What is the usual time limit for claims brought in your jurisdiction under reinsurance contracts and what is the source of the rules?
The existing regulation of reinsurance contracts is contained in only three articles of the Insurance Contract Act (Articles 77 to 79).
These do not stipulate the time limit for claims brought under reinsurance contracts. Therefore, it has been debated whether the terms of the Insurance Contract Act should apply by analogy or rather the general 15 year term provided for in Article 1964 of the Civil Code for actions based in contract. In our view, the periods established in Article 23 of the Insurance Contract Act should apply. This was also the decision of the Madrid Provincial Court in the only judgement from an upper court that addresses this issue (Judgement of Audiencia Provincial de Madrid 623/2004 dated 19 October 2004).
Does it make any difference if the contracts are governed by English or other foreign law?
Spain is a signatory to the 1980 Rome Convention, which allows free choice on governing law. The general rule is that time limits are governed by the law that is applicable to the rights to which they apply. As a consequence, if a claim is based on a contract to which the law of a foreign country applies, that law will determine the operation of the time limits.
What is the effect of a time bar in your jurisdiction? Does it operate to extinguish the claim, or does it merely provide a defence rendering the claim unenforceable?
There are two categories within the time bar principle, the expiration (caducidad) and the prescription (prescripción).
Their effects are similar, but not exactly the same.
The expiration extinguishes the rights on which the claim is based, if not exercised during the limitation period. The prescription (which is the relevant time bar for insurance/reinsurance purposes) merely gives the debtor the possibility to oppose the claim on the ground it is time-barred, but does not extinguish the underlying right. Consequently, prescription is not an automatic means for extinguishing obligations. The debtor wishing to extinguish a debt must actively invoke prescription as a defence (it cannot be declared ex-officio). At least from a theoretical point of view, the action continues to exist until the prescription has been declared by a judicial or arbitral decision.
When would the limitation period begin to run in respect of a claim under a reinsurance contract assuming:
- it is a proportional reinsurance contract;
- it is an excess of loss contract with an aggregate deductible?
As already indicated, the Spanish Insurance Contract Act does not establish when the limitation period begins to run in insurance nor in reinsurance claims and, therefore, section 1969 of the Civil Code applies. That states that “in the absence of a special disposition of law providing otherwise, the time for prescription of all actions shall be calculated starting from the day on which they could have been exercised”. This means from the time when the reinsured first had a right to claim an indemnity from his reinsurer. Generally speaking, a reinsured will not have a right to claim from reinsurers until he has effected payment to the original insured (and the date of the loss or the date on which the reinsured was held liable or settled the case are irrelevant).