Application of Antimonopoly Law Rules to Legal Relations in Compulsory Medical Insurance
The Law On Competition and Restriction of Monopolistic Activities in Commodity Markets passed in 1991 is fundamental for laws constituting the competition legislation. Some of its rules, including Articles 7 and 8, are of general significance and enforced in all markets, including the market of insurance services. This is attested by the determination of the Constitutional Court of the Russian Federation dated October 1, 1998, issued following the request of the Moscow Region Administration to verify constitutionality of the first part of paragraph 1 and paragraph 2, Art. 1015 of the Civil Code containing the reference to para. 2, Art. 7 of the Law On Competition as applicable to the market of financial services.
Articles 7 and 8 of the Law On Competition prohibit public and local authorities from adopting the acts which restrict independence of business entities and the acts which may restrict competition. These prohibitions have a general nature.
Conclusion by the administration of contracts with business entities - health insurance companies without a tender restricts competition and violates Art. 8 of the Law On Competition. Such anti-competition agreements restricting access to the insurance services market or entailing removal of business entities therefrom must be recognized by the court as invalid.
In addition, the reference to the local authority having the right to choose freely an insurance company and such right being vested by Articles 2 and 9 of the Law On Medical Insurance of Individuals in the Russian Federation cannot be taken into account. These rules establish that the parties are entitled to determine independently medical insurance companies by agreement. However, the local administration is, first of all, a public entity and, as the Constitutional Court of the Russian Federation emphasized in its determinations dated October 1, 1998 and December 4, 1997, it participates in civil relations as a subject vested with a special legal capacity which by virtue of the public nature of the local authority does not coincide with the legal capacity of other civil law subjects - individuals and legal entities.
It should be noted that pursuant to para. 2, Art. 12 of the Federal Law dated September 25, 1997, No. 126-FZ On Financial Sources of the Local Governments in the Russian Federation the administration is obliged to make tenders when paying for services out of the local budget.
Thus, the free selection by the administration - the local authority - of insurance companies and conclusion of contracts therewith violate Articles 7 and 8 of the Law On Competition.
The materials of case No. AO9-6535/01-9 that were considered by the Arbitration Court of the Bryansk Region illustrate this.
A limited liability company - Stim i K Medical Insurance Company (hereinafter - "Stim i K LLC") filed an action against the Bryansk Region Administration and Rosno-MS Open Joint-Stock Company (hereinafter - "JSC Rosno-MS") seeking invalidation of the contract of obligatory medical insurance of idle individuals between the Bryansk Region Administration and JSC Rosno-MS. The claimant referred to a number of facts as causes of the action, including to conclusion of contracts without an open tender and to violation of the rules of the Budget Code of RF. On the claimant's initiative the Bryansk territorial department of the Ministry of RF of the Antimonopoly Policy and Support of Business (hereinafter - "the territorial antimonopoly department") was taken to court as a third person without separate claims.
The court declined the references to violation of the Law On Protection of Competition in the Financial Services Market and the Budget Code of RF on the ground that relations under the contested contract are regulated by special law, namely, by the Law of RF On the Medical Insurance of Individuals in the Russian Federation.
In its award the court stated that neither the facts of the respondent's abuse of its dominant position in the services market, nor the facts of its actions aimed at restriction of competition were evidenced by the case materials. At that, the court alluded to the fact that the Bryansk Region Administration had also concluded a contract with Ekooms Insurance Company.
Besides, the court did not recognize Stim i K LLC as an interested person entitled by virtue of Art. 166 of the CC RF to file an action seeking application of consequences of a transaction invalidation, since the company was not a party to the challenged contract and had not proposed to the Region Administration to conclude a contract.
The original court rejected the claim.
The territorial antimonopoly department and the respondent appealed against the award to the court of appeal.
