Insurance & Reinsurance

Last verified on Friday 9th November 2018

Mexico

Marco Antonio Nájera Martinez
Foley & Lardner LLP

    Regulation

  1. 1.

    What are the sources of insurance and reinsurance law?

  2. Insurance and reinsurance legislation in Mexico is federal. The states in Mexico have no authority to issue insurance or reinsurance laws (however, they can issue statutes under their areas of competition that may indirectly address insurance matters (eg, vehicle insurance for vehicles on local roads).

    Mexico is a civil law country. Thus, the main sources of law reside in legislative and regulatory provisions rather than in court decisions. Accordingly, the main sources of insurance and reinsurance law in Mexico are, in descending level of importance:

    • statutes issued by the Mexican Congress and published by the President;
    • administrative regulations issued by the President;
    • administrative rules issued by the insurance regulator (ie, the National Commission of Insurance and Surety (CNSF)), by delegation of the President; and
    • court precedents that constitute jurisprudence are also binding in court procedures when interpreting the application of insurance legislation. Jurisprudence is not binding on administrative authorities or regulators.

    The main laws ruling the insurance and reinsurance markets are:

    • the General Law of Insurance Institutions and Mutual Companies (LGISMS), which ceased to have effect in April 2015;
    • the Insurance and Surety Institutions Law, which entered into effect in April 2015 and replaced the LGISMS;
    • the Law Governing Insurance Contracts; and
    • the Navigation and Maritime Commercial Law.

    The main administrative regulations and rules for the insurance and reinsurance sector include:

    • the insurance compiled regulations;
    • the regulations of insurance and surety agents; and
    • the regulations of group life insurance and the collective insurance for accidents and illnesses.
  3. 2.

    How and by whom is the insurance and reinsurance market regulated?

  4. The insurance and reinsurance sectors are regulated and supervised nationwide by the CNSF, an arm of the Ministry of Finance (SHCP).

    The CNSF regulates and supervises the formation, operation and functioning of insurance institutions, mutual insurance companies, surety companies, insurance agents, reinsurance intermediaries and other participants in the insurance market. The CNSF has authority to issue administrative rules addressed to the insurance and reinsurance sector.

    The CNSF’s supervision and regulatory authority covers different types of matters including, among others:

    • licensing processes;
    • corporate governance;
    • capitalisation and prudency rules (Solvency II);
    • authorised and forbidden activities for insurers, agents and other players in the insurance, reinsurance and surety sectors;
    • transactions including transfers of shares, mergers, bankruptcy, dissolution and liquidation of insurance and surety companies; and
    • product registration, supervision, investigation and sanctioning procedures.

    The SHCP, on the other hand, is the regulator authorised to interpret, apply and resolve, for administrative effects, matters relating to the application of the Insurance Law (eg, consultations and interpretative rulings), as well as to collect sanctions and issue and implement anti-money laundering regulation and supervision.

    The National Commission for the Defence and Protection of Users of Financial Services (CONDUSEF) regulates and supervises consumer protection matters in the financial and insurance sectors. The CONDUSEF may act as mediator and arbitrator in insurance claims at the behest of the insured party. It is also responsible for the registration procedures of adhesive contracts, the interpretation of their clauses in disputes and the rejection of abusive clauses in said type of agreements during their registration procedure.

  5. 3.

    Is a fronting company required by a foreign insurer in order to write insurance?

  6. As a general rule, only insurers licensed in Mexico (and not foreign insurers) are authorised to cover risks in Mexican territory. There are some exemptions to this rule, including travel insurance or person insurance (ie, life or health) when the insured individual is outside Mexico when acquiring the insurance policy. A foreign insurer is not generally allowed to write insurance in Mexico either, as only insurers licensed in this country are generally allowed to do so. Foreign insurers, however, can obtain exceptional licences in Mexico to write insurance on Mexican territory that is limited to covering risks outside Mexico and for persons who can prove that no other local insurer licensed in Mexico may or is willing to offer a particular type of insurance to that person.

    Thus, except for a few exceptions, a fronting insurance company licensed in Mexico is normally required for foreign insurers or reinsurers to cover or be the assignee of risks, as well as to write insurance in Mexico.

  7. 4.

    Must reinsurance be written through a locally incorporated entity? Is it a requirement that reinsurance is written through a locally incorporated reinsurer?

  8. Reinsurance can be written in Mexico by insurance or reinsurance companies licensed in Mexico. Foreign reinsurers can take reinsurance from insurance companies licensed in Mexico, provided that the foreign reinsurers in question are registered in the Foreign Reinsurers’ Registry at the CNSF.

