Insurance law principles and theories

In short. This page brings together eight principles of insurance law and 47 theories and doctrines that explain the nature of the insurance contract, the construction of policy terms, pre-contractual disclosure, causation, breach of obligations, liability insurance, double insurance, subrogation and claims handling. The principles underlie insurance law in Estonia as elsewhere. The theories come mainly from German, English, US, Canadian, Australian and French law and from economics. A foreign theory is not binding under Estonian law and is not necessarily applicable in Estonia; the origin of each theory and its status in Estonian law are indicated.

How to read this page

Principles (Part I) are general foundations of insurance law that Estonian law expresses in the insurance contract provisions of the Law of Obligations Act (võlaõigusseadus, VÕS). They follow the textbook J. Lahe, O.-J. Luik, Kindlustusõigus [Insurance Law] (Juura 2018) 18–19, restated in our own words with updated statutory references.
Theories (Parts II–X) are approaches developed in foreign legal scholarship, case law or economics. Each entry gives the origin (country, author or court, and year), the status in Estonia, the content of the theory, its limits and its relation to Estonian law.
Status in Estonia indicates whether Estonian statute or Supreme Court practice contains a comparable rule, whether the theory may assist interpretation, or whether it does not apply in Estonia. Even where a comparable rule exists, Estonian courts apply the Estonian provision, not the foreign theory.
Our analytical conclusion marks an assessment by the author that is not expressly stated in statute or case law.
Sources are given for each principle and theory. VÕS provisions were checked in the State Gazette (version RT I, 20.06.2026, 18) on 8 November 2026. Where a source was used through another work, this is indicated ('cited after'). References to judgments lead to this site's overviews of the Court of Justice of the EU and of international case law.

I. Eight principles of insurance law

Insurance law textbooks identify a number of principles inherent in the insurance contract as a contract transferring risk. The eight principles below derive largely from English insurance and marine law, but are known today in various forms in most legal systems, including Estonian VÕS.

a) Utmost good faith (uberrimae fidei)

An insurance contract requires more candour from the parties than an ordinary contract. The insurer assesses and prices the risk mainly on the information supplied by the applicant, while the policyholder pays in advance for a promise whose value becomes apparent only when an insured event occurs. Neither party may therefore conceal material circumstances or exploit an information gap, whether at formation or in claims handling.

Estonian law. Estonian law has no separate rule of utmost good faith. The idea operates through the general principle of good faith (VÕS § 6) and its specific expressions: the policyholder must disclose known material circumstances, and a circumstance about which the insurer asked in writing is presumed material (VÕS § 440(1)); on breach the insurer may withdraw within one month of learning of it or, where the breach was not culpable, require an increased premium (VÕS §§ 441–442). The insurer in turn has statutory information duties (VÕS § 428).

Sources: J. Lahe, O.-J. Luik, Kindlustusõigus [Insurance Law] (Juura 2018) 18–19; Law of Obligations Act (võlaõigusseadus, VÕS) §§ 6, 428, 440(1), 441–442, https://www.riigiteataja.ee/akt/120062026018.

See also: Pre-contractual disclosure.

b) Insurable interest

Insurance is justified only where the insured has an economic relationship with the insured subject matter that would cause him loss if the insured event occurred. Insurable interest distinguishes insurance from wagering and gaming and reduces the risk that the insured has an incentive to cause the loss. In indemnity insurance the indemnity is measured by the value of the insurable interest.

Estonian law. VÕS defines insurable interest as the policyholder's interest in insuring himself against a specific insured risk (VÕS § 478(1)). The Act does not make the interest a condition of validity but regulates the consequences of its absence or lapse: where the interest is absent at the start of cover or never arises, the policyholder is released from the premium and the insurer may claim a reasonable fee for administrative costs; where the interest lapses later, the insurer is entitled to the premium until it learns of the lapse (VÕS § 478). The insured value is the value of the insurable interest at the time of the insured event (VÕS § 479(1)).

Sources: J. Lahe, O.-J. Luik, Kindlustusõigus [Insurance Law] (Juura 2018) 18–19; VÕS §§ 478, 479(1), https://www.riigiteataja.ee/akt/120062026018; O.-J. Luik, K. Saar, 'Kindlustushuvi kui kindlustuse ja hasartmängu eristamise alus' [Insurable interest as the basis for distinguishing insurance from gambling] (2018) 7 Juridica 447.

c) The principle of indemnity

Indemnity insurance compensates the insured for the actual loss caused by the insured event, but not more. The insured must not profit from the insured event: the indemnity does not exceed the loss even where the sum insured is higher, and the same loss cannot be recovered twice. The principle underlies indemnity insurance and does not apply to sums insurance such as life insurance, where the agreed sum is paid irrespective of the amount of any loss.

Estonian law. The insurer need not pay more than the actual loss (VÕS §§ 476–477). The parties may agree on a fixed insured value (VÕS § 480). In the case of underinsurance the loss is paid in the proportion of the sum insured to the insured value (VÕS § 482), and where the sum insured substantially exceeds the insured value, either party may reduce the sum insured together with a corresponding reduction of the premium (VÕS § 481).

Sources: J. Lahe, O.-J. Luik, Kindlustusõigus [Insurance Law] (Juura 2018) 18–19; VÕS §§ 476–482, https://www.riigiteataja.ee/akt/120062026018.

d) Proximate cause (causa proxima)

The insurer is liable for loss whose proximate, that is dominant, cause is an insured peril. Proximate does not mean last in time but most efficient in bringing about the loss. The principle comes from English marine and insurance law, where it is laid down in section 55(1) of the Marine Insurance Act 1906.

Estonian law. Estonian statute contains no proximate cause rule. The scope of the insured event and of exclusions follows from the contract and its interpretation (VÕS §§ 423, 39). Where the policyholder breaches an obligation, the statute generally requires a causal effect: the insurer cannot rely on release if the breach did not affect the occurrence or extent of the loss (VÕS § 452(2)); an intentional breach of a post-loss obligation is subject to an exception (VÕS § 449(2), § 452(2) point 3). In Estonia proximate cause is primarily an aid to construing policy terms rather than a free-standing test (our analytical conclusion).

Sources: J. Lahe, O.-J. Luik, Kindlustusõigus [Insurance Law] (Juura 2018) 18–19; Marine Insurance Act 1906, s 55(1); VÕS §§ 39, 423, 452(2), https://www.riigiteataja.ee/akt/120062026018.

e) Direct action (actio directa)

In compulsory liability insurance the injured party may claim compensation directly from the wrongdoer's insurer. The direct action protects the injured party against the policyholder's insolvency and inaction and ensures that the purpose of compulsory insurance, protection of the injured party, is actually achieved.

Estonian law. In compulsory liability insurance the injured party may claim from both the policyholder and the insurer, and the insurer cannot plead against the injured party that it has been released from its obligation towards the policyholder (VÕS § 521); in motor third party liability insurance the injured party's right of claim follows from § 34 of the Motor Third Party Liability Insurance Act (LKindlS). In voluntary liability insurance there is generally no direct action, but the injured party is protected against disposal of the claim and in the policyholder's bankruptcy (VÕS §§ 517–518). In a case concerning a bankruptcy trustee's compulsory liability insurance, the Supreme Court emphasised that a direct claim presupposes a valid contract and an insured event (RKTKo 15.10.2025, 2-21-16822/84, paras 13–15). This cannot be transposed without qualification to motor third party liability insurance: under LKindlS § 36(2), for twelve calendar months after the contract has ended, the insurer under the tortfeasor's last contract or the injured party's insurer must compensate the damage where the tortfeasor breached the prohibition in LKindlS § 3(2) on using the vehicle in traffic; § 36(3) sets out exceptions.

Sources: J. Lahe, O.-J. Luik, Kindlustusõigus [Insurance Law] (Juura 2018) 18–19; VÕS §§ 517–518, 521, https://www.riigiteataja.ee/akt/120062026018; LKindlS §§ 34 and 36, https://www.riigiteataja.ee/akt/LKindlS; RKTKo 15.10.2025, 2-21-16822/84, paras 13–15, https://www.riigikohus.ee/et/lahendid?asjaNr=2-21-16822/84.

f) Contribution between insurers

Where the same interest is insured against the same risk under several contracts, the insured cannot recover more than the loss in total. The insurers are jointly and severally liable to the insured, each within the limits of its own contract, and share the burden among themselves. The principle extends the principle of indemnity: the insured must not profit from double insurance, but need not resolve the allocation between the insurers either.

Estonian law. In double insurance the insurers are jointly and severally liable, each up to its own sum insured, but the policyholder cannot recover more than the loss in total; between themselves they are liable in proportion to their contractual obligations (VÕS § 486(1)–(3)). Any agreement derogating from these rules is void (VÕS § 486(5)), so other-insurance clauses do not alter the statutory joint and several liability or its allocation. Elimination of double insurance is governed by VÕS § 487 and notice of a new contract by § 483. Double insurance must be distinguished from co-insurance, where the insurers share the risk by agreement (VÕS §§ 484–485).

Sources: J. Lahe, O.-J. Luik, Kindlustusõigus [Insurance Law] (Juura 2018) 18–19; VÕS §§ 483–487, https://www.riigiteataja.ee/akt/120062026018.

g) Duty to prevent and mitigate loss

When an insured event occurs, the insured must act as if uninsured: try to prevent and reduce the loss. Insurance does not release the insured from reasonable care. In return, the insurer bears the reasonable costs of mitigation, since they also serve its interests.

