In Mexico, the regulation of insurance matters falls under the exclusive competence of the Federal Government. This regulation is primarily established by the Law of Insurance and Bonding Institutions (Ley de Instituciones de Seguros y de Fianzas, LISF), and its enforcement is overseen by the National Insurance and Bonding Commission (Comisión Nacional de Seguros y Fianzas, CNSF).

As regards the legal framework applicable to the resolution of insurance-related disputes, there are various statutes of relevance. Insurance law is classified under the commercial branch of law, since Article 75 of the Commercial Code (Código de Comercio) deems insurance as a commercial act.

Unlike other commercial proceedings where the principle of strict law (estricto derecho) prevails, insurance litigation is subject to multiple principles that impose evidentiary and procedural burdens upon the insurer in order to achieve a favourable judicial outcome. This is due to the fact that, in many cases, legislation grants the status of “consumer” to users of this financial service, and because insurance policies and their general conditions – comprising the insurance contract – are generally imposed upon the policyholder and the beneficiary as an adhesion contract. In such contracts, the policyholder is not able to negotiate the inclusion or removal of clauses; their participation is limited to accepting the contractual terms, which, by law, must be registered for publicity purposes before the National Commission for the Protection and Defence of Financial Services Users (Comisión Nacional para la Protección y Defensa de los Usuarios de Servicios Financieros, CONDUSEF).

The insurance contract is the only contract in Mexico regulated by a special statute, the Law on the Insurance Contract (Ley sobre el Contrato de Seguro, LCS), published in the Diario Oficial de la Federación (Official Gazette of the Federation) on 31 August 1935, which has only undergone minor amendments – the most recent being over a decade ago. As a result, much of the legal understanding and dispute resolution in this area relies on jurisprudence, making it essential to know the prevailing interpretations and existing judicial criteria. Disputes between insurers and reinsurers are, as a general rule, resolved through arbitration by agreement between the parties.

Below are the main legal provisions and regulations applicable to insurance matters, along with a brief description of their content.

Law on the Insurance Contract (LCS)

• Governs contractual relations between insurers and insured parties.
• Contains provisions on obligations, nullity, limitation periods, risk declaration, premium payment and claims.

Law of Insurance and Bonding Institutions (LISF)

• The primary statute regulating the organisation, operation and supervision of insurers in Mexico.
• Establishes requirements for authorisation, solvency, corporate governance and investment regime.
• Regulates certain procedural matters of relevance, such as the determination of judicial jurisdiction in insurance matters, the calculation of default interest, and insolvency proceedings of insurance institutions.

Single Insurance and Bonding Circular and its Annexes (Circular Única de Seguros y Fianzas, CUSF)

• Regulates solvency requirements, technical reserves and risk management for insurers and bonding companies, under a risk-based supervisory model.
• Establishes corporate governance and internal control obligations, including the actuarial function, audit and comprehensive risk management.
• Imposes accounting, valuation and regulatory reporting standards, and grants the CNSF powers to supervise and impose corrective measures.
• Although essentially organisational in nature, it may have indirect relevance in judicial disputes as it imposes specific obligations on insurers in respect of customer information, contractual transparency, underwriting policies and claims handling.
• Provides for the supervisory and corrective measures the CNSF may impose, including monitoring mechanisms, intervention and additional requirements when operational or financial risks are detected.

Law for the Protection and Defence of Financial Services Users

• Creates a specialised body for the protection of the rights of financial services consumers and may be used as a pre-litigation stage.

Commercial Code

• Governs commercial procedure applicable to insurance disputes, establishing the general rules for the juicio oral mercantil (oral commercial trial), the most common forum for disputes relating to compliance with the insurance contract, including evidentiary rules, procedural stages and formalities.
• Contains provisions on the burden of proof and the evidentiary value of documents, relevant for proving the existence and content of the insurance contract, as well as the parties’ obligations.
• Provides for precautionary measures and summary proceedings, useful for securing contractual compliance during litigation or for enforcing judgments in insurance disputes.

Federal Code of Civil Procedure and the Local Codes of Civil Procedure of Each Mexican State

(From April 2027, the Federal Code of Civil Procedure and the 32 local codes will be replaced by the National Code of Civil and Family Procedure.)

• Regulates procedural aspects concerning civil actions, relevant when bringing civil liability claims against an insurer under an applicable policy.
• Serves as supplementary procedural law to the Commercial Code where the latter is silent or insufficient.

