Consequences of Failing to Notify the Insurer of an Insured Event

      In accordance with paragraphs 1 and 2 of Article 835 of the Civil Code of the Republic of Kazakhstan, the policyholder is obligated to immediately notify the insurer or its representative of the occurrence of an insured event as soon as it becomes known to the policyholder.

    If the contract or legislative act of the Republic of Kazakhstan provides a time frame and/or method for notification, such notification must be made within the specified time and in the manner prescribed by the contract or legislative act of the Republic of Kazakhstan.

The beneficiary has the right to notify the insurer of the occurrence of an insured event under all circumstances, regardless of whether the policyholder or the insured person has done so.

According to paragraph 3 of the aforementioned provision, failure to notify the insurer of the occurrence of the insured event gives the insurer the right to deny insurance compensation, unless it is proven that the insurer was timely informed of the occurrence of the insured event or that the lack of information could not have affected the insurer’s obligation to pay the insurance compensation.

Law No. 166-VI dated July 2, 2018, supplemented Article 835 of the Civil Code with paragraph 4, which states the following:

Failure or untimely notification of the insurer about the occurrence of an insured event shall not constitute grounds for refusal of insurance compensation if such failure was due to reasons beyond the control of the policyholder or if deemed valid by the insurance contract, and if supporting documents confirming such reasons are provided. Thus, failure to notify the insurer does not constitute an unconditional basis for denial of insurance compensation.

Therefore, in each specific case, the court should evaluate the arguments of the parties, in particular, whether the insurer’s lack of knowledge about the insured event affected its obligation to make the insurance payment.

Case Summary:

Claimant P. filed a lawsuit against JSC "Insurance Company E." seeking a declaration that the insurer's denial of the insurance payment was unlawful and demanding payment of the insurance compensation.

By the decision of the Semey City Court dated February 27, 2023, the claim was partially satisfied. The insurer's refusal to make the insurance payment was deemed unlawful, and a partial insurance compensation was awarded in favor of P.

However, the Judicial Panel for Civil Cases of the Abai Region, by a ruling dated May 23, 2023, amended the lower court’s decision, overturned the satisfied part, and dismissed the claim.

It was established that on August 22, 2022, a road traffic accident (RTA) occurred due to P.’s fault, resulting in damage to a vehicle belonging to S. A mandatory civil liability insurance contract and a voluntary motor vehicle insurance contract had been concluded between the claimant and the insurer. The injured party received a compensation under the mandatory policy. On September 2, 2022, the claimant contacted the insurer for compensation under the voluntary policy, but the request was denied due to missed notification deadlines.

The first instance court ruled in favor of P., reasoning that the insurer had knowledge of the RTA (i.e., the insured event), and the delay in notification did not adversely affect the insurer's obligation to make the payment.

The appellate court overturned the first instance ruling, stating that under a voluntary insurance contract, the parties are bound to follow the agreed terms. The RTA occurred on August 22, 2022, but the claimant submitted the notification to the insurer only on September 2, 2022 — a 10-day delay. The claimant did not provide evidence that the insurer had been timely notified.

However, the Judicial Panel for Civil Cases of the Supreme Court overturned the appellate court’s ruling and upheld the initial court decision. The Supreme Court noted that according to paragraph 3 of Article 835 and subparagraph 5 of paragraph 4 of Article 839 of the Civil Code, failure to notify the insurer does not automatically release it from its obligation to pay the compensation.

As per the voluntary insurance contract, the insured event is defined as a road traffic accident — a collision involving a motor vehicle during road movement.

It was undisputed that the insurer became aware of the insured event on August 23, 2022, when the injured party reported the accident involving the claimant’s vehicle. According to the insurer’s response, the claimant submitted all accident materials along with the September 2, 2022, application.

On September 6, 2022, the insurer conducted an inspection of the claimant’s vehicle, and the damage amount was assessed on the same day.

Considering the above, the first instance court correctly concluded that the insurer had timely knowledge of the insured event (Case No. 3gp/83 dated March 6, 2024).

Case Summary:

LLP "Ө" filed a lawsuit against JSC "Insurance Company A" seeking compensation under an insurance policy.

It was established that the parties entered into an insurance agreement covering 120 heads of Kazakh Whiteheaded cattle with a total insured amount of KZT 60,000,000 and a premium of KZT 924,000, effective from June 5, 2022, to June 4, 2023. On November 10, 2022, the claimant discovered the loss of 46 heads of cattle and began searching for them independently. After the unsuccessful search, on November 16, 2022, the claimant notified the insurer of the insured event.

