Russian insurance law is in the transition stage. In accordance with the Protocol of the Accession of the Russian Federation to the World Trade Organisation (WTO), within 9 years from 22 August 2012 Russia has to ease most of the restrictions applicable to foreign investors into the insurance sector.
Currently, there are no limitations on cross-border supply of insurance of risks connected with international passenger transportation and liability arising therefrom, international transportation of goods, international commercial air transportation and liability arising therefrom as well as liability within the international green card system. Also, upon expiry of a four-year transition period in 2016, Russia lifted limitation on insuring risks associated with domestic commercial air and maritime transportation, including insurance of goods being transported, the vehicle transporting the goods and any liability arising therefrom, except insurance of the air carrier's liability and life and health insurance of the aircraft crew. Finally, as of August 2017 foreign-owned Russian insurance companies may be involved in life insurance, state-funded and compulsory motor liability insurance.
Russian insurance law restricts foreign penetration into the Russian insurance market by setting a market quota. The market quota is calculated referring to the aggregate charter capital of all insurance companies. The law states that if a share of “foreign capital” in the aggregate charter capital of all Russian insurance entities exceeds 50 per cent, the regulator stops licensing insurance companies controlled by non-Russian entities. According to the latest available data, as of 1 January 2016 this quota amounts to 20.93 per cent. Russian insurance law states that a preliminary consent from the regulator must be obtained for a foreign investor to contribute to the charter capital of a Russian insurance company. This consent may only be denied if that contribution results in the 50 per cent quota being exceeded.
Russian insurance law also imposes the following restrictions:
- shares in the charter capital of an insurance company should be paid for only in Russian Roubles;
- foreign investors should have at least five years of experience on their domestic market.
The process of establishing a subsidiary and obtaining an insurance licence takes approximately four to six months.
2. Effect of misrepresentation and/or non-disclosure
Upon conclusion of the contract, the Insured shall inform the insurer of the circumstances known to the insured that have material significance in determining the likelihood of the occurrence of the insured event and the amount of possible damages from such an occurrence (insurance risk), if these circumstances are not within the knowledge and awareness of the insurer.
If the insured was aware, prior to entering into the insurance contract, of circumstances that were likely to give rise to a claim under the policy but knowingly did not report them, the insurer may rescind the contract.
The recent court practice has introduced an implied duty of the insurer to verify information provided by the insured. Failure to do so often deprives the insurer from the misrepresentation defence.
If the insured did not respond to a particular question of the insurer prior to entering into the insurance contract but the contract was nevertheless executed, the insurer cannot avoid liability.
3. Effect of breach of warranty and condition precedent
Russian law does not recognise such concepts as warranties in the insurance contract or conditions precedent to coverage. However, a concept of grounds for the release from liability could be considered as a Russian law analogue to warranties. Article 964 of the Civil Code provides that, unless the law or the contract provides otherwise, the insurer is released from liability the insurer is released from the liability to pay the insurance indemnity if the insurable event occurs as a result of a nuclear explosion, radiation or radioactive contamination; military operations, as well as manouevres or other military activities; civil war, civil unrest of any kind or strikes; withdrawal, confiscation, requisition, seizure or destruction of the insured property following the orders of the state bodies.
Over the years, the courts have developed diametrically opposite approaches to interpreting Article 964 of the Civil Code. The prevailing approach suggests that the list of the grounds for releasing the insurer from the liability to pay the insurance indemnity is exhaustive and cannot be extended by the insurance contract. According to the reverse approach, the parties to an insurance contract can provide for other grounds in addition to those mentioned in this Article.
As regards conditions precedent to coverage, Article 929 of the Civil Code provides that the only condition precedent to the obligation of the insurer to pay the indemnity is the occurrence of an insured event. Any provisions in the insurance contract that purport to extend this rule to other circumstances would most likely be stricken out by the courts.
4. Consequences of late notification
Article 961 of the Civil Code requires prompt notification of the occurrence of an insured event and a breach of this requirement entitles the insurer to avoid liability unless it is established that the insurer was indeed independently aware of the insurable event or that the lack of notification did not prejudice its ability to provide indemnity under the policy. Russian courts have developed an approach that shifts the burden of proof of prejudice onto the insurers and they have to prove that they were not aware and that their ability to provide indemnity was prejudiced by late notification. In some extreme cases related to MTPL the courts have awarded indemnity to the insured where no notice of the loss was ever made to the insurer.
5. Entitlement to bring a claim against an insurer
The insured or the beneficiary is entitled to bring a claim against the insurer.
In liability insurance, the affected third party has a right to claim directly from the insurer, where such liability insurance is compulsory, e.g. MTPL.
6. Entitlement to damages from an insurer for late payment of claim
The insurer’s obligation to pay a claim is a pecuniary obligation. In commercial lines of insurance, it is subject to the general rule on default interest introduced by Article 395 of the Civil Code. Unless the insurance contract provides for a different default interest rate, the insured is entitled to the key interest rate of the Central Bank.
In personal lines of insurance the insured is entitled to 1% per each day of delay and a penalty of 50% of the sum awarded by the court.
7. General rules concerning the limitation period for claims
The limitation period for claims arising from a property insurance contract is two years. The limitation period for claims arising from third-party liability insurance is three years. The limitation period starts at the date when the insurer declines cover but not later that the date on which it is supposed to communicate the coverage decision.
8. Policy triggers with respect to third-party liability insurance
Most of the existing liability insurance policies are triggered by the occurrence of an insured event. However, it is possible to define the insured event as a claim made against the Insured. This mainly applies to products such as D&O insurance.
9. Recoverability of defence costs
Russian procedural law entitles the winning party to recover defence costs from the opposite side including state duties, legal fees, travelling costs, etc. It can also claim costs associated with collection of evidence (e.g. notary fees, legalisation fees, etc.).
Defense costs may be claimed together with the main claim as well as within six months after the final court ruling comes into force.
As a rule, the court cannot reduce the claimed amount unless the other side proves that defense costs are excessive. However, the court may interfere if the claimed amount is clearly unreasonable judging by the evidence in the court file.
Generally, defence costs are considered reasonable if similar amounts are usually recovered for the same legal services in similar circumstances such as complexity and duration of the case, scope of services rendered, etc.
10. Insurability of penalties and fines
Russian law prohibits insurance of illegal interests. It is widely understood by the insurers and the courts that as insurance against any kinds of administrative and criminal penalties and fines would result in eliminating the punishment effect of such sanctions it is not possible to provide such cover.
As regards civil law penalties (e.g. default interest or contractual fines), they are not insurable pursuant to Article 932 of the Civil Code which does not allow insurance against a breach of contract unless the law expressly provides otherwise. For instance, it is possible to insure contractual liability of a private investor in public-private partnerships.