LEGAL NEWS / INSURANCE

"Gunfight at the OK CORAL" (How the subrogatory action works with the CORAL convention)

10 April 2024

Our experience in litigation relating to the insurer's subrogation rights has led us to inform you of a number of court rulings which have had a significant impact on insurers who are members of the France Assureurs (FA) conventions.

Before taking any legal action against the insurer of the liable third party, the subrogated insurer shall prove that it has implemented the escalation procedure provided for in article 4 of the Convention des Règlements Alternatifs des Litiges (Convention "CORAL").

Failure to comply with the escalation procedure means that the claim is inadmissible under article 122 of the French Code of Civil Procedure (and not that the summons is null and void). This solution is now well established (Cour de cassation, 3rd Civil Chamber, January 25 2024, n°22-22.681).

As a result, this objection may be raised "in any event", i.e. even for the first time on appeal (Cour d'Appel d'Aix-en-Provence, July 6, 2023, n°22/14892; Cour d'Appel de Paris, February 2, 2024, n°23/02555).

This obligation applies "to cases in which an escalation procedure ("chef de service" level) is initiated on or after January 1, 2016", regardless of the date of the claim (Chambéry Court of Appeal, 2nd chamber, April 27, 2023, n°21/01055). In other words, all recourse between insurers is now covered by these provisions.

Moreover, the provisions of this agreement cannot be invoked against victims, whether insured or third parties. It has therefore been ruled that the sanction can neither be set up against them, nor invoked by them, by virtue of the relative effect of the agreements (Bordeaux Court of Appeal, November 13 2023, no. 23/01644 and January 25 2024, no. 23/03092; Versailles Court of Appeal, January 25 2024, no. 22/04691).

However, a recent decision by the Rennes Court of Appeal called this principle into question, ruling that, under Article 6 of the Convention, which stipulates that "the insured shall benefit from the rules of the Convention insofar as they are more favorable than those of ordinary law", the insured was entitled to invoke against the insurer bringing an action against him/her its failure to comply with the Convention (CA Rennes, April 3, 2024, no. 23/04173). In our view, this decision is highly questionable, since Article 6 only concerns the rules governing prescription and foreclosure. Will this decision be appealed to the French Supreme Court?

By the way, the provisions of this Convention are so broad that litigants and courts sometimes seem to get lost. For example, the Tribunal Judiciaire de Paris has just ruled that an insurer's claim against another insurer, seeking to be relieved of and guaranteed against a possible ruling against it, was inadmissible due to the lack of prior implementation of the CORAL Convention (TJ Paris, JME, April 4, 2024, n°23/02989):

"Contrary to what [the insurer] maintains, the Coral Convention is not intended solely to regulate recourse between insurers when an insurer is subrogated to the rights of its insured, the Convention being applicable to all disputes falling within its scope, whatever the nature of the recourse exercised between insurers".

However, it had previously been ruled that the CORAL convention was not applicable when the insurer of the victim had not initiated independent proceedings against the insurer of the liable party, but had merely requested the latter's guarantee following the action brought against it.

The ROUEN Court of Appeal thus ruled that, in the context of a warranty claim, the insurer's action was inextricably linked to that of the insured victim, who was not a party to the agreement, and for this reason ruled out the application of the CORAL agreement (CA ROUEN, January 23, 2013 n° 12/02031; in the same vein: CA PARIS, May 11 2023, n°21/04603).

This solution was all the more justified in that the Convention (V3 ed 2022) expressly states that it applies only to "subrogatory actions" (articles 2, 4.2, 5), which is logical, since a non-subrogated insurer is not in a position to file a claim with the insurer of the liable third party. It is therefore likely that the above-mentioned order of the Paris Court of First Instance of April 4, 2024 will be appealed and overturned. In the meantime, the time taken to investigate the case and the proceedings has been extended, which runs counter to the objective announced by the Convention in its article 1 "PURPOSE AND FUNDAMENTAL PRINCIPLES":

"The purpose of the present Convention is to encourage the amicable settlement of disputes between insurers by avoiding legal proceedings".

In addition, the agreement provides for the possibility of interrupting the limitation period at "Management" level; the validity of this conventional cause of interruption has been judicially recognized (Versailles Court of Appeal, 3rd chamber, December 9, 2021, n°20/02794; Besançon Court of Appeal, 1st chamber, May 16, 2023, n°21/02074 and October 18, 2023, n°23/00180). It has even been ruled that the statute of limitations could be suspended from the date of implementation of the protocol provided for in the agreement, before being expressly interrupted by a letter to the management level (Riom Court of Appeal, December 5, 2023, no. 23/00473).

Finally, it should be noted that the latest edition of the agreement, effective May 2022, also provides for the possibility of interrupting or suspending the "foreclosure" period. We have serious reservations on this point, since article 2254 of the French Civil Code only provides for the possibility of contractual adjustment in matters of "prescription". We are actively monitoring any court rulings on this subject.

In practice, therefore, we can see that this Convention, rather than "encouraging the amicable settlement of disputes by avoiding legal proceedings", is actually helping to multiply disputes over its application and scope, particularly in "absurd" situations such as the one just judged by the Paris Court (referred to above).

The objective has clearly not been achieved, which is most regrettable.

For further details on the subtleties of this Convention, please do not hesitate to contact us.

Christophe Adrien & Florent Schapira Partners