Sources of Insurance and Bonding Law in Mexico
The main sources in Mexico are legislation and judicial criteria. Insurance law legislation includes:
International legislation is used when there is an international contract (reinsurance or insurance), where, depending on the type of insurance, the provisions that will apply may be Mexican or international laws.
In 1996, Mexico ratified the Inter-American Convention on the Law Applicable to International Contracts, which establishes a framework to determine the law applicable to international contracts, such as reinsurance or insurance contracts. For the regulation of international insurance or reinsurance, international conventions or treaties are considered depending on the type of insurance and the insured objects; for example, in air transport insurance, international treaties specialised in aeronautical law are used so that the insurance complies with all the requirements in international matters.
Additionally, there are the jurisprudence and judicial criteria issued by the Supreme Court of Justice and the highest courts in the country. This source of law is very important in the Mexican legal system, since it sets precedents for the resolution of judicial disputes in insurance matters, and is also a guideline for insurers as to the conduct they must adopt in their operations.
Regulation of Insurance and Surety Bonds
The National Insurance and Bonding Commission is the governing body that regulates insurance and bonding companies, from their incorporation to their operation, and at all times ensures that they comply with their obligations under the relevant regulatory framework, including the correct constitution of their corporate governance, solvency capital, the contracts they issue, and the constitution of their technical reserves, among others.
On the other hand, the National Commission for the Protection and Defense of Users of Financial Services is the governing body that oversees that insurance and surety companies provide adequate service to consumers of their products. Likewise, such authority may sanction them when they fail to comply with any administrative provision related to consumers. Among other provisions, it is in charge of ensuring compliance with the Law for the Protection and Defense of Users of Financial Services.
Corporate Insurance and Reinsurance
The authorisation to subscribe insurance and reinsurance for (small- or medium-sized) companies corresponds to those companies that have the respective authorisation from the National Insurance and Bonding Commission to operate as an insurer and that also have permission to distribute the product required by the company – ie, in the life, accident and sickness or damage line of business. There are no specific or differentiated requirements for insurers to operate consumer insurance or business insurance.
In the case of business insurance, adhesion contracts are also used; however, this is not an obstacle for them to be negotiated by the contracting company, in terms of its specific needs. For an insurer to issue an insurance policy to a company, it must verify, at the time of subscription, what is contained in its policies and subscription manuals. Other issues that are contemplated include:
The restriction for insurers at the time of taking out insurance is that they do not exceed the capacity for which they can assume risks; for this purpose, Articles 256 and 257 of the Law of Insurance and Bonding Institutions provide that they must diversify and disperse the risks through coinsurance or reinsurance with foreign companies, specifying that there is no different or specific regulation when it comes to business or consumer insurance.
Details of all the requirements that insurers must comply with to operate consumer and business insurance can be found in the Sole Insurance and Bonding Circular.
The Premium Regime
Under Mexican law, the nature of the premium regime is taxable, since if the contracting party or insured party does not pay the premium within the term established for such purpose, the insurance ceases to be effective. The general rule is that the premium is due in advance; that is, at the beginning of each period of the term of the insurance contract. In some cases, depending on the type of insurance, the premium may be divided and paid in specific periods, but it must be paid in periods of equal duration.
Operation of Foreign Insurance or Reinsurance Companies
The operation of insurance in Mexico is authorised for institutions incorporated under Mexican law. If a foreign company wants to operate in Mexico, it must incorporate an affiliate entity in Mexico to provide insurance services in Mexico.
Regarding the operation of reinsurance, in order to provide this service from Mexico and to hold itself out as a Mexican reinsurer, it is necessary for the company to open an affiliate entity in the country and obtain authorisation from the National Insurance and Bonding Commission. However, if the insurance was granted by a Mexican insurer, the insurer, in order to diversify and disperse the risks and responsibilities it assumed when carrying out this operation, is allowed to contract reinsurance or coinsurance with a foreign company. For an insurer to enter into reinsurance with a foreign company, the latter must be registered in the General Registry of Foreign Reinsurers, which is obtained through the authorisation of the National Insurance and Bonding Commission, which, prior to granting the registration, will review, among other aspects, the solvency and stability requirements to carry out reinsurance operations.
