In Judgment 8117 of 23 April 2020, the Court of Cassation set out four important points on claims-made clauses, reaffirming that:
- the so-called 'loss occurrence insurance mechanism' can be derogated from by the parties, which are free to opt for the claims scheme model by including pure or mixed clauses;
- such clauses cannot be considered vexatious for the purpose of Article 1341 of the Civil Code, since they do not limit the insurer's liability but rather define the scope of coverage;
- the claims-made scheme must now be held legally typical as it is expressly provided for by law in the matter of mandatory professional insurance; consequently, it should not be assessed whether the interests pursued by the parties are worthy of protection but rather whether the contract meets the requirements imposed by law; and
- as it involves an assessment of the facts of a case, compliance with such requirements cannot be assessed by the Court of Cassation.(1)
Both pure and mixed claims-made clauses can be included in insurance contracts
The court highlighted that the liability insurance loss occurrence scheme is not binding pursuant to Article 1932 of the Civil Code. Thus, it can be derogated from by parties, which are free to agree the content of an insurance contract in accordance with Article 1322(1) of the Civil Code.
Therefore, parties can opt for a pure claims-made clause (ie, where coverage is granted provided that the claim for compensation is made against the insured during the policy period) or a mixed claims-made clause (ie, where coverage is granted provided that both the claim for compensation and the wrongful action fall within the policy period) in insurance contracts.
Claims-made clauses are not vexatious
With this ruling, the court reaffirmed that claims-made clauses are not vexatious for the purpose of Article 1341 of the Civil Code as they do not limit the insurer's liability(2) but rather specify the scope of coverage, "limiting the insurance cover based on the time factor, additional to that regarding the moment when the unlawful conduct took place, and establishing which claims can be indemnified under article 1917 of the Italian Civil Code".
No need for protection worthiness test
With reference to the protection worthiness test, the court noted that the claims-made scheme:
already widely used within the insurance market... has, however, recently found express legislative recognition (with particular reference to Article 11 of Law no. 24/2017 and Article 3, paragraph 5 of Decree Law no. 138/2011, converted with amendments into Law no. 148/2011, as amended by Article 1, paragraph 26 of Law no. 124/2017), and has therefore become legally typical.
Consequently, the protection worthiness test provided for under the second paragraph of Article 1322 of the Civil Code cannot apply to atypical contracts. Conversely, compliance with "the limits imposed by the law" referred to in the first paragraph of the Article 1322 should be assessed.
Therefore, it is necessary to assess, "in terms of freedom to agree the content of the contract and its 'concrete cause', whether there has been an 'arbitrary legal imbalance' between the insured risk and the premium". This investigation might concern various aspects (eg, the pre-contractual information obligations or the insurer's right to withdraw should the loss occur), and the specific legal remedies for the detected breaches should apply.
Court of Cassation not entitled to investigate claims-made clauses
The judgment concluded that since the assessment of whether the balance between parties' obligations is ensured requires an investigation, such assessment cannot be conducted by the court "unless within the strict limits set out in the new wording of article 360(5) of the Code of Civil Procedure" (ie, omitted examination of a decisive fact for the judgment discussed by the parties).
Based on the above, the Court of Cassation declared the grounds of appeal concerning the invalidity of the claims-made clause for breach of the principle of good faith to be inadmissible, as the Court of Appeal had fully investigated and established that:
- although the policies in question did not provide for sunset clauses, they included retroactivity periods so that "their [claims-made] clause offered protection even on their very last day of validity... as even on such day they could have been enforced were a claim for damages relating to a previous period brought";
- the insured was aware of the scheme (ie, on a claims-made basis) under which these policies operated; and
- any "abuse of the right of withdrawal or imposition in the content by the stronger party" had to be excluded.
Endnotes
(1) In principle, the Court of Cassation is not allowed to know the facts of a case but only to ensure the correct application of law.
(2) "A clause... limits liability when it reduces the consequences of negligence or breach of contract or it excludes the insured risk, i.e. it excludes a liability which, falling within the scope of the contract, would otherwise (in the absence of the clause) have arisen."