However, compensation was denied due to failure to notify the insurer within the 72-hour period stipulated in the contract.

The courts of the West Kazakhstan Region upheld the claim, correctly applying paragraph 3 of Article 835 of the Civil Code and paragraph 8 of the Regulatory Resolution. They found that the claimant had duly fulfilled its contractual obligations, and in accordance with clause 6.2.17.3 of the contract, took reasonable and feasible steps to mitigate the damage, including an independent search. Upon failure, the claimant immediately filed a theft report with the police and subsequently notified the insurer.

Subrogation

In addition to questions regarding the limitation period and the need to comply with the pre-trial dispute resolution procedure, other issues arise in practice when applying this legal institution.

Despite the clarifications provided in the Normative Resolution, courts still confuse the concepts of “recourse” and “subrogation.”

For example, the Semey City Court of Abay Region, when resolving the claim of JSC "IC 'X'" against K. for recovery of the insurance payment by way of recourse (subparagraph 2) of paragraph 1 of Article 28 of Law No. 446 – where the insured event occurred due to the insured operating a vehicle under the influence of alcohol), fully cited Article 840 of the Civil Code in the reasoning part of its decision, which had no relevance to the case at hand (decision dated March 26, 2024).

According to paragraph 2 of Article 840 of the Civil Code, the right of claim transferred to the insurer is exercised in compliance with the rules governing the relationship between the insured (policyholder) and the person responsible for the damage. This means that when the insurer, under the right of subrogation, brings a claim against the person who caused the damage, it must be guided by the legal norms that regulate the relationship between the insured (beneficiary) and the tortfeasor.

The person at fault has the right to present objections to the insurer that they could have presented to the injured party (the insured), including objections regarding the amount of damages.

Courts do not always properly understand and apply this rule. It is necessary to clearly distinguish between the legal relationship between the insured and the insurer under a property insurance contract, and the legal relationship between the injured party (the insured) and the tortfeasor.

The former is typically based on a voluntary insurance contract, under which the parties independently determine the terms, including how damages are assessed. However, these terms are not binding on the tortfeasor.

For instance, in cases involving damage to property resulting from a traffic accident, the relationship between vehicle owners is governed by the general norms of civil law on tort liability and Law No. 446.

JSC "IC 'E'" and S. entered into a voluntary comprehensive insurance contract under which a Lexus ES 250 vehicle was insured, including coverage for damage resulting from traffic accidents.

Following an accident caused by the driver O., which resulted in technical damage to the vehicle owned by S., the insurer paid an amount of 7,373,760 KZT based on an invoice issued by a specialized service center, without accounting for depreciation.

In a judgment dated April 19, 2023, the District Court No. 2 of the Almalinsky District of Almaty granted the insurer’s claim against O. for subrogated recovery of the paid amount. The Almaty City Court, partially amending the decision and reducing the awarded amount to 6,724,588 KZT, referred to Article 840 of the Civil Code and paragraph 11 of the Normative Resolution, taking into account that this amount was assessed with consideration of depreciation.

In another case, the Appellate Collegium overturned the decision of the Medeu District Court of Almaty dated September 1, 2023, in a civil case brought by JSC "IC 'S'" against U. for subrogated recovery, and issued a new judgment denying the claim.

The case established that JSC "IC 'S'" and LLP "A" had entered into a voluntary insurance agreement for a Volkswagen Polo. On February 20, 2022, an accident occurred due to the fault of U., resulting in damage to the insured vehicle. The insurer paid compensation in the amount of 2,061,070 KZT.

Uralbaeva D.O.'s liability was insured by JSC "F," which paid 1,380,197 KZT to JSC "IC 'S'." The plaintiff then sought to recover the difference of 680,873 KZT via subrogation.

The court of first instance, granting the claim, referred to Article 840 of the Civil Code, emphasizing that the insurer had paid the full amount of 2,061,070 KZT. However, the appellate court overturned this decision, ruling that the insurer, in pursuing a subrogated claim, must adhere to the rules governing the relationship between the insured and the party responsible for the loss.

Accordingly, the defendant had the right to raise objections against the insurer that could have been raised against the injured party, including those relating to the amount of the damage. It was found that the defendant had valid liability insurance at the time of the accident under JSC "F," and the damage assessment report (prepared by LLP "N") established a loss amount of 1,380,197 KZT.

