By decision no. 1465 of 19 January 2018 the Third Division of the Supreme Court asked that the Joint Divisions of the same Court reconsider their previous position (see decision no. 9140/2016) and confirm the following principles of laws: (i) in property, casualty and third party liability insurance the coverage trigger cannot be the “claim” but only the “loss”; (ii) in all events, in third party liability insurance, clauses attaching relevance to the date when the claim is made against the insured rather than to the date when the insured caused the damage to the third party must be held invalid.
According to the Third Division of the Supreme Court
- If the coverage trigger is the claim the insurer’s indemnification obligations would be dependent on a non-harmful event and this is in contrast with section 1882 of the Civil Code which defines the insurance contract as the agreement by which the insurer undertakes to indemnify the insured in respect of an harmful event
- if the coverage trigger is the claim the insurer’s indemnification obligations would be dependent on an event (i.e. the claim) that the insured has an interest occurs. In fact, if the claim is not made against the insured within the policy period he/she would lose the right to coverage
iii. the identification of the coverage trigger in the claim would make the compliance by the insured with section 1914 of the Civil Code (providing for the insured’s duty of loss mitigation) impossible. For fulfilling such duty the insured should make itself unavailable so as to avoid the service of suit on it
- if the coverage trigger is the claim, policies purchased by entities for the benefit of their executives/employees would never operate for claims made against them by the same entities. The claim would in fact be voluntarily made against the insureds and as such it would be excluded from coverage in compliance with section 1900 of the Civil Code (which stipulates that losses originating from willful misconducts/fraud cannot be covered by insurance)
- if the coverage trigger is the claim, the insurer would be entitled to withdraw from the contract even in case of frivolous claims
- if the coverage trigger is the claim the insured risk would cease automatically upon the policyholder’s death and its heirs would remain exposed to claims originating from the Insured’s conduct.
- the fact that Section 1917 (which defines the insurance contract with reference to the loss occurrence scheme) is not stated to be mandatory by section 1932 is irrelevant. The legislator did not state that Section 1917 is mandatory simply because there was not need to do so. A contract departing from the loss occurrence scheme would not be an insurance contract
- clauses that exclude coverage for claims made against the insured after the expiry date of the policy should always be held invalid since they are disproportionately disadvantageous to the insured; their application would be dependent on an event (i.e. the claim) that is not only beyond the control of the insured but also beyond the control the third party and this may favour the interest of the insured that the claim is made against it; they are in contrast with the constitutional general duties of solidarity (if the insured spontaneously indemnifies a third party for a loss that it has caused before that a claim is made, the insurer could refuse coverage since no claim was made); claim made policies enable the insurer to exclude coverage in relation to circumstances that are known but have not originated claims yet.
The said arguments appear to be highly arguable and too formalistic.
There are a number of issues that apparently have been ignored in the reasoning of the Court and namely the following: the majority of claims-made policies provide for the deeming clause, which enables the insured to notify circumstances during the policy period with the effect that the policy may be activated at later stage if a claim is made even after its expiry; the majority of proposers is assisted by brokers who are in a position to advise properly on the structure and functioning of claims-made policies; the majority of claims-made policies are renewed on an yearly basis; recent pieces of legislation (see inter alia the Gelli law on medical malpractice, Law 8 March 2017 on professional insurance and Ministerial Decree of 22 September 2016 on lawyers’ professional insurance) impliedly acknowledged the existence (and validity) of claims-made polices; any policy must be preceded by the delivery of pre-contract information package where the functioning of the policy (including the claims-made clause) is typically explained.
Hopefully the Joint Divisions of the Supreme Court will confirm the previous decisions which acknowledged that claims-made policies are generally valid, without prejudice of the power of the merit courts to assess whether they are fair/worth of protection on a case by case basis.