Navigation and Maritime Commerce Law

• Establishes specific provisions on marine insurance as a specialised form of insurance contract, applicable to vessels, cargo, civil liability and other risks inherent to navigation.
• Defines the requirements and effects of compulsory insurance in maritime operations, including liability insurance for third-party damages, pollution and salvage.
• Imposes an obligation to maintain valid insurance for the navigation and operation of vessels, and sets out the legal consequences of non-compliance.
• Recognises the right of direct action by an affected third party against the insurer in civil liability cases, thereby strengthening victim protection in maritime accidents.
• Complements the LCS with special rules applicable to maritime transport and insurable interests in that sector.

Civil Aviation Law

• Requires compulsory insurance for aircraft, including coverage for passenger, crew, baggage and cargo damage, and liability to third parties on the surface.
• Makes the operation of aircraft in national territory subject to proof of valid insurance as a condition for obtaining and maintaining permits and concessions.
• Complements the LCS with a special regime for aviation insurance, regulating the strict liability of concessionaires and permit holders towards third parties and service users.
• Imposes obligations on concessionaires and permit holders to maintain minimum coverage and to have such coverage verified by the aviation authority.
• In the event of air accidents, policies under this Law may give rise to direct actions against insurers in accordance with applicable civil or commercial legislation.

Amparo Law (Ley de Amparo)

Governs the Juicio de Amparo (constitutional relief proceeding), which in most insurance disputes – resolved in oral commercial trials where no ordinary appeal lies – serves as the mechanism to seek modification of judicial resolutions.

The Litigation Process

In Mexico, the process for compelling performance of an insurance contract may include an optional pre-litigation stage before the CONDUSEF, available to the insured, the policyholder or the beneficiary. Initiating this procedure has the important effect of interrupting the statute of limitation period and can serve as a means to avoid litigation if the parties reach a satisfactory settlement. This stage even allows the parties to submit the dispute to CONDUSEF’s arbitration.

Once such a procedure is exhausted, if initiated, the judicial claim process commences, generally through the commercial jurisdiction and, exceptionally, through the civil jurisdiction.

The commercial process applies where enforcement of the insurance contract is sought in respect of coverages other than civil liability, for instance payment under policies covering property damage, life or medical expenses.

Under the Mexican Constitution (Article 104, section II), commercial matters may be heard by either local courts or federal courts, since federal laws such as the Commercial Code are involved. The insured may elect to bring proceedings before federal courts or before the local courts of the relevant Mexican state, in the latter case where only private interests are affected.

Article 277, fifth paragraph, of the LISF provides that territorial jurisdiction in insurance disputes is determined at the claimant’s discretion, based on the location of any CONDUSEF office (delegación) – at least one of which exists in each of Mexico’s 32 states. This provision allows many insured parties to litigate in jurisdictions having no substantive connection with the dispute.

Most insurance disputes, being for a determinate amount, must be heard in an oral commercial trial (juicio oral mercantil), regulated by the Commercial Code and comprising a written phase followed by an oral phase.

• Written phase: The claim, the defence, and the reply with any defences or counterclaims must be submitted in writing. Evidence must be offered in these pleadings to prove the claim, the defences, or to rebut the opposing party’s allegations.
• Preliminary hearing: Once the written phase concludes, the court sets a preliminary hearing at which the procedure is streamlined, and various procedural acts are concentrated to guide the case to its decisive stage. The judge may encourage conciliation or mediation; if successful, the dispute is resolved early. The issues in dispute are identified, agreements are recorded on uncontested matters, and rulings are issued on the admissibility of evidence and any evidentiary agreements. If the case proceeds, the hearing date for the trial is fixed.
• Preparation of evidence: After the preliminary hearing and before the trial hearing, the court arranges the preparation of admitted evidence requiring prior steps – such as summoning witnesses or issuing official letters.
• Trial hearing: The hearing should not be suspended due to unprepared evidence, save for force majeure. Prepared evidence is heard, and each party is given a single opportunity to make final oral submissions (closing arguments).

At the conclusion of the trial hearing, the judge declares the case heard and delivers judgment immediately, stating the factual and legal grounds orally and succinctly, reading only the operative part. A written version is made available to the parties, who may request clarification within the following 60 minutes. In practice, trial hearings are often adjourned to allow the judge time to deliberate, with judgment pronounced at a later continuation hearing.

Judgments in oral commercial trials are not subject to an ordinary appeal. The only recourse available to a party aggrieved by the decision is the constitutional relief proceeding (Juicio de Amparo).

In certain cases – where the dispute is not for a determinate amount – the matter is heard in an ordinary commercial trial, which has longer deadlines for pleadings, special rules for adducing evidence, and other procedural distinctions. A key difference is that judgments may be appealed, and the appellate decision may then be challenged through Amparo proceedings.

