First-step analysis: bringing insurance litigation proceedings in France

Preliminary and jurisdictional considerations in insurance litigation

In what fora are insurance disputes litigated?

In France, insurance disputes are litigated in the following fora:

• first instance civil courts;
• first instance commercial courts;
• courts of appeal; and
• the French Supreme Court (the Court of Cassation).

To identify which of the above fora has jurisdiction at first instance it is necessary to verify the identity of the parties (whether the parties are deemed to be commercial or civil entities). If all the parties are commercial entities, the dispute must be brought before the commercial court that has territorial jurisdiction, regardless of the amount of the claim. However, commercial entities can choose to bring their disputes before another commercial court or indeed a civil court, provided they entered into a valid choice of-jurisdiction clause. If all the parties involved are civil entities, the dispute must be brought before civil courts. Note that since decree No. 2019-912, which came into force on 1 January 2020, the organisation of French first instance civil Courts has been simplified: before the 1 January 2020, claims brought before civil courts would either be brought before the County Court or the High Court, depending on the quantum of the claim, whereas, from 1 January 2020 the quantum rule has been abolished and the two existing civil courts were merged into a single court.

If some of the parties to the dispute are deemed to be civil entities and others are deemed to be commercial entities, the rules are as follows.

• if the proceedings are initiated by the civil entity, it can either elect to bring its claim before the appropriate civil courts or the appropriate commercial courts; or
• if, however, the proceedings are initiated by the commercial entity, it has no choice but to bring its claim before the appropriate civil court (and possible choice-of-jurisdiction clauses providing that disputes brought before commercial courts are without effect as they cannot be raised against civil entities).

Regarding the above, the following criteria should be considered regarding the identity of the parties: natural persons and consumers are deemed to be civil entities; businesses and insurers are usually deemed to be commercial entities; and mutual insurance companies are deemed to be civil entities. In some instances, parties may be obligated to attempt to solve their disputes amicably before they can initiate proceedings, but this rule is now effectively limited to small claims (ie, if the claim is below a €5,000 threshold).

Alternative dispute resolution is an option, but only in certain circumstances (arbitration clauses, for instance, cannot be invoked against consumers). Once a first instance decision has been rendered, the parties may initiate appellate proceedings, if they so wish, which does not require prior permission. The distinction between commercial and civil that exists at first instance disappears at the appellate level, as courts of appeal hear commercial and civil cases alike. A final appeal is then possible before the Court of Cassation, but only on points of law and provided this final appeal meets the Court of Cassation’s admissibility criteria.

When do insurance-related causes of action accrue?

After a loss, the insured has a two-year time limitation period during which it can seek an indemnification from its insurer, in accordance with the terms of the policy at issue (the time limitation period, however, only

starts to run from the moment the insured becomes aware of the loss). If the indemnification of the loss gives rise to a dispute as to coverage and no amicable solution is found, the insured must initiate proceedings for specific performance against its insurer within the two-year time limitation period. However, this time limitation period may be interrupted by the insured (by sending notice to the insurer via registered mail) and it can only be successfully invoked by the insurer provided the policy at issue reproduces the sections of the French Insurance Code that govern the applicable time limitation and further indicate how the insured may interrupt it. French insurance law also allows third-party victims to bring a direct action against the liability insurer of the liable party. Therefore, third-party victims tend to simultaneously initiate proceedings against both the alleged liable party and its liability insurer, thereby creating a procedural situation where the liabilities of the insured and its liability insurer are ruled upon in the final judgment. The two-year time limitation period that applies to coverage disputes does not, however, apply to direct actions by third parties against insurers, in which case the applicable time limitation will depend upon the specific rights of the third-party claimant.

What preliminary procedural and strategic considerations should be evaluated in insurance litigation?

In a possible coverage dispute, two particular issues should be considered as a matter of priority, namely:

• Can the insurer produce a copy of the policy signed by the insured (or can it otherwise prove that the insured was made aware of the full contents of the policy)?
• Can the insurer rely on the questionnaire that was completed by the insured upon subscription?

