The battered insurance market in Bulgaria faces new perils

A court arbitrarily interpreted a European directive, opening the door to new chaos, perhaps more serious than the ‘Olympic’ scandal, Valia Ahchieva’s new journalistic investigation reveals.

[Important notice: The previous Valia Ahchieva’s investigative reports published in this website have been widely picked up by Bulgarian media outlets, but very few of them asked for authorization. Those who wish to re-publish this and other investigative reports should clearly identify the source EUelectionsBulgaria.eu, a website created by Brussels-based journalist Georgi Gotev as a free press project to cover the European elections and the political context in Bulgaria. For contacts: gggotev@gmail.com]

The road accident occurred in June 2014, near the town of Shumen. Car driver Ivancho H. caused a road accident that led to the death of Alexander D.

Four years later, in 2018, the sister of the deceased, Daniela D., brought an action against the insurance company in which the vehicle had valid third-party liability insurance. The sister of the deceased in the crash was claiming the amount of BGN 50,000 (€25,000) as part of a claim of BGN 100,000 for non-pecuniary damages suffered by her.

The case is filed with the Regional Court in Shumen. By its judgment of 10 January 2019, the Court ordered the insurance company to pay to the sister of the deceased in the accident BGN 20,000.

Although in the Bulgarian Insurance Code, according to recent legal amendments, Paragraph 96 provides for such a case a benefit with an upper limit of … BGN 5,000.

The court in Shumen motivates in a very strange way its decision to disregard the Bulgarian law.

The court claims there is a contradiction between this paragraph 96 and the European Directive 2009/103/EC.

The Court therefore referred to the Directive and not to the Bulgarian law. And instead of compensation of BGN 5,000, the Court awarded a compensation of BGN 20,000.

This ruling in a Bulgarian district court has caused a negative reaction in the insurance market. It is said that if the second instance – the Court of Appeal in Varna, the compensation is confirmed, this would create case law. And that it will immediately bring back to square one the difficult dialogue in Bulgaria for the fair compensation under of compulsory third-party liability.

And the insurance market will again face the risk of financial instability of companies, as it did last year.

This ruling highlighted facts and problems that had never been reported by the Financial Supervision Commission (KFN).

The bankruptcy of the insurance company “Olympic” and an Interpretative Decision of the Supreme Court of Cassation (VKS) were the main events that prompted the dialogue on changes in the Insurance Code.

The Cyprus insurance company “Olympic insurance Co.” Ltd, which operated in Bulgaria through its branch, was stripped of its license in May last year. The license was withdrawn by the Ministry of Finance in Cyprus because of insufficient capitalisation. Thus all insurance contracts of “Olympic” were automatically terminated. And almost 250,000 cars in Bulgaria remained without the compulsory Third Party Liability Insurance.

Tensions among Olympic clients escalated in August when they came out at night protests in front of Parliament’s building. KFN informed the car owners with terminated insurance that they must immediately conclude another one with another licensed insurer. Otherwise, they are subject to sanctions. The prosecutor’s office ordered an inspection of the activity of the Financial Supervision Commission.

The European Directive 2009/103/EC has been transposed into Bulgarian law. The main purpose of this Directive is to ensure the free movement of vehicles and persons in the EU in their vehicles and to make sure that victims of accidents caused by such vehicles are treated in similar way.

According to Art. 9 para 1, b. (A) of the Directive 2009/103/EC, member states must require in the case of personal injury, a minimum amount of cover of €1,000,000 per victim or €5,000,000 per claim, whatever the number of victims.

Bulgarian law has also complied with this obligation by providing for these limits.

However, in June 2018, the Supreme Court of Cassation (VKS) issued its Interpretative Decision 1/2016.

It says that for provoked injuries such as car accidents, medical errors, labor accidents and murders, compensation had been paid until now to a very narrow circle of victims.

And this, according to the VKS, is not fair. Therefore, there should be a wider circle of close people to whom benefits are to be paid.

VKS, by this Interpretative Decision, extended the circle when it came to the pain and suffering of the loss of a close person: brothers, sisters, nephews. And if they prove to the Court that they were emotionally related to the victims – then they will get money.

Everyone would agree with this Interpretative Decision of the VKS because we are human.

But let’s have a look at the practice in the other European countries.

In Spain, for example, the law says that compensation is given to relatives who suffer if they are in a household with the victim.

In France compensation is given to relatives who are emotionally connected and are in one household.

In Slovakia, third-party liability insurance does not cover pain and suffering. There is no such kind of benefit. What is compensated is loss of income, and child support.

But in Bulgaria compensation is paid to a wider range of people if they are “emotionally connected”. And even if they are not relatives!