Where civil liability coverage is claimed against both the direct tortfeasor and the insurer, the dispute must be heard in the civil jurisdiction before the civil courts of the relevant Mexican state. This has been established by the First Chamber of the Supreme Court of Justice of the Nation in binding precedent 1a./J. 127/2022 (11a.), arising from Contradiction of Criteria 100/2022.

The possibility of appealing a civil judgment depends on the Civil Procedure Code applicable in the state concerned, until the National Code of Civil and Family Procedure comes into force nationwide in April 2027.

Rules on Limitation

Article 81 of the LCS sets out special limitation periods for insurance disputes. The general rule is two years for insurance coverage, except for life insurance, where the period is extended to five years.

Notably, the First Chamber of the Supreme Court, in case Amparo Directo en Revisión 2128/2023, held that where civil liability coverage is claimed in respect of a third party’s death, the limitation period is five years, not the two years expressly provided by the LCS. This is grounded in binding precedent 1a./J. 80/2024 (11a.), which has been mandatory for all courts since 6 May 2024.

In Mexico, jurisprudence is a formal source of law and focuses on statutory interpretation. In some cases, courts may act as “negative legislators” by disapplying a statutory provision in a specific case. As with legislation, retroactive application of jurisprudence to the detriment of a person is prohibited.

The limitation period generally runs from the date on which the beneficiary or insured becomes aware of their right under the policy. It may be interrupted by making a formal claim to the insurer or, as mentioned above, by filing a complaint with CONDUSEF.

To interrupt limitation and demonstrate the validity of the action in court, the insured need only prove: (i) the existence of the contract; (ii) timely notice to the insurer of the loss; and (iii) the occurrence of the insured risk. The burden of proof to establish the claim’s lack of merit lies with the insurer.

By express provision of the Commercial Code, judges hearing commercial disputes are under a statutory duty to promote conciliation between the parties.

In recent years, mediation has gained prominence through the creation of specialised centres and the enactment of local laws granting settlement agreements concluded before such centres the same legal effect as a final judgment.

Arbitration, by contrast, is rarely used in insurance disputes. In matters involving disputes between insurers and reinsurers, however, commercial arbitration is the usual route.

The most common ADR method in Mexico for insurance disputes is mediation before CONDUSEF, which offers a specialised forum to encourage settlement between insurers and policyholders.

In January 2024, the General Law on Alternative Dispute Resolution Mechanisms was enacted to further encourage the use of ADR among private parties, with the aim of reducing judicial caseloads and promoting negotiated settlements.

Jurisdiction

The interpretation and application of insurance law falls exclusively to courts competent in commercial matters, whether local or federal.

Jurisdiction or venue clauses are common in insurance contracts and are typically found in the general conditions applicable to each policy. These often mirror the legal rule set out in the last paragraph of Article 277 of the LISF, which provides that claimants may assert their rights before any court with jurisdiction in a location where a CONDUSEF office (delegación) is situated – there being at least one in each of Mexico’s 32 states.

By express provision of the same article, any agreement contrary to this jurisdictional rule is void.

The applicable rules for resolving insurance disputes depend on the stage of the conflict. In the pre-litigation stage, the dispute may be resolved through CONDUSEF, in which case the Law for the Protection and Defence of Financial Services Users applies.

Choice of Law

Under the Mexican legal system, the freedom to choose the applicable law in insurance contracts is subject to statutory limitations. Unlike some other jurisdictions, where the governing law may be freely agreed, in Mexico insurance contracts are subject to mandatory provisions.

Insurance contracts entered into in Mexican territory between an authorised insurer and an insured domiciled in Mexico must be governed by the LCS and the LISF. These are public order provisions and cannot be waived by agreement.

Article 19 of the LISF specifically provides that insurance institutions operating in Mexico must conduct their activities in compliance with Mexican law. The CNSF’s supervisory powers over the sector reinforce this obligation.

There are limited exceptions in cross-border transactions. For example, if the insured risk is located outside Mexico or the insured is domiciled abroad, the application of foreign law may be permissible. Even then, the choice must not contravene Mexican public order or fundamental legal principles.

Where insurance is contracted with an unauthorised foreign insurer, the LISF imposes strict rules restricting such practice, except in cases expressly allowed – such as certain international maritime or aviation insurance.

Pursuant to Article 24 of the LISF, contracts entered into by unauthorised foreign insurers – even where within a statutory exception – will have no legal effect, without prejudice to the policyholder’s or insured’s right to recover premiums paid. Additionally, the person or entity involved may incur liability to the policyholder, insured, beneficiary or their lawful successors, and may be subject to applicable criminal or administrative sanctions.