    Classification of terms

  9. 5.

    Are conditions, conditions precedent or warranties in insurance and reinsurance contracts recognised and what are the remedies for their breach?

  10. Conditions precedents in insurance contracts governed by Mexican law are not typically recognised. An insurance contract cannot be subject to a condition precedent consisting of the delivery of the policy or any other document in which the acceptance is acknowledged, or to the condition of paying the premium. The insurance contract can be subject to a certain term or date that initiates its effect.

    The representations and declarations from the insured or contracting party are the basis for the insurer to take the risk. Omissions or misrepresentations of facts that prevent the insurer from properly assessing the risk, or false declarations from the insured or contracting party, will entitle the insurer to rescind the insurance contract and repudiate the claim.

    Duty of good faith, non-disclosure and misrepresentation

  11. 6.

    Is the legal concept of the ‘duty of utmost good faith’ recognised and what obligations is an insurer under prior to placement of the insurance?

  12. The duty of utmost good faith for the insured or contracting party is recognised and implied in Mexican insurance contracts.

  13. 7.

    What are the remedies for breach of this duty by either party?

  14. If the insured or contracting party breached the duty of utmost good faith by making false declarations, or omitting or misrepresenting information used to assess the risk, the insurer will be entitled to rescind the insurance contract and repudiate the claim. 

  15. 8.

    Does this duty continue to exist following the purchase of insurance (during the operation of the policy)?

  16. The insured party has a duty to continue acting in good faith after the insurance is purchased. If, for instance, the insured party participated in the significant aggravation of the risk or did not inform the insurer in a timely manner of the risk’s significant aggravation, the insurer will be entitled to rescind the insurance contract and repudiate the claim.

    Reinsurance issues

  17. 9.

    Does local law recognise the following clauses in reinsurance contracts?

    • Follow-the-settlement and follow-the-fortunes clauses.
    • Claims control and claim cooperation clauses.
    • Aggregation clauses.
  18. Mexican law is silent as to the above clauses, although they are commonly issued in reinsurance practice.

    Claim process

  19. 10.

    Who has the burden of proof when a claim is made and does the burden switch from one party to another?

  20. The burden of proof of the insurable interest, including the existence of a loss and falling within the scope of the coverage of the policy, is on the insured or contracting party. The insurer shall prove the existing exclusions, if any, based on the facts declared by the insured party or discovered by the insurer.

  21. 11.

    What is the time limit for providing notice to the insurer of an insurance claim under a policy?

  22. As soon as the insured or beneficiary had knowledge of the casualty or insured event, and no later than five days after acquiring this knowledge, unless the policy provides a longer term. If the insured or beneficiary breaches this time limit, the insured may reduce the indemnification due by up to the amount that may have resulted if the notice was provided in a timely manner. The statute of limitation for actions deriving from insurance agreements is five years in life insurance and two years in other agreements following the casualty, insured event or loss.

  23. 12.

    Does the same time limit that applies to the insured apply to the intermediary (eg, the broker)?

  24.  Not applicable.

  25. 13.

    Is there a time limit within which the insurer must:

    • Confirm cover; or
    • Pay the claim or deny coverage?
  26. There is no time limit within which the insurer must confirm cover. The insurer must pay the claim or deny coverage within 30 days after it receives the claim and all the documents and reports allowing it to assess the grounds of the claim, unless the insurer rejected the claim or gave notice of the rescission or nullification of the agreement.

  27. 14.

    If so, what are the consequences of a breach of these time limits?

  28. The indemnification payment will fall duly, and interest may start accruing.

  29. 15.

    What are the answers to questions 11 to 14 in a reinsurance context?

  30.  Not applicable. The parties agree terms and conditions.

  31. 16.

    Do subrogation rights exist and when do they arise?

  32. Subrogation rights exist for the insurer after paying the indemnification resulting from the claim to the insured or beneficiary.

    Law and jurisdiction and dispute resolution

  33. 17.

    Do the parties have freedom of contract as to the choice of applicable law and jurisdiction in an insurance contact?

  34. Insurance contracts executed on Mexican territory are governed and subject to Mexican insurance laws. Insurance agreements executed outside Mexican territory are not subject to Mexican insurance law.

    Insurance contracts executed in Mexico must submit to mediation and arbitration by CONDUSEF or Mexican courts that have jurisdiction, as chosen by the insured or beneficiary.

    Privately administered arbitration clauses are not commonly used in Mexican insurance agreements.

  35. 18.

    Are arbitration clauses enforceable in an insurance contract?

