Insurance Litigation 2021

Last Updated October 01, 2021

France

Law and Practice

Authors



Kennedys is a global law firm with expertise in dispute resolution and advisory services, staffed by more than 2,300 people across the UK and Europe, Asia Pacific, the Americas and the Middle East. The firm delivers straightforward advice, even when the issues are complex, but it is often the firm’s insights and support beyond the law that really make a difference to its clients. The team members' expert knowledge in their chosen industries means that the firm has the best people to help clients navigate challenges, today and tomorrow. Its lawyers handle both contentious and non-contentious matters, and provide a range of specialist legal services for many industry sectors, including insurance and reinsurance, aviation, banking and finance, construction and engineering, cyber and data privacy, healthcare, life sciences, marine, public sector, rail, real estate, retail, shipping and international trade, sport and leisure, transport and logistics, and travel and tourism. The firm has particular expertise in litigation and dispute resolution, especially in defending insurance and liability claims. The authors would like to thank Marie-Ketty Prom and Nour Jonot for their invaluable assistance in the preparation of this chapter.

The statutory and procedural regime that governs the resolution of insurance disputes in France is contained within the French Insurance Code (FIC), the French Civil Code (FCC), the French Commercial Code (FCOMC) and the French Code of Civil Procedure (FCCP). In European and international disputes, special attention is paid to the applicable regulations and conventions, in particular, the specific insurance provision contained in the Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (the “Rome I” Regulation) and in Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the “Brussels I bis” Regulation). 

Insurance disputes in France are governed by a specific procedural regime on jurisdiction and time limitation (as developed in 1.2 Litigation Process and Rules on Limitation). However, this regime does not apply to reinsurance disputes. 

Litigation Process

The litigation process in France starts with an out-of-court amicable phase where the parties attempt to reach an amicable solution. Upon failure to do so, the claimant may send the defendant a writ of summons and file the same with the appropriate court of first instance. In insurance disputes, the decision handed down by the court of first instance may be challenged before the appropriate court of appeal. The decision handed down by the court of appeal may be challenged on limited grounds that relate to points of law (and not on an issue of fact) before the French Cour de cassation, ie, the French Supreme Court for judicial matters (as opposed to administrative matters).

Many insurance disputes in France include a phase where the claimant applies for a court-ordered investigation, under the supervision of a court-appointed expert. Under French law, a court-ordered investigation is the only way to conduct a fact-finding process (inter alia, on technical matters, to assist the court in the determination of liabilities and/or extent of damages) that would be enforceable against all parties. Indeed, in the absence of a court-ordered investigation, the parties to a dispute are only able to present the facts of their case in application of the law on evidence as provided by the FCC and the FCCP.

The relevant law on evidence in insurance coverage disputes is the general law on evidence applicable to contract enforcement. Its application to insurance coverage disputes entails that, on the one hand, the insured bears the burden of evidence that the conditions of coverage of the invoked insurance policy are met and, on the other hand, the insurer has the burden of proof of the exclusions of coverage it may raise, as well as of the facts that may entail a lapse of coverage or the voidability of the insurance policy at stake.

First instance proceedings usually take about 18 months and appeal proceedings would usually take another 18 months. Proceedings before the Cour de cassation would also 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.

General Rules on Limitation in Insurance Disputes

The rules on limitation in insurance disputes are provided by Articles L.114-1 to L.114-3 of the FIC and are mandatory for all “actions that stem from the insurance contract” (Article L.114-1 of the FIC).

The claimant disposes of two years to exercise its right of action from the event that gave rise to said right of action. However, the starting point of the time of limitation is postponed:

  • in the event of concealment, omission, false or inaccurate statement of the risk incurred, to the day the insurer became aware of it;
  • in the event of a loss, to the day the interested parties became aware of it, if they prove they ignored it until then; or
  • when the action of the insured finds its source in the action of a third party, to the day this third party exercised judicial action against the insured or was indemnified by the insured.

Article L.114-1 of the FIC also contains specific provisions regarding time limitation for life insurance:

  • time limitation is extended to ten years when the insured is not the underwriter of the life insurance policy;
  • however, time limitation for the beneficiary of the life insurance policy is capped at 30 years from the date of death of the insured. 