In Mexican legislation, there is no express provision allowing fronting and, in some cases, there are restrictions in that insurance cannot be contracted with foreign companies when the persons or companies to be insured reside in Mexican territory or when the object to be insured is located in Mexican territory or is the property of a person domiciled in Mexico and, in general, in cases where the risks may occur in Mexican territory.
However, as stated in 3.1 Overseas-Based Insurers or Reinsurers, Mexican insurance companies may diversify their risks through reinsurance or coinsurance with foreign companies, and it is in these operations that fronting occurs, since through these operations the insurers that assume the risk transfer it to other insurers or reinsurers.
In this respect, there is no percentage limit for reinsurance or coinsurance, nor is there a minimum retention requirement for the transferor company. On the contrary, Mexican law establishes that an insurer cannot retain all the risk if it exceeds its capacity to mitigate the risk, and what it provides is that the surplus must be diversified in reinsurance. In practice, it is common for the entire risk to be reinsured, so sometimes it is actually the reinsurer who assumes the entire risk; however, it is not the reinsurer but the transferor insurer who will be liable to the insured.
Mergers and acquisitions (M&A) of insurance companies are very common in Mexico, especially when international insurers absorb local insurers, since the absorption facilitates the insurers that arrive, as they already have the authorisation of the Mexican regulatory authority and the permits to operate products. For insurance companies operating in Mexico, M&A activity has become increasingly commonplace in recent years. This trend is underpinned bythe Law of Insurance and Bonding Institutions and the Sole Insurance and Bonding Circular.
The absorbing insurer takes over the portfolio of the absorbed insurance institution and assumes all the risks it had insured, for which it must have a contingency plan in place for all the risk it assumes.
The distribution of insurance and reinsurance products is regulated by the Law of Insurance and Bonding Institutions and by the Sole Insurance and Bonding Circular, and is carried out as follows:
Disclosure of Information about the Risk
In Mexico, as in most jurisdictions, insurance contracts are documents previously drafted by the insurers and in which there is no margin for negotiation by the insured; for this reason they are classified as “adhesion contracts”. Adhesion contracts are characterised by the absence of equal bargaining power or the ability for the parties to engage in mutual compromise or negotiation. Thus, the distinguishing feature of the adhesion contract lies in the fact that the clauses are unilaterally prepared (and at times imposed) by one party upon the other, who can only accept or reject them.
Given the aforementioned circumstances, it falls upon the insured party to fulfil the obligation of providing written declarations to the insurer, as per the relevant questionnaire. These declarations should encompass all facts material for the assessment of the risk that could impact the agreed conditions, known or reasonably expected to be known at the contract’s execution. Notably, there is no onus on the insurer to actively investigate, on behalf of the insured, the material facts that may impact the agreed conditions.
The frequent and growing use of insurance contracts has necessitated the regulation of their execution; legislation which, in view of the advantageous position of insurance companies, has been oriented towards developing consumer protection and transparency rules, obliging insurance contracts to comply with certain standards.
Consequence of Failure to Provide Information in the Subscription of an Insurance Contract
As stated in 6.1 Obligations of the Insured and Insurer, most insurance contracts are non-negotiated contracts or adhesion contracts. The omission or misstatement of any material fact by the insured party that could influence the terms and conditions of the insurance entitles the insurer to consider the insurance contract legally terminated.
Insurance companies act through agents who may be individuals or legal entities that intervene in the contracting of insurance through the exchange of proposals and acceptance of said insurance, through marketing and through the provision of advice to enter into such contracts, and whose activity is subject to the legal framework of the Insurance Contract Law, the Law of Insurance Institutions and Mutual Insurance Companies and the Insurance and Bonding Agents Regulations.
Even though the insurance agent is usually considered an intermediary, under Mexican law they are considered an agent of the company when they act according to its instructions and under its direction. In such instances, the agent represents the insurer, and their actions bind the insurer in the process of contracting the insurance. However, they have the obligation to provide advice to the insured in relation to the contracting of the insurance.
In terms of applicable legislation, in order to be valid, the insurance contract (as well as its additions and amendments) must be in writing, and it is perfected from the moment in which the insurer is aware of the acceptance of the offer by the insurance-contracting party.
The insurer is obliged to deliver to the contracting party a policy stating the rights and obligations of the parties, which must contain at least the following:
Beneficiaries of an Insurance Contract
According to Mexican law, it is possible to take out insurance on one’s own behalf or on behalf of another person, even without the designation of the person of the insured third party.
