Reduction of Insurance Compensation in the Event of a Vehicle Theft
In recent years, many insurance companies have been applying an unlawful practice of reducing the compensation for vehicle theft by a pre-determined percentage, in cases where the vehicle’s Part II registration certificate* (the so-called "small card") was left inside the vehicle.
With its decision on October 22, 2024, the Supreme Court of Cassation (SCC) put an end to this wrongful practice, providing a binding interpretation of Articles 395, paragraphs 4 and 5 of the Insurance Code. The SCC confirmed that the judicial practice created under the previous version of the Insurance Code (valid until January 1, 2016) is no longer relevant.
The decision was made in a case filed by our client against their comprehensive car insurance provider, which, in its general terms, had included a clause stating that if Part II of the vehicle’s registration certificate was left inside the vehicle at the time of the theft, the insurance compensation would be reduced by 50%.
What are the key takeaways from the Supreme Court of Cassation decision?
- In both cases of refusal to pay compensation and cases where compensation is reduced, there must be a proven causal link between the policyholder’s failure to fulfil their obligations and the occurrence of the insured event;
- This causal link must be proven by the insurer, as it is a prerequisite for the insurer to lawfully reduce the compensation;
- The old practice of the SCC, which was established under the application of Article 207, paragraph 2 of the Insurance Code (now repealed), corresponding to Article 395, paragraph 4 of the current Insurance Code, is no longer applicable. This practice assumed that for the failure to fulfil obligations to result in a reduction of compensation, it was enough for the possibility that the failure could have contributed to the insured event. However, it did not require clear and indisputable proof of the causal link between the failure and the event;
- The provisions of Articles 395, paragraphs 4 and 5 of the Insurance Code are imperative and cannot be overridden by additional grounds set by the insurer in the general terms for reducing or denying compensation;
- The insurer cannot, through clauses in the general terms, unilaterally avoid the obligation to prove an element of the facts necessary for exercising its discretionary right under Article 395, paragraph 4 of the Insurance Code;
- Accordingly, the policyholder is not restricted from making objections regarding both the absence of a causal link in general, as well as the mismatch between the reduction made by the insurer and the extent of non-fulfillment of the specific obligation.
We hope that insurance companies will reconsider the terms in their comprehensive car insurance policies and that the number of legal disputes regarding whether compensation should be reduced if Part II of the vehicle registration certificate was left inside the vehicle before it was stolen will decrease.
*In Bulgaria there are two parts to the registration certificate. Part I contains the vehicle identification data and certifies the owner’s right to the vehicle and must be carried by the driver when using the vehicle. Part II identifies the vehicle and must be carried by the driver of the vehicle in road traffic.
This article has been prepared for general information only and does not constitute legal advice with respect to any particular subject or situation. For specific legal advice, you should contact an attorney-at-law. Stoeva, Tchompalov & Znepolski is not responsible for any legal action undertaken based on the information contained herein.