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15 March 2016
A recent Court of Cassation ruling (3173 of February 18 2016) established that the stipulation of a limit does not constitute an essential element of a civil liability insurance contract. The ruling demonstrates the importance of establishing clear provisions regarding the limits and sub-limits in civil liability policies, and the burden of proof concerning their application in particular.
Under the ruling, the third-party liability insurance limit represents the maximum liability of the insurer and in this respect performs the same function as the value of the insured item in first-party insurance. However, while the value of the insured item constitutes an essential element of first-party insurance, the same cannot be said for third-party liability insurance.
Article 1908 of the Civil Code prohibits over insurance in first-party insurance. This reflects the principle of indemnity, which is essential in this type of insurance. A lack of agreement on the value would distort the purpose of the contract, enabling the insured to be compensated for an amount greater than the value of the insured item.
According to the court, the notion of over or under insurance in civil liability insurance is inconceivable; instead, it is left to the parties to agree the amount of the guaranteed limit of liability:
"A third-party liability insurance contract could, therefore, be drawn up for any limit whatsoever, without this affecting its nature or purpose. Likewise, a third-party liability contract could be drawn up for an unlimited maximum amount, something which is not unheard of in commercial practice. Consequently, the limit of liability in civil liability insurance does not constitute an essential element of a contract, since a contract might effectively be drawn up without establishing any limit of liability at all."
The court stated that the limit of liability and its extent do not constitute the elements on which the right to indemnification of the insured is based; instead, they constitute the elements that limit the insurer's exposure. As such, they must be stated and demonstrated by the insurer, in accordance with Article 2697 of the Civil Code.
For further information on this topic please contact David Maria Marino at DLA Piper Italy by telephone (+39 02 80 61 81) or email (email@example.com). The DLA Piper website can be accessed at www.dlapiper.com.
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