The Carrier’s Civil Liability Insurance (CMR) in Lithuania: a Different Understanding of Gross Negligence in the Relationship of Cargo Transportation and Insurance
The Carrier’s Civil Liability Insurance (CMR), as well as other types of civil liability insurance is designed to protect the proprietary interests of the person (carrier) arising from their possible civil liability for the damage caused to the injured third party and (or) their proprietary damage. As far as the victims themselves can directly present claims to the insurer on the damage caused by the carrier, the insurance of civil liability gains an additional feature: when the carriers insure their civil liability, the victim’s proprietary interest is additionally protected at the same time, as in the event of a higher damage the insurance company that had insured their civil liability and that inherently possesses a greater financial capacity, becomes liable together with the carriers in the most general sense for the damage caused by them.
Thus, although in 2002 the provision on the compulsory third party liability insurance for carriers was repealed in the Code of Road Transport of the Republic of Lithuania, taking into account the relatively frequent practice of most freight consignors and freight forwarders making it conditional for the carriers to provide a valid civil liability insurance policy, it is unlikely that any carrier has not insured their civil liability.
Still, the participants of the legal relationships of freight often unduly attempt to directly identify the carrier’s liability and obligation to compensate for the damage caused due to damaged or lost cargo with the obligation to pay the insurance claim by the insurer that had insured the carrier’s civil liability. That is because the legal relationships of insurance between the insurer and the policyholder occur on the basis of an insurance contract rather than on the basis of the contract of carriage. Since with the help of the insurance contract the insurer assumes the obligation to indemnify the losses caused by the policyholder to a third party in the event of an insured event, namely when the insurance contract determines the insured object (or uninsured object) between the policyholder (the carrier) and the insurer, and the interest insured, as well as the events insured or uninsured define the extent of the risk assumed by the insurer, the scope and limits of the insurance contract, the scope and limits of insurance, in other words, the cases when the insurer shall pay the insurance claim for the damage caused by the carrier.
Contrary to, let us say, in the event of the Compulsory Third Party Motor Vehicle Liability Insurance, the legislation does not establish any standard conditions for the Carrier’s Civil Liability Insurance (CMR). As a result, the insurance products of the Carrier’s Civil Liability (CMR) offered by insurers differ not only in price but also in their essence. In determining the object and interest of insurance, the list and conditions of uninsured events, in the event of violation of which the insurer has the right not to pay the insurance claim or to reduce it, the extent of the risk assumed by insurers varies. Therefore, we always recommend that both the carriers that insure their civil liability and the freight consignors and freight forwarders that conclude long-term contracts with carriers evaluate under what terms and conditions of insurance the carrier’s civil liability is insured.
One condition, on the basis of which (by assigning it to the list of uninsured events) insurers often refuse to pay the insurance claim, is characteristic to virtually all the typical conditions of insurers that operate in Lithuania and offer the products of the carrier’s liability (CMR) insurance. These are the cases where the damage is caused by the intent and / or gross negligence by the policyholder (the insured carrier).
Bearing in mind that the damage caused in the course of the performance of a cargo transportation contract by the carrier inherently does not arise spontaneously, but for violation of various conditions of transportation contract, failure (illegal actions) to comply with the requirements applicable to the activity of cargo transportation or behavior rules, finding of gross negligence by the carrier has become so widely used that the arguments that have actually become standard on the fact that the damage has been caused due to gross negligence of the carrier can be found in almost every decision of an insurance company when refusing to meet the requirements of the carrier or the victim that suffered the damage due to cargo loss or damage for payment of an insurance claim.
Accordingly, the decisions by insurers on refusal to pay insurance compensation is most frequently based on arguments formed in the case law of the Supreme Court of Lithuania, in interpretation and application of the law norms of the CMR Convention in the event of cargo theft, stating that the gross negligence to be compared to an intention can be considered to be actions by the carrier which they could not have been committed in the case of adherence of at least minimal requirements of care and diligence, or omission, i.e. failure to carry out all possible measures that could have reduced the occurrence of risk of harm or could have helped avoid it. Therefore, when insurers apply such a definition of gross negligence, the individuals that qualify for an insurance compensation are most often faced with the dilemma of the Procrustean bed. In case of damage, when it can be determined from the surrounding circumstances that the carrier did not violate any conventional requirements applied to the activity of cargo freight and has carried out all the possible actions that might have reduced the risk of appearance of damage or might have helped avoid it, it is inherently possible to state that the carrier is not generally liable for the damage caused. Meanwhile, having found that the carrier has violated the conventional requirements applied to the activity of cargo freight and has not committed everything that in the specific case could have reduced the risk of appearance of damage or could have helped avoid it, the insurer may rely on a clause of the insurance contract that the event of the gross negligence of the carrier is an uninsured event. In both cases, there is no obligation for the insurer to pay the insurance compensation.