Estonian law. The policyholder must where possible prevent and reduce the loss, following the insurer's instructions, and must not alter the damaged property without the insurer's consent before the loss has been ascertained in a way that makes it harder to establish the cause or extent of the loss (VÕS § 488(1)–(2)); on breach the insurer may reduce the indemnity by the loss caused to it (VÕS § 488(3)). The insurer reimburses the necessary costs of preventing and reducing the loss even where they were unsuccessful; costs incurred on its instructions are reimbursed even above the sum insured and must be advanced on request (VÕS § 491).

Sources: J. Lahe, O.-J. Luik, Kindlustusõigus [Insurance Law] (Juura 2018) 18–19; VÕS §§ 488, 491, https://www.riigiteataja.ee/akt/120062026018; O.-J. Luik, K. Saar, 'Kindlustusvõtja kindlustusjuhtumijärgsed kohustused varakindlustuses' [Post-loss obligations of the policyholder in property insurance] (2017) 9 Juridica 609.

See also: Notification and post-loss duties.

h) Subrogation

An insurer that has indemnified the insured acquires the insured's claim against the wrongdoer. Subrogation prevents double recovery by the insured and places the ultimate burden of the loss on the person who caused it unlawfully rather than on the community of policyholders.

Estonian law. The claim passes to the insurer by operation of law to the extent that the insurer has indemnified the loss (VÕS § 492(1)). If the policyholder waives the claim or a right securing it, the insurer is released to the extent it could have obtained compensation on that basis (VÕS § 492(2)); recourse against family members is restricted (VÕS § 492(3)). There is no subrogation in sums insurance. In motor third party liability insurance, recourse claims of insurers and of the Motor Insurance Fund are governed by LKindlS §§ 52–59.

Sources: J. Lahe, O.-J. Luik, Kindlustusõigus [Insurance Law] (Juura 2018) 18–19; VÕS § 492, https://www.riigiteataja.ee/akt/120062026018; LKindlS §§ 52–59, https://www.riigiteataja.ee/akt/LKindlS.

II. Nature and function of the insurance contract

German legal and insurance scholarship has long debated what the insurer's principal performance is: the money payment on the insured event, the bearing of risk throughout the contract period, or the management of a risk pool. The debate has practical relevance, for instance for what the policyholder pays for and when the insurer becomes entitled to the premium. Since the insurance contract part of VÕS was modelled mainly on the German Insurance Contract Act of 1908, these theories also help to understand the logic of the Estonian provisions. The section also covers the theory of contracts of adhesion, from which judicial control of standard terms developed.

1. Money payment theory

Origin: Geldleistungstheorie, Germany. The prevailing view in German insurance contract law (Prölss/Martin). Status in Estonia: foreign doctrine; not binding in Estonia and not necessarily applicable, may assist interpretation.

Under this theory the insurer's contractual performance is the payment of money or other performance when the insured event occurs. Assessing the risk, building the insurance fund and carrying the risk before the insured event are mere preparation for that performance.

Limits. The theory struggles to explain what the policyholder pays for during a period in which no insured event occurs. Section 1 of the 2008 VVG describes the insurer's obligation as both covering a risk and performing on the occurrence of the insured event, so the traditional categories no longer fit the new Act precisely.

Estonian law. VÕS § 422(1) defines the insurer's obligation as performance on the insured event: compensating the loss, paying the agreed sum or performing in another agreed way. The wording is close to the money payment theory, but insured risk is a separate concept in VÕS (§ 423) (our analytical conclusion).

Sources: A. A. Pütz, Die versicherungsrechtliche Erfüllungshaftung und das allgemeine Schuldrecht nach der Schuldrechtsmodernisierung (doctoral thesis, Tübingen 2009) 113 n 461, https://d-nb.info/995524238/34; Prölss/Martin-Prölss, VVG § 1 marginal nos 21 ff (cited after A. A. Pütz); VVG § 1.

2. Risk-bearing theory

Origin: Gefahrtragungstheorie, Germany. The Bruck/Möller commentary. Status in Estonia: foreign doctrine; not binding in Estonia and not necessarily applicable, may assist interpretation.

Under this theory the insurer performs by carrying the risk throughout the contract period. In return for the premium the policyholder immediately obtains protection, that is, the state of being insured; the money payment on the insured event is the consequence of the risk materialising.

Limits. The theory explains well the link between premium and period of cover, but does not by itself define the content of the insurer's obligations in claims handling. It, too, treats the payment on the insured event as performance.

Estonian law. The risk-bearing idea can be traced in Estonian law in the concept of insured risk (VÕS § 423) and in the provision on absence of insurable interest (VÕS § 478), under which the insurer's right to the premium depends on whether it actually carried the risk (our analytical conclusion).

Sources: A. A. Pütz, Die versicherungsrechtliche Erfüllungshaftung und das allgemeine Schuldrecht nach der Schuldrechtsmodernisierung (doctoral thesis, Tübingen 2009) 113 n 461, https://d-nb.info/995524238/34; Bruck/Möller, VVG (8th edn) § 1 notes 40 ff; Bruck/Möller-Baumann, VVG (9th edn) § 1 marginal nos 28 ff (cited after A. A. Pütz); VVG § 1.

3. Business management theory

Origin: Geschäftsbesorgungstheorie, Germany. More recent literature; described and criticised in the Prölss/Martin commentary. Status in Estonia: foreign doctrine; not binding in Estonia and not necessarily applicable, may assist interpretation.

Under this view the insurance contract is a contract for the management of affairs, or similar to one: the insurer organises the risk pool of policyholders and the premium is the price for that organisation. On this view the indemnity is a redistribution of the pooled funds.

Limits. The view has been criticised in the literature. Its weakness is that the insurer carries the risk for its own account and acts in its own economic interest, so the mandate model does not fit (our analytical conclusion).

Estonian law. In Estonian law the insurance contract is a contract type of its own (VÕS § 422), not a contract of mandate. The view nevertheless helps to explain the insurer's duties of care and information and their link with the interests of the community of policyholders (our analytical conclusion).

4. Need-coverage theory

Origin: Bedarfsdeckungstheorie, Germany. Insurance science: A. Manes, K. Hax; the German Association for Insurance Science. Status in Estonia: foreign doctrine; not binding in Estonia and not necessarily applicable, may assist interpretation.

Under the classic definition of insurance science, insurance is the mutual coverage of the random but estimable money needs of many similarly threatened households or businesses (A. Manes: 'gegenseitige Deckung zufälligen schätzbaren Geldbedarfs zahlreicher gleichartig bedrohter Wirtschaften'). K. Hax's definition, adopted with small changes by the German Association for Insurance Science, stresses planned coverage: a money need that is uncertain in the individual case but estimable in aggregate is met by balancing risks.

Limits. The definition is economic rather than legal. Need theory and the method of definition-building have been criticised, and the definition does not by itself resolve the distinction between indemnity and sums insurance or the scope of cover under a particular contract.

Estonian law. The view explains the role of the risk pool and of fortuity in the concept of insurance. It has no independent normative weight in construing a contract.

Sources: J. F. Schmidt, Die Deregulierung der Versicherungsaufsicht und die Versicherungsvermittlung in Deutschland (Duncker & Humblot 2003) 20–21, https://www.duncker-humblot.de/_files_media/leseproben/9783428509515.pdf; K. Hax, Grundlagen des Versicherungswesens 14 (cited after J. F. Schmidt).

5. Contract of adhesion

Origin: Contrat d'adhésion, France (R. Saleilles, 1901); contract of adhesion, United States (F. Kessler, 1943). Status in Estonia: foreign doctrine, not applicable as such in Estonia; Estonian statute contains a comparable rule.

Insurance terms are drafted by the insurer and the policyholder can as a rule only accept or reject them as a whole. According to F. Kessler, standardised contracts turn freedom of contract into a one-sided privilege of the stronger party; courts must therefore review the content of standard terms rather than simply invoke freedom of contract. The theory is particularly influential in insurance law, since insurance conditions are a typical contract of adhesion.

Limits. Being part of a contract of adhesion does not by itself invalidate a term; it justifies content review and rules of construction. In commercial and large-risk contracts bargaining power is often balanced.

Estonian law. In Estonian law the idea is codified in the rules on standard terms: the definition of a standard term (VÕS § 35), incorporation (§ 37), construction against the user (§ 39) and nullity of unreasonably detrimental terms (§ 42). Insurance conditions are normally standard terms.

Sources: F. Kessler, 'Contracts of Adhesion: Some Thoughts About Freedom of Contract' (1943) 43 Columbia Law Review 629, https://doi.org/10.2307/1117230; R. Saleilles, De la déclaration de volonté (Paris 1901); VÕS §§ 35, 37, 39, 42, https://www.riigiteataja.ee/akt/120062026018.

III. Construction and review of policy terms

The rules for construing insurance terms pursue a similar aim across legal systems: to protect the policyholder against terms he could not influence and to compel the insurer to draft clearly. They differ in whether the decisive standard is the understanding of the average policyholder, the reasonable expectations of the parties or the objective meaning derived from context, and in whether unclarity affects the construction or the validity of a term.

6. Contra proferentem

Origin: Contra proferentem, a rule of construction of Roman law origin; applied in insurance law particularly in the United States, Canada, India and European countries. Status in Estonia: foreign doctrine, not applicable as such in Estonia; Estonian statute contains a comparable rule.

Where a standard term is ambiguous and the other tools of construction do not yield a clear result, it is construed against its drafter, the insurer. The rule places the risk of ambiguity on the party that drafted the term and could have worded it clearly. The Supreme Court of India applied the rule in 2022 to an undefined term in an export credit policy.

Limits. The rule is a last resort: it does not permit ambiguity to be manufactured where the term is clear in context. Recent United Kingdom practice has used it more sparingly, preferring contextual construction.

