Where French public policy rules regarding exclusion clauses in insurance policies are held applicable to a policy subject to Dutch law…(Cass. 2e civ., 15 juin 2023, n° 21-20.538)

The facts

A rabbit breeder contracts with a French company for installing solar panels on the roof of his farm. The French company had purchased the panels from a second French company, which had itself purchased them from AER. The solar panels were manufactured by a Dutch company, and fitted with connection boxes, the manufacture of which had been subcontracted to a second Dutch company.

After the solar panels were set up and functional, smoke spread from one module, and the solar panels had to be taken out of service. The rabbit breeder had to replace them all, suffering therefore material losses and losses of income.

He initiated proceedings on the merits to claim against all the companies involved and their insurers, amongst them the manufacturer of the photovoltaic panels, the manufacturer of the defective component, and their Dutch insurers.

The Dutch insurers denied coverage relying on exclusion clauses contained in the insurance policies, subject to Dutch law and valid under the said applicable law.

The judgments

The Court of appeal of Poitiers approved the application of the exclusion clauses subject to Dutch law in their judgement of 6^th April 2021 but an appeal was lodged before the Cour de cassation by the insurers of the French companies, arguing that the exclusion clauses had to be set aside as non complying with the requirements of articles L. 112-4 and L. 113-1 of the French Insurance Code, despite being governed by Dutch law.

In their decision rendered on the 15^th June 2023, the Judges of the Cour de cassation held that : "It results from the combination of Articles L. 112-4 and L. 113-1 of the French Insurance Code that in the case of non-compulsory damage insurance, the public policy provisions of Articles L. 112-4 and L. 113-1 of the French Insurance Code are applicable no matter what law governs the contract".

In practical terms, this means that :

• the exclusion clause must appear in very visible characters (article L. 112-4), usually bold type;
• the exclusion clause must be formal and limited (article L. 113-1).

For procedural reasons due to different appeals being lodged, the same ruling in the same case was reiterated in a second judgment rendered on 12^th October 2023 by the Cour de cassation (Cass. civ., 12 oct. 2023, n° 21-25.308).

Attention please!

Foreign insurers covering France in their policies must be aware that despite an exclusion clause being valid and compliant under the law governing the insurance contract, the clause might still be challenged before the French courts on the basis of the mandatory provisions above.

Article L. 112-4 deals with a purely formal requirement, and an exclusion clause appearing in bold characters may satisfy the requirements of being “very visible”.

However, whether an exclusion clause is “formal and limited” as per article L. 113-1 is a more complex issue, for which the Cour de cassation felt the need to publish this year a study “étude”. Read more Recueil annuel des études 2023 (Présentation du Recueil)

Suffice is to say that if full study is needed, the issue is subject to discussion but this should not deter foreign insurers covering the French geographical zone from reviewing whether their exclusion clauses are compliant with the two French provisions mentioned above. In this specific case the law that is applicable to the insurance contract (= Dutch law) does not hold specific provisions for exclusion clauses in an insurance contract. Under Dutch law for instance there is no obligation to put an exclusion in a bold type in the policy wording.

Attention from foreign insurers to this judgment is needed.

How can the Dutch Insurer of a Dutch subcontractor end up before a French Court?

One could be surprised to find out that the Dutch insurers of Dutch subcontractors can be sued before the French courts by the “victim” i.e. the Rabbit breeder. As long as the victim is not a party to the insurance contract and/or no personal injury is involved such a direct action is not known under the Dutch law that governed the insurance contract.

In matters of contractual liability, the direct action is admissible if the law applicable to the contractual obligation or the law applicable to the insurance contract so provides (Cass. 1re civ., 9 sept. 2015, n° 14-22.794).

In tort or non-contractual liability matters, direct action is admissible if the law applicable to the non-contractual obligation or the law applicable to the insurance contract so provides (Cass. 1re civ., 18 déc. 2019, n° 18-14.827).

For construction contracts, the client can sue not only the contractor on a contractual basis but also the subcontractors in tort. Foreign Insurers of foreign subcontractors can therefore find themselves dragged before the French courts. Another reason to pay attention to this important 2023 ruling of the French Cour de cassation!