When your business or your household is negatively affected by another individual or company, one of the first things that becomes essential is if the salvage costs and other damages caused thereby would be recoverable. If the damage is relatively small, arrangements with the liable party can be made and the solvency of the debtor is not much of a concern. However, if the damages are extensive and your potential claim reaches tens and hundreds of thousands of euros, the question of whether or not the liable party had a liability insurance becomes important. And if so, can you bring a claim directly against the insurer since a lengthy litigation against the liable party may not do you much good?
There is no clear-cut answer to that in Latvian law. Direct action is expressly permitted in cases of compulsory liability insurance of vehicle owners. The Art. 50 of Law on Insurance Agreements does not make it much clearer by providing that a third party has a right to bring an action against the insurer in cases prescribed by the law. If the law was interpreted in a way that this right could only be permitted in cases when lex specialis allows so, it may leave the third parties unprotected when debt collection is not possible or the liable party has been declared bankrupt and would render the liability insurance coverage somewhat ineffective.
The preceding article of the same law provides that the insurance indemnity may only be paid to the third party by the insurer. That may lead to a conclusion supported by the general rules of Civil law that an agreement providing rights to a third party in certain circumstances creates an independent third-party claim against the parties of the agreement.
However, the conclusion that the third-party claims are always permitted under Latvian law would not be preferred by the insurance industry. That would also not be entirely in line with what the legislator intended when changing the aforementioned Art. 50 of Law on Insurance Agreements 17 years ago by adding “in cases prescribed by the law” to what was a general permission of third party claims until then.
It suggests that a balance of interests should be sought. The approach in European countries tends to vary between third-party favouring jurisdictions such as France, Belgium and Spain to more balanced approaches in Sweden, Germany and UK. It appears that in Europe the legislators are more inclined to permit third-party claims when the insurance cover is mandatory or when the liable party becomes insolvent or enforcement of a decision against it is not possible.
It must be noted that the insurance cover is set to be mandatory to inter alia protect the clients of services or the potential victims and minimise certain social and business risks. Also, the impossibility of debt collection and insolvency of the liable party should give rise to a direct action for similar reasons. A direct third-party action would certainly be more justifiable in those circumstances. The two trends of balancing the interests of the injured and the insurer could provide an incentive and serve as a blueprint for the legislator to amend the law accordingly.
Although, several court cases in Latvia have proved that a direct third-party action is possible and in certain cases it most definitely should be possible, the uncertainty of the law which entails the unpredictability of the court decisions in this aspect, may be a somewhat worrying situation for the local insurers. Also, the injured cannot be certain that their direct path to the insurer’s pocket will be allowed by the courts. The possibilities of a direct action presented by the successful examples of some of our cases have yet to be supported by a stable case law. The legislator should also not remain idle on this issue and should adopt clear basic rule of third-party claims in liability insurance and exceptions considering the interests of all affected parties.