Day 3: 2019 Miami Latin American Claims (Re)Insurance Forum

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Day 2: 2019 Miami Latin American Claims (Re)Insurance Forum

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Day 1: 2019 Miami Latin American Claims (Re)Insurance Forum

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Welcome Cocktail Pictures: 2019 Miami Latin American Claims (Re)Insurance Forum

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Fiscal Liability Proceedings in Colombia

 

Bogota, Colombia - view of capital city downtown from Monserrate

In recent years, the amount of fiscal liability proceedings has been increasing substantially. Insurance companies have been called into those proceedings. This has resulted in many awards against insurers some of which have ignored the rules and principles of insurance contracts, and decisions by the Council of State and Supreme Court.
This situation has caused understandable concern in the market—the most relevant aspects of these proceedings are explained below.

What are fiscal liabilities proceedings?
The Office of the Comptroller General (CGR in Spanish) has a constitutional mandate to supervise the correct management of state property, including funds. Through fiscal liability proceedings, the CGR seeks to determine whether public officers and private parties that deal with public property funds have managed them properly.  If damage or financial detriment has been caused to the State due to fraud or gross negligence of those being investigated, those persons will be asked to pay monetary compensation for the damage caused.
The proceedings end with an administrative decision that, as in other civil code countries, is subject to appeal before the contentious-administrative courts.

Who can be held fiscally liable?
In this context, government agencies will never be liable as they are the victims—only public officers (civil servants) and private persons (whether people or companies) can be made liable. Sometimes the CGR adopts a broad interpretation of the notion of what is handling or administering public funds to broaden the spectrum of potentially liable parties and include persons who strictly are not performing those activities, thus going beyond its powers.

Insurers’ role 
Article 44 Law 610 2000 states that in cases where there is an insurance policy covering the possible liable person or the property or contracts that are being investigated by the Office of the General Comptroller, the insurer shall be called into the proceedings as a potentially liable third party and may be ordered to pay compensation to the State.

Types of policies likely to be involved in fiscal liability proceedings
1. Surety
2. D&O Policies for Public Officers
3. Crime Policies
4. D&O

Contraloría’s Decisions that affect the insurance market
Several decisions of the Contraloría have caused concern of late with high profile cases related to corruption being investigated. The most popular matters concern:

1. Multiple policies’ periods: In cases involving losses occurring over time by continued actions or omissions of public officers—or individuals that manage or administer public funds—the DGR has triggered multiple policy periods, accumulating insured limits. By doing so, the Contraloría ignores the insurance contract rules and principles, the agreed terms and conditions, and the insured limits.

2. Title V of the Colombian Commercial Code regulates the insurance contract.  The CGR determined that its provisions were not applicable to them, deeming that the provisions of the Code were only applicable to private contracts and theirs are investigations of public nature.

3. Exclusions: In some matters, the CGR has ordered insurers to pay in instances were exclusions were applicable, therefore ignoring the terms and conditions of the insurance contract.

4. Claims made: CGR has also ignored claims made clauses arguing that they are not essential to the insurance contract, they limit insurer’s responsibility unduly, are abusive, and that insurance contracts shall answer to the general interest.

The approach of the CGR goes against multitude of well settled principles of insurance and commercial law.

What is being done?

In addition to contesting the admin CGR decisions before the courts, local and international markets have been active before the Insurers Association (Fasecolda) and several government agencies to raise awareness of the implications and promote dialogue with  CGR and congress. Kennedys is acting for several markets in different appeals and initiatives.

Currently in Congress
There are two bill initiatives currently in Congress.

The first initiative was filed by the former Comptroller Edgardo José Maya (Bill No. 099 of 2018). This bill (i) modifies the requirements to start a fiscal liability proceeding making them more strict in respect of evidence of the damage, (ii) changes the fiscal liability limitation period, (iii) specifies that the payment for anticipated termination of the fiscal liability proceeding includes indexation, (iv) determines that the testimony of the investigated persons is not a requirement to issue an accusation writ or indictment and that those testimonies can take place after the accusation writ or indictment is issued, and (v) modifies the quantum required for a second instance appeal.

The second bill seeks to amend the Constitution and was filed by current Comptroller Carlos Felipe Córdoba (Constitutional Amendment No. 355 of 2019). The initiative (i) establishes that Fiscal control will be concomitant and preventive and not only subsequent and selective, (ii) unifies the Jurisdiction of the CGR specifying that said Office will have  prevailing competition to exercise fiscal control over any territorial entity, and (iii) determines that the CGR will have judicial functions and judicial police functions.
Very much a developing story that we will be following closely. We will be discussing these issues at the Miami Latin American Claims (Re) Insurance Forum this week.

Authors: Monica Tocarruncho, Partner, Kennedys in Colombia; Catalina Botero, Senior Associate, Kennedys in Colombia and Alex Guillamont, Head of Latin America and Caribbean practice at Kennedys.

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Peru: Update on Claims Made

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A few weeks ago, we wrote about the validity of the “claims made” policies in Peru, in connection to a non-binding opinion issued by the Peruvian Insurance Regulator (SBS). The SBS concluded in such opinion, that liability policies (even regarding financial lines) should be underwritten under occurrence basis according to the Peruvian Insurance Contract Law.

In our article, we wrote that it was hoped that the SBS reconsidered their position, as it was well intended but technically inaccurate. They did it!

On 17 May 2019, the SBS published a draft bill regulating (and therefore, accepting, as they were doing de facto) the validity of “claims made” policies. We applaud the disposition of the SBS in order to move forward with solid legal grounds. These should be welcome news for all players in the insurance sector.

The draft bill provides that those clauses in a liability insurance establishing that third party claims should be made within the policy period or in the extended period agreed therein, must be negotiated entirely between the parties. It is required that insurers and brokers inform of the consequences of agreeing such policies to the insured. The draft bill also allows insurers to provide retroactive coverage, if the parties are unaware of claims within such period.

The draft bill is now open for public comment until 17 June 2019. After this period, the feedback received will be considered by the regulator, and it is expected that the bill will be enacted shortly thereafter.

Draft bill (in Spanish) available at: http://nuevo.sbs.gob.pe/normativa-y-estandares/normativa/prepublicacion-de-proyectos-normativos

We look forward to discussing further at the upcoming Miami Latin American Claims (Re)Insurance Forum.

Authors:
Marco Rivera Noya, Partner. Kennedys in Peru.
Alex Guillamont, Head of Latin America and Caribbean practice. Kennedys.

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2019 Miami Latin American Claims (Re)Insurance Forum is sold out!

 

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More than 200 delegates from 15 countries across the region and beyond.

QLDG and Kennedys thank you all for your support one more year. We look forward to meeting you all in Miami next month. The 36 carriers attending, 7 international reinsurance brokers and a significant number of experts from a variety of fields will surely add to the debate.

Special thanks to our 2019 sponsors: our welcome cocktail patron Abaco and Advanta, Crawford, Envista Forensics, IRB Brasil Re, J.S. Held, Rimac, R&G Espinosa and Sedgwick for their continued sponsorship.

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