On Compulsory Insurance of Legal Liability of Audit Organizations

The Law of the Republic of Kazakhstan dated 13 June 2003 No. 440

Unofficial translation

      Footnote. Title as amended by the Law of the Republic of Kazakhstan dated 5 May 2006 No. 139 (the order of enforcement see Article 2 of the Law of the Republic of Kazakhstan No. 139).

      Footnote. Through the text the words “auditors and”, “auditor or”, “auditor and”, “auditors carrying out audit activity as individual entrepreneur and”, “auditors and” are excluded by the Law of the Republic of Kazakhstan dated 5 May 2006 No. 139 (the order of enforcement see Article 2 of the Law of the Republic of Kazakhstan No. 139).

      This Law regulates public relations arising due to compulsory insurance of legal liability of audit organizations and establishes legal, economic and organizational basis for its conduct.

Chapter 1. general provisions

Article 1. Basic definitions used in this Law

      The following basic definitions shall be used in this Law:
      1) an audited subject – legal entity concluded the agreement for conducting audit with audit organization;
      2) beneficiary – a person that is a receiver of insurance payment in accordance with this Law;
      3) legal liability of audit organization – obligation of audit organization to compensate property damage inflicted to audited subjects upon conduct of audit, established by civil legislation of the Republic of Kazakhstan;
      4) an insurant – audit organization concluded compulsory insurance agreement of legal liability of audit organization with an insurer;
      5) insurance payment – sum of money paid by an insurer to insurant (beneficiary) within insurance coverage upon occurrence of insured accident;
      6) insurance premium – sum of money which an insurant shall be obliged to pay to an insurer for receiving the obligation by a latter to make insurance payment to an insurant (beneficiary) in amount determined by compulsory insurance agreement of legal liability of audit organization;
      7) insurance coverage – sum of money on which the object of insurance is insured and that represents limiting volume of responsibility of an insurer upon occurrence of insured accident;
      8) insured accident – event in occurrence of which the compulsory insurance agreement of legal liability of audit organization provides carrying out of insurance payment to an insurant (beneficiary);
      9) an insurer – legal entity registered as insurance organization and having a license for the right to carry out insurance activity, obliged to make insurance payment to an insurant or other person in favour of which (beneficiary) the agreement is concluded upon occurrence of insured accident, within insurance coverage determined by the agreement;
      10) franchise – release of an insurer from compensation for harm not exceeding determined amount.
      Footnote. Article 1 as amended by the Law of the Republic of Kazakhstan dated 5 May 2006 No. 139 (the order of enforcement see Article 2 of the Law of the Republic of Kazakhstan No. 139).

Article 2. Legislation of the Republic of Kazakhstan on compulsory insurance of civil responsibility of audit organizations

      1. Legislation of the Republic of Kazakhstan on compulsory insurance of legal liability of audit organizations is based on the Constitution of the Republic of Kazakhstan and consists of the Civil Code of the Republic of Kazakhstan, this Law and other regulatory legal acts of the Republic of Kazakhstan.
      2. If international treaty ratified by the Republic of Kazakhstan established the other rules than those, provided by this Law, the rules of international treaty shall be applied.

Article 3. Object of compulsory insurance of legal liability of audit organizations

      The object of compulsory insurance of legal liability of audit organizations (hereinafter – compulsory responsibility insurance of audit organizations) is property interest of audit organization linked with its obligation to compensate property damage inflicted to audited subjects upon conduct of audit established by civil legislation of the Republic of Kazakhstan.
      Footnote. Article 3 as amended by the Law of the Republic of Kazakhstan dated 5 May 2006 No. 139 (the order of enforcement see Article 2 of the Law of the Republic of Kazakhstan No. 139).

Article 4. Purpose and main principles of compulsory responsibility insurance of audit organizations

      1. Purpose of compulsory responsibility insurance of audit organizations is protection of property interests of audited subjects to which the property damage is inflicted upon conduct of audit by audit organization by carrying out of insurance payments.
      2. Main principles of compulsory responsibility insurance of audit organizations are:
      carrying out of the activity of audit organizations upon condition of existence of compulsory responsibility insurance agreement of audit organizations;
      ensuring of performance of obligations by parties under compulsory responsibility insurance of audit organizations.

