Taking counsel

  • 2004-08-12
  • Gints Vilgerts
Why do insurers refuse to pay?

We all face different risks, and insurers share these risks. The insurer manages risk through the terms of the insurance contract. In the Baltic states insurance buyers usually tend to examine insurer's financial data as well as previous experience and references, but the most important argument on choosing an insurer should be the terms and conditions of the insurance contract. In all three states insurance contract disputes are one of the most complex legal matters to deal with. Court practice is not well established, and the outcome is unpredictable.
Policy is only half of the insurance contract. Prior to signing an insurance policy - which in small print refers to general or specific terms and conditions that no one ever reads except the insurance company's lawyers and the client after an accident - you should be confident that you understand when the insurer will not pay any compensation.
On the face of it the policy says neither in what cases the insurer does not pay nor how to claim compensation. Also, insurance supervisors in all three Baltic states have no control whether the terms are fair and reasonable. In many cases the insurance premium is not worth paying due to insurance contract terms, which make it almost impossible to claim any compensations.
Change of risk. One of the most vague obligations is the requirement to supply the insurer with accurate initial information on risk as well as inform him on any changes that possibly increase the likelihood of risk occurrence during the insurance period. (If you have any doubts on the risk-assessment factors, the best way to find out is to consult or inform the insurer in writing.) In most cases the insurer will find a small misrepresentation or noncompliance with the continuous duty of disclosure during the insurance period, which will allow for a reduction in compensation.
The insurance policy also does not tell you how to deal with the problem when the risk has occurred. Please note that most policies provide that the claim shall be submitted within the insurance validity period.
Insured risks vs. exclusions. An insurer either insures all risks or specific risks, and both types of contracts are subject to exclusions. Indeed, from all contract terms one should start with the list of exclusions because that is the easiest way for the insurer to escape liability. In many insurance contracts gross negligence is excluded from the insurance coverage, and in many cases it is a neverending discussion if a house burnt down due to negligence or gross negligence on the part of the construction company.
Even if the insured amount exceeds the actual market value of the insured property, the indemnity may not exceed the amount of the actual loss.
Burden of proof. The general presumption is that the insurer is obliged to prove any circumstances that release him from the obligation to pay the indemnity. Insurers may use various grounds for doing this. If one fails to prove loss or damage, insurer may look for chances to reduce or refuse the indemnity. More often than not the expert opinion is that the loss or damage was caused by circumstances that are not covered by the insurance policy.
Frequently the insurer interprets the terms and conditions wider than a first analysis of the terms suggests; however, it should be vice-versa. Therefore, in the case of an insurance claim one had better be ready to submit one's arguments in a very convincing form.
Litigation. Accession of the Baltic states to the EU gives policy holders an opportunity in most cases to sue the insurer in local jurisdictions.
In conclusion, use assistance from professionals (agents, brokers, lawyers). They will help you to understand provisions of the terms and conditions.

Gints Vilgerts is a partner
at Sorainen Law Offices in Riga.