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Costa Rica BLP

In document The Duty of Utmost Good Faith (Page 52-57)

Neftali Garro

I - Definition of the Principle of Utmost Good Faith 1. In your jurisdiction, do insurance laws

provide for the principle of utmost good faith (in latin, “uberrimae fidei”) and if so, what is its meaning? Provide any definition whether under statute or according to case law.

In Costa Rica there is no general statutory provision containing the principle of utmost good faith. However, the Supreme Court has held in reference to insurance contracts that “in these relationships a

principle of good faith governs, since, as the lower

court notes, they are sustained on the basis of trust that, in the context of the agreement, causes the insured to expect and trust the insurer’s coverage in the event that the agreed upon conditional event (unforeseen) occurs, whereas the latter has the expectation that the insured will not incur conducts that affect the interest of the arrangement or the truth of what occurred.” (Emphasis added.) Supreme Court, 1st Chamber, Judgment No. 756-F-2007 of 9:35 on 19 October 2007.

Similarly, another court held that “it is said that the

insurance contract is a convention of utmost good

faith, in the sense that there is at its base a

relationship of trust between the parties taken to the extreme (the first party refraining from incurring in willful, negligent or imprudent actions, that affect the interest of the arrangement).” (Emphasis added.)

Administrative Claims Court, 4th Section, Judgment No. 41 of 16:00 hrs. on April 27th, 2012.

Although there is no general statutory provision containing the principle of utmost good faith, insurance laws do contain various specific provisions derived from the principle of utmost good faith, for example:

 The insurance law contains a notice-

prejudice rule regarding insurance loss notices, such that the insured does not lose the right to coverage for giving notice late, except where the insured’s conduct has been willful or grossly negligent. Insurance Contracts Law, art. 42.

 The insured is required to mitigate the effects of a loss through reasonable means. If the insured fails to meet this obligation through willful or grossly negligent conduct, the insured is relieved of any obligation to pay the loss. Insurance Contracts Law, art. 44.

 The insurer is relieved of any obligation to pay a claim if the insured causes the loss willfully or through grossly negligent conduct. Insurance Contracts Law, art. 46.

 The insurer is relieved of any obligation to pay a claim if the insured willfully or in a grossly negligent manner makes inexact or fraudulent statements that could have excluded, limited or reduced said obligation if such statement had been made truthfully. Insurance Contracts Law, art. 47.

 The insurer cannot exercise a right of subrogation against the spouse or other close relatives of the insured, except if there has been willful or grossly negligent conduct. Insurance Contracts Law, art. 49.

 If the insured risk increases during the life of the contract, the insured is required to disclose such increase to the insurer. If the insured does not disclose such increase willfully or through gross negligence, the insurer will be relieved of its obligation to pay a claim. Insurance Contracts Law, art. 55.

 Insurers are permitted to cancel insurance contracts entered into by the insured in bad faith with the purpose of obtaining an undue benefit. Insurance Contracts Law, art. 61.

 Insurers are relieved of any obligation for damages caused by willful or grossly negligent conduct of the insured. Insurance Contracts Law, art. 76.b).i).

 Insurers cannot insure liability risks relating to willful or grossly negligent conduct of the insured. Insurance Contracts Law, art. 83.

 Insurers may not dispute health insurance coverage due to untrue or incomplete statements at the time of issuance of the policy if two years have passed since the policy was issued, except if the insured acted in bad faith (in which case the insurer can dispute coverage at any time). Insurance Contracts Law, art. 91.

 The beneficiary of a life insurance policy that causes the insured’s death by willful or grossly negligent conduct is not entitled to claim insurance proceeds. Insurance Contracts Law, art. 100.

IBA Insurance Committee Substantive Project 2014 52 The Duty of Utmost Good Faith: Costa Rica

2. Is the principle of utmost good faith (i) a statutory principle, (ii) a common law principle or (iii) a civil law principle? Or is it to be found under statute and otherwise?

The principle of utmost good faith is a statutory principle and a civil law principle recognized by courts. Costa Rica is not a common law jurisdiction.

3. Do insurance laws of your jurisdiction provide for both the principle of utmost good faith and a separate duty of disclosure for the insured?

Yes. See answer to question 1. above.

4. Does the principle of utmost good faith apply to all types of insurance contracts (life insurance, general insurance, reinsurance etc.)?

Yes. See answer to question 1. above.

5. Does the duty of utmost good faith apply only at the pre-contractual stage or is it a continuous duty applying both pre- contractually and post-contractually?

It applies both at the pre-contractual stage and post- contractual stage.

II - Application of the Principle of Utmost Good Faith at the Pre-Contractual Stage

6. Does the Principle of Utmost Good Faith apply to both the insured and the insurer at the pre-contractual stage?

Yes, it applies to both. However, for practical reasons and given the manner in which insurance contracts are concluded (through form contracts pre-designed by the insurer), the duty of good faith at the pre- contractual stage falls mainly with the insured in terms of adequately declaring the risk that is to be insured.