As confirmed by unvarying case law, an insurer can only invoke specific clauses of the policy (such as exclusion clauses or coverage conditions) against the insured if it can prove that the insured was made aware of the full contents of the policy. Otherwise, the insurer will not be able to successfully raise these clauses to the detriment of the insured however valid these clauses might be. In practice, the most common method of proving that the insured was made aware of the full contents of the policy is to produce a signed and initialled copy of the policy. Alternatively, if the insurer does not have this at its disposal, it could use another method, provided it shows that the insured was made aware of the full text of the policy.

Since 1989, French insurance law introduced the insurance questionnaire regime. Since then, during the subscription phase, the prospective insured has no longer been under an overriding duty to make spontaneous declarations as to the insurable risk, and merely has to respond to the questions found in the insurance questionnaire submitted by the insurer. In practice, this questionnaire potentially has far-reaching consequences, because it is solely on its basis that the insurer can deny or reduce coverage as a result of intentional or unintentional false declarations the insured may have made at subscription. Therefore, the insurer must verify that it possesses a copy of the questionnaire completed and signed by the insured. It is, moreover, very important that the insurer then verifies that all the questions are sufficiently clear and precise, as unclear or generic questions are systematically set aside by French courts. If the insurer is contemplating bringing a subrogation claim against the liable third party, it must be attentive to the gathering and preservation of evidence in the days following the loss, to safeguard its interests. In these instances, interim relief and urgent fact-gathering investigations can be sought and obtained quite rapidly by way of an interlocutory decision obtained from the court that has territorial jurisdiction.

What remedies or damages may apply?

In the instance of a coverage dispute, the insured would be seeking a judgment condemning the insurer to pay the indemnity owed under the policy (ie, specific performance). As French insurance law is built on the indemnification principle (ie, the principle according to which insurance contracts must only provide indemnification for the loss suffered by the insured and not exceed this threshold), the specific performance sought by the insured cannot lead to a situation where it has been enriched, as a result of the loss and its indemnification under the policy. While the insurer would not seek a remedy or damages from the insured, it could invoke applicable terms of the policy to try to limit its liability. The relevant clauses, which must be valid, could, for instance, set out a maximum coverage amount or a deductible, exclude certain types of risk or subordinate the effects of the policy to specific conditions (such as, for instance, yearly maintenance operations or the presence of an alarm system connected to a remote surveillance service provider). If the insurer can prove that, upon subscription, the insured failed to provide truthful information regarding the risk, it can either invoke unintentional false declaration or intentional false declaration of the risk. Unintentional false declaration can lead to a proportional reduction of the indemnity owed (based on the premiums the insurer would have requested, had it been given a reliable description of the risk), while intentional false declaration leads to the policy being avoided – and the insurer keeping the premiums paid to date. Naturally, in the instance of a subrogation claim, the insurer may be awarded the damages the liable third party would otherwise have been condemned to paying to the insured.

Under what circumstances can extracontractual or punitive damages be awarded?

It follows from the indemnification principle that insureds cannot be awarded damages that go beyond the indemnity that is provided in the policy. Specific performance of the policy therefore remains the main avenue available for insureds. Extracontractual or punitive damages are not, therefore, usually envisaged. While isolated judgments do award damages that go beyond the indemnity provided in the policy, on the grounds of the insurer’s contractual liability, this is rare and case law does not enable one to extrapolate clear rules. Moreover, in instances where the insurer is judged to have acted in bad faith in attempting to avoid the policy, the damages are not punitive, in that they only aim to put the insured in the position it would have been in had the insurer respected its contractual obligations. In other words, the extracontractual damages only aim to provide the insured with compensation for the prejudice it has effectively suffered.

Law stated date

Give the date on which the information above is accurate.

19 November 2020.