Thursday, November 9, 2017

Is the Relationship With Regulators in Latin America Still “One-To-One

Insurance regulations can influence the results of a business to the point of either facilitating an endeavor or making it hardly viable. Traditionally, insurers and reinsurers dealt with Latin American regulators on a one-on-one basis. That is still the case as a general rule, but in more recent times steps have been taken towards regional integration. 

Thursday, October 26, 2017

Big Pharma BI, CBI, and Service Interruption Claims Percolating in Puerto Rico

As recovery and rebuilding efforts drag on in Puerto Rico, Hurricane Maria’s impact on Big Pharma is radiating across the U.S., and around the globe as the dozens of drugs manufactured in Puerto Rico become scarce. Maria brought drug manufacturing to a screeching halt in Puerto Rico, where about 10 percent of all drugs prescribed in the U.S. are made. The FDA is focused on about 40 drugs it expects to be in short supply, including 13 that are made only in Puerto Rico.

Rules of Professional Conduct Applying to Latin American Attorneys

International insurers and reinsurers are likely to retain legal services from local attorneys in 29 Latin American countries. Consumers of legal services in Latin America often question whether the rules of professional conduct of these foreign suppliers are comparable to those in other jurisdictions, such as the UK or the US.

Continue reading.

Wednesday, October 11, 2017

Puerto Rico After Hurricanes Irma and Maria

On September 6, 2017, Puerto Rico was hit by Irma, a massive category 5 hurricane that was on of the strongest storms ever recorded in the Atlantic. Two weeks later, on September 20, hurricane Maria passed directly over the island with even more devastating effects. Puerto Rican Governor Ricardo Rossello called Maria "the biggest and potentially most catastrophic hurricane to hit Puerto Rico in a century."

Thursday, October 5, 2017

Insurance Bad Faith Under Puerto Rico Law

Last month, as Hurricane Maria bore down on Puerto Rico, we reposted our Puerto Rico claims checklist and an analysis of causation under Puerto Rico law. In Maria’s devastating aftermath, many Puerto Ricans are still focused on necessities, and filing an insurance claim for damage to their home or business is not top of mind. But as recovery efforts gain momentum, the claims will begin to come in. Now is the time to review our posts from last month and consider how Puerto Rico law may apply to handling Maria insurance claims.

Tuesday, September 19, 2017

Maria – Re-Post of Puerto Rico Claims Checklist

With the Imminent Arrival of Hurricane Maria in Puerto Rico, we are re-posting our claims checklist for Puerto Rico.

Maria - Concurrent Causation in Puerto Rico

While Puerto Rico was spared a direct hit from Hurricane Irma, it now appears it will face the full brunt of Hurricane Maria. Maria is projected to strike Puerto Rico as a Category 4 Hurricane. Many of the same concurrent causation issues that we predicted may occur with Irma are also likely to exist with Maria and may be even more pronounced with the increased severity of damage from Maria.

Earthquakes & Hurricanes in Mexico (Any End in Sight?): Tips for International Insurers

A powerful 8.1 magnitude earthquake struck southern Mexico late Thursday, September 7, 2017. According to the U.S. Geological Survey, the epicenter of the earthquake was in the Pacific Ocean off the coast of the state of Chiapas – the southernmost state in Mexico. Because of the magnitude of the quake, its effects were felt throughout Mexico and as far north as Mexico City – 600 miles from its epicenter. Approximately 50 million people across Mexico felt the tremors from the quake. The earthquake, one of the most powerful ever recorded in Mexico, toppled hundreds of buildings, and killed at least 61 people.

Thursday, September 7, 2017

Concurrent Causation in Puerto Rico

While Puerto Rico was spared a direct hit from Hurricane Irma, it was lashed by Irma’s wind and experienced significant amounts of rain that will likely lead to flooding. There may also be damages arising from storm surge along the Northern Coast. Reportedly, more than 1 million people are without power. Many policies may exclude flood and limit or exclude losses arising from power interruption. Combined with the significant wind damage that is expected, it is inevitable that disputes over the extent of covered versus non-covered loss will arise.