Article 4-1. Special aspects of carrying out compulsory responsibility insurance of audit organizations

      1. Legal entity registered as insurance organization before obtaining a license for the right to carry out compulsory responsibility insurance of audit organizations shall be obliged to have branches and (or) insurance agents in the capital, cities of republican, oblast (regional) and district significance.
      2. The activity oriented to restriction or elimination of business competition, provision or receipt of unreasonable premiums on conclusion of compulsory responsibility insurance agreements of audit organizations by some insurers before others, impairment of rights and legal interests of insurants shall not be allowed.
      Footnote. The Law is supplemented by Article 4-1 in accordance with the Law of the Republic of Kazakhstan dated 30.12.2009 No. 234-IV.

Article 5. Persons the legal liability of which is subject to compulsory insurance

      1. Legal liability of audit organizations received a license for carrying out of audit activity in the manner established by the legislation of the Republic of Kazakhstan shall be subject to compulsory insurance.
      2. Conclusion of voluntary insurance agreement of the legal liability by audit organization, linked with carrying out of professional activity shall not release it from obligation on conclusion of compulsory responsibility insurance agreement of audit organizations.
      Footnote. Article 5 as amended by the Law of the Republic of Kazakhstan dated 5 May 2006 No. 139 (the order of enforcement see Article 2 of the Law of the Republic of Kazakhstan No. 139).

Article 6. Prohibition of carrying out of the activity of audit organization without conclusion of compulsory responsibility insurance agreement of audit organizations

      1. Audit organization shall not have the right to carry out audit activity without conclusion of compulsory responsibility insurance agreement of audit organizations.
      2. Audit organization carrying out the activity without conclusion of compulsory responsibility insurance agreement of audit organizations shall bear responsibility provided by the Laws of the Republic of Kazakhstan.
      Footnote. Article 6 as amended by the Law of the Republic of Kazakhstan dated 5 May 2006 No. 139 (the order of enforcement see Article 2 of the Law of the Republic of Kazakhstan No. 139).

Article 7. State supervision and control in the field of compulsory responsibility insurance of audit organizations

      1. State supervision of the activity of insurance organizations shall be carried out by the National Bank of the Republic of Kazakhstan in accordance with the legislation of the Republic of Kazakhstan.
      2. State control of performing requirements of this Law by audit organizations in a part concerning the obligation of concluding compulsory responsibility insurance agreement of audit organizations by them, and taking measures to audit organizations violating this requirement shall be imposed on the relevant authorized state body within its competence in accordance with this Law, established by the legislative acts of the Republic of Kazakhstan.
      Footnote. Article 7 as amended by the Law of the Republic of Kazakhstan dated 05.07.2012 No. 30-V (shall be enforced upon expiry of ten calendar days after its first official publication).

Chapter 2. Compulsory responsibility insurance agreement of audit organizations

Article 8. Compulsory responsibility insurance agreement of audit organizations, procedure for its conclusion

