Puerto Rico Approves Amendments to the Insurance Code to Protect Policyholders and Improve Claim Handling Procedures

After the catastrophe caused by Hurricanes Irma and Maria, there was a need for an efficient recovery process. The government has worked on methods to improve the way insurance claims are handled. Following models from multiple jurisdictions in the United States, Puerto Rico will now have available more protections and resolution methods for property and commercial policyholders. Several amendments to the Puerto Rico Insurance Code have been approved and signed for immediate application to help solve the delay and ambiguity that has affected the process of recovery. Below is a brief summary of each amended law now available for the benefit of policyholders in Puerto Rico:

Law Number 242¹

This new article offers alternative methods to resolve claims in a more economic, efficient, and expeditious manner. One of the new alternatives available for this process is appraisal. Thorough this method the parties will present their disagreements to an impartial arbitrator in order to achieve a justifiable claim payment. Every policy shall include a clause or stipulation offering appraisal as an option to resolve any claim. This is an alternative considered and used in many states characterized for being quick and as a non-contentious manner to solve claims but does not substitute the right to initiate any administrative procedure or judicial action in court.

Another alternative included in this new article is the availability of specialized courtrooms with well-prepared judges on this issue to solve insurance claim controversies. Cases will be managed in an expedited and efficient manner by experts when claims arise as consequence of catastrophes.

Last, this article makes an important clarification establishing that a notification made by the insured to the insurance company related to a claim or the acceptance of an insurance company of receiving a claim notification will constitute an interruption to the prescription term (limitations) for actions under article 1873 of the Puerto Rico Civil Code. This will apply to claims made for damages caused by Hurricanes Irma and Maria in 2017. The extrajudicial notice will interrupt any time limit related to the period in which a claimant can file a complaint or seek protection of the court or administrative process imposed by the insurance policy. Any and all policy conditions to the contrary shall be considered null when the claim has been made as a consequence of the impact of Hurricanes Irma and/or Maria.

Law Number 243²

A new article was added to this bill to establish partial payments or advances for claims made after catastrophes or upon a declaration of a state of emergency by the Governor. The partial payments or advances shall be issued without any necessity of waiting for a final resolution for the total undisputed amount of the claim. Payments should be made no later than five (5) days after a written notification of acceptance of the offer for partial payment has been made by the insured.

Partial payments or advances that do not identify in a clear and conspicuous manner that the payment was made as a “Partial payment or advance for the claim” will be considered an unlawful practice subject to penalties. It will also be considered an unlawful practice to make an offer without a breakdown and estimate of the damages for which the corresponding payment is being made, including the amount for deductible or coinsurance stipulated in the policy. The acceptance of partial payments or advances shall not be interpreted as a final resolution or as a settlement payment or waiver of any right or defense that the insured could have over any other claim in controversy that is not expressly declared in the offer for partial payment or advance.

Law Number 244³

This statute was approved to streamline insurer resolution of claims. Many obstacles negatively affected the economic recovery of most policyholders. This new bill aims to follow the models of many other jurisdictions in the United States, for example, every five years a test will be made through a “Certified Financial Examiner,” to determine the financial situation of the insurance company and if it complies with required solvency.

In addition, a new article establishes the requirement for all insurance companies to have a response plan for catastrophes or emergencies. The plan shall be certified by an expert in commercial continuity or disaster recovery and should be presented to the Commissioner on or before March 31 of every year. If an insurance company does not comply with this requirement it will be subject to an administrative sanction for up to ten thousand dollars, and/ or the suspension or revocation of an authority certification.

Law Number 245⁴

The purpose of this bill is to stimulate market competence in search of more access to property insurance coverage and contingency especially in the commercial area. It will eliminate restrictions that prevented contracting with states or international insurers with surplus lines. Amendments were made to the conditions for foreign unauthorized insurers in the United States to comply with a capital minimum no less than fifteen million dollars and have authorization to process insurance in their domicile state to the type of insurance group it proposes to contract.

Law Number 246⁵

This bill proposes availability and access to limited coverages for persons of low income to recover from financial loss caused by catastrophes such as Hurricanes Irma and Maria. The plan is to promote availability of Micro insurance with Parametric insurance.

This article also sets out the conditions that all microinsurers shall comply with in order to possess a license to manage or distribute microinsurance. Limited licenses will be issued for insurance administrators that shall be renewed every two (2) years. The Commissioner with the help of an actuary will revise and certify that the fees to be used for the micro insurance products are reasonable and consistent.

Claims made to micro insurances shall be made within thirty (30) days from the day of the cause. The resolution should be made on or before ten (10) days after the claim was made. The Commissioner will have the authority to demand the immediate resolution if he understands that an unjustified delay exists. Any compensation made under a micro insurance policy will be independent of any other insurance.

Law Number 247⁶

Any insured that wishes to file a civil action against an insurance company will be required under this article to make a previous notification to the Insurance Commissioner and the Insurance Company of the violation. A sixty (60) day period will then initiate to solve the claim. The Commissioner will revise and notify the insured if he considers the notification to be insufficient or vague, he will then return the notification and the sixty (60) day period will not begin until the deficiency identified has been corrected.

The Commissioner will prepare and publish an official form that every affected insured should submit to notify any violation made by the insurer. Once submitted, this notification will interrupt for a period of sixty-five (65) days from the deposit of the notification, any prescriptive (limitations) term for actions in court. Punitive damages will only be awarded when the violation has been produced with such frequency that constitutes a general commercial practice and the insurer has been willful, insensitive, malicious and acted recklessly against the insured’s rights.

Insurance companies have an important role in the recovery after a hurricane. In 2017, Puerto Rico faced thousands of insurance claims with a system that was not ready. These amendments to the Puerto Rico Insurance Code will benefit many of the victims from Hurricane Irma and Maria. It will also benefit all policyholders for future claims.
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¹ Puerto Rico Insurance Code, 26 L.P.R.A. Article 9.301, Duty of Impartiality and Objectivity of the Arbitrator in Evaluation Processes “Appraisal” of claims (as amended by House Bill 1645 – approved on August 20, 2018).
² Puerto Rico Insurance Code, 26 L.P.R.A. Article 27.166, Partial Payments or Advances to Claims After a Catastrophic Event (as amended by Senate Bill 1054 – approved on September 17, 2018).
³ Puerto Rico Insurance Code, 26 L.P.R.A. Article 2.110, Investigation or Insurers Examination (as amended by Senate Bill 1056 – approved October 1, 2018).
⁴ Puerto Rico Insurance Code, Article 10.071, 26 L.P.R.A. Insurers Eligible for Surplus Lines (as amended by Senate Bill 1058 – approved on October 1, 2018).
⁵ Puerto Rico Insurance Code, 26 L.P.R.A. Article 7.010, Rights of Presentation, Licenses and Others (as amended by House Bill 1729 – approved October 1, 2019).
⁶ Puerto Rico Insurance Code, 26 L.P.R.A. Article 38.050, Civil Remedies (as amended by Senate Bill 1727 – approved October 18, 2018).