June 03 2008
In a decision dated February 22 2008 in the case of Romane v Generali, the mixed bench of the Supreme Court ruled on the right of policyholders to use their option to repurchase in endowment policies that are not subject to the Act of December 17 2007. The court held that if the policy provides the policyholder with an option to repurchase, the beneficiary – even if he or she has accepted his or her designation – cannot oppose the exercise of this right unless the policyholder has expressly waived it.
The Act of December 17 2007 relating to life insurance modified both (i) the modalities by which a beneficiary accepts its designation, and (ii) the conditions in which a policyholder may use his or her option to repurchase.
Before the act came into foce, Article L132-9 of the Insurance Code provided that (i) the beneficiary’s acceptance could be either express or implicit and did not need to be agreed by the policyholder, and (ii) the allocation of the benefit of the insurance to the designated beneficiary was irrevocable following the latter’s acceptance. Therefore, the beneficiary’s acceptance of its designation did not have to be agreed by the policyholder.
Under its new wording, as modified by the act, Article L132-9 provides that a beneficiary’s acceptance must receive the policyholder’s formal consent in the form of:
Article L132-9 (as modified) also provides that, once a designated beneficiary has accepted the benefit of the insurance and acceptance has been consented to in compliance with the conditions described above, the policyholder is no longer entitled to exercise the option to repurchase without the beneficiary’s consent.
The transitional provisions of the act provide that these new rules shall apply to endowment policies entered into before the act came into force only if the beneficiary had not given acceptance by that date.
Therefore, before the Supreme Court judgment of February 22 2008 it was uncertain whether policyholders could exercise their option to repurchase under endowment policies that are not subject to the act without the consent of all accepted beneficiaries.
Mr Romane had taken out an endowment policy with Generali, payable to the policyholder at the end of a 30-year period or, in the event of his death, to the designated beneficiaries.
Both beneficiaries had accepted their designation before the act came into force and therefore their acceptance was not subject to the policyholder’s consent.
The policyholder later wished to exercise his option to repurchase without the consent of the accepting beneficiaries. While Generali challenged the policyholder’s right to exercise the option because he did not have the beneficiaries’ consent, Romane contended that a specific clause in the policy entitled him to exercise his option to repurchase. Therefore, he instituted an action against Generali.
The court of appeal ruled that the policyholder was entitled to rely on the endowment policy’s specific clause in order to exercise his option to repurchase, even though the beneficiaries had not agreed to it.
The designated beneficiaries appealed this decision to the Supreme Court on the grounds that the holder of an endowment policy is not entitled to exercise his or her option to repurchase without a beneficiary’s consent if the latter has accepted his or her designation.
The mixed bench of the Supreme Court upheld the court of appeal’s judgment by ruling that, when a specific provision in an endowment policy provides the right to use the option to repurchase, a beneficiary who has accepted its designation cannot oppose the exercise of the right unless the policyholder has expressly waived it.
This decision must be considered in light of the act, which modified the modalities of both the beneficiary’s acceptance and of the policyholder’s right to exercise his or her option to repurchase after said acceptance.
The new modalities of beneficiary acceptance are more protective of the policyholder’s right insofar as the beneficiary’s acceptance must be expressly agreed by the policyholder. This formal requirement is intended both to protect the policyholder against unwanted acceptance and to counterbalance the need of a policyholder to obtain the consent of all accepted beneficiaries to exercise his or her option to repurchase.
However, the rules set out by the act do not apply to endowment policies entered into before it came into force if the designated beneficiaries had accepted their designation before that time. Therefore, for these endowment policies, the policyholders’ right to use their option to repurchase is not protected against unwanted acceptances.
The Supreme Court’s ruling that “in endowment policies where the right of option to repurchase is expressly provided, the accepting beneficiary cannot oppose it unless the policyholder has expressly waived his or her right” has provided holders of endowment policies that are not subject to the act with the same level of protection as those that are subject to the act.
The protection of policyholders’ right to exercise the option to repurchase against unwanted acceptance is achieved through different means depending on whether endowment policies are subject to the act.
Holders of endowment policies subject to the act are protected through the new modalities of beneficiary acceptance set out in Article L132-9.
Holders of endowment policies not subject to the act can rely on the Supreme Court ruling of February 22 2008, which recognizes a policyholder’s right to exercise his or her option to repurchase without the designated beneficiary’s consent, provided that the right of option is set out in the policy.
Although this decision could be justified from an economic point of view, the Supreme Court’s legal analysis differs from most legal scholars’ views.
According to the leading doctrine, the former wording of Article L132-9 meant that, once a beneficiary had accepted his or her designation, the endowment policy could not be revoked without the beneficiary’s consent. So, since it amounts to a revocation, the policyholder’s option to repurchase cannot be exercised without the beneficiary’s express consent.
Although the Supreme Court decision protects the policyholder’s right to exercise his or her option to repurchase where a specific clause was inserted in the endowment policy, it also deprives designated beneficiaries of endowment policies not subject to the act of the right to oppose it. As a result, the latter are in a less favourable position than accepting beneficiaries of endowment policies that are subject to the act.
This decision is expected to bring uncertainty for creditors of policyholders who accepted their designation as beneficiaries as a security.
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 (firstname.lastname@example.org).
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