An example of this is D&O liability insurance in which only those persons (without identifying them) who fall within the general conditions of the insurance to be considered as directors and/or officers of a company are established as beneficiaries of the insurance.
The position is no different with regard to consumer contracts or reinsurance.
Alternative risk transfer in insurance refers to non-traditional solutions for transferring risks. In Mexico, this figure has been incorporated in products such as financial guarantee insurance and parametric insurance.
Financial guarantee insurance is regulated in the Law of Financial Institutions and in the Sole Insurance and Bonding Circular, and specific rules for their operation have also been published.
Parametric insurance is gaining traction in the Mexican market, with both private companies and the government embracing its innovative solutions. Initially focused on the agriculture sector, particularly for mitigating drought losses, crop yield decline, and animal mortality, parametric insurance has now expanded to encompass a wider range of sectors. The National Commission for the Protection and Defence of Users of Financial Services (CONDUSEF) currently registers over ten parametric insurance products covering diverse areas like earthquake damage, sports achievements (such as a golf hole-in-one), and event cancellation or postponement (such as weddings).
The Law of Insurance and Bonding Institutions does not specify provisions for ART transactions in other jurisdictions with implications in Mexico. However, there are no explicit bans in this matter.
Whether other jurisdictions celebrate ART transactions that may be validated in Mexico will depend on the specific acts celebrated in the foreign jurisdiction with regard to Mexican insurers.
Where ART transactions signed in other jurisdictions are part of a reinsurance or co-insurance contract with a Mexican insurer, this operation will be considered a reinsurance or co-insurance contract; this applies only where those acts are part of the contract and comply with the requirements of Mexican law for recognition as a reinsurance contract.
Insurance contracts are regulated by the Insurance Contract Law and in a supplementary manner by the rules of construction of contracts contained in the Code of Commerce and the Federal Civil Code.
The Insurance Contract Law provides that the policy conditions, scope, terms, exclusions, limitations, deductibles, and any other modality established in the coverage or plans offered by the insurance company, as well as the rights and obligations of the contracting parties, insured or beneficiaries must be drafted in terms that leave no room for doubt as to the risks covered and those that are excepted, restricted or conditioned in any way.
Regarding the latter, the law is clear in stating that the insurance company must respond to all events that present the nature of risk that has been insured, unless a certain risk or event is expressly excluded, limited, or subordinated in a precise manner.
Consequently, if a risk is not expressly excluded, circumscribed, or reserved from the coverage established in the policy in a clear and precise manner, the insurance company shall have the obligation to respond to it upon the occurrence of the incident, under the terms agreed in the contract.
Insurance contracts are classified as “adhesion contracts”, which are those whose clauses are drafted by only one of the parties, while the other party is limited to accepting or rejecting them, without being able to modify them. That is why there are special rules that differ from those applicable to freely negotiated contracts, namely that any doubt is construed against the stipulating party – ie, the insurer.
Therefore, any obscurity in the clauses in such adhesion contracts must be construed in favour of the insured (consumers), who are not responsible for drafting the contract.
As stated in 8.1 Interpretation of Insurance Contracts and use of Extraneous Evidence, the Insurance Contract Law provides that the policy conditions, scope, terms, exclusions, limitations, deductibles and any other modality established in the coverage or plans offered by the insurance company, as well as the rights and obligations of the contracting parties, insured or beneficiaries must be drafted in terms that leave no room for doubt as to the risks covered and those that are excepted, restricted or conditioned in any way.
Under Mexican law, there is no particular form of words necessary to constitute a warranty, and, in fact, they are generally treated as a condition precedent and are not treated differently from other contractual terms.
As stated 8.2 Warranties, the Insurance Contract Law provides that the policy conditions, scope, terms, exclusions, limitations, deductibles and any other modality established in the coverage or plans offered by the insurance company, as well as the rights and obligations of the contracting parties, insured or beneficiaries must be drafted in terms that leave no room for doubt as to the risks covered and those that are excepted, restricted or conditioned in any way.
The breach of a condition precedent (if material to the loss that arises) will discharge the insurer from liability under the policy as long as it is clear from the content of the policy that such breach constitutes a discharge of liability.
