According to Brazilian statute, in non-consumer insurance claims, the limitation period for an assured to file a claim against its insurer is one year, with that period running from different dates depending on the type of insurance.(1) As a matter of Brazilian law, it is not possible for the parties to "contract out" of the limitation periods (article 192 of the Civil Code). This is true even under the large risks regime, which was inaugurated by CNSP Resolution 407/2021. The Brazilian Civil Code states that:

  • for liability claims, the one-year limitation period commences when the assured is summoned to reply to the request for an indemnity from a third party or from the date of payment of the indemnity by the assured to the third party with the insurers' consent; and
  • for other types of insurance, the one-year limitation period commences from the assured's "knowledge of the triggering event". This raises an obvious question – what is the triggering event?

The Superior Court of Justice (STJ) recently decided in Special Appeal No. 1,970,111/MG that the "triggering event", for the purposes of article 206 non-liability claims, occurs when the assured becomes aware of the insurer's refusal to provide coverage (ie, the denial of the claim). This overturns an earlier decision in the same action that decided that the "triggering event" was the date of loss.

Although not binding as a matter of principle, the decisions issued by the STJ, which is Brazil's highest court for non-constitutional matters, provide guidance on the interpretation of the law and are usually followed by the lower courts.

On a practical level, one of the biggest problems faced by underwriters of risks in Brazil is the significant level of "monetary correction" that accrues on claims, often during a potentially lengthy adjustment process and sometimes in the context of protracted litigation. When considering their exposure, underwriters need to take into account the following two key metrics, in addition to any principal amount to be paid under the policy:

  • Monetary correction is inflation-linked interest that usually applies on a claim from the date of loss. The rate broadly tracks the inflation rate, which is currently 11% to 12% per year.
  • If the parties commence litigation, normal interest also accrues from the date on which the defendant is served with proceedings (although this is not beyond doubt) and can be as high as 12% per year.

The combination of interest and monetary correction can have dramatic consequences on underwriters' exposure to quantum, making the settlement of claims more difficult with the passing of time. The position is further complicated by the award of "sucumbencia" – a payment by the losing party to the lawyers for the winning party, which is usually between 10% and 20% of the value of the claim.

Unfortunately, the STJ's recent decision on limitation provides underwriters with no protection from increased quantum, resulting from the accrual of interest and monetary correction, which arises out of an assured's delay. On the surface, the STJ's clarification of the limitation framework permits an assured who delays in bringing a claim to suffer no prejudice at all.

However, as pointed out by the judge, in the event of an assured's delay, it is open to an insurer to rely on article 771 of the Civil Code. This article provides that the insured must notify the claim to the insurer as soon as they become aware of it and take immediate steps to reduce the loss. Although the time period to notify the claim is not defined, article 771 – as well as the obligation on both parties to act in good faith during the claims adjustment process – should provide insurers with some comfort.

For further information on this topic please contact Geoffrey Conlin or Bernardo de Senna at CAL - Costa, Albino & Lasalvia Advogados by telephone (+55 11 3179 2900) or email ([email protected] or [email protected]). The CAL - Costa, Albino & Lasalvia Advogados website can be accessed at www.cal-law.com.br.

Endnotes

(1) Article 206, section 1, item II of the Civil Code.