Introduction
Legislative background
Potential clients
Indications from carriers' and forwarding agents' insurance
Professional liability insurance in the courts
Comment
Debates about the necessity and practicality of certain types of mandatory professional liability insurance are periodically rekindled in Russia. The question is particularly relevant to professions that play an important social role. For example, in the case of realtors' professional liability insurance, there is the underlying issue of the enforcement of individuals' housing rights; similarly, medical professional liability insurance gives recourse for the protection of personal health in the event of malpractice. However, the development of liability insurance involves broadening the range of not only mandatory, but also largely voluntary forms of insurance that are used abroad. This update analyses different types of insurance, their system of regulation and recent court practice in relation to professional liability insurance.
Professional liability insurance - also known as errors and omissions insurance - is relatively new to the Russian market, although it is widely used in Western Europe and the United States and has been available for some time.
The object of liability insurance for a person who performs a particular professional activity is generally the monetary risk related to his or her liability for wrongful professional actions or the harm caused by such actions.
Russian legislation does not specifically recognise professional liability insurance as a separate category. However, the Civil Code distinguishes between two types of liability insurance:
- insurance against liability for causing harm (under Article 931 of the code); and
- insurance against liability for breach of contract (under Article 932 of the code).
Insurance against contractual liability for breach of contract under Article 932(1) is permitted only in cases prescribed by law. As almost any professional activity is carried out on the basis of a contract for the performance of work or provision of services, the limitation set by Article 932(1) applies to professional liability contracts. In addition, such contracts usually cover delictual (ie, tort) liability. Therefore, the rules governing both forms of liability may apply to professional liability contracts.
In practice, professional liability insurance contracts often cover both delictual and contractual liability. When concluding such contracts, the insured must bear in mind the limitations of contractual liability and the potentially serious consequences of non-compliance - the contract may be considered void, either wholly or in part.
Many insurers offer their clients different liability insurance products that allow both voluntary and mandatory insurance of insured's liability in accordance with the law. In Russia, the most popular products in this category are liability insurance for notaries, adjusters, court-appointed trustees, tour operators, lawyers, medical professionals, auditors, directors and officers, builders, customs brokers, temporary storage warehouse and customs warehouse owners and customs carriers.
Publicly available data on professional activities suggests that Russia has 65,000 lawyers, 8,000 notaries, 8,000 court-appointed trustees, 100,000 adjusters, 4,500 tour operators, 600,000 doctors, 6,000 auditors and 400 customs brokers. They are all potential customers for professional liability insurance.
As the market evolves, business entities will require a greater variety of insurance products for different activities. For example, the law does not prescribe the possibility of contractual liability insurance for carriers, forwarding agents, security guards or accountants, although there is clearly a need for such insurance.
Indications from carriers' and forwarding agents' insurance
Although many lawyers do not consider carriers' and forwarding agents' liability to fall within the scope of professional liability, insurance against such risks is in great demand. On the basis of the prohibition in Article 932(1), contracts for this form of insurance were considered void when challenged before the courts. However, in 2010 the presidium of the Supreme Arbitrazh Court issued a ruling that changed the prevailing view on such contracts.(1) The contested contract insured the policyholder's monetary risks in respect of its responsibility to provide compensation under civil law for damage to third parties' property interests in the performance of the insured activity. The court found that the insurance contract contained elements of the different types of property insurance stipulated by Article 929 and was therefore legal. Taking the interests of the market into account, the court issued a ruling that effectively circumvented the prohibition in Article 932(1). In so doing, it brought carriers' and forwarding agents' liability insurance within the recognised legal framework.
In the case of professions for which neither the law nor judicial law enforcement officials allow for contractual liability insurance contracts, is must seek coverage for liability for causing harm and must include within the policy terms the necessary provisions on contractual liability, which may later be contested in court.
Professional liability insurance in the courts
Extensive and consistent court practice has developed on the issue of carriers' and forwarding agents' liability. However, the same cannot be said of professional liability insurance, as very few disputes on this matter have come before the courts.
A small number of cases have arisen in connection with notaries' liability insurance. In one case, the insurer was involved as a named defendant and compensation was successfully recovered from the insurer.(2). However, in another case involving a notaries' liability insurer as a third party, the notary's representative claimed that the insurer, not the notary, was the appropriate defendant. The court rejected this plea and found the notary liable for damages.(3)
Principals that have sought to collect insurance indemnity in respect of legal services have invariably sought to recover from the insurer unearned advances paid to the lawyer in question. The courts have dismissed these actions, noting that the responsibility for returning advance payments is not a liability matter and is not covered by the relevant professional liability insurance contract.
Legal databases offer little information on the courts' interpretation of liability insurance for court-appointed trustees; amounts recovered in court from their insurers have not exceeded Rb1 million (approximately $32,000). Similarly, there have been few cases in relation to adjusters' liability insurance. Most attempts to collect have failed, with the courts generally ruling that the connection between the adjusters' actions and the occurrence of the loss could not be proved. However, many more cases have been brought in relation to tour operators' liability insurance. Most claims against such insurers are considered by courts of general jurisdiction and payment is often obtained.
Only a few court cases have been brought in relation to doctors' liability insurance - despite what might be supposed from the mass media's frequent reports on the tragic consequences of medical malpractice. The main reason is the underuse of insurance contracts in this field. The reluctance of many doctors to insure against liability is probably connected to the limited insurance available. The Law on the Fundamentals of Russian Legislation on Citizens' Healthcare excludes the most likely cause of an incident by stating that:
"medical and pharmaceutical employees have a right to insure professional errors which result in inflicting harm or damage to individual's health, provided that this harm or damage is not connected with negligent or reckless performance of professional duty."
A draft of the Law on Mandatory Insurance of Medical Organisations' Civil Liability to Patients is under consideration. If it is passed into law in 2013, as expected, it will allow for considerable expansion of the market for this type of professional liability insurance and will increase the degree of protection available to those using medical services.
As is clear from a brief review of court practice, at present only carriers' and forwarding agents' liability insurance really works effectively and enjoys widespread acceptance in Russia. Policies for other forms of professional liability insurance, although available, are not in great demand, and the lack of judicial guidance from the courts has more to do with this limited uptake than with an absence of problems in this area. Nevertheless, the gradual expansion of forms of mandatory liability insurance for different professions gives grounds for optimism about the future of professional liability insurance in the Russian market.
For further information on this topic please contact Polina Kondratyuk at Clyde & Co (CIS) LLP by telephone (+7 495 728 99 55), fax (+7 495 926 49 40) or email ([email protected]).
Endnotes