Wednesday, September 6, 2017

Irma – Puerto Rico Claims Checklist

With the Imminent Arrival of Hurricane Irma in Puerto Rico, Insurers Should Keep in Mind the Following Claim Handling Requirements from the Puerto Rico Insurance Code 
  • Response to Notice of Loss – 15 Days. Acknowledge the claim in writing and commence investigation within 15 days. 26 L.P.R.A. §2714 
  • Provide the Insured with a Copy of the Policy – 10 Days. Insurer must provide a copy of the policy within 10 days of being requested to do so. 26 L.P.R.A. §2703a 
  • Investigation and Resolution of Claim – Less than 90 Days after Notice. The investigation, adjustment and resolution of any claim must be done in the “shortest reasonable period of time”, but no more than 90 days. 26 L.P.R.A. §2716b(1) 
  • Document Extension Needs. If a claim cannot be completed within 90 days the claim file should contain documents detailing the existence of just cause to exceed the 90 days. 26 L.P.R.A. §2716b(2) 
  • Resolution of a claim means the full payment of the claim, the written and duly justified denial of claim or closure of the claim for non-cooperation. 26 L.P.R.A. §2716c. 
  • If an insurer has “well grounded knowledge” of any fraudulent acts as part of a claim submission, the insurer is required to report that information to the Insurance Commissioner. 26 L.P.R.A. §2726 
Additional Considerations:
  • A reservation of rights should be issued as appropriate. 
  • Civil Authority – Mandatory evacuations may be issued in advance of Irma. 
  • Service Interruption – Power and telephone/cell service may be disrupted. 
  • Sue and Labor – Businesses may shut down operations in advance. 
  • Adjuster licensing – Puerto Rico requires all adjusters and public adjusters to be licensed in Puerto Rico. However, the Insurance Codes provide that no license from Puerto Rico shall be required of a nonresident independent adjuster for the adjustment in Puerto Rico of a single loss or of losses arising from a catastrophe common to all such losses. 26 L.P.R.A. §952(3). The Commissioner may also grant a special emergency permit as adjuster to any person qualified for adjusting losses arising from a general catastrophe after the presentation of the application for the special permit. 26 L.P.R.A. §952(4). 
  • Flood hazard zone areas—Areas identified on the Flood Insurance Rate Map can change so be aware of applicable policy limits by hazard zone. 
  • Flood and Wind sublimits.

Friday, September 1, 2017

A New Arrival Threatens Mexico’s Tourism Industry: Tropical Storm Lidia

Tropical Storm Lidia may be in the shadows of the extensive Hurricane Harvey coverage, but it is certainly nothing to ignore. While news of the floods and devastation in Texas dominate the media outlets, Tropical Storm Lidia is bound to leave its mark by the sheer potential for large-scale property damage to Los Cabos’s bustling hospitality industry. 

Wednesday, August 30, 2017

Subrogation Opportunities in Latin America

Subrogation is the process by which an insurance company seeks to recover, from a third party responsible for a loss, the money it paid to the policyholder as a result of the loss.  In Latin America, subrogation claims are not sufficiently investigated and pursued.  This area presents a recovery opportunity for (re)insurers writing risks in the region, and for their clients.

Legal Regulation

The insurance statutes of Latin American jurisdictions contemplate subrogation claims.  These statutes generally provide that, upon payment of an indemnity under the policy, the insurer receives the rights that the insured had against third parties as a result of the loss, up to the amount paid by the insurer.

In addition, these laws often require that the insured cooperate with the insurer in the prosecution of a subrogation claim, and make the insured liable for any conduct that negatively impacts the claim.  Some jurisdictions, like Colombia and Mexico, expressly provide that a policyholder that impairs the insurer’s subrogation rights may lose its right to an indemnity under the policy, in full or in part.

The Colombian Code of Commerce takes this issue one step further, by prohibiting the insured from waiving its rights against third parties responsible for the loss.  A policyholder that waives those rights will lose its entitlement to a recovery under the insurance contract.  This can be particularly important for construction or energy risks, where the policyholder’s EPC or other contracts often contain waivers of subrogation against key contractors or suppliers.

Participation of Original Insured

Ideally, the insured will not only co-operate with the insurer in the recovery effort, but also will actually participate in the action, joining the claim against the responsible third party.

This will allow the policyholder to seek recovery of amounts not covered by the insurance, such as the deductible and any uninsured losses.  There are other benefits as well:  the existence of a larger claim will probably put additional settlement pressure on the defendant, and the closer involvement of the insured (who now has become a stakeholder in the action) is likely to facilitate the insurer’s access to relevant evidence.