A - For the Insured

7. What is the content of the duty of utmost good faith for the insured?

Describe the insured’s pre-contractual duty of utmost good faith by providing examples of the best known cases in which it has been applied.

At the pre-contractual stage, the most common example of the duty of utmost good faith relates to declaring the risk at the contract’s inception. Altough there is no case law given that the Insurance Contracts Law was enacted only recently (2011), the insurer is relieved of any obligation to pay a claim if the insured willfully or in a grossly negligent manner makes inexact or fraudulent statements that could have excluded, limited or reduced said obligation if such statement had been made truthfully. Insurance Contracts Law, art. 47.

8. Is the duty of utmost good faith for the insured equivalent to the duty of disclosure in your jurisdiction so that pre-contractually the two are indistinguishable?

Yes, at the pre-contractual stage the duty of utmost good faith is equivalent to the duty of disclosure.

9. If the duty of utmost good faith operates separately pre-contractually from the duty of disclosure describe that operation and how the two sit together. You may need to describe the duty of disclosure to illustrate the differences.

N/A.

10. What are the remedies for a pre- contractual breach by the insured of the duty of utmost good faith? Are the remedies different from a breach of the duty of disclosure?

As described above, the insurer is relieved of any obligation to pay a claim if the insured willfully or in a grossly negligent manner makes inexact or fraudulent statements that could have excluded, limited or reduced said obligation if such statement had been made truthfully. Insurance Contracts Law, art. 47.

11. If the duty of utmost good faith operates separately from the duty of disclosure does one have precedence over the other?

N/A

B - For the Insurer

12. What is the content of the pre-contractual duty of utmost good faith for the insurer?

The insurer is obligated to present timely and truthful information to the insured regarding the insurance contract that is being negotiated. This duty is made effective through various legal (statutory) and administrative provisions requiring certain information about the insurance contract to be specifically disclosed and explained to the insured, including:

 Information on the product, including

associated risks, benefits, obligations and costs.

 Clear explanation of the coverage and

exclusions of the contract.

 Coverage term.

 Procedure for payment of premiums and

making claims in the event of a loss.

 Termination of the contract.

 Cancellation, penalties, term and procedure for cancellation.

IBA Insurance Committee Substantive Project 2014 53 The Duty of Utmost Good Faith: Costa Rica

 Explanation of the right to receive timely response to any claims or requests.

 Companies that form part of the network of services auxiliary to the insurer (for example, doctors, auto repair shops, funeral homes, etc.).

13. Describe the insurer’s pre-contractual duty of utmost good faith by providing examples of the best known cases in which it has been applied.

The Insurance Contracts Law is recent (it was enacted in 2011). Therefore, there have been no cases involving the insurer’s pre-contractual duty of utmos good faith recently. In general, the duty at the pre-contractual stage has been referred mainly to the items referred to in item 12 above.

14. Is it a breach of the duty of utmost good faith in your jurisdiction for insurers not to notify the prospective insured of the nature and extent of their duty of disclosure?

No, it is not. The duty of disclosure is a statutory provision and a such insureds cannot claim ignorance of the law.

15. What are the remedies for a pre- contractual breach by the insurer of its duty of utmost good faith?

The breach of the duty of disclosure in providing the insurer the information referred to in item 12 above can lead to the imposition of a fine by the Insurance Superintendent and, in extreme cases, to the revoking of the insurer’s license to operate. Furthermore, if the duty of disclosing the required pre-contract information to the consumer is not met in the context of an insured covered under a group policy, any applicable exclusions in the contract will become unenforceable. Insurance Contracts Law, art. 12.

III - Post-Contractual Application of the Principle of Utmost Good Faith (at the Claim Stage)

A - For the Insured and Third Party Beneficiary of Cover

16. What is the content of the post- contractual duty of utmost good faith for the insured at the claim stage?

The content of the post-contractual duty of utmost good faith at the claim stage is mainly as follows:

 The insurance law contains a notice-

prejudice rule regarding insurance loss notices, such that the insured does not lose the right to coverage for giving notice late, except where the insured’s conduct has been willful or grossly negligent. Insurance Contracts Law, art. 42.

 The insured is required to mitigate the effects of a loss through reasonable means. If the insured fails to meet this obligation through willful or grossly negligent conduct, the insured is relieved of any obligation to pay the loss. Insurance Contracts Law, art. 44.

 The insurer is relieved of any obligation to pay a claim if the insured causes the loss willfully or through grossly negligent conduct. Insurance Contracts Law, art. 46.

 The insurer is relieved of any obligation to pay a claim if the insured willfully or in a grossly negligent manner makes inexact or fraudulent statements that could have excluded, limited or reduced said obligation if such statement had been made truthfully. Insurance Contracts Law, art. 47.

 Insurers are relieved of any obligation for damages caused by willful or grossly negligent conduct of the insured. Insurance Contracts Law, art. 76.b).i).

16.1 Do third party beneficiaries of cover have a duty of utmost good faith?

Yes, the duty covers beneficiaries as well. For example, the beneficiary of a life insurance policy that causes the insured’s death by willful or grossly negligent conduct is not entitled to claim insurance proceeds. Insurance Contracts Law, art. 100.

