The precautionary measures clauses in indemnity insurance contract

Abstract

Precautionary measures clauses impose on a policyholder or an insured person the obligation to perform certain acts or to refrain from certain activities until the occurrence of the insured event. Traditionally, the function of preventing negligent behavior by the policyholder is performed by rules on aggravation of risk or policyholder’s fault in the occurrence of the insured event. However, if they are ineffective, for example due to the inability to take into account the negligence in all cases (para 1 of Art. 963 of the RF Civil Code), the insurer is inclined to transfer some of the negligent acts onto the category of insurance exclusions in order not to pay compensation at all. As a consequence, the “all-or-nothing” principle prevails in resolving insurance disputes. The precautionary measures clauses, provided for in the Principles of European Insurance Contract Law (PEICL) and the legislation of Scandinavian countries (Sweden, Finland), makes it possible to reach a compromise: the insurer may consider the negligent behavior of the policyholder when paying compensation, but only insofar as it has affected the occurrence of the insured event or the amount of loss. This is more in line with the “proportionality rule”. In order to ensure the consumer rights, the authors propose to supplement insurance legislation (in particular, Chapter 48 of the RF Civil Code) with the legal institute of precautionary measures on the basis of the relevant rules of the PEICL.

Keywords:

indemnity insurance, loss prevention, moral hazard, precautionary measures, aggravation of risk, insurance exclusions