The Insurance and Reinsurance Law Review: France
In the years preceding the covid-19 pandemic, the French insurance sector had experienced steady growth. The pandemic has, however, put an end to this trend. Indeed, while it is still too early to assess the effective impact of the global health crisis on the French insurance industry, the French Insurance Federation (FFA) has released preliminary estimates, which indicate that the loss for the French insurance industry could amount to €9 billion. Interim reports from the FFA also indicate a significant decrease of net inflows in the life insurance sector.
i The insurance regulator
The French regulator, the Prudential Supervision and Resolution Authority (ACPR), was created in 2010. It licenses and supervises banking, insurance and reinsurance activities, with the aim of providing more effective regulation of these sectors, as well as more effective protection of policyholders. The ACPR combines various roles, namely:
- overseeing insurance policies written by insurers;
- issuing general rules and guidelines (by way of circulars, decrees, etc.) regarding banking, insurance and reinsurance activities; and
- monitoring and, when appropriate, imposing sanctions on the insurers and financial institutions under its control.
ii Position of non-admitted insurers
Pursuant to Articles L310-2 and L310-10 of the Insurance Code (IC), non-admitted insurers cannot operate or carry out insurance operations in France. Any breach may result in imposition of the sanctions set out in Article L310-26 et seq. of the IC, which include fines (from €4,500 to €375,000) and prison sentences and may go as far as having the offending company wound up.2 Exceptions exist for maritime and aviation risk coverage.
iii Requirements for authorisation
For a new insurance or reinsurance company to be authorised to write insurance or reinsurance, it must comply with the licensing procedure prescribed in the IC. When reviewing a licence application, the ACPR considers the following criteria:
- the technical and financial means that the applicant plans to implement;
- the integrity, expertise and experience of the applicant's managers; and
- the applicant's shareholding structure and shareholder status.3
In addition, the vast majority of insurance companies operating in France are subject to the EU Solvency II Directive (Solvency II)4 and must therefore comply with minimum capital requirements,5 have a governance system that ensures sound and prudent management and have an adequate risk management system.6
Licences are granted to insurance companies for specific categories of business. Insurance companies, unlike reinsurance companies, may not be licensed for both life and non-life insurance business.7
iv Regulation of individuals employed by insurers, position of brokers and the distribution of products
Relevant IC provisions lay down the requirement that insurance company employees and general agents and brokers must hold a master's or bachelor's degree or professional certificate in finance, banking or insurance.
The European Union's legal framework for insurance distribution was thoroughly reformed by Directive (EU) No. 2016/97 of 20 January 2016 on insurance distribution (the Insurance Distribution Directive), which led to amendments to the IC. As a result, the definition of the distribution of insurance products was broadened to include distribution over the internet and over the telephone. Also, whereas formerly only intermediaries who undertook distribution as a principal activity were regulated by the IC, its recast version now also applies to insurance companies and includes distributors who undertake the activity on a secondary basis.8
In February 2020, the ACPR imposed an unprecedented sanction of two months' interruption of business upon a broker specialising in distance selling, for failure to provide information and advice in accordance with the provisions of the Insurance Distribution Directive.9
v Compulsory insurance
There are more than 200 instances of compulsory insurance, which concern a vast array of activities and sectors, such as automobiles, transport, housing, construction, sports, education, employment and industrial, agricultural and financial activities.
vi Compensation and dispute resolution systems
In principle, any natural or legal person may bring a claim before French courts or, in certain cases, arbitral tribunals.
By way of exception, since 2014, some authorised consumer associations can file specific group or class actions against insurers. These class actions were initially limited to non-bodily injuries; however, since 2016, they have included claims for bodily injuries and their scope has been extended to other fields, such as health products, personal data and discrimination.
The ACPR regulates banks and insurers and, more generally, the distribution of financial products. Although it does not have jurisdiction to hear individual claims, it does have the power to impose fines on insurers that breach statutory provisions or engage in conduct likely to jeopardise the interests of policyholders or the market.
On 16 December 2005, the French Federation of Insurance Companies (which in 2016 was subsequently integrated into the French Federation of Insurance (FFA)), a federation of insurance professionals that includes the majority of French insurers, adopted an arbitration convention that provides that any disputes between insurers (that are members of the FFA) regarding the compensation of a given loss must be brought before an FFA arbitral tribunal, rather than state courts.
vii Taxation of premiums
French insurance premium tax (IPT) is regulated by the General Tax Code and applies to all insurance policies covering risks situated in France.
