Like all types of insurance, Motor Third Party Liability (MTPL) insurance is essentially a contract. As such, it should be entered into and terminated freely, at the will of the parties involved. However, MTPL contracts are a notable exception to this rule, as they serve a specific social security function.
While operating a motor vehicle, pecuniary (to other motor vehicles, fences, guardrails, roadside facilities, etc.) and non-pecuniary (bodily injury, death) damage may occur. Compensation for the damage might require payment of large sums of money, which can be a heavy financial burden to drivers, sometimes even impossible to bear. Taking out MTPL insurance reduces the risk of the damage being bornе by the injured in case the driver does not have sufficient funds to cover it. This shifts the burden to the insurer, who provides funds to compensate for the damage that occurred.
However, the insurance’s social security function cannot be achieved unless drivers are required to maintain insurance at all times and unless every insurer is required to offer and provide it on demand. Thus, the law – and, particularly, the Insurance Code (IC), takes away the freedom of contract from the parties involved, obliging every car owner to maintain uninterrupted insurance for their vehicle and every insurer to provide it on demand.
The freedom of contract of both parties is also restricted with regards to the termination of the contract. The MTPL insurance can be terminated in three cases only:
1. If the insurance premium is agreed to be paid in installments, each installment is to be paid on the due date (payment date) specified in the contract. Otherwise, pursuant to Art. 368, Para 4 of the IC, the insurer has the right to terminate the contract no earlier than 15 days after the due date. This termination requires no separate termination notice. The IC states that if the policy indicates that the insurance will be terminated in the event of non-payment within the agreed period, no additional notification is required. Basically, this text is included in all MTPL insurance policies.
2. The second scenario in which the contract may be terminated is in case of change of ownership of a vehicle. Still, the possibilities for a termination a limited and it can occur in the following two cases:
Except for the above cases, in case of change of ownership of a vehicle, the insurance cannot be terminated, nor can the premium be increased.
3. The third case in which the MTPL contract can be terminated is also related to the insurance premium, but in a specific context. The MTPL is taken out for a period of one year, constituting one insurance period. However, the IC allows the parties to take out insurance for three consecutive periods of one year each, i.e., for the next three years. In such case, if the insurance premium for the next insurance period increases due to increased risk (for the second or third year after the conclusion of the insurance), the insured has the right to terminate the contract. However, the termination will take effect at the end of the current insurance period, i.e., after the insurance term for the current year expires. In this case specifically, the IC does not permit termination of the current contract, only of the subsequent ones.
Another particularity of the termination of the MTPL insurance is that the insurer is required to submit information of the date of the termination to the Guarantee Fund’s Information Centre. This way, the IC sets out a protection mechanism for the third parties (injured or damaged persons) who have access to information of the validity of the MTPL insurance on the date of the accident for the specific vehicle. This protection mechanism is of such importance that it has been resolved by the Supreme Court of Cassation through binding case law with Interpretative Decision No. 1 of 23 December 2015 on Interpretative Case No. 1/2014 of the General Commercial Chamber. Pursuant to the caselaw, if the insurer has not submitted the information regarding the termination of the contract to the Information Centre, the MTPL will be considered valid towards the third parties. This decision emphasizes the importance of MTPL insurance for society, but also the fact that owning and using a motor vehicle is rather a responsibility than a right.
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