      1. Compulsory responsibility insurance of audit organizations shall be carried out on the basis of agreement concluded in accordance with this Law and the Civil Code of the Republic of Kazakhstan between an insurer and insurant in favour of audited subject the property interests of which may be inflicted by harm upon conducing audit.
      2. Compulsory responsibility insurance agreement of audit organizations shall provide carrying out of insurance payment on obligations arising due to infliction of harm to audited subjects upon conducting audit by an insurant, with the exception of compensation for moral damage, loss profit and payment of a penalty.
      3. Compulsory responsibility insurance agreement of audit organizations shall be concluded only with an insurer having a license for the right to carry out the activity on this type of compulsory insurance. Conclusion of such agreement for abovementioned insurer shall be compulsory.
      4. Compulsory responsibility insurance agreement of audit organizations shall be concluded in written form by issuing the insurance policy by an insurer to an insurant.
      Requirement on maintenance and drawing up of insurance policy on compulsory responsibility insurance of audit organizations shall be established by the legislation of the Republic of Kazakhstan on insurance and insurance activity.
      Non-observance of written form of compulsory responsibility insurance agreement of audit organizations shall entail its invalidity.
      Responsibility for incompleteness of conditions subject to indication in compulsory responsibility insurance agreement of audit organizations shall be borne by an insurer. In case of occurrence of dispute on compulsory responsibility insurance agreement of audit organizations due to incompleteness of its separate conditions, the dispute shall be resolved in favour of an insurant.
      5. If compulsory responsibility insurance agreement of audit organizations is concluded on conditions aggravating a situation of an insurant or audited subject in comparison with that provided by this Law, then upon occurrence of insured accident, an insurer shall bear responsibility before an insurant and audited subject on conditions established by this Law.

Article 9. Validity of compulsory responsibility insurance agreement of audit organizations

      1. Unless otherwise provided by compulsory responsibility insurance agreement of audit organizations, it shall enter into force and become compulsory for parties from the moment of paying insurance premium by an insurant, and in its paying by installment – from the first insurance contribution.
      2. Compulsory responsibility insurance agreement of audit organizations shall be concluded for the term of twelve months from the date of its entering into force.
      Validity period of insurance protection shall align with the validity term of compulsory responsibility insurance agreement of audit organizations.
      3. Validity of compulsory responsibility insurance agreement if audit organizations shall be limited by the territory of the Republic of Kazakhstan, unless otherwise provided by compulsory responsibility insurance agreement of audit organizations.

Article 10. Termination of validity of compulsory responsibility insurance agreement of audit organizations

      Compulsory responsibility insurance agreement of audit organizations shall terminate its validity in cases of:
      1) expiration of the validity term of agreement;
      2) early termination of agreement;
      3) carrying out of insurance payment (insurance payments) by an insurer in the size of insured amount, determined in compulsory responsibility insurance agreement of audit organizations.

Article 11. Early termination of compulsory responsibility insurance agreement of audit organizations

      1. Compulsory responsibility insurance agreement of audit organizations shall be terminated in advance in the manner and cases provided by civil legislation of the Republic of Kazakhstan.
      2. If early termination of compulsory responsibility insurance agreement of audit organizations is occurred by non-fulfillment of its conditions due to the fault of an insurer, the latter shall be obliged to compensate insurance premium or insurance contributions in full measure to an insurant paid by him (her). In other cases of early termination of compulsory responsibility insurance agreement of audit organizations, and insurer shall have the right to the part of insurance premium proportionally to time during which the insurance was valid.

Article 12. Invalidity of compulsory responsibility insurance agreement of audit organizations

      Conditions, grounds and consequences of recognizing the compulsory responsibility insurance agreement of audit organizations invalid, shall be determined in accordance with civil legislation of the Republic of Kazakhstan.

Article 13. rights and obligations of an insurant

      1. An insurant shall have the right to:
      1) require clarifications of conditions of compulsory responsibility insurance agreement of audit organizations, own rights and obligations under agreement of compulsory responsibility insurance agreement of audit organizations from an insurer;
      2) receive insurance payment in the manner and on conditions provided by this Law.
      Compulsory responsibility insurance agreement of audit organizations may provide the other rights of an insurant not inconsistent with the legislative acts of the Republic of Kazakhstan.
      2. An insurant shall be obliged to:
      1) pay insurance premium in amount, procedure and terms established by the compulsory responsibility insurance agreement of audit organizations;
      2) represent details to an insurer required for conclusion of compulsory responsibility insurance agreement of audit organizations upon conclusion of compulsory responsibility insurance agreement of audit organizations;
      3) notify an insurer by available method (orally, in written) on submission of requirement or statement of claim on compensation for harm inflicted in the result of conducting audit by him (her) immediately, but no later than five business days as he (she) came to knowledge about this;
      4) represent all available information and documentation to an insurer, enabling to estimate on the reasons, course and consequences of the accident, upon occurrence of which, the insurant shall have the obligation to compensate inflicted harm, as well as on nature and sizes of inflicted harm;
      5) represent the opportunity to an insurer for participation in regulating the issues linked with requirements of an audited subject on compensation for harm;
      6) take measures for prevention or reduction of losses from insured accident;
      7) ensure transfer of the right of counter demand to a person, responsible for occurrence of insured accident to an insurer.
      Compulsory responsibility insurance agreement of audit organizations may provide other obligations of an insurant not inconsistent with the legislative acts of the Republic of Kazakhstan.

