Preliminary and jurisdictional considerations in insurance litigationFora
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 the application of measures for the violation of legislation on financial services.Causes of action
When do insurance-related causes of action accrue?
Primarily, insurance-related disputes arise from the breach of obligations under the insurance contract and from the violation of the regulatory acts relating to the procedure for concluding, fulfilling or terminating these agreements.
Apart from that, disputes often arise as to the validity of the insurance contracts (eg, owing to failure of the insured to provide accurate information on the subject matter of the insurance contract or on the refunding of insurance premiums resulting from 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 the belated investigation of the insured event (or belated calculation of damages) by the insurer. Although there are legislative and contractual requirements as to 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.Preliminary considerations
What preliminary procedural and strategic considerations should be evaluated in insurance litigation?
From a procedural standpoint, Ukrainian law provides for a preliminary dispute settlement procedure if a dispute between two legal entities arises. Although formally this procedure is not obligatory, the courts in Ukraine tend to request evidence that the claimant had recourse to the preliminary dispute settlement procedure. This procedure includes the following steps:
- an injured party sends a written complaint to another party;
- the party that receives the written complaint usually has one month to consider and react to it; and
- the party that receives the written complaint notifies the injured party of the results of its 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 swift in consideration of the cases. It usually takes two to three weeks for the first court hearing to be held, then 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 a period of 10 to 12 months.
If the case requires that a forensic examination be arranged for the court to determine the actual causes of property damage or destruction (eg, fire or crop shortfall) or disability, and the scale of damages to be awarded, the consideration of the case may be delayed for one-and-a-half to two years.
Also, the court usually orders a losing party to pay the winning party’s costs, even though the percentage of the costs reimbursed to 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 provide regulatory means for courts to award the costs of the winning party in the 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 order the parties to deposit the funds in the amount of the preliminary estimated costs to a deposit account of the court.Damages
What remedies or damages may apply?
The parties bear the civil liability for non-performance or undue performance of the terms of the contract, 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 the 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 this 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 must pay the forfeit that is calculated according to the 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 the insurer of its insurance licence.
Under what circumstances can extracontractual or punitive damages be awarded?
Extracontractual damages apply if either the insurer or the insured failed to perform monetary obligation (eg, payment of the insurance indemnity). In these cases, insurance indemnity should be paid, including inflationary losses and the 3 per cent interest rate.
In terms of punitive damages, the payment of forfeit or fine may be envisaged in the contract.
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15 January 2020