In conclusion, while in rare cases a different governing law may be agreed, the general rule is that insurance contracts must be governed by Mexican law, reflecting its mandatory nature and the aim of protecting policyholders from potential abuse.

In Mexico, foreign judgments may be enforced both in favour of and against insurers, provided the requirements established in the Commercial Code and, where applicable, in international treaties or bilateral agreements entered into by Mexico are met.

The applicable procedure depends on factors such as:

• whether there is a treaty on reciprocity with the country of origin of the judgment;
• the date on which the foreign proceedings were commenced; and
• the nature of the decision (monetary, declaratory, etc).

Given that such proceedings are relatively uncommon in most Mexican courts and require precise handling, it is advisable to engage legal counsel with expertise in this area.

As a general rule, foreign judgments must undergo a recognition and enforcement procedure (exequatur) before the competent Mexican courts.

For a foreign judgment to be recognised and enforced in Mexico, it must:

• not contravene Mexican public order;
• have been rendered by a competent authority under the rules of private international law;
• have been duly served on the defendant;
• be final and not subject to ordinary appeal;
• be duly legalised or apostilled; and
• be translated into Spanish by a certified court translator, where applicable.

The Mexican judicial system has features that international insurers should be aware of when involved in local disputes. Proceedings are adversarial in nature. Judges do not have the same active case management role as in some other jurisdictions, but they do have broad powers to conduct proceedings, control the taking of evidence, and issue precautionary or interim measures.

Furthermore, there is a significant body of binding jurisprudence in insurance matters, imposing procedural and evidentiary burdens on insurers.

Costs Rules and Punitive Damages

Mexico does not apply a general “loser pays” rule. Court costs are governed by the Commercial Code (in commercial trials, as with most insurance disputes) and are subject to judicial discretion.

In principle, costs may be awarded against the losing party if it is proven that they litigated with recklessness (temeridad) or bad faith. In practice, costs awards are neither automatic nor reflective of the full legal expenses incurred, and their calculation is usually set by local tariff laws.

There are judicial precedents – such as binding precedent 1a./J. 123/2025 (11a.) – recognising the possibility of awarding punitive damages against insurers who act in bad faith during litigation. In that case, the First Chamber of the Supreme Court of Justice found serious misconduct where an insurer:

• failed to deliver the general conditions of the insurance policy;
• failed to register the adhesion insurance contract entered into with the claimant; and
• subjected the claimant to unnecessary medical examinations to confirm a diagnosis of cervical cancer, causing undue and unjust invasion of her privacy.

This precedent has been binding nationwide since 7 July 2025.

Finally, it is critical to note that in insurance contracts, both general and specific conditions form an essential part of the contract, defining coverage, exclusions, deductibles and other key terms. However, as held in binding precedent 1a./J. 159/2022 (11a.), the mere existence of these conditions is insufficient for them to be enforceable; insurers must fulfil their duty of disclosure and transparency.

To be binding on the insured, the insurer must prove conclusively that these conditions were effectively communicated to the insured.

In Mexico, arbitration clauses in reinsurance contracts and in insurance contracts between parties with comparable bargaining power – such as agreements between insurers and large corporations – are generally valid and enforceable under the Commercial Code and international treaties on commercial arbitration, such as the 1958 New York Convention.

However, in insurance contracts entered into with individuals or with micro, small and medium-sized enterprises, arbitration is significantly restricted, due to the following factors.

• Insurance contracts are typically contracts of adhesion, unilaterally drafted by insurers and registered with CONDUSEF in accordance with the LCS and the Law for the Protection and Defence of Financial Services Users.
• An arbitration clause cannot be validly imposed unilaterally, nor deemed accepted without an express endorsement and unequivocal consent by both parties after the loss has occurred or the dispute has arisen.
• CONDUSEF may act in a quasi-arbitral capacity at the insured’s request and with the insurer’s consent, but cannot impose arbitration ex officio or through pre-drafted clauses. In practice, this institutional arbitration is rare, given CONDUSEF’s consumer-protection orientation.

Only in exceptional cases, where both parties (insurer and policyholder) expressly agree in writing to submit their dispute to arbitration – either after the loss or through a specific endorsement – will courts decline jurisdiction.

Accordingly, while arbitration is common and viable in reinsurance or heavily negotiated insurance contracts, in most individual or adhesion insurance contracts, arbitration clauses are unenforceable, and the primary dispute resolution mechanism remains the commercial courts, often preceded by CONDUSEF conciliation.

