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Legal Update

Brazilian Superior Court of Justice Applies One Year Statute of Limitation on Reinsurance Dispute in its First Precedent on the Subject in Brazil

27 February 2014
Tauil & Chequer Legal Update

The 3rd Chamber of the Brazilian Superior Court of Justice (STJ) has ruled that the time limit for the filing of a lawsuit by the insurer against its reinsurer is one year.

The insurer, Rural Seguradora S/A, filed an Appeal (Recurso Especial) against a decision rendered by the Court of Appeal of Minas Gerais State, where the Court provided that, since reinsurance contracts share the same nature as insurance contracts, the time limit applicable for the filing of a lawsuit by the insurer against the reinsurer is one year.

This case involves a reinsurance contract entered into in 1998 between Rural Seguradora and the formerly State-owned Instituto de Resseguros do Brasil (now called IRB Brasil Re).

The underlying insurance policy provided coverage for the hull of a helicopter owned by Banco Rural S/A (a company belonging to the same group as Rural Seguradora) and also for liabilities (up to USD 2 million) arising from damages caused to passengers, crew and third-parties on the ground. On 26 February 1999, such helicopter made a hard landing due to a mechanical failure resulting in the death of two occupants (including the President of the Banco Rural) and injuries to the pilot.

Rural Seguradora indemnified the victims’ beneficiaries and the pilot for the liabilities’ insured value and tried to recover the reinsured amount from the IRB. In June 1999, the IRB denied recovery on the grounds that the liability coverage was restricted to third-parties and therefore should exclude the President of Banco Rural. In addition, the IRB also argued that Rural Seguradora concluded settlement without its prior knowledge or agreement, completely ignoring its claims control.

In 2003, Rural Seguradora filed a lawsuit against the IRB and in 2008 the Court of Appeal of Minas Gerais State ruled that "the reinsurance contract is nothing more than another insurance contract signed between the insurer and the reinsurer. Consequently, (...) the one year statute of limitation period provided for in Article 178, paragraph 6, section II, of the Civil Code of 1916 and repeated in paragraph II of Article 206 of the present Civil Code" should apply.

In its Appeal to the Superior Court of Justice, Rural Seguradora argued that the reinsurance transaction could not be compared to insurance, the former being a business relationship of a distinct nature. The insurer went on to argue that, given the lack of any specific legal provisions regarding time limit applicable to reinsurance contracts, the 20-year period provided for in Article 177 of the Civil Code of 1916, in force at the time, should apply.

The Reporting Judge of the case, Justice Villas Boas Cueva, rejected the insurer’s arguments.Justice Cueva acknowledged that there is no consensus among the scholars regarding the nature of reinsurance contracts, but noted that most of the legal doctrine holds that, in general, reinsurance contracts should be considered as insurance. According to the Reporting Judge:

"The reinsurance contract grants the insurer compensation for its loss, in such a way that the reinsurer acts as an insurer of the insurer. Hence the usual saying: reinsurance is insurance for the insurer".

"As regards the statute of limitations, the law provided for a term of one year for any claim arising from insurance contracts (Article 178, paragraph 6, of the 1916 Civil Code and Article 206 of the Civil Code of 2002). Such term includes (...) reinsurance”.

This was the first (non-binding) precedent ever issued by the Brazilian Superior Court of Justice in respect of time-bar on reinsurance contracts.

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