Date: Wednesday, November 28th, 2018 by Michaela Hickson.
In decision no. 22437 dated 24th September 2018 the Joint Division of the Italian Supreme Court has ruled on the validity of “claims made” clauses in insurance contracts covering civil liability.
The court affirmed that these are valid as an agreement between the parties which is aimed at derogating from article 1917, paragraph I of the Italian Civil Code. (This provides that “the insurer is bound to indemnify the insured for the damages which the latter must pay to a third party as a result of the events which have occurred during the period of insurance and depending on the liability provided by the contract” – a loss occurrence or act committed scheme).
On 8th January 2018 the third section of the Court of Cassation asked the Joint Division of the Supreme Court to rule:
(a) in non life insurance, whether “loss” can include matters other than those set out in Article 1882 of the Italian Civil Code (this defines the insurance contract, providing that the insurer, in return for payment of the premium, undertakes to pay insurance indemnity on the occurrence of an event relating to human life);
(b) in third party liability insurance, whether:
(i) “loss” can include matters other than those set out in Article 1917 of the Italian Civil Code;
(ii) clauses defining the scope of the indemnity operate (under Article 1322 of the Code) according to when the claim is made on the insured, rather than when the facts giving rise to it happened.
The developing arguments and the decision
In a comprehensive ruling, the Court considered protection of the insured’s interest as against the validity of a claims made clause.
First, the Court maintained that, even though they have retrospective effect in covering the fault of the insured, claims made clauses are valid – there is no insuring of a certainty, since other unknown elements (the so-called “alea”) remain, like for example a resulting claim and the insured’s awareness of that.
The Court also reaffirmed that claims made clauses cannot be considered unfair – so they are not vexatious – as they do not limit the insurer’s contractual liability, but simply define the subject of the contract by describing the claims for which indemnity is provided.
Such clauses are valid because (as outlined above) they are the result of an agreement which is aimed at derogating from article 1917, paragraph I of the Italian Civil Code.
This is permitted by Article 1932, which does not list Article 1917 among the mandatory rules of national law.
The principle has also been re-stated in recent Italian legislation.
For example, Article 11 of Law No. 24/2017, known as the “Gelli Law”, imposes a duty on healthcare providers to have in place third party liability insurance covering events that have occurred up to ten years before the policy was concluded, provided that the claims are made during the policy period, with tail coverage – for when the covered activity ceases – for claims reported for the first time within ten years after the end of the policy and in respect of things that happened during the policy period, such to include a policy retroactive date.
So further consideration of the notion of protection of the insured’s interest (the so-called “giudizio di meritevolezza”) is unnecessary, as that is based on the supposition that a claims made clause is an anomaly, but it is not.
Pre-contract safeguards and the possible liability of insurers and intermediaries, i.e. for failure to provide sufficient information and/or a contract adequate for the insured’s needs (taking into account the premium calculation) all remain.
There remains also the protection of the insured’s interest where the contract as a whole creates a relevant imbalance between the rights of the insured and the obligations of the insurer.
Though it remitted the matter for the Court of Cassation to reconsider whether this particular claims made clause had been negotiated at arm’s length (so in that respect overturning the previous decision), the Supreme Court’s decision is an important step in the recognition of the validity of claims made clauses in the Italian legal system. That is a positive outcome which will be of great interest to overseas insurers involved in the Italian market.
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Avv. Giorgio Grasso, PhD
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