FOREIGN POLICIES CHALLENGED BY THE FRENCH INSURANCE CODE

What law applies to a liability insurance policy governed by foreign law, when coverage is sought before French courts?

6th September 2023

This question is regularly asked in the context of the serial photovoltaic claim our firm is handling on behalf of a Dutch insurer, which has resulted in several rulings by the French Supreme Court. Clarification and update below.

I- Direct action by the victim against the liability insurer :

Can a French victim (or his subrogated insurer) bring a direct action before French courts against an insurer who has issued a liability policy under foreign (European) law?

The solution differs according to the applicable liability regime:

In matters of contracts, the direct action is admissible if the law applicable to the contractual obligation or the law applicable to the insurance contract so provides (Cour de Cassation, 1st Civil Chamber, September 9, 2015, n°14-22.794)

In matters of tort, direct action is admissible if the law applicable to the non-contractual obligation or the law applicable to the insurance contract so provides (Cour de Cassation, 1st civil chamber, December 18, 2019, n°18-14.827 and 18-18.709).

Thus, if the obligation in question is governed by French law, direct action is possible.

II- Applicable Law to the insurance contract:

A. Principle :

An insurance contract governed by foreign law remains subject to the law chosen by the parties.

As a result, the victim (or his subrogated insurer) bringing the direct action is subject to the foreign law governing the liability policy taken out by the liable party (Cour de Cassation, 1ère chambre civile, December 18, 2019, n°18-14.827 and 18-18.709).

The issue was to determine the terms and conditions of compensation for victims of serial claims, when the limit of coverage is reached (in proportion to the losses suffered by the various victims, according to Dutch law).

B. Exception: French public policy :

The public policy provisions of French law governing the validity of exclusion clauses (articles L. 112-4 and L. 113-1 of the French Insurance Code) are applicable to an insurance contract governed by foreign law (Cour de Cassation, 1st Civil Chamber, January 29, 2020, no. 18-26.146).

This outcome has just been reaffirmed in June 2023 for an exclusion clause contained in a Dutch law policy, which was opposed to the subrogated insurer bringing the direct action:

"The public policy provisions of articles L. 112-4 and L. 113-1 of the Insurance Code are applicable regardless of the law governing the contract".

The Court of Appeal had applied the "clear and precise" exclusion of the Dutch contract. Its decision was overturned on the grounds of articles L. 111-2 and L. 181-3 of the French Insurance Code, because "in so deciding, without seeking, as it was requested to do, whether this exclusion clause met the public policy requirements of articles L. 112-4 and L. 113-1 of the French Insurance Code, the Court of Appeal failed to provide a legal basis for its decision" (Cour de Cassation, 2nd Civil Chamber, June 15, 2023, no. 21-20.538).

As a result, there is great legal uncertainty for insurers issuing policies subject to foreign law when they are applicable in France.

When French law invites itself into foreign policies... Subtleties and legal consequences that are sure to fuel our upcoming legal debates!

If you have any questions about this article, please do not hesitate to contact us. Christophe Adrien Partner - Adrien & Associés