Insurance companies in Chile must be incorporated as public corporations or be authorized as Agencies of a foreign insurance company, both regulated by Statutory Decree (Decreto con Fuerza de Ley) No. 251 of 1931 and its amendments, and supervised and controlled by the Superintendency of Securities and Insurance (Superintendencia de Valores y Seguros, or “SVS”, for its acronym in Spanish). Insurance contracts are regulated by articles 512 to 601 and 1157 to 1201 of the Commercial Code, and the general terms and conditions of the policies must be those registered by the insurance companies in the SVS; however in the case of “large insurance”, where the insured is a legal entity and the annual premium is not less than 200 U.F. (Unidad de Fomento, a unit of account used in Chile), (approx. USD 8,000), the terms and conditions can be freely agreed by the parties.
Foreign insurance companies cannot offer coverage in Chile, with the exception of insurance related to international maritime, commercial aviation, goods in transit, and satellite and its load insurance. Chilean residents can freely contract insurance coverage with foreign insurance companies, paying the corresponding taxes on the premiums (22%).
The insurance companies are legally classified between those providing general insurances, and those providing life and health insurance.
The loss adjustment process is regulated by law, and the loss adjusters are independent of the insurance companies, and perform their function under the supervision of the SVS.
All disputes related to insurance contracts, with the exception of minor coverage, are subject to arbitration in Chile, and the applicable law is Chilean law.
Insurance contracts are consensual, and can be proved by any kind of written document.
2. Effects of Misrepresentation and/or non-disclosure
The general rule is that the insured, under the requirement of the insurance company, must provide all the information within its knowledge related to the risk to be covered, which will allow the insurance company to make a correct assessment of the risk, its characteristics and extension.
Failure to fulfil this obligation by the insured will allow the insurance company to withdraw from the insurance contract or to reduce or modify the extension of the coverage and request an increase in the premium. The relevant information is that related to relevant circumstances that will make it advisable for the insurer to enter into the insurance contract at all or under the agreed terms.
3. Effect of breach of warranty and condition precedent
Warranties are legally defined in Chile as the conditions agreed by the parties to restrict, specify or reduce the risks to be covered in an insurance contract, and that must be fulfilled by the insured to obtain the payment of an indemnification in the case of a loss.
When these types of warranties or conditions precedent are incorporated into the terms and conditions of the insurance contract for the cover of a loss, they are fully applicable in the case of a dispute between the insurance company and the insured.
In the case of large insurance, the parties quite often agree to introduce these warranties and conditions precedent, which have been previously agreed by the insurers with the reinsurers in the reinsurance contract which supports the primary coverage of the insurance contract.
4. Effect of late notification
The general rule in this market is that the insured must promptly notify the occurrence of an insured event, as a way to avoid fraud and to support the determination of the loss or the rights of the insurance company to recover against third parties.
That said, the actual effect of a reasonable late notification will be measured in relation to the material adverse effects of it, and how it actually affects the insurance company’s contractual right, not only in relation to compliance with a formal obligation of the insured.
Calculations of Premiums
There is a fully free market, and the premiums are determined by insurance companies, depending on the risk to be covered, the administrative cost of the insurer and the cost of reinsurance protections, etc.
Premiums must be invested in the Technical Reserves established by law and supervised by the SVS.
In the event of early termination of the policies, the insured will be entitled to a reimbursement of the unused part of the premium.
5. Entitlement to bring a claim against an insurer
The insured is contractually entitled to initiate an action against the insurance company under the insurance contract. It will also entitle any person who after the occurrence of the loss, acquired those rights from the insured, or any person who in the case of large insurance is contractually designated for that purpose.
In the case of life insurance, the general rule is that beneficiaries designated in the policy, or the successors if there is not a beneficiary, will be entitled to file a claim or collect the payment of contractually agreed indemnities.
6. Entitlement to damages from an insurer for late payment of a claim
This is a matter that will be resolved during the arbitration process, and will depend on whether or not the insurance company denying the coverage is acting in accordance with the recommendation given in the loss adjustment report. If the insurance company is acting with the support of the loss adjustment report, it will probably not be ordered to pay damages, but only the contractual indemnity plus interest, assuming that the insurance company has a legitimate reason to dispute the payment; on the other hand, if the insurer denied the coverage against the recommendation of the loss adjustment report, it will likely be ordered to pay damages.
The insured must have an economically valuable interest in the conservation of the thing, right or property, object of the insurance contract or coverage. Without insurable interest the insurance contract is null and void.
In life insurance the insurable interest is not applied, and the insured can freely select the beneficiaries.
7. General rules concerning the limitation period of claim
In accordance with the Commerce Code, the statute of limitations is four years, calculated from the date of the final loss adjustment report.
8. Policy trigger with respect to third-party liability insurance
The general rule in massive insurance, whose terms and conditions are duly registered in the SVS, is “claim occurrence”; the insurance policy will cover the civil liability of the insured that originates in an event during the term of the insurance contracts; in the case of large insurance, whose terms and conditions are freely agreed between the parties, it is quite common in certain types of coverage, medical liabilities, to use “claim made” triggers, where the coverage will be given by the existing policy on the date of the claim. The type of trigger will normally depend on the terms and conditions of the reinsurance contract that protects the primary coverage.
9. Recovery of defence costs
It will depend on the arbitration award and on the basis of the existence of legitimate cause to litigate. Normally, it is not considered in the coverage of the policy, with the exception of D&O policies that cover, in certain conditions, the defence costs incurred by the insured in defending against the civil liability claim.
10. Insurability of Penalties and Fines
The general rule is that penalties and fines are not covered by insurance companies in Chile; wilful misconduct or gross negligence and its effects will never be covered by an insurance policy. In large insurance, some administrative fines have been exceptionally covered.