By: Abg. Miguel Angel Saltos, Mgs.
Case Summary
The case presented focuses on a legal dispute that arose in Ecuador several years ago between Glaxo SmithKline , as insured, and Seguros Unidos SA, as insurer ( Resolution No. 207-2007, First Civil and of the Supreme Court of Justice, RO 493, 22-XII-2008 ), related to the coverage of a floating merchandise transport insurance policy, for the loss of imported vaccines from Belgium to Uruguay. The vaccines were transported in unsuitable conditions, which caused their loss. Glaxo SmithKline demanded that Seguros Unidos SA pay for the value of the vaccines, alleging that they were covered by the insurance policy it had contracted with the insurer.
The insurance company is the one that raises the appeal, arguing that the Court of last instance failed to apply certain articles of the current legislation, which in its opinion has led to erroneous interpretations of the conditions of the insurance contract.
In the first place, the appellant maintains that the Court has omitted the application of article 1561 of the Civil Code, which maintains that every contract is a law for the parties involved and cannot be invalidated except by their mutual consent or legal causes. According to the appellant, in the case in question, the insurance policy agreed with Seguros Unidos SA should have been respected, which stipulates that the coverage of the merchandise during its transport must be clear, especially with regard to the exclusions and basic coverage.
In addition, it indicates that the parties agreed on an “all risk” insurance policy to cover any eventuality during the transport of the merchandise from London, England, to the appellant’s warehouses. However, the appellant argues that the shipment of insured vaccines that were lost due to storage in unsuitable conditions, which left Belgium and not from London, was only covered by the insurance condition “free of particular damage”, this in by virtue of an annex that was incorporated into the policy, a fact that was not disputed by the insured. Textually in this annex it was stipulated: ” all the merchandise that comes from England – London have all risk coverage.- The other countries, including the merchandise that comes through LAPHSA, the coverage will be Free of Particular Damage, since the insurance is contracted in Uruguay .”
This allegation is confirmed by the inclusion of an official document, not controversial either, which indicates that the merchandise came from Belgium and does not specify any condition under which the imported cargo should be handled.
For these reasons, the insurer insists that, since the imported merchandise was covered only under the condition of insurance “free of particular fault”, the Court’s affirmation that for the payment of a certain rate it would correspond to “all risk” is incorrect and Meaningless.
At this point, you may be wondering what caused the confusion or reasonable doubt? What motivated the Court to incline to determine that the insurer had the obligation to assume the coverage was the fact that the insured paid a premium that was calculated as if it were all-risk coverage.
Finally, the appellant maintains that the insurer was not obliged to cover the accident that occurred, which was the result of the alteration in the storage temperature of the imported vaccines, because nowhere in the annex to the policy was it established that the insurer would respond for this kind of damage.
In conclusion, the case focuses on the interpretation and application of the conditions of a transport insurance policy, with special emphasis on the coverage clauses “all risk” and “free of particular damage”, and the obligation of the insurance company to indemnify your insured based on them .
How was the resolution of the Chamber?
The magistrates of the Chamber regarding this appeal by majority vote agreed that the floating insurance policy established two types of coverage: “all risk” and “free of particular damage”. The “all risk” coverage covers any damage to the merchandise, while the “private damage free” coverage only covers certain damages, such as fires, floods and accidents.
In this case, the merchandise was imported from Belgium, so it was covered by the “free of particular fault” coverage. The policy also establishes that the insured must notify the insurer or the port operator at least 48 hours before the arrival of the merchandise. In this case, the insured did not notify the insurer or the port operator, so the insurer was exempt from liability for any damage to the merchandise.
For these reasons, by a majority of votes they concluded that the insurer was not obliged to pay for the damage to the merchandise because the merchandise was covered by the coverage “free of particular damage” and the insured did not notify the insurer or the port operator at least 48 hours before the arrival of the merchandise.
Analysis and comments of the case
The ruling of the Civil and Commercial Chamber of the former Supreme Court in favor of Seguros Unidos SA provides us with a valuable interpretation regarding floating insurance policies, specifically regarding the distinction between “all risk” and “all risk” coverage. free of particular fault”.
According to Clarke (2019), floating policies offer a flexible framework for companies that need insurance coverage to adapt to their constant flow of goods. This flexibility can, however, give rise to divergent interpretations of the clauses and conditions, as occurred in the case of Seguros Unidos SA In this regard, Bennett (2020) argues that the interpretation of the insurance contract must always be based on the text of the contract itself. This vision coincides with the decision of the magistrates of the Chamber that had to resolve this case study, which interpreted the clause of “Free from Particular Fault” literally, limiting the coverage of merchandise imported from Belgium to specific events.
In addition, several authorities point out that the insured has an inherent responsibility to understand and comply with the conditions of the insurance contract ( Maritime Law Association of the united States , 2021). In the case in question, the lack of timely notice to the port operator was considered as a fault of the insured, which is in line with the general principles of maritime and insurance law.
Finally, the magistrates of the Civil and Commercial Chamber of the former Supreme Court of Justice also respected the principle of contractual autonomy (Black, 2020). This implies that the parties are free to negotiate the terms of their contract, as long as the applicable laws or regulations are not violated. In this case, the policy did not guarantee that all imports were covered by “all risk” insurance.
In summary, the judgment that was adopted by majority vote of the Civil and Commercial Chamber of the former Supreme Court of Justice in favor of Seguros Unidos SA is based on the literal interpretation of the insurance contract, compliance with the responsibilities of the insured, and respect for contractual autonomy. These principles, endorsed by academic authorities, contribute to the consistency and predictability of the legal system, which is essential for the confidence and stability of the insurance market.
Abg. Miguel Angel Saltos, Mgs.: miguel.saltos@lince-saltos.com
