November 03 2009
On June 25 2009 the Second Civil Division of the Cour de Cassation ruled for the first time on the question of the retroactive effect of the Law on Financial Security (706/2003) and decided that it does not apply to past losses.
In 1990 the Cour de Cassation ruled that the provisions of an insurance policy according to which cover is triggered solely if the victim's claim is made during the validity period of the policy (ie, 'claims-made' clause) must be declared null and void as they create an illicit advantage without consideration to the benefit of the insurer, which would have received the insurance premium without counterpart.
However, Law 706/2003 authorizes claims-made clauses. Article L124-5 of the Insurance Code states that "the cover shall be, according to the choice of the parties, triggered either by the event causing liability or by their claim".
However, the law does not specify whether its provisions are applicable to past losses and therefore should have a retroactive effect, or whether they apply solely to future losses, which would allow the courts to continue to apply the 1990 case law to all past losses.
In its decision of June 25 2009 the Cour de Cassation ruled that the law does not apply to past losses.
In this case a company had subscribed to an insurance policy on a claims-made basis which was terminated on December 31 1999.
The loss occurred during the validity period of the insurance policy and a first claim relating to material damages was made during this validity period. However, the claim relating to consequential damages was made after termination of the policy.
Therefore, the insurer claimed that it was not obliged to cover the consequential damages, given that the insurance policy provided that cover be triggered by a claim and pursuant to Law 706/2003's authorization of claims-made clauses.
However, the Cour de Cassation ruled that since the law does not state otherwise, it applies only to the future.
In this case the Cour de Cassation considered that the successive claims of compensation for material and consequential damage constituted the same loss (ie, a unique set of harmful events with the same technical cause and therefore the same generating fact).
The Cour de Cassation further considered that the loss had occurred before the enactment of the law (August 1 2003) because it was declared to the insurers before this date and led to a judiciary appraisement further to a court order of June 12 2003.
The Cour de Cassation consequently ruled that Court of Appeals had correctly ruled that Law 706/2003 did not apply to a loss which occurred prior to its entry into force and consequently that the claims-made clause was inapplicable.
This decision raises the issue of the definition of 'past loss'. The question is whether it is the fact generating the loss or the claim of the victim that should be taken into consideration to determine past loss.
This decision does not provide an answer to the question, as both the loss and the claim occurred before the entry into force of the law.
If there is no doubt that loss occurred before the entry into force of the law, the question regarding the claim is more complex.
In this case a first claim for material damage was made before the entry into force of the law, but a second claim was made for consequential damage after its entry into force.
Although the court decided that the law applies only to the future, it nevertheless used the terms of the law (ie, Article L124-1-1) to determine that the successive claims of compensation for material and consequential damage constituted the same loss (ie, a unique set of harmful events with the same technical cause and therefore the same generating fact).
For a decisive definition of past loss in relation to Law 706/2003, further Cour de Cassation decisions must be awaited.
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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