Challenges and Developments in Peruvian Insurance Law: Reflections on Insurance Arbitration and Analysis of Relevant Judicial Pronouncements Impacting the Insurance Market

Insurance law in Peru faces important challenges that require constant regulatory reflection. In this regard, through this contribution, the authors seek to provide a current overview of insurance matters in Peru. To this end, three main themes that highlight the challenges and developments in the Peruvian insurance sector are analysed: the regulation of insurance arbitration and two relevant judicial pronouncements on insurance matters, namely interpreting the coverage of the compulsory traffic accident insurance (seguro obligatorio de accidentes de tránsito; SOAT) and applying the Fifth Supplementary Provision of the Insurance Contract Law (Ley de Contratos de Seguro; LCS). The issues not only reflect the dynamics that exist between consumers and insurers, but also the urgent need to harmonise applicable principles such as consumer protection, legal certainty and predictability in resolving disputes.

A pending issue: the importance of insurance arbitration and its implementation by the legislator

Arbitration is recognised as an agile, efficient and specialised mechanism for dispute resolution. However, its use in the insurance industry has generated controversy, particularly because the LCS, which is implemented in conjunction with other Superintendency of Banking and Insurance (Superintendencia de Banca y Seguros; SBS) regulations, forbids the use of clauses that submit disputes to arbitration. The legislator’s rationale for this restriction is mainly to protect consumers against possible imbalances in negotiating contractual clauses.Given that insurance contracts include pre-established clauses, they are considered to be contracts of adhesion (as a general premise, although there are exceptions such as when the insured is the one who proposes the clauses, which is mainly done in the case of large-risk insurance). Therefore, any arbitration clause included in the policy that affects consumers is considered by Peruvian legislators as a null and void clause. Thus, it is stated in the Regulation for the Management and Payment of Claims – currently in force – that “The contracting party, the insured and/or the beneficiary may agree with the company to submit disputes arising from the insurance contract to arbitration or another dispute settlement mechanism, in accordance with the provisions of Article 40(c) and Article 46 of the Insurance Contract Law, when the damages or losses claimed from the company as a consequence of a loss are equal to or greater than 20 Peruvian tax units (UITs)”. Furthermore, Article 40 of the Insurance Contract Law establishes that those clauses that “prohibit or restrict the right of the insured to submit the dispute to judicial proceedings are null and void as of right, without prejudice to his right to agree with the insurer, once the loss has occurred, to submit the case to arbitration or other means of dispute settlement”.

However, this generalised prohibition raises questions, particularly in cases where the insured does not qualify as a consumer, such as companies or legal entities with greater bargaining power, which are precisely those that take out large-risk insurance with specialised coverage. Legislative Decree 1071, the General Arbitration Law, establishes that the parties may submit their disputes to arbitration if this has been expressly and freely agreed upon, which is contrary to the prohibition in the field of insurance where there is a consumer relationship, raising the need for a clearly differentiated approach. Allowing arbitration in insurance contracts for policyholders who do not qualify as consumers from the moment of contracting – and not only after the claim has occurred – could benefit both insurers and policyholders in terms of efficiency and specialisation in dispute resolution.

Currently, the prohibition of arbitration in insurance contracts in Peru at the time of contracting, motivated by the need to protect consumers, reflects an approach that, although understandable from the perspective of contractual balance, may be limited by not considering the particularities of large-risk insurance, where it is the contracting party who not only negotiates the policy but also proposes the text or clauses thereof. In these cases, policyholders do not act as vulnerable consumers, but as entities with bargaining power that could benefit from arbitration as an agile and specialised dispute resolution mechanism.

This reflection invites us to rethink the current restrictions, adopting a perspective that recognises the differences between consumer policyholders and policyholders with greater bargaining power. The authors believe that adapting regulations in this direction does not imply weakening consumer protection, instead ensuring that arbitration can be used as an effective tool in cases that merit it, strengthening the insurance system as a whole.

Relevant pronouncements in the Peruvian insurance market

Analysis of the “non-occupant third party” in SOAT: the positions of the National Institute for the Defence of Competition and the Protection of Intellectual Property (INDECOPI) and the judiciary

Several pronouncements on consumer protection have been issued by INDECOPI, holding that when there is a traffic accident between two vehicles and one of them does not have SOAT, the insurance company of the vehicle that does have SOAT must provide coverage for the occupants of the uninsured vehicle, which is contrary to the very concept of compulsory insurance of the uninsured vehicle. For INDECOPI, non-occupant third parties even include those who are occupants of an uninsured vehicle and, to this effect, they allege that Article 17 of the SOAT Regulation should be interpreted under the pro-consumer principle, which is misleading. However, in a recent pronouncement, the Fifth Specialised Court for Administrative Litigation ruled that “as this is a compulsory insurance, each motor vehicle must have its own SOAT insurance policy, in order to be able to cover the expenses derived from traffic accidents. In case of non-compliance with the law, the liability will not be borne by the insurers of the other vehicles involved in the accident, since these policies only cover the occupants of the covered vehicles, as well as third parties who are not occupants of the vehicle, ie, pedestrians”. This pronouncement is in line with previous decisions, such as Cassation No 19147-2016, where it was specified that a third party cannot be considered as a non-occupant under the terms of Article 30, Section 30.2 of the General Law of Transport and Land Transit, as these terms are provided for third parties to the vehicles involved in the accident to which – as a result of the accident – an injury was caused. Furthermore, if insurance coverage was ordered indiscriminately for vehicles that did not have such a policy, it would generate an increase in premium costs and affect the property of insurance users.

