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What general rules, requirements and procedures govern the filing of insurance claims?
As a general rule, insurance claims must be reported within seven days of the insured becoming aware of the loss. A longer term can be agreed for the benefit of the insured. Shorter terms could be agreed in the case of a large risk. However, in practice, many policies insert imprecise wording along the lines of “as soon as possible or practicable”, which could conceivably be longer than the statutory seven days.
Late notification of the loss does not per se entitle the insurer to rescind the contract, but only to claim damages, if any. As an exception to the general rule, the prompt notification of the loss can be made a condition precedent to the insurer’s liability if the risk in question is a “large risk”.
The policyholder or the insured must provide all information available on the circumstances and consequences of the loss. Breach of this duty through gross negligence or bad faith on the part of the insured would release the insurer from its obligation to indemnify.
What is the time bar for filing claims?
The time bar is:
•two years for claims relating to casualty and property insurance contracts; and
•five years for claims relating to life, accidents and health insurance.
Denial of claim
On what grounds can the (re)insurer deny coverage?
According to the Insurance Contract Act, the insurer will be released from its obligation to indemnify if the insured acts with gross negligence, bad faith or with the intent to prejudice the insurer, as follows:
•Before concluding the contract, the policyholder must disclose to the insurer, pursuant to the risk questionnaire submitted by the insurer, all of the circumstances known by the policyholder that may be relevant for the evaluation of the risk. Regarding ‘inaccuracies’ (misrepresentations) or ‘reservations’ (concealment or non-disclosure) in the information provided when completing the questionnaire or proposal form:
- if the insurer becomes aware of the inaccuracies or reservations before the loss takes place, it will be entitled to rescind the contract within one month of learning about the misrepresentation or reservation; or
- if the loss occurs before the rescission is notified or if the misrepresentation or non-disclosure is discovered after the loss takes place, the insurer will be released from its obligation to indemnify if it proves that the policyholder acted in bad faith or with gross negligence. Otherwise, the indemnity shall be reduced proportionally to the premium the insurer would have charged had the real entity of risk been disclosed to it.
•Regarding premiums, if the first or single premium has not been paid before the loss takes place, the insurer will be released from its obligation to indemnify.
•The policyholder or the insured have the duty to provide all information available on the circumstances and consequences of the loss. The breach of this duty with gross negligence or bad faith on the part of the insured would release the insurer from its obligation to indemnify.
•The policyholder must diminish or minimise the loss. If the policyholder breaches this duty with intent to prejudice the insurer, the latter will be released from its obligation to indemnify.
Aside from the compliance of policyholders’ duties, the insurer may deny coverage if:
•the action is time barred;
•exclusions apply (in the context of third-party liability insurance, exclusions may not be raised against the injured third party); or
•civil liability of the responsible person has not been proven (eg, amount of the loss or causal link).
What rules and procedures govern the insured’s challenge of the denial of a claim?
Law 20/2015 on the regulation, supervision and solvency of insurance and reinsurance entities provides for dispute resolution mechanisms in insurance matters. These are litigation, arbitration (subject to certain limitations in the case of consumers) and mediation.
Regarding litigation before the civil courts, the insured can bring an action against the insurer proving that the loss is covered by the insurance contract and it did not act with bad faith, gross negligence or with the intent to prejudice the insurer regarding its duties of disclosure information, payment the premium or diminish or minimise the loss.
On what grounds can a third party file a claim directly with the (re)insurer?
Under Article 76 of Insurance Contract Act, the injured third party has a direct action against the third-party liability insurer. The insurer will be bound within the limits and conditions set out in the policy.
Are punitive damages insurable?
The concept of punitive damages, which are awarded to punish or deter particularly injurious or wilful misconduct of the party, is generally not admitted in Spanish law. Damages are compensatory in nature. It is usual that policies exclude punitive damages in certain jurisdictions (the United States and Canada). However, as an exception to this general principle, unjustified delays in the payment of claims by insurers are subject to a special rate of interest which is punitive in nature as has been characterised by case law since the punitive interest rate is unrelated to the actual cost of money.
What regime governs (re)insurers’ subrogation rights?
Once the insurer has paid the insured, it may be subrogated to the legal position of the insured and exercise the rights and claims that the insured would have against the party responsible for the loss up to the limit of the indemnity paid. The insured will be responsible for any damage caused by its acts or omissions that affect the insurer subrogation’s rights.
The insurer cannot exercise any subrogation rights that might prejudice the insured. The insurer also cannot exercise any subrogation rights against the person for whose actions the insured is liable, nor relatives of the insured.
These restrictions will not apply when liability derives from an act in bad faith of this person or if such liability is covered by an insurance contract. In the latter case, subrogation is limited to the terms and conditions of that insurance contract.
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