The rate of IPT varies from 7 per cent to 33 per cent, depending on the insured risk.
viii Proposed changes to the regulatory system and other notable regulated aspects of the industry
EU Directive 2019/2177 amending the Solvency II Directive 2009/138/EC, the MiFID II Directive 2014/65/EU and EU Directive 2015/849 on money laundering was published in the Official Journal of the European Union in December 2019.
The Directive aims to improve the supervision of financial markets by strengthening the coordinating role of the European Supervisory Authorities and to promote the exchange of information and cooperation between national supervisory authorities and the European Insurance and Occupational Pensions Authority.
The deadline for transposition amendments to Solvency II was 30 June 2020, but it has only partially been complied with, to date.
ix The General Data Protection Regulation
The General Data Protection Regulation (EU) No. 2016/679 (GDPR) entered into force in 2018, generating further compliance pressure on insurers. In 2019, for the first time, the French data protection authority imposed a €180,000 penalty on an insurer for failing to ensure the security of its policyholders' personal data.
Insurance and reinsurance law
i Sources of law
The statutory framework for insurance mainly consists of the IC, the Mutual Code, the Social Security Code and the Financial and Monetary Code. Provisions of other codes, such as the Civil Code (CC), may also apply. French insurance regulation is widely influenced by EU legislation. In practice, French case law clarifying insurers' and policyholders' duties should also be considered a source of law.
ii Making the contract
The IC lays down specific obligations for insurers to provide information and documents both during the pre-contractual phase and during the life of the insurance contract. Pursuant to the IC, prior to the conclusion of the contract, the insurer must provide the policyholder with an information sheet indicating the premiums owed and the policy limits, the functioning over time of occurrence-based or claims-based policies and the way such policies dovetail.
The insurer must also provide the insured with a draft contract or a brochure on the contract precisely describing the coverage and exclusions and the insured's obligations. The draft will not be binding on the insured or the insurer, as only the policy or the cover note will prove their agreement. These obligations do not apply to insurance contracts covering 'large risks', as defined in the IC.
The Insurance Distribution Directive modified Article L112-2 of the IC imposing a new obligation on insurance distributors to provide their clients with a standardised document detailing essential information regarding the contract (e.g., coverage type and summary, main exclusions, duration). The requirements of this document are provided by Article A112 of the IC.
Following a 1989 reform, the information to be supplied by the policyholder to the insurer is determined by a questionnaire drawn up by the insurer. Questions can also be asked by other means provided the insurer can prove they were sufficiently clear. As a consequence, the policyholder only has a duty to answer the insurer's questions and is under no obligation to spontaneously disclose information, in which case, the policyholder's spontaneous statements must be truthful and accurate, as otherwise the contract could be avoided for fraudulent misrepresentation.10 The insured's answers will also determine the scope of its continuous duty to disclose all new relevant information to the insurer, pursuant to the IC.
Regarding the truthfulness of the information provided by the policyholder, the law makes a distinction between erroneous answers (or absence of disclosure) that are made in good faith or bad faith (i.e., deliberately).11
If the misleading information was provided in good faith, the possible indemnity will be reduced on a pro rata basis. If, however, misleading information was provided deliberately and had an impact on the insurer's choice to cover the risk or the amount of the premium, then the insurance contract can be deemed to be null and void.
None of these provisions apply to reinsurance contracts.12
iii Interpreting the contract
General rules of interpretation
The CC provides rules of interpretation in Article 1188 et seq., but these are only guidelines and the courts may interpret contracts as they deem fit.
