Banking Board of Ecuador

RESOLUTION No. JB-2015-3511

THE BANKING BOARD

CONSIDERING:

THAT this appeal is resolved in accordance with the First Transitional Provision of the Organic Monetary and Financial Code, published in the Second Supplement of the Official Register No. 332 of September 12, 2014, whose text states that resolutions contained in the Codification of Resolutions of the Superintendence of Banks and Insurance and the Banking Board, and norms issued by control bodies, will remain in force insofar as they do not oppose what is provided in the Organic Monetary and Financial Code, until the Monetary and Financial Policy and Regulation Board resolves what corresponds, according to the case; and with the second paragraph of the Third Transitional Provision, which states that the Banking Board will continue to act until it resolves all complaints, appeals, and other administrative procedures it was handling as of the date of entry into force of the same, within a period of one hundred and eighty days, extendable at the discretion of the Monetary and Financial Policy and Regulation Board;

THAT by Resolution No. 054-2015-F of March 5, 2015, the Monetary and Financial Policy and Regulation Board resolved to extend by one hundred and eighty additional days the period for the Banking Board to continue acting and resolve all complaints, appeals, and other administrative procedures within its competence;

THAT on March 15, 2011, Seguros Sucre S.A. issued in favor of the Corporación Eléctrica del Ecuador CELEC EP fire insurance policy No. 6031152 and business interruption insurance policy No. 6010270, both valid from March 5, 2011, to March 5, 2013. The fire insurance policy, according to its Particular Conditions, covers all risks, for a total insurable value of US$ 532,793,887.00, including "hydraulic works" for US$ 415,856,945.00; and the business interruption policy, according to its Particular Conditions, covers business interruption due to the occurrence of a claim covered under the all-risk fire insurance policy, up to an insured value of US$ 6,750,000.00;

THAT by letter No. CELEC EP-HAG-GHA-464-11 of September 8, 2011, received by Seguros Sucre S.A. on the 12th of the same month and year, the Corporación Eléctrica del Ecuador CELEC EP informed the insurer of the loss detected on September 5, 2011, during the inspection carried out in the Crucero 2 sector, near the Loading Tunnel of the Pucará Power Plant, consisting of "active current slide affecting the superficial soil layer and several levels of weathering of the underlying rock, a slide that compromises the stability of the Loading Tunnel of the Plant due to its proximity." The loss was notified within the thirty days provided for in numeral 4 of the Particular Conditions of the fire insurance policy;

THAT the claim was formalized on June 8, 2012, starting from communication No. CELEC-EP-GG-576-12 of that date, with which the General Manager and Legal Representative of the Corporación Eléctrica del Ecuador CELEC EP claims against Seguros Sucre S.A. that about a year has passed since the loss was communicated, without it having been resolved; makes a chronology of the substantial events of the loss; and determines that the loss incurred amounts to US$ 34,048,541.06. From that date, the insurance company did not formulate objections to said claim nor paid the indemnification, as provided in article 42 of the General Insurance Law;

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THAT on December 28, 2012, engineer Eduardo Barredo Heinert, General Manager and Legal Representative of the Corporación Eléctrica del Ecuador CELEC EP, filed an administrative complaint with the Superintendence of Banks and Insurance against Seguros Sucre S.A., seeking an order to pay US$ 34,048,546.06, representing the value of indemnification for the damages sustained in the Pucará Loading Tunnel, covered under fire all-risk and business interruption insurance policies Nos. 6031152 and 6010270, respectively;

THAT after analyzing the file and the explanations provided by the insurance company, the claim was resolved by the National Director of User Attention and Education by letter No. DNAE-SAU-2013-2014 of April 11, 2013, ordering that: "SEGUROS SUCRE S.A., pay the value of US$ 34,048,541.06, to the Strategic Public Enterprise Corporación Eléctrica del Ecuador CELEC EP, as indemnification for the loss occurred at the Pillaro Pucará Generation Plant, under fire all-risk insurance policy No. 6031152 and business interruption policy No. 6010270, with interest calculated from July 24, 2012, at the maximum conventional rate fixed according to the Law, deducting the values agreed upon in the respective policies; because SEGUROS SUCRE S.A. has neither paid nor objected to the claim presented by the insured within the deadline to do so."

THAT by communication entered in the Superintendence of Banks and Insurance on April 22, 2013, engineer Gene Alcivar Guzmán, General Manager of Seguros Sucre S.A., filed an appeal before the Banking Board against the administrative act contained in letter No. DNAE-SAU-2013-2014 of April 11, 2013, which was granted by the National Intendancy of the Private Insurance System with resolution No. SBS-INSP-2013-086 of May 8, 2013;

THAT the first five paragraphs of article 42 of the General Insurance Law provide:

"ARTICLE 42.- Every insurance company has the obligation to pay the contracted insurance or the corresponding part of the duly proven loss, as the case may be, within forty-five days following the day on which the insured or beneficiary presents in writing the corresponding claim accompanied by the documents that, according to the policy, are necessary, unless the insurance company formulates justified objections to such claim, which must be immediately brought to the knowledge of the Superintendent of Banks.

If the insured or beneficiary agrees to the objections, the insurance entity will immediately pay the agreed indemnification.

If in this case or if the forty-five-day deadline fixed in the first paragraph expires, and the insurance company does not make the payment, the insured or beneficiary will bring this fact to the knowledge of the Superintendent of Banks, who, upon verifying this situation, will order payment within a period not exceeding fifteen days, along with interest calculated from the aforementioned forty-five days, at the maximum conventional rate fixed according to the law. If payment is not made within the granted deadline, the forced liquidation of the insurance company will be ordered.