In Mexico, there are two procedures to claim insurance coverage: (i) a conciliatory or mediation procedure before CONDUSEF and (ii) through the competent courts by filing an Ordinary Commercial Trial or Oral Commercial Trial, depending on whether liquid or illiquid benefits are claimed. The filing of the former is not a procedural requirement for the latter.
A claim for the performance of service or consumer contracts can be filed through a conciliatory proceeding before the Federal Consumer Attorney’s Office (PROFECO) or through an Ordinary Commercial Trial or an Oral Commercial Trial.
The timeframe to initiate a lawsuit for the enforcement of an insurance contract is generally two years. However, in the case of life insurance, this period extends to five years. Importantly, initiating a claim with CONDUSEF suspends the timeframe, which only commences again after the day following the conciliation hearing. This applies in scenarios where either no agreement is reached or both parties opt for arbitration.
There are several cases in which an unidentified beneficiary or other third party may claim an insurance payment. An example of this would be in the case of liability insurance where the victim can sue the insurer directly. Another example would be in the case of legal expenses insurance where lawyers could sue the insurer directly for payment of their fees.
In cases of disputes concerning insurance contracts entered into in Mexico by insurance companies duly authorised by Mexican regulatory authorities, the appropriate jurisdiction for legal proceedings shall be the courts of Mexico.
Since insurance contracts are “adhesion contracts”, and in the event that the lawsuit is filed by the insured, the competent courts will be those chosen by the insured, even if the contract has indicated a different court.
Suing for the payment of an insurance indemnity must be carried out by means of an Oral Commercial Trial. A feature of such trials is that ordinary appeals (ie, appeals and/or revocations) are not admitted. Such trials consist of the following stages:
A foreign judgment may be validly enforced in Mexico, provided that this is not contrary to Mexican public policy.
The requirements for enforcing a judgment issued abroad in Mexico are as follows:
As a general rule, in any commercial contract containing an arbitration clause, such a clause is valid and enforceable.
Although it is true that the will of the parties is the supreme law of contracts in commercial matters, including insurance contracts, it is also true that this generic rule in commercial matters is not applicable to the submission agreement when the insured is submitted to the jurisdiction of an arbitration court.
This is because in insurance contracts the aim is to safeguard the rights of the user, and to ensure equity, certainty, and legal security in the relationship between the insurer and the insured. Based on these premises, the arbitration clause agreed in an insurance contract is not valid in the event of a dispute if it is agreed that it be settled through arbitration, and even more so if the place where the arbitration is to be carried out is different from the place where the insured has their usual place of residence.
Being an adhesion contract, its terms are non-negotiable. While the insured has the option to refrain from entering into the contract if they disagree with its stipulations, doing so would mean forgoing the insurance coverage they seek. This underscores that, to avail themselves of the desired insurance, consumers are compelled to subscribe to the adhesion contract on the terms presented and in accordance with the conditions imposed by the insurer.
In this context, it becomes evident that the insured party cannot contest what was stipulated in the contract. Consequently, there is no clear indication that the insured has explicitly expressed their will to submit to an arbitration clause.
Under Mexican law, arbitration awards can be validly enforced in Mexico, necessitating the involvement of the Mexican courts in commercial matters, be it at the local, state, or federal jurisdiction level.
Although Mexico is a party to the New York Convention for the enforcement of arbitration awards rendered abroad, its application is not usually very effective, and even the enforcement of an arbitration award in Mexico is usually at least as time-consuming as the arbitration proceeding itself.
The authority in charge and empowered to carry out a conciliatory procedure between the insured and the insurer is CONDUSEF, and it is also empowered to act as arbitrator.
Despite the existence of alternative justice centres in various states, operating under the jurisdiction of the Superior Courts of Justice, alternative dispute resolution is still little known and underutilised in Mexico. This is particularly true in insurance-related matters, where individuals commonly turn to CONDUSEF and/or the courts to assert and enforce their rights.
Under Mexican law, in the event that the insurers do not comply with the obligations assumed in the insurance contract within the established timeframes, they must pay the creditor an indemnity for late payment.
A recent decision by the Supreme Court of Justice in Mexico has established that courts have the authority to, ex officio (on their own initiative), order an insurance company to pay punitive damages to the insured. Even in situations where the insured has not explicitly claimed damages, if the judge determines that the insurer’s actions were negligent and deems additional punishment necessary, they may impose punitive damages. This precedent is crucial for insurance companies, highlighting the significance of adhering to their obligations and avoiding negligence in their dealings with policyholders.
