The limitation period applicable to claims under reinsurance contracts
According to Article L.111-1 of the Insurance Code, reinsurance contracts are not governed by the Insurance Code. As a result they are governed by the provisions of the Civil Code and the Commercial Code applicable to ordinary contracts (Book III, Title XX of the Civil Code and Article L.110-4 of the Commercial Code). Limitation periods were reformed by Law No. 2008-561 of 17 June 2008.
Before the reform, the limitation period for obligations arising between professionals (such as a cedant and a reinsurer) was ten years. The new law has reduced this to five years.
A new time-bar period of five years started running as from the date of the new law for all obligations that were not already time-barred under the old law, but note that the running of the new five year period may not have the effect of extending the initial limitation period (eg if a 1999 claim was time-barred in 2009 in accordance with the old ten- year time-bar, it would remain time-barred in 2009 even though the new five-year time-bar starting in June 2008 would expire in 2013).
It is important to note however that new Article 2254 of the Civil Code allows parties to agree on reductions or extensions of the limitation period provided that the agreed period is of no less than one year and no more than ten years (no such agreement is, however, possible for direct insurance contracts).
The position where a foreign law governs the insurance or reinsurance contract
Under French law, time-bar is an issue of substance and, as such, is governed by the law applicable to the contract. Thus, if the parties have chosen English law or if English law is the law of the contract, a French court will apply English rules of time-bar for contract claims.
The commencement of the limitation period
One needs to distinguish between direct insurance and reinsurance.
For direct insurance, the starting point of the limitation period is strictly defined by Article L114-1of the Insurance Code, mentioned above. It largely depends on the nature of the claim and the type of insurance and the position is set out under the first heading above.
For reinsurance, the ordinary rules of contract law apply. For contractual obligations, the rule is that the limitation period starts running as from the day when the holder of a right is aware or ought to be aware that he has an enforceable right.
The central question is therefore to determine at which date the right becomes enforceable (date d’exigibilite). Thus, when the right is subject to a suspensive condition the limitation period only starts running as from the date when the condition is fulfilled (Article 2233, 1o of the Civil Code).
When the right matures at a defined time, the limitation period only starts running as from the date of maturity (Article 2233, 3° of the Civil Code).
The difficulty in reinsurance contracts is that the date when the right of a cedant becomes “enforceable” is not always defined clearly and can give rise to different interpretations, particularly as there is no case-law on this issue (and there is an ongoing debate under French law with regard to the exact nature of reinsurance).
In principle, save in cases where the date of payment is clearly defined, the commencement of the limitation period should be when the cedant is first in a position to claim a payment from the reinsurer, although the limitation period cannot start running before the cedant has paid the insured.
Interruption of the limitation period
Under the Civil Code, the limitation period can essentially be interrupted:
- By a recognition of the right by the debtor (new Article 2240 Civil Code)
- By a claim against the debtor brought before a court (or in arbitration), even in interim proceedings (new Article 2241 Civil Code) unless the writ is null or the proceedings are subsequently abandoned
After some controversy over the interpretation of the Civil Code prior to the 2008 reform, it now seems that the French Supreme Court has accepted that it is possible for the parties to agree on other means of interrupting the limitation period, for instance, by a letter, provided it states the claim in sufficiently clear terms.
Under the new law of 2008, the right of the parties to agree other means of interrupting the limitation period is now expressly recognised under Article 2254 Civil Code.
As regards the recognition of the right by the debtor, new Article 2240 provides that “the recognition by the debtor of the right of the person against whom the limitation was running, interrupts the limitation period” (this provision existed prior to the 2008 Reform as Article 2248). The recognition must emanate from the debtor and must be unequivocal, although a court might imply recognition from the behaviour of the debtor depending on the specific circumstances of the case.
In addition, in contracts governed by the Civil Code, parties may agree to suspend the running of the limitation period by standstill or tolling agreements (this possibility was recognised by case-law prior to the 2008 reform and is now expressly provided by new Article 2254 Civil Code).
One should note that for contracts of direct insurance governed by Article L114-1 of the Insurance Code, there may be no agreement to vary the duration of the two year limitation period. For these contracts, in addition to the introduction of legal proceedings and the recognition of rights by the debtor, the time-bar may also be interrupted by a registered letter setting out the claim or by the appointment of party experts (not appointed by the Court) after a loss but the parties may not agree on other means of interruption as these provisions are considered to be contrary to public policy (see Article L114-3 of the Insurance Code).