Estonian law. In Estonian law the rule is statutory: in case of doubt a standard term is construed against its user (VÕS § 39(1)). The Supreme Court has stressed that construction follows the understanding of a reasonable policyholder, not of experts (RKTKo 11.06.2007, 3-2-1-64-07, paras 9–13), and that limitations of cover must be clearly worded (RKTKo 06.02.2013, 3-2-1-178-12, paras 16–18).

Sources: VÕS § 39(1), https://www.riigiteataja.ee/akt/120062026018; RKTKo 11.06.2007, 3-2-1-64-07, paras 9–13, https://www.riigikohus.ee/et/lahendid?asjaNr=3-2-1-64-07; RKTKo 06.02.2013, 3-2-1-178-12, paras 16–18, https://www.riigikohus.ee/et/lahendid?asjaNr=3-2-1-178-12.

7. Reasonable expectations doctrine

Origin: Reasonable expectations, United States. Supreme Court of California (Gray, 1966), R. E. Keeton (1970), Supreme Court of Arizona (Darner, 1984). Status in Estonia: foreign doctrine; not binding in Estonia and not necessarily applicable, may assist interpretation.

The objectively reasonable expectations of the insured regarding cover are to be honoured even where painstaking study of the policy provisions would have negated them. R. E. Keeton formulated the principle in 1970 as a generalisation of case law. In 1966 the Supreme Court of California held that a broad promise to defend created a reasonable expectation that an unclear exclusion did not remove; in 1984 the Supreme Court of Arizona relied on the approach of Restatement (Second) of Contracts § 211 to standardised terms that were not negotiated.

Limits. The reach of the doctrine varies widely between US states: some courts apply it only to ambiguous terms, others have rejected it. The strong form, capable of overriding even an unambiguous term, is exceptional.

Estonian law. Estonian law knows no free-standing reasonable expectations doctrine. A similar function is performed by construing standard terms from the viewpoint of a reasonable policyholder (VÕS § 39), by the limits on incorporating unusual terms (VÕS § 37) and by the insurer's duty to draw attention to differences between the policy and the application (VÕS § 436).

Sources: R. E. Keeton, 'Insurance Law Rights at Variance with Policy Provisions' (1970) 83 Harvard Law Review 961; Restatement (Second) of Contracts § 211 (American Law Institute 1981).

8. Average policyholder standard

Origin: Durchschnittlicher Versicherungsnehmer, Germany (settled case law of the Federal Court of Justice); a similar approach in Canada. Status in Estonia: foreign doctrine, not applicable as such in Estonia; Estonian statute contains a comparable rule.

Under the settled case law of the German Federal Court of Justice, general insurance conditions are construed as an average policyholder without specialist insurance law knowledge would understand them when reading them attentively and considering their evident context. Technical meaning is not decisive unless apparent to the average policyholder from the term; on that basis the Court held that a 'landslide' includes slow ground movement. The Supreme Court of Canada likewise follows the understanding of the ordinary applicant, for instance on the meaning of 'accident' and on deducting state pensions.

Limits. The standard is objective: it does not protect an idiosyncratic understanding of the individual policyholder. In specialist commercial lines the greater knowledge of the typical policyholder of that line may be taken into account (our analytical conclusion).

Estonian law. Estonian statute contains a similar standard: a standard term is construed as a reasonable person similar to the other party would have understood it in the same circumstances (VÕS § 39(1)), and the Supreme Court does not follow the usage of experts (RKTKo 11.06.2007, 3-2-1-64-07, paras 9–13).

Sources: BGH 18.06.2008, IV ZR 87/07, para 13, https://lexetius.com/2008,1702; VÕS § 39(1), https://www.riigiteataja.ee/akt/120062026018.

9. Transparency requirement

Origin: Transparenzgebot, Germany (BGB § 307(1), second sentence); European Union (Directive 93/13/EEC, case law of the Court of Justice). Status in Estonia: foreign doctrine, not applicable as such in Estonia; Estonian statute contains a comparable rule.

A standard term may be unreasonably detrimental to the policyholder simply because it is not clear and comprehensible. Transparency means more than grammatical intelligibility: according to the Court of Justice, the average consumer must also be able to understand the economic consequences of the term. The German Federal Court of Justice has, for instance, held a pre-existing condition exclusion in travel health insurance invalid for lack of transparency.

Limits. The transparency requirement does not prohibit complex terms. It requires the insurer to describe the limits of cover and their consequences as precisely as is reasonably possible.

Estonian law. In Estonian law transparency is assessed under the provision on nullity of standard terms (VÕS § 42), which in consumer contracts must be interpreted in the light of Directive 93/13/EEC and the case law of the Court of Justice.

Sources: BGB § 307; Council Directive 93/13/EEC, arts 4(2) and 5; VÕS § 42, https://www.riigiteataja.ee/akt/120062026018.

10. Contextual interpretation

Origin: Contextual approach, United Kingdom and Commonwealth jurisdictions; Singapore (B-Gold, 2008), Canada (Ledcor, 2016). Status in Estonia: foreign doctrine, not applicable as such in Estonia; Estonian statute contains a comparable rule.

The meaning of a contract term is determined objectively in the context of the whole contract and the circumstances of its conclusion, not merely by the dictionary meaning of the words. In 2008 the Singapore Court of Appeal formulated the principles of contextual interpretation and admissibility of extrinsic evidence in an insurance case. In 2016 the Supreme Court of Canada held that the interpretation of standard form contracts, including standard policies, is a question of law reviewable by appellate courts, since the outcome affects many contracts with the same wording.

Limits. Context does not permit a clear wording to be rewritten. For standard terms the relevant context is limited, since the policyholder took no part in drafting; more weight is therefore placed on the purpose of the term and on its usual function in the line of business.

Estonian law. In Estonian law contract interpretation follows the parties' actual common intention and the circumstances (VÕS § 29), with VÕS § 39 as a special rule for standard terms. The contextual approach is consistent with Estonian law.

Sources: VÕS §§ 29, 39, https://www.riigiteataja.ee/akt/120062026018.

11. Exclusions must be formal and limited

Origin: Exclusion formelle et limitée, France (Insurance Code art L113-1, first paragraph; case law of the Court of Cassation). Status in Estonia: foreign doctrine; not binding in Estonia and not necessarily applicable, may assist interpretation.

Under the French Insurance Code the insurer is liable for loss caused by chance events or by the fault of the insured unless the policy contains a formal and limited exclusion. The Court of Cassation reviews exclusions strictly: an exclusion must be formally clear and must not empty the cover of substance. A loan insurance exclusion that added 'other back pain' to a list of named spinal conditions was thus held inapplicable. In 2026 the Court changed its approach so that where a clause contains several exclusions each is assessed separately.

Limits. The rule is a specific rule of French statute, and its consequence is that the exclusion does not apply, not merely that it is construed in the policyholder's favour.

Estonian law. Estonian law has no comparable formal rule on exclusions. An unclear exclusion is construed against the insurer (VÕS § 39) and an unreasonably detrimental exclusion is void (VÕS § 42).

Sources: French Insurance Code, art L113-1.

12. Disguised obligation

Origin: Verhüllte Obliegenheit, Germany (settled case law of the Federal Court of Justice). Status in Estonia: foreign doctrine, not applicable as such in Estonia; the Estonian Supreme Court recognises a comparable principle.

A term worded as an exclusion but in substance making cover depend on the policyholder's conduct is an obligation. According to the German Federal Court of Justice, classification depends not on the wording or the position of the clause in the conditions but on its substance; a disguised obligation is subject to the fault and causation requirements that apply to breaches of obligations. On this basis a clause in aviation liability insurance on the pilot's licences and qualifications, and an exclusion for unseaworthiness applied in hull insurance, were classified as obligations.

Limits. Drawing the line is case-specific. A genuine delimitation of risk, such as an objective description of the insured peril or location, remains an exclusion even where the policyholder can influence the situation.

Estonian law. The Estonian Supreme Court has developed a similar method: before reviewing validity, the court must determine whether the term is an exclusion or a duty of care, the criterion being whether its operation depends mainly on the policyholder's conduct and fault. For duties of care VÕS §§ 445 and 452 apply.

Sources: BGH 18.06.2008, IV ZR 87/07, para 13, https://lexetius.com/2008,1702; BGH 18.05.2011, IV ZR 165/09, https://dejure.org/dienste/vernetzung/rechtsprechung?Gericht=BGH&Datum=18.05.2011&Aktenzeichen=IV%20ZR%20165/09; BGH 14.05.2014, IV ZR 288/12, https://dejure.org/dienste/vernetzung/rechtsprechung?Gericht=BGH&Datum=14.05.2014&Aktenzeichen=IV%20ZR%20288/12.

See also: Exclusions versus obligations.

IV. Pre-contractual information and good faith

Rules on pre-contractual information follow two models. Under the spontaneous disclosure model the applicant must volunteer all material circumstances; under the questionnaire model he only has to answer the insurer's questions. The historically strict English model, which allowed the insurer to avoid the contract from the outset even for an innocent breach, has given way to proportionate remedies. Estonian VÕS uses a mixed model.

13. Utmost good faith in English law

Origin: Uberrimae fidei, United Kingdom (Carter v Boehm, 1766; Marine Insurance Act 1906, s 17; Insurance Act 2015, s 14). Status in Estonia: foreign doctrine, not applicable as such in Estonia; Estonian statute contains a comparable rule.

In English law the principle of utmost good faith in insurance developed in eighteenth-century case law and was codified in the Marine Insurance Act 1906. Its breach entitled the other party to avoid the contract from the outset, regardless of whether the breach affected the loss. The Insurance Act 2015 abolished that remedy: the principle continues to apply, but only to the extent and with the consequences provided by statute.