However, judges should only interpret contracts when they are unclear or ambiguous,13 otherwise they risk being overturned upon appeal;14 this principle also applies to the pre-contractual questionnaire submitted by the insurer to the policyholder (and the policyholder's answers thereto).15
When interpreting contractual provisions, they should be interpreted according to the parties' common intention.16 In cases of doubt, a private agreement shall be interpreted against the creditor and in favour of the debtor, and standardised pre-drafted contracts (such as those habitually offered to consumers) shall be interpreted against the party who drafted and offered the agreement.17 Article L211-1 of the Consumer Code provides that the terms of the contract offered to consumers or non-professionals 'must be set out and written in a clear and comprehensible manner'. Moreover, 'in cases of doubt, they are to be interpreted in the sense that is most favourable to the consumer or non-professional'.18
In the event of a contradiction between a clause contained in the general terms and conditions of a contract and a clause contained in the special terms and conditions of the contract, the latter will prevail.19
Furthermore, contracts are to be interpreted in their entirety and clauses are not to be read independently from one another.20
The IC provides that exclusion clauses must be 'express and limited', failing which the insurer would be unable to enforce the clause and would have to cover the loss.21 They must also appear very clearly in the policy.22 Any exclusion clause that requires interpretation is automatically deemed unenforceable.
Incorporation of terms and types of terms in insurance contracts
Insurance contracts must be written in French and in clear print. They must also comply with the requirements of the IC, which provide that the policy must indicate:
- the nature of the insured risks, the coverage period and the policy limits;
- the duration of the contract and the terms regarding termination; and
- the duration of the mutual undertakings made by the parties, the terms of tacit renewal of the policy, the policyholder's duty to disclose and the two-year limitation period for insurance claims and means to interrupt it.23
Warranties, conditions precedent and conditions
The policy may stipulate that the contract will only enter into force once certain conditions precedent are satisfied by the insured, such as, for instance, the payment of the first premium.24
The policy may also contain coverage conditions, which should be distinguished from conditions precedent. If these conditions are not satisfied during a certain period of the insurance contract's life, coverage will not be owed for that particular period. Conversely, when the condition in question is satisfied again, coverage would be available from that date onwards. These types of conditions are common, for instance, in relation to coverage for breaking and entering or theft,25 where policies will often provide that coverage is subject to security measures being maintained at all times (such as the presence of a working alarm system).
iv Intermediaries and the role of the broker
Insurance intermediaries that distribute insurance or reinsurance coverage on a principal or secondary basis must meet the integrity and professional qualification requirements set out in the IC. They must also carry professional-liability and financial-bond insurance.26 They can incur various sanctions, ranging from fines to imprisonment, for breach of these requirements.27
Brokers and insurance companies are also bound by brokerage customs and industry practice. Legal commentators are, however, divided and cautious about their qualification as a rule of law and their possible enforcement by or against a third party.
Agency and contracting
Insurance intermediaries must be registered with the French Register of Insurance Intermediaries.
The Insurance Distribution Directive reinforced insurance intermediaries' freedom to provide services within the European Union by providing that the registration with their home Member State should allow them to operate in other Member States.28
How brokers operate in practice
Traditionally, brokers provide clients with pre-contractual advice on coverage and premiums, and consequently fall under the category of insurance distributors. As such, they have certain obligations regarding pre-contractual information and advice.29
Brokers are, however, increasingly involved in claims handling. They may, for instance, strive to defend their clients' interests by guiding policyholders from the time of occurrence of a loss, and assisting them during the investigation and loss adjustment.
Brokers may also act on behalf of the insurer, for example by collecting insurance premiums.
The insured must give the insurance company notice of any claim that falls within the scope of coverage.
Insurance policies cannot impose a specific method for claim notification; any clause imposing a special method is therefore invalid. The insured should notify the claim as soon as he or she is aware of it and within the time limit specified in the policy.
Where a policy clause stipulates a specific time limit for the notification of claims, the insurer may only deny coverage of claims reported outside the time limit in question if:
- the delay in reporting has prejudiced the insurer;
- the time limit for reporting claims is not less than five days; and
- the policy's relevant sections appear in bold print and clearly state that late reporting results in forfeiture of coverage.
There is no duty on the insured to mitigate damage (except in marine insurance); nevertheless, the courts have occasionally found this duty on the basis of a breach of contract.30 Legal commentators have, however, remained rather cautious on this point, as the duty has been neither clearly defined nor confirmed by further court decisions. However, a draft reform of tort law (which has not yet been adopted) contemplates creating such a duty.31
By application of the 'indemnity principle', enshrined in the IC, the insurance indemnity paid to the policyholder cannot exceed the extent of the loss effectively sustained.
Finally, where the policy so provides in very clear print, fraudulent overstatement of losses can result in forfeiture of coverage.
