Capitalized interests [1] in commercial agreements is a term permitted by the Mexican Constitution as long as it is not used in an abusive manner on someone else’s property, nor does it generate excessive interest on the debtor’s part.
Article 276 paragraph II of the Law of Insurance and Bonding Institutions (the “Law”) provides for capitalized interests that Insurance Institutions shall pay if they fail to perform an obligation undertook in an insurance agreement. However, in such a case, could an unlawful enrichment arise in benefit of the consumers?
The Mexico’s Supreme Court of Justice of Nation (the “Court”) has decided on the constitutionality of capitalized interests in insurance agreements.
Facts:
Two individuals sued an insurance company claiming the payment of an insured amount (the “Insurer”). On appeal the Insurer was sentenced to pay and in case it did not, the Insurer should cover late payment interests in terms of article 276, paragraph II of the Law.
As a result, the Insurer filed a constitutional trial against the above judgment, based on the argument that the article permitting the payment of capitalized interests was unconstitutional according to the Insurer. However, on the second stage of the constitutional trial, the case was heard by the Court.
Rationale of the Court:
The Court determined that capitalized interests regulated by the article 276, paragraph II of the Law, was constitutional, as part of the indemnity rights of the insured individuals resulting from the lack of timely payment on the part of the Insurer. [2]
This is since capitalized interests intend to prevent insurance companies from delaying the performance of their obligations affecting the beneficiaries (insured parties). In addition, it will secure that insured parties shall be compensated from the damages caused.
Therefore, the Court ruled that this legal term allows the affected beneficiaries to be fully compensated for the damages caused by the insurers’ late performance.
Conclusion
According to the decision of the Court, by the Law allowing capitalized interests because of the insurers’ late payment, no excessive or unfair beneficiaries’ enrichment may be produced, because capitalized interests have the purpose of protecting the beneficiary’s interest in order to be paid timely with the insured amount and late payment interests, if applicable.
[1] Mexican law uses the term capitalized interest (compound interest) which may be defined as adding late payment interests to the principal that accrues them, in order to calculate the subsequent yields on the new unpaid balance (The Mexico’s Supreme Court of Justice of Nation, October 1998, weekly federal court report )
[2] https://sjfsemanal.scjn.gob.mx/detalle/tesis/2026330
By: Monserrath Bustamante
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