INSURANCE
With year-end approaching, Lydian's insurance team looks back on some interesting judgments that the Belgian Supreme Court (“Cour de Cassation”) has rendered last year concerning the Insurance Act of 2014. The Court examined various insurance issues, including subrogation, increased risk, right of recourse, intention, exclusion or loss of rights clauses and the insurer's information obligation.
Subrogation
The insurer that has paid compensation can, up to that amount, enter into the rights or claims of the insured or beneficiary party against the liable third party (art. 95 Insurance Act).
The judgment of 14 March 2019 of the Court of Cassation confirms this principle of subrogation, and clarifies that the "subrogated party" executes the claim of the injured party "with all its characteristics and accessories". This means that the (subrogated) insurer is also bound by any restrictions that come along with these rights (of the insured or beneficiary party against the liable third party). The limits of this right of subrogation therefore correspond to the limits of the initial right of the insured or beneficiary against the liable party.
In its judgment, the Court stipulated that this also includes the limitation period. In the present case, this meant that since the limitation period for the direct action against the liability insurer did not begin to run in respect of the injured party, no limitation period had started running in respect of the subrogated party.
With this judgment, it revokes a decision of the Court of Appeal of Bergen of 8 March 2016, which erroneously ruled that the limitation period started running for the insurer that had already paid a provisional sum to its insured and that subsequently wished to exercise its right of subrogation, even though the limitation period had not yet started to run in respect of the insured.
Increased risk
Art. 81 Insurance Act imposes the obligation on the policyholder to report an increase of the risk to the insurer during the course of the policy and subject to the conditions set out in art. 58 Insurance Act. This article also provides for a gradual sanction regime if the policyholder fails to inform his insurer of such an increase in risk.
The insurer is, among others, only obliged to perform its insurance obligation "in relation to the premium paid and the premium that the policyholder would have had to pay if the increased risk had been taken into account, if the policyholder can be held responsible for the lack of notification" (Article 81(3)(b) Insurance Act). However, if following a claim, the insurer can prove that it would not have covered such a serious risk under any circumstances, it is only obliged to reimburse an amount equal to “all premiums paid” (Article 81(3)(b) of the last paragraph of the Insurance Act).
This last sentence gave rise to a dispute between the parties before the Court of Appeal of Mons. The parties disagreed about the period covered by this obligation to repay the premiums. The insurer considered that it was only obliged to reimburse the premiums paid from the moment the increase of the risk arose, whereas the policyholder considered that all premiums ever paid to the insurer under that policy should be reimbursed. The Court of Appeal followed this last view in its judgment of 15 June 2016.
In its judgment of 20 June 2019, the Court of Cassation rejected this interpretation of the phrase "all premiums paid". The Court of Cassation ruled that the obligation to reimburse "only relates to premiums paid after the occurrence of the new circumstances or the changed circumstances that are such as to increase the risk considerably and permanently".
Recourse against the policyholder or insured person
Art. 152 Insurance Act covers the recourse of the liability insurer against the policyholder or the insured: Insofar as the insurer could have refused or reduced its performance in accordance with the law or the policy, it may reserve a right of recourse against the policyholder and, if there is reason to do so, against the insured who is not the policyholder, up to the amount of the personal share in the insured's liability.
The insurer must notify the policyholder (insured) of his intention to seek recourse as soon as he is aware of the facts on which that decision is based. Failure to comply with this obligation results in a loss of right of coverage under the policy.
The concept of notification may give rise to discussion. On 14 March 2019, the Court issued a number of important guidelines that insurers should keep in mind in order to fulfill their burden of proof. After all, an insurer wishing to exercise its right of recourse carries the burden of proof of notifying the person concerned of its intention to exercise recourse.
In this case, the insurer had sent its notification to the wrong address. However, the insurer defended itself by stating that the registered letter had never been returned. The first court ruled that since the letter was not returned to the sender, "the letter has reached its destination".
Early 2019, the Court of Cassation rejected this broad interpretation. It ruled that such a reading of art. 152 Insurance Act reversed the burden of proof, thereby violating art. 1315 of the Civil Code and art. 870 of the Judicial Code. It is therefore up to the insurer to be vigilant to address all correspondence to the insured's most recent address.
The notification is not a formal requirement but a substantial requirement. This means that the sanction of the loss of the right of recourse in the event of non-compliance with this substantial requirement does not require any damage to the insured's interests. In other words, the mere fact that the notification would have achieved its purpose, does not play a role from a legal perspective and is thus insufficient to fulfill the insurer’s burden of proof.
This decision does not alter an earlier judgment of 25 September 2014, in which the Court ruled that it is sufficient for the insurer to prove that it has delivered the registered letter to the postal services, provided that the correct address is provided. This is correct: the insurer cannot prove anything else.
Intention
It is common knowledge that an insurer does not have to intervene if an insured has deliberately caused a claim. However, since there is no legal definition of intent in insurance law, jurisprudence contains many interpretation disputes about this concept.
