Impact on shipping industry
The provisions on general and non-marine insurance contained in the Code of Commerce were enacted almost 140 years ago and have not been revised since, despite numerous industry developments.
The Chamber of Deputies of the Chilean National Congress has therefore approved a bill to replace these provisions so that Chilean insurance law can finally be updated in line with current trends and market practice. This bill has yet to be approved by the Senate.
Although the proposal will mostly affect non-marine insurance contract provisions, it also contains a number of amendments to the current marine insurance provisions (all of which have been in force since 1988), as well as changes regarding the quantum for triggering arbitration as a compulsory dispute resolution mechanism.
Some of the main features of the proposal that affect the shipping industry are as follows:
- In addition to relating directly to ships, marine insurance will apply to facilities and machinery used for loading, unloading and stevedoring operations, and will cover other goods or assets that the parties consider to be exposed to marine risks (new Article 1160).
- The proposal expressly provides that a marine insurance contract is consensual. Its existence and terms can be evidenced by all legal means of proof, provided that a principle of written evidence is contained in a document, whether digital or electronic (new Article 1173, in conjunction with Article 515).
- The obligation of utmost good faith has been reinforced (new Articles 1176 and 1177).
- The concept of total loss now includes assimilated total loss when the insured object is reasonably and finally abandoned. This may happen either because the effective total loss cannot be avoided or because the costs involved in avoiding such loss are greater than the insured value of the object (new Article 1189).
- The proposal removes the current obligation for the insured first to pay compensation for damages to a third party in order to obtain compensation and reimbursement of expenses incurred (new Article 1200).
Article 1203 of the Code of Commerce establishes the general principle that the resolution of any maritime dispute, including those relating to marine insurance, is subject to mandatory arbitration - that is, almost all maritime disputes must be resolved by an arbitrator. One exception concerns claims in which the amount at stake is less than 5,000 special drawing rights (SDR), as defined by the International Monetary Fund, provided that the claimant submits its claim before the ordinary courts.
Under the proposal, the quantum for triggering compulsory arbitration will now be determined according to the unidad de fomento (UF), a unit of indexation set monthly that varies according to Chilean inflation. The quantum would be increased from 5,000 SDR (equal to approximately $7,700) to UF10,000 (equal to approximately $460,000). This would affect all types of shipping dispute, not just those relating to marine insurance.
The local insurance industry has long argued for a proposal to update Chilean insurance contract law. However, further discussions should take place to ensure accurate and consistent provisions.
In Chile, there are no specialised shipping courts and the introduction of the mandatory arbitration system for maritime disputes in 1988 was a positive step. Maritime disputes are now better understood and more fairly settled. However, the proposed change in the quantum for triggering mandatory arbitration in connection with shipping disputes represents a step backwards, as in practical terms it would transfer the resolution of the majority of maritime disputes to the Chilean ordinary courts, which are not accustomed to hearing this type of dispute.
For further information on this topic please contact Ricardo Rozas at Jorquiera & Rozas Abogados by telephone (+56 2 580 9300), fax (+56 2 580 9311) or email ([email protected]).