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 in their contracts, requires that these be "formal and limited", otherwise they are void.

On November 20, 2020, the Court of Cassation had the opportunity to reiterate that the mere fact of having to interpret an exclusion clause to determine its applicability to damage constituted a violation 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 reduction of fitness for racing, loss in value, depreciation) [2] ", the notion of "indirect" damage being imprecise.

At the time, it was simply a reminder for insurers, who have long known that their exclusion clauses must be clear, precise and written in very conspicuous characters to be enforceable against their insureds.

The Court of Cassation has, however, just taken a further 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 to be invalidated!

In a judgment of June 17, 2021, rendered with reference toarticle 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 disabilities (...) which result from lumbar pain, sciatica, dorsal pain, cervical pain and other back pain", to an insured person suffering from herniated discs with lumbosciatica.

For the appeal judges, the fact that the expression "other back pain" was subject to interpretation was inconsequential since the insured's pathology – lumbosciatica – was expressly covered by the disputed clause and it was therefore unnecessary 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 which the mere fact that an exclusion clause is not formal and limited in all its components is sufficient to justify its nullity.

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

However, these formulations, already under scrutiny when invoked by insurers to justify a refusal of coverage, now risk, by contagion, invalidating entire clauses!

While insurers will undoubtedly strive to better "cut up" their exclusion clauses in the future to avoid this contagion effect, they can do little for contracts already in place, except 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