Limits. Avoidance ab initio was disproportionate for policyholders and was long criticised. Today the content of English law derives mainly from the Consumer Insurance (Disclosure and Representations) Act 2012 and the Insurance Act 2015 rather than from the general principle.

Estonian law. Estonian law has no equivalent of avoidance. The consequences of breaching the duty of disclosure are withdrawal within one month of learning of the breach or an increase of the premium (VÕS §§ 441–442) and, in case of fraud, annulment of the transaction (TsÜS §§ 94, 99). These concepts must not be equated automatically with English avoidance, since their requirements and effects differ.

Sources: Carter v Boehm (1766) 3 Burr 1905; Marine Insurance Act 1906, s 17; Insurance Act 2015, s 14; VÕS §§ 441–442, https://www.riigiteataja.ee/akt/120062026018.

See also: Pre-contractual disclosure.

14. Duty of fair presentation

Origin: Fair presentation of the risk, United Kingdom (Insurance Act 2015, s 3). Status in Estonia: foreign doctrine; not binding in Estonia and not necessarily applicable, may assist interpretation.

A business policyholder must make a fair presentation of the risk before the contract is concluded: disclose what it knows or ought to know, or give the insurer sufficient information to put it on notice to make further enquiries, and present the information in a reasonably clear and accessible way. In consumer insurance the duty is narrower and consists in taking reasonable care in answering the insurer's questions.

Limits. The model divides the burden of gathering information between policyholder and insurer; the insurer cannot rely on circumstances it knew or ought to have known or about which it failed to ask although the information put it on notice.

Estonian law. Estonian VÕS § 440(1) likewise requires the applicant to disclose known material circumstances on his own initiative, but where the insurer uses a questionnaire it can withdraw on account of an unasked circumstance only in case of intentional concealment (VÕS § 441(3)). The Estonian model is therefore narrower than the English one (our analytical conclusion).

Sources: Insurance Act 2015, s 3; VÕS §§ 440(1), 441(3), https://www.riigiteataja.ee/akt/120062026018.

15. Questionnaire principle

Origin: France (Insurance Code art L113-2 2°; mixed chamber of the Court of Cassation, 2014), Germany (VVG § 19(1)), Ireland (Consumer Insurance Contracts Act 2019, s 8), PEICL art 2:101. Status in Estonia: foreign doctrine, not applicable as such in Estonia; Estonian statute contains a comparable rule.

The applicant's pre-contractual duty is limited to answering the insurer's questions accurately; he need not work out what matters to the insurer. According to the mixed chamber of the French Court of Cassation, an insurer seeking nullity for intentional misrepresentation can rely only on answers given to questions, not on declarations pre-printed in the particular conditions. In Germany the duty is limited to circumstances asked about in text form, and in Ireland to the consumer's answers to specific questions.

Limits. In case of fraud the applicant's exposure is wider in all systems. The questionnaire model presupposes clear and precise questions; general questions do not serve that function.

Estonian law. Estonian VÕS uses a mixed model: the applicant must also disclose on his own initiative, but where a questionnaire is used the insurer can withdraw on account of an unasked circumstance only in case of intentional concealment (VÕS §§ 440(1), 441(3)).

Sources: French Insurance Code, arts L113-2, L113-8, L113-9; VVG § 19; Consumer Insurance Contracts Act 2019, s 8; PEICL arts 2:101–2:104; VÕS §§ 440(1), 441(3), https://www.riigiteataja.ee/akt/120062026018.

16. Proportionate remedies

Origin: Proportionate remedies, United Kingdom (Insurance Act 2015, s 8 and Schedule 1); règle proportionnelle, France (Insurance Code art L113-9). Status in Estonia: foreign doctrine; not binding in Estonia and not necessarily applicable, may assist interpretation.

The consequence of a breach of the duty of disclosure depends on what the insurer would have done had it been properly informed. In English law the insurer may avoid the contract from the outset for a deliberate or reckless breach; for any other breach it may do so only if it would not have entered into the contract on any terms, and must then return the premiums. If it would have contracted on different terms, those terms are treated as included, and if it would have charged a higher premium, the claim is reduced proportionately. In French law an innocent inaccuracy does not make the contract void; if discovered before a loss, the insurer may increase the premium or terminate, and after a loss the indemnity is reduced in the proportion of the premium paid to the premium that would have been due.

Limits. The proportionate model is fairer but requires the insurer to prove its underwriting and pricing practice. Stricter consequences remain for deliberate breach or fraud.

Estonian law. Estonian VÕS has no general rule on proportionate reduction of the indemnity for breach of the duty of disclosure; the insurer's remedies are withdrawal and, for a non-culpable breach, an increased premium (VÕS §§ 441–442). However, where the insurer withdraws after the insured event, the assessment of whether it must still perform must also take into account the ratio of the premiums paid to the premiums that would have been payable had the circumstance been disclosed (VÕS § 442(2), second sentence). Otherwise, proportionality in Estonia has developed in the context of breaches of safety obligations (see the quota principle below).

Sources: Insurance Act 2015, s 8 and Sch 1; French Insurance Code, art L113-9; VÕS §§ 441–442, https://www.riigiteataja.ee/akt/120062026018.

17. Warranties and suspended liability

Origin: Warranties, United Kingdom (Insurance Act 2015, ss 9–11). Status in Estonia: foreign doctrine, not applicable as such in Estonia; the Estonian Supreme Court recognises a comparable principle.

In English law a breach of warranty used to discharge the insurer from liability automatically from the moment of breach, regardless of any link with the loss. The 2015 Act abolished, for non-consumer contracts, basis of the contract clauses that turned proposal answers into warranties (s 9), provided that the insurer's liability is suspended during the breach and revives once the breach is remedied (s 10), and barred the insurer from relying on breach of a term aimed at reducing the risk of a particular kind of loss where the insured shows that the breach could not have increased the risk of the loss that actually occurred (s 11).

Limits. The suspension model also applies to commercial contracts, but businesses may contract out of some rules provided the transparency requirements are met.

Estonian law. Estonian law has no institution of warranties. The consequences of breaching safety and other obligations depend on fault and causation (VÕS § 452(2); for an intentional breach of a post-loss obligation see § 449(2) and § 452(2) point 3), from which the Supreme Court has derived a principle of proportionality; the logic of section 11 is similar to the Estonian causation requirement (our analytical conclusion).

Sources: Insurance Act 2015, s 9, s 10, s 11; VÕS § 452(2), https://www.riigiteataja.ee/akt/120062026018.

V. Insured event and causation

Causation doctrines answer whether a loss results from an insured or an excluded peril where several factors contributed to it. English law looks for the proximate, that is dominant, cause and lets an exclusion operate where the excluded peril is one of equally effective causes; Canada and California favour cover in that situation. In Estonian law these questions are resolved by construing the contract.

18. Proximate cause doctrine

Origin: Proximate cause, United Kingdom (Marine Insurance Act 1906, s 55(1); case law of the Supreme Court). Status in Estonia: foreign doctrine; not binding in Estonia and not necessarily applicable, may assist interpretation.

The insurer is liable for loss proximately caused by an insured peril; proximate means the most efficient cause, not the last in time. In 2011 the Supreme Court held that the proximate cause of the breaking of an oil rig's legs was a peril of the sea, not inherent vice of the cargo. In the 2021 COVID-19 test case the Supreme Court held that each case of the disease was an equally effective cause of the government measures and that a but-for test was not required.

Limits. The doctrine is flexible and leaves the court a wide margin of appreciation. The parties may displace it by contract, for instance by wording that covers loss 'directly or indirectly' connected with an excluded peril.

Estonian law. Estonian law has no free-standing proximate cause test; the scope of the insured event and of exclusions follows from the contract and VÕS § 423, and exclusions are construed under VÕS § 39. For policies governed by English law (for example in marine insurance and reinsurance) the doctrine may nevertheless apply to parties operating in Estonia through the applicable law.

Sources: Marine Insurance Act 1906, s 55(1); VÕS §§ 39, 423, https://www.riigiteataja.ee/akt/120062026018.

19. Efficient proximate cause doctrine

Origin: Efficient proximate cause, United States, California (Sabella v. Wisler, 1963). Status in Estonia: foreign doctrine; not binding in Estonia and not necessarily applicable, may assist interpretation.

Where an insured and an excluded peril contribute to a loss, the loss is covered if the efficient proximate cause, the one that set the chain of events in motion, was an insured peril. In 1963 the Supreme Court of California held that the efficient proximate cause of a house subsiding was an insured peril, the rupture of a sewer pipe, so that the subsidence exclusion did not apply.

Limits. The doctrine favours policyholders and varies between states. Insurers have responded with anti-concurrent causation clauses, whose validity depends on state law.

Estonian law. Estonian law has no efficient proximate cause doctrine. The doctrine may assist in construing terms, but the policy wording and VÕS § 39 are decisive.

Sources: VÕS § 39, https://www.riigiteataja.ee/akt/120062026018.

20. Concurrent causes

Origin: United Kingdom (Wayne Tank, 1974; The B Atlantic, 2018) and Canada (Derksen, 2001). Status in Estonia: foreign doctrine; not binding in Estonia and not necessarily applicable, may assist interpretation.

Where a loss has two equally effective causes, one insured and one excluded, English law gives effect to the exclusion; the Supreme Court confirmed this in 2018 in a ship detention case. The Supreme Court of Canada held in 2001 that with concurrent causes it is not appropriate to select a single proximate cause and that excluding one cause does not remove cover for the other unless the policy clearly so provides.

Limits. Under both approaches the outcome depends on the policy wording; a clearly drafted concurrent causation clause is generally effective in both systems.