This assessment was not declared invalid, appealed, or contested in court. The plaintiff accepted the amount determined and paid by JSC "F." Therefore, the defendant had valid insurance coverage, and the claimed amount did not exceed the insurer’s liability limit under the policy.

Similar conclusions were reached by the Talgar District Court of Almaty Region (judgment dated April 3, 2024) and the appellate court, both correctly rejecting JSC "IC 'S'" claims for subrogated recovery from T.

As an example of proper application of Article 840 of the Civil Code, reference can be made to court decisions from the Karaganda Region in the case of JSC "IC 'S'" v. K. for recovery of insurance compensation.

The courts justifiably rejected the claim, stating that the plaintiff had undertaken an obligation to pay an amount without accounting for depreciation at a specialized service center — assuming a commercial risk.

Undoubtedly, the insurer fulfilled its obligations under the voluntary insurance contract toward the insured, but not by compensating actual damage. The defendant was not a party to this contract and did not undertake any obligations toward the plaintiff or the insured.

Jurisdiction

Cases of the specified category are considered under the general rules of jurisdiction established by Chapter 3 of the Civil Procedure Code (CPC) – at the defendant's place of residence.

A claim against an insurance company may be filed at the location of the branch or representative office that concluded the insurance contract.

However, there have been cases of unjustified return of claims due to lack of jurisdiction.

Thus, by the ruling of the Specialized Interdistrict Economic Court (SIEC) of the East Kazakhstan Region dated May 17, 2023, the claim of LLP "Z" against JSC "Insurance Company 'E'" (hereinafter – JSC "IC 'E'") for the recovery of insurance compensation was returned.

The basis for the return was the lack of jurisdiction of the SIEC of East Kazakhstan Region, as the defendant – the insurance company – is located in Almaty.

However, as noted above, pursuant to part 3 of Article 30 of the CPC, a claim arising from the activities of a branch or representative office of a legal entity may also be filed at the location of such branch or representative office.

According to the claim and the documents attached thereto, the plaintiff is located in Ust-Kamenogorsk, the traffic accident (hereinafter – the "accident") occurred in Ust-Kamenogorsk, and the insurance claim was accepted by a branch of JSC "IC 'E'" located in Ust-Kamenogorsk.

This ruling was not appealed and has entered into legal force.

According to part 11 of Article 30 of the CPC, a claim for the recovery of insurance compensation under an insurance contract may be filed at the plaintiff’s place of residence or at the defendant’s location.

Clause 2 of the Normative Resolution provides the following clarification: the concept of "place of residence" refers to a plaintiff who is a natural person. Therefore, plaintiffs who are legal entities must file claims according to the general procedure – at the defendant’s location.

An analysis showed that there had been a misinterpretation of this provision. By the ruling of the Interdistrict Civil Court of Shymkent dated June 13, 2023, the claim of JSC "IC 'N'" against D. for the recovery of a regression amount was returned, citing subparagraph 2) of part 1 of Article 152 of the CPC (the defendant does not reside in Shymkent) and part 11 of Article 30 of the CPC.

The plaintiff – the insurance company – was recommended to apply to the court at its place of registration – the city of Almaty. The appellate court upheld the decision and also noted that the plaintiff may apply to the court at its own place of residence.

However, the courts failed to take into account that part 11 of Article 30 of the CPC grants the right of choice only to individual plaintiffs and only for claims for the recovery of insurance compensation. In this case, the plaintiff is a legal entity asserting a counterclaim against the policyholder.

By ruling dated February 27, 2024, in transferring the case of JSC "IC 'E'" against M. for the recovery of debt to the Military Court of the Almaty Garrison, the Balkhash District Court of Almaty Region did not consider that the plaintiff’s claims do not affect military service interests and are not directly related to the defendant’s military service. This ruling was not appealed.

State Duty

The rates of state duty for cases of this category are determined in accordance with Article 610 of the Tax Code.

Pursuant to subparagraph 19) of Article 616 of the Tax Code, policyholders and insurers are exempt from paying state duty in courts for claims arising from mandatory insurance contracts.

Thus, the article refers only to mandatory insurance contracts, and only policyholders and insurers are exempt from paying state duty. Beneficiaries are not entitled to this privilege.