The insurance statutes of some Latin American countries, such as Chile and Mexico, contemplate the possibility of the insured joining the claim, and provide that the recovery will be shared between the policyholder and the insurer in proportion to their respective interests.

Reinsurance Considerations

Large Latin American risks are frequently reinsured with international companies.  As the parties ultimately bearing the costs of the claim, reinsurers will often seek to pursue a subrogation recovery. 

However, the regulation of reinsurance in Latin America is very limited, and when it comes to the participation of reinsurers in the subrogation process, it is practically non-existent.  An agreement with the cedant for the joint prosecution of the subrogation claim, or an assignment of the cedant’s rights, will protect the claim from challenges to the reinsurers’ ability to proceed.  Further, in many Latin American countries, the subrogation claim must be brought in the name of the insurer, making the cedant’s co-operation necessary.

Where the reinsured retains some of the risk, the same rules that apply at the direct insurance level should govern the allocation of the recovery between the reinsured and the reinsurers.

Recovery Opportunities

In practice, subrogation recoveries are not pursued in Latin America as often as they should be, and significant amounts of money are being left on the table.  (Re)insurers should consider the subrogation potential of every claim, as a matter of routine.  It is most effective to investigate subrogation potential at the outset of a claim, in order to interview witnesses, secure relevant evidence, and make sure it is properly preserved for possible use in court.  Subrogation presents an opportunity for (re)insurers doing business in the region, and also for their clients.

Posted by José Umbert

Wednesday, August 16, 2017

Cyber Claims in Mexico: A Reactionary Evolution of an Insurance Sector

Para ver esta página en Español, por favor haga clic aquí.

In the wake of numerous cross-border, well-publicized cyber-attacks, cyber-insurance has quickly become a hot issue. This area has also become a trending topic because of the abrupt and quick need for response in a generally uncharted area. The increasing levels of revealed vulnerabilities, the multiple methods of security breaches and the domino effect damage exposure are all major concerns.  Aware of this problem, it becomes imperative to understand best practices aimed at solving and/or minimizing issues that may arise in the context of reporting a cyber-attack or breach to a carrier.  Looking specifically to the practice in Mexico, here are some examples of claim reporting and handling in this field.

Notice of Claim:

Article 66 of the Mexican Insurance Contract Law indicates that the occurrence of a claim must be reported to the insurer within 5 days, unless the policy has another reporting provision. In the event that the claim is untimely reported outside of the statutory or policy deadline, the insurer may reduce the indemnity to what would have been paid had the claim been timely reported (Article 67). In view of the nature of the risk, it is best to report a cyber loss immediately upon learning of it.  One of the obvious reasons is that even with timely reporting, the claim investigation is time-sensitive and very involved.  Between the identification of the attack, verification, provisional decision-making, notice to the risk management area and to the corresponding insurer and to those impacted by the cyber breach, critical hours, days and even weeks may pass.

What would be the impact of failure to report cyber-attacks "immediately" or at the "first opportunity" or "promptly"? Presently, cyber claim teams are very scarce throughout Latin America, and insurers sometimes rely on general adjusters that may not have a wealth of experience in this area.  The scarcity of these types of claims cause steep learning curves, difficulty in launching teams that may not be geographically ideal, or have individuals unfamiliar with the insured’s computer systems and unable to quickly stop the loss of information. Because of this, one critical question may be, “can the insurer reduce the amount of its obligations by arguing that it would have taken immediate steps to reduce the loss?” 

Early Intervention:

It has become common for insurance policies to include a panel of cyber forensic consultants and suppliers in the event of a loss.  However, many times these suppliers’ fees are likely to fall below the deductible.  If the insured wishes to utilize an off-contract consultant or supplier that may charge a lesser fee, the issue of compelling the insured to stick to the policy’s listed consultants and suppliers even where the amount is below the deductible may arise.

In addition, Article 113 compels the insurer to pay expenses incurred by the insured in mitigating its damages post-loss.  Therefore, one may wonder, are Article 113 and the policy supplier provisions at odds?