In addition, Article L.114-1 of the FIC provides that time limitation is also extended to ten years in the case of insurance contracts covering risks of bodily injuries, when the beneficiaries are the successors of the deceased insured.

Article L.114-2 of the FIC adds to the general causes of interruption of time limitation by providing that the appointment of an expert following a loss and the sending of a registered letter with acknowledgement of receipt may also interrupt time limitation.

Finally, Article L.114-3 of the FIC provides that parties to an insurance contract cannot agree to amend the length of time limitation or add to the causes of suspension or interruption of time limitation.

It is noteworthy that it is particularly difficult in practice for insurers to raise time limitation issues against insureds, as Article R.112-1 of the FIC provides that insurance contracts must recall the provisions of the FIC relating to time limitation and French courts apply this provision very strictly. Where insurance contracts are ill-worded in this respect, French courts have found that the insurer cannot raise any time limitation against its insured.

Over the last decade, the French legislator has enacted several legislations to encourage ADR. 

First, France remains a very favourable territory for arbitration proceedings, both domestic and international. In this respect, insurance and reinsurance disputes are included in this practice. Arbitration is the prevalent, if not exclusive, ADR mode in reinsurance disputes and is increasing in popularity in insurance disputes. In this respect, in 2016, the regime of arbitration clauses evolved for non-professional entities (including consumers). Arbitration clauses were previously only valid if they were entered into by professional entities. Now, they are valid in every contract with the condition that they cannot be enforced against a party that has not contracted within its professional activity (whereas the insured that does not act in a professional capacity will be able to enforce the arbitration clause against the insurer).

ADR is therefore promoted in France, and there are constantly increasing obligations for the parties to attempt to reach an amicable solution before being authorised to file judicial proceedings. 

Recently, Decree No 2019-1333 of 11 December 2019, taken in application of Law No 2019-222 of 23 March 2019, has strengthened the parties’ obligation to attempt to find an amicable solution.

For instance, for claims that do not exceed EUR5,000, Article 750-1 of the FCCP provides an obligation for the parties to a dispute to take steps in view of reaching an amicable resolution of their dispute, under penalty of inadmissibility of the claims, and Article 54 5° of the FCCP provides an obligation for the claimant to mention said steps in the writ of summons, under penalty that the writ of summons may otherwise be found null and void by the court.

Aside from the above-mentioned obligations, it is common practice that the courts encourage the parties to find an amicable solution. In any event, the parties always remain free to settle their dispute, in particular, via amicable discussions or mediation. In insurance disputes, a mediation can be conducted under the aegis of the French Insurance Ombudsman, an entity linked to the Ministry of the Economy and Finance, whose activity has significantly increased over the last few years.

Rules over Choice of Jurisdiction

In France, specific procedural rules apply to the determination of territorial jurisdiction in most insurance disputes. For all proceedings relating to the determination and payment of insurance indemnities, Article R.114-1 of the FIC 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 estate 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 insurance against accidents, the insured may bring an action against the insurer before the court of the place where the harmful event occurred.

Regarding subject-matter jurisdiction, insurers are accustomed to appearing before both civil and commercial courts. Commercial courts have exclusive jurisdiction if all the parties to the dispute are commercial entities. If, however, a claimant is a non-commercial entity, but the defendant is a commercial entity, the former can choose before which court, commercial or civil, it will bring its action. 

The above French internal rules mandatorily apply and parties cannot agree otherwise. 

In European disputes, the Brussels I Bis Regulation provides in Articles 10–16 the applicable jurisdiction in matters relating to insurance. While Articles 10–14 provide applicable rules of jurisdiction, Articles 15 and 16 provide the limited situations under which parties may enter into a jurisdiction clause that would provide otherwise. French courts tend to apply a narrow interpretation of the validity and enforceability of jurisdiction clauses, for instance, in situations where the insurer wishes to enforce a jurisdiction clause against an insured who is not the policyholder.