Mexico has been a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards since September 1971. Consequently, Mexican courts recognise and enforce arbitral awards issued in other contracting states, in accordance with the terms and conditions established in the Convention.

The enforcement procedure is regulated in Book Five, Title Four of the Commercial Code, which largely adopts the UNCITRAL Model Law on International Commercial Arbitration.

To request enforcement of a foreign award, the interested party must file a claim before the competent court, complying with the requirements set out in that statute.

Once the application is filed, the court may admit it and order the respondent to present its defence. The respondent may object only on the grounds expressly provided in the New York Convention and the Commercial Code, such as:

• invalidity of the arbitration agreement, lack of proper notice, inability to present a case; or
• contravention of Mexican public policy.

If no valid ground for objection is proven, the award will be recognised and enforced as if it were a final judgment rendered by a Mexican court.

Arbitration is not a common mechanism for resolving insurance disputes in Mexico, especially for policies issued to individuals or small businesses, due to their adhesion-contract nature and regulatory oversight by CONDUSEF. In such cases, the usual mechanism is a commercial court proceeding, often preceded by conciliation before CONDUSEF.

In contrast, arbitration is frequently used for reinsurance contracts, where the parties enjoy greater contractual freedom and bargaining power. In these commercial relationships, it is common to agree on arbitration clauses referring disputes to either international or domestic arbitral institutions, or to ad hoc arbitration.

In Mexico:

• arbitration is private;
• awards are not appealable;
• enforcement is governed by the Commercial Code; and
• an award may only be challenged through a nullity action on the limited grounds set out in Article 1457 of the Commercial Code (eg, non-arbitrability of the dispute, or violation of public policy).

In Mexico, the LCS incorporates a number of provisions into the insurance contract by operation of law, even if not expressly stated in the policy. Examples include, among others:

• Article 91: valuation of the insured interest; and
• Article 92: proportional indemnity where the sum insured is less than the insured interest.

These implied terms form part of the contract and bind the parties as if expressly agreed.

Mexican law grants insurers specific rights regarding the presentation of risk prior to entering into the contract, as set out in the LCS. These rights are essential to allow proper assessment of the risk and the decision whether to accept it and on what terms.

The LCS imposes on the proposer the duty to declare in writing all material facts that may influence the assessment of the risk. Omission or misrepresentation entitles the insurer to rescind the contract ipso jure, even if the omission or misrepresentation did not contribute to the occurrence of the loss.

If the insurer decides to rescind, it must do so within 30 calendar days of becoming aware of the omission or misrepresentation, by giving formal notice to the insured or beneficiary.

The LCS also provides that the contract is void if, at inception, the risk has already ceased to exist or the loss has already occurred, unless there is an express agreement on retroactivity. In cases of retroactivity:

• if the insurer knew the risk no longer existed, it cannot demand the premium or expenses; and
• if the policyholder knew, they forfeit the right to a refund of the premium and must reimburse the insurer’s expenses.

Over the past 12 months, several disputes have arisen concerning the scope of coverage in insurance contracts, which have been addressed in judicial precedents showing a trend toward restrictive interpretation of exclusions, limitations, and liability clauses.

Key developments include the following.

• Validity of exclusions for employees under strict liability policies.
1. The courts have upheld the validity of exclusions relating to employees in strict liability civil policies where such exclusion has a reasonable justification, based on the different nature of the legal relationship between the insured and their personnel.
2. These exclusions are not considered unconstitutional where they meet criteria of rationality and proportionality, as reflected in binding precedent 1a./J. 80/2024 (11a.).
• Commencement of limitation periods for direct actions.
1. The limitation period for victims or beneficiaries to exercise a direct action against an insurer starts when they become aware of both the loss and their right to claim.
2. This has been deemed consistent with the right of access to justice and legal certainty, as recognised in binding precedent 1a./J. 78/2024 (11a.).
• Reaffirmation of the indemnity principle.
1. Where the sum insured is less than the value of the insured interest, the insurer is only obliged to indemnify proportionally, unless agreed otherwise.
2. This aims to prevent unjust enrichment and preserve the economic function of insurance (binding precedent 1a./J. 76/2024 (11a.)).
• Obligations in “insurance for the account of another”.
1. The proposer is obliged to disclose all relevant facts they know or ought to know regarding the risk, even if such information comes from the third-party insured or its intermediary.
2. Failure to do so may justify rescission of the contract (binding precedent 1a./J. 79/2024 (11a.)).
• Validity of risk delimitation clauses.
1. Such clauses are valid provided they do not conceal unconstitutional or ambiguous exclusions.
2. They must be clear, comprehensible, and not involve an undue waiver of substantive rights (binding precedents 1a./J. 81/2024 (11a.), 1a./J. 77/2024 (11a.), and 1a./J. 75/2024 (11a.)).