17. Describe the insured’s post-contractual duty of utmost good faith by providing examples of the best known cases in which it has been applied.

See answer to item 16 above. In any event, the Insurance Contracts Law is very recent (2011) and there are no court cases based on that law.

18. Is the insured’s intentional concealment of his/her criminal activities when completing a proposal for life policies a breach of the duty of utmost good faith?

Yes. In general (not only applicable to life insurance), insurers are permitted to cancel insurance contracts entered into by the insured in bad faith with the purpose of obtaining an undue benefit. Insurance Contracts Law, art. 61.

B - For the Insurer

19. What is the content of the duty of utmost good faith for the insurer when dealing with a claim?

The duty comprises the following elements:

 Insurers are permitted to request only those items specifically provided for in the

IBA Insurance Committee Substantive Project 2014 54 The Duty of Utmost Good Faith: Costa Rica

insurance contract as necessary to process a claim.

 Insurers are required to provide timely response to all requests made by the insured, defined as response within 30 days of the insured’s request.

 In denying coverage of a loss, the insurer is required to provide specific motivation for such loss, referencing the legal and/or contractual principles on which the denial of coverage is based.

 Insurers are required to report to the Insurance Superintendent the appointment of beneficiaries of life insurance policies in order that such beneficiaries are able to verify with the Superintendent in the event that a close relative (possible insured) passes.

20. Does an insurer owe a duty of utmost good faith towards third party beneficiaries of cover in handling claims?

Yes, the duty is the same whether the insurer is dealing with an insured or a third party beneficiary.

21. Describe the insurer’s post-contractual duty of utmost good faith by providing examples of the best known cases in which it has been applied.

See answer to item 19 above. Although there are no cases given that the Insurance Contracts Law is very recent (2011), at the administrative level the Insurance Superintendent regularly enforces the duty of good faith in dealing with complaints filed by insureds against insurers.

22. Is there a Code of Practice for insurers in your jurisdiction and, if so, how does it sit with the duty of utmost good faith?

There is no Code of Practice for insurers. However,

the Insurance Superintendent has issued

administrative regulations containing the “Insurance Consumers’ Bill of Rights”, which comprises a defined list of statutory and regulatory rights that are equivalent to a Code of Practice. Superintendent Ruling SGS-DES-A-031-2014. These rights are listed as follows:

 The right to the protection of their legitimate economic interests.

 The right to choose freely among insurers, intermediaries (brokers, agents), products and auxiliary services.

 The right to obtain adequate and truthful information, prior to and after entering the contract.

 The right to fair and non-discriminatory treatment.

 In the event of doubt as to the interpretation of the principles of the insurance laws, the interpretation most favorable to the insured shall prevail.

 The right to swift service, through reasoned decisions issued in writing, in connection with claims, complaints and requests of the insurance consumer, within 30 days.

 The right to the protection of the insured’s personal data.

23. Can courts disregard a term of a contract of insurance if it would be a breach of the duty of utmost good faith for the insurer to rely on the term? If so, please illustrate with examples.

Yes. Although we have not found specific instances of a contract term being disregarded, there are court cases that have established that the duty of utmost good faith applies both to the insured and the insurer. Therefore, if such a situation arose, in our opinion a court could disregard such terms in a contract. However, the insured would have to claim that the contract terms are null based on the theory of contracts of adhesion.

24. Do courts have special powers to disregard any avoidance of the application of a policy in cases where the insured has established that it would be a breach of the duty of utmost good faith to allow the insurer to avoid the policy?

Yes. Courts have sufficient powers in this regard.

25. To the extent that an insurer’s breach of the duty of utmost good faith is under statute, is it a breach of the statute for the insurer to be in breach of its duty of utmost good faith?

Yes.

26. Can a breach by the insurer of the duty of utmost good faith result in regulatory sanctions against the insurer (license suspension, banning order, etc.)?

Yes. Insurers are required to enter into insurance contracts in accordance with statutory requirements. Failing to do so can result in the imposition of fines and/or cancellation of the license to operate. Insurance Market Law, art. 25.

IBA Insurance Committee Substantive Project 2014 55 The Duty of Utmost Good Faith: Costa Rica

IV - Reinsurance

27. To what extent, if any, does your jurisdiction apply different principles regarding utmost good faith to reinsurance at both the placement/pre- contractual stage, and at the claim stage?

There are no specific rules regarding reinsurance in this matter. As a general rule, reinsurance contracts are governed by the same rules as insurance contracts, where applicable.

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BLP

BLP Building, 4th floor Via Lindora Business Center Radial Santa Ana – Belen, Km 3 Santa Ana, San Jose. Costa Rica Tel: (506) 2205 3939

Email: ngarro@blplegal.com

IBA Insurance Committee Substantive Project 2014 56 The Duty of Utmost Good Faith: Denmark

Denmark

In document The Duty of Utmost Good Faith (Page 52-57)