In practice, consultants and suppliers written into the policy usually have the function of verifying that there was an actual "attack" -a trigger of many cyber policies- therefore assisting the claim progression by streamlining the verification and recommendation process. One of the reasons why this becomes imperative is because there have been instances where the policy – subject to Mexican law and delivered in Mexico – requires the insured to absorb the costs of the cyber consultant or supplier in completing this otherwise claim handling role.

In case the "advisers" swing quickly into action to assist, if it is then established that the loss is excluded for some reason, the insurer has already intervened through the experts appointed in the policy to provide crisis control, which might be interpreted as an acceptance of coverage for the claim.

As with any facet of claim handling, but particularly in the context of cyber-attacks, it is imperative to have a specialized strike force.  Knowing the local law, the practical realities, and keeping up with the continual evolution of this growing area are vital tools that make each type of consultant and supplier uniquely qualified for the challenge.

Please join Zelle in Miami on October 11 for the inaugural LatAm Gateway Summit. The Summit will focus on Latin American insurance and reinsurance issues. The economic climate, claims, underwriting, and opportunities unique to Latin America will be explored. Insurers, reinsurers, risk managers, brokers, and vendors based in Miami, Latin America, the U.S., London, and Europe are invited to attend. Please explore the LatAm Gateway Summit website at

Posted by Daniel Baron* and Nestor Rodriguez, Socio Director en Medina y Rodriguez Abogados

*Not licensed to practice law in Florida

Wednesday, August 9, 2017

Tiny, But Mighty: How Portfolios of Small Claims Present Claim Handling Challenges in Latin America

While complex, commercial claims are highlighted in many claim handling discussions, small value, large volume claims also present challenges that play an important role in establishing efficiency and infrastructure. Small value, repetitive claims such as those arising from automobile, homeowners or small commercial risks  present claim handling challenges comparable to catastrophic loss claim handling. These small value, repetitive claims do not test the limits of regular claim handling on an individual basis because they seem tiny by comparison to high value losses. However, these tiny claims -when in bulk- prove to be mighty. In bulk, they test the limits of claim handling infrastructure.  
If we consider these claims collectively as a portfolio to be managed intelligently and efficiently, the task becomes more complex. Insurers must establish claim handling infrastructure from intake and registration through resolution to ensure that each claim is timely acknowledged, reserved, investigated, and resolved. The  next time you think of high-volume, low-value claims as “the small stuff”, bear in mind that Lloyds acknowledges that these cases account for 85% of the total claims in the Lloyd’s Market, leading to changes in the context of Lloyd’s Claim Transformation Programme to cope with the challenges.
The importance of these small claims management procedures also accounts for added issues particular to insurance practices in Latin America, namely, the following:
a)  Economic Issues: With few exceptions, local economies tend to be unstable. Inflation, high interest rates and changing monetary policies affect the prices of local goods and services. In turn, this works against proper reserving and payment of claims. Thus, careful valuation procedures and periodic reserve review are a must.

b)  Changing Regulatory Landscape: Local regulations are evolving rapidly and continuously forcing local insurers to meet new standards in areas such as regulatory reporting, service of complaints, claim file maintenance, and monetary reserves and payments.

c)  Lack of Instrumentalities: Access to information necessary for certain claim handling, such as obtaining a police report related to an automobile accident, is not an easy task. Similarly, information sharing and privacy controls are not as commonplace. For example, in some countries sharing data amongst insurers (which is very useful for fraud detection) is resisted. 

d)  Challenging Local Cultures: Claim handling, like any other aspect of life, relies heavily on the interaction among people. In Latin America, there are vast cultural differences with deceivingly similar roots that may create a false sense of commonality. A variety of local cultural aspects will also come into play when disposing of small high-volume business. As a result, an understanding of the local nuisances is particularly helpful in the handling of these claims. 
By comparison, reinsurers appear to have less involvement in these types of claims because their treaties are well-structured. But reinsurers are particularly sensitive to uncommon trends. Part of the reinsurance role is to visit cedants to discuss specific claims and arrange audits. Because of the traditional role that reinsurers play, the existence of infrastructure is already present and therefore better equipped to handle portfolios of small, value claims in a similar manner to handling catastrophic losses. However, despite having the structure, reinsurers cannot take on the front-line obligations of administering claims. Local insurers should look to reinsurers as models, not as substitutes for setting up an efficient claim administration.