The foregoing rulings consolidate criteria that clearly delimit the scope of SOAT coverage, establishing that insurers are not obliged to indemnify occupants of uninsured vehicles. It is essential that both insurers and users understand these interpretations in order to guarantee proper application of SOAT and to promote a culture of insurance that effectively protects victims of road accidents in Peru.

On the scope of the Fifth Final Supplementary and Amending Provision of the LCS: a key precedent in the insurance sector

The LCS contains a provision in its Fifth Final Complementary and Modifying Provision regarding its application to contracts that were already in place when this special law went into effect: “As of its entry into force, the provisions of this Law shall apply even to the consequences of existing legal relationships and situations and have no retroactive force or effect; provided that these have not been previously regulated by law or contract”. Based on this premise, it can be argued that the LCS establishes a general rule of immediately applying the law and an exception to this rule in case of non-retroactivity – ie, it does not apply in cases where the legal consequences were already legally or contractually established prior to the entry into force of the LCS. This normative provision ensures that legal or contractual commitments taken on before the entry into force of the law are not affected, unless there is a gap in the regulation that can be filled by the provisions of the new law, which is in line with Articles 62 and 103 of the Political Constitution of Peru.

However, INDECOPI has made pronouncements in which they consider that the LCS must always be applied, omitting to observe the express text of the same law that they intend to apply.

In Cassation No 10499-2021, the Peruvian Supreme Court analysed the scope of this provision, establishing important principles concerning the non-retroactivity of the rules. The scope of the Fifth Final Complementary Provision is thus explained, concluding that it contains a rule and an exception. Regarding the first point, it is indicated that the first part of the norm establishes that the law does not have retroactive effect, which “is perfectly in line with the provisions of the aforementioned Article 103 of the Political Constitution of the State”. Regarding the second point, they note that the text “provided that these have not been previously regulated by law or contract” can be understood to mean “the same is intended, so that the Fifth Final Complementary and Modifying Provision can be applied in situations where the parties have not agreed or where there is a vacuum, for example, regarding the term of the insurance policy in the event of suicide, which is also perfectly in line with the provisions of Article 106 of the Political Constitution of the State, which enshrines the principle of contractual freedom, and the provisions of the aforementioned Article 380 of the Code of Commerce”.

This precedent undoubtedly strengthens legal certainty in the insurance sector, providing clarity on the limits of application of the law and establishing clear guidelines for INDECOPI when assessing future controversies, thereby also providing greater predictability regarding the resolution of similar cases.

Final reflections

The authors consider it essential to continue reflecting on the current challenges of insurance law in Peru, where the present contribution provides significant insight into the progress in this specialised area. As regards arbitration, it has been shown that the generalised prohibition of arbitration clauses in insurance contracts raises questions that cannot be avoided.

While the authors recognise the need to protect consumers against possible contractual imbalances, they also note that there are cases, such as those of companies or legal entities with greater bargaining power, where arbitration could be an effective and specialised tool for dispute resolution, especially if there is a high caseload in the judiciary. Thus, the possibility of allowing arbitration in certain contracts from the moment of entering into a contract, and not only after an incident has taken place, deserves a legislative analysis that contemplates this differentiation and is clearly carried out in order to avoid interpretations that generate even more problems at the moment of claim resolution.

Regarding SOAT coverage and the scope of the third-party non-occupant, the authors take the stance that recent judicial pronouncements strengthen regulatory coherence by clearly delimiting the scope of the policies. Thus, this approach guarantees adequate application of the legal provisions in force, promoting a culture of insurance (starting from the obligatory nature of its contracting) that is necessary in Peru’s system.

Finally, the Fifth Supplementary Provision of the LCS highlights the need to respect legal certainty. Immediately applying the law without affecting pre-existing contractual obligations reinforces confidence in the insurance system and establishes clear parameters for resolving future disputes.

It is essential to address the challenges and developments facing insurance law in Peru, while always recognising the importance of a legal framework that responds to both the expectations of consumers and the demands of the insurance market. In this vein, reflection on these issues must continue, seeking at all times to strike a balance between the insured and the insurers in order to guarantee transparency and clear solutions to any insurance dispute.