LIABILITY INSURANCE: THE REFORM LONG AWAITED BY FRENCH INSURERS
Piot , Avocat Associé
Lefèvre Pelletier & associés
136, avenue des Champs-Elysées - 75008 Paris
Tél : 33 (1) 53 93 3000
Fax : 33 (1) 53 93 3030
November 2, 2003 saw the entry into force of the Financial
Security Law of 1 August 2003, which put an end to 13 years of
precedent that had been continuously criticised by insurers.
insurers hailed the Financial Security Law of 1 August 2003, which
modified the French Insurance Code by limiting civil professional
liability cover in time.
a much-publicised series of rulings beginning on 19 December 1990,
the French Supreme Court deemed claims made clauses null and void.
Claims made clauses are clauses that stipulate that the insurer
will provide cover only if victims file a claim against the insured
during the policy period.
judges considered that these clauses were prejudicial to the insured
party, which could find itself deprived of cover if the victim’s
claim was filed after the policy had expired, a process over which
the insured, by definition, had no control. In an indirect manner,
the situation was also to the detriment of victims, who could
not be compensated by the insurer.
the past, case law has preferred occurrence clauses. With this
system, the insurer must cover losses caused by an event that
occurred during the policy period irrespective of the date of
the victim’s notification. For example, by paying the premium
for 2002, the insured party is insured against losses caused by
an event that occurred in the same year, even if the victim does
not file a claim until, say, 2010.
For 13 years French insurers have been criticising this precedent
which forced them to cover insured parties for the entire duration
of the period in which the latter’s third party liability
could be invoked, sometimes as long as 30 years. They claimed
the system, the only one of its kind worldwide, prevented them
from correctly assessing and thus providing for the cost of risk,
particularly in fields where several years may elapse between
the cause and occurrence of loss and the notification of claim
(industry and medicine for instance).
spite of this well-established precedent and the constant threat
of judicial termination, French insurers continued to include
claims made clauses in their policies, sometimes combining them
with “discovery period” clauses. In these clauses,
which favour victims and insured parties, insurers agree to cover
for a certain period of time any claims filed after the policy
is terminated provided that the cause of loss actually occurred
during the policy period.
insurers’ protests intensified following the implementation
of the Law of 4 March 2002 that created an insurance obligation
with respect to medical liability and that increased the interval
during which victims may sue medical personnel. Some insurers
withdrew from the market and began terminating insurance policies
that were in progress, complaining that they were being asked
to make inestimable commitments.
prevent a critical noninsurance situation, lawmakers decided to
assist insurers and, on 30 December 2002, took the first step
by passing a law validating claims made clauses in medical liability
law of 1 August 2003 complements the reform by allowing insurers
to include claims made clauses in all civil liability insurance
to an insurance policy can now choose between a claims made clause
or an occurrence clause.
This option only concerns professional civil liability insurance,
with the exception of policies for which the law already specifies
other time-related conditions (builders’ civil liability
for instance). Where liability insurance is taken out by individuals
outside the framework of their professional activity, it is still
the loss-causing event that triggers cover.
to protect the rights of insured parties and victims, a discovery
clause specifying a minimum period of 5 years is required and
a longer cover period may be stipulated in accordance with a decree.
reform extends insurers’ duty to provide information. From
now on, before concluding a liability insurance policy, insurers
must provide the insured with a special information leaflet. This
leaflet must explain how cover invoked by an occurrence and by
a claim operates over time. It must also explain the consequences
of successive policies that have different cover-triggering mechanisms.
insurers can only welcome this reform that allows them to align
themselves with their international competitors.