While reinsurers certainly offer a template for efficient handling of small value claims, there is a cost-effective analysis that plays a critical role. Local insurers need to be particular in selecting à la carte portions of claim handling practices that provide the necessary attention to these small-value, high volume claims, whilst recognizing the economies of scale in dispatching vendors. It may prove beneficial to have monitoring counsel overseeing these large portfolios of claims and make best practices recommendations to provide local insurers with the infrastructure necessary to handle this challenge. Getting out ahead of the challenge can make a big difference.

Posted by Daniel Baron*
*Not licensed to practice law in Florida

Please join Zelle in Miami on October 11 for the inaugural LatAm Gateway Summit. The Summit will focus on Latin American insurance and reinsurance issues. The economic climate, claims, underwriting, and opportunities unique to Latin America will be explored. Insurers, reinsurers, risk managers, brokers, and vendors based in Miami, Latin America, the U.S., London, and Europe are invited to attend. Please explore the LatAm Gateway Summit website at

Monday, July 24, 2017

Bienvenidos a Colombia: A Friendly Market for Foreign Reinsurers

By comparison to other jurisdictions, international reinsurers have easy access to the Colombian market. While the access to underwriting risks is not as limiting, it is not boundless.  Colombia has delineated requirements for reinsurers, which depend on the nature of the business entity.

In Colombia, foreign companies need to be added to the Registry of Colombian Foreign Reinsurers and Reinsurance Brokers (the Spanish acronym is “REACOEX”) in order to operate in the country. The registration process commences with filing a petition with the local regulatory authority called the Colombian Finance Superintendent (SFC).  The SFC will conduct due diligence and confirm compliance with the regulations, which include a pre-established minimum financial rating from one of several accredited institutions (Standard & Poor’s: BBB-, A.M. Best: B+, Fitch: BBB-, Moody’s: Baa3). Once the reinsurer is registered, there is an ongoing annual responsibility to update its rating. 

Reinsurers may choose from any of the following operational options:

  • Incorporate a reinsurance company in Colombia: With the approval of the SFC, reinsurers may create a stock company in Colombia, subject to local regulations and supervision. To create this entity, the company must have a minimum of 5 shareholders with no singular ownership to exceed 95% of the company stock and a minimum capital requirement of USD12M. 
  • Open a branch of a foreign reinsurer: A foreign reinsurer can open a branch office in Colombia, subject to the same regulations and supervision as reinsurance companies. The difference is that the latter has the added burden of complying with the local corporate law formalities.  Conversely, a branch office does not have to have a board of directors, a Corporate Governance Code or an internal control system under Colombian law because it would naturally follow the internal corporate formalities of its main headquarters.
  • Create a representative office: Foreign reinsurers can open a local office to conduct its commercial/administrative activities. This is the most restrictive in nature.  Accordingly, all binding decisions must be made abroad and the local personnel are only meant to undertake commercial/administrative activities and serve as intermediaries between the insured and the insurance company abroad (much like a local sales office).

In the current atmosphere, foreign insurers seem to prefer opening a representative office as evidenced by the lack of incorporated reinsurers or branch offices.  

In addition to the ease of corporate structuring, Colombia is a reinsurer-friendly market because reinsurance contracts are freely-negotiated contracts. While the standard insurance contract tends to be interpreted in the light most favourable to the non-drafting party, the nature of a free-negotiated reinsurance agreement allows for a more equitable interpretation -without having to tilt the analysis in favour of either party- in the event of a dispute. 

While the region is commonly thought of and treated in uniformity as it relates to insurance and reinsurance discussions, the practical realities of its geopolitical boundaries become prevalent when looking at the ease with which foreign reinsurers may operate in individual Latin American countries.  These differences have been noted (in an effort to attract a more robust market) causing local legislative/regulatory changes for the better. For civil-law countries reliant on statutory changes, this is a slow process.  However, this change – much like other things in this practice – may be attributable to a better understanding of the reinsurance business.  Again, demonstrating that having the right personnel with the right knowledge leading the way is key to the success of reinsurers, insurers, and the growth of the Latin American insurance market.   

