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09 June 2020
Both pure and mixed claims-made clauses can be included in insurance contracts
Claims-made clauses are not vexatious
No need for protection worthiness test
Court of Cassation not entitled to investigate claims-made clauses
In Judgment 8117 of 23 April 2020, the Court of Cassation set out four important points on claims-made clauses, reaffirming that:
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.
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".
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.
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:
For further information on this topic please contact David Maria Marino or Leila Bianchi at DLA Piper Italy by telephone (+39 02 80 61 81) or email (email@example.com or firstname.lastname@example.org). The DLA Piper Italy website can be accessed at www.dlapiper.com.
(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."
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