Preliminary and jurisdictional considerations in insurance litigation
In what fora are insurance disputes litigated?
Depending on the parties to the case, insurance disputes are usually litigated in commercial or general courts. If the insured is an individual, the case should be considered by the general court, while all other types of disputes, including disputes between legal entities, will come under the jurisdiction of the commercial court.
Also, administrative courts adjudicate the disputes between an insurer and the regulatory authority (the National Commission for Regulation of Financial Services Markets) as to the decisions on application of measures for violation of legislation on financial services.
Causes of action
When do insurance-related causes of action accrue?
Primarily, insurance-related disputes often arise from the breach of obligations under the insurance contract or regulatory acts relating to the procedure for concluding, fulfilling or terminating such agreements.
Apart from that, disputes often arise as to validity of the insurance contracts (eg, owing to failure of the insured to provide accurate information on the object of the insurance contract or refund of insurance premiums owing to invalidation or termination of the insurance contract).
The most common breach of obligations is the refusal of an insurer to pay an insurance indemnity to the insured person fully or partially.
Sometimes disputes arise because of late investigation of the insured event (or late calculation of damages) by the insurer. Although there are legislative and contractual requirements as for the period of payment of insurance indemnity, the insurer may delay its decision upon recognition of a certain event as insured, which is often interpreted by the insured as a refusal to pay insurance indemnity.
Subrogation and recourse are two other sources of insurance-related disputes.
What preliminary procedural and strategic considerations should be evaluated in insurance litigation?
From the procedural standpoint, the Ukrainian law provides for a preliminary dispute settlement procedure if a dispute between two legal entities arises. Although technically such procedure is not obligatory, the courts in Ukraine tend to request the evidence that the claimant attempted the preliminary dispute settlement procedure. Such procedure includes the following steps:
- an injured party sends a written complaint to another party;
- a party that received a written complaint usually has one month to consider and react upon it; or
- a party that received a written complaint notifies an injured party as to the results of the consideration of the complaint.
If the preliminary dispute settlement procedure proves to be ineffective, the injured party refers the matter to the court.
Importantly, sometimes the insured (usually an individual) submit complaints on refusal to pay insurance indemnity to the regulatory authority, which may oblige the insurer to stop the breach of contract and make the prescribed payments.
As regards strategic considerations in insurance litigation, commercial courts are usually rather swift in consideration of cases. It usually takes two to three weeks for the first court hearing to be held and the court renders its decision in around two to three months on average. Depending on the complexity of the particular case, the insurance dispute may be considered by the court of first instance, the appellate court, and the court of cassation within the period of 10 to 12 months.
If the case requires appointment of forensic examination in order for the court to determine valid causes of property damage or destruction (fire, crop shortfall) or disability, as well as the amount of damages, the consideration of the case may be delayed up to one-and-half to two years.
Also, the court usually obliges a losing party to pay the winning party’s costs, even though the percentage of the costs of the winning party rarely exceeds 10 to 30 per cent of the actual costs. Nevertheless, recent legislative amendments in the area of judicial reform in Ukraine provides regulatory means for courts to award the costs of the winning party in full amount. Apart from that, the parties are now obliged to submit a preliminary estimation of litigation costs while submitting the first document on the merits of the case. The court may also oblige the parties to deposit the funds in the amount of the preliminary estimated costs to a deposit account of the court.
What remedies or damages may apply?
For non-performance or undue performance of the terms of the contract the parties bear the civil liability, prescribed by contract or by law. In case of delay in paying an insurance indemnity, an insurer is required to perform its contractual obligation and pay an insurance indemnity taking into account inflationary losses and 3 per cent interest rate.
Apart from that, an insurer will be subject to a penalty in the form of forfeit or fine. The amount of such penalty could be envisaged by contract or by law. For example, as to the insurance of civil liability of owners of vehicles, for each day of delay in paying an insurance indemnity, the insurer shall pay the forfeit that is calculated according to relevant (doubled) discount rate set out by the National Bank of Ukraine.
As regards the breach of the insurance contract by the insured, the insurer may claim the refusal to pay an insurance indemnity payment or the termination of the insurance contract.
The parties to the insurance contract may agree in the contract on other legal effects of failure to perform the contractual obligations and grounds of liability.
If the insurer systematically violates the insurance rules, the regulator may suspend or deprive such an insurer of its insurance licence.
Under what circumstances can extracontractual or punitive damages be awarded?
Extracontractual damages apply if either insurer or insured failed to perform monetary obligation (eg, payment of the insurance indemnity). In such case, insurance indemnity should be paid considering inflationary losses and 3 per cent interest rate.
In terms of punitive damages, the payment of forfeit or fine may be envisaged in contract.
Interpretation of insurance contracts
What rules govern interpretation of insurance policies?
