In a decision dated 13 May 2014, the French Supreme Court had the opportunity to re-state the principles applying to (1) the enforceability of insurance terms and conditions, and (2) “faute inexcusable” of an assured (“faute inexcusable” is the equivalent of the gross negligence of owners who acted recklessly and with the knowledge that a loss might occur).
Following the wreck of a trawler in 2013, hull underwriters declined cover, firstly because owners had not notified them of a mortgage on the vessel and, secondly, due to owners’ “faute inexcusable” and failure to act with “due diligence”.
The Court first stated that the contractual conditions of the policy could only be invoked against the assured if underwriters could prove that the former knew them and accepted them.
It was not enough that those terms and conditions were consistent with the standard or market hull policy for fishing vessels (in particular with their requirement that the assured disclose the mortgage on the vessel). Underwriters could not plead that the policy was null and void by reason of the assured’s failure to notify them of the mortgage unless it was proved that the conditions were accepted by owners/the assured.
The Court went on to analyse underwriters’ argument that owners committed “faute inexcusable” and failed to act with “due diligence” to protect the assured’s goods by deciding to sail with invalid navigation documents due to technical problems of the ship.
Pursuant to article L 172-13 of the Insurance Code, losses resulting (1) from the failure of an assured to act with due diligence in relation to the vessel or (2) from a “faute intentionnelle” (would be equivalent to wilful misconduct in the insurance field i.e. intentional damage caused by a deliberate act) or a “faute inexcusable” of the assured (the main difference between the two being the intention to cause the loss) are not covered. As a matter of fact “faute inexcusable” will also deprive shipowners of their right to limit their liability pursuant to LLMC.
In this case, the Court held that underwriters could not deny their cover under the all risks policy since they had failed to prove that the fault of the assured had actually caused the loss. Under the current law insurers do not need to prove the causal link between the loss and the fault of an assured if the insurance contract clearly stipulates an exclusion clause (Cass. 1ère civ. 7 April 1999). However in this case underwriters were not relying on any contractual exclusion clause but on article L 172-13 of the Insurance Code which allows insurers to refuse cover if it can be proved that “loss was caused by the lack of due diligence of the Insured”.
Finally the Court considered the possibility for underwriters to invoke the second limb of article L 172-13 of the Insurance Code enabling insurers to deny cover in case of “faute inexcusable”. It was held that in this instance the assured’s conduct did not amount to gross negligence since owners were not aware of the probability of the risk of the ship sinking due to sailing with invalid navigation documents.