Date of publication: 30 September 2014
Lesia Samarina, Attorney at Law, Head of Dnipro Office
Source: Yurydychna Praktyka
Formation of judicial practice on insurance payments in the ATO zone depends on the position of the higher judicial authorities regarding correct application of legal rules
Anti-terrorist operation in the east is still in progress, and the civilian population of warring regions is gradually returning to their hearth and home, hoping for a truce declared. To repair damage caused to the property, the insured en masse apply to the insurance companies in accordance with the agreements concluded.
To their surprise, despite obvious grounds for insurance indemnity, the insured face a situation when the insurance companies refuse to pay. Thereto, the insurers substantiate that the insurance event occurred in the area of anti-terrorist operation, thus, the accompanying risks comprise exception from the insurance contract or “force majeure” and are not covered by the contract.
Special aspects of defining
Ukrainian legislation does not envisage specific laws that would regulate relations between the parties in this case. Accordingly, the situation shall be considered according to the effective rules.
It shall be noted that procedure for and terms of insurance payments and insurance indemnity are governed by Article 25 of the Law of Ukraine “On Insurance” and state that insurance payments and insurance indemnity are paid by the insurer under the insurance contract.
Each insurance company shall provide in the contract its terms of payment and exceptions thereof. Thus, according to a standard insurance contract the insured is reimbursed the losses incurred as a result of illegal actions of third parties. Standard exception in such contracts comprise losses incurred during the terrorist attacks, war, hostilities, invasion, insurrection, riot, civil commotion, confiscation, seizure, requisition, arrest by the Government or public authority.
How to distinguish one from the other and clearly determine whether it is an insurance event?
After analyzing the wordings, we can conclude that the main problem in this case is a correct qualification of the event. It is necessary to clearly indicate the occurrence of damage as a result of illegal actions of third parties, not falling under the exceptions in the insurance contract.
In this case the insured faces the challenge of determining causes of the insurance event, which is conditioned by impossibility of inspection and documentary confirmation of occurrence, time and circumstances of the event. Insurance regulations, which are developed by the insurer for each type of insurance, contain procedures for the insured in case of insurance event and procedure for the insured to apply to the competent authorities for obtaining supporting documents. However, during antiterrorist operation it is often difficult and sometimes even impossible as law enforcement agencies in the Donetsk and Lugansk regions do not perform their functions.
Incorrect execution of statements issued by law enforcement agencies and violation ofthe application procedure by the insuredto the insurer, which is most oftenjustifiedby objective reasons, such as disruptions in operation of post offices, result in decisions on refusal of payments.
It shall be noted that Article 26 of the Law of Ukraine “On Insurance” envisages reasons for the refusal of insurance payments or insurance indemnity to the insured.
Thus, in case of refusal to pay insurance indemnity the insurer must reasonably prove that the event is not an insurance event or is an exception.
Recognition of circumstances
Regarding “force majeure”, which insurance companies specify as a reason for refusal to pay, I would like to note the following.
The term “force majeure” means “irresistible force” from French. The Ukrainian legislation does not have the concept of “force majeure” and “force majeure circumstances”. These terms are absent in both Civil and Commercial Codes of Ukraine defining them as “event” and “irresistible force”.
In accordance with Article 617 of the Civil Code of Ukraine, a person violating the obligation is released from responsibility for breach of the obligation, if proves that violation resulted from an accident or irresistible force.
Article 218(2) of the Commercial Code envisages that unless otherwise provided by law or contract, a business entity bears commercial legal responsibility for violation of a commercial obligation, unless it proves that proper performance of obligation proved to be impossible due to force majeure, i.e. extraordinary and unavoidable circumstances under these conditions of commercial activities. Breach of obligations by counterparties of the offender, absence of goods necessary to fulfill the obligation in the market, lack of necessary funds with the debtor inter alia do not refer to such circumstances.
Regarding certification of force majeure circumstances Article 14 of the Law of Ukraine “On Chambers of Commerce in Ukraine” provides that the Chamber of Commerce of Ukraine certifies force majeure circumstances. Resolution of the Supreme Economic Court of Ukraine of 24 May 2011 in case No. 11/85 sets forth that conclusion of any other authority is not legitimate and cannot serve as a confirmation of force majeure circumstances.
Thus, insurance company has no right to recognize force majeure circumstances by itself and refuse payment on this ground. Moreover, decision of the Chamber of Commerce on certification of force majeure circumstances is passed in each case separately and can be used when considering a particular insurance event.
Judicial appeal against insurer’s refusal to make insurance payment is directly envisaged in Article 26 of the Law of Ukraine “On Insurance”. After analyzing the reasons for refusal to pay and preparing documents stipulated in the insurance contract and insurance rules, the insured’s chances to appeal are high enough.
On the other hand, to date there is no case law, which could become precedent for this category of cases. However, even some dozens or even hundreds of approved court decisions are unlikely to be uniform. I believe explanations or conclusions of the Supreme Court of Ukraine could clarify correct application of legal rules.
It shall also be noted that today many insurance companies announce special policies for property insurance covering war risks in the area of anti-terrorist operation.
However, despite the high cost of policies, it is currentlypremature to speak about the subsequent guaranteedpaymentsunder insurance contracts. It is also difficult to forecast the amount of insurance coverage by the insurance companies and the duration ofanti-terroristoperation.
When analyzing foreign insurance market, such as US and European markets, it is worth noting that war risk coverage is envisaged by the national insurance programs, i.e. regulated at the state level.
In summary, it shall be noted that each insurance event requires an individual approach. The negotiation process may often be effective for both parties, thus, avoiding court costs and time spending.