Since insurance policies constitute contracts, the rules regarding interpretation of contracts apply. Ukrainian law provides that the content of a contract may be interpreted by parties themselves or by the court with rendering a decision on the issue afterwards.
Insurance agreements concluded in accordance with international insurance systems that require the use of unified insurance conditions (for instance, international aviation insurance market) are interpreted in the light of the conditions used in contemporary international insurance system accordingly.
Also, typical conditions (typical agreements) may be taken to account even if there is no reference to typical conditions in the specific insurance agreement.
If insurance rules contradict the insurance agreement, the latter will have a priority. If the insurance agreement refers to the insurance rules, then such rules are obligatory to both parties. But if there is no reference in the insurance agreement, the court may not rely upon such insurance rules.
When is an insurance policy provision ambiguous and how are such ambiguities resolved?
Generally, an insurance policy provision is ambiguous if it is impossible to establish its content. Such ambiguities are resolved through interpretation of the provisions of the insurance policy and the rules regarding the interpretation of contracts apply.
First, while interpreting a contract, the meaning of words and expressions uniform for the whole content of the contract and the meaning of terms generally accepted in the particular area shall be taken into account.
Second, if such efforts are ineffective, then the content of a contract may be established by comparing the relevant provision of a contract with the content of other provisions of such contract, its whole content, as well as intentions of the parties.
Finally, should the measures above prove to be of no assistance, then the purpose of the contract, the content of the previous agreements, the established practice of relationships between the parties, business customs, subsequent conduct of the parties, the content of the typical policy and other relevant circumstances should be considered.
Notice to insurance companies
Provision of notice
What are the mechanics of providing notice?
Ukrainian law, while obliging an insured party to provide a notice to the insurer, does not specify the manner of doing so. Usually, the mechanics are stipulated in an insurance contract or policy, whereas the most common means are email, telephone and via post.
As a rule, insurance contracts prescribe that the insured is required to inform the insurer of the insured event in any manner available and provide a written statement afterwards too.
What are a policyholder’s notice obligations for a claims-made policy?
Ukrainian law does not provide for specific notice obligations for a policyholder regarding a claims-made policy. The respective obligations are determined by the insurance contract in question. Wording such as ‘beforehand’, ‘immediately’ ‘at the nearest time’, ‘upon first opportunity’ or ‘the reasonable time’ is commonly used. Parties are also free to agree on any particular time frame, such as one day, three days or one week.
When is notice untimely?
As mentioned above, the laws of Ukraine do not prescribe general conditions on the notice period. If the policy does not stipulate a specific period, then it will depend on the way that court interprets the wording ‘beforehand’, ‘reasonable’, ‘upon first opportunity’ or ‘immediate’ period. In any event, the late notice cannot create obstacles for an insurer in establishing the circumstances, character and the amount of damages.
Thus, if the notice was not made in the prescribed period and there were no objective reasons for delay, such notice would be considered untimely.
What are the consequences of late notice?
Late notice may result in creation of obstacles for the insurer to investigate the circumstances, character and amount of damages in relation to the insured event. Thus, a failure by the insured to fulfil its obligation to notify the insurer on time may be interpreted as a ground for refusal to pay an insurance indemnity.
Nevertheless, late notice as such does not suffice as a ground for refusal to pay insurance indemnity, but only if the insurer is precluded from the chance to obtain enough information as to whether a certain event amounts to the insured event.
Insurer’s duty to defend
What is the scope of an insurer’s duty to defend?
Under Ukrainian law, the insurer bears no duty to defend. However, there are different ways in which the insurer can defend against the insurance-based claims.
First, the insurer may take a stand that the insured event did not occur. Second, the insurer may argue that the occurred event does not qualify as an insured event within the meaning of policy or contract. Finally, the insurer may rely on legislatively prescribed grounds of refusal to pay an insurance indemnity, which, among others, are the following:
- intentional actions undertaken by an insured aimed at the occurrence of an insured event, except for the actions related to the fulfilment of civil or office duties committed in the state of necessary self-defence (without exceeding its limits) or with regard to protection of the property, life, health, honour or business reputation;
- intentional crime committed by an insured that resulted in the insured event;
- submitting by an insured of false information about the fact of insurance event occurrence;
- making the full payment of indemnification by the person who caused such damage under the property insurance contract; and
- delay in notification of the insurer about the occurrence of the insured event, unless there are objective reasons for such a delay.
Failure to defend
What are the consequences of an insurer’s failure to defend?
If the insurer fails to defend against the claim of the insured, then it will be obliged to fulfil the terms of the court decision, which can set forth the obligation of the insurer to pay an insurance indemnity and financial penalties, prescribed by the law or by the contract. The financial penalty may take the form of forfeit or a fine for breach of the contractual obligation.
Also, the insurer may be forced to cover the litigation costs of a winning party.
