Antonio Flores’ Blog

Zurich Insurance, one of the leading insurance companies in Spain through its ACC Seguros y Reaseguros branch, has refused to pay the sum guaranteed on an insurance policy to a client of our firm on the basis that the developer had stopped all works as it was put into Administration. This dangerous situation, which we would all think is the number one reason for a bank guarantee and/or insurance policy to exist is precisely the impediment put forward by Zurich to say “I´m sorry, we can’t”.

Zurich did attend the payment of just under 40 checks to clients of this firm on the Larsol development as it was not going to be finished, although the developer is still operating. Conversely the above developer, Nadalsol, even though technically insolvent, may be finalizing the works at Medina Golf Residencial Granada, though with a significant delay.

Zurich has decided not to pay based on the following:

1. That the recent Insolvency Act precludes them from paying out on the policy as it would jeopardize their right to reclaim this sum from the developer in a separate recourse action, as the insolvency administrators could argue that the execution was unduly granted.
2. That as we extended the validity date of the policy (which we did, just in case) we also inadvertently extended or agreed to a new completion date for the property bought on contract (The funny thing here is that the validity of insurance policies and bank guarantees for the purpose of guaranteeing funds are never limited in time, except by the license of occupancy, according among other to a most recent ruling by the AP Madrid 27th Dec. 2007).
3. (That perhaps they have ran out of money!).

Well, none of the arguments can be sustained for the following:

1. Argument 1: Because the relationship between the Insurer and the Consumer is autonomous from the vicissitudes affecting the developer as the latter is not party to the contractual relationship.
2. Argument 2: Because it is plain daft and stupid! How can extending the maturity of a insurance policy relate to a completion date for a property?

It is extremely frustrating when trying to explain disappointed investors that a company like Zurich Insurance will look for any excuse on the book to try to not abide by the clear wording of consumer protection laws on off-plan purchases which envisaged the protections specifically for cases of insolvency.

So if Zurich does not pay, who will then in this current climate?

Antonio Flores Litigation, Property Bank Guarantees in Spain, larsol, Medina Golf Residencial, Nadalsol, Zurich Insurance

We were not sure we would be able to achieve the feat, as my colleagues like to call it, but after 15 months of constant mailing, faxing and telephoning by our staff (and fair to say that also a couple of clients), and subsequently Court action, ACC Seguros said they were prepared to honour the insurance policies we had secured for the final 36 investors who had bought through Lawyers Of Spain from the development Lar Sol.

As I walked into their offices in Calle Orense 80, Madrid, last Thursday, I did not have any certainty that my day trip to Madrid in the incredible AVE train would see me running out of their offices with over 2.5 million Euros in deposits. But when I pulled out the carefully prepared documentation our meticulous Olga had prepared for me on behalf of the 32 clients (2 clients had invested in two properties), and they placed the bankers drafts on the table I knew that we had won.

Francisco and Roberto, from ACC Insurance, mechanically reviewed our paperwork and began giving us one check a time and when it was over and the monies were in my case they confided that they would possibly stop further honouring any more policies (hopefully except for 2, our only 2 remaining clients for whom the paperwork was incomplete).

It is possible that some of these clients would still want to sue the developer for compensation, as the contracts inserted a clause whereby should the developer fail to finish the units on time a penalty of 50% of the deposit is applicable. This was made possible as at no time we waived the above rights.

Whether they finally go against the developer or not, it is a great success for our clients who can say that the property downpayment guarantees has worked as it was devised to do, thanks to people like Olga (especially), Roberto, Javier and many more. Thanks to all on behalf of Lawyers of Spain. I also wish to thank Luis and Raymundo, from Lawbird Legal Services, for their continuous support and advice and the Court cases they have prepared and lodged to claim the compensation as devised on the contract.

Antonio Flores Litigation, Property grupo lar, lar sol, larsol, larsol insolvency, lawyers of spain