We will analyze the Supreme Court ruling of March 2, 2020, which addresses “the consequences of non-payment of the premium in the context of a life insurance policy in accordance with Article 95 of the Insurance Contract Law”
In this article, from the Insurance Department of Belzuz Abogados SLP, as specialists in insurance law, we will analyze the ruling issued by the Supreme Court on March 2, 2020, in the context of a life insurance policy where the premium was not paid due to reasons attributable to the insured.
“The Supreme Court states that, in cases of an incident occurring after the non-payment of the life insurance premium and after the legally established grace period of one month has elapsed, the contract is suspended, meaning that the insured or the beneficiaries of the coverage would not have the right to claim compensation from the insurer. To be exempt from liability for an incident when the insurance coverage was suspended, the insurance company must prove that it presented the premium invoice for payment and that it was returned unpaid, as well as demonstrating that the non-payment was unjustified. The claimant did not invoke the application of Article 95 of the Insurance Contract Law.”
The afore-mentioned ruling describes in detail the consequences arising from the non-payment of the premium in a life insurance policy.
Specifically, in the case at hand, the claimant had contracted a life insurance policy but failed to pay the annual premium due to insufficient funds in their bank account. The insured passed away on February 1, 2014, and his widow, Mrs. XXX, after making a payment offer that was rejected, sued the insurer to claim the insured amount.
The legal representatives of Mrs. XXX and Mr. XXX filed a lawsuit seeking a ruling against the insurance company to pay the claimant the amount of 35,032.48 euros or, alternatively, the sum of 24,040.48 euros, plus legal interest accrued in accordance with Article 20 of the Insurance Contract Law, based on the life insurance contract concluded with the defendant company.
The insurance company opposed the claim, arguing that at the time of the insured’s death, the life insurance contract was not in force due to the non-payment of the annual premium for that period.
The insurer maintained that the invoice for the premium payment was submitted twice to the bank account provided by the policyholder, and both times it was unpaid; furthermore, the payment offer made by the claimant after the insured’s death did not exclude the application of the effects provided for in Article 15 of the Insurance Contract Law.
Therefore, since the premium was unpaid at the time of the insured’s death and the one-month grace period had elapsed, the insurer was released from its contractual obligation to pay the agreed amount for the claim, in accordance with the afore-mentioned article.
The Court of First Instance No. 4 of Betanzos upheld the claim and ordered Insurance XXX to pay the claimants 24,040.48 euros plus interest, considering that the payment offer made by Mrs. Belen, who acted in good faith, followed by the insurer’s inactivity regarding the collection of the outstanding premium, had the effect of reactivating the insurance coverage. This was because the non-payment of the premium was not attributable to the beneficiaries of the insurance but to the insurer, as it did not submit any invoice for payment during the suspension period and allowed time to pass in total inactivity, with the clear intention of having the insurance contract definitively terminated under Article 15 of the Insurance Contract Law. However, the court ruled against applying an inflation adjustment to the insured amount, as proposed by the claimant.
The Provincial Court of La Coruña overturned the first-instance ruling, arguing that the payment offer was made after the insured’s death and that, according to Article 15 of the Insurance Contract Law (LCS), the coverage was suspended due to the non-payment of the premium.
Mrs. XXX filed extraordinary appeals for procedural infringement and cassation, alleging a lack of reasoning in the ruling and a violation of the right to effective judicial protection, among other grounds.
The claimant filed extraordinary appeals for procedural infringement and cassation against the ruling.
The Supreme Court dismissed both appeals, confirming that the incident occurred during the suspension of the insurance coverage due to the non-payment of the premium. It reiterated that the burden was on the policyholder to prove the absence of fault in the non-payment, which was not demonstrated in this case.
The cassation appeal was filed by the claimant under Article 477.2, third paragraph of the Civil Procedure Law (LEC 2000/77463), based on the misapplication of Article 15.1 of the Insurance Contract Law (LCS, EDL 1980/4219), in relation to Article 15.2 of the same law (EDL 1980/4219) and Articles 1104 and 1124 of the Civil Code (CC). The claimant cited Supreme Court rulings 916/2008 of October 17 and 374/2016 of June 3.
The appellant argued that, in cases of non-payment by the policyholder, the element of fault is essential and preliminary, not only for the insurer’s right to terminate the contract but also for the suspension of coverage.
In this case, the appellant contended that there was no fault, meaning that the defendant was obliged to pay the compensation. Since the contract was not terminated and the six-month period referred to in Article 15.2 of the Insurance Contract Law had not elapsed, the insurance company was still obligated to cover the claim. The insurer’s inaction only releases it from liability after six months.
However, the Supreme Court indicated that before examining the present appeal, it was necessary to note that it was not based on the violation of Article 95 of the Insurance Contract Law, which was not invoked in either of the two previous instances or in the formulation of the appeal (Supreme Court rulings 684/2017 of December 19, 489/2019 of September 23, and 655/2019 of December 11).
The substantive law norm considered violated was Article 15 of the Insurance Contract Law, which determined the resolution of the court.
Therefore, there was a clear error in the claimant’s legal strategy. In long-term insurance policies such as life insurance, a different regime applies in the event of non-payment of the premium, specifically the one provided in Article 95 of the Insurance Contract Law, which justifies the validity of the contract and the insurer’s obligation to pay, based on the effects of non-payment under Article 15.2 of the Insurance Contract Law, as if dealing with a third-party beneficiary.
Specifically, Article 95 of the Insurance Contract Law (LCS) states: “Once the period stipulated in the policy has elapsed, which may not exceed two years from the commencement of the contract, paragraph two of Article 15 of the Insurance Contract Law regarding non-payment of the premium shall not apply. After this period, non-payment of the premium will result in the reduction of the insurance coverage in accordance with the value table included in the policy.”
Thus, in none of the previous instances did the claimant invoke the application of Article 95 of the Insurance Contract Law.
The ruling, being consistent with the claimant’s request, aimed to resolve the dispute regarding whether the non-payment was due to the policyholder’s fault and whether the policy was in force at the time of the incident. Since the insurer proved that it submitted the invoice twice to the bank, and it was returned unpaid, and since the claimant did not justify that the return was due to reasons beyond their control, the appeal was dismissed, and consequently, the claim was rejected.
CONCLUSION: In life insurance policies, non-payment of the premium follows a special regime under Article 95 of the Insurance Contract Law (LCS), which excludes the application of Article 15.2 after the period stipulated in the policy, which may not exceed two years from the contract’s validity. In this case, the non-payment results in a reduction of the insurance coverage as per the policy’s value table.
In this case, the claimant did not invoke Article 95 of the Insurance Contract Law, preventing the court from analyzing it. Had it been considered, the ruling might have partially upheld the claimant’s request.
From the Insurance Department of Belzuz Abogados SLP, we remain at your disposal to clarify any questions you may have if you find yourself in similar situations.
José Garzón García
Socio -Departamento de Seguros
España y Portugal
BELZUZ ABOGADOS SLP, Insuralex´s Exclusive Member in Spain and Portugal
