Puerto Rico’s Newly Required Expedited Payment Process for Property Insurance Policies

In our recent article addressing property insurance in Puerto Rico, we discussed the new appraisal rules for Puerto Rico property insurers that the governor of Puerto Rico enacted in response to the extremely active 2017 Atlantic hurricane season. The governor also enacted five other bills that amend or introduce new provisions to the Insurance Code of Puerto Rico, 26 L.P.R.A. § 101 et seq., including provisions regarding expedited payment requirements, additional civil remedies against insurers, as well as new requirements for insurers, surplus carriers, and micro-insurance providers.

While the new legislation has been in effect since November 27, 2018, few English-language platforms feature or discuss the six bills or their impact.[1] Given the limited information available in English, over the next few weeks, the CAT-Law Navigator will be providing information with respect to the amended statutes and analysis concerning how those amendments may affect pending and future insurance claims. These detailed overviews (rather than direct translations) of the newly enacted requirements are designed to assist insurance professionals in understanding some of the recent changes to the Insurance Code of Puerto Rico.

The focus of this article is the PS 1056 bill, which, as enacted, now requires the expedited payment of catastrophe-related claims.

Effect of Issuing or Denying a Payment 

Prior to the enactment of PS 1056, only two of the roughly 40 sections of the Unfair Practices and Fraud Chapter of the Insurance Code of Puerto Rico addressed insurers’ responsibilities related to payment to the insured. See 26 L.P.R.A. § 2701 et seq. The first of these two articles provides, in relevant part, that “the full payment of the claim” can “constitute the resolution of a claim.” Article 27.163 (26 L.P.R.A. § 2716c). Further, Article 27.161 prohibits any of the following practices related to an insured’s payment: 
In the adjustment of claims no person shall incur or carry out any of the following unfair actions or practices:

(10) Make payments of claim to the insured or beneficiaries which are not accompanied by a statement showing the coverage under which payment is made.

(14) Delay an investigation or the payment of a claim by requiring from the insured, claimant or his physician to submit a preliminary report of the claim and then require a formal statement of loss which substantially contains the same information of the preliminary report.

(15) Deny the existence of the policy coverage when the insured turned down the payment offer of a claim for such coverage.

(16) Deny the payment for a valid claim solely due to a mere suspicion of fraud or misrepresentation of the facts.

(17) Deny the payment for a claim on the pretext of insufficient information when the same could have been acquired through regular investigation methods.
26 L.P.R.A. § 2716a. These two Articles focus on: (a) what constitutes making, or wrongfully denying, a payment to insured, (b) how a payment offer and actual payment should be made, and (c) what consequences ensue when said payment offer is made. PS 1056 adds Article 27.164 to the Insurance Code, which—unlike Articles 27.161 or 27.163—speaks to circumstances under which payment must be issued to an insured. 

New Requirements for Issuing Payments in Claims Related to a Catastrophic Event 

Article 27.164 specifically applies to partial or advance payments of claims in the face of a “catastrophic event” once the governor of Puerto Rico declares a state of emergency. At that point, the Insurance Commissioner’s Office is authorized to order property insurers to issue partial or advance payments to insureds as to one or more undisputed items without the need to wait for a complete resolution of the claim. The legislative notes make clear that this addition to the Insurance Code resulted from the number of unnecessarily delayed payments for Hurricane Irma and Hurricane María claims. Although the Article does not expressly state whether it applies retroactively, given the legislative context it is likely that policyholders will argue that Article 27.164 applies to claims from the 2017 Atlantic hurricane season as well as to claims post November 2018, when Article 27.164 was enacted.

If one or more items in a claim related to a catastrophic event are undisputed, insurer shall issue the partial or advanced payment(s) of the undisputed amounts owed to insureds prior to the resolution of the claim process and independently from any disputed amounts. Article 27.164(a). The net payment, which would take into account any applicable deductible or co-insurance, shall be issued in writing within ten calendar days from the date the insured notifies the insurer in writing that he/she accepts its offer of partial or advanced payment. Id. An insurer’s offer must be conspicuously marked as a “Claim’s Partial or Advanced Payment.” Article 27.164(b). To avoid an unfair-practices claim subject to Article 27.260’s penalty,[2] an insurer must identify each of the items for which coverage was undisputedly provided as well as the payment amount corresponding to each item, including applicable deductible or coinsurance amounts. Id. and Article 27.164(c).

An insured’s acceptance of a partial or advanced payment will not constitute a settlement of the claim, nor will it constitute a renouncement of any of the insured’s rights or defenses as to the disputed items in the claim that are not expressly identified in the partial or advanced payment offer. Article 27.164(d). Similarly, an insured’s acceptance of the partial or advanced payment will not constitute a settlement or final resolution of the claim. Article 27.164(e).[3]

As noted above, Article 27.164 makes clear that the expedited payment process applies only when (1) the governor declares a state of emergency and (2) the claim arises in the face of a catastrophic event. In other words, for property insurance claims that are unrelated to a catastrophic event or that arise outside of a state-of-emergency period, insurers are not required to abide by the expedited ten-day payment turnaround mandated by Article 27.164. Nonetheless, regardless of an emergency or a catastrophe, “[t]he investigation, adjustment, and resolution of any claim shall be made in the shortest reasonable period of time within the first ninety (90) days after said claim has been submitted to the insurer.” 26 L.P.R.A. § 2716b(1). Thus, addressing and resolving claims as soon as reasonably possible is still the name of the game.

Posted by Akira Céspedes Pérez

[1] Beyond legal search-engines, you can find copies of Puerto Rico bills in both English and Spanish at The Office of Legislative Services’ enacted laws webpage; however, the six bills enacted in November 2018 regarding the Insurance Code of Puerto Rico have not been uploaded in English as of the writing of this article.

[2] Per Article 27.260, “In addition to any penalty provided in this [Insurance] Code, any person who violates a provision of this chapter may be punished by an administrative fine which shall not exceed ten thousand dollars ($10,000) for each violation.” 26 L.P.R.A. § 2735.

[3] Keep in mind that a claim is fully resolved upon a full payment of the claim under Articles 27.163 or upon the Insurance Commissioner’s order for an immediate resolution under Articles 27.162. See 26 L.P.R.A. §§ § 2716b and 2716c.