When an insurer pays indemnity to the insured, it gains the right of subrogation, allowing it to step into the shoes of the insured and pursue all rights and actions against third parties responsible for the damage suffered, up to the amount paid.
The insurer may be released in whole or in part from its obligations if the subrogation is prevented by acts or omissions originating from the insured.
The right of subrogation does not apply in situations where the insured has a close relationship with the responsible party. This includes marital partners, blood relatives or family members by marriage up to the second degree, and individuals in a civil partnership with the responsible party.
The insurance sector in Mexico has witnessed a notable increase in the use of technological means, impacting various aspects such as distribution, marketing, and operational processes. This evolution has led to modifications in the legal framework governing insurance.
In 2018, the introduction of the “New Model” marked a significant development. This model utilises technological tools for the provision of insurance services in ways distinct from traditional methods existing at the time of the authorisation to operate. The authorisation granted under this model is temporary and is regulated by the Law to Regulate Financial Technology Institutions and Chapter 41.3 of the Sole Insurance and Bonding Circular.
To obtain authorisation under this model, companies must meet certain requirements, including:
This framework allows for a one-year pilot programme, extendable by another year.
Moreover, Mexico’s insurtech landscape is flourishing. The establishment of the Asociacion Insurtech Mexico, and their estimation of at least 43 insurtech startups operating by 2021, are testaments to this thriving ecosystem.
In 2018, the Law to Regulate Financial Technology Institutions was issued, through which the services provided by financial institutions through technological means began to be regulated. For insurance matters, such law is also applicable in conjunction with the provisions of the Sole Insurance and Bonding Circular.
As stated in 10.1 Insurtech Developments, through these provisions, insurtech has begun to be regulated. The introduction of such provisions indicates a clear interest and commitment in Mexico to explore and address issues associated with technological advancements in the insurance sector.
While acknowledging that there is still progress to be made in the realm of insurtech, both legislators and the regulatory entity, the National Insurance and Bonding Commission, have shown a clear commitment to developing policies and provisions aimed at advancing insurtech issues in Mexico.
The insurance landscape in Mexico faces a dynamic array of risks that require attention and strategic planning. Firstly, the lingering effects of the COVID-19 pandemic underscore the significance of public health as a persistent risk. Secondary health consequences continue to emerge, and the insured population remains vulnerable to various health challenges. Outbreaks of diseases such as simian smallpox and infantile hepatitis further contribute to the complexity of public health risks.
Simultaneously, recent social and political events, including hacking incidents, underscore the growing threat of cyberattacks. Insurers must adapt to this vulnerability and develop robust cybersecurity frameworks, while factoring in potential contingencies arising from political matters, such as social movements oror even measures adopted by the government that may affect companies.
Finally, Mexico’s geographical location makes it prone to natural disasters like earthquakes and hurricanes. This necessitates robust catastrophe risk management strategies. Furthermore, the looming risk of climate change adds another layer of complexity, potentially amplifying existing threats and creating new ones across the country.
The impact of the COVID-19 pandemic has prompted noteworthy developments in the Mexican insurance sector. Initially, health insurance policies typically excluded coverage for pandemics or epidemics. However, many insurers deviated from these exclusions during the pandemic, choosing to cover related claims. These modifications to insurance contracts were duly recorded with the National Insurance and Bonding Commission. The regulatory authority further facilitated the adaptation of insurance products to include risks arising from COVID-19.
Mexican insurance companies have also increased the number of products that include political risks.
In recent years, the utilisation of parametric insurance, also known as index insurance, has gained traction. In Mexico this type of insurance is commonly used for natural disasters such as earthquakes and hurricanes. Parametric insurance is often used as a complement to traditional insurance, streamlining the claims process by reducing paperwork and enabling faster payments.
In the last year the Sole Insurance and Bonding Circular has been modified with respect to the following:
The highest courts in the country have also addressed significant insurance-related issues in recent rulings:
New Ruling Parameters for Punitive Damages and their Implications for Insurance Institutions
Reparation of damages in light of fair compensation
Initially, the Mexican legal framework contemplated the concept of “reparation of damages” on a civil basis, mainly based on the theory of obligations. However, in the last couple of years, the Supreme Court of Justice has established new criteria around this concept, incorporating the recognition of reparation within the catalogue of human rights.
