New case law in Cyprus on insurance recovery

Recovering payments made for third-party accidents under an insurance policy often proves more complex than insurers initially anticipate. Recent court rulings highlight that insurers must obtain a court judgment to recover compensation in certain circumstances.

The parties bound by an insurance contract

When taking out an insurance policy, individuals generally expect protection against unforeseen or accidental events. However, insurers sometimes reserve the right to recover compensation paid to third parties from the insured in cases of breach of contract. It should be noted that this is not always possible, as in the case of Georgios Aidinidis v Alfa Insurance LTD (Civil Appeal No. 238/2018, dated 28/6/2024), the Court of Appeal recognised the necessity for a judgment against the insurer, the driver or the insured, pursuant to article 14(1) (a) and (b) of Law No. 96(I)/2000. In order for the insurer to have a justiciable right to recover from the insured the amount paid to third parties as compensation, there must be a breach of the terms of the insurance policy. For example, should an insured person be driving under the influence of alcohol, this is a breach of the terms of the insurance policy, which is therefore deemed a justiciable right. In reference to case law, a mere agreement to pay out-of-court without obtaining a court decision is not sufficient for an insurer to then have the right to recover from the insured, if the contract term refers to the relevant articles of the law.?

The need for a court judgment

Similarly, in the recent decision of Cosmos Insurance Company Dimosia Ltd v. Admitou Pitsillidi (Civil Appeal No. 32/2015, dated 31/5/2024) of the New Supreme Court (its appellate jurisdiction), it was confirmed that a necessary condition for the insurers, in order to be able to recover from an insured an amount paid either under the Contract or under the Act, is the issuance of a court judgment and not a mere out-of-court settlement. This decision underscores that without such a judgment, insurers' rights under section 14(1) (a) and (b) of the Motor Vehicles (Third Party Liability Insurance) Act, 2000 (Act 96(1)/2000) is not considered to have materialised. Therefore, it is only following the judgment of a court that an insurer’s enforceable right can be invoked.

The right of recovery

According to recent court decisions, including Georgios Aidinidis v. Alfa Insurance Ltd, in order for the right of recovery for breach of contract to arise for the insurance, there is a need for a court judgment against the insurer, the driver or the insured, pursuant to Article 14(1) (a) and (b) of Law 96(I)/2000. Such cases affirm that a court decision is needed, and that a mere out-of-court settlement cannot trigger the right to recover the already paid sums for accidents to third parties. Certain conditions must be met in order for a party to recover the above amounts and an out-of-court settlement is not one of these conditions.

When an insurance policy does not include the provisions of law

Unless the parties include a term in the insurance contract which provides otherwise, recent case law can be relied upon by insurers to determine when the right for recovery arises. Following the decision of Georgios Aidinidis v Alfa Insurance Ltd, and Like Insurance Ltd v Vlachou et al. (Political Appeal No. 194/2013), the insurer can claim recovery of the amount given under an out-of-court settlement without a court decision when the relevant term of the insurance policy is worded in such a way that it does not refer to the provisions of the legislation. Conversely, should an insurance policy include a reference to the provisions of the legislation, a court decision would be required in order for an insurer to recover the amount paid to third parties under an out-of-court settlement arrangement.?

How the right of recovery is triggered

The courts rely largely on case law to identify the conditions for the right of recovery of insurance, based on the terms of the insurance policy. Under Articles 2, 14 and 15 of Law 96(I)/2000, it seems that if the parties declare a common mutual agreement to settle the case and the judge issues a court decision to that effect, it would be deemed to be sufficient for the insurers to trigger the right of recovery.

Final remarks

Recent legal decisions underscore the importance of obtaining a court judgment for insurers to enforce their right of recovery from the insured after paying compensation to third parties. Both the Georgios Aidinidis v Alfa Insurance Ltd and Cosmos Insurance Company Dimosia Ltd v. Admitou Pitsillidi cases highlight that out-of-court settlements alone are insufficient if the insurance policy references specific legal provisions. As such, insurers must navigate these legal requirements carefully, ensuring that any recovery actions align with the court's rulings and the terms stipulated in the insurance contract.

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