Therefore, if a beneficiary files a claim against an insurer for the recovery of insurance compensation under a mandatory insurance contract, he or she is obliged to pay state duty in the amount provided for in Article 610 of the Tax Code (unless exempted on other grounds).

In this case, court costs must be allocated between the parties in accordance with the general rules set out in Article 109 of the CPC.

That is, if the decision is in favor of the plaintiff-beneficiary, the defendant – the insurance company – must reimburse the plaintiff for the legal costs, including the state duty paid.

Local courts have repeatedly proposed extending the benefit provided by subparagraph 19) of Article 616 of the Tax Code to beneficiaries (victims).

Such a proposal was submitted to Parliament by the Supreme Court as early as 2017, following a generalization, but was not supported.

Statute of Limitations

Claims for insurance compensation are often referred to as claims for compensation for damage caused to life and health.

However, according to subparagraph 3) of Article 187 of the Civil Code, the statute of limitations does not apply to claims for compensation for harm caused to the life or health of a citizen. However, the legal relationship between the parties (beneficiary and insurer) arises not from the harm caused, but from the insurance contract.

The purpose of insurance is not to compensate for the harm caused, but to protect the property interests of the policyholder (the insured or beneficiary), that is, insurance protection, which acts as a commodity (service) on the insurance market.

Therefore, insurance compensation cannot be considered as harm compensation, which is consistent with the provisions of Article 2 of the Law “On Insurance Activities”, according to which insurance is a type of entrepreneurial activity.

Consequently, claims arising from insurance contracts are subject to the general statute of limitations – three years. Particular attention should be paid to a current issue frequently arising in court practice: from which moment the three-year limitation period for filing a claim against an insurance company should be calculated.

According to Clause 4 of the Normative Resolution, this period is calculated from the moment when the beneficiary or the insured became aware of the violation of their rights – the decision to refuse the insurance compensation or to reduce its amount; and if no decision has been made – from the moment the period established by law or contract for payment of insurance compensation expires.

That is, until the insurance company accepts the documents regarding the insured event, reviews them, and makes a decision to refuse or reduce the compensation, the beneficiary cannot be aware that their rights have been violated.

In this case, the date for the commencement of the limitation period shall be the day on which the policyholder received a denial or a compensation decision with an amount insufficient to restore the damaged vehicle.

J., born in 2001, filed a lawsuit against two insurance companies, seeking to declare the decision to deny insurance compensation unlawful and to compel payment of the insurance compensation.

She based her claim on the fact that, while a minor, she was injured in a traffic accident on July 23, 2018. On January 15, 2019, she was granted a disability status. The liability of the drivers responsible for the accident was insured.

She applied for insurance compensation in February and March 2023. By the judgment of District Court No. 2 of Almalinsky District of Almaty dated August 14, 2023, upheld by the appellate court’s ruling...

Pre-trial Dispute Resolution Procedure

The Insurance Ombudsman has been operating in Kazakhstan since 2007. Law No. 244 dated May 7, 2007, supplemented Law No. 446 with Articles 30-1, 30-2, 30-3, and 30-4, which regulate the activities of the Insurance Ombudsman.

By Law No. 166-VI dated July 2, 2018, the Law on Insurance Activities was supplemented with Chapter 15, titled "Insurance Ombudsman".

Relevant amendments were introduced into Law No. 446, Law No. 444, and other laws on compulsory insurance, allowing the policyholder (beneficiary) in the event of a dispute to choose whether to file a written claim to the insurer specifying the demands and attaching supporting documents, or to submit a claim to the Insurance Ombudsman or the court for dispute resolution. However, with the adoption of Law No. 138-VII dated July 12, 2022, amendments were made to the Law on Insurance Activities and the laws on compulsory insurance, making it mandatory to apply to the Insurance Ombudsman before applying to the court.

Clause 5 of Article 90 of the Law on Insurance Activities was amended as follows:“Persons specified in the second part of clause 1 of Article 86 of this Law, being policyholders (insured persons, beneficiaries), as well as the insurer, have the right to apply to the court in accordance with the legislation of the Republic of Kazakhstan after obtaining a decision of the Insurance Ombudsman.At the same time, enforcement of the decision of the Insurance Ombudsman shall not be binding for the policyholder (insured person, beneficiary).”

