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