Insurance activity in Peru is under the supervision and control of the Peruvian State through the Superintendence of Banking, Insurance and Pension Funds Administration (“SBS”). Most matters related to Insurance Agreements are regulated under Law Nº 29946, the “Insurance Agreement Law”, as well as Law Nº 26702, “Law of Finance and Insurance Systems and of the SBS”.
While the content of policies and the calculation of premiums are, as general rule, determined by the market and by the private autonomy of the parties involved therein, it is worth mentioning that the Insurance Agreement Law, in force as of May 2013, presents a regulatory framework with a strong orientation in favour of insured parties with mandatory provisions that can only be overruled if the results grant more rights to the insured parties or are more beneficial for them.
According to the Insurance Agreement Law, due to special considerations, its provisions apply to all insurance matters, not only prevailing over civil law regulation, but also over consumer protection regulation.
2. Effect of misrepresentation and/or non-disclosure (retitled)
During the execution process of an insurance agreement, all policy holders and insured parties shall appropriately inform or reveal the real status of the potential insured risk in order for the insurer to accurately assess it.
In case of wilful or grossly negligent misrepresentation and/or non-disclosure (declaración inexacta o reticencia) it is possible to invalidate the agreement, making it null and void, as long as the insurer can prove that, had they been aware of the true circumstances, they would have requested a higher premium or not concluded a contract at all. Insurers have 30 days from the day they receive complete information on the status of the insured risk to make a decision.
If the alleged misrepresentation or non-disclosure was not caused by wilful misconduct or gross negligence of the insured party, the validity of the agreement is not affected, but the insurer is entitled to propose a review of the agreement (Offer to Amend). If such proposal is not accepted the insurer has the right to terminate the agreement without returning any previously paid premiums. In this case, if the real status of the insured risk becomes known after the occurrence of the insured event, any claim will be paid in the same proportion as the premiums that would have been amended.
Finally, the law provides several cases in which the review or resolution of the agreement due to misrepresentation or non-disclosure is not applicable, for instance, if the misrepresentation or non-disclosed information does not increase but diminishes the insured risk or if the insurer, under reasonable diligence, should have been aware of the real status of the insured risk.
In the specific case of life insurance, after two years from the execution of the insurance agreement, the misrepresentation/non-disclosure regime does not apply, unless misrepresentation or non-disclosure is due to wilful or gross-negligent conduct.
3. Effect of breach of warranty and condition precedent
Within the frame of an insurance agreement, under Peruvian regulation, the policy may contain warranties, obligations (cargas) or condition precedents to be complied with by the insured party.
- Warranties are oriented to promote avoidance of the the occurrence of an event. The policy may be subordinated to warranty compliance or it may be a condition for the application of the policy.
- Obligations (cargas) entail actions to be undertaken by the insured party for the cause of legal action, before a potential claim may subsist; or for the insurer not to be released from its obligation to indemnify; as applicable.
- Conditions precedents are sine qua non requirements, without which the insurance coverage is not generated (no-insurance situation).
Insurance Agreement Law provides that the obligations (cargas) should be reasonable, while warranties and safety conditions are to be complied with materially or substantially, not formally. Non-compliance with warranties and safety conditions only leads to the rejection of a claim, as long as compliance would not have prevented the event in any case.
Not to implement or maintain the warranties or comply with the obligations (cargas) may entail losing the right to be indemnified, or cause the latter to lapseas the result of wilful or gross-negligent conduct which generates effective damage to the insurer. If non-implementation of the warranties or non-compliance with the obligations (cargas) is due to ordinary negligence or out of the policy holder or insured party’s control, then the right to be indemnified upon the occurrence of an insured is not affected.
4. Consequences of late notification
According to industry customs, and as provided under the Insurance Agreement Law, occurrence of an insured event shall be communicated to the insurer in a timely manner (oportunamente). This notice can be made by any person. If such notice is not officially made, the right to be indemnified lapses and the insurer is released from its obligation to indemnify. If the notice is not made due to gross negligence, the right to be indemnified lapses only if this late notification entails an effective prejudice to the insurer. There is no negative consequence for late notification if there is proof that the insurer became aware of the event occurrence by other means. If the late notification is due to ordinary negligence, the right to be indemnified is not affected, but the indemnification may be reduced in line with damages suffered by the insurer. According to specific regulations issued by the SBS, the required term of notice should be at least three days, except as regards car insurance, in which case notice shall be made immediately, as permitted by the conditions.