The Federal Arbitration Court of the Central District (a cassation instance) left the award unchanged. The cassation instance did not closely consider the arguments adduced in the appeals believing that it is a federal antimonopoly body and not a territorial department that has the right pursuant to Art. 32 of the Law On Protection of Competition to claim antimonopoly law violation. The District Court considered that the federal antimonopoly body had a right of court only after it had issued the injunction to eliminate violations of antimonopoly laws, which the guilty party did not voluntarily follow, but the Bryansk territorial department did not forward such injunction.
The court did not recognize the insurance company's right of court, either. In the court's opinion, the company was not an interested person since its interests had not been infringed by the contract concluded by the region administration.
A number of issues connected with antimonopoly law enforcement were raised in the above- mentioned judicial acts.
1. The court did not recognize as possible the application of the Law of RF On Protection of Competition in the Financial Services Market to relations connected with the compulsory medical insurance of individuals. However, pursuant to Art. 1 of the Law the subject of its regulation is the relations affecting the competition in the securities market, bank services market, insurance services market, and the market of other financial services. Therefore, the rules of the antimonopoly law together with laws and other regulations on medical insurance are applied to relations in the insurance services market.
Pursuant to Art. 23 of the Law of RF On Medical Insurance of Individuals in the Russian Federation the Councils of Ministers of the republics constituting the RF, public administration authorities of autonomous regions, autonomous districts, territories, regions, cities of Moscow and Saint-Petersburg, the local administration act as the insurer for idle persons. The insurance is covered out of respective budgets. An insurance contract is concluded for value and is a civil one.
Pursuant to Articles 13 and 14 of the Law On Protection of Competition in the Financial Services Market, when the funds of a respective budget are involved, conclusion of a contract should be preceded by an open tender in order to determine financial institutions to carry out certain operations with funds of a respective budget.
The procedure of an open tender conducted by a respective public or local authority should be approved by an antimonopoly body. Besides, Art. 14 of the Law On Protection of Competition provides for a number of requirements which should be obligatorily taken into account when determining the tender procedure. In particular, the number of bidders should not be less than two, and no bidder should be given priority.
These rules were violated by the Bryansk Region Administration when it concluded the contracts.
A free choice of a medical insurance company by a region administration implies a preferential position of such organizations. Selection of a party to a contract without a tender entails an unconditional restriction of the competition in the insurance services market, which is a violation also of Art. 6 of the Law On Protection of Competition committed by the Administration.
Under these circumstances the court arguments that the actions of the Administration do not restrict competition is wrong and runs counter to the case materials.
Irrelevant to the award is also the argument that JSC Rosno-MS does not occupy a dominant position in the insurance services market and, consequently, does not abuse it.
There are several medical insurance companies operating in the Bryansk Region. It is the actions of the Region Administration and not the abuse of the dominant position by an insurance company that violate antimonopoly laws.
The Region Administration is first of all a public organization, therefore, it participates in civil relations with a special legal capacity. The rules of the Law On Protection of Competition prohibiting conclusion of contracts without an open tender to select financial organizations to carry out certain operations with the funds of a respective budget concern exactly the Administration.
The violation of the contract conclusion procedure by the Bryansk Region Administration is a sufficient ground to recognize as invalid the challenged contract of compulsory medical insurance.
2. Sometimes a question arises in the court practice whether there is a market of insurance services in the sphere of the compulsory medical insurance, since pursuant to Art. 15 of the Law On Medical Insurance of Individuals in the Russian Federation the insurance medicine is obliged to undertake the compulsory medical insurance on a nonprofit basis.
One cannot agree with the conclusion that since the activities of an insurance company in this field are of a nonprofit nature they are not entrepreneurial, cannot be regarded as goods in the insurance market, do not affect the competition, therefore, they do not fall under regulation of antimonopoly laws.
The activities are called nonprofit if their objective is not to get a profit. However, a medical insurance organization that has a business form of a partnership or a company is deemed commercial. The activities in the compulsory medical insurance are carried out for value and paid by an insured according to an estimate.
