By way of a March 19 2015 decision (5749), the Supreme Court ruled for the first time on the application of an insured's general duty to pay defence costs to prevent or mitigate loss, as set out in Article 1914 of the Civil Code.
The court stated that such a duty applies to both first-party and third-party liability insurance, and – more importantly – that in either case it applies to defence costs. According to the court, in cases of third-party liability insurance, the insured is not entitled "always and in all events to the indemnification of the defence costs borne for resisting against a third party's claim" as per Article 1917 of the Civil Code. Instead, indemnification of defence costs should be excluded when:
- the insured defended the claim in the absence of interest;
- the insured could not gain benefit from the litigation;
- willful misconduct has occurred; or
- the defence costs are unreasonable.
The decision was rendered on the grounds that insurance contracts must be performed with good faith and the principle of good faith requires that creditors do not aggravate the position of debtors. The application of this principle to insurance contracts indicates that insureds should not seek defence where this exposes the insurers to reimburse rashly-borne costs.
For further information on this topic please contact David Maria Marino at DLA Piper Italy by telephone (+39 02 80 61 81) or email (firstname.lastname@example.org). The DLA Piper Italy website can be accessed at www.dlapiper.com.
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