The SCJN Sets Forth Criteria Applicable to the Late Payment of Premium
Partner Yves Hayaux du Tilly
Partner Luciano Pérez
On February 17, 2021, the First Chamber of the Mexican Supreme Court of Justice (“SCJN”) issued a judicial precedent pursuant to which it determined that notwithstanding the insurance premium is paid, in case this is done after the 30-day grace period, the insurance contract terminates, even if the insurer received the premium.
The rationale of the First Chamber of the SCJN is based on the assumption that the insurance contract is bilateral, onerous and aleatory, and is perfected at the moment in which the contracting party becomes aware of the acceptance of the offer made by the insurer, and additionally, according to the Insurance Contract Law (the “Law”), from the due date for payment of the premium, the contracting party has a grace period of 30 calendar days to pay the premium.
If the Insurer has not received the payment of the premium prior to 12 o’clock of the last day of the 30-day term, the effects of the insurance contract cease automatically and the insurer is released from its obligations.
Even if the contracting party pays the premium after said term and the insurer accepts the late payment, the effects of the insurance contract may not be rehabilitated.
According to the criteria of the SCJN, once the insurance contract is terminated, there must be a new offer from the insured and same shall be agreed with the insurer to formalize a new insurance contract.
The late payment of the premium or of any of its installments does not constitute an offer and the receipt of the payment by the insurer does not constitute a tacit consent.
Any late payment of the premium shall be deemed a deposit that may be applied to the premium if the new insurance contract is executed; if it is not executed, it shall be reimbursed to the insured as an undue payment.
Furthermore, on February 24, 2021, the First Chamber of the SCJN issued another judicial precedent resulting from contradicting rulings between two Collegiate Courts of the same circuit but from different specialties, which establishes that pursuant to article 41 of the Law the insurance contract is invalidated when payment of the insurance premium is made outside the grace period of 30 calendar days, even when the insurer does not immediately refuse such payment.
In this case, the rationale of the First Chamber of the SCJN, consistent with the judicial precedent described above, is based on the premise that the first paragraph of article 40 of the Law establishes that if the contracting party does not pay the premium or the corresponding installment, in case it is paid in installments, within the grace period of 30 calendar days, the effects of the insurance contract will cease automatically at 12 o´clock on the last day of such term.
Article 41 of the Law further provides that any agreement that intends to waive the effects of the provisions of the first paragraph of Article 40 of the Law shall be invalid.
Therefore, it is considered that the effects of the insurance agreement irrevocably terminate in case of late payment of the premium or of any of its installments, which is an invariable consequence of the non-payment within the term foreseen for such purpose.
Consequently, it may not be deemed that receiving the late payment rehabilitates the effects of the insurance contract and constitute an agreement to waive the effects of the first paragraph of article 40 of the Law, as the foregoing would not be valid pursuant to article 41 of the Law.
NHG’s Preliminary Observations
- It is a common practice for insurers to receive late premium payments and, in general terms, if the loss occurs after the insurer receives the late payment of the premium, the insurer fulfills its obligations under the insurance contract.
- The judicial precedents release the insurers from any liability under insurance contracts in which premiums have not been paid within the grace period set forth in article 40 of the Law, and require that the insurers accept a new offer from the insured, in order for a new insurance contract to become effective.
- If an insured pays, after the grace period the premium corresponding to the insurance contract, the insured will be required to obtain an express acceptance from the insurer in which the insurer confirms the acceptance of the risk; otherwise, the insurance contract will be deemed invalid and will not produce any legal effect.
- We recommend to carefully analyze the rehabilitation clauses currently used in insurance contracts to confirm whether these clauses constitute, on their own, an express consent from the insurers to accept the risk in case of untimely payment of the premium or, if applicable, adjust them to comply with the judicial precedents.