The events at the East of Ukraine fueled the concerns all over the world. However, the most affected by these military actions are the residents of Donetsk region and companies conducting business there. Admittedly, the biggest interest for business actors at the East of Ukraine, at so called the territory of Anti-terrorist operation zone, is protection of their assets. Those who run a manufacturing business, own a warehouse, operate a mine, conduct exploration work, hold equipment or have assets at the territory of Anti-terrorist operation zone prefer to have their property insured.
Unfortunately, a lot of companies have significant losses already. Moreover, those who have their property (business) or assets insured faced another problem: most insurance companies are rejecting to pay the insurance compensation. As a result, following the last two and a half years in Ukraine arose a lot of court disputes concerning the rejections of insurance companies to pay the insurance compensation which formed the relevant court practice already.
Ukrainian ‘’tradition’’ of business insurance
Everybody who is doing business may be exposed to different kinds of risks that can result in significant losses. Therefore, reducing the jeopardy of damages is very important for conducting any kind of business. Insurance perfectly fulfill this function. The agrarians can prevent the losses from theft of harvest or bad weather conditions. Banks can secure themselves against losses from nonfulfillment of obligations under loan contracts by debtors. Those who own a warehouse can insure their property from fire, flood, explosion, etc.
At the same time, Ukraine has never had any traditions in regard to insurance industry which emerged in Ukraine only after Ukraine gained independence. Hence, companies have been insuring their assets and property from some standard risks.
Ukraine has always been a peaceful country. Before 2014 it at the territory of Ukraine no military conflicts or terrorist attacks occurred. Therefore, Ukraine was never expected to be the country for which the insurance of political risks like revolution, war or military actions will be of immediate interest. Hence before 2014 almost all the insurance contracts were concluded in order to protect the property or assets from events like fire accidents, floods, other natural disasters, thefts etc. Consequently, if the aim of an insurance was to protect the property or business from some standard risks, political risks were exceptions from the insured risks (events like war, civil unrest or terrorism acts etc. were defined as force majeure circumstances), as a rule, and were not deemed to be covered.
The relevant court practice
In 2015 due to the military events new type of insurance disputes emerged. The companies who had insured their property (assets) at the East of Ukraine and had losses owing to the events occurring there claimed the insurance compensation at the courts. These disputes gave a rise to some ambiguous questions like how the events at the East of Ukraine should be qualified (undeclared war, civil unrest or terrorism acts), should the insurance companies have to be excused for nonfulfillment of insurance contracts (nonpayment of insurance compensation) due to force majeure circumstances? But the main issue that the courts were dealing with is whether the demolition of property at the East of Ukraine is an insured event.
There were two cases that appeared before the Supreme Court of Ukraine concerning the mentioned issues.
In the case of AXA Insurance vs. Europlast LLC concerned the equipment that was stored in the village where the military actions (so called Anti-terrorist operation zone) took place. This equipment was stolen when the entrance to the village was forbidden due to the military actions. The insurant notified the insurance company about the insurance event, however was rejected in payment since the event was excluded from the insured risks under contract. Thus, the insurant claimed the insurance compensation at the court.
The court of first instance ruled for the insurant, but the court of appeals overruled the decision and dismissed the case. The court of appeals pointed out that the insurance company substantiated that at the East of Ukraine the force majeure circumstances occurred, therefore, the rejection to pay for insured property was lawful. The court of cassation ruled for the insurant, stating that the insurance company knew about these circumstances when was concluding the contract (the insurance contract was concluded after the military actions started at the East of Ukraine).
In 2016 the Supreme Court of Ukraine rejected the case. It declared that the event in result of which the insured property was lost was occurred at the territory of Ukraine where the military actions (Anti-terrorist operation zone) took place. Since under the insurance contract the military actions were excluded from the insured risks, loss of insured property at the territory of conducting the Anti-terrorist operation zone was not an insured event. Therefore, the insurance company did not have the obligation to pay. Moreover, the Supreme Court of Ukraine stressed out that the courts of previous instances erroneously considered the occurrence of force majeure circumstances in this case, since the issue to be resolved here was whether the insured event occurred (decision as of February 3, 2016).
Considering the case of AXA Insurance vs. Avtosan Motors LLC regarding the destroy of the insured building at the territory of the Anti-terrorist operation zone the Supreme Court of Ukraine (decision as of January 27, 2016) also took the side of the insurance company. It stated that since the building was destroyed during the military actions (which were excluded from the insured risks) there was no insured event.
After these decisions passed by the Supreme Court of Ukraine, the court practice concerning this issue is relatively stable and most courts are ruling for the insurance companies if the political risks were not insured under the contract (moreover, excluded from the insured risks).
The events at the East of Ukraine influenced not only the property, but the bank system as well.
In 2016 the Highest Commercial Court of Ukraine considered the case of State Savings Bank vs. Ukrainian fire insurance company. The bank insured the risks of nonfulfillment by its debtors (residents of Donetsk region) their obligations under the loan contracts. When the banking operations were suspended, the debtors could not get their salaries and consequently pay the debts under the loan contracts. As the insurance company rejected the insurance compensation, the bank claimed it at the court.
The Highest Commercial Court of Ukraine rejected the claim. It stated that the debtors could not fulfill their obligations under the loan contracts due to the adoption of the resolution on suspension of banking operations at the territory of the Anti-terrorist operation zone. Since under the contract the risk of adoption of the restrictive regulations by the state bodies was excluded from the insured risks, the insured event did not occur and the insurance company did not break the contract (decision as of July 7, 2016).
What is important to draw attention to?
Almost all the Ukrainian courts now are considering any demolition of insured property occurring at the territory of Anti-terrorist operation zone as the result of military actions. However, in each case there should be found the direct liaison between the destruction of property and the military actions. If such a liaison cannot be found and the losses of insurant are caused by the insured event (for example, the insured property was stolen), the insurance company have to perform its obligations under the contract and make a pay-out.