Thirty days to repudiate a loss - Life insurance in US dollars – Emergency regulations

In the case of “Leva de Cavallera, Nélida c/ Buenos Aires New York Life Seguros de Vida S.A. s/ ordinario”, the beneficiaries of a life insurance demanded that the insurer pay a death benefit in US dollars. This was the case of a group life insurance where the policyowner had stopped paying the premiums.

The insurance company repudiated the claim arguing that the premium was outstanding when the death of the assured occurred.

1. Life insurance and section 56 of the Insurance Contract Law

Pursuant to section 56 of the Insurance Contract Law, insurance companies have thirty days after a loss is reported for them to repudiate it. Tribunal C of the Commercial Court of Appeals found that the insurer had informed the beneficiaries of the repudiation once such term had elapsed. Given that the insurer did not formally reject the claim within 30 days, the loss had been tacitly accepted by the insurer.

The importance of the ruling lies in that it has applied the 30-day term of section 56 to life insurance policies.

Section 56 of the Insurance Contract Law, establishes that an insurer must make a decision as to the right of the insured to be indemnified within 30 days of the insurer’s receiving notice of the loss. If the insurer does not formally reject the claim within 30 days, the law will consider that the loss has been accepted by the insurer. Some authors are of the opinion that such tacit acceptance only applies to non-life insurance.

However, the Commercial Court of Appeals held that the insurance company had tacitly admitted the claim pursuant to section 56 of the Insurance Contract Law, even though the claim had been brought under a life insurance policy.

It should be pointed out that the issue of whether section 56 of the Insurance Contract Law applies to life insurance had not been presented as a defense by the insurer when it answered the claim. On the contrary, the insurer had sustained it had repudiated liability for the loss within the 30-day term but the insurer was subsequently unable to prove it.

Tribunal C of the Commercial Court of Appeals also pointed out that the insurance company had repudiated the claim by arguing that the premium was outstanding when the death of the assured occurred. However, the insurance policy allowed the assured to maintain the coverage and simultaneously suspend the payment of the premiums. The policy also established different ways for the insurer to collect the unpaid premiums. Section 9 of the policy established a proceeding to allocate dividends to the assured. The insured could choose, among different options, the way in which they wanted to benefit from those dividends (e.g., collect them in cash, apply them to the payment of outstanding premiums, etc.). If the assured did not make a choice by the end of a policy year, the insurer should assign the dividends to the payment of future premiums or apply them to the payment of outstanding premiums, if there were any. Moreover, section 8 of the policy provided the insurance company with the option of granting a loan to pay the outstanding premiums.

The Commercial Court of Appeals understood that the insurer should have collected the unpaid premiums by means of any of the proceedings established in the policy, or at least upon rejecting the claim the insurer should have expressed why these proceedings were not applicable to the case.

2. The conversion to pesos and life insurance policies denominated in US dollars

The Commercial Court of Appeals also ruled on the matter of the currency in which the insurance company should pay the benefit, whether US dollars or Argentine pesos, in what may be the first sentence about the subject rendered by the Commercial Court of Appeals.

The agreement contained a clause that established that the payment of the benefits would have to be made in the currency established by the policy. The Commercial Court of Appeals decided that this stipulation was a guarantee superseding any alteration to the exchange rate in use at the time of the execution of the insurance contract.

The Commercial Court of Appeals also understood that the fact that life insurance policies originally denominated in a foreign currency were not to be converted into pesos was also based on that Decree No 905/02 had provided that such type of policies were not reached by the emergency regulations which converted into pesos most of the payment obligations originally denominated in a foreign currency[1].

In consequence, the Commercial Court of Appeals did not resolve on the constitutionality or unconstitutionality of the application of the emergency regulation to life insurance policies denominated in US dollars. The Commercial Court of Appeals decided instead that the emergency regulation and party agreement had excluded this particular policy from the compulsory conversion to pesos established by Decree No 214/02 and its complementary regulations.

Based on this, the Commercial Court of Appeals held that the insurer must pay the death benefit in US dollars. However the insurance company may also cancel its obligation by paying in pesos, at the exchange rate applicable at the time of the payment.