Article 14. Rights and obligations of an insurer

      1. An insurer shall have the right to:
      1) require information upon conclusion of the compulsory responsibility insurance agreement of audit organizations on previous compulsory responsibility insurance agreements of audit organizations, insured accidents, insurance payments and other details required for conclusion of compulsory responsibility insurance agreement of audit organizations;
      2) request documents and details from the relevant state bodies and organizations proceeding from their competence, linked with the fact of occurrence of insured accident and determination of the size of harm inflicted in the result of occurrence of insured accident in the manner established by the legislation of the Republic of Kazakhstan;
      3) take participation in regulating the issues linked with requirements of audited subjects on compensation for harm inflicted by an insurant in the result of fulfilling his (her) obligations linked with conduct of audit;
      4) assert the right of counter demand to a person responsible for infliction of harm in cases provided by Article 20 of this Law;
      5) refuse in carrying out of insurance payment fully or partially on the grounds provided by Article 21 of this Law.
      Compulsory responsibility insurance agreement of audit organizations may provide other rights of an insurer not inconsistent with the legislative acts of the Republic of Kazakhstan.
      2. An insurer shall be obliged to:
      1) familiarize an insurant with conditions of compulsory responsibility insurance agreement of audit organizations, clarify his (her) rights and obligations arising from the compulsory responsibility insurance agreement of audit organizations;
      2) refund insurance premium to an insurant fully or partially upon early termination of compulsory responsibility insurance agreement of audit organizations in cases and in the manner established by civil legislation of the Republic of Kazakhstan;
      3) make insurance payment in the manner and on conditions provided by this Law upon occurrence of insured accident;
      4) compensate an insurant for expenses inflicted by him (her) for the purpose of prevention or reduction of losses upon insured accident;
      5) ensure insurance secrecy.
      Compulsory responsibility insurance agreement of audit organizations may provide other obligations of an insurer not inconsistent with the legislative acts of the Republic of Kazakhstan.

Chapter 3. Insurance coverage and insurance premium

Article 15. Size of insured amount

      Size of insurance coverage shall be established under agreement of parties in compulsory responsibility insurance agreement of audit organizations, but by this the size of insurance coverage shall be no less than:
      1) (is excluded by the Law of the Republic of Kazakhstan dated 5 May 2006 No. 139 (the order of enforcement see Article 2 of the Law of the Republic of Kazakhstan No. 139);
      2) 10 000-fold monthly calculation index established by the Law on republican budget on the relevant financial year, on the date of conclusion of compulsory responsibility insurance agreement of audit organizations, concluded with audit organization.

Article 16. Size of insurance premium

      Size of insurance premium shall be established under agreement of parties in compulsory responsibility insurance agreement of audit organizations, but by this the size of insurance premium shall not exceed 4,5 percent from insured amount, established in compulsory responsibility insurance agreement of audit organizations.

Article 17. Procedure and terms of paying insurance premium

      1. Procedure and terms of paying insurance premium under agreement of compulsory responsibility insurance agreement of audit organizations shall be established under agreement of parties.
      2. If otherwise provided by compulsory responsibility insurance agreement of audit organizations, for the late payment of regular insurance contribution an insurant shall be obliged to pay penalty to an insurer as for illegal use by money of other persons in the manner and amount established by the Civil Code of the Republic of Kazakhstan.

