Regulatory overhaul in both Chile and Peru require foreign insurers to take note and understand how these changes will impact them.

Both Chile and Peru have recently introduced a significant raft of new insurance legislation and  understanding the main features of the changed legal landscape in these countries is vital for any  foreign insurer subject to local law and jurisdiction.


The law regulating insurance contracts in Chile is contained within the Código de Comercio  (Commercial Code) (first drafted in 1865). Major reforms were introduced to the Code in December  2013 and the definition of a contract of insurance to which the new code applies is prescriptive  and therefore inflexible.

The new regime comprises a mandatory rule under which contractual provisions that are more  beneficial to the insured (or third-party beneficiary) are deemed valid. This does not however  extend to hull insurance, air and marine transport cover, nor “damages” insurance (such as civil  liability covers) with a premium of more than 200 Unidad de Fomento (approximately USD 8,250).

Certain rules (of general application) do favour the insured. For example, the new code  consolidates the rules relating to misrepresentation.

Some of the rules are written rather blandly. For example, the new code includes a concept of  warranty as a written contractual term “to circumscribe or diminish a risk”. A policyholder must  observe the warranty if any indemnity is to be paid. There is, however, no rule addressing the  question of whether the failure to comply with the warranty was related to the cause of a loss.  Further, if a claim arises from several causes, the insurer will be responsible for the loss if any of the  concurrent causes correspond to a risk covered by the policy. This leaves  open the issue of what  happens if one of the causes is specifically excluded (where English law would be likely to deny an  indemnity arising from a scenario underwriters had decided not to cover).


The recent overhaul of insurance law in Peru resulted in Insurance Contract Law No. 29946, which  came into force on 27 May 2013 and applies to all classes of insurance.

A striking aspect of the new law is the extent to which it is pro-insured; the first three articles  each expressly provide that in case of ambiguity or doubt, contractual provisions will be  interpreted in favour of an insured. The new Peruvian code also requires a restrictive  interpretation of clauses imposing an expiration of an insured’s rights.

Some balance to this “insured-friendly” approach is given by Part IV(5), which provides  interpretations that accord with generally observed commercial custom and practice will prevail  over any other sense given to certain words.

While the new law recognises the principle of utmost good faith and requires the insured to declare  truthfully all relevant facts about a risk (failing which the contract is void), it also imposes  some limitations on an insurer’s ability to exercise its defences.

It is a curiosity of the new law that arbitration clauses will be void in insurance contracts (but  not reinsurance contracts). Although the parties may opt to arbitrate once a loss has occurred, at  that point it may better suit one of the parties to air their dispute publicly through the court  system.

Another important feature is the ten year limitation period, commencing from the date of loss,  applying to actions based on a contract of insurance. After this period, no action may be brought.

Reinsurance contracts

Neither of the new codes dedicates much space to reinsurance contracts. Both oblige the reinsurer  to indemnify the reinsured within the limits and conditions established in the contract and the  Chilean rule adds the phrase: “In these [reinsurance] contracts, international customs and  practices as to reinsurance will be used to interpret the intentions of the parties.” As  highlighted  above, Peru operates a similar rule, absent the international dimension. Beyond this,  however, little is said and accordingly it is likely clauses such as claims control and “follow the  settlement” will be construed in a similar manner as under English law.

Importantly, both codes expressly recognise the lack of privity of contract between a reinsurer and  the original insured, protecting the reinsurer from a direct action brought by the original  insured. Neither code makes any provision which might relieve the direct insurer of its obligation  to pay the claim to the insured, although if an insurer becomes insolvent, a direct action against  a reinsurer is possible where there is a contractual “cut through” clause. An underlying feature of “civil law” legal systems is the comprehensive codification of basic principles of law and legislative updates are infrequent (but  significant) events. However, the rules are often less detailed than those seen in common law  systems and there may be a sense here than an opportunity to draw on the experience of other  jurisdictions and further develop the rules has been lost. There is also a risk of “curious  outcomes” from trying to squeeze together rules about consumer and business contracts.

It is notable also in civil law systems judges are generally not obliged to follow previously  decided cases and it is the approach of the legislation itself that guides the application of the  codes and the interpretation of policy terms. The pro-insured reforms of both countries will therefore have considerable impact for some time.