Estonian law. In Estonian law the question is resolved by construing the contract. An unclear exclusion is construed against the insurer (VÕS § 39), which is closer to the Canadian approach, but a clear exclusion applies even where the excluded peril is one of several causes (our analytical conclusion).

Sources: Wayne Tank and Pump Co Ltd v Employers Liability Assurance Corp Ltd [1974] QB 57; VÕS § 39, https://www.riigiteataja.ee/akt/120062026018.

21. Fortuity and known loss

Origin: Fortuity and known loss or loss in progress, United States (Montrose, 1995); aléa, France (Insurance Code art L113-1). Status in Estonia: foreign doctrine, not applicable as such in Estonia; Estonian statute contains a comparable rule.

Only an uncertain event can be insured: a loss already known or certain at inception is not insurable. In 1995 the Supreme Court of California held that the known loss rule does not bar liability cover where the insured's liability was still uncertain at inception. The French Court of Cassation links the exclusion of intentional and wilful misconduct to the insured's conduct removing the element of chance from the contract.

Limits. The line between a known loss and a known risk is thin; the insurer's underwriting and pre-contractual disclosure resolve most situations.

Estonian law. Estonian law permits retroactive cover, but there is no obligation to perform where the policyholder knew or ought to have known that the insured event had already occurred (VÕS § 438(3)). The insurer is released from its obligation where the policyholder, the insured person or the beneficiary caused the insured event intentionally, and any agreement to the contrary is void (VÕS § 452(1)).

Sources: French Insurance Code, art L113-1; VÕS §§ 438(3), 452(1), https://www.riigiteataja.ee/akt/120062026018.

VI. Breach of obligations, fault and attribution

All the legal systems surveyed have abandoned the rule that any breach of an obligation by the policyholder releases the insurer entirely. German law links the consequence to the degree of fault, Estonian and Australian law mainly to the effect of the breach on the loss, while French law strictly delimits the concepts of intentional and wilful misconduct. A separate question is whose conduct the policyholder must accept as his own.

22. Quota principle

Origin: Quotelungsprinzip, Germany (VVG §§ 28(2) and 81(2), 2008 reform; case law of the Federal Court of Justice). Status in Estonia: foreign doctrine, not applicable as such in Estonia; the Estonian Supreme Court recognises a comparable principle.

The German Insurance Contract Act of 2008 abandoned the all-or-nothing principle. Where the policyholder breaches an obligation through gross negligence or causes the insured event by gross negligence, the insurer may reduce the indemnity in proportion to the severity of the fault; for an intentional breach of an obligation it is released (VVG § 28(2)), except to the extent that the breach was not causal (§ 28(3), see theory 23), an exception that does not apply to fraudulent breach. Intentional causation of the insured event is governed separately by VVG § 81(1). In the case of breach of an obligation, the policyholder bears the burden of proving the absence of gross negligence. In 2011 the Federal Court of Justice held that for gross negligence the indemnity may exceptionally be reduced to nil, but only after weighing all the circumstances.

Limits. Fixing the quota is case-specific and depends on the severity of fault; for simple negligence there is no reduction.

Estonian law. The Estonian Supreme Court has derived a similar principle of proportionality from VÕS § 452(2): breach of a duty of care primarily justifies reducing the indemnity to the extent that the breach increased the probability of the insured event, and full release is possible only where the risk materialised solely because of the breach (RKTKo 25.03.2026, 2-23-10549/35, para 12; RKTKo 28.06.2024, 2-22-2313/65, para 17). The Estonian model thus looks mainly at the effect of the breach, the German model at the severity of fault (our analytical conclusion).

Sources: VVG § 28, § 81; RKTKo 25.03.2026, 2-23-10549/35, para 12, https://www.riigikohus.ee/et/lahendid?asjaNr=2-23-10549/35; RKTKo 28.06.2024, 2-22-2313/65, para 17, https://www.riigikohus.ee/et/lahendid?asjaNr=2-22-2313/65; O.-J. Luik, 'Ohutusnõuded kahjukindlustuses' [Safety obligations in non-life insurance] (2016) 10 Juridica 727.

23. Proof of absence of causation

Origin: Kausalitätsgegenbeweis, Germany (VVG § 28(3)). Status in Estonia: foreign doctrine, not applicable as such in Estonia; Estonian statute contains a comparable rule.

The insurer is not released from its obligation, even for an intentional or grossly negligent breach, where the breach caused neither the occurrence nor the ascertainment of the insured event and did not affect the ascertainment or extent of the insurer's obligation. The policyholder bears the burden of proving the absence of causation. The counter-proof is excluded where the policyholder breached the obligation fraudulently (arglistig).

Limits. Proving the absence of causation is often difficult for the policyholder, particularly with post-loss obligations whose breach makes it harder to establish the facts.

Estonian law. In Estonian law causal effect is a condition of the insurer's release: the insurer cannot rely on release where the breach did not affect the occurrence or extent of the loss (VÕS § 452(2) point 1), where breach of a risk-reduction duty had no effect on the insured event or the obligation to perform (point 2), or where a grossly negligent breach of a post-loss obligation had no effect on ascertaining the insured event or on the obligation to perform (point 4). For post-loss obligations the statute also links release to intent (point 3).

Sources: VVG § 28; VÕS § 452(2), https://www.riigiteataja.ee/akt/120062026018.

24. Liability for the policyholder's representative

Origin: Repräsentantenhaftung, Germany (case law of the Federal Court of Justice). Status in Estonia: foreign doctrine; not binding in Estonia and not necessarily applicable, may assist interpretation.

The policyholder must accept as his own the conduct and knowledge of a person who has taken his place in managing the insured risk (Risikoverwaltung). According to the German Federal Court of Justice, an insured event caused intentionally by such a representative releases the insurer just as the policyholder's own act would. Risk management does not end with the insured event, so a representative may also breach post-loss obligations in the policyholder's place.

Limits. The concept is narrow: a mere family member, employee or possessor of the property is not a representative unless given independent decision-making authority in managing the risk.

Estonian law. Estonian law has no general rule on liability for representatives. VÕS § 465(1) equates the knowledge and conduct of a third party with that of the policyholder where a risk relating to the third party is insured, and VÕS § 452(1) also covers intent of the insured person or beneficiary. Attribution of the conduct of other persons depends on the contract and on general rules of attribution (our analytical conclusion).

Sources: BGH 20.05.1981, IVa ZR 86/80, https://www.anwalt24.de/urteile/bgh/1981-05-20/iva-zr-86_80; BGH 10.07.1996, IV ZR 287/95 (citing BGHZ 122, 250), https://www.anwalt24.de/urteile/bgh/1996-07-10/iv-zr-287_95; VÕS §§ 452(1), 465, https://www.riigiteataja.ee/akt/120062026018.

25. Intentional and wilful misconduct

Origin: Faute intentionnelle and faute dolosive, France (Insurance Code art L113-1, second paragraph; case law of the Court of Cassation). Status in Estonia: foreign doctrine; not binding in Estonia and not necessarily applicable, may assist interpretation.

Under the French Insurance Code the insurer is not liable for loss resulting from the insured's intentional or wilful misconduct. The Court of Cassation treats the two concepts as independent of each other: intentional misconduct requires an intention to cause the loss, while wilful misconduct is a deliberate act whose inevitable harmful consequences the insured appreciated and which removes the element of chance from the insurance contract. The Court confirmed the distinction in 2020.

Limits. Both concepts are construed narrowly, and the insurer bears the burden of proving them.

Estonian law. VÕS § 452(1) releases the insurer where the policyholder, the insured person or the beneficiary caused the insured event intentionally; any agreement to the contrary is void. In liability insurance the insurer is released where the policyholder intentionally and unlawfully caused the event giving rise to his liability towards the injured party (VÕS § 513). Estonian statute has no direct equivalent of French wilful misconduct (our analytical conclusion).

Sources: French Insurance Code, art L113-1; VÕS §§ 452(1), 513, https://www.riigiteataja.ee/akt/120062026018.

26. Notice-prejudice rule

Origin: Notice-prejudice rule, United States (Texas: PAJ, 2008; Lennar, 2013); Australia (Insurance Contracts Act 1984, s 54). Status in Estonia: foreign doctrine, not applicable as such in Estonia; Estonian statute contains a comparable rule.

Late notice of an insured event or claim does not deprive the insured of cover unless the insurer proves that the delay prejudiced it. In 2008 the Supreme Court of Texas held that in occurrence-based liability insurance a prompt-notice term is not an essential part of the bargain, and in 2013 applied the same logic to a settlement concluded without the insurer's consent. Under section 54 of the Australian Insurance Contracts Act the insurer cannot refuse to pay because of an act or omission of the insured that neither caused nor contributed to the loss; its rights are limited to the prejudice it suffered.

Limits. In claims-made policies, US courts have often treated the reporting deadline as part of the temporal scope of cover, for which no prejudice is required.

Estonian law. Estonian statute provides a similar solution: where breach of the duty to notify the insured event causes loss to the insurer, it may reduce its performance to that extent, and in case of intentional breach it is released (VÕS § 449). In liability insurance circumstances and claims must be notified within one week (VÕS § 514(1)).

Sources: Insurance Contracts Act 1984 (Cth), s 54; VÕS §§ 449, 514(1), https://www.riigiteataja.ee/akt/120062026018.

VII. Liability insurance: defence, settlement and temporal scope

Liability insurance has produced its own theories on the insurer's duty to defend, settlement and good faith, the temporal allocation of long-tail losses, and limits. They result mainly from case law in the United States, Canada and the United Kingdom and are comparative material, not binding law, for Estonia.

