The field of insurance during the war

Are insurance policies valid during martial law?

With the beginning of the russian invasion of Ukraine on February 24, 2022, the same day, martial law was imposed in Ukraine, in accordance with Presidential Decree No.64/2022 as of 02/24/2022. Martial law provides for the possibility of restricting the constitutional human and civil rights and freedoms, the rights and legitimate interests of legal entities, in accordance with Article 8 of the Law “On the Legal Regime of Martial Law”.

However, the mere fact of martial law does not affect the validity of any transactions, including insurance policies – all rights and obligations of the parties remain in force (subject to the following reservations).

Is the war a ground for non-performance by the parties to the insurance policy?

The war in Ukraine belongs to force majeure, which was separately confirmed by the Ukrainian Chamber of Commerce and Industry in its letter as of 02/28/2022 No.2024/02.0-7.1.

Insurance is no exception in the context of force majeure – the parties to an insurance policy may refer to such circumstances as to the ground of exempting them from liability for non-compliance with the contract (respective force majeure clauses referring to war are in practice always included in insurance policies).

Nevertheless, we remind that:

• force majeure does not release the party from the obligation under the contract, but is only a legitimate reason to postpone the performance of such an obligation until the end of their effect and not be liable for such delay (in the form of penalties);
• the mere fact of hostilities or the imposition of wartime restrictions does not release the party from liability, unless such circumstances directly physically or legally prevent the person from fulfilling a specific obligation under the contract (for example, to pay funds).

In such circumstances, for example, the insurer may delay the insurance compensation (following the procedure of notification on force majeure and its confirmation), but shall pay it when the force majeure circumstances cease.

In which cases may the insurer refuse to pay an insurance compensation?

Paragraph 1 of Article 991 of the Civil Code and Paragraph 1 of Article 26 of the Law “On Insurance” provides for a number of cases when the insurer has the right to refuse to pay an insurance compensation.

However, the list is not exhaustive, and the contract may provide other grounds for refusal to pay an insurance compensation if it is not contrary to law. In practice, insurers include in the insurance rules additional grounds for refusing to pay insurance compensation, in particular, related to the war.

Thus, insurers refuse in advance to cover the risks of damage due to hostilities – for example, if the insured property was damaged or destroyed due to hostilities (bullets, shells, etc.) such damage is not covered by the insurer. “Martial” risk insurance exists as a separate product on the market, but due to its excessive cost, it has not become widespread in recent years.

Are insurance policies valid in the war zone and the occupied territories?

Since 2014, insurers have included another “martial” clause in their contracts – insurance policies usually do not apply in the territory of hostilities and the occupied territories of Ukraine. This means that no events (both caused by and independent of hostilities) are considered insured if they took place in a combat zone or a territory not controlled by the government.

Until February 24, 2022, to determine the relevant territories, insurers were guided by the Order of the Cabinet of Ministers as of 11/07/2014 No.1085-r, which approved the list of settlements in which public authorities temporarily do not exercise their powers and the list of settlements located on the front line (this is the so-called “Anti-Terrorist Operation/Joint Forces Operation Zone”).

On the other hand, in the context of full-scale russian aggression against Ukraine on February 24, 2022, such “territorial” exceptions in insurance policies are quite controversial, as hostilities are not localized and there is no clear normative list of combat areas.

On March 13, 2022, the Resolution of the Cabinet of Ministers No.269 amended the Procedure for Registration and Issuance of a Certificate of Registration of Internally Displaced Persons.

This resolution regulates some issues of registration of internally displaced persons who, after the imposition of martial law, “moved from the territory of the administrative-territorial unit where hostilities are taking place and which is defined in the list approved by the Cabinet of Ministers as of March 6, 2022, No.204 “On approval of the list of administrative-territorial units on the territory of which assistance is provided to insured persons within the framework of the “yePidtrymka” Program”. This list, formed by the State Emergency Service, includes: Volyn, Dnipropetrovsk, Donetsk, Zhytomyr, Zaporizhia, Kyiv, Luhansk, Mykolaiv, Odesa, Sumy, Kharkiv, Kherson, Chernihiv regions and the City of Kyiv.

Nonetheless, until a clear regulatory definition of the territory of hostilities (when possible) the issue of insurance policies validity in certain areas may be the subject of dispute with insurers.

What is the position of insurers and the regulator?

Since the beginning of the russian invasion, Ukraine’s largest insurance companies have confirmed the validity of insurance contracts and their obligations to indemnify for insurance events, which, however, does not contradict the above exceptions. A similar position was taken by insurance companies in 2018 when martial law was at the first time imposed in some regions of Ukraine.

On February 27, 2022, the National Bank, as the regulator of the insurance services market, recommended that insurers simplify the procedure for settling insurance cases by making maximum use of electronic documents and copies of necessary documents in case of impossibility or difficulty in obtaining their originals, as well as means of remote settlement of insurance cases. One of such simplified procedures has long been available – the “Europrotocol” on the motor vehicle liability insurance.

In addition, the regulator will not conduct inspections of insurance market participants and extends the deadlines for submission of annual financial statements.

Thus, insurance policies are valid regardless of the imposition of martial law in Ukraine, with standard force majeure clauses, which are used in other types of contracts. Instead, insurers generally do not cover “martial” risks and exclude combat zones and non-government-controlled areas from the insurance territory.

Uncertainty of such zones and territories may be the ground for disputes with insurers, which now requires early communication between the parties to contracts on this issue.