Chapter 4. Insured accident and insurance payment

Article 18. Determination of insured accident and amount of insurance payment

      1. Insured accident under compulsory responsibility insurance agreement shall be considered as the fact of occurrence of legal liability of an insurant on compensation for harm inflicted to property interests of audited subjects upon conduct of audit.
      2. Insured accident shall be considered as occurred from the date of entering of court decision on compensation for harm inflicted by an insurant into force or recognition of requirements of audited subjects on compensation for harm by an insurant as reasonable and agreement of an insurer with recognition of requirements of an insurant.
      3. Size of insurance payment shall be determined by an insurer proceeding from the sum of requirement of an audited subject or court decision on compensation for inflicted harm entered into force in recognition of provisions of paragraph 2 of Article 8 of this Law.
      4. Expenses incurred by an insurant for the purpose of prevention or reduction of losses shall be subject to compensation by an insurer, if such expenses were necessary or were carried out for performance of instructions of an insurer, even if the relevant measures were unsuccessful.
      Such expenses shall be compensated in actual amounts, but for the purpose that the common sum of insurance payment and compensations of expenses do not exceed insured amount, provided by compulsory responsibility insurance agreement of audit organizations, if the expenses occurred in the result of fulfilling instructions of an insurer by an insurant, they shall be compensated in full measure irrespective to insured amount.
      5. Size of franchise on each insured accident shall be established under agreement of parties, but by this the size of franchise shall not exceed five percent from insured amount, established in compulsory responsibility insurance agreement of audit organizations.
      In cases when the size of inflicted harm exceeds established size of franchise, the insurance payment shall be carried out in full measure.

Article 19. Conditions and procedure for carrying out of insurance payment

      1. Requirement on insurance payment to an insurer shall be submitted by an insurant or audited subject in written form with attachment of documents required for carrying out of insurance payment.
      2. The application on insurance payment shall accompanied by:
      1) compulsory responsibility insurance agreement of audit organizations;
      2) requirement of audited subject recognized by an insurant on compensation of harm with attachment of documents confirming inflicted harm and its size, or court decision entered into force on compensation for harm inflicted by an insurant upon conduct of audit;
      3) power of attorney issued to representative of a legal entity;
      4) notarized copy of the agreement for conduct of audit concluded between an insurant and audited subject;
      5) documents (in existence) confirming expenses linked with taking of measures on prevention and reduction of the extend of harm;
      6) copy of audit report with agreement of audited subject.
      3. An insurer that accepted the documents shall be obliged to issue certificate to an applicant with specification of full list of represented documents and date of their acceptance.
      4. Upon carrying out of insurance payment, an insurer shall not have the right to require acceptance of conditions restricting his (her) right of demand to an insurer from a beneficiary.
      5. A beneficiary is an audited subject being inflicted by harm by an insurant in the result of conducting audit, and in case of reorganization of audited subject – his (her) legal successor.
      A beneficiary may be an insurant or other person as well, compensated inflicted harm to an audited subject (his (her) legal successor) within the volume of responsibility of an insurer established by this Law and received the right to compensate own expenses from an insurer.
      6. Insurance payment shall be made by an insurer not later than seven business days from the date of receiving the documents by him (her) provided by paragraph 2 of this Article.
      7. In cases when the size of amount payment is disputed by parties of compulsory responsibility insurance agreement of audit organizations or by a beneficiary, an insurer shall be obliged to carry out insurance payment in the part that is not disputed by any of mentioned persons, within the term established by paragraph 6 of this Article.
      Disputed part of insurance payment shall be paid by an insurer within three business days from the date of conclusion of amicable agreement and its approval by court or from the date of entering of court decision into force on this dispute, unless decision turned by court to immediate fulfillment.
      8. Requirement on insurance payment for harm inflicted in the period of validity of compulsory responsibility insurance agreement of audit organizations may be submitted to an insurer within three years from the date of occurrence of insured accident.
      9. Upon untimely carrying out of insurance payment, an insurer shall be obliged to pay penalty to the beneficiary in the manner and amount established by the Civil Code of the Republic of Kazakhstan.