27. Duty to defend on potential coverage

Origin: Duty to defend, United States (California: Gray, 1966; Montrose, 1993; Buss, 1997) and Canada (Scalera, 2000; Progressive Homes, 2010). Status in Estonia: foreign doctrine; not binding in Estonia and not necessarily applicable, may assist interpretation.

The insurer's duty to defend is broader than its duty to indemnify: it arises as soon as the allegations in the claim may fall within the cover. According to the Supreme Court of California, the duty is determined by comparing the complaint with the policy, taking into account extrinsic facts known to the insurer; in a mixed action the whole action must be defended, but the insurer may later recover costs attributable solely to claims that could not have been covered. The Supreme Court of Canada formulated a similar potential coverage rule and a three-step analysis in which the true nature of the claim, not the legal label chosen by the claimant, is decisive.

Limits. The scope of the duty depends on the policy: some policies provide for conduct of the defence, others only for reimbursement of defence costs.

Estonian law. In Estonian law liability insurance covers legal costs to the extent the policyholder could consider them necessary to protect his rights in and out of court, even if the claim proves unfounded (VÕS § 511(1)). Costs incurred to protect the policyholder's interests in criminal and administrative court proceedings are covered where the facts established in those proceedings may form the basis of the policyholder's civil liability to the injured party, insofar as the costs are incurred in accordance with the insurer's instructions; the insurer must advance those costs at the policyholder's request (VÕS § 511(2)). The defence-cost terms of the particular policy must be checked separately. The costs obligation therefore does not depend on final determination of liability, which resembles the potential coverage rule (our analytical conclusion).

Sources: VÕS §§ 510, 511, https://www.riigiteataja.ee/akt/120062026018.

28. Duty to settle and bad faith

Origin: Duty to settle and bad faith, United States (California: Comunale, 1958; Gruenberg, 1973; Brandt, 1985). Status in Estonia: foreign doctrine; not applicable under Estonian law.

In evaluating a settlement offer the insurer must give the insured's interests at least as much consideration as its own. If it rejects a reasonable offer within the policy limits and judgment is entered against the insured in excess of the limits, it is liable for the excess as well. According to the Supreme Court of California, the duty of good faith also applies to benefits payable to the insured himself, its bad faith breach is a tort, and attorney fees incurred to obtain the benefits are recoverable damages.

Limits. Bad faith liability is a feature of US state law and its requirements vary between states. European systems address the same issue through breach of contract and general good faith rules.

Estonian law. Estonian law knows neither tortious bad faith liability nor punitive damages. The insurer's duties in claims handling derive from the principle of good faith (VÕS § 6) and from the provisions on when the indemnity falls due and against delay (VÕS § 450); on breach the remedies for breach of contract apply (our analytical conclusion).

Sources: VÕS §§ 6, 450, https://www.riigiteataja.ee/akt/120062026018.

29. Punitive and mental distress damages against insurers

Origin: Canada (Whiten, 2002; Fidler, 2006). Status in Estonia: foreign doctrine; not applicable under Estonian law.

In 2002 the Supreme Court of Canada restored a jury award of punitive damages against an insurer that had wrongly accused the insured of arson to force an unfair settlement; breach of the insurer's duty of good faith may be an independent wrong justifying punitive damages. In 2006 the Court held that mental distress caused by wrongful termination of disability benefits is recoverable for breach of contract where it was within the reasonable contemplation of the parties.

Limits. Punitive damages are exceptional and require particularly reprehensible conduct.

Estonian law. Estonian law has no punitive damages. Non-pecuniary damages for breach of a contractual obligation may be claimed only where the obligation was aimed at a non-pecuniary interest and the debtor understood or ought to have understood that breach could cause such damage (VÕS § 134(1)); this may be relevant, for instance, in personal insurance (our analytical conclusion).

Sources: VÕS § 134(1), https://www.riigiteataja.ee/akt/120062026018.

30. Trigger theories

Origin: Trigger theories, United States (California: Montrose, 1995; Texas: Don's, 2008; New Jersey: Owens-Illinois, 1994) and United Kingdom (Durham, 2012). Status in Estonia: foreign doctrine; not binding in Estonia and not necessarily applicable, may assist interpretation.

In occurrence-based liability insurance, a long-tail loss raises the question which policy period is triggered. The exposure theory links cover to the time of exposure to the harmful agent, the manifestation theory to when the damage becomes apparent, the injury-in-fact theory to when physical damage occurs, and the continuous trigger theory to all periods from exposure to manifestation. In 1995 the Supreme Court of California applied all policies in force while continuous or progressively deteriorating damage developed; in 2008 the Supreme Court of Texas looked to when actual physical damage occurred; in 2012 the UK Supreme Court read employers' liability policies on a causation, that is exposure, basis for mesothelioma.

Limits. The outcome depends primarily on the policy wording (for example 'caused', 'sustained', 'contracted'), not on the theory as such.

Estonian law. VÕS links the insured event in liability insurance to the period of insurance (VÕS § 510) but does not prescribe a temporal principle; the policy terms do. For long-latency personal injury and environmental damage, trigger theories may assist in construing the terms in Estonia (our analytical conclusion).

Sources: VÕS § 510, https://www.riigiteataja.ee/akt/120062026018.

31. All sums and pro rata allocation

Origin: All sums and pro rata, United States (New Jersey: Owens-Illinois, 1994; New York: Consolidated Edison, 2002; Viking Pump, 2016) and United Kingdom (Zurich v IEG, 2015). Status in Estonia: foreign doctrine; not binding in Estonia and not necessarily applicable, may assist interpretation.

Where a long-tail loss spans several policy periods, the question is whether the insured may recover the whole loss from any triggered policy (all sums) or whether the loss is allocated among the policies by time on risk (pro rata). The Supreme Court of New Jersey allocated by time on risk and degree of risk assumed and left uninsured periods with the insured. In 2002 the New York Court of Appeals found pro rata allocation consistent with the policy wording, but in 2016 applied all sums where the policies contained non-cumulation clauses. In 2015 a majority of the UK Supreme Court held that where an employer is fully liable, the insurer must first pay the whole loss but may seek proportionate contribution from the insured and from other insurers.

Limits. Both models rest on the policy wording. The UK decision was based on Guernsey law and the judges' views diverged.

Estonian law. Estonian law has no specific rule on allocating long-tail losses. Where several contracts covering the same risk are in force simultaneously, the double insurance rules apply (VÕS § 486); allocation between successive policy periods depends on the contract and the definition of the insured event (our analytical conclusion).

Sources: VÕS § 486, https://www.riigiteataja.ee/akt/120062026018.

32. Claims made and occurrence bases

Origin: Claims made and occurrence, Canada (Jesuit Fathers, 2006), Australia (FAI, 2001), United States (Don's, 2008). Status in Estonia: foreign doctrine, not applicable as such in Estonia; Estonian statute contains a comparable rule.

Under a claims-made policy it is decisive that the claim is made, and often also notified, during the policy period; under an occurrence policy the time when the damage occurs is decisive. In 2006 the Supreme Court of Canada held that the policy, read as a whole, was claims-made and that a 'claim' requires an intention to hold the insured liable to have been communicated during the policy period. In 2001 the High Court of Australia applied the protection of section 54 of the Insurance Contracts Act to a claims-made policy as well.

Limits. The claims-made basis gives the insurer a temporally defined risk but creates gaps in cover for the insured when policies change; the retroactive date and extended reporting period are tools for narrowing those gaps.

Estonian law. VÕS links the insured event in liability insurance to the period of insurance (VÕS § 510) but permits retroactive cover; there is no obligation to perform where the policyholder knew or ought to have known that the insured event had already occurred (VÕS § 438(3)). Circumstances and claims must be notified within one week (VÕS § 514(1)).

Sources: VÕS §§ 438(3), 510, 514(1), https://www.riigiteataja.ee/akt/120062026018; O.-J. Luik, K. Haavasalu, 'Õigusvaldkonna ametikindlustuse probleemid Eestis' [Problems of professional indemnity insurance in the legal sector in Estonia] (2022) 7 Juridica 517.

33. Aggregation of claims

Origin: Aggregation, United Kingdom (AIG v Woodman, 2017). Status in Estonia: foreign doctrine; not binding in Estonia and not necessarily applicable, may assist interpretation.

An aggregation clause combines several claims into one for the purposes of the limit or the deductible. In 2017 the UK Supreme Court held that a 'series of related matters or transactions' requires an identifiable inter-connection that is more than similarity; the transactions are assessed objectively as a whole, and claims of investors in the same project aggregate while those relating to different projects do not.

Limits. Aggregation may favour the insured (one deductible) or work against him (one limit); the outcome turns on the precise wording of the clause.

Estonian law. Estonian law has no specific rule on aggregation; aggregation clauses are construed under VÕS § 39 and reviewed under VÕS § 42.

Sources: VÕS §§ 39, 42, https://www.riigiteataja.ee/akt/120062026018.

34. Order of exhaustion of limits

Origin: Order of ascertainment, United Kingdom (Teal Assurance v WR Berkley, 2013). Status in Estonia: foreign doctrine; not binding in Estonia and not necessarily applicable, may assist interpretation.

In layered liability insurance the insurer's liability arises when the insured's liability has been ascertained by judgment, award or settlement, and it erodes the policy accordingly. In 2013 the UK Supreme Court held that claims are met in the order in which they are ascertained, not in an order chosen by the insured.

Limits. The rule is a default rule; the policy terms may provide for a different order.

Estonian law. Estonian law has no specific rule on the order of exhaustion. After an insured event the insurer is liable for later loss only up to the remaining sum insured (VÕS § 493(1)); the relationship between layers follows from the terms (our analytical conclusion).