Standard commercial general liability policies
What constitutes bodily injury under a standard CGL policy?
Any violation of anatomical integrity of flesh, organs and their functions that occur as a result of effect of one or several external damaging factors (physical, chemical, biological, psychological) should be qualified as a bodily injury.
What constitutes property damage under a standard CGL policy?
Property damage is understood as loss, shortage of or damage to certain property.
For example, with regard to agricultural insurance, property damage may be understood as loss or shortfall of crop owing to, for instance, frosts, droughts, hailstones in certain percentage of the expected amount of crop.
What constitutes an occurrence under a standard CGL policy?
An occurrence is an event causing liability (obligation to pay indemnity) and is envisaged by the insurance agreement or by law. It may take form of a bodily injury, damage to property or incurrence of liability.
How is the number of covered occurrences determined?
There is no generally applicable rule in this regard. The determination of the number of covered occurrences depends on type of insurance and the specific insurance contract. In practice the number of covered occurrences is defined by the type of insurance (eg, insurance of health, civil liability of the owners of the means of transport), nature of the occurrence of insured event, insured sum and terms of agreement.
For instance, if the property that was the object of the insurance contract is destroyed, the insured will have only one indemnity payment under this policy. If the property was damaged several times, the insured have a possibility to get several indemnity payments not exceeding the value of such a property, agreed between parties to the contract. In addition, there are some types of insurance policies that provide for one payment only, such as life insurance.
What event or events trigger insurance coverage?
The occurrence of the insured event under the insurance policy triggers insurance coverage. The insured event is an event prescribed by insurance contract or by law that has already occurred, and after the occurrence of which the insurer’s obligation to pay an insurance indemnity arises.
The insured event varies for different types of insurance. For example, as regards health insurance, the insured event would be the bodily injury or sickness. As to the civil liability insurance, the insured event will be the occurrence of tort.
In any event, the insured event will be defined according to the type of insurance, terms of insurance contract and rules of law concerning this type of insurance.
How is insurance coverage allocated across multiple insurance policies?
Ukrainian law provides for the institute of co-insurance when the object of the insurance contract is insured by several insurers by concluding a single insurance contract.
Such a contract must contain the terms that determine the rights and obligations of each insurer. Under such contract, if agreed by the parties, one of the co-insurers may represent all other co-insurers in the relations with the insured, albeit remaining liable within the scope of its share.
In such case, the liability of each co-insurer depends on several factors, such as the terms of the contract between the co-insurers and the insured, the terms of the contract between co-insurers, and the share of property that is insured by the co-insurer.
First-party property insurance
What is the general scope of first-party property coverage?
Within the scope of a property insurance agreement, the risk is insured for loss (destruction), shortage of or damage to specific property. Usually, the definition of property includes the specific items, goods, vehicles, as well as the groups of these items. While concluding the insurance contract the parties should agree on the insured coverage that is determined within the scope of value of the insured property and cannot exceed its true market value.
How is property valued under first-party insurance policies?
The value of the property under insurance contract should be agreed between parties while concluding the contract according to the provisions of law and according to the rates and tariffs that are in force at the moment of conclusion of the contract. The insurer has a right to value the insured property itself or appoint an expert examination to this end.
Still, the parties to the contract may agree on other ways of calculating the value of the insured property. For example, for the purpose of valuating the parties can agree on using the market price of the property instead of the actual (contract) price.
Is insurance available inyour jurisdiction for natural disasters and, if so, how does it generally operate?
The Ukrainian laws provide for insurance for natural disasters. Relevant provisions are usually included into the property insurance policies. There are no limits as to the type of natural disasters.
Directors’ and officers’ insurance
What is the scope of D&O coverage?
The scope of D&O coverage includes the following elements:
- compensation of damages to other persons or their property within the course of carrying out employment duties by officers (property interests of officers); or
- compensation of damages occurred owing to improper performance of the duties by officers (property interests of companies).
What issues are commonly litigated in the context of D&O policies?
D&O coverage is rather uncommon for the Ukrainian market. Thus, no commonly litigated issues may be named.
What type of risks may be covered in cyber insurance policies?
Cyber insurance policies may cover the following risks:
- DDos attacks;
- ‘fishing’ (type of e-fraud aimed at obtaining users’ confidential data, such as logins and passwords);
- cyber-extortion; and
- infection with malware.
What cyber insurance issues have been litigated?
D&O coverage is rather uncommon for the Ukrainian market. Thus, no commonly litigated issues may be named.
Is insurance available in your jurisdiction for injury or damage caused by acts of terrorism and, if so, how does it generally operate?
Generally, acts of terrorism are usually included in the list of events that preclude the occurrence of the insured event. However, such insurance for injury or damage caused by acts of terrorism is not prohibited by Ukrainian law.
Published: Lexology/Getting The Deal Through, 21 March 2019