Ecuador State of Exception Takeaways

Ecuador President Daniel Noboa’s recent declaration of a ”State of Emergency” and subsequently of an “Internal Armed Conflict”’ in response to the violence and high crimes rates resulting from criminal groups operating in the country may leave both policyholder and (re)insurers wondering what impact, if any, Ecuador’s situation will have on their policies. In principle, most policies should be unaffected by the mere declaration of a “State of Emergency’” and “Internal Armed Conflict”; what happens under the new status quo will be material to assess whether coverage is impacted by this situation.

President Noboa recently announced executive decrees 110 and 111. The decrees officially declared a “State of Emergency” in the entire country for sixty days, which may be extended for an additional thirty days, in response to the “internal armed conflict”’ caused by organized crime organizations, officially designated as ‘terrorists’. During this time, some constitutional rights are suspended, such as the right of assembly, the inviolability of correspondence for those deprived of liberty, the right to the inviolability of the home, requisition of goods (in cases of extreme necessity, with strict relation to the reasons for the state of exception) and freedom of transit, with a curfew between 23:00 and 05:00 hrs. and that today is loosely enforced in some regions. The fact that Ecuador classified its situation as an ‘internal armed conflict’ enables the country to deploy its military to face criminals. Note that stating internal armed conflict as the reason for the state of emergency is not the same as “declaring war.” (i.e., international armed conflict).

Ecuadorian executive decrees, which suspend certain constitutional guarantees, do not declare international nor internal “war”, and neither is insurance policy coverage generally suspended. From Article 706 of Ecuador’s Commerce Code, it is inferable that insureds not participating in hostilities retain full rights to coverage for contracted policies.

However, the impact of an official declaration of state of exception on insurance policies will vary on a policy-to-policy basis. Each policy’s wording will have to be assessed to identify potential triggers of special coverage, exceptions, or exclusions. For example, policies containing coverage exclusions for losses during states of emergency, armed conflict, or for losses caused by criminal activity or by state actions to preempt criminal activity, may be affected.

Focusing briefly on two industries sensitive to geopolitical stress, if the conflict results in damage to civil aircraft insured under the common AVN 1C London Aircraft Insurance Policy, damage caused by war, civil commotion, or consequences of martial law—which could take place under a State of Emergency in which civil rights are suspended or restricted—would be excluded. However, if the asset is insured under LSW 555 D Aviation Hull “War and allied perils” Policy and a hull all risks policy exists, if the latter does not afford coverage in these circumstances, the former would. Similarly, the usual practice in the Marine Insurance market is the application of standard clauses such as the "London Institute Clauses" versions of 1982 and 2009 for cargo, as well as the "Lloyd's SG Form" and Institute Clauses 1/10/85 and 1/11/95 for hull. What actually takes place during the current status quo in Ecuador could well end up being excluded from cover thereunder, as events related to hostile acts by or against belligerent groups could be part of “war risks” exclusions that require additional coverage afforded under the "Institute War Clauses 1/1/09" for cargo and in the "Institute War Clauses (Hull) 1/10/83" for hull.

(Re)insurers, brokers, and policyholders are strongly advised to review policies to identify if current declaration activates any exceptions or exclusions to coverage for the insurance policy in question. Furthermore, current assessments of insurance coverage and exceptions could change if the state of emergency and internal armed conflict is revoked by the National Assembly or found unconstitutional by the Constitutional court, in accordance with article 166 of Ecuador´s constitution.

For now, however, the level of active military engagement is such that most insurance policies remain unaffected by Ecuador’s ‘State of Emergency and continue to afford full coverage. Ecuador’s Superintendencia de Compañías, Valores y Seguros notified insurers providing prepaid medical coverage that the declaration of a state of exception does not release insurers of their coverage responsibilities. Similarly, major Ecuadorian insurance companies have officially communicated policy coverage is not suspended despite executive decrees 110 and 111.


René de Sola from our associated office in Ecuador Tobar ZVS co-authored this article. Partners Fernando Hurtado de Mendoza and Mauricio Carvajal from our Peru and Colombia offices contributed with the aviation and marine angles, respectively.