Yet in 2007 the Supreme Court of Lithuania spoke about the mistreatment of such case law applied by insurers in the handled civil case on If Draudimas, UAB v. Portolitus, UAB Petro Valinčiaus firma, Lietuvos draudimas, AB, the third parties Šiaulių Tauro televizoriai, UAB and G.B., case no. 3K-3-536/2007. The Court stated that “the violation of the conditions of the contract on cargo carriage by motor road via an international route, when the carrier’s fault according to the CMR Convention is presumed and the violation of the conditions of civil liability insurance contract, as the basis for the insurer to refuse to pay the insurance compensation can not be treated in the same way, since the essence of civil liability insurance consists of the fact that the insurer’s obligation to pay the insurance benefit results from the guilt of actions by the carrier which have violated the terms of the contract of carriage. [...] the reasonableness of the insurer’s refusal to pay the insurance compensation must first be seen in the aspect of coverage of insurance policy defined under the civil liability insurance contract concluded by the parties. [...] For these reasons, the panel of judges agrees with the evaluation of the Court of Appeal, if the insurer determines such standard terms of contract or interprets them in such a way that in respect to the scope of obligations set out for the policyholder the degree of risk of insurance assumed by the insurer completely disappears or becomes so minimal that it is essentially denied, then these conditions, or such interpretation of their content does not meet the essence and purpose the insurance itself.” And although in the civil case in question the court did not speak on the concept of in the legal relationships of insurance, it made it clear that in dealing with recognition of the event as insured and the insurance compensation payment, the actions of the carrier and the form and degree of guilt cannot be assessed applying the same law norms of the CMR Convention and the same legal test that is applied in the legal relation between the carrier and consignor, deciding on the liability of the carrier against the consignor of the cargo.
Despite the previously discussed practice, that is widespread among insurers, has not changed. By finding gross negligence of the carrier and recognising the events as uninsured, insurers continue to frequently unduly rely on the concept of gross negligence, formed by applying the CMR Convention, i.e. in resolving disputes between cargo carriers and consignors.
As a result, by the Ruling of the Supreme Court of Lithuania of December 18, 2017, having handled a civil case in accordance with the claim by Ogauta, UAB against the insurer Gjensidige, ADB concerning adjudgment of insurance compensation (civil case No. e3K-3-461-378/2017) was once again forced to rule that: “The CMR Convention does not regulate the rights and duties of the relationship parties of the insurance liability of carriers, thus, in the event of a dispute concerning recognition of the event as insured and payment of the insurance compensation, there should be compliance with the provisions of the legislation that regulate legal relations of insurance and the specific insurance contract.Thus, in the present case the dispute should be resolved in accordance with the governing law of the legal relationships of insurance and the practice of the Court of Cassation on the interpretation and application of these legal norms, and not the regulation established under the CMR Convention and the corresponding practice of the Court of Cassation on the CMR Convention. In addition, in the Court Ruling discussed the Supreme Court of Lithuania has presented an actual interpretation that the concepts that define gross negligence or other forms of guilt provided in the conditions of the insurance contract must comply with the corresponding concepts and their contents used in the existing legislation, case law and legal doctrine. Due to this, even if the the insurer provides for another definition of gross negligence under the insurance terms and conditions of insurance applicable to the contract of insurance, or, when deciding on recognition of the event as insured and on the payment of an insurance compensation, they explain by way of derogation from the concept of gross negligence provided for under legal acts and the case, when resolving a legal dispute, the courts should follow namely such a definition and concept of gross negligence, which has been defined under the legal acts, the case law and the legal doctrine.
Against this background, the Supreme Court of Lithuania also stated that although the norms of the Civil Code governing civil liability do not provide for the concept of intent and negligence, the concept of gross negligence is continuously developed and interpreted in the case law. In the context of the proceedings handled, the Supreme Court of Lithuania said that gross negligence should be understood as a form of guilt, which manifests in an unreasonable or exceptional absence of care when a person is not as mindful as it is clearly necessary in the existing circumstances.
As can be seen, such a definition of gross negligence is significantly different from the concept of gross negligence formulated in some case when applying the CMR Convention. Therefore, when solving the issue about whether the specific event should be recognised as insured, it should be borne in mind that reckless endangerment or omission by the carrier in the legal relationship of insurance should be more tolerated and the violations of non-essential obligations or rules of conduct inherent in practice should not be treated as equal to gross negligence.