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Ecuador Earthquake – Flash Note

April 20, 2016

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A 7.8 magnitude earthquake occurred in Ecuador on 16 April.  According to initial reports, no damage to major infrastructure has yet been reported. 

Ecuador is one of the most challenging jurisdictions for (re)insurers in Latin America in terms of handling contentious claims. Ecuadorian insurance law sets strict deadlines which must be complied with; (re)insurers’ failure to do so may result in economic penalties or revocation of their license to trade. 

Reinsurers should bear in mind the following points when handling a claim in Ecuador: 

  • The insured has 3 days to notify the occurrence of a loss. Failure to comply results in waiver of the insured’s right to claim coverage under its insurance policy. The insured and its insurer are free to agree an extended period to give notice of a loss.
  • (Re)insurers are required to pay a claim within 30 days from the date of notification, or otherwise explain in writing to the insured and the insurance regulator (Superintendencia de Compañías, Valores y Seguros) their reasons for denying coverage or paying a reduced indemnity.
  • If the (re)insured disagrees with the (re)insurer’s reasons for denying coverage, the Superintendencia will decide within 30 days whether the claim should be paid.
  • If the Superintendencia concludes that the loss is covered, (re)insurers will have 10 days to make payment.
  • Non-compliance with these deadlines may lead to economic penalties or revocation of the (re)insurer’s license to trade.
  • (Re)insurers can appeal the decision of the Superintendencia provided that they have made the indemnity payment (“pay to play”).
  • If an appeal is filed, the Superintendencia has one year to reach a final decision.
  • This is the procedure before the Superintendencia, the insured is entitled to run a parallel legal action before the Ecuadorian courts. 

In light of these requirements, the following recommendations may assist (re)insurers in preparing for, and dealing with, a claim in Ecuador: 

1. Confirm with your underwriter that the underwriting file is complete and that all relevant policy wordings and attachments are available for adjusters and other experts. 

2. Create channels for direct communication with your cedant and adjuster in order to address any request from the policyholder in terms of claim handling and mitigation actions. 

3. Your adjuster should confirm applicable deadlines and you should consider involving a lawyer to advise on local procedure. Failure to comply with those deadlines could result in you inadvertently waiving significant rights. 

4. In coordination with your adjuster and lawyer, make a list of documents you require from the insured. This may help to demonstrate the Superintendencia that (re)insurers have been proactive in adjusting a loss and that such short deadlines are impossible to observe in major and complex losses. 

So far, we are not aware that this new process has been challenged but it is likely to raise potential issues for (re)insurers dealing with a claim in Ecuador.

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