By: Abg. Miguel Ángel Saltos Orrala
A company had a multi-risk insurance policy, among the coverages it enjoyed was that of machinery breakdown. This type of coverage generally consists of granting protection to a company’s machinery against risks inherent to the operation, especially those of internal origin, covering in particular against losses or damages caused by a spontaneous and unforeseen act, in view of which the necessary actions are taken to repair or replace the insured assets.
One day, this company is faced with a future and uncertain event that causes irreparable damage to its die-cutting machine. In particular, the die-cutting machine suddenly started to smoke and immediately shut down. This occurred in spite of the fact that the company, in accordance with the frequency of maintenance required by the machine’s factory manual, did not overload it at any time, and that it was always used for the work for which it was built.
Faced with the situation of the loss occurred in the die cutting machine, he immediately notified the insurance company, accompanying the corresponding form with all the documents stipulated in the insurance policy. The insurance company, after more than 2 months from the notice presented by the insured, offered its letter of denial of coverage, alleging mainly that the insured company had not complied with the presentation of all the documentation that would allow the identification of the causes of the loss.
So far as the facts described above, we are faced with the situation of an unjustified and untimely response on the part of the insurer. Both the General Insurance Law, [1] and the Code of Commerce, [2] establish the obligation of the insurance companies to offer a response within a reasonable period of time.
[1]Art. 42.- (Reformed by the First Reformatory Provision to the General Insurance Law of Law s/n, R.O. 395-S, 4-VIII-2008, by the First Reformatory Provision of Law s/n, R.O. 100-2S, 14-X-2013; and, substituted by the Sixteenth Reformatory Provision, num. 15 of the Organic Monetary and Financial Code; R.O. 332-2S, 12-IX-2014). – Insurance and reinsurance companies have the obligation to pay the insurance contracted or the part corresponding to the loss duly proven, as the case may be, within thirty (30) days following the filing of the claim by the insured or beneficiary, accompanying the documents determined in the policy.
The insurance and reinsurance companies may object in writing and with reasons, within the aforementioned term, to the total or partial payment of the loss; however, if the insured or the beneficiary accept the objections of the insurance company, the latter shall immediately pay the agreed indemnity.
[2]Art. 726.- Once the insurer has received notification of the occurrence, the insurer shall process the request for payment once the insured or beneficiary formalizes his request by presenting the documents foreseen in the policy and pertinent to the loss that demonstrate its occurrence and the amount of the damage. If necessary, the insurer may have an adjustment made by a duly authorized adjuster with a credential issued by the competent authority.
Once the analysis is concluded, the insurer shall accept or deny, giving reasons for its decision, in accordance with the law, within thirty (30) days from the presentation of the formalization of the claim for payment of the loss. In the absence of a response within this period, it shall be understood as accepted.
The insurer shall proceed with the payment within ten (10) days after the acceptance.
With the total or partial refusal or objection, the insured may initiate the actions indicated in Article 42 of Book III of the Organic Monetary and Financial Code.
30 days, either by agreeing to pay the contracted insurance or the corresponding part or to deny coverage in a justified manner. This term begins to run from the moment the insured presents the documentation stipulated in the insurance contract.
Extending the fatal term of 30 days, according to the Code of Commerce, will result in the insured’s claim presented in his notice of loss being understood as accepted.
Returning to our hypothetical case of the company that suffered the loss on its die cutting machine and that received an unjustified and untimely response of denial from the insurer, we would be in a case whose characteristics are described in Art. 42 of the General Insurance Law and Art. 726 of the Code of Commerce. Since, in the proposed case the company presented all the complete documentation required in the insurance policy and received a negative answer after more than 2 months.
In view of this situation, the regulation proposes as a way for the insured company the possibility of filing an administrative claim before the controlling entity of the insurance companies, i.e. before the Superintendence of Companies, Securities and Insurance. In this respect, the third paragraph of Article 42 of the General Insurance Law states that:
(…) If the insured or beneficiary does not accept the objections, he/she may file a claim before the Superintendence of Companies, Securities and Insurance, so that it may require the insurer to justify its refusal to pay. Within 30 days of the filing of the claim, and once the supporting documents have been completed, the controlling agency will settle the controversy administratively, accepting the claim in whole or in part and ordering payment of the claim within 10 days of notification of the resolution, or denying it.
As can be seen, the insurance regulations in Ecuador have created an expeditious and direct administrative procedure so that the controversies that may arise from unattended or unjustifiably attended claims notices by the insurers can be known and resolved by the corresponding control entity. The procedure is regulated in the Insurance Claims Regulation issued by the Superintendence of Companies, Securities and Insurance.
The insurer may have an adjustment made by a duly authorized adjuster with a credential issued by the competent authority.
Once the analysis has been concluded, the insurer shall accept or deny, giving reasons for its decision, in accordance with the law, within thirty (30) days as from the presentation of the formalization of the claim payment request. In the absence of a response within this period, it shall be understood as accepted.
The insurer shall proceed with the payment within ten (10) days after the acceptance.
With the total or partial refusal or objection, the insured may initiate the actions indicated in Article 42 of Book III of the Organic Monetary and Financial Code.
Once again, returning to our hypothetical case, the insured company should file its administrative claim before the Superintendence of Companies, Securities and Insurance, complying with the formalities of the Insurance Claims Regulation, in order to wait for a resolution from this control entity within 30 days from the moment of the admission of such claim.
In this process it will always be important to have adequate legal advice, since it will be up to the insured to prove the occurrence of the loss and its amount. On the other hand, it will be up to the insurer to prove the exonerating causes of its liability. An important fact is that the law focuses the analysis and discussion on the occurrence of the loss and not on the demonstration of the causes that originated it, unless the insurer proves with documentation that the loss was caused by a fraudulent or bad faith act of the insured.