The liability insurer cannot set-off the unpaid premiums upon the indemnity it may be obligated to pay to the third-party victim.32
However, the insurer has a right to assert set-off, including in an insolvency context, but only if the right is asserted before the judgment opening insolvency proceedings, and under certain conditions. Accordingly, an insurer can set-off premiums owed to it by a policyholder against insurance proceeds owed by it to the policyholder.
For annual policies, the policy limit is automatically reinstated in full on the first day of the next year of insurance. Moreover, the insured or policyholder can request reinstatement of mandatory coverage. If the policy limit has not been exhausted, the remaining portion is not carried over to the next year.
In addition, insurance contracts can provide for reinstatement of the policy limit depending on changes in the risks. Such a provision is subject to a higher premium and is drafted on a case-by-case basis.
Dispute resolution clauses
Insurers can include mediation and conciliation clauses in their policies, in which case the IC provides that the policy must indicate how the insured can initiate mediation. Insurance contracts relating to large risks33 can also contain mediation and conciliation clauses, but they do not need to indicate the exact means of initiating mediation.
Case law has ruled that if an insurance contract contains a conciliation clause or a mediation clause, the parties have to go through these processes before initiating proceedings.34
i Jurisdiction, choice of law and arbitration clauses
There are two types of first instance courts in France: civil courts and commercial courts. Commercial courts differ from civil courts in that they are staffed by non-professional judges, who are usually experienced business people. There are no trials by jury in either the civil or the commercial courts.
Since the reform of the judicial system, which took effect on 1 January 2020, the organisation of first instance civil courts has been simplified: before, claims brought before civil courts would be brought before either the district court or the regional court, depending on the quantum of the claim, whereas from 1 January 2020 these two existing civil courts have been merged into a single court, the judicial court.
Commercial courts have exclusive jurisdiction if all the parties to the dispute are commercial entities (unless the contract at issue contains a jurisdiction clause providing that civil courts have jurisdiction). If, however, a claimant is a non-commercial entity but the defendant is, for its part, a commercial entity, the claimant can choose before which court, commercial or civil, he or she will bring his or her action.
It follows from the above that insurers are accustomed to appearing before both civil and commercial courts (note that mutual insurance companies must necessarily initiate proceedings or be sued before civil courts, as they are deemed to be non-commercial entities).
Taking property and casualty insurance as a representative example,35 the principles that govern applicable law or choice of law may be summarised as follows:
- compulsory insurance contracts that correspond to a legal obligation (such as motoring insurance) are necessarily governed by French law;36
- insurance contracts entered into with a French resident in relation to a risk that is deemed to be located in France will necessarily be governed by French law;37 and
- insurance contracts entered into with a consumer will also necessarily be governed by French law, provided the consumer has his or her habitual residence in France and the insurer carries out his or her usual business in France.38
There are, however, certain conditions where the parties can elect for the insurance contract to be governed by a foreign law, namely:
- if the risk is located in France, but the insured resides or has its registered office abroad, the insurance contract can either be governed by French law or the law of the country the insured resides in;39
- if the risk is not located in France, but the insured resides or has its registered office in France, the insurance contract can be governed by French law or by the law of the state where the risk is located;40 and
- if the risk qualifies as a large risk, as defined by the IC, the contract can be governed by any law the parties elect (rather than merely the law of the state associated with the residence of the insured and the location of the risk);41 however, in this instance, if the main elements of the insurance contract are located in France, then the overriding mandatory provisions of French insurance law will apply, regardless of the governing law elected by the parties.
In the three instances listed above where the insured and the insurer elect a governing law other than French law, the governing law retained by the parties must either be identified explicitly or be self-evident in light of the other clauses of the contract or the facts of the case. If this is not the case, the governing law will be that of the state that has the closest ties with the insurance contract, which is presumed to be the law of the state where the risk is located.42
For all proceedings relating to the determination and payment of compensation, Article R114-1 of the IC provides that the defendant shall be summoned to appear before the court of the insured's domicile. However, this Article also provides that:
- in the case of real property or movable property by nature, the defendant shall be summoned to appear before the court of the location of the insured property; and
- in the case of accident insurance, the insured may bring an action against the insurer before the court of the place where the harmful event occurred.