  36. The insured has the implicit and statutory right to choose a mediation procedure with CONDUSEF that is binding for the insurer in small amount policies.

    As of January 2015, the insurers have the right (not the obligation) to register binding arbitration offers with CONDUSEF applicable to designated insurance contracts. If a binding arbitration offer exists, the insured or beneficiary will then have the choice to either initiate a free-of-cost binding arbitration (except for expert costs) with CONDUSEF’s arbitration system or file a claim with Mexican courts.

    Privately administered arbitration clauses are not commonly used in Mexican insurance practice, although they are allowed. They are more commonly used in reinsurance agreements, especially in dealings with foreign reinsurers.

  37. 19.

    Do the parties have freedom of contract as to the choice of applicable law and jurisdiction in a reinsurance contact?

  38. Yes.

  39. 20.

    Are arbitration clauses enforceable in a reinsurance contract?

  40. Yes.

  41. 21.

    Is mediation compulsory?

  42. Mediation of small amount insurance policies is compulsory for the parties only if the insured chooses this alternative resolution procedure. This is not applicable in reinsurance contracts.

  43. 22.

    What is the court structure and what are the relevant time frames for a decision at first instance and each appeal level?

  44. Ordinary commercial action at first instance courts, appeal courts and then constitutional review avenues would be the normal stages of the procedure. Cases normally take between one and three years to be resolved in all instances.

  45. 23.

    Is the judiciary specialised in hearing insurance and reinsurance disputes?

  46. No. Ordinary civil or federal courts would have competition.

  47. 24.

    How common is arbitration in insurance and reinsurance disputes in your jurisdiction?

  48. Arbitration is not yet common in insurance transactions. The CONDUSEF arbitration system began to be implemented in 2015. Therefore, we will need to see its results in terms of common practice versus court jurisdiction.

    Reservation of rights / without prejudice rule

  49. 25.

    Is the concept of a ‘reservation of rights’ valid?

  50. Not applicable.

  51. 26.

    Is the concept of ‘without prejudice’ communications recognised?

  52. Not applicable.

    Cost, interest, monetary correction, moral and punitive damages

  53. 27.

    Does the loser of a legal action pay the costs of the successful party?

  54. Yes, in court and arbitration procedures. Arbitration through the CONDUSEF arbitral system will raise no costs for the parties, except for expert costs, if applicable.

  55. 28.

    How is interest typically calculated on an insurance claim?

  56. Legal interest is equal to a six per cent annual rate, unless the parties to the insurance agreement agree otherwise.

  57. 29.

    Is monetary correction applied and, if so, how is it calculated?

  58. No information was avaialble at time of publication.

  59. 30.

    Are punitive damages available?

  60. No information was avaialble at time of publication.

  61. 31.

    Are moral damages available?

  62. No information was avaialble at time of publication.

    Intermediaries

  63. 32.

    What is the role and function of an intermediary in an insurance and reinsurance context?

  64. To intermediate in the insurance and reinsurance markets. Intermediaries require a license from the CNSF and their operations and activities are regulated and supervised by the authorities.

  65. 33.

    On whose behalf do intermediaries act for the purpose of arranging insurance or collecting a claim?

  66. Insurance agents must comply with rules regarding ethics, respect and loyalty both concerning the insured party and the insurance company. They shall be loyal and protect the legitimate interests of insured parties or beneficiaries, but also have be loyal to and respect the insurers. 

  67. 34.

    Does the doctrine of ‘imputed knowledge’ exist? 

  68. Not necessarily. Agents may or may not have a mandate from insurers.

    Limitation

  69. 35.

    When does a claim under an insurance contract become time-barred and from what point does time run for the purposes of calculating the time bar?

  70. The statute of limitation for actions deriving from insurance agreements is five years in life insurance and two years in other agreements following the casualty, insured event or loss.

  71. 36.

    When does a claim under a reinsurance contract become time-barred and at what point does time run from for the purposes of calculating this time bar?

  72. Yes, by filing ordinary courses of interruption, including, among others, filing claims before the insurance company or the courts, and initiating arbitration procedures.

  73. 37.

    In an insurance and reinsurance context, can the limitation period be interrupted or suspended? If so, how?

  74.  Yes, in insurance contracts, including:

    • the name and domicile of the parties;
    • the insurers’ representative signature;
    • the things or persons insured;
    • the risks covered;
    • the time when coverage starts and ends;
    • the coverage amounts;
    • the premiums; and
    • other mandatory clauses (eg, clauses protecting the insured, including the ability to file claims with specialised units of insurers and CONDUSEF).

    The wording and clauses shall not oppose Mexican insurance laws and shall be written in accordance with them.

