Insolvency of a policyholder or tortfeasor in Estonia

Insolvency changes the dynamics of insurance claims. A bankrupt policyholder may stop paying premium, an insolvent tortfeasor may leave an injured party (or a subrogated insurer) with only the tortfeasor's liability insurance to look to, and bankruptcy trustees often become the main claimants under D&O policies. This guide summarises the Estonian rules that matter in these situations.

1. Estonian bankruptcy in brief

Bankruptcy proceedings are governed by the Bankruptcy Act (pankrotiseadus, PankrS).¹ Key features:

• the court appoints an interim trustee and, upon declaring bankruptcy, a trustee (pankrotihaldur), who administers the estate;
• creditors must notify the trustee of all claims that arose before the declaration of bankruptcy within two months of the publication of the bankruptcy notice in the official publication Ametlikud Teadaanded, regardless of the basis and due date of the claim (PankrS § 93 lg 1);¹
• the trustee may challenge (tagasi võita) transactions harmful to creditors made before the bankruptcy, including transactions in the period from the appointment of the interim trustee to the declaration of bankruptcy and, if the other party knew or should have known of the harm, transactions within one year before that (PankrS §§ 109–110);¹
• claims are satisfied in the order of priority set out in the Act.

Management board members of insolvent companies must file for bankruptcy within 20 days when the insolvency is not temporary (Commercial Code (äriseadustik, ÄS) § 180 lg 5¹ for private limited companies, § 306 lg 3¹ for public limited companies).²

2. Insolvent policyholder: the insurance contract

• Premium. The policyholder's insolvency does not end the contract automatically. Unpaid subsequent premiums trigger the reminder and cancellation mechanism of the Law of Obligations Act (võlaõigusseadus, VÕS) § 458.³
• Insurer's cancellation right. If the policyholder is declared bankrupt, or the insured immovable is placed under compulsory administration, the insurer may cancel the contract with at least one month's notice (VÕS § 473).³
• Claims under the policy (for example property claims) form part of the bankruptcy estate and are pursued by the trustee.
• Set-off. The insurer's set-off of premium against an indemnity is subject to insolvency restrictions on set-off.

3. Insolvent tortfeasor: protecting the injured party

Voluntary liability insurance. Estonian law does not give the injured party a general direct claim against the liability insurer, but it protects the injured party in two ways:

1. dispositions of the policyholder's claim against the insurer are void in relation to the injured party, including dispositions in enforcement proceedings (VÕS § 517 lg 3);
2. in the policyholder's bankruptcy, the injured party has a preferential right to be satisfied from the policyholder's claim against the insurer (VÕS § 518).³

In practice, the injured party files its claim in the bankruptcy and asserts the preferential right; the trustee collects the insurance proceeds and pays the injured party. Where the insurer is willing, a direct payment arrangement with the trustee's consent is efficient.

Compulsory liability insurance. The injured party has a direct claim against the insurer (VÕS § 521 lg 1), which is unaffected by the insured's insolvency. The insurer cannot rely against the injured party on its release towards the policyholder (§ 521 lg 5), but, according to the Supreme Court's 2025 judgment on a bankruptcy trustee's compulsory liability insurance, the protection does not apply where there is no insured event at all or the contract has been validly avoided;⁴ in motor third-party liability insurance, EU law generally prevents the insurer from relying against the victim on the invalidity of the contract resulting from the policyholder's pre-contractual misrepresentation (CJEU C-287/16, Fidelidade; C-236/23, Matmut, paras 47 and 66, with an exception for abuse of rights).

Foreign law direct action. Where the law applicable to the tort or to the insurance contract provides for a direct action, the injured party can rely on it under art 18 of the Rome II Regulation, also against an Estonian liability insurer. See the direct action guide.

4. Subrogated insurers and insolvent wrongdoers

A property insurer that has paid its insured and acquired the claim against an insolvent wrongdoer (VÕS § 492) must:

• file the claim with the trustee within two months of the bankruptcy notice (PankrS § 93);
• assert the preferential right under VÕS § 518 if the wrongdoer had voluntary liability insurance;
• or sue the wrongdoer's insurer directly if the insurance was compulsory.

5. Bankruptcy trustees as D&O claimants

Once bankruptcy has been declared, the company's claims against its board members are pursued by the trustee (ÄS § 187 lg 4, § 315 lg 4, as summarised in the D&O guide).² Typical allegations are late filing for bankruptcy, payments to related parties or preferred creditors while insolvent, and loss-making transactions. D&O insurers should consider:

• insured-vs-insured exclusions and their carve-backs for trustee claims;
• the order of payments (Side A priority) where the company cannot indemnify;
• notification of circumstances before expiry, as trustee investigations take time;
• the ordinary five-year limitation period from the breach for claims against management or supervisory board members, unless a different period is validly provided in the articles of association or agreed with the member (ÄS § 187 lg 3, § 315 lg 3, § 327 lg 3). For management board members, the exceptional ten-year period under TsÜS § 146(4) may apply to intentional conduct contrary to good morals, assessed case by case, notably an undisclosed conflict of interest causing loss (Supreme Court en banc, 3 March 2021, 1-17-2359/122, paras 64–67).

6. Insolvency of an insurer

If an insurer is declared bankrupt, the insurance contract ends (VÕS § 472). Policyholders may cancel if the insurer's licence is withdrawn or suspended (§ 471).³ Claims of policyholders and insured persons enjoy protection under insurance regulatory law; motor third-party liability claims are additionally protected by the Estonian Traffic Insurance Fund system.

Related pages

• Liability insurance and direct action
• D&O claims
• Enforcement of judgments and recovery
• Subrogation and recovery services
• Supreme Court: liability insurance and direct claims

References