Since 2009, Cassation has been providing case law on a permanent basis to specify this concept. According to the Court, a claim is caused intentionally if the insured voluntarily and deliberately caused damage, even if the nature or extent of the claim was not intended as such. The insurer must therefore prove that the insured had the intention to cause damage, irrespective the nature and/or extent of the damage. In its judgment of 23 February 2017, the French-speaking Chamber of the Court of Cassation took a slightly more restrictive point of view by stipulating that the intentional fault presumes the intention to cause damage resulting from the manifestation of a risk covered under the policy.
Art. 74 Insurance Act stipulates that the insured must report the claim to the insurer as soon as possible and in any event within the period stipulated in the policy. The insured must also, without delay, provide the insurer with all useful information and answer to the insurer’s questions regarding the circumstances and the extent of the damage.
In accordance with art. 75 Insurance Act, the insured must take all reasonable measures to prevent and limit the consequences of the claim.
If "the insured has fraudulently failed to comply with the obligations referred to in Articles 74 and 75", the insurer has the right to refuse coverage (art. 76 Insurance Act). The wording of this provision suggests that the insurer has a double burden of proof: it would have to prove a violation of art. 74 and art. 75, both committed by the insured with a fraudulent intent.
In its judgment of 28 October 2019, the Court of Cassation relieved the insurer of this burden of proof by ruling that it was sufficient for the insurer to prove that the insured had failed to comply with one of the two obligations listed in art. 74-75 Insurance Act with fraudulent intent. Of course, the heavy burden of proof of the concept of fraudulent intent remains unchanged.
Exclusion and loss of right clauses
Case law and legal doctrine extensively discuss the qualification of a provision in an insurance policy as an exclusion or loss of right clause. In many cases, the difference between the two types of clauses remains paper-thin, resulting in numerous qualification disputes, up to the level of the Court of Cassation.
The Court of Cassation recently examined the nature of a theft clause in a car policy. The policy stipulated that the damage caused by theft or attempted theft, committed by or with the complicity of the policyholder, the owner, the holder or the authorised driver of the insured vehicle or their family members, was not covered. In this case, a family member had used the car of the owner-policyholder without his consent or knowledge.
On appeal, this clause was qualified as an exclusion ground related to defining the limits of the guarantee under the insurance contract. Consequently, the claim was excluded from the guarantee because the driver of the car was a member of the family of the owner-policyholder.
This judgment gave rise to Cassation appeal, without success: In its judgment of 31 May 2019, the Court of Cassation confirmed that the clause was an exclusion clause and not a loss of right clause. A loss of right clause should fulfill all the requirements of article 65 Insurance Act. This means that there only a loss of a right "on account of non-compliance with a certain obligation imposed by the contract, and provided that there is a causal link between the failure and the claim".
This judgment comes as no surprise. On 19 October 2018, the Court of Cassation already indicated that loss of right clauses that are too broadly defined may give rise to them being declared null and void: "From a reading of art. 65 and art. 141 Insurance Act it follows that a clause of expiry of the insurance cover is null and void if it excludes any cover from the risk defined in the insurance contract".
When drafting policies, insurers must therefore be careful not to define the loss of right clauses too broadly. The provision should impose a very specific obligation on the insured person, clarifying that, in the event of failure to comply with this obligation, and to the extent that the damage is linked to the failure to comply, the right to cover is forfeited. Under no circumstances may the forfeiture clause forfeit the subject-matter of the insurance contract itself.
Information obligation of the insurer
The judgment of the Court of Cassation of 15 February 2019 decides on article 4 of the Market Practices and Consumer Protection Act.
According to art. 4 of this Act, a company must "at the latest at the moment of conclusion of the agreement, in good faith, provide the consumer with proper and useful information regarding the main characteristics of the product and regarding the terms and conditions of sale". This provision was superseded by the law of 21 December 2013, and is now included in article VI. 2, 1° and 7° Code of Economic Law.
On 15 February 2019, the Court of Cassation had the opportunity to interpret this (rather vague) information obligation in the light of policies.
According to the Court, the extent of the cover by a policy is one of the most important characteristics of the insurance product. According to the Court, article 4 of the abovementioned Act therefore does not allow that the special conditions of an insurance contract solely refer to the general conditions with regard to the determination of the scope of the coverage. Consequently, the Court annuls the decision on appeal, which held that the claimant was sufficiently informed of an exclusion clause for storm damage, which was included in the general terms and conditions, simply by referring to the general terms and conditions in the special terms and conditions.
Insurers must therefore be careful not to make mere references to their general terms and conditions, at least in the context of determining the scope of coverage by an insurance contract.
The insurer has to provide "objective information about the insurance product" (art. 284 Insurance Act) as well as the "conditions of sale" (art. VI.2, 7° WER), which in the context of an insurance contract would mean that both the special and general conditions have to be provided in full. In the event of a dispute, the insurer will therefore have to prove that it has submitted all the documents that form part of the contractual relationship.
Karen Janssens
karen.janssens@lydian.be