    More flexibility exists in reinsurance contracts, as our legal system does not provide strict requirements.

    Other requirements

  75. 38.

    Is there a standard wording or are there mandatory clauses that must be included in insurance or reinsurance contracts?

  76. The new Insurance and Surety Institutions Law entered into force in April 2015.

  77. 39.

    Are there any proposals for new insurance or reinsurance law and, if so, when is it anticipated that they will be enacted?

  78. No.

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Questions

    Regulation

  1. 1.

    What are the sources of insurance and reinsurance law?


  2. 2.

    How and by whom is the insurance and reinsurance market regulated?


  3. 3.

    Is a fronting company required by a foreign insurer in order to write insurance?


  4. 4.

    Must reinsurance be written through a locally incorporated entity? Is it a requirement that reinsurance is written through a locally incorporated reinsurer?


  5. Classification of terms

  6. 5.

    Are conditions, conditions precedent or warranties in insurance and reinsurance contracts recognised and what are the remedies for their breach?


  7. Duty of good faith, non-disclosure and misrepresentation

  8. 6.

    Is the legal concept of the ‘duty of utmost good faith’ recognised and what obligations is an insurer under prior to placement of the insurance?


  9. 7.

    What are the remedies for breach of this duty by either party?


  10. 8.

    Does this duty continue to exist following the purchase of insurance (during the operation of the policy)?


  11. Reinsurance issues

  12. 9.

    Does local law recognise the following clauses in reinsurance contracts?

    • Follow-the-settlement and follow-the-fortunes clauses.
    • Claims control and claim cooperation clauses.
    • Aggregation clauses.

  13. Claim process

  14. 10.

    Who has the burden of proof when a claim is made and does the burden switch from one party to another?


  15. 11.

    What is the time limit for providing notice to the insurer of an insurance claim under a policy?


  16. 12.

    Does the same time limit that applies to the insured apply to the intermediary (eg, the broker)?


  17. 13.

    Is there a time limit within which the insurer must:

    • Confirm cover; or
    • Pay the claim or deny coverage?

  18. 14.

    If so, what are the consequences of a breach of these time limits?


  19. 15.

    What are the answers to questions 11 to 14 in a reinsurance context?


  20. 16.

    Do subrogation rights exist and when do they arise?


  21. Law and jurisdiction and dispute resolution

  22. 17.

    Do the parties have freedom of contract as to the choice of applicable law and jurisdiction in an insurance contact?


  23. 18.

    Are arbitration clauses enforceable in an insurance contract?


  24. 19.

    Do the parties have freedom of contract as to the choice of applicable law and jurisdiction in a reinsurance contact?


  25. 20.

    Are arbitration clauses enforceable in a reinsurance contract?


  26. 21.

    Is mediation compulsory?


  27. 22.

    What is the court structure and what are the relevant time frames for a decision at first instance and each appeal level?


  28. 23.

    Is the judiciary specialised in hearing insurance and reinsurance disputes?


  29. 24.

    How common is arbitration in insurance and reinsurance disputes in your jurisdiction?


  30. Reservation of rights / without prejudice rule

  31. 25.

    Is the concept of a ‘reservation of rights’ valid?


  32. 26.

    Is the concept of ‘without prejudice’ communications recognised?


  33. Cost, interest, monetary correction, moral and punitive damages

  34. 27.

    Does the loser of a legal action pay the costs of the successful party?


  35. 28.

    How is interest typically calculated on an insurance claim?


  36. 29.

    Is monetary correction applied and, if so, how is it calculated?


  37. 30.

    Are punitive damages available?


  38. 31.

    Are moral damages available?


  39. Intermediaries

  40. 32.

    What is the role and function of an intermediary in an insurance and reinsurance context?


  41. 33.

    On whose behalf do intermediaries act for the purpose of arranging insurance or collecting a claim?


  42. 34.

    Does the doctrine of ‘imputed knowledge’ exist? 


  43. Limitation

  44. 35.

    When does a claim under an insurance contract become time-barred and from what point does time run for the purposes of calculating the time bar?


  45. 36.

    When does a claim under a reinsurance contract become time-barred and at what point does time run from for the purposes of calculating this time bar?


  46. 37.

    In an insurance and reinsurance context, can the limitation period be interrupted or suspended? If so, how?


  47. Other requirements

  48. 38.

    Is there a standard wording or are there mandatory clauses that must be included in insurance or reinsurance contracts?


  49. 39.

    Are there any proposals for new insurance or reinsurance law and, if so, when is it anticipated that they will be enacted?


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