Russian Federation: Compulsory Insurance Of Hazardous Objects For Civil Liability

Last Updated: 23 August 2012
Article by Brian Nash

On 16 and 19 July 2010 the State Duma passed and the Federation Council respectively approved the Federal Law No 225-FZ "On Compulsory Insurance of Civil Liability of the Owner of a Hazardous Object for Inflicting Damage as a Result of an Accident at the Hazardous Object" ("Law 225"). Law 225 was officially published on 27 July 2010.

Certain of the provisions of Law 225 came into force on the date of official publication (Articles 17 to 19 and 21 to 23 inclusive). These provisions regulated the establishment of a professional insurers' association ("PIA").

Most of the remaining provisions of Law 225 came into force on 01 January 2012. However, the provisions on the right to compensation payments from the PIA and the obligations to pay compensation by the PIA only came into force on 01 July 2012 (Articles 14 to 16 and Article 20).

There are still some provisions yet to come into force on 01 January 2013 (Article 8.3 and 29.8) and 01 January 2016 (Article 7.10).

This article briefly summarises some of the more relevant provisions of Law 225 for the insurer and owner of hazardous objects.

Application of Law 225

Law 225 does not apply to relations arising as a result of, inter alia, the use of nuclear power or damage to the natural environment (Article 1.2).

Additionally, until 01 January 2013, Law 225 will not apply to state or municipal property financed wholly or in part from the budget and lifts and escalators in apartment houses.

Owner

"Owner" includes owner, lessee, operator, licensee and user (Article 2.4).

Hazardous objects:

"Hazardous objects" include (Article 5)

1 Registered hazardous facilities where: hazardous substances are produced, used, stored, processed, transported or destroyed;

  • equipment is operated under a pressure exceeding 0.07 MPa or at a water temperature exceeding 115°C
  • stationary freight lifting mechanisms, escalators, cableways, and funiculars are used
  • metals / non-ferrous metals are melted and alloys used
  • mining works / underground works are carried out

2 Hydraulic engineering structures subject to recording in the Russian Register of Hydraulic Engineering Structures

3 Petrol stations

Claimant

The persons entitled to claim under the compulsory insurance include:

  1. Employees and third parties for health, life and property damage (Article 2.1)
  2. The property of legal entities which is damaged as a result of an accident at the hazardous facility (Article 2.1)
  3. In case of death of a "breadwinner", the persons identified under Article 1088 of the Civil Code (Article 2.1)
  4. A person whose living conditions are due to damage to property or a threat to life or health has arisen as a result of the accident (Article 2.3

A claimant can present a claim directly to the insurer (Article 8).

Owner's obligations

The Owner is obliged to maintain the insurance for the entire period of the operation of the hazardous facility (Article 4.1), with minimum period of cover being one year (Article 10.1).

Compulsory insurance must be in place before the commissioning of a hazardous object (Article 4.2).

Owner's Liability

If the amount of damage exceeds the maximum amount of the insurance payment permitted under Article 6.2 of Law 225, the Owner is liable for the shortfall (Article 8.3).

Amount of cover / insurance payments / insurance premium

The amount of cover, insurance payments and insurance premium are fixed under Law 225.

The amount of cover is calculated on the basis of the number of potential victims from an accident at the hazardous facility.

For facilities which require a declaration of industrial safety or safety of hydrotechnical, the amounts range between 6.5 billion and 10 million rubles (Article 6.1).

For hazardous objects which do not require such declaration, the amount of cover ranges between 50 million (for production facilities in chemical / petrochemical / oil refining industry), 25 million (for gas consumption / supply networks) and 10 million (for other hazardous objects) rubles (Article 6.2).

In respect of insurance payments to claimants (Article 6.2), these are fixed at:

(a) 2 million rubles to persons who sustained losses as a result of the death of each victim (breadwinner)

(b) 25 thousand rubles maximum for burial

(c) 2 million rubles maximum for damage to health;

(d) 200 thousand rubles maximum per person whose residence is affected due to damage to property or threat to health or life

(e) 360 thousand rubles maximum per person for damage to property of natural person, except for damage inflicted in connection with (d) above

(f) 500 thousand rubles maximum per legal entity for damage to property

The premium is calculated by reference to the amount of cover and tariffs established by Federal Law, and takes into account potential harm as a result of an accident, the maximum number of potential victims and any history of incidents (Article 7).

Law 225 includes risks excluded from cover and aggregation of claims (Article 8.8 to 8.11 inclusive).

Time limit for claims

The time limit for claims under Law 225 compulsory insurance is 3 years (Article 10.8).

Insurer's right against Insured

The Insurer has a right of claim against the insured where the insured failed to comply with an instruction or direction of the Federal Executive Body responsible for control, supervision and security of hazardous objects (i.e. Rostechnadzor) and / or of the Federal Executive Body responsible for the protection of the population / territories from emergency situations and also where the premeditated action or omission of the insurer's workers caused harm (Article 13).

Insurer's obligation to report

The insurer must report information on concluded, extended and invalidated contracts of insurance to Rostechnadzor (Article 12.2.4)).

PIA Role

The PIA is essentially a self regulating organization with rules and standards for insurers, which regulates the provision of compulsory insurance (Article 17).

Insurers providing compulsory insurance on hazardous objects must become a member of a PIA. Further the members of the PIA must form a re-insurance pool to reinsure the civil liability risks of the owner of hazardous objects (Article 23.1).

The functions and powers of the PIA are set out in Article 18 of Law 225, with the standard and rules for professional activity specified in Article 19. The principal role of the PIA is to financially maintain and secure the performance of the insurers' payment obligations by making compensation payments where, for the reasons set out below, an insurance payment is not possible.

The Charter of a PIA must include a provision specifying the PIA's obligation to pay compensation payments to the insured when the member of the PIA (the insurer) is not in a position to perform its obligation for the reasons listed in the following paragraphs.

A natural person who sustained harm as a result of a hazardous accident may seek compensation from the PIA where payment under the compulsory insurance cannot be made as a result of:

  1. Bankruptcy of the insurer
  2. Withdrawal of insurance licence
  3. Failure to identify the party responsible for the damage
  4. Absence of a compulsory insurance contract

However, legal entities are only entitled to compensation from the PIA where the circumstances of 1 and / or 2 are satisfied.

The amount of compensation payments are the same as those for insurance payments under Article 6.2 and are reduced by any partial recompense received from the insurer or insured.

The PIA is entitled to claim regress for compensation paid and outlay expended from the person responsible for the harm and the PIA obtains subrogation rights under the compulsory insurance up to the amount of compensation paid (Article 16).

Consequences of failure to obtain / maintain compulsory insurance for hazardous objects

The owner is not permitted to commission a hazardous object in the absence of compulsory insurance (Article 4.2).

Both owner and officers are personally liable for failure to obtain / maintain compulsory insurance (Article 4.3).

Absence of compulsory insurance for hazardous objects is an offence under Article 19 of the Administrative Offences Code. The penalty for such offence is an administrative fine between 15 thousand and 20 thousand rubles on authorized persons and between 300 thousand and 500 thousand on legal entities.

Additionally, the operation / activity of a hazardous object may be suspended for a period up to 90 days.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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