MEXICO Law and Practice Contributed by: Carlos de la Garza, Raúl Acosta and Enrique Tamez, De la Garza & Acosta Abogados, S.C.
8. Interpreting an Insurance Contract 8.1 Interpretation of Insurance Contracts and Use of Extraneous Evidence In principle, the general rules of contract interpretation that are provided for in the Federal Civil Code also apply to the insurance contract. These include, but are not limited to, the following: • if the terms of a contract are clear and leave no doubt about the intent of the contracting parties, the literal meaning of its clauses shall prevail; • if the words appear contrary to the evident intent of the contracting parties, the latter shall take prec- edence over the literal wording; • regardless of the generality of the terms in a con- tract, they shall not be understood to include cases beyond those the parties intended to cover; and • if any clause in a contract allows for multiple inter- pretations, it shall be understood in the manner most appropriate to produce effect. Given the legal nature of insurance contracts, good faith must always prevail, and this principle must guide all interpretations. For instance, this applies to elements such as the responses provided in the ques- tionnaire completed by the proposer at the insurer’s request or the timely notification of a claim, given their specific characteristics. Although the legislation does not provide a specific interpretative rule for insurance contracts, in practice judges often interpret such contracts in favour of the insured. This approach is largely due to the fact that most insurance contracts are adhesion contracts (uni- laterally drafted by the insurer). The objective is to extend the constitutional protection afforded to con- sumers under the Mexican Constitution. However, this practice can significantly limit insurers’ ability to defend themselves on critical issues, such as the right to rescind the contract when the insured risk has been aggravated, the timely notification of claims, the com- mencement of the prescription period and the validity of exclusions, among others. 8.2 Warranties Insurance contracts may stipulate warranties or simi- lar risk mitigation conditions. For instance, a fire insur-
ance contract may condition coverage on the instal- lation of a fire prevention system, the placement of fire extinguishers or the prohibition of storing specific flammable products. Pre-contractual declarations are considered war- ranties if the insurance company retains the origi- nal document containing the questionnaire and the insured’s declarations. Any inaccuracy or omission in these declarations constitutes a breach of warranty, which exempts the insurer from liability and authorises the rescission of the insurance contract, even if the breach did not influence the occurrence of the claim. The insurer must notify the insured or their beneficiar- ies of the rescission within 30 calendar days from the date the company becomes aware of the inaccuracy or omission. Regarding the aggravation of risk, the contract may expressly impose obligations on the insured to miti- gate or prevent the aggravation of risk. When it affects the claim or the extent of the insurer’s liability, non- compliance with these obligations authorises the insurer to invoke the clause that releases it from its obligations. In general, a breach of warranty entitles the insurer to be released from its corresponding contractual obligations. However, the insurer cannot claim to be released from its obligations if the breach of warranty is unrelated to the loss or does not impact the specific obligation assumed by the insurer. 8.3 Conditions Precedent Mexican legislation does not make the validity of an insurance contract contingent upon the delivery of the policy, the payment of the premium or any other con- dition precedent to a claim. However, suspensive conditions may be included within the policy’s clauses to deny a specific claim without invalidating the policy itself. For example, in insurance covering the transportation of goods, a clause might require the carrier to use toll roads or fulfil similar conditions, depending on the type of insurance and the coverage agreed upon.
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