Insurance contracts can contain arbitration clauses, which will be binding on the parties in the event of a dispute regarding the application of the policy, depending upon the identity of the parties (arbitration clauses cannot be invoked against consumers) and provided, of course, the legal conditions applicable to the validity of any arbitration clause are satisfied.
Generally speaking, first instance proceedings in a commercial case usually take about a year and a possible appeal will usually take another year. A possible, ultimate appeal before the French Supreme Court, the Court of Cassation (which can only be made on a point of law, rather than an issue of fact), would add another 18 months. These periods can vary depending, inter alia, on the complexity of the case, the number of parties or whether investigative measures are ordered by the court.
Urgent proceedings, such as summary proceedings for interim relief and fixed-date proceedings, also exist. These proceedings can take several weeks to several months depending on the complexity of the case.
Proceedings before French courts do not include discovery, in a marked difference to the way evidence is produced before common law jurisdictions.
According to Article 132 of the Code of Civil Procedure (CCP), each party must produce the documents relied upon in its submissions and communicate copies thereof to the other parties. In the event that a party does not comply with this obligation, its opponents could apply to the court for a disclosure order.43 The court would then indicate the time limit for disclosure, if necessary on penalty of a daily fine and, where appropriate, the method of disclosure.44 The judge on the merits could also choose to exclude whatever documents have not been served in due time.45 If a party wishes to rely on a document evidencing a transaction to which it was not itself a party, or any other document held by a third party, the court may order the production of the original or a certified copy of the said document.46
Pursuant to Article 199 of the CCP, if testimonial evidence is admissible, the court shall admit statements from third parties whose first-hand knowledge can help clarify the facts at issue. Such statements can be made in writing or brought by means of an inquiry or investigation, depending on whether they are written or oral.
According to Article 695 of the CCP, costs include:
- the fees or taxes charged by the court registry offices or by the tax administration;
- the cost of translating documents, where translation is required by law or by an international commitment;
- allowances paid to witnesses;
- experts' fees;
- fixed disbursements;
- public officers' fees;
- counsel's fees insofar as they are regulated; and
- expenses incurred for service of process in a foreign country.
These costs, which do not, however, include the other parties' legal costs, are usually borne by the losing party, once the judgment on the merits is handed down.
While the losing party will habitually be ordered to pay part of the successful party's legal expenses,47 the amount usually corresponds to only a fraction of the successful party's entire legal costs.
Format of insurance arbitrations
The parties to arbitration have wide autonomy, especially as regards the procedural rules to be followed by the arbitration proceedings, which can be agreed upon in the arbitration agreement. Arbitral proceedings must, however, comply with the mandatory procedural principles set out in the first section of the CCP.
If the insured is a professional, and the insurance contract was taken out in connection with the insured's professional activity, the arbitration clause will be binding on both the insurer and the insured alike. If, however, the insured is a consumer, then the insurer will not be able to invoke the clause against it, pursuant to provisions of the Consumer Code and the CC (however, non-professionals can invoke the arbitration clause, if they wish).
There is a legal distinction between domestic and international arbitration and although some provisions apply to both,48 there are also specific provisions for each.49 The distinctive criterion is that of the domestic or international nature of the trade interests at stake in the dispute.50 In matters of reinsurance, some authors argue that the inherently complex and cross-border nature of reinsurance schemes implies that arbitration on reinsurance matters is necessarily international.51
Arbitration clauses can be included in contracts, before any disputes have arisen. To be valid in domestic arbitration, they must be in writing, designate the arbitrator or arbitrators, or indicate the manner in which they are to be appointed, and determine the subject matter of the dispute.52 In international arbitration, there are no formal requirements regarding the arbitration agreement.53 It is, however, recommended to specify the place and language of arbitration, the rules of arbitration to be applied and, where necessary, the governing law.
If a dispute has arisen and no arbitration clause can be identified, the parties can nevertheless decide to enter into an arbitration agreement whereby they agree to submit the dispute to arbitration.
During the pre-arbitration phase, French courts can intervene, at the request of one of the parties, if and when a difficulty arises regarding the appointment of the arbitrators.54 Moreover, if the arbitral tribunal has not yet been constituted, parties to the arbitration may file a claim for urgent proceedings before a state court for temporary or protective measures.55 If, however, the arbitral tribunal has been constituted, only the arbitral tribunal has jurisdiction to order such measures.