Rules over Choice of Law

The FIC provides in Articles L.181-1 to L.183-2 the applicable law regime in insurance contracts when the risk is located in one or several countries that are parties to the Agreement to the European Economic Area. This regime provides limited situations in which the parties can enter into a choice-of-law clause, either where the risk is not located in France or where the policyholder has its registered office outside of France, and limited options of applicable laws they can elect. 

Choice-of-law provisions are not valid for risks covered as a result of an obligation to take out insurance, which are governed by French law.

Under French law, choice-of-law provisions in insurance contracts must be express or stem with certainty from the other clauses of the contract or the facts of the case. If not, the governing law will be that of the EEA 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.

The regime of enforceability of foreign judgments in insurance matters/against insurers is no different from the general regime of enforcement of civil or commercial court decisions. 

Civil and commercial foreign court decisions can be enforced in France according to different international conventions, or European or domestic law, depending upon the origin of the court decision.

  • When the decision has been handed down by an EU member state (with the exception of Denmark), the Brussels I Bis Regulation has eliminated the necessity for an exequatur procedure. Hence, a court decision handed down in one member state is automatically enforceable in another member state.
  • When the court decision has been handed down by a state that is not an EU member state, it is necessary to verify the existence of a bilateral or multilateral convention between France and this state. These conventions often provide for a simplified exequatur regime. For example, to enforce a court decision in France that is handed down by a Swiss court, one should refer to the Lugano Convention.
  • When the foreign decision has been handed down by a state outside the scope of international instruments (this is currently the case of the United Kingdom, since Brexit), the conditions for recognition are set out in French internal law, which gives three cumulative conditions for the recognition and enforcement of a foreign judgment in France, namely: 
    1. the indirect jurisdiction of the foreign court; 
    2. the absence of fraud; and
    3. the judgment’s compliance with French international public order.

Court-Ordered Investigations

In France, the party that wishes to evidence a factual issue (eg, the cause of a loss) should file for a court-ordered investigation. The court-appointed expert will conduct investigations in compliance with the terms of reference set out by the court, in the presence of all parties to the dispute. In this respect, court-ordered investigations must comply with due process. During this phase, parties are usually represented by their legal counsel as well as technical counsel, who will be the best suited to interact with the court-appointed expert.

Court-appointed experts are not allowed to reach legal conclusions, eg, on liability issues. However, even if their factual findings are not binding on the court which will rule on the merits of the case, practice shows that said court is usually heavily influenced by said findings. 

As a consequence, insurers must be particularly cautious during this phase of the proceedings and should not wait until proceedings on the merits to get the assistance of technical experts.

Evidence before French Courts

Proceedings before French courts do not include a discovery phase as they do in common-law jurisdictions. 

Pursuant to Articles 132–137 of the FCCP, each party must produce the documents relied upon in its submissions and communicate copies thereof to the other parties. Parties may file document production requests before the court but must demonstrate the likely existence of requested documents and their utility in the solution of the dispute. 

Enforceability of Time Limitation Provisions against Insureds

As indicated in 1.2 Litigation Process and Rules on Limitation, international insurers should also be aware of the strictness of the French courts regarding enforcement of time limitation provisions against insureds. 

Quite often, international insurers tend to overlook this legal requirement when drafting insurance contracts. This entails, in practice, that limitation clauses rarely comply with the FIC and insurers struggle to enforce time limitations against their insureds. 

Strict Appreciation of the Validity of Exclusion Clauses 

French insurance law follows a very strict regime regarding the validity of exclusion clauses. Article L.113-1 of the FIC provides that exclusion clauses must be formal and limited and Article L.112-4 of the FIC provides formatting requirements, as exclusion clauses must be written in very apparent font in the policy (they are usually drafted in capital letters and in bold to comply with these requirements).

In application of the formal and limited requirements, exclusion clauses in insurance policies must not be vague, must not require any interpretation and must not empty the cover written. The latter means that the scope of the exclusion clause(s) may not be so large that no losses remain covered under the litigious guarantee. Special attention is paid to the specifics of the case, in particular, the activity of the insured. 

This strict regime may lead to legal uncertainty, as insurers may have to cover events or types of damages that they had not foreseen at the underwriting phase of the insurance policy. As a consequence, they should be particularly careful when drafting insurance policies.

