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CIVIL LIABILITY INSURANCE: THE REFORM LONG AWAITED BY FRENCH INSURERS

By
Camille 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.

French insurers hailed the Financial Security Law of 1 August 2003, which modified the French Insurance Code by limiting civil professional liability cover in time.

In 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.

The 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.

In 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).

In 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.

However, 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.

To 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 policies.

The law of 1 August 2003 complements the reform by allowing insurers to include claims made clauses in all civil liability insurance policies.

Parties 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.

Moreover, 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.

The 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.

French insurers can only welcome this reform that allows them to align themselves with their international competitors.



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