Sources: VÕS § 493(1), https://www.riigiteataja.ee/akt/120062026018.

VIII. Multiple insurance, third parties and recourse

The theories in this group address situations involving more than two interested persons: several insurers of the same risk, a reinsurer, a third party whose interest is insured, or a wrongdoer against whom the insurer brings a recourse claim.

35. Mutually repugnant other-insurance clauses

Origin: Canada (Family Insurance v Lombard, 2002), Germany (BGH 10.07.2024, IV ZR 129/23), Australia (Zurich v Metals, 2009). Status in Estonia: foreign doctrine, not applicable as such in Estonia; Estonian statute contains a comparable rule.

Where two policies cover the same risk and each contains a clause making its cover merely excess or subsidiary if other insurance exists, equivalent clauses cancel each other out. In 2002 the Supreme Court of Canada resolved a dispute between insurers on the basis of the policy wordings and held conflicting clauses inapplicable to each other; in 2024 the German Federal Court of Justice held that equivalent subsidiarity clauses cancel each other and the double insurance rule in VVG § 78 applies.

Limits. The interaction depends on the wording; clauses of different content do not necessarily cancel each other.

Estonian law. In Estonian law the issue is largely settled by statute: in double insurance the insurers are jointly and severally liable and share the burden proportionately, and any agreement derogating from this is void (VÕS § 486(1)–(3) and (5)).

Sources: VVG § 78; VÕS § 486, https://www.riigiteataja.ee/akt/120062026018.

36. Back-to-back presumption in reinsurance

Origin: Back to back, United Kingdom (Lexington v AGF; Wasa v Lexington, 2009). Status in Estonia: foreign doctrine; not binding in Estonia and not necessarily applicable, may assist interpretation.

In proportional reinsurance the reinsurance contract is presumed to be back to back with the direct insurance. In 2009 the House of Lords held that the presumption does not extend the clearly defined period of the reinsurance: where a US court ordered the direct insurer to pay for pollution damage that developed over decades, the reinsurance governed by English law covered only damage occurring during its own period.

Limits. The presumption helps to construe reinsurance terms in the light of the direct policy but cannot override the clear wording of the reinsurance contract or its governing law.

Estonian law. The semi-mandatory character of the VÕS insurance provisions does not extend to reinsurance, so the content of reinsurance derives mainly from the contract and the applicable law. The back-to-back presumption may assist interpretation under Estonian law (VÕS § 29) (our analytical conclusion).

Sources: VÕS § 29, https://www.riigiteataja.ee/akt/120062026018.

37. Insurable interest: legal interest or factual expectation

Origin: United Kingdom (Lucena v Craufurd, 1806; Macaura v Northern Assurance, 1925) and Canada (Kosmopoulos, 1987). Status in Estonia: foreign doctrine; not binding in Estonia and not necessarily applicable, may assist interpretation.

English law has approached insurable interest in two ways, both traceable to the differing opinions of the judges in Lucena v Craufurd (1806). Under the narrower legal interest test, only a person with a legal relationship to the subject matter has an insurable interest; in 1925 the House of Lords held that a company's sole shareholder had no insurable interest in its property. Under the broader factual expectation test, it suffices that the person would in fact suffer economic loss from the destruction of the subject matter. In 1987 the Supreme Court of Canada followed the factual expectation test and held that a sole shareholder had an insurable interest in the company's property.

Limits. The factual expectation test widens the range of insurable interests but requires a line between a real economic interest and a mere hope.

Estonian law. VÕS § 478(1) defines insurable interest as the policyholder's interest in insuring himself against a specific insured risk and does not require a legal relationship with the subject matter. The wording permits a broader economic understanding in Estonian law, closer to the factual expectation test (our analytical conclusion).

Sources: Lucena v Craufurd (1806) 2 Bos & Pul (NR) 269; Macaura v Northern Assurance Co Ltd [1925] AC 619; VÕS § 478(1), https://www.riigiteataja.ee/akt/120062026018; O.-J. Luik, K. Saar, 'Kindlustushuvi kui kindlustuse ja hasartmängu eristamise alus' (2018) 7 Juridica 447.

38. Insurance for the account of a third party

Origin: Versicherung für fremde Rechnung, Germany (VVG §§ 43–45; BGH 15.07.2020, IV ZR 4/19). Status in Estonia: foreign doctrine, not applicable as such in Estonia; Estonian statute contains a comparable rule.

A policyholder may conclude a contract in his own name to insure a third party's interest. The rights under the contract belong to the insured third party, but are as a rule exercised by the policyholder. In 2020 the German Federal Court of Justice held that disability insurance taken out by a father with his daughter as the insured person was insurance for the account of a third party, so the benefit belongs to the daughter and the father holds it for her.

Limits. Distinguishing insurance for the account of a third party from the designation of a beneficiary and from insurance for one's own account is a matter of construction.

Estonian law. Estonian law has a similar regime: where a risk relating to a third party is insured, the third party may claim performance from the insurer but may not dispose of its rights without the policyholder's consent, and the policyholder may dispose of those rights in his own name (VÕS § 463(1)–(2)). The knowledge and conduct of the third party are equated with those of the policyholder (VÕS § 465).

Sources: VVG §§ 43–45; VÕS §§ 463, 465, https://www.riigiteataja.ee/akt/120062026018.

See also: BGH 15.07.2020, IV ZR 4/19.

39. Policyholder's priority in subrogation

Origin: Quotenvorrecht, Germany (VVG § 86(1), second sentence); a similar made-whole rule in several US states. Status in Estonia: foreign doctrine; not binding in Estonia and not necessarily applicable, may assist interpretation.

Where the insurer's payment did not cover the insured's whole loss and the claim against the wrongdoer cannot be recovered in full, the insured is paid his uncovered share first: the claim passes to the insurer, but the transfer cannot be asserted to the detriment of the policyholder. The US made-whole rule rests on the same idea: the insurer's recovery must not precede full compensation of the insured unless the contract provides otherwise.

Limits. The rule protects the insured but reduces the insurer's recovery; in US states its application and the possibility of excluding it by contract differ.

Estonian law. Under VÕS § 492(1) the claim passes to the insurer to the extent of the loss it indemnifies and the uncovered part of the claim remains with the policyholder; the statute contains no express priority rule comparable to the second sentence of VVG § 86(1). The ranking of the policyholder's and the insurer's claims where the wrongdoer's means are limited is therefore a matter of interpretation in Estonian law (our analytical conclusion).

Sources: VVG § 86; VÕS § 492(1), https://www.riigiteataja.ee/akt/120062026018.

See also: Subrogation.

40. Direct loss in crime insurance

Origin: US federal courts of appeals (Medidata, 2018; American Tooling, 2018; contra Apache, 2016). Status in Estonia: foreign doctrine; not binding in Estonia and not necessarily applicable, may assist interpretation.

Crime policies often cover loss resulting 'directly' from computer fraud or funds transfer fraud. US federal courts of appeals have construed the directness requirement differently: in 2018 the Second and Sixth Circuits held that a transfer made by an employee deceived through social engineering was a loss resulting directly from the fraud, whereas in 2016 the Fifth Circuit regarded the link between a fraudulent email and the transfer as too remote.

Limits. The decisions are federal courts' readings of state law and rest on specific policy wordings; newer policies often address social engineering loss through separate extensions.

Estonian law. In Estonian law cover depends on the policy wording and its construction (VÕS § 39); the directness requirement is a contractual term, not a statutory category.

Sources: Medidata Solutions, Inc. v. Federal Insurance Co., 729 F. App'x 117 (2d Cir. 2018); American Tooling Center, Inc. v. Travelers Casualty & Surety Co. of America, 895 F.3d 455 (6th Cir. 2018); Apache Corp. v. Great American Insurance Co., 662 F. App'x 252 (5th Cir. 2016).

IX. Claims handling, fraud and waiver

At the claims stage the questions are what happens when the insured supports a claim with false statements, and when the insurer has by its conduct given up a defence. Both questions are closely linked to the principle of utmost good faith.

41. Fraudulent claims rule and collateral lies

Origin: Fraudulent claims rule and collateral lies, United Kingdom (Versloot, 2016; Insurance Act 2015, s 12). Status in Estonia: foreign doctrine; not binding in Estonia and not necessarily applicable, may assist interpretation.

Where a claim is fraudulent, the insured forfeits the whole claim, including its genuine part, and under the Insurance Act 2015 the insurer may recover sums already paid and treat the contract as terminated from the time of the fraudulent act. In 2016 the UK Supreme Court held that the rule does not apply to a collateral lie told in support of a claim that is in fact justified, since the lie was immaterial to the claim.

Limits. The collateral lie rule does not mean the insurer must tolerate lies: a lie may affect the insured's credibility and the costs of handling the claim. One judge dissented in Versloot.

Estonian law. VÕS has no specific rule on fraudulent claims. The insurer may rely on policy terms on breach of post-loss obligations, but only within the limits of VÕS § 452(2) points 3 and 4, and on the principle of good faith (VÕS § 6) (our analytical conclusion).

Sources: Insurance Act 2015, s 12; VÕS §§ 6, 452(2), https://www.riigiteataja.ee/akt/120062026018.

42. Waiver, election and estoppel

Origin: Waiver, election and estoppel, Canada (Trial Lawyers, 2021) and Australia (CGU v AMP, 2007; Delor Vue, 2022). Status in Estonia: foreign doctrine; not binding in Estonia and not necessarily applicable, may assist interpretation.

