June 14 2005
The insured may seek payment from any of the insurers up to the policy limit. The existence of other insurance policies does not allow the insurer to pay only part of the loss. The insured may file a claim with any of the insurers for payment of the entire loss and the insurer with which the claim is filed must pay the loss up to the limit of cover under its policy.
The Insurance Code also provides for contribution by the other insurers. The contribution of each insurer is calculated on a proportional basis as follows:
amount of the loss x [amount that the insurer would have paid in the absence of overlapping insurance ÷ aggregate limits of liability under the policies in the absence of overlapping insurance].
Besides the criteria established by the Insurance Code, the Supreme Court has imposed an additional criterion for overlapping insurance, thereby modifying the scope of this concept.
Volkswagen took out a group insurance policy with Frankfurter Versicheurungs.
Vag Transports entered into a bailment agreement with Causse Walon, under which Vag Transports appointed Causse Walon as its exclusive agent for taking receipt of, unloading, storing, repairing, transporting and delivering all Volkswagen and Audi vehicles consigned to Vag France car dealers. As required by the agreement, Causse Walon took out - through Chargeurs - an omnibus policy issued jointly by PFA (now AGF) and Cigna (the second-layer insurer).
On July 5 1993 a hailstorm damaged a large number of vehicles belonging to Vag France that were stored in an open-air car park belonging to Causse Walon. Frankfurter paid out on the claim and sought contribution from Causse Walon's co-insurers. The co-insurers refused to pay, invoking force majeure. Frankfurter therefore sued Causse Walon, the first and second-layer insurers, as well as the broker.
The Versailles Court of Appeal found that the subrogatory action brought by Frankfurter and the co-insurers against Causse Walon was admissible but ill-founded.
The court of appeal considered that Causse Walon had not breached its obligations under the bailment agreement. The court pointed out that an omnibus policy may operate either as liability insurance (where the bailee is liable) or as property damage insurance (where the bailee is not liable). Although the two insurance policies were taken out by different entities (the Frankfurter policy was taken out by Volkswagen, whereas the PFA policy was taken out by Chargeurs for Causse Walon), both could inure to the benefit of the same insured (Volkswagen). In the absence of liability on the part of Causse Walon (against which no liability claim was brought), the policy taken out with PFA and its second-layer co-insurers could operate only as property damage insurance for the benefit of Volkswagen.
Therefore, the court found that both policies had the same object, covered the same risk and insured to the benefit of the same insured, since they both covered property damage sustained by Volkswagen as a result of the hailstorm.
The Supreme Court, referring to Article L121-4 of the Insurance Code, pointed out that:
"the provisions relating to overlapping insurance apply only where the same policyholder has taken out several insurance policies covering the same risk and the same interest with several insurers."
Therefore, on February 17 2005 the Supreme Court quashed the appellate judgment that had found the policies to be overlapping even though the policyholders were different.
Before 1982, Article L121-4 applied to "he who purchases insurance", which meant that overlapping insurance could apply only to a single policyholder.
The law of July 13 1982 replaced "he who purchases insurance" with "he who is insured". It is a new concept, which is separate from policyholder status. Pursuant to the amended wording of Article L121-4, only the status of insurance beneficiary seems to be one of the criteria for overlapping insurance.
Despite this extension of the scope of overlapping insurance, the Supreme Court maintained the former definition of 'overlapping insurance'. The 'same-policyholder' criterion - still imposed by the Supreme Court - does not fit the amended Article L121-4.
After some wavering, since a Supreme Court ruling on November 21 2000 the courts have consistently applied the 'same-policyholder' criterion as a requirement for overlapping insurance. This criterion has the advantage of reducing the possibility of overlapping insurance and avoiding discussion as to whether the 'same interest' is covered, notably in the case of omnibus insurance.
However, the application of the criterion imposed by the Supreme Court renders omnibus insurance policies nugatory. As in the case at hand, an omnibus policy may operate cumulatively with another policy covering the same risk and the same interest, but taken out by a different policyholder. For example, a bailee may take out an omnibus policy covering not only the bailee's goods, but also goods left by the bailor in the bailee's premises. Should goods be damaged, the omnibus policy may operate either as property damage insurance for the bailor (if the bailee is not liable) or as liability insurance (if the bailee is liable). In such case the bailor is not the holder of the omnibus policy. The bailor may have taken out its own property damage insurance policy for the same goods (the goods left in the bailee's premises).
The question of overlapping insurance will arise if the bailee is not liable for the loss. Pursuant to the additional criterion for overlapping insurance imposed by Supreme Court, the insurance policies in the case at hand would not be characterized as overlapping insurance because, although the goods and the interest covered were the same, the policyholders were different.
On what grounds, then, may an insurer that has paid a claim filed by its insured seek reimbursement from the other insurer or insurers? An insurer might seek a contribution from another insurer by relying on 'stipulation pour autrui' (or contract conferring a right on a third party). However, no ruling by a French court has ever been made on these grounds.
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 (email@example.com).
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