These interpretations strengthen legal certainty, precisely define policy scope, and confirm the balance between insurers’ rights and the legitimate interests of insureds and third parties.

In Mexico, insurance coverage disputes are generally resolved through commercial court proceedings under the Commercial Code, the LCS and other applicable provisions. The most common forum is the oral commercial trial, brought by the insured or beneficiary against the insurer.

Lower-value disputes may be resolved through conciliation before CONDUSEF. However, high-value disputes with significant disagreements over contract performance typically proceed to litigation.

Reinsurance contracts, due to their technical nature and the fact they are negotiated between industry professionals, generally include arbitration clauses and alternative dispute resolution mechanisms. Disputes often involve interpretation of follow-the-fortunes clauses, participation arrangements, and duties of utmost good faith in risk administration.

In summary:

• insurance coverage disputes are generally before Mexican commercial courts; and
• reinsurance coverage disputes are predominantly through arbitration, with a more specialised and private approach.

In practice, there is no clear statutory or jurisprudential distinction between insureds who are consumers and those with an entrepreneurial or sophisticated profile. Courts and authorities – including CONDUSEF – tend to apply consumer protection principles broadly, regardless of the insured’s technical expertise or corporate status.

This leads to uniform application of protective principles, such as:

• interpretation of ambiguous terms in favour of the insured;
• nullity of abusive clauses; and

• heightened disclosure duties on the insurer.

Such treatment is applied even in cases involving legal entities with considerable experience in contracting complex insurance (eg, hotels, construction companies, transport fleets).

From a comparative law perspective, Mexico has not adopted a segmented approach distinguishing consumers from sophisticated policyholders, which has prompted doctrinal debate regarding fairness in disputes involving large companies capable of negotiating bespoke cover.

Mexican law expressly recognises certain scenarios in which a third party may sue an insurer directly, even if they are neither the contracting party nor the insured.

A key example is civil liability insurance, which covers indeterminate persons. Article 147 of the LCS grants the third party who suffered damages the right to sue the insurer of the liable party directly.

This right allows the third party to claim indemnity under the policy without first obtaining judgment against the insured or requiring the insured’s involvement in the proceedings.

In life, accident or property insurance, designated beneficiaries may also sue the insurer directly to enforce the policy.

Moreover, third parties with an insured interest (eg, pledgees, mortgagees, trustees) may have standing to enforce the contract or participate in proceedings, depending on the policy terms or endorsements.

While the insurance contract is typically bilateral, Mexican law allows certain third parties to exercise rights against the insurer, particularly in liability insurance and policies naming express beneficiaries.

The concept of bad faith (mala fe) is expressly recognised in Mexican insurance law and can have significant legal consequences for both contract validity and insurers’ obligations.

• An insurer is not obliged to indemnify if it proves that the loss was caused by fraud or bad faith on the part of the insured, beneficiary or their successors.
• In property insurance, the contract is void if, at inception, the insured item had already perished or was not exposed to the risk; where one party knew this fact in bad faith, they must compensate the other.
• If the sum insured is intentionally set above the real value of the insured object and there is fraud or bad faith, the other party may seek nullity and damages.

Overall, the law upholds good faith (buena fe) as an essential principle in the insurer-insured relationship.

The LISF imposes economic consequences on insurers failing to pay valid claims within statutory deadlines.

For obligations in Mexican currency, unpaid amounts are converted to Investment Units (Unidades de Inversión, UDIs), an inflation-indexed accounting unit published daily by the Bank of Mexico. Late payments attract default interest, capitalised monthly, at a rate equal to 1.25 times the cost of funds for UDI-denominated liabilities of Mexican commercial banks.

For obligations in foreign currency, the LISF requires monthly capitalised default interest, calculated by applying 1.25 times the cost of funds for US dollar-denominated liabilities of Mexican commercial banks.

While the constitutionality of interest capitalisation has been challenged, the Supreme Court has upheld it, considering it a deterrent to insurers’ contumacious conduct and a protection for financial services users.

Generally, the insured is not bound by statements made by their insurance agent unless the agent is expressly acting as their representative or attorney-in-fact at the time of contracting.

Only where the agent acts on behalf of and under instructions from the insured will such statements be deemed the insured’s own and carry binding legal effect.

Otherwise, the insurer cannot shift liability to the insured for inaccurate statements made by an agent acting as the insurer’s intermediary, especially where exclusivity or agency relationships exist.

