Maximum sum insured and how it affects injured parties
First come, first served versus pro rata distribution of the respective compensation claim.
Article 27 of the Spanish Insurance Contract Law stipulates: The insured sum represents the maximum amount of compensation to be paid by the insurer for each claim. We also find this quantitative delimitation in Articles 1 (…the insurer is obliged…within the agreed limits…) and 73 (…the insurer is obliged within the limits established in the Law and the contract…) of the same law. The question that arises for the insurer is how to guarantee the effectiveness of this maximum limit when there are several injured parties from the same incident who make separate claims, with the total of their respective compensation claims amounting to a sum greater than the aforementioned limit.
Unlike what happens in other legal systems around us, in Spanish law, there is no definitive and conclusive solution regarding either the criterion applicable to the distribution of the maximum sum insured between the injured parties or the appropriate legal procedure for its effectiveness.
It would indeed achieve less procedural complexity by applying the well-known saying first come, first served: those who first obtain a final decision confirming their respective compensation claim, can be successfully compensated by the insurer. However, once the maximum sum insured is exhausted, the insurer may refuse any further compensation to subsequently injured parties, thus leading to their complete frustration with their compensation claims. Some Spanish courts have recognized the viability of this modus operandi even in enforcement proceedings.
However, this formula does not seem fair or equitable for many reasons (e.g., nature of the damage, health recovery time, greater or lesser delay in the procedure’s processing, etc.), making the rule of the pro rata distribution of the sum insured among all injured parties much more reasonable in proportion to the compensation claim corresponding to each party. An analogical application of the provisions on insolvency regarding the assets available for distribution among the creditors support this formula (see Articles 250.1, 432.1, 433.2, and 435.2 of Royal Decree-Law 1/2020, of 5 May, approving the revised text of the Insolvency Act), as some court decisions have understood (e.g., judgement 54/2008 of the Provincial Court of Cordoba (3rd Section) of 25 March 2008).
The rule of pro rata distribution suffers, however, from important complications for its effectiveness in the procedural sphere. How can the sum insured be validly set aside with the suspension of interest for late payment when several injured parties make separate claims? How can all the proceedings in progress be coordinated? How can all the injured parties be involved in the claim? The specific circumstances of each case will determine the best procedural formula to combine the legitimate interests of the insurer and those of the injured parties, although, for the sake of legal security, it would be optimal for the legislator to articulate a specific procedural mechanism for these cases.
This article is not considered legal advice