Exclusion clauses in insurance contracts and Covid-19: the Court of Cassation returns to orthodoxy

For almost two years, the Court of Cassation has been steadily toughening its stance towards insurers in its fight against exclusion clauses deemed too broad or not clear enough, particularly with regard to the first paragraph of Article L.113-1 of the Insurance Code according to which "losses and damages caused by fortuitous events or caused by the fault of the insured are the responsibility of the insurer, unless there is a formal and limited exclusion contained in the policy [...]" .

In this context, the High Court had the opportunity to recall that the mere fact of having to interpret an exclusion clause deprived it of the formal and limited character required by the insurance code ( Cass. civ. 2nd ^, November 26, 2020, appeal no. 19-16.435 ).

More recently, the Court of Cassation established the principle that the fact that only part of an exclusion clause is neither formal nor limited exposes the entire clause to unenforceability , even if that part is not concerned by the loss in dispute ( Cass. civ. 2nd ^, June 17, 2021, appeal no. 19-24.467 ).

It was then on the basis of the second paragraph of Article L.113-1 of the Insurance Code, according to which "the insurer is not liable for losses and damages resulting from an intentional or fraudulent fault" , that the Court of Cassation acted, defining fraudulent fault as a " deliberate act of the insured committed with the awareness of the inevitable nature of its damaging consequences " and requiring the insurer to provide proof of this awareness (Cass. civ. 2nd ^, January 20, 2022, appeal no. 20-13.245).

In such a context, some observers had little doubt about the outcome of the dispute between insurers and their insureds regarding the handling of operating losses resulting from the administrative closures of 2020 and 2021 related to the fight against the Covid-19 epidemic.

Under this agreement, these insured parties (mostly restaurant owners) benefited from a "business interruption" guarantee applicable in the event of "administrative closure" linked to an "epidemic", which however excluded " business interruption losses when, on the date of the closure decision, at least one other establishment, whatever its nature and activity, is subject, in the same departmental territory as that of the insured establishment, to an administrative closure measure, for an identical cause ".

In four judgments delivered on December 1, 2022 (appeals no. 21-19.341, 21-19.342, 21-19.343 and 21-15.392), the Second Civil Chamber has just confirmed the enforceability of this exclusion of guarantee on the grounds that it is sufficiently clear and limited.

The criticisms made of this clause were numerous, notably that the term "epidemic" was not defined by the contract, thus making it necessary to interpret the said clause, which, in application of the case law of the Court of Cassation, made it unenforceable with regard to the requirements of the aforementioned Article L.113-1.

By deciding first that the term "epidemic" was in itself sufficiently explicit and therefore did not need to be defined further, the High Court seems to set a limit to the requirement of clarity placed on the insurer, which until now had been of an indefinitely inflationary nature.

Similarly, by ruling that the exclusion of operating losses due to the administrative closure of at least one other establishment located in the same department (which, in the case of the Covid-19 epidemic, was systematic) did not render the guarantee meaningless, the Court of Cassation seems to have returned to a more orthodox approach by recognizing the right of the insurer to freely determine the scope of its guarantees, provided that an insurable risk remains, which was indeed the case here since the guarantee of operating losses was primarily intended to cover the insured in the event of contamination limited to its own establishment.