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Selected French Insurance / Reinsurance Issues Selected French insurance / reinsurance issues Reid Feldman Kramer Levin Naftalis & Frankel LLP Avocats à la Cour 47, avenue Hoche 75008 Paris, France telephone: + (33) 1 44 09 46 03 [email protected] September 2013 Topics • French insurance and reinsurance markets 2 • Non-life business . Trends in litigation and damages 4 . Claims-made clauses 7 . Insurability of intentional acts 8 . D&O developments 9 • Life business . Rescission of insurance contracts 10 . Insurer’s duty to advise 11 . Modified tax burdens for life insurance products 12 • Regulatory matters . ACP administrative sanctions 13 • Proposed legislation . Class actions 14 . Expanded cancellation rights of insureds 15 1 French insurance and reinsurance markets P/C business (2012): €49.4 billion other; €8,8 B motor €19,0 B Life business (2012): construction; €2,3 B €131.3 billion homeowners; €8,4 B accident, general liability €3,4 B commercial property €6,1 B health & long- term care €18.4 B endowment & capitalised Reinsurance products €112.9 B Non-life cessions (external, 2011): €8.5 billion construction other €1,0 B €0,4 B transportation property €2,3 B €0,2 B Life cessions (internal and external, 2011): €9.3 billion general liability €0,5 B nat cat €0,8 B accident €1,8 B motor €1,4 B Sources: FFSA, APREF 2 French insurance and reinsurance markets Life/acc’t + mixed P/C Reins’rs Total French companies 62 + 40 = 102 216 318 French branches of non-EEA companies 5 5 French branches of EEA companies 16 + 1 = 17 64 81 Total insurers 78 + 41 = 119 285 404 Reinsurers (French reinsurers and French 49 49 branches of other reinsurers) EEA companies registered for FOS 160 + 21 = 181 720 901 business in France 300 1005 49 1354 Total NB – Does not include mutuals subject to the Code de la Mutualité ( 623), institutions de prévoyance (49) and institutions de retraite supplémentaire or reinsurers established outside France Sources: Autorité de Contrôle Prudentiel, APREF 3 Trends – number of cases litigated • Number of cases filed on selected subjects: few signs of increase personal liability (direct liability for products, services and animals 23 002 liability) (TGI) (TGI) 18 128 work-place accidents and 1 359 vehicular accidents illness (CA & TGI) (TGI) 1 163 967 faute inexcusable (CA & 873 professional liability TGI) 712 668 8 189 5 457 (medical, legal, accounting, etc.) (TGI) 313 284 4 551 3 760 D&O (TGI & TC) damages caused by 2 181 1 979 real property (TGI)2 2004 2006 2008 2010 2004 2006 2008 2010 Source: Ministère de la Justice, Annuaires Statistiques de la Justice 2006-2012 • Medical malpractice: decreases in certain indicators of litigation activity - Decrease in criminal complaints: 249 in 1999, 108 in 2009 - Increase in damage claims settlements: 14% in 2003, 54% in 2009 - Increase in proportion of disputes handled by regional mediation committees: 14% in 2008, 28% in 2010 Source: RCA 2013 n° 5, p. 22 4 Trends – liability • General principle re liability . a fault (faute, i.e. error) causing damage results in liability to repair it - C. civ. art. 1382: Tout fait quelconque de l’homme, qui cause à autrui un dommage, oblige celui par la faute duquel il est arrivé, à le réparer • No-fault liability for faults of employees, agents, equipment, livestock, etc. C. civ. art. 1384: On est responsable non seulement du dommage que l’on cause par son propre fait, mais encore de celui qui est causé par le fait des personnes dont on doit répondre, ou des choses que l’on a sous sa garde . Company held liable for damage from fuel entering a river due to opening of release valves by burglars (Civ. 2ème, 22.05.2003 n° 02-10367) • Inexcusable fault (faute inexcusable) . Workplace health and safety - employer has absolute liability for workplace safety & health hazards which are known or should have been known - employer held liable for asbestos exposure notwithstanding efforts made to protect employees (Soc. 12.12.2002 n° 01-20372) - employee can be denied benefits for exceptionnally grave errors exposing him/her without valid reason to risks of which he/she knew or should have known (Civ. 2ème 27.01.2004 n° 02-30693); cf. Conseil Const. 18.06.2010 (re. damages available to the employee) . Transportation - liability for inexcusable errors are those committed intentionally with knowledge of probability of damage accepted recklessly without valid reason (Civ. 1ère 01.10.2007 n° 04-13003 – Allianz Marine et Aviation) . Motor-vehicle accidents - inexcusable error of the victim (i.e. exceptionnaly grave intentional error creating without valid reason a risk of which the victim should have known) precludes indemnification of the viction (except if under 16 y.o. or over 70 y.o. or incapacited), but not including e.g., alcohol consumption by the victim which was not proven to have caused the accident (Ass. plén. 06.04.2007 n° 05-81.350 & n° 05-15950) • Liability for direct or indirect environmental damage – Crim. 25.09.2012 n° 10-82938 (Erika) 5 Trends – damages • Recovery of compensatory damages only . Damages for immediate