This is despite the fact that in Bulgaria, the Court does not examine affection. The court accepts that a wide range of relatives are emotionally connected.

And in this sense, after this Interpretative Decision of the Supreme Court of Cassation, for only 3 months, 828 people emotionally connected to victims filed claims in the courts in Bulgaria, totaling BGN 91 million to all insurance companies!

Claims have been filed by all kinds of relatives. One of them was a step-grandson.

This seriously shook the insurance market and a solution had to be found in a dialogue between the state, KFN, insurers, insured, lawyers and civil associations of victims of traffic accidents.

It has become clear that Bulgaria is the only state without a limit to the number of persons who claim the right to civil liability compensation and without limitation of benefits for pain and suffering.

And since insurers are the largest payer, a campaign to introduce limits has begun.

There was another truth: the fact that the average Bulgarian with his low income cannot afford third-party liability insurance.

In Bulgaria has the cheapest third-party liability insurance. But, as a percentage of the income, this insurance amounting to about €100 starts to weigh on the Bulgarian.

3,000,50 third-party liability insurance exist in Bulgaria.

And that is precisely why the Association of Insurers in Bulgaria has proposed a methodology to be adopted for determining the benefits.

Such a methodology /table/ for calculating pecuniary or non-pecuniary damages for crashes is known in a number of EU member states, for example, Belgium, Italy, Spain, Cyprus, Sweden.

And in other European countries, the allowance has a limit. For example, in Estonia, Latvia, Luxembourg, Slovenia.

And in Bulgaria, policyholders face two options: either not to buy expensive third-party liability insurance, or to buy cheap insurance that does not provide benefits. The classic example of this is the bankrupt Olympic company.

Another story is that every year, the payment to those who claim pain and suffering is increasing.

For example, in 2017, the court awarded 120,000 leva to the heirs at the death of their relatives.

And now the new extended circle of “emotionally connected” wants the same compensation each.

It is also inexplicable why each year the average benefits are “picked up” by BGN 10,000.

In other European countries, there is sound case law or a methodology on which insurers pay. And the facts show that 90 percent of the total limit is for property damage and only 10 percent remains for pain and suffering.

This means that in Europe the idea is to compensate for relatives with measurable losses – loss of income, maintenance, education fees, etc. And all this can be calculated in real terms – what has the child lost from the death of its parent? And get paid for it.

But who can calculate how much tears cost?

Nobody.

In Ottoman law, the indemnity for pain and suffering is called blood money.

And in Bulgaria it is accepted to be awarded a large blood money compensation.

What does it mean – that the Ottoman law is enshrined in Bulgarian jurisprudence?

This is a Bulgarian unique way of getting benefits.

And the media have also pointed out schemes where millions from benefits do not actually reach the loved ones. Someone else is taking them.

That is why the insurers demanded the establishment of the methodology. Depending on the income and expense of the victim’s family, these are facts that can be proven. The changes to the Insurance Code, Article 493a states that there must be a methodology. If the Court in Dobrich grant a compensation of BGN 20,000, and in Sofia the court gives 200,000 levs, the question arises: do the pains and suffering of a close person in Sofia are 10 times more expensive than those in Dobrich?

Of course not.

When asked about the new methodology, the new chairman of KFN, Boyko Atanassov, told me that until 7 June, the draft Methodology must be ready, and on this basis, KFN should draft an Ordinance with a deadline of 7 December this year.

However, while the Methodology is being drafted and to make sure that the insurers don’t go bankrupt, a new text was adopted by the National Assembly in the Code of Insurance, paragraph 96:

To the wide range of relatives, for pain and suffering, the compensation is capped at BGN 5,000 in case of loss of a relative. And this is in the spirit of European case law.

However, the Regional Court in Shumen decided otherwise. He decided that the sister of the deceased in the accident in Shumen 5 years ago should receive not the sum of BGN 5,000 capped under the said Paragraph 96 of the Insurance Code, but BGN 20,000. And the court refers to the European Directive 2009, which it claims that the Bulgarian law contradicts.

And this means that the District Court in Shumen cannot distinguish the method of valuation of the liability of the motorist, from the responsibility of the insurer, under the compulsory third-party liability insurance, to determine the due compensation.

There is no contradiction between the European Directive and the Bulgarian Insurance Code, as it is claimed. There is a full harmonisation between national law and Directive 2009/103/EC.

Now the case in question is to be ruled at the highest instance – the Varna Court of Appeal. The question is:

Will this precedent become a case law?

Will insurance companies in Bulgaria again face the risk of being destabilized again, perhaps much more seriously?