This strict regime is limited to insurance contracts and does not apply to reinsurance contracts, which are only governed by the FCC and not by the provisions of the FIC.

French courts enforce arbitration provisions in commercial contracts of insurance and reinsurance.

In this respect, Article 1448 of the FCCP provides that when a dispute under an arbitration agreement is brought before a state court, the court shall rule that it has no jurisdiction unless (i) the matter has not yet been brought before the arbitral tribunal, and (ii) the arbitration agreement is patently void or unenforceable, which is a very high standard. 

France ratified the New York Convention facilitating the recognition and enforcement of foreign arbitral awards (the "New York Convention"). It was adopted on 10 June 1958 and came into force on 26 June 1959. 

The New York Convention provides for non-discriminatory treatment between the enforcement of awards handed down in foreign jurisdictions and domestic awards. It further provides that the rules of procedure to be applied are those of the territory where the award is relied upon, in this case, France.

In France, the recognition and enforcement of a foreign arbitral award must be decided by a judicial authority. Furthermore, exceptions to the enforcement of a foreign award are provided in Article V of the New York Convention, which mentions cases where the judicial authority may refuse its enforcement. Article VII offers the judicial authority of a contracting state the possibility to refuse to enforce an award if the arbitration convention is null and void under the law of the country the parties chose, or under the law of the seat of arbitration.

Arbitral awards handed down by foreign jurisdictions must comply with provisions of the FCCP to be enforced. Pursuant to Articles 1514–1517 of the FCCP, enforcement of foreign arbitral awards can only be sought before the Paris Judicial Tribunal which may hand down an exequatur order. 

In accordance with Article 1488 of the CPC, the Paris Judicial Tribunal may refuse to grant an exequatur order only if the award is patently contrary to international public policy. The extent of its control is therefore very limited.

However, a party may challenge the exequatur order granted to a foreign arbitral award before the Paris Court of Appeal on the limited number of grounds indicated in Article 1520 of the FCCP. The grounds are the same as those available to challenge and set aside an arbitral award, as follows:

  • the arbitral tribunal wrongfully ruled that it had or did not have jurisdiction;
  • the arbitral tribunal was wrongfully constituted;
  • the arbitral tribunal did not comply with its terms of reference;
  • there was a breach of due process; or
  • the recognition or enforcement of the award is against international public policy.

These grounds are limited and do not allow the court of appeal to rule again on the merits of the case. In this respect, France can be categorised as a jurisdiction which is very respectful of international and domestic arbitral awards.

Over the years, arbitration as a dispute resolution mechanism has attracted growing interest from the insurance industry and has been the most common means of managing disputes in reinsurance matters. In this respect, specialised arbitral institutions are dedicated to insurance and reinsurance arbitration, such as the CEFAREA-ARIAS.

Other specialised institutions may handle insurance matters, such as the Chambre Arbitrale Maritime de Paris, which specialises in marine matters, including marine insurance. 

Usually, arbitral awards cannot be appealed. In international arbitration, there is no exception to this rule. As for domestic arbitration, appeals are also excluded unless the parties have agreed otherwise, which they almost never do.

However, as indicated in 3.2 The New York Convention, parties may file a request to set aside the arbitral award or a request to challenge the exequatur order of an arbitral award on a few limited grounds. 

French law does not have a doctrine of implied terms in the same way some common-law jurisdictions do. The regime of terms and obligations in insurance contracts is contained within Book 1 of the FIC related to the insurance contract.

In particular, Chapter III of Title I of Book 1 (applicable to property insurance) provides the obligations of the insurer and the insured. Some of its provisions indicate the regime of obligations of the insured and the insurer that must be expressly stipulated in the contract. Some other provisions indicate what may be stipulated in the contract but would, in the absence of an express term, still be part of the contract. For instance, Article L.113-1 of the FIC (included in Chapter III of Title I of Book 1 of the FIC) provides that the insurer will not cover losses that result from the wilful or fraudulent misconduct of the insured.

Similar provisions appear in the FIC for other types of insurance, such as marine insurance.

In practice, however, insurance policies usually reproduce all applicable provisions in the contract, leaving no room for discussions as to the existence of implied terms.

