Exclusion clauses in insurance contracts: the Court of Cassation continues to tighten the noose!

Article L113-1 of the Insurance Code, which authorizes insurers to limit their guarantees by inserting exclusions into their contracts, requires that these be “formal and limited”, under penalty of nullity.

On November 20, 2020, the Court of Cassation had the opportunity to recall that the mere fact of having to interpret an exclusion clause to determine its applicability to damage constituted a breach of Article L.113-1 of the insurance code[1].

This is how it censured appeal judges for having applied to the commercial loss of an insured the clause excluding "indirect damages (for example reduced ability to run, capital loss, depreciation)  [2 ] ” , the notion of “indirect” damage being imprecise.

It was at the time a simple reminder for insurers, who have known for a long time that their exclusion clauses must be clear, precise and written in very apparent characters to be enforceable against their policyholders.

However, the Court of Cassation has just taken an additional step which could have very serious financial consequences for insurers since, from now on, it is necessary but sufficient that any part of an exclusion clause be non-compliant, for the entire clause is invalidated!

In a judgment of June 17, 2021 delivered under the visa of article L113-1 of the Insurance Code , the Court of Cassation indeed deemed a court of appeal which had agreed to apply the clause excluding "incapacities and invalidities ( …) which result from low back pain, sciatica, back pain, neck pain and other back pain” , to an insured person suffering from herniated discs with lumbosciatalgia.

For the appeal judges, the fact that the expression "other back pain" was subject to interpretation was of no consequence since the pathology of the insured - lumbosciatica - was expressly covered by the disputed clause and that there was therefore no need to worry about the meaning to be given to the expression “back pain”.

It is this justification that is overturned by the Court of Cassation, for whom the mere fact that an exclusion clause is not formal and limited in all its components is sufficient to justify nullity.

The consequences are likely to be serious because the insurance contracts in force on the French market are full of clauses which refer to expressions similar to that of "other back pain", often preceded by the terminology "for example".

However, these formulations, already in the hot seat when they were invoked by insurers to justify a refusal of cover, now risk, by contagion, invalidating entire clauses!

If the insurers will not fail, in the future, to "cut" their exclusion clauses better to avoid this effect of contagion, they cannot on the other hand do much for the contracts which are already in place, except to try to amend their contracts, which seems materially difficult to achieve.

[1] Cass., Civ. 2nd, November 26, 2020-, appeal no. 19-16.435

[2] Court of Appeal of Basse-Terre, February 25, 2019, Cybele Rent v/ Ace European Group Ltd and Ace European Group Ltd