In a February 9 2012 decision the Supreme Court reaffirmed its policy to protect an insured against warranty exclusion provisions that deprive the warranty clause of its effect, thus extending common case law to insurance warranties.
In the case at hand, damages occurred as a result of the delivery and laying of a road coating by the manufacturer. An expert opinion revealed that the product had been incorrectly manufactured. The buyer sued both the manufacturer and its insurer.
In its defence, the insurer invoked a warranty exclusion clause that excluded from the warranty the costs incurred in repairing the delivered products and the work and services provided by the insurer or its subcontractors if the insured or its subcontractors initially carried out the delivery and laying.
The Court of Appeal rejected the claim against the insurer, applying the warranty exclusion provision included in the manufacturer's insurance policy. However, the Supreme Court overruled this decision under Article L113-1 of the Insurance Code, stating that the warranty exclusion provision could not be applied as its broadness resulted in withdrawing the substance of the warranty clause.
Taken under Article L113-1, which provides that the warranty exclusion provision must be "formal and limited', the Supreme Court's decision inscribes itself in the common contractual case law on commercial warranty exclusions, which provides that a warranty exclusion provision is valid provided that it does not withdraw the contract's object or deprive the warranty from any effect.
Until this recent decision the Supreme Court mainly held, under Article L113-1, that the warranty exclusion provisions in insurance policies were clear enough to avoid misunderstanding.
This decision has been published in the Supreme Court Journal. The court has rung a clear warning bell for the insurance industry that warranty exclusion provisions will be severely controlled not only in terms of their form, but also in regard to their actual effect on the warranty.
For further information on this topic please contact Carole Sportes at BOPS (SCP Bouckaert Ormen Passemard Sportes) by telephone (+33 1 70 37 39 00), fax (+33 1 70 37 39 01) or email (firstname.lastname@example.org).