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05 Apr 19 23:54

As it
happened in other markets, the first use of surety bonds in Brasil is linked to
the administrative contracts, having the Public Administration directly or
indirectly as one of the parties, being a contract governed by the rules of
public law aiming the achievement of Public interests. After that, we had the
spread of use for private contracts as well and currently this is a very well
used mechanism to mitigate risks.

Thus, from
the mere signing of a contract, there are attached obligations that are independent
of the one formulated by the parties. For example, the delay in the delivery of
the object, the possibility of charging interest, the right to receive losses
and damages, the right of the contractor to obtain the receipt for payment, the
right to maintain the economic-financial balance of the adjustment, the
exemption from liability in the event of a fortuitous event or force majeure,
the right of retention and several others specified by law. But, not just
these. Law incorporated others as open clauses, capable of adapting themselves
to the concrete case, to the conditions prevailing at the time, as occurs with
the objective good faith clause or the social purpose of the

general, termination of a contract, with the removal of the contractor for
failing in the execution, total non-performance or default of direct, annexed
or conduct obligations cause the company to be replaced in order to take back
the object of the agreement, replacement which represents a pathology conducive
to losses that can be covered by insurance. Indemnity Characterized the claim,
the insurer shall indemnify the insured, paying the amount described in this
policy, considering the reductions predicted in the contract, since the loss
resulting from the default of the Policyholder, for the purpose of this
insurance, is the amount guaranteed by this policy.

a whole process of loss adjustment is carried out with the arguments
brought by the Insured and Principal, supported by all pertinent documentation
in each case, the insurer meeting with its appointed advisors according to the
specificity of each concrete case will issue its opinion on the existence or
nonexistence of coverage for the event claimed, as well as determine in case of
coverage the amounts calculated of losses to which the beneficiary of the
indemnity will be entitled. It is undeniable that the spirit present in
the surety bond market from its very first moment was always linked
to the previous determination of losses, before promoting the payment of any

This feeling
is justified by the fact that the possibility of obtaining the future
compensation of the indemnified amount depends on the proper management of the
enforcement actions, monitory actions or even knowledge, for which it must
demonstrate that it acted correctly in the administration of the assets
belonging to the mutuality. In this sense, it is incumbent on us to bring up
one of the most important issues in a loss adjustment process of surety bonds,
which is subrogation in the face of the Principal and his guarantors.

In our view,
the sub-rogation process must begin at the beginning of the loss adjustment
process, now that the claims team and its loss adjuster/ counsels and advisors
must initiate all investigative measures to safeguard a possible reimbursement.
Awaiting the
outcome of the loss adjustment process, in order to initiate the reimbursement
process can take too long and in many times it will bring losses to the
insurer, which will have great difficulties in the exercise of the insurer
recovery rights. More than that, the access to the judiciary is not a perfect
guarantee that the insurer can recover the amounts paid.

Unlike banks
that, when issuing surety letters seek to preserve and reserve a portion of the
Principals' assets to cover the eventual payment for their default, the
Insurers usually have in their hands only one Contract, known as the
Counter-Guarantee, which nor does it constitute an extrajudicial enforceable
title in Brazil. For these reasons, we believe that the conduct of a strong
instruction that supports a negotiation with the Principal still in the loss
adjustment phase of claims will always bring greater success to the insurance
company to recover amounts that may have been indemnified. Insurers need to
rely on existing commercial relationships with Principals to leverage a
possible negotiation in a non-litigation phase, which will always bring more
results that are fruitful in the pursuit of recovery of amounts to be
indemnified, a long-standing practice in the North American market, vanguard
country for the surety bonds.

Category: Other

Location: São Paulo, Brazil


João Felez - 8 Apr 2019, 12:07 p.m.

Hilton congratulations for the article. Content based on a deep study and experience in living with this specific insurance. Very interesting demonstrating a market perspective.

Jacqueline Pires - 18 Apr 2019, 11:03 a.m.


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