and direct losses realised and lost profits - C. civ. art. 1151 (les dommages et intérêts ne doivent comprendre à l’égard de la perte éprouvée par le créancier et du gain dont il a été privé, que ce qui est une suite immédiate et directe …) (applicable to contract liability and, by extension, to tort claims) . No obligation to mitigate – Civ. 3ème 05.02.2013 n° 12-12124 (construction claim) , Civ. 2ème 25.10.2012 n° 11-25511 (homecare), Civ. 2ème 29.03.2011 n° 11-14661 (delay in repairing flood damage) . Distinction between damage (dommage, demonstrable pecuniary loss) and loss (préjudice, consequences for the victim) . Low expectations regarding damages – Limoges 11.04.2013 (Butagaz) (in product liability action for personal injuries and “emotional shock” resulting from explosion of propane bottle connected by consumer to heating system designed for butane, claim for comparative negligence was rejected and the defendant held liable for inadequate written warnings and failure to provide connecting systems for propane different from those for butane; but damages were limited to €20,000 requested by the plaintiff including for “suffering”) • Punitive damages . New legislation proposed or endorsed (Catala 2005, Béteille 2010, Terré, 2011) but adoption seems likely only for torts profitable to the tortfeasor (e.g., intellectual property infringement, consumer actions and environmental torts) . Punitive damages recognized as not contrary to mandatory principles of French law, if “proportionate” to the loss suffered and the fault of the defendant - Civ. 1ère, 01.12.2010, n° 09-13303 (Fountaine Pajot, enforcing a California judgment) . Recognition of exemplary role of damages: rogue trader J. Kerviel held liable for €4.9 billion (but moral damages for other Société Générale employees were rejected) – Paris 24.10.2012 n° 11/00404 – but see Butagaz supra (account taken of widespread consumer use of butane and propane and danger to the public at large) • Expanded grounds for damages . “Emotional shock” – see Butagaz supra; Rennes 02.07.2009 (collapse of gangway to Queen Mary II, €50,000 per survivor/close relative of victim and €15,000 per deceased victim) . Fear re. consequences of an incident – Civ. 2ème 24.09.2009 n° 08-049670 (transfusions of possibly HIV-infected blood); Paris 13.03.2009 RG n° 08/00627, Rouen 10.12.2008 n° 07/3546, Paris 22.05.2008 n° 07/07681 (exposure to asbestos ), Colmar 14.03.2008 (spectators to a disaster) . Fear of a potential incident – Paris 12.09.2008 n° 07/05802, Civ. 1ère 06.12.2006 n° 05-15719 (potentially defective heart sensors) 6 Claims-made clauses • Courts rejected claims-made clauses (“CMCs”) . Seven cases decided in 1990 (and several thereafter) held that if event causing liability (fait générateur) occurs during term of policy, absence of coverage is failure of consideration (absence de cause) and CMC unenforceable (Civ.1ère 19.12.1990) . Later cases allowed CMCs when specifically mandated by law but not otherwise . These rulings seemed incompatible with basic principles of contract law (e.g. C. civ. 1131) • Legislation in 2003 (C. ass. L.124-5) . Requires coverage on occurrence basis – fait générateur / dommageable during policy period for non-professional liability coverage of individuals (optional for professional liability coverage) - Several causal events with the same technical cause considered one causal event (i.e. cancellation does not preclude coverage of later manifestation of damage; no continuous trigger) (CA L124-1-1) - Does not cover unknown past losses (but pays first when other coverage also applies) . Permits certain CMCs in non-marine professional liability policies - Coverage of undisclosed past losses is required (except for health professionals, see C. ass. L.251-2) - CMC coverage if not renewed (by the same insurer or another) applies to claims made during a subsequent guarantee period . Generally five years minimum . Ten years for construction, so-called “intellectual professions” (legal and accounting professions, property managers, auctioneers and insurance brokers) or in case of cessation of activity (CA R.124-2&3) . Coverage level during the subsequent guarantee period cannot be less than what it was during last year prior to termination of the coverage . Legislation not applicable to coverage issued prior to 2003 legislation, so CMCs therein are disregarded – Civ. 2ème 15.09.2011 n° 10-20970, 25.06.2009 n° 08-14060 & 08-16910 7 Insurability of intentional acts • Basic principle: the insurer is not liable for losses or damages caused by an intentional or fraudulent error (faute) of the insured (C. ass. L.113-1) . “Intentional” error: must be intentional and undertaken with the intent of causing the resulting damage; variables include: - whether intent is evaluated based on what was actually in the mind of the insured (“subjective” intent) or on what should be inferred from the circumstances (“objective” intent); - the degree of certainty, in the mind of the insured, that a particular cause of action (or inaction) will result in damage.
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