Finally, under no circumstances is coverage affected if late notification is not the fault of the insured party.
5. Entitlement to bring a claim against an insurer
As per the entitlement to bring a case against the insurer, indemnification is due to the insured party as titleholder of the insurable interest, therefore the latter – as beneficiary – is the one who has direct right to claim (acción directa) its collection (unless there has been an endorsement (endoso) or assignment of the right to be indemnified, as in the case of a mortgage holder's life insurance). Without prejudice to the above mentioned, according to civil law, any creditor of the insured party may file an indirect claim looking to collect its debtor's credit, and by doing so, to satisfy its own interest up to the amount of its own credit.
This differs in the case of life insurance, where the beneficiary may make a claim.
In non-contractual civil liability insurance matters, following a trend in comparative law, the Insurance Agreement Law provides that the party suffering damages – despite not being the insured party – has direct right to claim against the insurer (up to the limit of the policy).
6. Entitlement to damages from an insurer for late payment of claim
As long as the insured party submits all required documentation, without prejudice to the insurer's right to investigate, the general rule as provided under the Insurance Agreement Law is that the insurer shall make a decision on the claimed coverage and respective payment within 30 days of such submission. On the contrary, silence will be deemed as an acceptance of the claim and the insurer will be obliged to proceed with the payment (including legal interest). This situation is called “consented claim”, although although it will still be necessary to determine whether the claim requires an adjustment agreement or not. In any case, the insurer can request aterm extension to respond to the claim from the SBS. If the authority does then not reply on time, the term extension is deemed granted.
Due to several criteria of interpretation developed around the idea of a“consented claim”, this does not apply when coverage under the claim has not been agreed or if there are grounds for nullity (nulidad de pleno derecho).
7. General rules concerning the limitation period for claims
Legal actions based on an insurance agreement, unless otherwise provided by law, are limited to a ten year period from the date they become enforceable. In the case of payments resulting from an insured event, such term is counted from the occurrence of the event. Exceptionally, in case of life insurances, such term is counted from the day the beneficiary is informed of the existence of the insurance.
8. Policy triggers with respect to third-party liability insurance
According to the Insurance Agreement Law, and subject to the individual nature of the contracted insurance, the purpose of (non-contractual) civil liability insurance is to indemnify the insured party upon any third-party claim of damages, as a result of a damaging event occurring during the term of the policy and up to the limit of the agreed coverage, as long as damages are not the result of a wilful misconduct (excluded risk, being null and void any pact to the contrary). With this type of contract, the insurer obligation to indemnify is due once the insured party's obligation to indemnify the third party is accrued. It is worth mentioning that in (non-contractual) civil liability matters a judicial ruling does not create, but declares rights and allows liquidating damages. Hence the coverage can even be triggered by an authorized transaction before or after the judicial process.
It has already been stated before that the law recognizes third parties’ rights to direct legal action against the insurers, despite them not being considered insured parties or beneficiaries.
9. Recoverability of defence costs
As per the Insurance Agreement Law, coverage of (non-contractual) civil liability insurance comprises, among others, the defence costs of the insured party, even if it is not found liable; and in the case that the insured party is found guilty and it is ordered to pay damages, coverage shall pay part of the third-party damages expenses and defense costs, proportionally.
Moreover, according to the terms and conditions of the agreement, the insurer must guarantee to protect the insured party’s assets in case of injunctions or seizures, as an extension of the obligation to keep the insured party’s assets indemnified up to the limit contracted.
10. Insurability of penalties and fines
There is no express regulation on the insurability of fines, penalties or sanctions. Nevertheless, the possibility of this situation should be harmonized with the principle according which the insurance is related to the possibility of occurrence of an accepted eventual risk, provided that such event does not depend on the insured party will. The contrary will eliminate randomness from the risk assumption by the insurer.