Relevant changes were also made to laws governing compulsory insurance. By Resolution No. 60 of the Board of the Agency of the Republic of Kazakhstan for Regulation and Development of the Financial Market (ARDFM) dated September 12, 2022, the Rules for Election and Operation of the Insurance Ombudsman were approved.

Thus, from January 1, 2024, applying to the Insurance Ombudsman is a mandatory step prior to bringing an insurance dispute before a court. In accordance with the second part of clause 1 of Article 86 of the Law on Insurance Activities, the Insurance Ombudsman settles insurance disputes between policyholders (insured persons, beneficiaries) and insurance companies arising out of insurance contracts.

However, courts should take into account that not all disputes between policyholders (insured persons, beneficiaries) and insurance organizations arising from insurance contracts fall within the competence of the Insurance Ombudsman.

The law differentiates eligible applicants by type of insurance and limits the amount of their claims. For instance, individuals and/or small businesses who are policyholders (insured persons, beneficiaries) may apply to the Insurance Ombudsman for the resolution of disputes related to all types of insurance. Other legal entities may apply to the Insurance Ombudsman only in relation to mandatory motor third party liability insurance. The amount of claims in such cases must not exceed ten thousand times the monthly calculation index (MCI).

In practice, the question has arisen whether insurance companies exercising their right of recourse (Article 28 of Law No. 446) or the right of subrogation must first apply to the Insurance Ombudsman.

Attention should be paid to the new version of clause 1 of Article 29-1 of Law No. 446:

“In the event of a dispute arising from the contract of compulsory motor third party liability insurance, the policyholder (injured party, beneficiary) is entitled, in writing: to submit a claim to the insurer (including through its branch, representative office, other structural unit, or the insurer’s online resource), or to file a claim with the Insurance Ombudsman (directly, including through the ombudsman’s online resource or via the insurer, including its branch, representative office, other structural unit, or online resource), or to file a lawsuit in court, considering the peculiarities provided for in the Law on Insurance Activities.”

Thus, this provision refers to the procedural sequence for the policyholder, injured party, or beneficiary, but not for the insurer making a recourse claim.

J Insurance Company JSC filed a lawsuit against K. for recovery of the insurance indemnity by way of recourse.

By the ruling of the Altai District Court of the East Kazakhstan Region dated June 7, 2024, the claim was returned. The reason for the return was the absence of a decision by the Insurance Ombudsman, i.e., the plaintiff failed to comply with the mandatory pre-trial dispute resolution procedure as required by subparagraph 1) of clause 1 of Article 152 of the Civil Procedure Code.

Disagreeing with the ruling, the plaintiff filed a private complaint, requesting the cancellation of the ruling, arguing that the law does not require pre-trial dispute resolution involving the Insurance Ombudsman in such cases.

By the ruling of the Civil Division of the East Kazakhstan Regional Court dated July 25, 2024, the private complaint of J Insurance Company JSC was returned due to its withdrawal. The position of the courts in Abai Region appears to be legally sound on this issue.

Upholding the decision of the Semey City Court, which satisfied the claim of N Insurance Company JSC against P. for the recovery of funds by way of recourse, the appellate court found the defendant’s arguments on the need to leave the claim without consideration to be unfounded, since no pre-trial dispute resolution procedure is provided for this category of cases.

As for subrogation, subrogation (Latin: subrogatio) refers to the substitution of one person for another in regard to a lawful claim or right. In the context of insurance, it refers to the insurer acquiring the right to claim reimbursement from a third party responsible for the loss, to the extent the insurer has compensated the insured.

According to subparagraph 2) of clause 1 of Article 86 of the Law on Insurance Activities, the Insurance Ombudsman settles disputes between policyholders (insured persons, beneficiaries) and insurance organizations arising from insurance contracts.

In cases of subrogation, there is no dispute between the policyholder and the insurer arising from an insurance contract. The person liable for the damage, against whom the insurer that made the payment files a claim, is not a party to the insurance contract.

The subrogated claim by the insurer is governed by the rules that apply to the relationship between the policyholder (insured) and the person liable for the damage.

Therefore, the requirement that the insurer must apply to the Insurance Ombudsman prior to filing a subrogated claim cannot be considered legally justified.

Other examples of unjustified return or dismissal of claims due to non-compliance with the pre-trial dispute resolution procedure include: by the ruling of the Zhetysu District Court of Almaty city dated May 3, 2024, the claim of G. against LLP “A” for compensation of material damage caused by a traffic accident was wrongly dismissed...

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