General, professional and product liability claims in Estonia

A liability claim against an Estonian insured raises two questions that have to be kept apart: is the insured liable to the claimant under Estonian law, and must the insurer indemnify the insured or pay the claimant directly? Foreign wordings rarely reflect the statutory model of liability insurance in the Law of Obligations Act (võlaõigusseadus, VÕS) §§ 510–525, which applies wherever Estonian law governs the policy.¹ I act for liability insurers, MGAs and claims handlers on general, professional and product liability claims. The legal framework is explained in liability insurance and direct action and in the guide on direct action against liability insurers; this page describes the service.

1. The lines

• General liability. Claims in tort for unlawfully caused damage (VÕS § 1043) and contractual claims: property damage, personal injury and consequential loss after fires, escapes of water, construction works and accidents on premises.
• Professional liability. Claims against advisers, engineers, architects, IT providers and other professionals, often under claims-made wordings. Some professions must carry liability insurance under special acts, which changes the claimant's position (section 3). See professional indemnity in Estonia.
• Product liability. The producer is liable without fault for death and personal injury caused by a defective product, and for damage to property only where the property is of a kind ordinarily used, and was mainly used, outside business or professional activities and the loss exceeds EUR 500 (VÕS § 1061 lg 1–2). Claims expire three years after the injured person learned or should have learned of the damage, the defect and the producer, and lapse ten years after the product was placed on the market unless an action has been brought (§ 1066 lg 1–2). Agreements limiting or excluding this liability are void (§ 1067), and claims on other legal grounds remain available (§ 1061 lg 5). See product liability in Estonia.

2. The statutory model

• Insured event and costs. The insurer performs, in place of the policyholder, the obligation to compensate damage caused to a third party as a result of an insured event during the period of insurance, and bears the legal costs (§ 510).
• Defence costs. Reasonable costs of legal assistance in and out of court are covered even if the claim proves unfounded (§ 511 lg 1). Costs of protecting the policyholder in criminal and administrative court proceedings are covered where the facts established there may ground civil liability, to the extent incurred on the insurer's instructions, and must be advanced on request (§ 511 lg 2). Costs of litigation that the insurer required or recommended, and the defence costs under lg 2, are payable even above the sum insured (§ 511 lg 3).
• Notice. The policyholder must notify circumstances that may lead to an insured event, and any claim made against it, within one week; sending the notice within the week is enough. Court or other proceedings must be notified without delay (§ 514).
• Payment and consent to settle. The insurer pays within two weeks after the claim has been satisfied by the policyholder or established by a judgment, an acknowledgement or a settlement (§ 515 lg 1). A clause releasing the insurer if the policyholder satisfies or acknowledges the claim without consent is void where refusing to do so would, in view of the claimant's interests, have been manifestly contrary to good faith (§ 515 lg 2). Section 515 is semi-mandatory (§ 427 lg 1).
• Intent. The insurer is released if the policyholder intentionally and unlawfully caused the event giving rise to its liability (§ 513).
• Several claimants. If claims arising from the same circumstance exceed the sum insured, the insurer satisfies them in proportion to their amounts (§ 517 lg 4).

3. Claimants and direct claims

In voluntary liability insurance the claimant has no general direct claim. The insurer may pay the claimant directly once the amount has been established by a judgment or a settlement and the policyholder has been told in advance, and must do so at the policyholder's request (§ 517 lg 1–2). Dispositions of the policyholder's claim against the insurer are void in relation to the claimant (§ 517 lg 3), and in the policyholder's bankruptcy the claimant is satisfied from the insurance claim before other creditors (§ 518).

In compulsory liability insurance the claimant may claim from both the policyholder and the insurer, who are jointly and severally liable; the insurer may raise the policyholder's defences, and the claim against it expires together with the claim against the policyholder (§ 521 lg 1–4). The insurer may not refuse the claimant because it has been released towards the policyholder (§ 521 lg 5), and a deductible does not reduce the claimant's compensation (§ 521 lg 8). The claimant must notify the insurer within two weeks of learning its identity; late notice limits the insurer's liability to what it would have paid with timely notice (§§ 522–523). The Supreme Court has held that § 521 lg 5 presupposes a valid contract and a release caused by the policyholder's breach: it does not create liability where the contract has been avoided or where there is no insured event at all, for example because intentional breach was lawfully excluded.² In motor insurance the injured party has a direct claim under the Motor Insurance Act (liikluskindlustuse seadus, LKindlS) § 23 lg 1.³

4. Defence and coverage roles

On a disputed claim the insurer may need three things: coverage advice for itself, a defence for the insured and monitoring of that defence. These roles can conflict. An Estonian advocate may not provide legal services where he or she has acted or acts in the same matter for a person whose interests conflict with those of the client (Bar Association Act (advokatuuriseadus, AdvS) § 44 lg 4).⁴ Where coverage is disputed, I therefore do not act both as defence counsel for the insured and as coverage counsel for the insurer in the same matter; one of the roles goes to other counsel. Two further points shape the insurer's involvement: litigation costs that it required or recommended fall outside the limit (VÕS § 511 lg 3), and a written refusal of cover starts the one-year period for bringing an action only if the letter states that consequence (§ 475 lg 3).

5. What I do

• First reports on liability and quantum under Estonian law, with a coverage view and a stated confidence level.
• Coverage opinions, reservation-of-rights and declination letters.
• Defence of the insured where appointed and free of conflict, or monitoring of defence counsel.
• Settlements with claimants, drafted as compromise agreements (VÕS § 578) with releases that protect both the insured and the insurer.
• Recovery against co-defendants and their insurers, and expert opinions on Estonian liability law for courts and tribunals abroad (see investigations and expert opinions).

Related pages

• Liability insurance and direct action (VÕS §§ 510–525)
• Direct action against liability insurers
• Professional indemnity in Estonia
• Product liability in Estonia
• D&O claims
• D&O, cyber, crime, liability and war-risk claims

References