Under the LCS, when insurance is contracted for the account of another, the proposer must disclose material facts known to them, the third-party insured, or their intermediary. This can, in exceptional cases, extend liability to the insured if the intermediary truly represents their interests.

In Mexico, delegated underwriting or claims-handling arrangements are rare and found mainly in the reinsurance sector.

The insurer remains solely liable to the insured, meaning disputes are generally directed against the insurer rather than the delegate, and litigation arising from such arrangements is exceptional.

Article 18 of the LCS expressly provides that even if the insurer reinsures the risks it has underwritten, it remains the only party liable to the insured.

In Mexico, insurers commonly assume the legal defence of their insureds under civil liability insurance policies. This type of coverage often includes, as an additional obligation to indemnification, the duty to provide legal defence against third-party claims.

It is common practice for insurers to:

• appoint lawyers directly to represent the insured; or
• reimburse legal costs if this arrangement has been pre-agreed.

The duty of defence may be subject to limits and conditions stated in the policy, including the right of the insurer to take over the defence or to approve the litigation strategy in advance.

No immediate radical changes are anticipated in insurers’ defence obligations. The current practice, based on civil liability insurance contracts, has proven effective in protecting both the insured’s interests and the rights of third parties.

However, the sustained increase in civil liability claims indicates a likely trend toward:

• greater litigation; and
• more specialised defence schemes.

This trend is reinforced by a January 2022 ruling from the First Chamber of the Supreme Court of Justice of the Nation, allowing injured parties to claim civil liability damages even where they have already been compensated in criminal proceedings.

In this context, insurers are expected to:

• strengthen the quality of legal services provided to insureds; and
• improve selection and supervision of appointed legal professionals.

An inadequate defence could not only result in heavier judgments but also create direct liability for the insurer under the doctrine of culpa in eligendo if such failure causes damage to the insured.

In recent years, there has been a steady increase in both the cost and complexity of insurance litigation in Mexico, particularly in civil liability policies.

This has been driven by:

• the growth of a legal market focused on claims against insurers, sometimes in cases lacking strong legal merit;
• favourable jurisprudence strengthening insureds’ rights; and
• some courts issuing high-value judgments, particularly for loss of profit (lucro cesante) and moral damages (daño moral).

Additionally, the allocation of the burden of proof often falls on insurers, requiring them to hire expert witnesses and other specialised court auxiliaries, increasing defence costs.

The widespread marketing of insurance claim services via social media has also contributed to higher litigation rates.

This trend is likely to continue, meaning insurers will face greater financial risk and technical complexity in litigation.

In Mexico, there are no structured insurance or financial products specifically designed to protect claimants against the risk of being ordered to pay litigation costs – unlike in jurisdictions where after-the-event insurance (ATE) is available.

However, the risk is relatively low because:

• the Mexican procedural system does not automatically impose costs on the losing party;
• costs are generally awarded only where recklessness (temeridad), bad faith, or dilatory conduct is proven; and
• even when awarded, cost amounts are typically limited and do not reflect the actual legal fees incurred.

Many claimant lawyers operate on a contingency fee (cuota litis) basis, enabling claimants to litigate without upfront legal fees and transferring most of the financial risk to the lawyer.

Mexican law recognises insurers’ statutory right of legal subrogation, allowing them to bring actions against third parties responsible for damage covered under the policy, once they have indemnified the insured.

This right arises by operation of law upon payment of the claim and places the insurer in the insured’s legal position against the third party, up to the amount paid.

If the insured, through fraud or gross negligence, impairs the insurer’s subrogation rights, the insurer may be released from liability to the extent such rights are affected.

This mechanism is especially relevant in property, transport and liability insurance, where a responsible third party exists. It is frequently used in practice, either through litigation or negotiated settlements.

The right of action to recover sums from third parties is expressly provided in Article 111 of the LCS, which states: “The insurer paying the indemnity shall be subrogated, up to the amount paid, to all rights and actions against third parties that, by reason of the damage suffered, belong to the insured”.

Subrogation operates automatically by law and requires no judicial declaration.

The First Chamber of the Supreme Court reaffirmed this in binding precedent 1a./J. 56/2022 (11a.), in force since August 2022.

The claim is generally brought in the insurer’s own name, as the subrogated party, exercising the rights formerly held by the insured.

The COVID-19 pandemic had a significant impact on the type and volume of claims in the insurance sector, particularly in life and major medical expenses insurance. Many insurers faced a considerable increase in coverage requests, some of which escalated into litigation due to:

• claim denials;
• restrictive interpretations of exclusions;
• disputes over pre-existing conditions, and
• use of non-approved medication.

