In June 2012, eighteen years after the first court decree on consumer rights protection, the Plenum of the Supreme Court of the Russian Federation (the “Court”) has adopted a new ruling regulating the protection of consumer rights1(the “Decree”).
Although the Court does not provide specific legal arguments to support its interpretation of consumer protection legislation, the Decree is still interesting in terms of resolving practical issues of consumer rights protection. The Decree is expected to affect the ongoing development of consumer rights protection in many areas – particularly insurance.
As we have already noted in our general review of the Decree (http://www.cms-russia.info/legalnews/2012/07/cms_client_alert_2012_07_13.html), the Court (in paragraph 2 of the Decree) clarifies that the general provisions of the Law on the Protection of Consumer Rights (the “Law”) apply not only to those consumer relationships falling under chapter III of the law, but also to other types of consumer relationships regulated by special laws, such as the agreements for personal insurance and property insurance.
The Decree is of specific interest in terms of its effect on insurance and associated services in two respects:
- it removes the unique moratorium on applying the general provisions of the Law to insurance agreements; and
- persons insured under medical insurance contracts are guaranteed protection under the Law when receiving medical services.
Applying the general provisions of the Law to property and personal insurance agreements involving consumers
Many participants in the insurance market and specialists believe the reinforced position on applying the general provisions of the Law to all types of insurance agreements is revolutionary. Even though the Court’s stated approach is not new to Russian practice, as we will see further, one may agree with this assessment, given the current situation in the insurance market.
By indicating back in 2008 in its quarterly review of the court practice (“Review”) that “relationships involving property insurance do not relate to regulatory matters of the Law of the Russian Federation ‘Protection of Consumer Rights’, and the provisions of this Law are not applied in respect of relationships involving property insurance”2, the Court has basically placed a moratorium on applying the Law to property insurance contracts.
At the same time, Order No. 160 of the Ministry of antimonopoly policy of the Russian Federation “On several issues relating to applying the Law of the Russian Federation ‘Protection of Consumer Rights’” was still in effect. The Order stated that chapter III of the Law did not apply to insurance agreements, whereas the general provisions of the Law under article 39 of the Law did apply to financial services agreements, including insurance contracts3.
Today, the controversial moratorium of the Court is being removed. At the same time, it is interesting that the Decree, just like the 2008 Review (which did not justify applying the Law to property insurance agreements), does not contain specific legal arguments to support the stated position.
Notably, applying the general provisions of the Law to insurance agreements from the present time means that until these matters are regulated in the special law on insurance (Law on Organising Insurance Business), the following provisions of the Law in particular will apply to insurers:
- disclosure of information on services (articles 8-12);
- responsibility for infringing the rights of consumers (article 13);
- compensation for damages (article 14);
- compensation for moral damages (article 15);
- concurrent jurisdiction (paragraph 2, article 17); and
- relief from paying state duties and fees for consumer (paragraph 3, article 17).
While work is already underway to fix several of the indicated requirements (information disclosure) in the special insurance legislation (by way of amendment to the Law on Organising Insurance Business), there is some concern on the part of some insurance market participants regarding the practical implications of implementation of other requirements listed.
Thus, if an infringement of the rights of a consumer of insurance services is not rectified voluntarily, a court may require an insurer to pay a fine directly to the consumer in the amount of 50 % of the amount of the judgment4.
The clarifications of the Court on applying the Law are already being applied in practice. For example, just recently a magistrate court levied a fine in the amount of the insurance reimbursement as well as 50 % of this total against an insurance company during the legal process, citing the Decree.
Additionally, in terms of cases currently being heard in the courts, applicants may submit detailed complaints particularly relating to fines. In terms of cases that have already been decided in favour of the claimant, consumers of insurance services may try to have a fine levied by filing the respective application with the courts.
These trends in court practice may require amendments to and rewording of insurance agreements, insurance rules, agency agreements, internal policies for claims handling, as well as complaints handling procedures.
Applying the Law on consumer protection to mandatory and private medical insurance
Application of the Law “to relationships involving the provision of medical services to citizens by medical organisations for private and mandatory insurance” is addressed separately in the Decree.
Given that the regulation of insurance agreements is dealt with in paragraph 2 of the Decree, one may assume that the specific clarifications of the Court on medical services provided as part of medical insurance programmes do not relate to relationships between the medical insured and the insurer, but instead concern the rights of the insured as a consumer of medical services without being a party to the medical service agreement.
In addition, the wording of the Decree suggests that medical services provided under mandatory and private medical insurance are regulated fully by the Law, whereas the relationship between an insurer and an insured is subject only to the general provisions of the Law.
Up to now, court practice, which does not have much experience in resolving disputes involving the quality of service provided as part of medical insurance, indicates that as a rule judges have not applied the Law in disputes between insured patients and insurance organisations relating to fulfilling medical insurance agreements. However, judges have applied the Law in disputes between patients and medical organisations in disputes on the quality of medical services provided as part of the programme of mandatory medical insurance.
The brevity of the Decree, particularly the arguments on the need to apply the Law to one or another relationship, including to those relating to medical insurance, means it is not clear exactly how the courts will apply the Law to these relationships. In particular it is not clear whether the special provisions of Chapter III of the Law will be applied to all relationships connected with medical insurance (i.e. the medical insurance agreements itself as well as the provision of medical services), or to the provision of medical services only.
The Decree only addresses medical services provided under medical insurance. Still the protection of consumers benefiting from the services ordered by insurers as part of insurance service agreements is a burning issue not only in medical insurance, but wherever insurance compensation per agreement is not in monetary form, but, rather, in “natural” form. Specifically, this relates to provision of services ordered by an insurer for the benefit of the policyholder (insured, beneficiary). This includes auto insurance, travellers’ insurance, and possibly other types of insurance.
In general, on the one hand, the lack of legal reasoning underlying the Court’s position regarding the consumer protection issues makes it difficult to predict the outcome of complicated consumer protection disputes related to insurance services. On the other hand, this vacuum gives a chance to the contestants in consumer protection cases to shape an efficient court approach to consumer disputes resolution.