Natalya MyroshnychenkoInterlegal Law Firm, Ukraine

For a party suffering damage from a tort or breach of contract, it may be of key importance to sue not only the person liable, but also the liability insurer behind that person. This is obviously hot topic in transport law practice, and it is legally challenging.

In our previous publications we highlighted several problematic issues arising in the frame of freight forwarder’s liability regulation in Ukraine. Now we will analyze another point which concerns the legal grounds and approach of the Ukrainian courts in respect of the direct claim against the insurer who issued the liability policy for the Ukrainian freight forwarder.

In Ukraine the issues of the liability of forwarders and carriers are mainly regulated by the Civil Code of Ukraine, the Commercial Code of Ukraine, the Law of Ukraine “On Transport-Forwarding activity” dated 1 July 2004 No. 1955-IV.

Ukrainian insurance law is mainly contained in the Law of Ukraine “On Insurance”, the Civil Code of Ukraine and some regulatory acts. The Law of Ukraine “On insurance” is quite brief and has more declarative nature than detailed regulations of the insurance activity. Therefore, certain gaps exist in respect of different spheres of insurance.

Clause 1 of Article 352 of the Commercial Code of Ukraine stipulates that insurance is the activity of specifically authorized state organizations and business entities (insurers) consisting in the provision of insurance services to legal entities or citizens (insured persons) for protection of their pecuniary interests when events specified by law or insurance agreements (occurrence insured) take place, at the cost of the funds formed as a result of payment of insurance premiums by the persons insured.

As provided by Article 979 of the Civil Code of Ukraine, under insurance agreement one party to the agreement (an insurer) shall assume an obligation in special event (insurance accident) to pay the other party (an insured) or another person specified in the agreement the amount (insurance payment), whereas an insured shall assume an obligation to remit insurance payments and to comply with other terms and conditions as prescribed by the agreement.

The Forwarder’s liability insurance is the type of the voluntary insurance under the Ukrainian law. Referring to the Ukrainian law, voluntary insurance is the insurance carried out on the basis of an agreement between the insurer and the insured. Terms and procedures for certain type of voluntary insurance are determined by Insurance Rules elaborated by each particular insurer.

So, no particular regulations are established by law for certain kind of voluntary insurance except:

–           stipulated by provisions of Insurance rules of some Insurer for this kind of coverage, and

–          established by applicable general rules of law.

Without direct rule of law regulating the insurer’s liability, except just general provisions, such are often interpreted by the Ukrainian courts in different ways even under quite similar cases.

Besides, there is different approach of the court in cases where the defendant is the physical carrier with the liability insured or the forwarder, acting as the carrier for the client, with the liability insured as well.

Pursuant to the Ukrainian legislation, in order to enforce liability of the forwarder for damage of cargo it should be proved that the forwarder was not acted prudently, without due diligence and care and failed to comply with all the rules and regulations in respect of the declared cargo and the fact of the Forwarder’s fault for sustained losses.

Meantime, in view of international cargo transportation by car, besides national legislation of Ukraine, provisions of the Convention on the Contract for the International Carriage of Goods by Road shall apply, provisions whereof shall prevail over the national legislation of Ukraine.

Under the Article 17 of the Convention, the carrier shall be liable for the total or partial loss of the goods and for damage thereto occurring between the time when he takes over the goods and the time of delivery, as well as for any delay in delivery.

According to the Convention provisions, the carrier’s responsibility for cargo loss shall be imperative, i.e. provisions of the Convention shall not require for the Claimant’s evidence of civil offense or fault in the carrier’s actions.

So, evidence of the fact that the Forwarder acted as a carrier (i.e. undertook obligations in transportation) and reference to the Convention may avoid the issue of fault and illegal actions of the Forwarder.

A Case with the Forwarder and his Liability Insurer

There was a claim against the Forwarding company upon the recovery of the lost cargo.

According to the Law of Ukraine ‘On Transport-Forwarding Activities’ (Article 14) the forwarder is liable before the client for the number of places, weight, if control weighing was held in the presence of the carrier’s representative, due packing according to transport documents signed by the carrier’s representative, unless otherwise is stipulated by the forwarding agreement.

During the court proceedings an insurer company was engaged as the co-defendant taking into account that the insurer issued the liability policy to the freight forwarder covering any type of the forwarder’s liability.

Within the proceedings it was established by the court that the Forwarder not only breached the contract with his client, but also the rules of the insurance policy.

The court satisfied the claim only partially and awarded to recover damages from the Forwarding company but to reject the claim against insurance company.

Rejecting the claim against the insurer, the court grounded his decision on the following. Despite the fact that freight forward responsibility was covered by insurance policy, the court stated that insurer was not responsible for covering the damage because the claimant was not the party to the insurance contract. Moreover, as far as the Forwarder breached the term of the insurance contract, insurer, in the court’s opinion, had no legal grounds to compensate the loss of the cargo, accordingly the insurer had no obligation towards the claimant.

Ukrainian Courts approach

Having studied recent court practice it became obvious that there is no common position of Ukrainian courts regarding an option to file a direct claim against the insurer. Firstly, there were no cases which could be considered as a direct claim against the liability insurer since an insurer was not a single defendant but a co-defendant in line with a guilty party. Besides, an insurer was not a defendant from the beginning of the proceedings but was involved during the proceedings at some later stage.

Secondly, the Ukrainian courts follow the position that insurer is not directly liable for damages which the Claimant sustained as he has no contractual relations with such a claimant as usually the Claimant is neither a party to an insurance agreement nor stated therein as a third person entitled to receive insurance reimbursement under contract.

In the meantime, according to the legal position of High Commercial Court of Ukraine an insurer is responsible for a damage caused as well as for damage recovery. Actually there are only few such court decisions under the cases which reached the High Commercial Court, meantime the majority of the decisions issued by the first and the second instances do not share such a position so these few decisions can not be considered as established court practice.

The main reason of such widespread court practice is absence on legislative level of clear measures of the insurer’s responsibility and grounds for damage recovery in favour of innocent party.

However, if a policy provides a clause expressly allowing a direct claim against the insurer by the innocent party, it would be accepted by the courts and significantly ease a procedure of compensation.