In the post-pandemic period, there has been a marked rise in the importance of civil liability coverage, both for individuals and corporations. This evolution has led to an increase in:

• the number of claims; and
• litigation concerning third-party damage, moral damage, and loss of profit, particularly in sensitive sectors such as healthcare, construction and professional services.

This environment has fostered the growth of specialised law firms handling claims against insurers, often recruiting clients through social media and digital platforms. The result has been not only greater litigation volume but also more technically sophisticated and systematic approaches.

While geopolitical factors, such as the war in Europe, have had more pronounced effects in reinsurance markets and certain specialised lines (eg, maritime or cyber), their direct impact on domestic insurance litigation in Mexico has been limited and indirect, mainly through premium adjustments or product restructuring.

The upward trend in insurance litigation volume is expected to continue over the next year, driven mainly by:

• the ongoing specialisation of law firms focused on claims against insurers;
• the increasing litigiousness of civil liability coverage; and
• the economic climate, which encourages insured parties to demand strict performance of their policies, sometimes misusing “pro-insured” criteria to commit fraud or obtain undue enrichment.

Judicialisation is likely to intensify in disputes over:

• the scope of exclusions;
• quantification of non-pecuniary damages (eg, moral damage); and
• third-party liability.

Regulatory and jurisprudential pressure favouring insureds may also increase, influencing judicial criteria and insurers’ approach to claims.

A relevant factor is the 2024 Judicial Reform, under which Mexico’s Supreme Court justices, federal judges, and state judges are now elected by public vote. This is expected to produce new judicial criteria in the coming months based on the perspectives of newly elected judges.

While no disruptive changes are anticipated from external geopolitical events, reinsurance market pressures could lead to additional strain in certain lines – particularly health, construction, cyber and professional risks.

Macroeconomic factors have given rise to test cases. Recent disputes have focused on:

• the validity of exclusions for alleged undeclared pre-existing conditions in major medical expenses and life insurance; and
• in civil liability coverage, the quantification of loss of profit and moral damage.

These disputes have produced judicial criteria tending to expand insured protection.

Insurers have adopted a more conservative approach in certain lines – especially civil liability, health and professional risks – by reviewing exclusions, coverage limits and general conditions.

There is also greater caution in underwriting complex risks, driven by rising litigation and tighter reinsurance market conditions.

Judicial decisions have directly influenced product design. For example, the First Chamber of the Supreme Court, in Amparo Directo en Revisión 1324/2021 (binding precedent 1a./J. 122/2022 (11a.)), declared unconstitutional the exclusion of moral damage in compulsory automobile liability insurance. This precedent prompted regulatory and contractual revisions in the sector, particularly regarding the legal limits of exclusions.

In Mexico, the impact of environmental, social, and governance (ESG) factors on underwriting and litigation of insurance risks is still in its early stages, but is increasing.

In underwriting, some insurers are starting to include sustainability criteria and environmental risk assessment in projects involving industrial, energy or infrastructure activities, especially where there is potential for environmental liability or ecological damage.

In litigation, ESG factors may indirectly influence cases involving corporate civil liability, where standards of diligence related to human rights, environmental protection, and corporate governance are considered. Although there are still no consolidated precedents in Mexico, their influence is expected to grow in the medium term as regulatory standards tighten and investor and institutional pressures increase.

The Federal Law on the Protection of Personal Data Held by Private Parties directly affects both underwriting and litigation.

In underwriting, insurers must obtain the express consent of the insured to collect and process sensitive personal data, such as health or financial information, ensuring compliance with principles of legality, proportionality and purpose.

In litigation, these obligations extend to the handling of case files, evidence and communications containing personal data, including when sharing information with lawyers, experts or courts. Improper use of data can result in administrative sanctions and civil liability.

Importantly, evidence obtained in violation of these rules can be deemed illegally obtained and excluded, undermining the insurer’s defence.

To date, there have been no substantive legislative or regulatory reforms significantly altering the framework applicable to insurance coverage, insurance litigation or defence obligations assumed by insurers. The LCS has remained unchanged since its last amendment on 4 April 2013.

While some legislative initiatives have been proposed to strengthen insured protection and limit certain contractual practices, none have progressed sufficiently to produce binding changes.

Notably, a legislator from the Institutional Revolutionary Party (PRI) has submitted several initiatives – published in the Parliamentary Gazette of the Chamber of Deputies on 12 February 2025 – aimed primarily at limiting increases in major medical expenses insurance premiums.