Besides, a medical insurance organization undertakes a voluntary medical insurance along with the compulsory medical one; therefore, insurance services are regarded as goods in the insurance services market and fall under operation of antimonopoly laws.
It should be reminded that Art. 4 of the Law On Competition attributes both commercial and non-commercial organizations to business entities whose relations are covered by the purview of antimonopoly laws.
3. The arguments of the court of cassation that the territorial antimonopoly department has no right to participate in court proceedings and to file claims runs counter to antimonopoly laws, as well.
The system of antimonopoly bodies is established in Art. 3 of the Law On Competition and Restriction of Antimonopoly Activities in the Commodity Markets. The law vested respective powers in a federal antimonopoly body which establishes its territorial agencies with a view to exercising its powers. These agencies act pursuant to a statute approved by the federal antimonopoly body and the latter vests its territorial agencies with respective powers within its competence.
Pursuant to sub-para. 4, para. 5 of the Statute of the Territorial Department of the Ministry of the Russian Federation of the Antimonopoly Policy and Support of Business ("the Antimonopoly Ministry of RF") which is effective in the version approved by the Decree of the Antimonopoly Ministry of RF dated 31.08.2000, No. 672, a territorial department is entitled "to apply to a common court, an arbitration court with complaints about violation of antimonopoly laws and other regulatory acts on protection of competition in the financial services market, as well as to participate in common and arbitration court proceedings in cases related to application or violation of antimonopoly laws and other normative acts on protection of competition in the financial services market".
When considering the action of Stim i K LLC the court should have applied the Federal Law On Protection of Competition in the Financial Services Market, hence, the territorial antimonopoly agency had the right to participate in the court proceedings both by way of filing an action and participating as a third person.
When joining a process, the antimonopoly body protects, first of all, public interests - accurate application of antimonopoly laws. At the same time, when furthering accurate application of antimonopoly laws, the antimonopoly body also protects the rights of business entities whose interests have been violated as a result of the wrong application of antimonopoly laws. Therefore, the routine court practice admits participation of antimonopoly bodies as third persons.
Participation in a process as a third person means that a territorial antimonopoly department (and not only a federal antimonopoly body) enjoys all rights of a party to legal proceedings, except for the rights specified in Art. 37 of the Code of Arbitration Practice of 1995 (Art. 49 of the CAP of 2002), including the right to appeal against an award. Hence, non-recognition by the court cassation of respective powers of the territorial department to participate in the proceedings and to file a complaint runs counter to antimonopoly laws.
4. The court wrongly construed Art. 22 of the Law On Protection of Competition in the Financial Services Market. According to the powers provided for by Art. 12 of the Law, a federal antimonopoly body (its territorial antimonopoly department) is entitled to institute legal proceedings in connection with violation of antimonopoly laws or to file an action before a court seeking protection of competition, including recognition as completely or partly invalid of the contracts which are contrary to antimonopoly laws, as well as to participate in court proceedings connected with application or violation of antimonopoly laws. Therefore, a territorial department, one of whose functions is to carry out the public control over compliance with antimonopoly laws in the financial services market is entitled to participate in a process irrespective of whether administrative proceedings related to violation of antimonopoly laws have been instituted and whether the court has issued an injunction to remedy the violation concerned.
5. Non-recognition by the court of Stim i K as an interested party in an action seeking invalidation of the contract that has been concluded in violation of antimonopoly laws requires comments.
The claimant, being a medical insurance company, entered into contracts with the local administration earlier. The fact that the local administration has concluded contracts of medical insurance of the majority of idle persons deprives Stim i K LLC, along with other medical insurance companies, of the right to participate in the tender and entails either removal of insurance services from the market or restriction of access thereto. Such actions of the administration infringe upon interests of insurance companies, hence, the former should be found interested in recognition of the contract concluded in violation of antimonopoly laws as invalid.