*Not licensed to practice law in Florida

Wednesday, July 5, 2017

Argentina: Expert Witness Testimony is Key in the Most Litigious Country

Argentina is one of the most litigious countries in Latin America. Per specialized insurance publication “Estrategas,” in September 2015 there were more than 488,000 cases pending in judiciary or mediation proceedings against local insurers. This is an extraordinary number of lawsuits, which are a heavy burden to handle, reserve, and, where required, pay.  
The disbursements made in these cases will normally amount to a high percentage of all claims paid. Therefore, it is hardly possible for a local insurer to be successful in the Argentine market without a high degree of expertise in dealing with litigation.  In this regard, effective use of expert witness testimony is key.
In Argentina, as is common in the rest of Latin America, expert witnesses are not selected and brought-in to testify by the parties, but are rather “official” court-appointed candidates who are randomly chosen by the judge from a list of pre-accredited professionals. The system aims at having the court receive an unbiased and neutral professional opinion on matters relevant to the case.  
The parties can also request the designation of expert witnesses in pertinent fields of knowledge, supplying a proposal of issues to be addressed. 
Expert witnesses will perform any needed investigation such as visiting the loss site, examining an injured plaintiff or scrutinizing the parties’ accounting records – after which a report will be issued and attached to the court file. The parties will receive a copy of the report and be given time to ask additional questions and/or file rebuttals. 
The parties are free to designate their own experts to accompany the court-appointed professional during necessary investigations, file a report of their own and assist in rebutting the conclusions of the court expert if necessary, but this will almost never do the trick. Judges are not legally forced to follow the official expert witness’ conclusions -but in practice, because of the neutrality their report bears, they normally do. 
In our experience, an effective defense should focus on having the court-appointed expert issue a favorable opinion at the outset. Although success cannot be guaranteed, below are some strategies that might help at achieving this:
  • Get your experts involved in the case as early as possible. Have them identify any evidence that may be important to their conclusions, and have the handling adjuster or counsel assist in securing this evidence for future analysis.  
  • Have experts interact with counsel when preparing the defense, and especially as the filing proposing a list of issues and questions for the court-appointed expert is being prepared. Make sure to include all relevant issues.  
  • Have your expert write a clear, detailed report to attach to your first defense filing as documentary evidence. The report should walk the reader through the case and provide ample support for its conclusions. Meticulous reference to supporting evidence that is available for verification should be included. The defense can request that the court-appointed expert refer to this report, its methods of analysis and/or its conclusions. The underlying purpose of this report is not to influence the judge, but primarily to persuade the court-appointed expert witness.   
Chances of success will increase dramatically if you are successful at having the court-appointed expert confirm your position. If not, the same will be true for the adverse party. Therefore, we believe investing time and creativity in doing all you can in this regard at the early stages of the lawsuit can prove to be a most worthwhile procedural endeavor.
Published by Daniel Baron*
*Not licensed to practice law in Florida

Wednesday, June 21, 2017

The Evolving Role of the Claim Adjuster in Latin America

Borrowing a definition from the by-laws of the Chartered Institute of Loss Adjusters (CILA), a loss adjuster is “a person whose predominant activity is the investigation, management, quantification, validation and resolution of Property, Casualty or any other losses (whether insured or not) arising from any contingency and the reporting thereof”. 

The profession of loss adjusting came into being after the Great Fire of London in 1666. With the introduction of property fire insurance, independent surveyors began using their expertise to evaluate and settle claims. In 1941, prominent claims experts formed the Association of Fire Loss Adjusters, which later developed into “The Chartered Institute of Loss Adjusters” in 1961. 

It is difficult to say exactly when the loss adjusting profession commenced in Latin America but, by the early 1900s, associations of loss adjusters had been formed, such as the Mexican Adjusters Association (1935) and the Argentine Association of Insurance Adjusters and Experts (1937). In the past two decades, the insurance authorities of the different Latin American nations began to regulate the activity of loss adjusters issuing professional licenses or authorizations -which are now required in Argentina, Bolivia, Chile, Colombia, Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panamá, Paraguay, Peru and Venezuela.  

The “Traditional” vs. “Independent” Role of the Adjuster: 

In general, adjusters in Latin America are designated by the insurer with the main purpose of providing insight on a claim. Adjusters further contribute by participating in case-handling discussions and making recommendations. Written reports are directed to insurers and are not normally shared with any other party. Adjusters are expected to help protect the insurer’s rights against waiver, and will also typically represent insurers in negotiating and settling a claim within authorized limits as per their instructions. In short, in fulfilling their “traditional” role, adjusters may be viewed as working for insurers. 