The most important change occurred with the 2011 reform, since a new catalogue of human rights was incorporated into Article 1 of the Political Constitution of the United Mexican States, which encompassed all human rights provided for in the Constitution itself and also in the international treaties to which the Mexican State was a party, among which was the right to fair compensation.
In this context, the Supreme Court of Justice began to regulate the issue of damages in greater depth. Among some of the relevant criteria are the following:
The evolution of the concept of “reparation” has led the Mexican legal system to understand it today not as a simple retribution, but as a human right of the victims that includes, among other measures, restitution, rehabilitation, satisfaction, non-repetition, and compensation, all in light of the concept of comprehensive reparation of the damage provided for in international law.
Punitive damages in Mexico
In light of the precedents the Supreme Court of Justice has been setting in the matter of comprehensive reparation of damages, the incorporation of the concept of punitive damages in the Mexican legal system has also been emerging.
The first time that the concept of punitive damages was incorporated by the Supreme Court of Justice was in resolutions of the Direct Writs of Amparo 30/2013 and 31/2013. The Court established that such concept relates to due compensation, and serves the objectives of social retribution. The Court held that “...such measure fulfils a dual function: it incentivises people to avoid causing damages to avoid having to pay compensation, and economically it becomes advantageous to cover all necessary expenses to prevent causing harm to others...”.
Likewise, it is important to highlight that the Supreme Court of Justice held that punitive damages are part of the right to fair compensation of victims and that punitive damages seek to impose negative incentives to act with due diligence; such negative incentives are especially aimed at companies whose duties are to protect the life and physical integrity of their customers.
In this context, even though Mexican civil legislation does not include punitive damages as such, the Supreme Court of Justice determined through a literal and teleological interpretation of Article 1916 of the Civil Code for Mexico City that the reparation of moral damages has a punitive nature. Consequently, the Court established that judges should consider aggravating factors in determining the amount of compensation, beyond merely erasing the damage suffered by the victim.
The Supreme Court of Justice in Mexico further developed the regulation of punitive damages through Direct Writ of Amparo 50/2015. In this resolution, the Court determined that punitive damages must encompass “...a dimension that addresses the victims’ need for justice, punishing the responsible party according to its degree of culpability and setting a precedent that discourages similar conduct in future cases...”. Furthermore, the Supreme Court of Justice determined, in line with what it had already ruled in Direct Writs of Amparo 30/2013 and 31/2013, that “...the compensatory amount should account for the liability of the defendant and the social aspect of the damage caused, that is, the social relevance or implications thereof...”.
Likewise, in a slightly more recent criterion, in the resolution of Writ of Amparo under Review 1133/2019, the Supreme Court of Justice resolved that punitive damages are a concept that “...pursues the punishment of certain conducts characterised by an aggravated axiological or valuative element, that go against norms of public policy and good customs, and that breach the generic duty imposed on all persons not to cause harm to others...”.
Likewise, such precedent is relevant, since the Supreme Court held that punitive damages have three purposes:
The ruling of punitive damages against insurance companies in the past year
In recent years in Mexico, given the evolution of the regulation of the comprehensive reparation of damages and punitive damages, more and more cases have been brought against insurance companies. In these cases, claimants not only seek fulfilment of the insurance contract but also claim compensation for moral damages and punitive damages.
Although the cases in which a ruling for moral damages and/or punitive damages has been imposed on the insurers are still limited, it is a fact that more and more cases are being added to the list and the Supreme Court of Justice has intervened in their resolution due to their potential impact on future legal precedents.
In 2023, the First Chamber of the Supreme Court of Justice resolved Direct Writ of Amparo under Review 4306/202, which originated in a lawsuit in which a woman sued an insurance company for the fulfilment of the insurance contract, the payment of indemnification for civil liability, moral damages and punitive damages, since the insurance company refused to pay the medical expenses for her treatment of cervical uterine cancer, arguing that such disease was expressly excluded from her insurance cover in the general conditions of the contract, despite the fact that the contract included an additional benefit for “heart attack and cancer in women.”