Prior to the inception of the policy, the insured has an obligation to declare the risks to the insurer stated in Article L.113-2 2° of the FIC. However, the regime of this declaration contains strict obligations for the insurer as it bears responsibility for the questions it asks the insured, while the insured may only be liable with respect to the answers it provides to said questions. The Cour de cassation has added to this regime that an insurer may invoke a spontaneous declaration made by the insured.

However, an insurer may never invoke against an insured the absence of a declaration outside the scope of the questionnaire submitted to the insured. 

If made in bad faith, misrepresentations made by the insured can entail the voidability of the insurance policy. When the insurer cannot evidence bad faith on the insured’s part, it may invoke misrepresentation either to raise the insurance premium (if accepted by the insured), to terminate the contract, or to reduce the insurance indemnity after a loss. 

Due to the COVID-19 pandemic, the most significant trend in coverage disputes in the last 12 months concerns coverage of the non-physical damage business interruption losses suffered by insureds following the administrative measures enacted by the French government. The issues at stake are developed in 7. Impact of COVID-19.

Numerous decisions have been handed down by the Cour de cassation on issues related to the validity of exclusion clauses. The decisions handed down confirm a well-established jurisprudence on these issues and recall that, as mentioned in 2.3 Unique Features of Litigation Procedure, exclusion clauses in insurance policies must not be vague, must not require any interpretation and must not empty the cover written. 

On an issue related to the aggregation of losses, the Cour de cassation handed down a landmark decision on 24 September 2020 (Nos 18-12.593 and 18-13.726). In this decision, the court found that several losses resulting from the liability of a professional who breached their duty of information and advice could not be aggregated, since the duty of information and advice has, per se, an individual component that prevents the characterisation of a single technical cause or harmful event pursuant to Article L.124-1-1 of the FIC.

Insurance coverage disputes most often start with significant amicable discussions between the insured and the insurer. In this respect, a broker often intervenes, on behalf of the insured, to conduct said discussions. If no amicable solution to the dispute is found, insurance disputes are resolved before state courts or arbitral tribunals. 

In insurance coverage disputes, insurers are particularly conscious in France of the severity of the state courts vis-à-vis the validity of exclusion clauses and the enforcement of time limitation provisions.

Where and for how long amicable discussions are held is even more important in reinsurance disputes and practice shows that parties turn to arbitration as a last resort.

Insurance coverage disputes are not influenced by the fact that the insured qualifies as a consumer. Even if being a consumer does not carry additional protection in insurance law, it is worth mentioning here that the category "insureds/policyholders/beneficiaries of insurance" bears some special protection in insurance law, which may be compared with the protection of consumers in other contractual matters. 

A distinction may be made between insureds on the basis of the qualification of large risks. Such distinction may entail a difference in the regime of enforceability of certain clauses contained in an insurance contract, such as the choice of law and jurisdiction provisions.

Action of a Third Party in Enforcement of an Insurance Contract

The principle of privity of contracts applies to insurance contracts and, as a general rule, only the parties to said contract may enforce it. 

However, there are notable exceptions to this principle:

  • insurance contracts where the insured or beneficiary of the insurance policy is not the policyholder; and
  • liability policies, where the third-party victim can take direct action to enforce the insurance policy and claim insurance indemnity against the insurer in application of L.124-3 of the FIC.

Action of a Third Party in Connection with an Insurance Contract

A third party to an insurance contract may sue an insurer in connection with an insurance contract in torts. To do so, the third party would have to prove that a breach by the insurer of the insurance contract has caused it some damage. This kind of situation may arise, for instance, when an insurer is late in its payment of the insurance indemnity to its insured, which may cause damage to third parties.

Insurance contracts, in application of the general law of contracts, must be performed in good faith. Under certain conditions, bad faith on the insured’s part in performing the insurance contract, for instance, in its obligations to notify losses, may entail a lapse of the insured’s right to an insurance indemnity, but only if the insurance contract stipulates this. 

Under French law, good faith is always presumed and the burden of proof lies with the party that invokes bad faith against the other party.