French courts may have jurisdiction to hand down a judgment on the validity of arbitration clauses, provided the arbitral tribunal has not yet been constituted and the clause at issue is obviously void or unenforceable.56
As a general rule, arbitral awards cannot be appealed or opposed.57 However, in domestic arbitration, parties have the possibility to provide in their arbitration agreement that an appeal will be possible.58 In that event, the appeal will aim either to obtain the reversal or the setting aside of the award;59 however, the court of appeal can only rule in accordance with and within the limits of the arbitral tribunal's mandate.60
In the absence of any agreement on a possible appeal of the award, and in any event in relation to international arbitration, the only possible recourse against an arbitral award is an action to have the award set aside.61 In contrast to an appeal, the action to set aside an arbitral award can only be brought on a limited number of grounds, listed in the CCP.
Finally, in domestic arbitration, arbitral awards may be subject to a special remedy before the arbitral tribunal itself, called revision, but only on certain limited grounds, including fraud, in which case, the award is re-examined by the arbitral tribunal.62
Arbitral tribunals are granted wide-ranging powers and discretion when it comes to evidence. They may hear all relevant persons or order any party to communicate all relevant documents.63
Arbitral tribunals may order parties to perform any temporary or protective measures they deem appropriate.64
Arbitration costs include the arbitrators' fees, as well as the parties' legal costs. There is no French statutory provision regulating arbitrators' fees. Consequently, the arbitrators' fees are set by the arbitrators themselves or by the arbitration institution to which the dispute is referred. Fees are mainly based on the number of hours worked or the amount involved in the dispute, or both of these, and factors such as the complexity of the case, the reputation of the arbitrators, etc. are also considered.
iv Alternative dispute resolution
French jurisdictions and French procedural law are generally in favour of alternative dispute resolution (ADR), which they have increasingly tended to promote.
Up until quite recently, parties to a dispute could only initiate judicial proceedings provided they had previously attempted to solve the dispute amicably. In practice, however, this obligation had little impact, because no sanctions were provided for cases of non-compliance and compliance could, in any case, be achieved by including a simple declaration, in the writ, that efforts to resolve the dispute amicably had been undertaken and failed. This changed with Law No. 2019-222 of 23 March 2019 (and the ensuing decree regarding its application), which has limited the scope of the disputes concerned (i.e., essentially disputes relating to amounts of less than €5,000) but strengthened the parties' obligation to attempt to find an amicable solution.
Moreover, parties are always free to resort to ADR methods, such as conciliation and mediation.
Conciliation and mediation may be either judicial65 or contractual.66 When the proceedings are contract-based, parties choose the third party that conducts them. In both instances, parties have to agree to the proceedings: there cannot be an injunction to participate.
Regarding contractual mediation in insurance matters, since 2016, proceedings have been handled by the insurance ombudsman. This mediation system is compulsory for insurance companies that are members of the FFA (i.e., the overwhelming majority of the French market). The insurance ombudsman is independent and may intervene in relation to disputes that arise between insurers, insurance intermediaries and even consumers (but excluding large risks). This form of mediation is free and confidential. Parties are not bound by the decision of the ombudsman. Limitation periods are suspended during the mediation proceedings.
Year in review
French insurance law itself has not undergone any significant changes in 2020. However, as will no doubt have been the case in most other jurisdictions across the globe during the past year, the covid-19 pandemic and its consequences have understandably been the most important topic for the French insurance industry. Indeed, the restrictions implemented by French public authorities to stem the spread of the virus led to significant disruptions to the real economy and business interruption losses for a broad variety of sectors. This has, in turn, led to a significant uptick in coverage disputes brought against insurance companies before French courts.
While, thus far, most of these covid-19-related claims have only given rise to summary proceedings and interim decisions, there has already been a trickle of decisions on the merits. For the time being, the few decisions on the merits that have been handed down potentially indicate a certain lack of consistency in the way the courts have ruled on these issues. However, the low number of decisions rendered to date makes it difficult to extrapolate any obvious guidelines on how French courts are likely to rule in relation to covid-19-related coverage disputes. Moreover, as coverage disputes, by definition, relate very specifically to the wordings of the insurance policies at issue, one should not necessarily expect much 'consistency', from one covid-19-related coverage judgment to the next.
The judgments on the merits that have been handed down to date tend to focus on whether the policies' exclusion clauses relating to epidemics were valid and could successfully be invoked against the insureds.