In the first instance, it was decided to order the insurer to comply with the insurance contract and to pay for civil liability (damages); however, it was denied to order moral damages and punitive damages, and the insured party was ordered to pay costs.
Subsequently, the insured party filed a direct writ of amparo lawsuit in which the insured party was only absolved from paying costs in favour of the insurer. As a result, the insured filed a writ of review, which was heard by the Supreme Court of Justice.
In the resolution of the aforementioned Writ of Review, the Supreme Court of Justice emphasised that the insured party’s right to comprehensive reparation of the damage was not confined solely to contractual liability. Even though the insurer’s liability originated in a breach of the contract, the Court held that the insurer also incurred tort liability. The Supreme Court of Justice held that “...insurance companies may exceed the duties contained in or derived from the contractual relationship when they fail to comply with the obligations derived from the regulations governing their activities or when they neglect their generic duty to act under the standards of diligence required for the rendering of the service...”.
In this case, the Supreme Court held that the insurer’s refusal to comply with the terms of the contract was based on bad faith, since, upon delivering the policy to the insured party, the insurer failed to provide her with the general conditions of the contract, which supposedly included the exclusion of her illness, and this omission was the key reason leading the Superior Court of Justice to consider her claim inadmissible.
Regarding moral damages, the Supreme Court of Justice concluded that they indeed occurred. The serious emotional impact on the insured party, diagnosed with cervical uterine cancer while undergoing a process to achieve pregnancy, was exacerbated by the actions of the insurer. The insurance policy explicitly covered the condition of “cancer in women”, yet the insurance company refused to pay, citing an alleged exclusion in the general conditions of the contract. Crucially, these general conditions were never delivered to the insured party, despite being a legal obligation of the insurance company.
This denial of coverage created an additional concern for the insured party, beyond the challenges already posed by her illness. She faced the worry of being unable to afford all the expenses associated with the treatment of the disease. Moreover, there was the added concern of having to hire legal services to file a lawsuit to assert a right that she had been entitled to since the execution of the insurance contract.
The Supreme Court of Justice further held that the situation was aggravated by the company’s request for the insured woman to undergo studies to corroborate the disease forming the basis of her claim. These studies were not only reviewed by company personnel but also by external parties, specifically a law firm hired by the insurance company. The insured party considered this a needless exposure of her privacy, leading the Supreme Court of Justice to acknowledge the violation of her right to privacy and the presumption of moral damages.
Finally, with respect to punitive damages, the Supreme Court of Justice ruled that they were based on the right to fair compensation and the rights of consumers with respect to the financial system. In this regard, the Supreme Court of Justice held that the protection of the rights of consumers imposes on the state and, particularly, on the judicial authority, the obligation to regulate and supervise the actions of insurance companies, taking into consideration the asymmetrical power dynamics between insurance companies and policyholders, especially in matters involving the health, life, or integrity of individuals.
The Supreme Court of Justice clarified that not every breach of an insurance contract automatically warrants punitive damages. The decision to award punitive damages depends on various factors, as stated in the Direct Writs of Amparo 30/2013 and 31/2013, such as the severity of the breach and degree of culpability in the defendant’s actions. The court considers factors like the property put at risk by the negligent conduct, the degree of negligence, its aggravating factors, the social importance of unfulfilled duties related to the type of activity performed by the responsible party, among other considerations.
The Supreme Court of Justice concluded that it was appropriate to impose punitive damages on the insurer in the case under study. The insurer’s repeated failure to fulfil its legal obligations caused clear harm to the insured party’s rights to health, privacy, personal integrity, and those protections afforded to consumers. The insurer neglected its obligation to deliver the general conditions of the insurance, which supposedly stated the exclusion of the claimed condition. Furthermore, these general conditions were not even registered with the National Insurance and Bonding Commission.
The Supreme Court found the insurer’s conduct egregious. Not only did they fail to provide the general conditions or register the insurance adhesion contract the insurer entered into with the insured claimant, leaving the insured without legal recourse, but they also exploited the power imbalance. The Court condemned the insurer’s “highly reprehensible” conduct in offering an attractive benefit without disclosing its limitations in writing, as well as their failure to treat the insured with dignity. The insurer’s request for medical studies, with the apparent intent of corroborating the illness, knowing it would not favour the claimant’s claim, further exacerbated the situation.
