- The exclusion of guarantee clause must be formal, precise and limited and shall not be subject to interpretation
- Court of Cassation, Second Civil Division, 26 November 2020 (Appeal no. 19-16.435) – Published
An exclusion of guarantee clause, insofar as it does not refer to precise criteria and cases exhaustively enumerated, is not formal and limited and cannot be applied because of its imprecision, making its interpretation necessary.
Cybele Rent, whose corporate purpose is the sale and rental of all approved rolling stock for road, eco-sustainable and sailing, the creation and promotion of commercial and cultural events and all related consultancy activities, is the owner of a sailboat that ran aground on 14 October 2012 during the passage of storm Rafael.
Cybele Rent sued its insurer on 6 December 2011 to enforce the “multi-risk yachting” policy it had taken out.
The Basse-Terre Court of Appeal, in a judgment of 25 February 2019, assessed the loss suffered by Cybele Rent at the sum of €60,013.31, after deducting the excess, and rejected its claim for compensation of €327,500, on the grounds that Article 6a of the applicable contractual terms and conditions of the insurance contract expressly provides that “ indirect loss and damage (e.g. reduction in racing capacity, loss of value, depreciation) are excluded from the insurance” and that this sufficiently explicit clause is understood to exclude any loss that does not arise directly from the event giving rise to the loss, such as loss of income resulting from the cessation of operations. The judges added that there was no reason to consider this clause as depriving the guarantee of its substance and that the compensation for the commercial loss claimed was rightly rejected by the first judge.
The Court of Cassation condemns this reasoning. It recalls that under the terms of Article L. 113-1 of the Insurance Code, clauses excluding guarantee cannot be considered formal and limited when they must be interpreted. However, by ruling as it did, whereas this clause excluding the guarantee, in that it did not refer to precise criteria and to exhaustively enumerated cases, was not formal and limited and could not be applied because of its imprecision, making its interpretation necessary, the Court of Appeal violated the above-mentioned text.
- A third party to an insurance contract who claims a breach of contract must specify the contractual rule breached, both in principle and in content
- Court of Cassation, Commercial Division, 12 November 2020 (Appeal no. 18-23.479) – Published
If a third party to a contract can invoke a breach of contract on the basis of tort liability if this breach has caused such party a damage, it is on condition that the third party specifies the rule breached to which it refers, as well as its content.
A French company sells a cargo of fertilisers to a Moroccan company (C.), insured by Axa. A ship is chartered from a shipowner to take the cargo from the port of St. Petersburg to the port of Jorf Lascar in Morocco. Prior to departure from Russia, the ship is examined by the British company NLloyd’s Register of Shipping, a classification society, to certify that the ship is in good condition.
During the trip, one of the ship’s holds leaked and the ship took refuge in the port of Brest, where it was definitively stopped and its cargo sold by auction. In the context of this salvage sale, the company C. and its insurer sued the shipowner and Lloyd’s Register of Shipping for damages.
The Rennes Court of Appeal, in a judgment of 15 December 2017, upheld their claims and issued an order against the shipowner and Lloyd’s Register of Shipping. The latter then lodged an appeal, arguing that the Court had not taken into account the contractual provisions binding it to the shipowner which, however, defined the classification society’s obligations with regard to the examination of the vessel in these terms: “it is the shipowner’s primary responsibility to ensure the seaworthiness of its ship”.
The Court of Cassation accepted this argument and quashed the judgment. It recalled that it follows from Article 1240 (formerly 1382) of the French Civil Code that a third party to a contract may invoke a breach of contract on the basis of tort liability if this breach has caused damage to it. It then considered that the Court of Appeal could not declare Lloyd’s liable for the damage caused to the goods “without specifying the rule, to which it referred, or its content, in particular as regards the criteria relating to the condition of the ballast tanks’ coating, which entailed the obligation for the classification society to order an annual inspection of these elements”.
News in insurance law: exclusion of guarantee clause and third party action to an insurance contract
An exclusion of guarantee clause, insofar as it does not refer to precise criteria and cases exhaustively enumerated, is not formal and limited and cannot be applied because of its imprecision, making its interpretation necessary.
Cybele Rent, whose corporate purpose is the sale and rental of all approved rolling stock for road, eco-sustainable and sailing, the creation and promotion of commercial and cultural events and all related consultancy activities, is the owner of a sailboat that ran aground on 14 October 2012 during the passage of storm Rafael.
Cybele Rent sued its insurer on 6 December 2011 to enforce the “multi-risk yachting” policy it had taken out.
The Basse-Terre Court of Appeal, in a judgment of 25 February 2019, assessed the loss suffered by Cybele Rent at the sum of €60,013.31, after deducting the excess, and rejected its claim for compensation of €327,500, on the grounds that Article 6a of the applicable contractual terms and conditions of the insurance contract expressly provides that “ indirect loss and damage (e.g. reduction in racing capacity, loss of value, depreciation) are excluded from the insurance” and that this sufficiently explicit clause is understood to exclude any loss that does not arise directly from the event giving rise to the loss, such as loss of income resulting from the cessation of operations. The judges added that there was no reason to consider this clause as depriving the guarantee of its substance and that the compensation for the commercial loss claimed was rightly rejected by the first judge.
The Court of Cassation condemns this reasoning. It recalls that under the terms of Article L. 113-1 of the Insurance Code, clauses excluding guarantee cannot be considered formal and limited when they must be interpreted. However, by ruling as it did, whereas this clause excluding the guarantee, in that it did not refer to precise criteria and to exhaustively enumerated cases, was not formal and limited and could not be applied because of its imprecision, making its interpretation necessary, the Court of Appeal violated the above-mentioned text.
If a third party to a contract can invoke a breach of contract on the basis of tort liability if this breach has caused such party a damage, it is on condition that the third party specifies the rule breached to which it refers, as well as its content.
A French company sells a cargo of fertilisers to a Moroccan company (C.), insured by Axa. A ship is chartered from a shipowner to take the cargo from the port of St. Petersburg to the port of Jorf Lascar in Morocco. Prior to departure from Russia, the ship is examined by the British company NLloyd’s Register of Shipping, a classification society, to certify that the ship is in good condition.
During the trip, one of the ship’s holds leaked and the ship took refuge in the port of Brest, where it was definitively stopped and its cargo sold by auction. In the context of this salvage sale, the company C. and its insurer sued the shipowner and Lloyd’s Register of Shipping for damages.
The Rennes Court of Appeal, in a judgment of 15 December 2017, upheld their claims and issued an order against the shipowner and Lloyd’s Register of Shipping. The latter then lodged an appeal, arguing that the Court had not taken into account the contractual provisions binding it to the shipowner which, however, defined the classification society’s obligations with regard to the examination of the vessel in these terms: “it is the shipowner’s primary responsibility to ensure the seaworthiness of its ship”.
The Court of Cassation accepted this argument and quashed the judgment. It recalled that it follows from Article 1240 (formerly 1382) of the French Civil Code that a third party to a contract may invoke a breach of contract on the basis of tort liability if this breach has caused damage to it. It then considered that the Court of Appeal could not declare Lloyd’s liable for the damage caused to the goods “without specifying the rule, to which it referred, or its content, in particular as regards the criteria relating to the condition of the ballast tanks’ coating, which entailed the obligation for the classification society to order an annual inspection of these elements”.