Article 20. Right of exoneration to a person that inflicted harm

      1. An insurer that carried out insurance payment shall have the right of exoneration to an insurant within carried out insurance payment I the following cases:
      1) intended actions of an insurant oriented to occurrence of insured accident, or enabling its occurrence;
      Note of RCLI!
      Subparagraph 2) is provided to be I the wording of the Law of the Republic of Kazakhstan dated 03.07.2014 No. 227-V (shall be enforced from 01.01.2015).
      2) commission of actions by an insurant, recognized as intended crimes or administrative infractions being in causal connection with insured accident in the manner established by the legislative acts of the Republic of Kazakhstan;
      3) intended non-taking of measures on reduction of losses upon insured accident by an insurant;
      4) informing knowingly false details on object of insurance, insurance risk, insured accident and its consequences by an insurant to an insurer;
      5) refuse of an insurant from his (her) right of demand to a person responsible for occurrence of insured accident, as well as refuse to transfer the document to an insurer, required for the transfer of the right of demand.
      2. Within the paid sum, the right of exoneration that an insurant has to a person responsible for losses, compensated by an insurer in the result of insurance shall be transferred to an insurer carried out the insurance payment.

Article 21. Basis of release of an insurer from carrying out of insurance payment

      1. An insurer shall have the right to refuse fully or partially in carrying out of insurance payment, if insured accident occurred due to:
      1) intended actions of audited subject oriented to occurrence of insured accident or enabling its occurrence;
      Note of RCLI!
      Subparagraph 2) is provided to be in the wording of the Law of the Republic of Kazakhstan dated 03.07.2014 No. 227-V (shall be enforced from 01.01.2015).
      2) actions of an audited subject recognized as intended crimes or administrative infractions being in causal connection with insured accident in the manner established by the legislative acts of the Republic of Kazakhstan.
      2. The ground for refusal of an insurer in carrying out of insurance payment may be as follows:
      1) receipt of the relevant compensation of loss by an insurant from a person guilty in infliction of the loss;
      2) non-notifying or untimely notifying an insurer on occurrence of insured accident with the exception of cases established by this Law;
      3) impeding by an insurant of an insurer in investigation of circumstances of occurring insured accident and in establishment of the size of inflicted harm;
      4) violation by an audited subject of obligations provided by the agreement for conducting audit;
      5) carrying out of the activity by an insurant not conforming to functions and obligations of audit organization, determined by the legislation of the Republic of Kazakhstan on audit activity;
      6) provision of incomplete and (or) unreliable documentation and other information by an audited subject for an insurant, required for conduct of audit.
      3. Non-notifying or untimely notifying an insurer on occurrence of insured accident entitles him (her) to refuse in insurance payment, unless it is proved that the insurer came to knowledge on occurrence of insured accident in proper time or the absence of details about this of the insurer might not have an impact on his (her) obligation to carry out insurance payment.
      4. In existence of grounds for refusal in insurance payment, an insurer shall be obliged to refer the relevant decision on complete or partial refusal in insurance payment to a person, submitted the application on insurance payment in written with substantiated clarification of the reasons for refusal within seven business days from the date of receipt of documents provided by Article 19 of this Law.
      5. An insurer shall not have the right to refuse in insurance payment on the grounds not provided by this Article.

Chapter 5. Final provisions

Article 22. Procedure for consideration of disputes

      Disputes arising from compulsory responsibility insurance agreement of audit organizations shall be considered in the manner established by the legislation of the Republic of Kazakhstan.

Article 23. Responsibility for violation of the legislation of the Republic of Kazakhstan on compulsory insurance of legal liability of audit organizations

      Persons, guilty in violation of the legislation of the Republic of Kazakhstan on compulsory insurance of legal liability of audit organizations shall bear responsibility in accordance with the Laws of the Republic of Kazakhstan.

      The President
      of the Republic of Kazakhstan