Good faith and bad faith also have an impact on the consequences of misrepresentation by the insured. In this respect, Articles L.113-8 and L.113-9 of the FIC state different penalties for misrepresentations by the insured based on whether or not bad faith is established.

Article R.112-1 of the FIC states that insurance contracts must indicate the timeframe within which insurance indemnities must be paid. Insurers that pay claims late may be ordered to pay late penalties equal to interest at the legal rate on the insurance indemnity.

In addition, an insured who has suffered a discernible loss due to late payment may claim damages against the insurer in torts.

It is worth mentioning that insurers have a regulatory obligation to handle claims properly. Pursuant to Article L.113-5 of the FIC and L.612-39 of the French Financial and Monetary Code, insurers who pay claims late may face an administrative fine of up to EUR100 million or 10% of the insurer's turnover.

The intervention of an insurance broker, or another insurance intermediary, in the drafting of the declaration of risk, is common practice. 

The issue of whether the insured is bound by representations made by its broker is highly dependent on the facts of the case. In the event where a mistake is included in a declaration, the insured should not be able to rely on the broker’s intervention to avoid the sanctions provided by Articles L.113-8 and L.113-9 of the FIC for misrepresentations (in certain specific situations, the French courts have found that irregularity in the declaration of risk that is exclusively due to an intermediary – ie, it does not come from information communicated by the insured to its broker, eg, when the broker has mismanaged its files – may not be invoked against the insured).

In any event, the insured should be able to seek the broker’s liability, either on the sole basis of its mistake or on the basis of the broker’s duty of advice to the insured.

When an insurer invokes a misrepresentation or an absence of declaration of the risk to its insured, the latter is often tempted to argue that said misrepresentation or absence of declaration stems from the intervention of the insurance intermediary. In this respect, it must establish that the intermediary encouraged it into the misrepresentation. 

Delegated underwriting or claims handling for insurance intermediaries is common practice in the French insurance market. It allows insurers to focus on tasks with more added value, such as the management of risks and the development of new insurance products. 

This practice does not lead to specific litigated issues. Insureds sometimes file their insurance claim against delegated claims handlers. However, courts routinely dismiss these claims on the basis that these entities are not the insurers. 

Indeed, delegated underwriters or claim handlers may still be liable for their wrongdoings in the course of their mission, in the event that said wrongdoings cause damage to the insured.

For instance: 

  • insurance intermediaries have a duty to inform and advise their insured clients and a breach of said duty may lead to the insured not being covered for a loss that occurred in an essential part of its activity, which could entail the insurance intermediary’s liability; and
  • the claims handling entity could also face the risk of being held liable in case of late management of a claim causing damages to the insured.

Insurers fund the defence of their policyholders through legal protection insurance or specific clauses contained in liability insurance policies. Said contracts entail that insurers bear the fees of experts and bailiffs, the attorneys fees in civil, commercial, administrative and criminal proceedings, and other procedural costs.

The main areas of claims relate to the liability risks covered by multi-risk home insurance policies, directors' and officers' (D&O) liability, product liability, health liability, bodily injuries, and automobile liability.

Insurance professionals foresee that the legal protection insurance market is likely to grow with the general rise in the number of judicial procedures, which makes legal protection insurance more attractive. However, the main areas of claims should not significantly evolve, except for the development of cyber-liability risks which business entities face.

There has been no specific trend regarding the cost or complexity of litigation in the main areas of claims where insurers fund the defence of insureds. No significant changes are foreseeable in the future. 

Legal protection insurance is not limited to funding the defence of the insured, but may also include the funding of the representation of the insured as claimant in civil, commercial, criminal or administrative proceedings.

The costs covered by legal protection insurance in this case are no different from the ones borne by the insurer when it funds the defence of the insured. These costs generally include the fees of experts and bailiffs; the attorneys fees in civil, commercial, administrative and criminal proceedings; and other procedural costs. However, only the legal protection insurance policy at stake specifically determines the costs covered by the insurer.

The FIC and the FCC provide insurers with a right of action to recover sums from third parties causing loss to an insured once the insurer has indemnified its insured and is subrogated into its rights. 