Finally, the Supreme Court of Justice emphasised the high social relevance of the insurer’s conduct, highlighting the potential replication of such a scheme in numerous cases, considering that insurers often use the same adhesion contracts for multiple insured persons. This raised the concern that many women with cervical cancer might have been denied coverage or could have faced such denial under similar schemes. Moreover, there was a presumption that some individuals may have abandoned their claims due to such practices. The court stressed the crucial importance for insurance companies to diligently fulfil their duties of care. By strongly reproaching the insurer’s negligence, the Supreme Court aimed to serve a social purpose and establish incentives to safeguard the rights and interests of service users.
The aforementioned precedent establishes a significant reference point in Mexican insurance law, particularly concerning the comprehensive reparation of damages and punitive damages. It emphasises that in insurance lawsuits involving claims for compliance with an insurance contract, as well as the payment of moral damages and/or punitive damages, judges should not solely focus on analysing the obligations outlined in the insurance agreements. Instead, judges are urged to consider the insurers’ conduct, specifically in relation to their duty of diligence in providing services and fulfilling their obligations. This includes aspects like the proper registration of contracts and the delivery of all general conditions to insured parties.
The power of judges to order insurers to pay punitive damage
Another recent precedent from the Supreme Court of Justice is noteworthy, as it establishes that punitive damages may be awarded ex officio by the judge. The Supreme Court of Justice, in Direct Writ of Amparo under Review 1057/2023, clarified that even if the plaintiff does not explicitly claim the payment of damages but pursues a civil liability action and demonstrates moral damage resulting from a wrongful act, the judge has the authority to award punitive damages. This decision is based on the judge’s consideration of the circumstances of the case, including the parameters of punitive damages, to assess whether the conduct of the tortfeasor exhibits a very high degree of culpability.
The Supreme Court ruled that “...it is not a prerequisite for the analysis of punitive damages, to specifically demand the payment of such damages as a separate claim, independent of moral damages...”.
The Supreme Court of Justice clarified that punitive damages are not automatically applicable in all cases where moral damages are claimed and proven. Instead, their imposition depends on the severity of the harmful conduct. The court emphasised that the absence of a specific demand for punitive damages does not deprive the alleged wrongdoer of legal remedies. If the plaintiff demands compensation for moral damages, it provides an opportunity to demonstrate that the attributed conduct either caused no damage or that the damage caused was not serious enough to merit an additional punitive sanction.
The Supreme Court of Justice’s criterion, allowing judges to impose punitive damages without specific claims for such damages, is especially significant in the insurance sector. In the particular case for which the writ of amparo was resolved, a gas company and an insurance company were sued for damages caused by an explosion that was a direct result of the negligence of the employees of the gas company. Therefore, if it is considered that punitive damages have been incurred, the relevant insurance company could be ordered to pay such damages.
While the Supreme Court refrained from imposing punitive damages itself, it empowered the trial judge to do so. This means that, in similar cases, the judge can choose to hold both the gas company and the insurance company accountable for punitive damages if the evidence demonstrates their actions meet the necessary criteria.
The evolving regulation of comprehensive reparation of damages and punitive damages in Mexico reflects a commitment to human rights, aiming to ensure that victims receive adequate compensation for the damages they suffered. This approach considers a holistic view of reparation, allowing victims to regain what they had before the unlawful acts occurred.
As these legal principles develop, the insurance industry is not exempt from their impact. Insurance claims are now subject to scrutiny based on these new judicial criteria. It is important to note that the changing landscape of punitive damages does not automatically pose a threat to insurers. Each case is evaluated individually, considering factors such as whether the insurer has registered its insurance contract with the National Insurance and Bonding Commission, delivered complete insurance conditions to the insured party, and acted in good faith when rejecting a claim, among other considerations.
In light of the evolving legal framework concerning comprehensive reparation of damages and punitive damages, insurers must exercise heightened diligence in fulfilling their obligations. This diligence should encompass every stage of their operations, ranging from the creation of their products to the execution of contracts, the handling of claims, and the processing of lawsuits. It is crucial to recognise that every aspect of their activities will undergo scrutiny from judicial bodies when lawsuits are being resolved. The most effective strategy for insurers to avoid rulings of this nature is to ensure that they refrain from engaging in any serious harmful conduct that could lead to legal consequences.