Banking Board of Ecuador

RESOLUTION No. JB-2015-3417

THE BANKING BOARD

CONSIDERING:

THAT the second paragraph of the Third Transitional Provision of the Organic Code of Monetary and Financial Law determines that the Banking Board will continue to act until it resolves all claims, appeals, and other administrative procedures it was hearing as of the date of entry into force of this Code, within a period of one hundred and eighty days, extendable at the discretion of the Monetary and Financial Policy and Regulation Board;

THAT through Resolution No. 054-2015-F, dated March 5, 2015, published in the Official Register No. 467, dated March 27, 2015, the aforementioned period was extended by an additional one hundred and eighty days;

THAT through Letter No. INSP-DA3-2014-2352, dated July 11, 2014, the National Superintendent of the Private Insurance System, at that time, requested explanations from economist Martha Tuñío Rodríguez, General Manager of Equivida S.A. Insurance and Reinsurance Company, regarding the case within the claim filed by Mrs. Genith Segunda María Muñoz Zambrano regarding the unilateral cancellation of Individual Life Insurance Policies Nos. 2590003114 and 259000443 contracted with said insurer;

THAT with communication dated July 17, 2014, economist Martha Tuñío, General Manager of Equivida S.A., responded to the aforementioned letter, and stated, principally, that on October 9, 2010, and August 13, 2011, Mrs. Genith Segunda María Muñoz Zambrano requested the issuance of two individual life insurance policies, and regarding the health declaration which objectively asks if she has ever suffered from nervous system problems or if she suffers from any illness or is currently under any medical treatment or taking any medicine, the policyholder's response to these questions was "NO". Subsequently, due to a claim filed under the "Hospitalization Allowance for Any Cause" annex, they were able to observe in the medical history issued by the Sagrado Corazón Psychiatric Institute of Quito that the insured has a history of addiction to FENTAYL for three and a half years, a disease she knew about prior to contracting the individual life insurance policies, which leads to what is stated in Article 11 of the General Conditions of the Policies: "Concealment or False Declaration," and in this situation, Equivida S.A. proceeded to cancel the two individual life insurance policies contracted due to false declaration of her health status;

THAT through Letter No. INSP-DA3-2014-2861 dated August 15, 2014, Dr. Fernando Uzcátegui Altamirano, National Superintendent of the Private Insurance System, under the provisions of Article 37, letter b), numeral 2 of the General Insurance Law, imposed on the General Manager of Equivida S.A. a fine of USD $ 2,103.00, on the grounds that said insurance company unilaterally canceled two individual life insurance policies issued in the name of Mrs. Genith Segunda María Muñoz Zambrano;

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THAT through a document dated September 1, 2014, economist Martha Cristina Tuñío Rodríguez, General Manager of Equivida Insurance and Reinsurance Company S.A., filed an appeal before the Banking Board against Letter No. INSP-DA3-2014-2861, dated August 15, 2014;

THAT the arguments of the appellant are limited to stating the following:

• That the sanction imposed on her is excessive, since it is the first time the insurer has proceeded to cancel an individual life insurance policy, and at most, a reprimand should have been imposed; and,

• That in the aforementioned Letter No. INSP-DA3-2014-2861, the National Superintendent of the Private Insurance System informs her that if she persists in this type of irregular conduct, a more severe sanction will be applied; in response to which she indicates that the insurer does not carry out unilateral cancellation processes for individual life insurance policies, this being the first time they have done so due to the false declaration made by the insured in her insurance application;

THAT through Resolution No. SB-INSP-2014-219, dated November 24, 2014, the National Superintendent of the Private Insurance System, granted the appeal filed by the General Manager of Equivida S.A.;

THAT the fine of US$ 2,103.00 imposed on economist Martha Cristina Tuñío Rodríguez, General Manager of Equivida Insurance and Reinsurance Company S.A., is for unilaterally canceling two individual life insurance policies issued in the name of Mrs. Genith Segunda María Muñoz Zambrano. (Emphasis added);

THAT it is important to keep in mind the argument of the appellant when sustaining that "since it is the first time the insurer has proceeded to unilaterally cancel individual life insurance policies, the imposed sanction is excessive, at most the control body should have imposed a reprimand on her." The insurer itself accepts that it unilaterally canceled the policies and that this conduct should be sanctionable by the control body, and where it disagrees is in the proportionality of the sanction;

THAT in the case at hand, regarding the unilateral termination of the insurance contract, it is important to point out what is established in Article 19 of Supreme Decree No. 1147, which regulates the insurance contract:

"The insurance contract, except for life insurance, may be unilaterally resolved by the contracting parties. By the insurer, through written notification to the insured at their domicile with no less than ten days' advance notice; by the insured, through written notification to the insurer, returning the original policy. If the insurer cannot determine the domicile of the insured, they will be notified of the resolution through three notices published in a newspaper of good circulation in the domicile of the insurer, with an interval of three days between each publication." (Emphasis added);