This right of action is limited to the amounts paid by the insurer to its insured. However, it is common practice that the insured grants its insurer power of attorney to recover the amounts not indemnified by its insurer (eg, the deductibles paid by the insured). 

As a result of subrogation, the insurer benefits, in application of the principle of full transmission of the rights of the insured to the insurer, from the rights that the insured could have asserted against the third party.

The FIC provides the specific regime of legal subrogation in insurance contracts in its Article L.121-12. Aside from this specific regime, the insurer remains able to invoke the general regime of legal subrogation as provided by Article 1346 of the FCC or the regime of contractual subrogation as provided by Article 1346-1 of the FCC.

In addition, it is worth mentioning that the regime of certain types of insurance coverages contain provisions related to subrogation: 

  • insurance of persons for the reimbursement of benefits of an indemnity nature (Article L.131-2 of the FIC);
  • political risk and trade credit insurance (Article 22 of Law No 72-650 of 11 July 1972); and
  • automobile insurance (Articles 28–34 of Law No 85-677 of 5 July 1985).

The subrogated claim is made in the name of the insurer as, once the insured receives the payment of its claim from the insurer, it loses its standing to sue the third parties and its claim against said third parties would be found inadmissible.

In accordance with Article L.121-12 of the FIC, several conditions must be met for an insurer to exercise its right of action.

  • The insurer must establish that it has paid the insurance indemnity to its insured in application of its insurance policy. In this respect, for instance, an insurer that pays an insurance indemnity to its insured while it was not liable in application of said insurance policy because of an exclusion clause, will not benefit from the effects of subrogation. In practice, however, insurers will be required to produce the insurance policy at stake to justify their subrogated right. 
  • The action of the insured against the liable third party needs to exist, since the purpose of the action is for the insurer to act against a liable third party. 

If the above conditions are cumulatively met, the insurer will be able to exercise all the rights of the insured against the third party.

In addition to legal subrogation, the insured may assign its rights of action against liable third parties to its insurer via the mechanism of contractual subrogation, as provided by Article 1346-1 of the FCC. In order for the insurer to invoke the benefits of contractual subrogation, it must establish that it paid its insured at the same time the insured assigned it its rights of action.

The pandemic has significantly impacted the type or amount of insurance litigation by exposing coverage disputes related to non-physical damage business interruption losses, in particular, the ones suffered by the hospitality industry.

Various wordings were submitted to courts of first instance in France, which handed down more than 250 decisions, with major inconsistencies, even on identical wordings. 

The main issues at stake in the coverage disputes of COVID-19-related losses relate to the definition of coverage conditions and the validity of exclusion clauses. The issue of insurability of losses stemming from a pandemic has also been raised. In addition, it is noteworthy that insureds have tried to invoke a covenant to their insurance policy imposed by their insurers and adding a so-called “COVID-19” clause excluding the pandemic risk to try to establish the scope of their prior disputed coverage.

The pandemic has also accelerated the recourse to ADR in insurance coverage disputed: in a report dated 8 July 2021, dedicated to professional insurance and the health crisis, the French insurance ombudsman recorded a 32% growth in requests for ADR under its aegis over the past year.

The number of coverage disputes in COVID-19-related matters should drop with the increase in the number of decisions being handed down by the courts of appeal and, moreover, with the Cour de cassation handing down its first decisions in these matters.

The French regulator of insurance companies, the Autorité de Contrôle Prudentiel et de Résolution (ACPR) released an annual report dated 28 May 2021 in which it reviewed insurance practice over the last year and provided guidelines to be followed by the insurance industry. In this report, the ACPR advises insurers to bring more clarity to their contractual clauses so policyholders can understand what is covered under their insurance policies.

In addition, the French insurance ombudsman’s report dated 8 July 2021 made recommendations that could influence how insurance disputes are resolved over the next years:

  • the ombudsman took a stance in favour of amicable resolutions of disputes and stated that policyholders must be informed of the possibility of having recourse to insurance mediation under the aegis of the French insurance ombudsman; and
  • the ombudsman stated that contractual mediation should be sought where the insurer refuses to allow recourse to insurance mediation under its aegis. To this end, the ombudsman recommended the CEFAREA-ARIAS institution.

