Important precedent regarding D&O Insurance: STJ decides on the initial term for the statute of limitations applicable to civil liability insurance (Special Appeal No. 1,990,918/SP)

The Insurance, Reinsurance, Private Pensions and Supplementary Health team had an important win at the Superior Court of Justice (“STJ”) in a case relating to the statute of limitations applicable to D&O insurance.

The STJ has once again faced the topic concerning the statute of limitations applicable to the insurance contract when recently trying Special Appeal No. 1,990,918/SP, which provided for the initial term applicable to the insured’s claim against the insurer in civil liability insurance.

The main discussion revolved around the violation of Section 206, paragraph 1, item II of the Civil Code. According to this provision, the statute of limitations applicable to insurance relationships is one year, and the initial term depends on the type of insurance:

1. for civil liability insurance, the term begins on the date the insured is summoned in the lawsuit filed by the third party or on the date the insured indemnifies the third party upon the insurer’s consent (item “a”); and
2. for other types of insurance, the term begins on the date the insured becomes aware of the “triggering event” (item “b”):

Art. 206. Statutes of limitations:

1, in one year: […]

II – the insured’s claim against the insurer, or the insurer’s claim against the insured, upon the limitation period:

1. 1. in events involving civil liability insurance, from the date the insured is summoned to reply to the indemnification lawsuit filed by the injured third party, or from the date the third party is indemnified, upon the insurer’s consent;
   2. in events involving other insurances, from the knowledge of the triggering event.

In this specific case, the Court of Justice of São Paulo (“TJSP”) had previously decided that the claim was not time-barred, on the basis that the initial term should be that of item “b”, meaning that the triggering event was the denial of insurance coverage by the insurer.

When considering this appeal, Justice Nancy Andrighi began her vote by differentiating civil liability insurance from general insurance in order to determine the application of the appropriate initial term. Andrighi concluded that item ‘a’ was applicable, considering that the case referred to D&O liability insurance.

Moving on to the matter involving the initial term, Justice Andrighi systematically analyzed the contractual regime of civil liability insurance provided for in Section 787 of the Civil Code as well as the regulations on the statute of limitations. Andrighi concluded that the purpose of these regulations “is to ensure that the insurer is promptly informed of the occurrence of the loss or, at least, of any legal proceedings initiated against the insured, so that it can, in an agile and timely manner, adopt the measures that it deems appropriate in its defense against the injured third party”.

According to Andrighi, this serves as a justification underpinning the choice of date for the insured’s summons as the triggering event for the limitation period, as, in most cases, this is the moment when the insured becomes aware of the claim against them.

However, in this specific case, there was no actual summons of the insured, who only became aware of the lawsuit against them when they were included as defendants in the labor claim brought by the third party, by lifting the corporate veil of the company of which they were directors.

In accordance with this line of thought, Justice Andrighi fully accepted the defense presented by the insurance company, duly conducted by Demarest’s Insurance team. According to the defense, despite of the literal wording of Section 206 that refers to the date of the insured’s summons, the intention of this section is to address the moment when the insured becomes aware, for the first time, of the claim brought by the third party seeking to hold them liable, regardless of any procedural differences. Therefore, at this moment the claim for insurance coverage arises, triggering the one-year limitation period.

In this particular case, the spontaneous defense presented by the insured made them aware of the claim brought against them by the third parties, thus replacing the need for their corresponding summons.

This opinion was unanimously supported by the other Justices of the Third Chamber, who then granted the appeal to recognize that the insured’s claim was time-barred, and concluded that “in civil liability insurance, when the insured is not summoned in the initial phase and becomes aware of the claim brought by the injured third party only in the enforcement phase (for instance, due to recognition of an economic group in labor claims or the lift of the corporate veil), the triggering event of the limitation period for the claim against the insurer is the date when they are summoned or become aware of the case, in compliance with the provisions of Section 206, § 1, II, ’a‘, of CC/2002”.

As described above, this is a complex topic and the above precedent is highly important to establish the correct and comprehensive interpretation of the initial term of the statute of limitations in civil liability insurance cases, taking into account the summons of the insured party in the claim brought by the third party, or any other procedural act demonstrating the insured’s awareness of the claim against them.

Demarest’s Insurance, Reinsurance, Private Pensions and Supplementary Health team is available to provide legal assistance and any clarifications on the subject.