well.

According to local regulations, the insurance company must have in place fraud policies and AML policies. If the company delegates underwriting and claims handling authority, the delegated authority must also comply with said rules.

More than half of the coverage issued by Argentine insurers relates to automotive policies that cover civil liability and own damage. For this reason, the vast majority of claims received are for car accident coverage, particularly third-party claims. The next in importance are claims related to general workmen's compensation insurance, civil liability insurance, directors and managers insurance, professional liability insurance and cyber risk insurance. The latter have grown exponentially in recent years and are becoming an important line of business for insurers.

There is a very important participation of reinsurers in these last risks. For that reason, defence instructions are often provided directly to law firms and experts by reinsurers, despite the fact that third parties and insureds do not have direct recourse against reinsurers.

For workmen's compensation insurance coverage, mandatory medical commissions have been created and they determine, prior to the start of the trial, the percentage of disability that corresponds by virtue of the accident, and a prior procedure of settlement to avoid litigation. Insurance associations are pushing a bill that would promote a similar solution for car accident claims. If these projects are finally approved, litigation in the automotive industry will surely be less and this will have a positive impact on the technical results of insurers.

The costs of litigating in Argentina continue to be high. As we indicated, since Argentina is a federal country, each jurisdiction establishes its parameters for organisation and application of laws, and this makes each jurisdiction free to apply the compensation criteria, interest rates, and fee percentages. Regarding the latter, Federal Act 21839 (about lawyers’ fees) establishes a minimum and a maximum that must be respected by the courts for setting the fees of lawyers and experts. However, this does not prevent litigation costs from being high, due to the fact that a court ruling or a settlement generally requires the insurer to pay attorney fees, experts, fees and contributions.

As a general rule, claimants do not typically have protection coverage that covers litigation-related risks. On the other hand, it is usual that, when it is intended to appeal a judicial measure that implies a collection guarantee (for example, a judicial seizure replacement), the courts usually accept the replacement of that collection guarantee with a surety insurance, which is a form of insurance that covers the risk of the defendant being unable to execute the sentence later on. In this way, the claimant will no longer have the judicial measure of seizure in their favour but will instead have a guarantor (the insurer), in the event that the claimed party lacks funds when the judicial measure becomes effective.

In property insurance, the insurer has the right to pursue the collection of amounts paid to the insured from a potential responsible party for the loss. This right of recovery can only be exercised to the extent of the amount recognised to the insured. While recovery actions are very common in cargo insurance, there is sometimes a limitation of liability for land transportation that makes it impractical to recover from the carrier, and in maritime and air insurance, international agreements that limit the maximum amount of liability apply, particularly in air transportation where a very adjusted compensation limit has been established by the Rome Convention. The right of recovery does not apply to life, personal accident and disability insurance, according to section 80 of Federal Law 17418.

The right to pursue third parties has been established by Section 80 of Act 17418. According to this legal disposition "the rights that correspond to the insured against a third party, due to the loss, are transferred to the insurer up to the amount of compensation paid. The insured is responsible for any act that harms this right of the insurer.

The insurer cannot use the subrogation to the detriment of the insured".

In addition to this legal provision, all the clauses of property insurance policies reproduce this text as a general condition.

Instead, subrogation is not applicable to personal insurance (life insurance, personal accident, disability, etc).

The latest events that have had an impact on insurance litigation are related to difficulties in international trade and the impact on the provision of machinery and spare parts.

In the case of transportation insurance claims, as well as machinery insurance claims generally, the replacement costs of merchandise or damaged parts have increased. This increase has had an impact even in the determination of the total destruction of the machinery, as, by increasing the replacement and repair costs, it is easier to arrive at a total compensation amount, negotiating between the insurer and the insured who is left with the damaged machinery. This dynamic, which had already accelerated with the crisis related to the pandemic, increased with the saturation of the ports resulting from the events of war.

The war has also generated consultations regarding the commitments assumed by the shipping companies as well as the limitation of coverage relating to the areas that the insurers and reinsurers have considered excluded for being war zones (Black Sea, Sea of ​​Azov, Crimea, among others), and also to some decisions of the shipping companies to reassign the ports of destination according to their best criteria, without counting the consent of the client in some cases and also implicitly modifying the terms of coverage agreed with the insurer.

Additionally, in the case of Argentina, the high inflation has adversely affected the investments of the insurers, resulting in a tighter position for the settlement of claims.

It is not possible to predict how litigation will progress in the next 12 months but considering what is happening at the moment, it is likely that it will continue to be difficult to regularise the international transport of goods. Likewise, it is also unlikely that inflation expectations will ease in the near future.

As a result, settlement of claims will continue to be a challenge.

The latest issues that continue to be debated and have not yet generated court rulings at the local level are related to the treatment of COVID-19 by insurers.

Regarding contractual conditions, there are cases, still without a judicial resolution, in which it is discussed whether the business interruption due to COVID-19 is covered. Physical damage is the only coverage provided by local coverage, not prohibition of access to the facilities. This is an issue that will likely be resolved by court ruling. The same does not apply to other matters, since the scope of the contractual clause must be analysed by the insurer in each case.

Another matter that is being debated is a lawsuit from a collective association claiming that, during the traffic restrictions derived from the pandemic, the vehicles were not exposed to risk, demanding that the insurers reimburse part of the premium paid by the insured during that period. Although the insurers maintain that the impact on results was minor and that it was not possible to segment premiums, since some vehicles continued to be used during the entire pandemic, it is not yet possible to determine what the final outcome of said case will be and that it would not be extended to other insurers either, as some of them subsidised part of the premium and others did not.

Because the Argentine insurance market is highly competitive, many of the factors contributing to a higher loss ratio, such as the interruption of transport, war, inflation, collective actions and the effects of growing inflation, have resulted in increased costs that have not necessarily been reflected in the premium for coverage renewals, which could result in losses in the future.

There has not yet been a significant impact of ESG factors on the way risks are underwritten, but they are already resulting in changes within insurers. Locally, insurers under the guidance of the Argentine regulator have begun to approve rules for corporate governance and environmental protection.

In terms of corporate governance rules, the ones relating to independent board of directors, gender diversity within said boards, approval of auditing standards, internal control standards and risks stand out, as they complement and strengthen traditional management tasks.

In recent months there have been no regulations that especially affect the way of settling claims and paying compensations.

It has, however, been determined by the Argentine regulator that all foreign-currency insurance policies must be accompanied by a payment clause in foreign currency, allowing for the insurer to be released from its obligations by paying compensation in Argentine pesos at the official exchange rate.

Since the official exchange rate quotation differs by more than 100% from the free dollar quotation, this liquidation may imply a loss for the insured, since the insurer is released from paying less than the amount insured in dollars.

This clause also applies to the payment of the premium, which can be cancelled by paying the equivalent amount in pesos at the official exchange rate.

In practice, the question arises that the sum insured is not a real value but a reference value.