October 18 2005
Article L113(1) of the Insurance Code provides that "the insurer shall not be liable for loss or damage caused by the insured's wilful or intentional wrongful act".
In a March 18 2004 decision France's highest court (the Cour de Cassation) ruled that:
"The trial and appeal courts have complete discretion to determine whether the insured's conduct constituted a wilful or intentional wrongful act - an act which, pursuant to Article L113(1) of the Insurance Code, implies that the insured intended to cause the loss or damage that actually occurred, and such discretion is not subject to review by the Cour de Cassation."(1)
The Supreme Court thus reiterated the restrictive definition of a 'wilful or intentional wrongful act' under insurance law: the statutory exclusion will apply if the insurer proves that the insured intended to cause the loss or damage that actually occurred. This update addresses the concept of wilful or intentional wrongful acts for which coverage is excluded by law for all classes of insurance notwithstanding any provision to the contrary.
Insurers relying on the exclusion for wilful or intentional wrongful acts must show that the insured was fully aware of what he or she was doing when committing the act.
Accordingly, insane persons - as well as persons whose mind was unbalanced at the time of committing the act - cannot commit wilful or intentional wrongful acts.
In a 1989 case the Supreme Court found that the conditions required by Article L113(1) were not met where a manufacturer unknowingly delivered defective products.(2)
Similarly, in a 1974 case disciplinary measures were taken against a notary for (i) issuing certificates attesting that there were no registered mortgages without having conducted a search at the Land Registry, and (ii) failing to inform the shareholders of a real estate company and his own clients of the existence of new loan agreements and mortgages. The Supreme Court upheld the court of appeal's refusal to give effect to the exclusion for wilful or intentional wrongful acts because the disciplinary proceedings had not revealed any evidence that the notary was aware of having done anything wrong.(3)
Showing that the insured was aware of the wrongfulness of his or her act or omission is necessary but not sufficient. The insurer must also prove that the insured intended to cause the loss or damage actually suffered by the insured property or the aggrieved third party.
For property insurance, intent is assessed with regards to the insurer. A wilful or intentional wrongful act consists in deliberately causing loss or damage, knowing that the insurer will have to pay for it. The insurer must prove that the insured intended to cause the loss or damage arising from the wrongful act, failing which the exclusion will not apply. For example, in a 1997 case a youth had set fire to the door of a skating rink in order to commit a theft and the fire had spread to the entire property. The Supreme Court upheld the appeal court's determination that the wilful misconduct exclusion did not apply because criminal investigations had not established that the insured intended to destroy the entire skating rink.(4)
For liability insurance, the intent to cause the loss is assessed with regards to the aggrieved party. The exclusion will apply where the insurer is able to prove that the insured meant to cause the loss or damage suffered by the victim. For example, in 1991 the Supreme Court decided that a man who, with malice aforethought, killed a woman whom he mistook for his unfaithful wife had not committed a wilful or intentional wrongful act. The court pointed out that it had not been proved that the man intended to cause the loss as it occurred. Consequently, the murderer's insurer had to cover the damages awarded to the victim's family.(5)
In this regard, wilful or intentional wrongful acts under Article L113(1) of the Insurance Code are different from intentional offences under criminal law. Under criminal law, proof of intent to commit the physical element of the offence is required to secure a conviction.
Where intent to cause damage is one of the constituent elements of a criminal offence (eg, arson) and the criminal court finds that the offence has been committed, the offence/wrongful act that caused the damage is 'wilful' within the meaning of insurance law and the civil court must make a finding of an intentional wrongful act.
Conversely, where damage is not a constituent element of an intentional criminal offence, a finding by the criminal court that the offence has been committed should not by itself lead to a finding of intentional wrongful act under insurance law. The civil court should ascertain whether the criteria for wilful misconduct are satisfied. For example, in two recent cases the First Civil Division of the Supreme Court held that a criminal offence could not constitute an intentional wrongful act under insurance law, unless it was shown that the tortfeasor intended to cause the damage that actually occurred (except where damage is a constituent element of the offence).(6)
The exclusion applies to wilful or intentional wrongful acts committed by the insured. Conversely, the exclusion does not apply to wilful or intentional wrongful acts committed by anyone who is not defined as an 'insured' under the policy. For example, in a 2005 case a man had taken out a householder's comprehensive policy for property owned in common with his wife. His wife then intentionally set fire to the property. The Supreme Court held that the insurer could not rely on the exclusion provided for in Article L113(1) of the Insurance Code because the husband alone was defined as the policyholder. The wilful or intentional wrongful act was committed by his spouse, who was not the policyholder or an insured.(7)
Moreover, the exclusion applies to wilful or intentional wrongful acts committed by any insured, whether a natural or legal person. In the case of a legal person, the intent to cause the loss or damage is assessed by enquiring into the state of mind of the legal representative or actual manager of the body corporate. For example, in a decision dated April 6 2004 the Supreme Court quashed an appeal court's judgment giving effect to the exclusion in a case where a criminal court had found that arson had been committed by the son of the legal representative of the insured company. The court of appeal based its decision on the fact that the arsonist and his father were the sole shareholders of the company. The court of appeal concluded that the arsonist had a financial interest in the company's assets, including any insurance indemnities that the company might receive. However, the Supreme Court pointed out that, for the exclusion to apply to an insured that is a legal entity, the wilful or intentional wrongful act must have been committed by the legal representative or an actual manager of the legal entity. In the case in point, the arsonist was not the legal representative of the insured company and the court of appeal did not enquire into whether he was an actual manager of the company.(8)
Where the insurer successfully proves the existence of a wilful or intentional wrongful act, the Supreme Court holds that there is no insurance coverage.(9) The exclusion is effective against all third parties which would otherwise have benefited from the insurance indemnity, including a co-insured or a creditor to which the insurance indemnity would have been paid directly.
However, Article L121(2) of the Insurance Code provides that:
"The insurer shall cover losses and damage caused by persons for whom the insured is vicariously liable pursuant to Article 1384 of the Civil Code, regardless of the nature and seriousness of the wrongdoing of such persons."
Any provision to the contrary would be unenforceable.
Based on Article 1384 of the Civil Code, the Supreme Court created a principle of liability for loss or damage caused by persons for whom one may be vicariously liable on any account whatsoever,(10) which goes beyond the liability of employers for misconduct by their employees and the liability of parents for wrongdoing by their children - which are expressly provided for by the Civil Code.
However, the court stated that this exception to the general exclusion for wilful or intentional wrongful acts of the insured is limited to liability insurance.(11) In addition, the court held that Article L121(2) of the Insurance Code applies within the scope of the insurance policy, as defined by the parties.(12) For example, an insurance policy which guarantees the liability of the insured in case of theft committed by an employee does not cover the offence of breach of trust.(13)
For further information on this topic please contact Rémi Passemard at BOPS (SCP Bouckaert Ormen Passemard Sportes) by telephone (+33 1 70 37 39 00) or by fax (+33 1 70 37 39 01) or by email (firstname.lastname@example.org).
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