Category: Insurance Law

Many people choose insurance hoping for one very simple thing—that in the event of a disaster, they won’t have to fight for basic fairness. In practice, however, even after paying substantial premiums, consumers often find themselves in situations where the insurer refuses to pay the full claim based on rules or obligations about which the policyholder was not actually clearly informed.

This is precisely the situation that the Supreme Court of Lithuania recently examined in a case involving a reduced comprehensive auto insurance payout.

In this case, the insurer had reduced the payout by 50 percent, arguing that the car owner had lost the car key prior to the theft but had not taken additional security measures or notified the insurer of this. However, the courts found that such obligations had not been clearly specified in the individual terms of the insurance contract, and the insurance policy terms had not even been properly provided to the consumer.

Commenting on the latest case law of the Supreme Court of Lithuania, Mantas Baigys, an attorney with a law firm, says that this ruling is particularly important in the context of consumer protection. “An insurer cannot rely on obligations about which the consumer was not clearly informed when the contract was concluded. If certain circumstances under which the payout could be reduced are not clearly discussed, the consumer is not required to anticipate them,” the attorney notes.

In its ruling, the Supreme Court of Lithuania very clearly distinguished between two situations: the general duty to act with due care and the insurer’s right to reduce the insurance payout. The court noted that the mere abstract argument that a person “should have acted more cautiously” is insufficient. If an insurer wishes to limit its liability or reduce the payout due to certain circumstances, such cases must be clearly and individually addressed in the insurance contract.

The court also clarified that the provision of the Civil Code regarding the duty to mitigate damages had been incorrectly applied in this case. The Supreme Court emphasized that this rule applies when the insured event has already occurred or is occurring, i.e., when the insured fails to take action to mitigate the damage after the event. In the case at hand, however, the insurer attempted to apply this provision to the situation prior to the theft—when the person had lost the key.

According to Mantas Baigys, what is even more important is that the Court clearly emphasized that if an insurer seeks to rely on gross negligence on the part of the insured as a basis for reducing the payout, such cases must be specifically provided for in the insurance contract itself. “This is required by the Insurance Law. The Court found that in this case, specific obligations—such as replacing the car’s locks or parking the car in a secure lot—had not been individually discussed with the consumer,” the lawyer comments.

The ruling also reiterates a very important rule: insurance terms and conditions that have not been properly disclosed to the consumer do not become part of the contract and cannot be enforced against the consumer.

The court also paid particular attention to the principles of consumer protection. The ruling drew on the case law of the Court of Justice of the European Union, emphasizing that consumer contracts must not only be formally clear but also genuinely understandable to the consumer. A person must be able to understand in advance what circumstances may lead to a limitation of insurance coverage and what economic consequences a particular contractual term will have for them.

According to Mantas Baigys, an attorney at AVOCAD, this case sends a very clear message to the entire insurance market. “Insurance contracts cannot be interpreted in such a way that the consumer only learns of additional requirements or consequences after an incident has occurred. If an insurer wishes to limit its liability, such conditions must be clear, understandable, and individually negotiated,” he states.

In its final ruling, the court awarded the policyholder the entire remaining portion of the insurance proceeds as well as the costs of the proceedings.

After every accident in an apartment building, the situation often plays out according to the same scenario: the insurer compensates the resident for the damage and then looks for someone to pass the cost on to. In practice, the building manager or homeowners’ association often becomes the target—as if the mere fact of the flooding were in itself proof of their fault. However, according to lawyers, the courts are drawing a clearer line: the mere fact that an accident occurred is not enough.

This was once again confirmed by the most recent ruling of the Vilnius Regional Court, which upheld the decision of the court of first instance to dismiss the claim filed by AB “Lietuvos draudimas” against UAB “Mano Būstas Sostinė”. In this case, the defendant was represented by Egidijus Langys, managing partner of the law firm AVOCAD.

The dispute arose over flooding in an apartment caused by a leak in the common-use sewer pipe. The insurer, having paid the insurance claim to the apartment owner, sought to recover this amount from the building manager, arguing that it was the manager’s responsibility to ensure proper maintenance of the common areas and prevent damage.

However, both the trial court and the appellate court held that the mere fact that the accident occurred in a common-use facility is not sufficient to establish the administrator’s civil liability. The courts did not assess the fact of the incident itself, but rather whether the administrator had actually performed the functions assigned to him by law: whether inspections were conducted, how the condition of the piping was recorded, whether there was objective data regarding the emergency condition, and whether there was, in general, a basis for taking immediate action without the owners’ decision.

The court found that the administrator had systematically conducted inspections of the building and its engineering systems, during which the condition of the piping was assessed as satisfactory, and no conclusions were presented by competent specialists stating that the piping in question was in a state of disrepair prior to the incident. The court also noted that wear and tear on the pipes alone does not constitute an emergency condition, and in the absence of data indicating a real threat, the administrator is not obligated to initiate repair or replacement work at his own discretion without the residents’ consent.

The court clearly emphasized that, in determining the administrator’s liability, it is necessary to assess not only the consequences of the accident, but all relevant circumstances—whether specific defects were identified, their extent and significance, whether they were such that the work should already be considered mandatory, and whether the administrator had an objective basis to act immediately. Otherwise, liability would be unjustifiably shifted to the administrator simply because an incident occurred.

According to Egidijus Langis, an attorney at AVOCAD, this ruling is significant for the entire apartment building management sector: “In this case, we succeeded in getting the courts to rule very clearly on a line of reasoning that is common in practice but legally unfounded—namely, that if an accident occurs, then the administrator is responsible. In our view, an important and fundamentally correct precedent is being established: when asserting a subrogation claim, the insurer must prove specific unlawful acts or omissions by the administrator, rather than relying solely on the fact of the flooding itself,” notes E. Langys.

According to the lawyer, it is also commendable that the courts assessed this situation objectively and consistently, which helps put an end to a practice that all too often served as a source of profit for insurers at the expense of administrators and communities.

This ruling sends a clear message to homeowners’ associations and property managers: proper technical maintenance, periodic inspections, documented assessments of the property’s condition, and compliance with the law are of paramount importance in disputes with insurers. However, according to an AVOCAD attorney, it is equally important that liability cannot be presumed solely on the basis of an accident—all conditions for civil liability must be established.