Legal Framework of an Insurance Contract
Drafting and auditing insurance contracts in Georgia rests on the Law of Georgia on Insurance, which defines both the essence of the relationship and the circle of its participants. Under the law, insurance is a relationship established to protect the personal and property interests of natural and legal persons, at the expense of monetary funds formed from insurance contributions (insurance premiums) and other sources permitted by legislation, upon the occurrence of certain circumstances — insured events. Insurance activity, in turn, is the activity of an insurer connected with the conclusion and performance of insurance and reinsurance contracts.
Correct drafting depends on the precise use of the statutory concepts. An insurer may be a joint-stock company holding a licence for the relevant type of insurance, or a branch (representative office) founded in Georgia by an insurance and reinsurance organisation registered and licensed abroad. The other core concepts operate as follows:
- policyholder — a natural or legal person who has concluded an insurance contract with the insurer;
- insured person — a person in whose respect insurance is carried out (the policyholder may simultaneously be the insured person);
- beneficiary — a person who receives insurance compensation under the contract or under compulsory insurance legislation;
- insurance agent — a person acting on the insurer's behalf and instruction, within the authority granted;
- insurance broker — a self-employed entrepreneur or legal person registered with the Insurance State Supervision Service as an intermediary;
- insurable risk — an event bearing the features of possibility and chance, for which insurance is taken out;
- insured event — an event upon whose occurrence the contract provides for payment of insurance compensation;
- insurance policy — a signed document issued by the insurer certifying the insurance contract.
Voluntary and Compulsory Forms
Insurance is carried out in voluntary and compulsory forms, and this distinction defines the boundaries of contractual freedom. Voluntary insurance is carried out on the basis of a contract concluded between the insurer and the policyholder, while its types, conditions and manner of performance are established by that very contract. When designing a voluntary programme the parties therefore enjoy broad freedom of arrangement, although the agreed conditions must not contradict the legislation.
Voluntary insurance may be carried out by any licensed insurance organisation of Georgia. Compulsory insurance, by contrast, is a form in which the object, types and manner of performance of insurance are determined by the relevant legislation. Under compulsory insurance the insurer is obliged to conclude a contract with the policyholder on the conditions fixed by law, while it retains the right to offer the policyholder conditions more favourable than those established by law. A contract audit must therefore begin by identifying the regime of the specific product, because the permissible scope of negotiation depends on it.
Policyholder Status and National Restrictions
A policyholder is a person who has concluded an insurance contract with an insurer and may be either a legal or a natural person. The law simultaneously imposes an important territorial restriction: a legal person registered in Georgia may conclude an insurance contract connected with activity carried out in Georgia and with property located in Georgia — except for a reinsurance contract — only with an insurance organisation licensed by the Service. The same rule applies to a citizen of Georgia, who may conclude an insurance contract on the territory of Georgia only with a Service-licensed insurance organisation.
The practical conclusion for an audit is straightforward: if a contract was concluded with an unlicensed or foreign entity where this is prohibited, the legal fate of such a transaction becomes doubtful and the policyholder faces risk. Before signing, the insurer's licence and registration should always be verified.
Consumer Protection at Every Stage of the Contract
The insurer and the insurance intermediary are obliged to ensure the protection of consumer rights at every stage — the pre-contractual relationship, the operation of the contract and the full performance of the obligations stipulated by it — in accordance with the Law on Insurance and the Law of Georgia on Protection of Consumer Rights. The insurer must also protect consumer rights in accordance with the procedure established by the Service and with its own internal policy and procedures for consumer rights protection.
The statutory notion of a consumer is broad: it covers both a natural person intending to obtain insurance services or a policyholder at the contracting stage, and, at every stage of performance, the policyholder, the insured person, the beneficiary and any third party, including a person who suffered damage arising out of liability insurance. A consumer is entitled, in the event of improper performance of obligations by the insurer or the insurance agent, to apply to the relevant structural unit of the insurer, to a court or to any other authorised public or private institution, and, where his rights are violated, also to the Service. The same avenues are available in relations with an insurance broker.
Audit Checkpoints for the Contract
An audit of the contract means checking the document for compliance with the statutory requirements. In practice, attention concentrates on the following matters:
- capacity of the parties — whether the insurer holds a licence for the relevant type and whether the restrictions on the policyholder are respected;
- form of insurance — voluntary or compulsory, and whether the contract conditions match the applicable regime;
- accuracy of concepts — how the insurable risk and the insured event are defined and who the insured person and beneficiary are;
- consumer protection — whether pre-contractual information, internal policy and complaint avenues are reflected;
- delegated rules — the detailed requirements of insurance activity are settled by normative acts of the Service, so the audit must rely on their current versions.
Defects revealed by the audit — inconsistent terminology, conditions incompatible with the law or clauses detrimental to consumer rights — must be corrected in good time by amending the contract, which pre-empts disputes between the parties.
Frequently Asked Questions
With whom may an insurance contract be concluded in Georgia?
A Georgian legal person and a citizen of Georgia may conclude a contract connected with activity and property in Georgia only with an insurance organisation licensed by the Insurance State Supervision Service; a reinsurance contract is the exception.
What is the difference between voluntary and compulsory insurance?
The types, conditions and manner of voluntary insurance are fixed by the contract itself, whereas under compulsory insurance the object, types and procedure are determined by legislation, and the insurer must contract on statutory terms, though it may offer more favourable ones.
At which stages does the law protect the consumer?
Protection applies from the pre-contractual relationship through the operation of the contract until the obligations are fully performed; on violation the consumer may apply to a court, the Service or another authorised institution.
What does a contract audit verify?
The audit verifies the parties' capacity, the correctness of the insurance form and concepts, consumer-protection clauses and compliance with the Service's detailed normative requirements.
How We Help on Legal.ge
The Legal.ge team assists with drafting insurance contracts, legally auditing existing policies and consumer-protection issues. Write to us — we will assess your documents, discuss the risks and plan the next steps.