Warranty exclusion in French-based insurance contracts, an insoluble equation with variable parameters?

The debate on exclusion of warranty in insurance contracts is endless witness the numerous ongoing litigation cases before the French courts.

Hence the following question: what does the French Supreme Court (“Court de Cassation”) tell us today about the application of these warranty exclusion? The answer might notably be found in two rulings handed down on February 6th, 2020 and March 5th, 2020 related to this type of exclusion. 

First, one has to remember that under the provisions of article L.113-1 of the French Insurance Code, “save formal and limited exclusions contained in the policy, the insurer shall bear the losses and damage caused by unforeseen accident or caused by the insured’s fault. However, the insurer shall not be answerable for losses and damage caused by the insured’s deliberate tortious intent or fraud” (emphasis added). 

This article sets out the conditions for the validity for the exclusion of warranty under French law: it must, on the one hand, be “formal” and, on the other hand, “limited” in the sense that it must not void the warranty of its substance. 

The cases of application are as diverse as there are insurance contracts and exclusion clauses. As judges assess each clause in concreto, it requires each and every time an in-depth analysis to conclude whether or not it is formal and limited in nature. 

That being said, the French Supreme Court (“Cour de cassation”) has given “clues” allowing a first global approach to the formal and limited nature of these exclusion clauses: an exclusion clause cannot be formal and limited as soon as it has to be interpreted (Cass. Civ. 1, May 22nd, 2001, n° 99-10849). This is a ruling of principle whose solution has since been adopted by the Supreme Court (see for example: Cass. Civ. 3rd, February 14th, 2019, n° 18-11101).

Even if such a solution appears to be crystal clear at first glance, it is more intricate than it seems, as it always gives rise to a lively debate before the Judge, whose assessment remains sovereign in the matter, depending on the case in question.

In its ruling dated February 6th, 2020, with regard to an Operating Civil Liability insurance policy, the French Supreme Court ruled that the exclusion clause submitted to its judgement met the conditions set by the article L.113-1 of the Insurance Code (Cass. Civ. 2nd, February 6th, 2020, n° 18-25377).

In the present case, the company S had entrusted company P with the verification of an industrial boiler involving the demolition of a concrete floor leading to a temporary stoppage of production. Company P subcontracted the service to company I. Impacts were then discovered on the pipes discovered after the demolition of the floor.

Company I complained that the Bordeaux Court of Appeal had ordered its operating liability insurer to cover only for the loss claimed by the project owner, excluding operating losses.

Indeed, the insurance policy debated included an exclusion clause worded as follows, “indirect losses of any kind, loss of profit and paralysis. »

The French Supreme Court dismissed the appeal by company I because it considered that the Court of Appeal “did not interpret the exclusion clause in any way, but rather inferred that it was formal and limited” and that the clause “expressly defines what is covered by the loss of operating losses. »

Thus, the solution adopted in this judgment seems to favor the actual content of the insurance contract to the detriment of the insured who thought he would benefit from the reading usually made of article L113-1 of the Insurance Code to challenge the limited nature of the warranty exclusion. 

In its ruling dated March 5th, 2020, the French Supreme Court (Cass. Civ. 3rd, March 5th, 2020, n° 18-15.164) deals with several issues linked to ten-year liability insurance, including warranty exclusions.

In this case, a private individual had entrusted the company O with carrying out rehabilitation and extension work on a building.

Company O’s ten-year liability insurance policy contained an exclusion clause under which the insurer did not cover “damage to works or work performed or subcontracted by (the insured) … as well as miscellaneous expenses incurred as a result of such damage. »

Following the occurrence of the disorder, the victim sued Company O’s insurer, arguing that the above-mentioned exclusion clause had the effect of rendering the contract void. 

Yet, considering that this clause “left the damage caused to third parties within the scope of the guarantee“, the French Supreme Court therefore concluded that this exclusion clause was formal and limited. 

It is clear from these two judgments that, although article L113-1 of the French Insurance Code appears to be a formidable weapon in the hands of an insured to challenge the validity of an exclusion opposed by his insurer, the sanction of exclusion of cover is not systematic and each exclusion clause must be assessed in the light of its specific contextual and contractual characteristics. 

In other words, it is a variable geometry equation which takes on a particular acuity with the Covid-19 epidemic and whose solution is not obvious …

Nothing can be taken for granted: even if general principles could be identified, a careful analysis anchored in reality will always have to be carried out in a complementary manner, it being recalled that the test of the formal and limited nature is not sufficient since the exclusion clause must also respect the condition of form laid down in the last paragraph of article L112-4 of the French Insurance Code, but that is a completely different matter…