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Consumer Insureds are Protected by Both Insurance Code and Consumer Code - International Law Office

International Law Office

Insurance - France

Consumer Insureds are Protected by Both Insurance Code and Consumer Code

September 09 2008

Appeal Court Decision
Court of Cassation Decision

In a decision dated May 22 2008 (X v Cetelem), the First Civil Division of France's Supreme Court, the Court of Cassation, ruled on the application of the Consumer Code to group insurance contracts.


Under French law the Consumer Code applies solely to contractual relationships between consumers and professionals.

In this case the contract at issue (a group insurance contract) was not between a consumer and a professional, but between two professionals - a bank and an insurance company. The court nevertheless held that the lower court should have given effect to the provisions of the code.


Cetelem, a bank, took out a group insurance contract with the insurance company Cardif Assurances against death, illness, permanent and total disability, and unemployment of future borrowers from the bank.

Mr X took out loans with Cetelem, either alone or with his wife, but only Mr X adhered to the bank’s group insurance contract with Cardif.

Mr X was certified unfit for work and consequently intended to retire early. He therefore lodged a claim with Cardif for payment of the outstanding balances of his loans.

The insurance company denied cover by relying on a clause in the group insurance contract that provided that it would make no payment in respect of outstanding loan balances as from the end of the month in which any of the following three events occurred:

  • drawing of a retirement pension;
  • voluntary or compulsory early retirement; or
  • cessation of gainful employment.

Mr and Mrs X brought legal proceedings against both the bank and the insurance company, contending that the clause relied on by the insurance company to deny cover qualified as an unfair contract term under Article L132-1 of the code:

In contracts concluded between a professional and a non-professional or a consumer, clauses which have the object or effect of creating a significant imbalance between the rights and obligations of the parties to the contract, to the detriment of the non-professional or the consumer, are unfair.

Appeal Court Decision

In its decision of October 18 2005, the Nimes Court of Appeal rejected Mr and Mrs X’s contention (and their claim for payment of the outstanding balances of their loans) on the grounds that Article L132-1 did not apply because the contract containing the clause in issue was not concluded directly between Mr X and the insurance company (ie, between a consumer and a professional), but between two professionals - the insurance company and the bank - and was merely adhered to by Mr X.

The court found that since Mr X had invoked his disability after he started drawing a retirement pension, the insurance company had rightly denied cover because he did not fulfil the conditions provided for in the contract.

Mr X filed an appeal on a point of law with the Court of Cassation.

Court of Cassation Decision

The First Civil Division of the Court of Cassation quashed the appeal court’s judgment on the grounds that adherence to a group insurance contract, albeit through a jus quaesitum tertio (ie, a right in a contract acquired by a third party thereto), creates a direct synallagmatic contractual relationship between the adherent and the insurer, and the provisions governing that relationship come within the scope of Article L132-1.

In addition, the court censured the appeal court’s interpretation of the contract clause at issue. It raised of its own motion Article L133-2, which states that where there is doubt about the meaning of a contract term offered by a professional to a consumer, the interpretation most favourable to the consumer shall prevail:

Contract terms offered by professionals to consumers or non-professionals must be presented and written in plain, intelligible language. In the event of doubt, they shall be interpreted in the sense which is most favourable to the consumer or the non-professional.

The court said that the clause in issue could equally be interpreted as meaning that inasmuch as the risk of permanent and total disability was covered by the insurance contract, the drawing of a retirement pension could not be regarded as excluding cover for such risk where, as in this case, its occurrence was the reason for the insured being made to retire early.

The court therefore held that the appeal court had violated both Article L132-1 and Article L133-2 by failing to give effect to them.

The decision is interesting because it shows the court’s willingness to apply the provisions of the code as widely as possible and even of its own motion.

Willingness to apply the provisions of the code widely
In its decision the court pointed out that group insurance contracts are based on a jus quaesitum tertio.

The court established that principle in the late 1980s, and has since reiterated it on numerous occasions, on the basis of Article 1121 of the Civil Code, which provides that “[o]ne may… stipulate for the benefit of a third party when this is the condition of a stipulation which one makes for oneself or of a gift which one makes to another”.

This latest decision is in keeping with previous Court of Cassation decisions that consumer law may apply to insurance contracts. However, it is particularly interesting because it was previously uncertain whether a consumer who adheres to a group insurance contract concluded between two professionals could avail of consumer protection legislation and invoke the unfairness of clauses contained in the contract.

By answering this question in the affirmative, the court showed its willingness to afford effective protection to consumer insureds, including in the context of group insurance group contracts.

Willingness to apply provisions by the court’s own motion
By raising of its own motion the rule of interpretation that where there is doubt about the meaning of a term in a contract proposed by a professional to a consumer, the interpretation most favourable to the consumer shall prevail (Article L133-2), the court has confirmed its emancipation both from the provisions of the Insurance Code and from the specific provisions of the Civil Code relating to contract interpretation.

Instead of Article L133-2, the court could have applied Article 1162 of the Consumer Code, which provides that “[i]n case of doubt, an agreement shall be interpreted against the one who has stipulated, and in favour of the one who has contracted the obligation”.

Moreover, the decision is innovative because at the time it was issued, French courts had not yet been given the power to raise provisions of the Consumer Code of their own motion. This power was conferred on them by the Chatel Act, a statute designed to promote competition for the benefit of consumers, which entered into force on June 1 2008 - 10 days after the decision.

The Chatel Act introduced a new article into the Consumer Code, Article L141-4, which provides that “[a] court may of its own motion raise any of the provisions of this code in disputes arising from its application”.


Although the decision is not revolutionary, it unquestionably strengthens the protection of consumer insureds in the context of group insurance contracts, thanks to consumer law - which tends to supersede the general provisions of the Civil Code and the provisions of the Insurance Code.

Insurance companies will need to take this into account.

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) or by fax (+33 1 70 37 39 01) or by email (carole.sportes@bopslaw.com). The BOPS website can be accessed at www.bopslaw.com.

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