Voluntary Civil Liability Insurance

In re: “R.C.H. y ot. c/ M.C. s/ Daños y Perjuicios”, filed at the National Civil Court, the plaintiffs claimed in their own right and on behalf of their son M.M., a minor, compensation for the damages suffered from the minor’s disability, which was a result of medical malpractice at the time of delivery. They claimed against the obstetrician and had the liability insurance company joined into the proceedings.

In its defense, the insurance company stated that at the time of the events (March 2, 2006), there was a medical professional liability policy, with a coverage limit of AR$150,000 and a deductible of AR$15,000.

The first instance judge ruled against the defendant ordering the obstetrician to pay AR$970,000 to M.M.’s inheritance proceedings (minor had died by the date of ruling), AR$520,000 to his mother and AR$450,000 to his father. The judge extended the sentence to the insurance company and ordered them to pay for said amount in full. The judge stated that the clauses limiting the liability coverage could not be held against the plaintiffs.

The decision was based on the “social purpose of the civil liability insurance, which is grounded in the protection of the victims and the damages compensation”. Moreover, the judge stated that the insurance contract conditions were, regarding the victim, res inter alios acta, without prejudice to the right of recovery of the company against the insured.

This decision was appealed by the defendant and the insurer. The obstetrician disagreed on the attribution of liability and the insurance company disagreed on the disregard of the policy limits.

The Court of Appeals partially rejected the defendant’s arguments and confirmed the first instance decision regarding the limiting clauses. Tribunal stated that civil liability insurance is always taken out in benefit of the damaged party and coverage limitations run against the principle of full reparation for harm suffered. Therefore, those clauses must be declared void. The Tribunal also indicated that in relation to standard contracts, it is a judge’s duty to decide whether a clause is contrary to public order, morals or to good manners, in order to disregard them or not.

Regarding the good faith principle, the Court indicated that it is important to determine insurance consumer’s “reasonable expectations” to know if the contract accomplishes its objective. In this case, Tribunal held that there the “underinsurance” would frustrate the purpose of the contract.

Furthermore, the Court held that the system of judicial review requires “declaring the (evident) annulment of the deductible, when it is neither fair nor reasonable or for being abusive or restrictive”.

The Court of Appeals also justified the void pronouncement of its own accord–there was no request of the party regarding the validity of the limiting clauses– asserting it is appropriate when “the defect affects public order and is evident”.

Another important argument made by the Court is Resolution No. 35,614 issued on February 11, 2011 by the Argentine Superintendence of Insurance (the “SSN” after its acronym in Spanish), which established that “in order to approve an insurance plan (i.e., the technical and contractual terms and conditions of each of the products underwritten by insurers, which must be subject to the prior approval of the SSN), the SSN shall analyze if the proposed terms are in accordance with constitutional and legal rules in force […] especially […] with the Consumer Protection Law –among others–”. This Resolution had been recently modified (see “THE TERMS OF VALIDITY AND EXPIRY OF THE SSN-APPROVED INSURANCE PLANS WERE ELIMINATED” in this Insurance News edition).

Finally, the Court considered the policy limit outdated since it was taken out more than ten years ago. Consequently, even if the Court had admitted the validity of a clause establishing a policy limit, such limit should have been reasonable in order for the contract to accomplish its objective.