In short. This module separates the policyholder's liability to the injured party from the insurance cover for that liability, and deals with the injured party's right to claim and with defence costs.
Learning outcomes
After completing this module you will be able to:
- separate the question of liability from the question of cover;
- check the basis for an injured party's claim against the insurer;
- analyse how defence costs relate to the sum insured.
Key points
Two separate questions
In liability insurance the insurer performs, in place of the policyholder, the obligation to compensate damage caused to a third party and bears the legal costs (VÕS § 510). But first it must be established whether the policyholder is liable (duty, breach, loss, causation) and then whether that liability is insured (insured, risk, time, exclusions, limit). A positive answer to one question does not decide the other.
The injured party's claim
In compulsory liability insurance the injured party may claim from both the policyholder and the insurer, from the insurer only in money (VÕS § 521(1)); where the claim is made against both, they are jointly and severally liable (§ 521(2)). In voluntary liability insurance there is generally no such direct action: the insurer may pay the injured party directly under the conditions in § 517(1) and must do so if the policyholder so requests (§ 517(2)).
Defence costs
The insurance covers the policyholder's legal costs to the extent the policyholder could consider them necessary to protect its rights, even if the claim proves unfounded (VÕS § 511(1)). Check in the policy whether defence costs are within or in addition to the sum insured, whether they require the insurer's consent and how settlement is regulated.
Read before the quiz
Articles on this site:
- Liability insurance and direct action in Estonia (VÕS §§ 510–525)
- Direct action against liability insurers in Estonia
- Professional indemnity insurance and claims in Estonia
Legal sources:
Practical case
Write down your own answer before opening the suggested approach.
A claim for EUR 200,000 has been made against a designer. The sum insured under the designer's liability policy is EUR 150,000 and the terms do not make clear whether defence costs are included in it. Prepare two checklists: liability and cover.
Suggested approach
Liability: contractual duty and standard of care, breach, amount of loss, causation, the client's contribution, limitation. Cover: the insured and the insured activity, the definition of the insured event (including claims made and the retroactive date), exclusions, the sum insured and its relation to defence costs, the deductible, the insurer's consent requirements. If defence costs are within the sum insured, the amount left for compensation is reduced; an unclear term is interpreted under VÕS § 39(1). The amount claimed proves neither liability nor cover.
Self-check quiz
Answer the three questions and press "Check answers". An explanation is shown for each question.