By its conduct or assurances the insurer may lose the right to rely on a defence through waiver, election or estoppel. In 2021 the Supreme Court of Canada held that estoppel requires an intention to affect legal relations, which cannot exist where the insurer did not know the facts revealing the breach. The High Court of Australia held in 2007 that the insurer's conduct amounted to an assurance that it would not rely on certain terms, and in 2022 that the continuation of the insurer's waiver was conditional on acceptance of its conditional terms within a reasonable time, and that estoppel requires detrimental reliance by the insured, which had not been proved in that case.

Limits. These doctrines belong to general contract law and their requirements differ between systems; insurers use reservation of rights letters to avoid them.

Estonian law. Estonian law has no separate doctrine of estoppel. A similar function is performed by the principle of good faith (VÕS § 6), including the prohibition of contradictory conduct, and by the interpretation of declarations of intent; an insurer's assurance that it will not rely on a defence may be a binding declaration of intent (our analytical conclusion).

Sources: VÕS § 6, https://www.riigiteataja.ee/akt/120062026018.

43. Regulatory estoppel

Origin: Regulatory estoppel, United States, New Jersey (Morton International, 1993). Status in Estonia: foreign doctrine; not applicable under Estonian law.

In 1993 the Supreme Court of New Jersey held that, because the insurance industry had misrepresented the meaning of the standard pollution exclusion to regulators, the exclusion could not be applied according to its wording; it was limited to the intentional discharge of a known pollutant.

Limits. The doctrine has rarely been applied in other US states and requires evidence of the representations made to regulators.

Estonian law. Estonian law has no such doctrine. Explanations given by an insurer to the supervisor or the market may nevertheless be circumstances relevant to construing a term (VÕS §§ 29, 39) (our analytical conclusion).

Sources: VÕS §§ 29, 39, https://www.riigiteataja.ee/akt/120062026018.

X. Economic theories and European model rules

Economic theories are not legal rules, but they explain why insurance law has disclosure duties, deductibles, safety obligations and exclusions. The Principles of European Insurance Contract Law are an academic model that allows Estonian solutions to be compared with a European common core.

44. Moral hazard

Origin: US economics (K. J. Arrow, 1963; M. V. Pauly, 1968). Status in Estonia: economic theory; not a legal rule, but explains the purpose of statutory rules and policy terms.

Insurance may change the insured's behaviour: when the insurer bears the loss, the insured has less incentive to prevent it or to limit costs. In 1963 K. J. Arrow analysed uncertainty and the welfare effects of insurance using medical care as the example. In 1968 M. V. Pauly showed that moral hazard results not only from dishonesty but also from a rational response to a price that insurance lowers for the insured.

Limits. The theory explains the economic rationale of deductibles, safety obligations and exclusions, but does not say how far they may legally go.

Estonian law. In Estonian law moral hazard is contained by, for example, the insurer's release where the insured event was caused intentionally (VÕS § 452(1)), duties of care and the limits on their sanctions (VÕS § 452(2)), the duty to mitigate (VÕS § 488) and the rules on insurable interest (VÕS § 478).

Sources: K. J. Arrow, 'Uncertainty and the Welfare Economics of Medical Care' (1963) 53(5) American Economic Review 941; M. V. Pauly, 'The Economics of Moral Hazard: Comment' (1968) 58(3) American Economic Review 531.

45. Adverse selection

Origin: US economics (G. A. Akerlof, 1970; M. Rothschild and J. E. Stiglitz, 1976). Status in Estonia: economic theory; not a legal rule, but explains the purpose of statutory rules and policy terms.

Where the applicant knows more about his risk than the insurer, insurance tends to be bought mainly by higher risks and a uniform price may shrink the market. In 1970 G. A. Akerlof described the effect of information asymmetry on markets. In 1976 M. Rothschild and J. E. Stiglitz showed that in a competitive insurance market insurers can separate risks through different contract menus, for example contracts with different deductibles and sums insured.

Limits. The models are theoretical; real markets are also shaped by regulation, compulsory insurance and anti-discrimination rules.

Estonian law. The pre-contractual duty of disclosure (VÕS §§ 440–442) is the legal response to information asymmetry. Risk differentiation is, however, limited by the principle of equal treatment: in 2011 the Court of Justice invalidated the derogation that allowed premiums and benefits to be differentiated on grounds of sex.

Sources: G. A. Akerlof, 'The Market for "Lemons": Quality Uncertainty and the Market Mechanism' (1970) 84(3) Quarterly Journal of Economics 488, https://doi.org/10.2307/1879431; M. Rothschild, J. E. Stiglitz, 'Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information' (1976) 90(4) Quarterly Journal of Economics 629, https://doi.org/10.2307/1885326; VÕS §§ 440–442, https://www.riigiteataja.ee/akt/120062026018.

46. Insurance as regulation

Origin: US legal scholarship (O. Ben-Shahar and K. D. Logue, 2012). Status in Estonia: economic theory; not a legal rule, but explains the purpose of statutory rules and policy terms.

Insurers do not merely spread risk but also influence the behaviour of insureds: they assess risks, price them according to conduct, impose safety requirements and collect loss data. In 2012 O. Ben-Shahar and K. D. Logue analysed this as private regulation capable of replacing or complementing public regulation in some fields.

Limits. The effect depends on whether insurers have sufficient information and competition and whether the insurance is compulsory or voluntary; overly broad exclusions may undermine the regulatory aim.

Estonian law. In Estonian law the same logic appears in compulsory insurance (for example motor third party liability and several professional liability insurances) and in safety obligations whose sanctions are limited by statute (VÕS § 452(2)).

Sources: O. Ben-Shahar, K. D. Logue, 'Outsourcing Regulation: How Insurance Reduces Moral Hazard' (2012) 111(2) Michigan Law Review 197.

47. Principles of European Insurance Contract Law (PEICL)

Origin: Europe; the academic Project Group 'Restatement of European Insurance Contract Law' (first edition 2009, expanded edition 2016). Status in Estonia: academic model rules; not binding and not in force as legislation anywhere.

PEICL is a set of model rules on general insurance contract law drawn up on the basis of a comparison of member state laws. Under PEICL the applicant's pre-contractual duty is limited to circumstances that are the subject of clear and precise questions put by the insurer (art 2:101). On breach the insurer may, within one month of learning of it, propose a reasonable variation of the contract or terminate it, but it may not terminate for an innocent breach unless it proves that it would not have concluded the contract had it known the information (art 2:102).

Limits. PEICL is not law in force; parties can use its rules only as contract terms within the limits of the mandatory provisions of the applicable law (our analytical conclusion).

Estonian law. PEICL is comparative material for Estonian law. In pre-contractual disclosure the Estonian mixed model protects the policyholder less than the PEICL questionnaire model, since the applicant must also disclose on his own initiative (VÕS §§ 440(1), 441(3)) (our analytical conclusion).

Sources: PEICL, English text; VÕS §§ 440(1), 441(3), https://www.riigiteataja.ee/akt/120062026018.

Abbreviations

BGB: German Civil Code (Bürgerliches Gesetzbuch)
BGH: German Federal Court of Justice (Bundesgerichtshof)
CJEU: Court of Justice of the European Union
LKindlS: Estonian Motor Third Party Liability Insurance Act (liikluskindlustuse seadus)
PEICL: Principles of European Insurance Contract Law
RKTKo: judgment of the Civil Chamber of the Supreme Court of Estonia
TsÜS: Estonian General Part of the Civil Code Act (tsiviilseadustiku üldosa seadus)
VVG: German Insurance Contract Act (Versicherungsvertragsgesetz, 2008)
VÕS: Estonian Law of Obligations Act (võlaõigusseadus)

Insurance law principles and theories

How to read this page

I. Eight principles of insurance law

a) Utmost good faith (uberrimae fidei)

b) Insurable interest

c) The principle of indemnity

d) Proximate cause (causa proxima)

e) Direct action (actio directa)

f) Contribution between insurers

g) Duty to prevent and mitigate loss

h) Subrogation

II. Nature and function of the insurance contract

1. Money payment theory

2. Risk-bearing theory

3. Business management theory

4. Need-coverage theory

5. Contract of adhesion

III. Construction and review of policy terms

6. Contra proferentem

7. Reasonable expectations doctrine

8. Average policyholder standard

9. Transparency requirement

10. Contextual interpretation

11. Exclusions must be formal and limited

12. Disguised obligation

IV. Pre-contractual information and good faith

13. Utmost good faith in English law

14. Duty of fair presentation

15. Questionnaire principle

16. Proportionate remedies

17. Warranties and suspended liability

V. Insured event and causation

18. Proximate cause doctrine

19. Efficient proximate cause doctrine

20. Concurrent causes

21. Fortuity and known loss

VI. Breach of obligations, fault and attribution

22. Quota principle

23. Proof of absence of causation

24. Liability for the policyholder's representative

25. Intentional and wilful misconduct

26. Notice-prejudice rule

VII. Liability insurance: defence, settlement and temporal scope

27. Duty to defend on potential coverage

28. Duty to settle and bad faith

29. Punitive and mental distress damages against insurers

30. Trigger theories

31. All sums and pro rata allocation

32. Claims made and occurrence bases

33. Aggregation of claims

34. Order of exhaustion of limits

VIII. Multiple insurance, third parties and recourse

35. Mutually repugnant other-insurance clauses

36. Back-to-back presumption in reinsurance

37. Insurable interest: legal interest or factual expectation

38. Insurance for the account of a third party

39. Policyholder's priority in subrogation

40. Direct loss in crime insurance

IX. Claims handling, fraud and waiver

41. Fraudulent claims rule and collateral lies

42. Waiver, election and estoppel

43. Regulatory estoppel

X. Economic theories and European model rules

44. Moral hazard

45. Adverse selection

46. Insurance as regulation

47. Principles of European Insurance Contract Law (PEICL)

Abbreviations

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