But Peru and Chile have taken some legislative steps in another direction. As per the Peruvian Insurance Statute, the adjuster should be impartial and independent, and the insured has a right to participate in his/her appointment. The adjuster's findings are included in reports which are given to the insured and insurers for review at the same time. These rules are developed in more detail in Resolution 3202-2013 issued by the insurance regulator "Superintendencia de Banca y Seguros y Administradoras Privada de Fondos de Pensiones".  This Resolution sets out a procedure based on the adjuster’s final report, which should be issued within 20 days of receiving all necessary information and documents. Claim amounts are not negotiated by the adjuster as per instructions provided by insurers, but rather proposed to the parties in the context of the conclusions included in the reports that have been circulated to both sides. 

As mentioned, Chile has comparable rules, which also support adjusters’ independence and equal access by the parties to their work product.  

These rules have the adjuster assume a more neutral position, probably making his or her conclusions more difficult to overturn for either of the parties. While this legal framework certainly needs to be kept in mind and complied with, if the claim is handled professionally by knowledgeable individuals, the result should be satisfactory to all. 

Published by Daniel Baron*

*Not licensed to practice law in Florida

Wednesday, June 7, 2017

Mining Risks in Latin America: A Changing Landscape (Part 1)

Latin-America has some of the world’s largest mines. Chile’s Mina Escondida is the largest copper producing mine in the world. Mexico is the world’s largest silver producer. Chile is also posed to become the largest lithium producer in the world, while investors are eyeing 35 different lithium projects in Argentina.

As investments in mining continue to flow to the region at an incredible rate, local governments are stepping up regulatory requirements and enforcement. Mine workers are demanding better pay and working conditions. Local authorities are becoming more vigilant of pollution risks. In recent months, there have been several instances where these issues have resulted in the suspension of operations, penalties, and fines at large mines in Latin America.

In Argentina, after the third spill of cyanide solution in 18 months, the world’s largest gold miner, Barrick Gold, faces a steep challenge in its operations at its Veladero mine. After the second incident, mine operations were suspended for weeks, executives were indicted, and Barrick was fined a record $9.8 million. Following that incident, local authorities demanded the implementation of certain safety measures that would reduce the risk of similar events occurring in the future.

According to the judge overseeing cases related to Veladero, Barrick missed deadlines imposed by three orders from local authorities, including an order requiring Barrick to replace the pipes that would subsequently fail and cause the latest cyanide solution spill. Barrick operations have been suspended since March 28th, and local authorities have ordered the reengineering of the Veladero mine. A federal judge has called for the closure of the mine under Argentina’s Glacier laws, which require the complete suspension of mining operations after three serious incidents.

In response, Barrick has presented a $500 million reengineering plan to be implemented over a 5-year period. The Argentine government has yet to approve it. Local authorities are also taking blood samples from residents in the area, to determine health risks to the local population. In the US, investors and shareholders have now filed a class action against Barrick for misrepresenting the situation of Veladero.

Earlier this year on the other side of the Andes, 2,500 workers went on strike for 43 days at BHP’s Mina Escondida in Chile, demanding better working conditions for current and new employees. As a result of the strike, BHP suspended the construction of a second desalination plant in the port of Coloso and the extension of an existing concentration plant. BHP’s decision was the result of permanent blockades that prevented subcontractors from going to work on the projects.

Further north, 1,200 workers went on strike at the Southern Cerro Verde mine, Peru’s largest copper mine. The strike lasted three weeks and halved production during its duration. In February, Anglo American PLC suspended operations at its El Soldado copper mine in Chile after failing to receive regulatory approval from local authorities for the redesign of the mine.

While the tone of this post may seem pessimistic, the intention is to bring attention to some of the particularities of mining risks in Latin-America. The development of stricter regulatory frameworks, demands for better working conditions and rights, and the assessment of penalties for environmental violations are all signs that the region is developing and the mining sector continues to thrive. With respect to (re)insurance coverage for these facilities, while most insurance policies for mining operations exclude the risk of strikes, other types of losses involving suspension of operations by a government authority may present interesting coverage issues. Insurers and Insureds alike should be cognizant of the particularities of the region to better assess risks and provide adequate insurance coverage. 

Published by Hernán Cipriotti