In short. This module distinguishes the policyholder's different duties and the consequences of breaching them: safety obligations, aggravation of risk, notification of the insured event, and preventing and mitigating loss.
Learning outcomes
After completing this module you will be able to:
- classify a duty and determine when it must be performed;
- analyse fault and the effect of a breach on the insured event or the loss;
- choose the applicable special rule.
Key points
Four different duties
A safety obligation (an agreed duty to be performed before the insured event), aggravation of risk (VÕS §§ 443–447), notification of the insured event (§§ 448–449) and preventing and mitigating loss (§ 488) are different duties. The consequences of breach follow from different provisions; there is no single percentage rule.
Limits on the consequences of breach
The insurer may not rely on an agreement releasing it where a duty to be performed before the insured event was breached without fault or the breach did not affect the occurrence or extent of the loss, nor where breach of a duty intended to reduce the risk had no effect on the insured event or on the insurer's obligation (VÕS § 452(2)(1)–(2)). If the insurer does not cancel the contract within one month of learning of a material breach, it cannot later rely on the release agreement (§ 470(1)–(2)).
Mitigation and notification
When the insured event occurs the policyholder must, as far as possible, try to prevent and reduce the loss and follow the insurer's instructions (VÕS § 488(1)); on breach the insurer may reduce the benefit by the damage caused to it (§ 488(3)). Where notification is late, the insurer may reduce its performance to the extent of the damage it suffered as a result (§ 449(1)).
Order of analysis
Identify first the duty, then the breach, the applicable provision, fault and causal effect, the permitted consequence and the evidence. An act of an employee or a third party is not automatically the policyholder's own intentional causing of the insured event (VÕS § 452(1)); where the risk of a third person is insured, that person's knowledge and conduct are treated as the policyholder's (§ 465(1)).
Read before the quiz
Articles on this site:
- Safety obligations and proportionality in Estonian insurance law
- Aggravation of risk under Estonian insurance law (VÕS §§ 443–447)
- Exclusions vs obligations in Estonian insurance law
- Typical coverage disputes in cyber, crime and D&O insurance
Legal sources:
Practical case
Write down your own answer before opening the suggested approach.
After a burglary at a shop it emerges that the smoke detector was faulty, in breach of an agreed fire safety obligation. The insurer declines the theft claim for breach of the safety obligation. Assess the declinature.
Suggested approach
The specific duty (fire safety), its breach, fault and effect on the insured event or the extent of the loss must be established. A faulty smoke detector does not affect the occurrence of the burglary or the extent of the theft loss; under VÕS § 452(2)(1)–(2) the insurer cannot decline the claim on the basis of that breach. If an alarm or locking obligation was also breached, that must be analysed separately, as must whether the insurer knew of the breach and failed to cancel the contract (§ 470(2)).
Self-check quiz
Answer the three questions and press "Check answers". An explanation is shown for each question.