I recently had a meeting with one of my clients and he told me that they were interested in this topic. My best answer was that I did not understand the Anglo-Saxon term, but if they explained the context, perhaps I could give them an answer and to my surprise, it is something that I have been intimately linked to for a long time in my daily practice. I just needed to give a name to the phenomenon that is happening in Mexico.
First, it is prudent to give a source to the Anglo-Saxon term, in order to then be able to analyze how this is impacting Mexico. Well, the term was coined by Warren Buffet in 1977 "to describe how society was broadening its view of what insurance covers. When Buffet coined the term, he was referring to the asbestos litigation that was making headlines and changing society at the time," as published by Google.
For its part, the digital publication Risk & Insurance notes that "Four decades later, the industry is still feeling the effects of growing social inflation. This expansion of what is considered insurable, coupled with ever-increasing jury verdicts across the country, has resulted in a unique challenge for the industry. U.S. consumers pay an annual tax on rising litigation costs in their state and insurers face rising claims adjustment expenses and defense costs."
In Mexico, the phenomenon of Social Inflation (as defined by Warren Buffet) has arrived from certain specific moments in our country, such as the constitutional reform of June 2011, in which, among other issues, the integration of Human Rights provided in the Constitution itself and in other international treaties to which Mexico is a party was raised to constitutional rank. These include the Universal Declaration of Human Rights and the Inter-American Convention on Human Rights, among others.
The above has brought a revolution to our jurisdictional forum, highlighting the issues of Civil Liability (CR), since for purposes of compensation to the victims, the guiding principles of Human Rights have been used, which are based on the fact that every person should be provided with a dignified life and, in case of suffering a damage, have a full reparation of the damage.
The effect in Mexico has been that our courts have been exploring ways to compensate the victims in a comprehensive manner, analyzing exhaustively the conduct of the tortfeasor with respect to the victims, favoring in an important way such victims in the judicial proceedings, either by reversing the burden of proof to the tortfeasor; or, the intervention of the jurisdictional body in substitution of the victim's complaint when there are people who belong to vulnerable groups.
In this sense, the amounts with which the responsible parties are being sentenced are considerably high, if we compare them with those that existed before the reform of the Constitution; moreover, punitive damages were created within the amounts that are being considered for the purposes of full compensation (regardless of whether they are part of it or not), thus creating a "social reproach" against the responsible party, with the dissuasive effect so that he does not repeat the damaging conduct.
This is also influenced by the fact that our legal system has evolved to be hybrid, in the sense that the written law is finally the one that governs the legal relations; but the judicial precedents that emanate from the Federal Judicial Power, create parameters of application.
Returning to the subject of Social Inflation, today CR claims against insurers is an upward trend that benefits from factors in the created legal environment. Let's look at some examples.
As a matter of principle, one of the first important resolutions in this matter was the declaration of unconstitutionality of the limit of compensation for pain and suffering established by the Civil Aviation Law, a matter that can be extrapolated to the rest of the limits established in all existing laws in Mexico. That is to say, in the event that a limit exists, it must be considered unconstitutional before a lawsuit; and this is so, because as it was considered by our highest court, the pain suffered by a person cannot have a limit expressed in money and based on the principle of fair compensation or integral compensation of the damage, it is against Human Rights to consider that it has limits.
Subsequently, just compensation was developed by considering the present and future situation of the victim. That is, how he was at the time of the harmful event and how he would be if it had not occurred. With this, the courts have come to analyze concepts such as compensation to the victim for the stress, anguish and anxiety caused by the harmful event; but also for the life project that was interfered by the event. Under these circumstances, the possibility was opened for indirect victims (economic dependents, for example) to also sue for the effect on their life project altered by the harmful event.
Punitive damages, has been a figure created by our highest court as a split of the moral damages where its determination depends completely and absolutely on the criterion of a judge, which can be modified by an appeals court, a criterion that can be endorsed, revoked or modified by a constitutional court of amparo. In other words, the criterion for determining the amount of punitive damages is totally ethereal and subjective. In this regard, it is worth mentioning that the case in which this figure was created in Mexico, attributed a punitive damage of 30 million pesos to the victims, without making a specific reasoning on the patrimony of the responsible party or the victim, so that it could be understood what the calculation mechanism is.
Finally, among the relevant criteria that have been created for the protection of the victims, is the statute of limitations of the action, where it has been extended in matters of moral damages up to 10 years; and with respect to the insurance contract, two years prevails, counted from the time the victim has knowledge of the right constituted in his favor (knowledge of the insurance policy of the person responsible for the damage), with which the action may last for many years after the accident.
All of the above has created the "Mexican Social Inflation", because naturally there has been a direct impact on the insurance sector, which has received multimillionaire claims, in which in the absence of scales or objective compensation references, the amounts demanded are simply unreasonably huge.
The quantification of direct damages remains the same because it is objective. That is to say, the damaged physical patrimony is susceptible of valuation and therefore, it can be compensated. But the moral patrimony, however, turns out to be the subject for which litigation is becoming more and more substantial and arduous; in the understanding that the pro-victim tendency of the courts is a pernicious factor that will definitely alter the insurance and reinsurance sector. Not necessarily because they will have to pay heavy sentences, but because CR insurance will become more and more expensive and inaccessible.
Now, as far as coverage is concerned, the courts have also ruled on the unconstitutionality of excluding moral damages, so that the insurer should also cover that item (in that particular case). With this, it is evident that the Judiciary is seeing in the insurance sector the means by which the victims can be compensated, regardless of the insurance contract they initially wanted to enter into. This last point (the will of the parties in the insurance contract), merits a complete and independent analysis that I will not develop so as not to lose the focus of what I am presenting in this article.
It should be noted that in general, in Mexico, the courts are not ready to receive this type of cases and furthermore, we have an anachronistic judicial system that does not allow for the efficient presentation of evidence. The expert evidence, which in these cases is fundamental, is affected by the existence of a third party expert whose credentials are usually not the best to be able to issue an objective opinion on the specific case. The confessional evidence continues to be an inefficient evidentiary mechanism for these purposes, and if the testimony of the parties is not allowed as evidence, I believe that there will not be a suitable mechanism for the development of these proceedings.
The phenomenon of "Mexican Social Inflation" is just beginning. The convictions we are seeing in the courts tend to be irrational in terms of the measurement of moral damages. Let me explain. Judges and magistrates start from life situations that are exposed by the plaintiff and, based on them, they analyze some evidence. They assume the existence of moral damages, when there has been a physical damage or considerable losses and, on that, they condemn to an amount usually expressed in millions of pesos.
With the above, citizens' taxes (as Buffet said) also go to the analysis of this type of cases, at local and federal level.
The CR is, therefore, responsible for the phenomenon exposed and today we lawyers are working to be able to understand the best way to litigate this type of cases.