The COVID-19 pandemic gave rise to coverage issues relating, inter alia, to:

  • the definition of “administrative closures” and “prohibition/denial of access” clauses with regards to the diversity of administrative measures enacted by the French government since March 2020; 
  • the definition of an “epidemic” and whether an epidemic may have a spread limited to a single establishment; and
  • the validity of several exclusion clauses (for collective closures; for administrative closures that impact more than one establishment in the same department for the same cause).

The pandemic did not give rise to test cases in France, as this mechanism is not provided by the FCCP. However, it is expected that the Cour de cassation will hand down a decision in the next few months that will probably set the tone regarding the above-mentioned insurance coverage issues.

The COVID-19 pandemic has affected the appetite of insurers to cover non-physical damage business interruption losses and it has caused insurers to conduct an audit of their wording and expressly exclude the possible consequences of a pandemic/communicable disease from their scope.

It is noteworthy that the pandemic had an impact on the increase in savings of French households (EUR33 billion in the second half of 2019, compared to EUR110 billion saved in the first half of 2020). This has stimulated activity in certain sectors of the insurance industry, such as life insurance. With contributions from insureds amounting to EUR13.7 billion, life insurance reached historic levels in June 2021.

Climate change should have a significant effect in the underwriting of property insurance risks, mostly by entailing an increase in insurance premiums and by reducing the appetite to cover property located in certain areas against fire or drought risk.

Since 1970, economic losses related to natural perils have been increasing globally. One of the reasons identified for this increase is climate change, which has led to greater frequency of extreme events with associated severe damage.

On 4 May 2021, the ACPR published a report with the results of its study on assessment of the financial risks due to climate change in the insurance and banking industries. 

The ACPR foresees that the cost of natural peril claims could increase fivefold over the next 30 years. Insurers who participated in this study indicated that they would elect to raise their premiums as a consequence, in order to maintain a constant losses/premiums ratio. 

Two projects relating to legislative or regulatory developments should be highlighted as they may have a significant impact on insurance coverage and insurance litigation.

  • The revision of the Solvency II Directive: the president of the FFA, Ms Florence Lustman, was interviewed on 9 June 2021 by the Finance Committee of the French National Assembly on the issues at stake in the future revision of the Solvency II Directive. During her exchange with the members of the French National Assembly, the FFA president indicated that the revision of the Solvency II Directive should meet three essential objectives in this period of recovery:
    1. to consolidate the economic and societal role of insurance – by investing in French companies over the long term, insurers contribute significantly to the transition towards a sustainable economy;
    2. to enable insurers to further support investments and offer long-term products (life insurance, retirement, long-term care) so that they can offer a wide choice of insurance products and meet major societal challenges, such as demographic transition and climate change; and
    3. to strengthen the attractiveness and leadership of French and European insurance in the world.
  • The prohibition of ransom payments in cyber-insurance: one development that may occur in the next months relates to the possible prohibition of ransom payments, which is a significant part of cyber-insurance. Although some members of the French National Assembly, along with some judicial authorities, have called for this ban, insurers, represented by the FFA, have raised their voices against it. Discussions are still ongoing.
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Law and Practice

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Kennedys is a global law firm with expertise in dispute resolution and advisory services, staffed by more than 2,300 people across the UK and Europe, Asia Pacific, the Americas and the Middle East. The firm delivers straightforward advice, even when the issues are complex, but it is often the firm’s insights and support beyond the law that really make a difference to its clients. The team members' expert knowledge in their chosen industries means that the firm has the best people to help clients navigate challenges, today and tomorrow. Its lawyers handle both contentious and non-contentious matters, and provide a range of specialist legal services for many industry sectors, including insurance and reinsurance, aviation, banking and finance, construction and engineering, cyber and data privacy, healthcare, life sciences, marine, public sector, rail, real estate, retail, shipping and international trade, sport and leisure, transport and logistics, and travel and tourism. The firm has particular expertise in litigation and dispute resolution, especially in defending insurance and liability claims. The authors would like to thank Marie-Ketty Prom and Nour Jonot for their invaluable assistance in the preparation of this chapter.

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