If the insurance company formulates objections to the claim and no agreement is reached with the insured or beneficiary, the Superintendence of Banks

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will verify the existence of the grounds for such objections and, if none are found, will order payment; otherwise, it will reject it.

The insured or beneficiary may resort to summary verbal trial before competent judges or submit to commercial arbitration or mediation, as the case may be.";

THAT according to the cited norm, once the forty-five days following the day on which the insured or beneficiary presents in writing the corresponding claim accompanied by the documents that, according to the policy, are necessary, have passed, without the insurance company having made the payment of the claimed insurance, or in its defect, having formulated justified objections to such claim, the insured may go to the Superintendence of Banks and Insurance to ask it to order the insurance company to pay for the loss, and if there are grounds for the refusal of said payment, it will analyze them to determine their pertinence or lack of legal pertinence;

THAT article 43, of paragraph IV "Obligations and Prohibitions of Loss Adjusters", of section IV "Of Insurance Experts", of chapter II "Norms for the exercise of activities of insurance producer advisors, reinsurance intermediaries, and insurance experts", of title XI "Of qualifications granted by the Superintendence of Banks and Insurance", of book II "General Norms for the application of the General Insurance Law", of the Codification of Resolutions of the Superintendence of Banks and Insurance and the Banking Board, establishes:

"ARTICLE 43.- Loss adjusters have the obligation to determine that a loss has effectively occurred and establish its causes; whether the risk is or is not covered by a specific policy; value the amount of losses and the amount of indemnification.";

THAT article 46, of paragraph V "Of Loss Settlements", of the section, chapter, title, and book of the Codification cited in the preceding consideration, states:

"ARTICLE 46.- Loss settlements must be carried out by choosing one of the following options:

46.1 Directly by the respective insurance company;

46.2 By the loss adjuster designated by the insurance company;

46.3 By a foreign loss adjuster who complies with the provisions of article 45;

46.4 By the loss adjuster designated by the insured; and,

46.5 By the loss adjuster designated by the insured and the insurance company.";

THAT by memorandum No. JB-2014-953 of December 15, 2014, the Secretary of the Banking Board, Acting, communicated to the National Legal Intendancy that this collegiate body, in a session held on the 10th of the same month and year, when addressing the appeal in reference, ordered that said Intendancy "... prepare an explanatory report (...) with the purpose of determining the relevance of the reports of the Loss Adjusters.";

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THAT the National Legal Intendancy, through memorandum No. INJ-DNJ-SAL-2015-0491 of July 2, 2015, issued the requested explanatory report, in which the reports of the Loss Adjusters were analyzed: GP Adjusters Associated S.A. of November 14, 2014; Quintana, López, Donoghue & González, LLP of November 21, 2014; and, GP Adjusters Associated S.A. of November 21, 2014.;

THAT the Supplementary Reports of the Loss Adjusters referred to in the preceding consideration determine values lower than the quantification of the loss by the insured;

THAT as derived from the report of GP Adjusters Associated S.A. of November 21, 2014, the Corporación Eléctrica del Ecuador, CELEC EP, presented a Supplementary Claim for material damages and business interruption, increasing the amount of the claim from US$ 34,048,541.06 to US$ 49,735,717.94, plus VAT;

THAT the General Manager of CELEC EP, by letter No. CELEC-EP-2015-0393-OFI of March 26, 2015, communicated to the Banking Board the following: "Summarizing, the loss is indeed covered by the policy; the value of material damages to be indemnified, deducting the deductible, is at least USD $ 17,546,188.80; and the value for business interruption is USD $ 6,750,000.00. All this results in a value of USD $ 24,296,188.80."; (emphasis added)

THAT from the above, it is derived that the insured initially quantified the claim based on a report presented by Lombardi S.A. which does not have the quality of Loss Adjuster; and, during the processing of the appeal filed by Seguros Sucre S.A., increased the amount of indemnification and then decreased it, as derived from the communication referred to in the preceding consideration;

THAT as indicated, during the processing of the appeal filed by Seguros Sucre S.A., the Corporación Eléctrica del Ecuador CELEC EP increased the amount of indemnification claimed, from US$ 34,048,541.06, to US$ 49,735,717.94, and then decreased said amount to USD $ 24,296,188.80, a quantification that should not be adjudicated by the Banking Board, especially when from the reports presented by the Loss Adjusters, the value to be indemnified would be lower than that stated in the appealed letter No. DNAE-SAU-2013-2014 of April 11, 2013;

THAT neither the Banking Board nor the Superintendence of Banks has the competence to take evidence that allows it to determine the amount of indemnification at its real value, as the same must be supported by analyses and valuations that are eminently technical;

THAT for the reason noted, the parties must assert their rights before the ordinary courts;

THAT the National Legal Intendancy, through memorandum INJ-DNJ-SAL-2015-0491 of July 2, 2015, recommended to the Banking Board to refrain from resolving the claim contained in the appeal filed;

IN exercise of its legal powers,

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RESOLVES:

SINGLE ARTICLE.- ABSTAIN from resolving the appeal filed by engineer Gene Alcivar Guzmán, General Manager of Seguros Sucre S.A.; DECLARE VOID the administrative act contained in letter No. DNAE-SAU-2013-2014 of April 11, 2013; and, consequently, RESERVE to the parties to assert their rights before the ordinary courts.

NOTIFY.- Given in the Superintendence of Banks, in Quito, Metropolitan District, on July 9, two thousand fifteen.

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Econ. Rodrigo Landeta Parra GENERAL INTENDANT, S PRESIDENT OF THE BANKING BOARD, E

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I CERTIFY.- Quito, Metropolitan District, on July 9, two thousand fifteen.

Lcdo. Pablo Cobo Luna SECRETARY OF THE BANKING BOARD

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Banking Board of Ecuador