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 the 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 constitutes 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.
The SCJN defines criteria for the treatment of late payment of the premium
On February 17, 2021, the First Chamber of the Supreme Court of Justice of the Nation (the “ SCJN ”) issued a jurisprudential thesis according to which it determined that the payment of the insurance premium outside the generic term of 30 days produces the termination of the insurance contract, despite the fact that the insurer has accepted the late payment.
The reasoning of the First Chamber of the SCJN is based on the basis that the insurance contract is bilateral, onerous and random, and is perfected at the moment in which the contracting party is aware of the acceptance of the offer by the insurer, and furthermore, that according to the Law on the Insurance Contract (the “ Law ”), as of the expiration of the premium, the contractor has a period of 30 calendar days to pay it.
If the insurer does not receive payment before midnight on the last day of the 30-day period, the effects of the insurance contract automatically cease and the insurer dissociates itself from the fulfillment of its obligations.
Even when the contracting party pays the premium after said term and the insurer accepts the late payment, the effects of the insurance contract are not restored.
According to the criteria of the SCJN, once the insurance contract is terminated, there must be a new offer from the insured and the acceptance of the insurer for a new insurance contract to exist.
The late payment of the premium or any of its installments does not constitute an offer and the receipt of said premium by the insurer does not constitute a tacit consent.
The late payment of the premium can only be considered as a deposit to be applied to the premium if the new insurance contract is perfected, if not perfected, it must be reimbursed to the insured as it is an undue payment.
On the other hand, on February 24, 2021, the First Chamber of the SCJN issued a jurisprudential thesis for contradiction of thesis between two Collegiate Courts of the same circuit but of different specialty, in which it is established that the payment of the insurance premium Outside of the generic term of 30 calendar days, even when the insurer does not immediately refuse this exhibition, it constitutes a void agreement in terms of article 41 of the Law.
In this case, the reasoning of the First Chamber of the SCJN, consistent with the jurisprudential thesis described above, starts from the basis that the first paragraph of Article 40 of the Law establishes that if the contractor does not pay the premium or the corresponding fraction, in case of payment in installments, within the generic term of 30 calendar days, the effects of the insurance contract automatically cease at 12 noon on the last day of the term.
Article 41 of the Law establishes that any agreement that seeks to deprive the effects of the provisions of the first paragraph of Article 40 of the Law is void.
Therefore, the SCJN considers that the late payment of the premium or of any of its installments implies that, inevitably, the effects of the insurance contract have ceased, an invariable consequence of the omission of payment within the term provided for this. .
Therefore, admitting that the eventual acceptance of the untimely payment rehabilitates the effects of the insurance contract, constitutes an agreement that seeks to deprive the first paragraph of article 40 of the Law of its effects and, consequently, is void, in accordance with the provisions of provided in article 41 of the Law.
NHG Preliminary Observations
In practice, it is common for insurers to receive the premium in an untimely manner and generally, if the claim occurs after the insurer receives the payment of the premium, it fulfills its obligations under the insurance contract.
The jurisprudential theses release insurers from any liability under insurance contracts in which the premium has not been paid within the grace period established by Article 40 of the Law, and require insurers to accept a new offer from the insured, for the insurance contract to take effect.
If an insured pays the premium corresponding to his insurance contract out of time, he must obtain an express acceptance from the insurance company of the risk, since if he does not do so, the insurance contract is void and does not produce any legal effect.
We suggest carefully analyzing the rehabilitation clauses that are currently used in insurance contracts to confirm whether they constitute by themselves an express consent of the insurers to accept the risk in case of late payment of the premium or, where appropriate, adjust them to comply. with jurisprudential theses.
Luciano Pérez Gómez +52 (55) 4170 3027 [email protected]