On June 28 2012 the plenum of the Supreme Court approved Decree 17 on consideration by the courts of civil cases involving consumer protection disputes. According to Article 2 of the decree, the consumer protection law will apply to relationships arising from insurance contracts that are not regulated by specific laws. Furthermore, the decree indicates that this law also applies to relationships arising from other financial services and mandatory health insurance.

The decree is important and overdue. The long-term court practice of not applying the consumer protection law to insurance indemnity arrears was unreasonable. The Supreme Court's review for the first quarter of 2008, which was drawn up in a question and answer format, gave a negative answer (with no further explanation) to the question of whether consumer protection law covers the insurance relationship. The courts began using this document, thus damaging the interests of insurance consumers. Before the 2008 review was issued, in some cases the courts applied the provisions relating to consumer protection law and compensation for moral injury to insurance disputes. By expressly stating in the new decree that consumer protection law should apply to insurance relationships, this dispute will finally be resolved and the consumer protection legislation will apply to all forms of insurance, leading to a considerable improvement in the quality of protection of insured individuals and increased good faith in insurers.

At the same time, representatives of the insurance community, through the All-Russian Insurance Association, have already criticised the decree. They believe it will:

  • increase the number of frauds and unjustified claims;
  • result in the unjust enrichment of insureds; and
  • increase the loss ratio of retail insurance and therefore increase tariffs, leading to higher costs for insurers.

The association's press release on the issue stated that: "In the opinion of the association such measures can be discussed only after introduction of necessary amendments to legislation regulating the insurance industry."

It appears that the decree will have certain consequences for the insurance market. The following factors will inevitably increase the numbers of actions brought against insurers:

  • the possibility to bring actions according to the consumer's place of residence;
  • an exemption from the state duty on bringing such actions;
  • the possibility to request compensation for moral injury from the insurer; and
  • the imposition of a penalty of 50% of the collected amount for the improper fulfilment of the insurer's obligations.

Taking into account the fact that more insureds will bring court actions when insurers reject their claims, and that if an insured succeeds, the insurer will have to pay a penalty on what was initially due to the insured, insurers will be more attentive to coverage analysis and will be keen to minimise their risks. In this respect, demand for 'coverage opinion' services (ie, a professional advocate's opinion on insurance coverage) is likely to increase. Such service allows the insurer, in course of settling a disputed loss, to obtain a legal opinion before making a decision as to whether the claim is covered by the policy. The assessment is made by an advocate, whose liability is insured. On the basis of this document, the insurer pays the indemnity or rejects the claim. If an advocate mistakenly recommends that a claim be rejected and the consumer later wins the case and recovers the indemnity, plus a penalty and compensation for moral injury, the risk of this is covered by the advocate's liability insurer. Taking into account the fact that the law offers advocates the possibility to insure themselves for contractual liability, as distinct from lawyers without advocate status, professional insurance advocates will be able to help insurers to make a justified decision and to share with insurers the risks of unfavourable court decisions.

On the whole, the new decree is welcome. It is hoped that its introduction will result in the insurance market and court practice on insurance cases becoming better regulated, and that the interests of insurers and their customers will be better protected in accordance with principles accepted in international practice.

For further information on this topic please contact Polina Kondratyuk at Clyde & Co (CIS) LLP by telephone (+7 495 601 9006), fax (+7 495 601 9005) or email ([email protected]).