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THAT from the transcribed norm, it is inferred that there is a legal impediment for the insurance company to unilaterally cancel or terminate individual life insurance contracts. Consequently, the cancellation carried out by Equivida Insurance and Reinsurance Company S.A. clearly violates the aforementioned regulations;

THAT in concordance with the above, it is important to point out, insofar as pertinent, what is established in Article 37 of the General Insurance Law, pursuant to which the fine may be applied to the official of the controlled entity who violates legal provisions, as occurred in the present case:

"Art. 37.- (...) When in a controlled entity, its directors, administrators, or officials violate the laws or regulations governing their operation, or in cases where they infringe statutory provisions or norms and instructions issued by the Superintendence of Banks and Insurance, and especially when they fail to comply with the provisions of this Law;... the Superintendence of Banks and Insurance, depending on the gravity of the infringement, will impose one of the following sanctions:

a) To the controlled entity:

1. Reprimand.
2. Fine.
3. Suspension of authorization certificates or withdrawal of credentials, as appropriate; and,

b) To the directors and administrators of the entities of the private insurance system:

1. Reprimand.
2. Fine.
3. Removal.

In any case and without prejudice to what is established in this article, the Superintendence of Banks and Insurance will adopt measures aimed at restoring compliance with the violated norm. The fines imposed on directors and administrators will be paid with their own resources. (...)"

THAT it is important to mention what is provided in Article 213 of the Constitution of the Republic of Ecuador, the second paragraph of Article 1 of the General Law of Institutions of the Financial System, in force at that time, and Article 1 of the General Insurance Law, which state the following regarding the competence of this control body:

Constitution of the Republic of Ecuador:

"Art. 213.- The Superintendencies are technical bodies for surveillance, auditing, intervention, and control of economic, social, and

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environmental activities, and of the services provided by public and private entities, with the purpose that these activities and services are subject to the legal framework and attend to the general interest.

The Superintendencies will act ex officio or upon citizen request. The specific powers of the Superintendencies and the areas requiring control, auditing, and surveillance of each of them will be determined according to the law.

The Superintendencies will be directed and represented by the Superintendents. The law will determine the requirements that those aspiring to direct these entities must meet.

(...)

General Law of Institutions of the Financial System:

"ARTICLE 1.- This Law regulates the creation, organization, activities, operation, and extinction of the institutions of the private financial system, as well as the organization and functions of the Superintendence of Banks, the entity in charge of the supervision and control of the financial system, in all of which the protection of the public's interests is taken into account....

Public financial institutions, insurance and reinsurance companies are governed by their own laws regarding their creation, activities, operation, and organization. They will be subject to this Law regarding the application of solvency and financial prudence norms and the control and surveillance carried out by the Superintendence within the legal framework regulating these institutions in all that is applicable according to their legal nature. The Superintendence will apply the norms contained in this Law on forced liquidation, when there are grounds that so warrant.

(...)"

General Insurance Law:

"Art. 1.- This Law regulates the constitution, organization, activities, operation, and extinction of legal persons and the operations and activities of natural persons who make up the private insurance system; which will be subject to the laws of the Republic and to the surveillance and control of the Superintendence of Banks and Insurance.";

THAT from the literal text of the transcribed constitutional and legal provisions, it is established that the Superintendence of Banks is the technical body for surveillance and control of the entities, including those that make up the private insurance system, which must respect the legal framework and comply with the regulations issued for their proper operation and control; as well as being called upon to safeguard the interests of users;

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THAT in the present case, in the administrative act appealed against issued by the National Superintendence of the Private Insurance System, it is observed that the insurer expressly transgressed the law by unilaterally canceling the individual life insurance policies, which is why the Superintendence of Banks, in exercise of its constitutional attributes and in application of Article 37 of the General Insurance Law, imposed the sanction that has been appealed;

THAT the National Legal Superintendence, through memorandum INJ-DNJ-SAL-2014-0716 dated September 25, 2014, recommended to the Banking Board to reject the claim contained in the review appeal filed; and,

IN exercise of its legal attributes,

RESOLVES:

SINGLE ARTICLE.- REJECT the claim contained in the appeal filed by economist Martha Cristina Tuñío Rodríguez, in her capacity as General Manager of said insurer; and, consequently, CONFIRM Letter No. INSP-DA3-2014-2861 dated August 15, 2014, through which the National Superintendent of the Private Insurance System imposed on the aforementioned General Manager a fine of USD$ 2,103.00 for having unilaterally canceled two individual life insurance policies issued in the name of Mrs. Genith Segunda María Muñoz Zambrano; ordering that the insurer receive the values corresponding to the payment of premiums that were rejected, since the aforementioned insurance policies are in force.

NOTIFY.- Given at the Superintendence of Banks, in Quito, Metropolitan District, on the thirteenth of May of two thousand fifteen.

Signature: Econ. Rodrigo Landeta Parra GENERAL SUPERINTENDENT, S PRESIDENT OF THE BANKING BOARD, E

I CERTIFY.- Quito, Metropolitan District, on the thirteenth of May of two thousand fifteen.

Signature: Lcdo. Pablo Cobo Luna SECRETARY OF THE BANKING BOARD

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Banking Board of Ecuador