February 09 2010
On September 3 2009 the Cour de Cassation rendered a decision on the causes of interruption of prescription in insurance contracts. The court held that insurance policies must mention all causes of interruption of prescription outlined in law in order properly to inform the insured.(1)
In 1997 and 1998 the walls of a real estate property cracked due to unusual climate conditions. An official decree declaring that the change in climate conditions constituted an act of God was issued on December 27 2000. The owner of the property registered a claim for the accident on January 8 2001. An interim ruling dated July 9 2002 nominated an expert to appraise the extent of the loss.
The expert submitted his report on January 19 2004. It was accepted that the damage caused to the building was covered by the official decree. Ultimately, the owner sued his insurance company to recover the refurbishment costs and requested additional damages on July 11 2005.
The Paris Court of Appeal rejected the owner's claims, holding that they were time-barred. Claims related to insurance contracts carry a two-year prescription period from the date of the event that caused the damage (Article L114-1 of the Insurance Code). Different causes of interruption are nonetheless laid down in law.
These causes are enumerated in Article L114-2 of the code and include common causes of interruption and the nomination of an expert or the sending of a registered letter by recorded delivery regarding payment of indemnity.
The contract between the owner and his insurance company contained a clause which reproduced only one of the above causes of interruption: the sending of a registered letter by recorded delivery.
The appeal court considered that the owner knew on December 29 2000 that he was entitled to claim damages. Therefore, the two-year prescription period had lapsed when the owner brought his claim in 2005.
The Cour de Cassation quashed this reasoning. It clarified that insurance contracts must contain all the causes of interruption of prescription detailed in Article L114-2 of the code. In this case the nomination of an expert was considered a cause of interruption, even though the clause in the contract did not account for this.
The court highlighted the duties of an insurer. It must inform the insured in a "complete and precise" manner of the two-year prescription period of claims related to the insurance contract and reproduce all causes of interruption as detailed in Article L114-2. This satisfies the duty of proper information of insurance consumers.
This decision was taken by virtue of Article L114-1 on the two-year prescription period in insurance matters, Article L114-2 on causes of interruption and Article R112-1 on mandatory annotations in insurance contracts. This clarifies the mandatory reproduction in insurance contracts of all causes of interruption as enumerated in Article L114-2.
Important factors in the decision were that the contract was entered into before the natural disaster of 1997 and 1998 and that, more than 10 years after the event's occurence, the Cour de Cassation enjoined the insurer to meet new requirements.
This can be viewed as a violation of the principle that judicial decisions are non-retroactive. The decision could constitute a basis upon which a judge will deny the application of the new jurisprudence to contracts entered into before its entry into force. A similar question was brought before the Cour de Cassation Court on June 11 2009 in a case of medical liability(2) and received a negative answer.
The decision held that where the party has access to a judge, lack of juridical security based on the non-retroactivity of jurisprudence cannot be invoked. The Cour de Cassation held that the right to a fair trial does not depend on an unchanging jurisprudence.
Thus, the combination of the September 3 2009 decision and the June 11 2009 decisions forms a coherent case law prescribing that insurance contracts must contain all the different causes of interruption of the two-year prescription, which temporally applies to all insurance policies.
This case does not expressly detail the penalty attached to non-fulfilment of the new obligation. However, in a June 2 2005 decision(3) the Cour de Cassation held that when the insurance company cannot produce evidence that it sent a document to a policyholder describing the standard terms and conditions, default on the delivery is penalized by non-enforceability of some of the contract's provisions. It does not suspend the prescription.
Ultimately, the present decision is the cornerstone of an insured-friendly jurisprudence, the incentives of which are to provide complete and precise information. Insurance policies must now enumerate all causes of interruption of the prescription as set forth in Article L114-2. This satisfies Article R112-1 on the mandatory provisions that insurance policies must contain. Any default on this obligation results in the non-enforcement of the two-year prescription clause. This jurisprudence applies even to contracts signed before its issuance.
Non-conforming policies must have amendments signed by both parties to be binding and for the insurer to be able to rely on the two-year prescription clause.
For further information on this topic please contact Carole Sportes at BOPS (SCP Bouckaert Ormen Passemard Sportes) by telephone (+33 1 70 37 39 00), fax (+33 1 70 37 39 01) or email (firstname.lastname@example.org). The BOPS website can be accessed at www.bopslaw.com.
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