RASK Secures Significant Victory in an Insurance Dispute over the Policyholder’s Standard of Care
Case
RASK Attorneys-at-Law Keidi Kõiv, Timo Kullerkupp and Tarmo Peterson successfully represented MAVE Varahaldus OÜ in a substantial insurance dispute against ERGO Insurance SE arising from a fire at the client’s commercial property in 2019. Both the Harju County Court and the Tallinn Court of Appeal upheld the client’s position and dismissed the insurer’s arguments. Following the Court of Appeal judgment, the Supreme Court declined to hear ERGO’s further appeal.
The dispute focused on the standard of care required for maintaining automatic fire detection systems and other security systems. The insurer argued that alleged malfunctions in the systems had increased the insured risk and therefore justified a reduction of the insurance indemnity. RASK successfully argued that policyholders cannot reasonably be expected to guarantee uninterrupted technical functionality at all times, but must instead comply with reasonable maintenance and inspection obligations. The courts agreed with this interpretation.
The courts held that the owner of a fire safety installation fulfils its obligations by complying with the maintenance, inspection and monitoring requirements imposed by law and contract. As the client had regularly maintained the system and had arranged an inspection shortly before the loss event, there was no legal basis for reducing the insurance compensation. The Court of Appeal further emphasised that an interpretation releasing an insurer from liability whenever a system malfunction occurs would be unreasonably burdensome for policyholders and contrary to the purpose of property insurance.
The case provides important guidance for insurance practice by confirming that the applicable standard is one of reasonable care rather than absolute guarantee. The courts confirmed that the existence of a later system failure alone does not justify reducing or denying coverage where the policyholder has fulfilled all contractual and statutory maintenance and inspection obligations.
The dispute focused on the standard of care required for maintaining automatic fire detection systems and other security systems. The insurer argued that alleged malfunctions in the systems had increased the insured risk and therefore justified a reduction of the insurance indemnity. RASK successfully argued that policyholders cannot reasonably be expected to guarantee uninterrupted technical functionality at all times, but must instead comply with reasonable maintenance and inspection obligations. The courts agreed with this interpretation.
The courts held that the owner of a fire safety installation fulfils its obligations by complying with the maintenance, inspection and monitoring requirements imposed by law and contract. As the client had regularly maintained the system and had arranged an inspection shortly before the loss event, there was no legal basis for reducing the insurance compensation. The Court of Appeal further emphasised that an interpretation releasing an insurer from liability whenever a system malfunction occurs would be unreasonably burdensome for policyholders and contrary to the purpose of property insurance.
The case provides important guidance for insurance practice by confirming that the applicable standard is one of reasonable care rather than absolute guarantee. The courts confirmed that the existence of a later system failure alone does not justify reducing or denying coverage where the policyholder has fulfilled all contractual and statutory maintenance and inspection obligations.