In a slight majority of the decisions handed down to date, first instance courts held that the exclusion clauses at issue were not valid, for French insurance law purposes. There have been instances where first instance courts have dismissed the exclusion clauses at issue because they were deemed to be too broad, when compared to the coverage provided, and were consequently held to be tantamount to 'emptying the warranty of its substance' and depriving the policy of any real effects. There have, however, been some judgments on the merits that considered and ruled upon exclusion clauses that were deemed to be sufficiently clear and narrow and were therefore deemed enforceable.
While we expect coverage disputes to keep on rising, at least in the months to come, this trend should not be overstated, as we expect a certain number of insurers will aim to settle claims of this kind if the applicable wordings are found to be inoperative when tested before the courts; there have, in fact, already been reports within the specialist press of insurers adopting this approach.
The year 2020 also marked the definitive exit of the United Kingdom from the European Union. In preparation for the end of the transition period, which came to a close on 31 December 2020, French authorities handed down decisions setting out the regime that would apply to those insurance companies that would lose their EU passporting rights.
By application of the Ordinance of 16 December 2020,67 insurance companies that are domiciled in a country that loses its EU passporting rights will no longer be authorised to sell insurance policies on the French market from that date (i.e., for insurance companies domiciled in the United Kingdom, this is the case from 1 January 2021 onwards). Insurance policies entered into in violation of this rule will be deemed null and void, but offending insurers will not be able to invoke this nullity against their insureds or other parties benefiting from the policies at issue (despite the fact that they will not be authorised to receive premiums in relation to the policies at issue).
Insurance contracts that were entered into before the loss of passporting rights and were still in vigour on this date will remain in vigour until the end of the policy period. However, these insurance contracts may not be renewed or prolonged. Consequently, insurers who have lost the benefit of their country's passporting rights may no longer receive insurance premiums – unless the policies that remain in vigour contain terms providing that the premiums will be paid by way of several instalments over the course of the policy period, or that the premiums may be subject to adjustment during the course of the policy period.
Subsequent to the above-mentioned Ordinance, by the application of the Decree of 22 December 2020 of the Ministry for the Economy and Finance, British insurers who no longer benefit from the European passport were required to inform their insureds (within 15 days of 1 January 2021) of their change in situation and the fact that they will no longer be able to renew existing insurance contracts. This information obligation is intended to warn impacted insureds of the fact that they will need to seek insurance coverage from other providers, going forward.
It should, however, be noted that key British insurance operators have been preparing for Brexit for some time and have implemented business continuity strategies to be able to continue offering insurance within the EU, France included. To that end, these insurers have set up entities within the EU, which benefit from passporting rights and to whom existing insurance portfolios may also have been transferred.
Outlook and conclusions
Naturally, the ongoing covid-19 pandemic remains a key issue for the insurance and reinsurance industry, as it is not yet over at the time of writing. To that extent, it would be reasonable to say that the current health crisis limits visibility as one tries to scan the horizon and it may also lead to further disruptions, challenges and insurance and reinsurance claims. In addition to the wave of business interruption losses that arose from the spring of 2020 onwards, other types of losses may also arise, going forward. There could, for instance, be a rise in liability claims in respect of corporate directors or banks, who might eventually be found liable as a result of their efforts to keep faltering businesses afloat through the crisis by taking or granting loans in cases where these efforts were finally deemed to have prolonged and worsened companies' demise and increased their indebtedness at the time of bankruptcy. Similarly, one cannot entirely rule out the possibility that the covid-19 crisis could have a greater impact on real economies than expected or contribute to greater volatility on the global financial markets, which could, in turn, cause difficulties for insurers and reinsurers as a result of their solvency obligations, pursuant to Solvency II. Only time will tell how this crisis will keep on unfolding.
One should not, however, be led into thinking that the ongoing pandemic is the only issue for the insurance and reinsurance industry today. This would, indeed, be mistaken, as long-term trends that pre-dated the occurrence of the covid-19 crisis have not disappeared or run out of momentum, although they may not be at the forefront of people's minds. For instance, the increasingly demanding regulatory requirements the insurance and reinsurance industry needs to comply with constitute a trend that has not gone away and should not be underestimated, as can be illustrated by the recent GDPR- and Insurance Distribution Directive-related sanctions discussed above. Similarly, cyber threats and losses have kept on rising and are likely to constitute one of the key challenges, and opportunities, for the insurance and reinsurance industry.
