The administrative claim in insurance matters

Article 42 of the General Insurance Law of Ecuador establishes the obligation of insurance and reinsurance companies to pay the contracted insurance or the part corresponding to the duly proven loss, as the case may be, within thirty days following the presentation of the claim by the insured or beneficiary, accompanied by the documents determined in the policy.

Without prejudice to the options legally conferred to the insured to enforce their rights in the event of the insurers’ refusal or omission to recognise and pay the indemnities derived from possible claims, through ordinary justice or alternative means (arbitration or mediation), the General Insurance Law grants them an additional and sui generis one, through administrative channels

Indeed, the aforementioned Article 42 allows such allegedly affected parties to go before the Superintendence of Companies, Securities and Insurance with their claim, so that this control body, after hearing the counterparty and following the procedure foreseen for this purpose, may settle the controversy administratively, accepting the claim in whole or in part and ordering payment of the claim within ten days of notification of the resolution, or denying it. Such resolution is subject to the administrative appeals and review.

Failure to make the ordered payment is grounds for compulsory winding-up of the insurance company.

If the resolution is not favourable to the insured, he may resort to ordinary justice or alternative dispute resolution procedures, benefiting from the provision of the aforementioned Law, which suspends the statute of limitations of his actions from the filing of the claim until the notification of the resolution to the counterparty.

The insurance company, once it has fulfilled its obligation, may challenge the administrative act contained in the decision of the supervisory body before the administrative jurisdiction.

It is obvious that the administrative route is the one most frequently used for claims, considering the slowness of court proceedings and the fact that alternative means of dispute resolution are not free of charge, but above all because of the disproportionate threat to insurance companies of the immediate sanction of their compulsory liquidation.

Clearly, the administrative procedure described above is alien to the constitutional postulates concerning the principle of jurisdictional unity, according to which no authority of the other functions of the State may perform the functions of ordinary administration of justice, without prejudice to the jurisdictional powers recognised by the Constitution; to the power to administer justice exercised by the organs of the judiciary and by the other organs and functions established in the Constitution; as well as to the guarantee of due process relating to the right to be judged by an impartial and competent judge, and not by exceptional courts or special commissions created for this purpose.

According to the Constitution, the organs of the judiciary are the National Court of Justice, the provincial courts of justice, the courts and tribunals established by law, the peace courts, and the Judiciary Council.

For its part, the Legislative Function, in development of these constitutional postulates, creates, by means of the Organic Code of the Judicial Function, institutes civil and commercial judges, assigning them, among other attributions, that of hearing and resolving, in the first instance, all matters of patrimonial and commercial matters established in the laws, except those that correspond to be heard exclusively by other judges.

The Code of Commerce first recognises the insurance contract as an act of commerce for all legal purposes and then establishes the rules that regulate the insurance contract, so that disputes regarding its validity, interpretation and execution must be known and resolved exclusively by the civil and commercial judges, or through the constitutionally recognised mechanisms of mediation or arbitration.

The Superintendence of Companies, Securities and Insurance is not vested by the Constitution with any jurisdictional power, since it is a financial sector oversight, audit and control body, belongs to the public sector and is subject to the rules of the Organic Code Administrative, which regulate the administrative function of the bodies that make up the public sector, and whose scope is the legal relationship between individuals and public administrations, so it is appropriate to refer to Roberto Dromi, who in his Administrative Law comments in this regard: “The administrative process contains a substantial bilateral legal relationship between an administrative entity and an administered party. This relationship of power and duty always imposes, in the specific case, an individual situation on each of the parties, of subjective right (for the plaintiff) and of legal duty for the defendant”.

It is clear, therefore, that the administrative claim described above does not involve a legal relationship between a public administration body and an administered party, but rather the intervention of a public administration body to settle the dispute between two subjects who are completely alien to the public administration, based on secondary legislation that contradicts substantial postulates of Ecuador’s legal system.

In view of these circumstances, considered harmful to the fundamental rights of insurers, the Ecuadorian Association of Insurance Companies (ACOSE) and the Chamber of Insurance Companies of Ecuador filed an action before the Constitutional Court for the unconstitutionality of the aforementioned Article 42 of the General Insurance Law.

The Constitutional Court heard this action and ruled rejecting the claim, omitting, in my opinion, a thorough and profound analysis of the constitutional problem and, instead, putting forward biased reasoning, such as the following:

“Although the exercise of the claim by the insured person stems from a contract between the parties, its nature is focused on the legal performance of the insurance service. Thus, the power of the Superintendency cannot be considered as a jurisdictional action since its competence is not to settle a conflict between private parties. In other words, the process to which the insurers are subject is an activity of control and vigilance by the SCVS to ensure compliance with its obligations towards the insured. Consequently, the intervention of the SCVS cannot be considered as a jurisdictional power”.

On the contrary, one of the judges of the Court has issued a dissenting opinion, the terms of which include these important reflections:

“That is to say, the Constitution does not grant express competence to administer justice to the SCVS, so that to do so – as in the administrative complaint provided for in the contested norm – is contrary to the principle of jurisdictional unity. The only mechanism through which this would be legitimised is through a constitutional reform that seeks to grant these functions to the SCVS, with the relevant analysis that should be given to this claim”.

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“The above, in my opinion, has as a natural consequence that the guarantee of due process contained in article 76 (3) and (7K) is also infringed. By virtue of this, the parties to the administrative complaint provided for in the contested regulation, unlike the rest of the disputes arising in a commercial context, would not see their disputes resolved through a judge specialised in the matter, with the guaranteed rules and procedures On the contrary, their dispute would be submitted to the authorities of a control and supervisory body that has the power to administer justice, which would result – in my opinion – in invalidating the guarantee of the competent judge”.

To conclude this brief commentary, I quote again Roberto Dromi: “If the competence of
the administrative body is jurisdictional, even if judicial recourse is established against
its decisions, it will suffer from unconstitutionality, because especially the laws cannot
reduce the constitutional attributions of the powers, especially the judicial power, which
constitutes the main guarantee of individual rights”.

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