1 Alexis Valençon and Nicolas Bouckaert are partners at Kennedys. The authors are grateful to Virgile Adrian for his assistance in the preparation of this chapter.
2 Article L310-26 et seq. of the IC and Article 131-38 et seq. of the French Criminal Code.
3 Article L321-10-1, IC.
4 Article L310-3-1, IC.
5 Article L352-5 et seq., IC.
6 Article L354-1 et seq., IC.
7 Article L321-1 Section 3, IC.
8 Article R511-1, IC.
9 ACPR Decision 28 February 2020, No. 2019-05.
10 Article L113-8 of the IC.
11 Articles L113-8 and L113-9, IC.
12 Article L111-1, IC.
13 Article 1192, CC.
14 Court of Cassation, 2nd civil division, 268 October 2017, appeal No. 16-22.564; 13 September 2018, appeal No. 17-24871.
15 Court of Cassation, 2nd civil division, 3 March 2016, appeal No. 15-12464.
16 Article 1188, CC.
17 Article 1190, CC.
18 Court of Cassation, 2nd civil division, 8 March 2018, appeal No. 17-10030.
19 Court of Cassation, 4 October 2018, appeal No. 17-20624.
20 Article 1189, CC.
21 Court of Cassation, 2nd civil division, 26 October 2017, appeal No. 16-23696.
22 Court of Cassation, 2nd civil division, 24 May 2018, appeal No. 17-16431.
23 Court of Cassation, 3rd civil division, 23 October 2016, appeal No. 15-18418.
24 Court of Cassation, criminal division, 17 January 1996, appeal No. 95-80847.
25 Court of Cassation, 2nd civil division, 30 June 2011, appeal No. 10-23309.
26 Articles L512-6 and L512-7, IC.
27 Articles L514-1 to L. 514-4, IC.
28 Directive (EU) No. 2016/97, Recital 20.
29 Articles L112-2 et seq. and L521-1 et seq., IC.
30 Court of Cassation, 2nd civil division, 24 November 2011, appeal No. 10-25635.
32 Court of Cassation,1st civil division, 31 March 1993, appeal No. 91-13637.
33 Article R112-2, IC.
34 Court of Cassation, mixed divisions, 12 December 2014, appeal No. 13-19684; Court of Cassation, 3rd civil division, 16 November 2017, appeal No. 16-24642.
35 Other rules may apply to more specialised areas of French insurance law, such as in marine insurance or life insurance.
36 Article L182-1, IC.
37 Article L181-1-1, IC.
38 Rome I Regulation, Article 6.
39 Article L181-1 Section 2, IC.
41 Article L181-1-5, IC.
42 Article L181-2, IC.
43 Article 133, CCP.
44 Article 134, CCP.
45 Article 135, CCP.
46 Article 138, CCP.
47 Article 700, CCP.
48 Article 1506, CCP.
49 Articles 1442 to 1503 for domestic arbitration and Articles 1504 to 1527 for international arbitration, CCP.
50 Article 1504, CCP.
51 M Hagopian and M Laparra, Theoretical and Practical Aspects of Reinsurance, L'Argus, 1991, p. 74.
52 Articles 1443 to 1445, CCP.
53 Article 1507, CCP.
54 Article 1454, CCP.
55 Court of Cassation, 2nd civil division, 7 March 2002, appeal No. 00-11526.
56 Article 1448, CCP.
57 Articles 1489, 1503 and 1518, CCP. 'Opposition' is a form of recourse under French law, available when a judgment is rendered by default because a defendant was not properly notified of a hearing. The defendant can, in these circumstances, 'oppose' the judgment in question.
58 Article 1489, CCP.
59 Article 1490, CCP.
60 Article 1490, CCP.
61 Articles 1491 and 1518, CCP.
62 Article 1502, CCP.
63 Article 1467, CCP.
64 Article 1468, CCP.
65 Article 127 et seq., CCP.
66 Article 1528 et seq., CCP.
67 Ordinance No. 2020-1595 of 16 December 2020 on the consequences of the withdrawal of the United Kingdom from the European Union in terms of insurance, collective investments and shares savings plans.