Recent Supreme Court Case Law regarding the Insurance Act 2014: An Overview
With the new year approaching, the Lydian Insurance team once again looks back on some interesting case law of the Belgian Supreme Court (Cour de Cassation) rendered this last year on the Insurance Act of 2014 (the "Insurance Act"). This year, the Court once again dealt with various insurance issues, including the insurer's notification duty, the interpretation of policy conditions and claims made by the injured party against the insurer.
1. Limitation period applicable to claims made by the injured party against the insurer
1.1 Payment of a commission
Art. 89, §5 Insurance Act sets forth the following on the limitation period applicable to claims brought by the injured person against the insurer:
"The limitation period applicable to any claim as referred to in Article 88(2) shall be interrupted as soon as the insurer becomes aware of the injured party's intention to obtain compensation for the loss they have suffered. This interruption shall end when the insurer informs the injured party in writing of its decision to provide or to waive its coverage."
By judgment dated 11 September 2020 (which was not published until 2021), the Court of Cassation ruled that such claims by the injured party arose from the injured party's own right to compensation against the insurer. The limitation period applicable to such claims is, therefore, the usual period of five years counting from the harmful event or, in the event of a crime, from the day the crime was committed.
According to the Court, the payment of a commission by the insurer to the injured party proves with certainty that the insurer had knowledge of the injured party's intention to obtain compensation, even before the date of payment.
The payment of such commission is, therefore, sufficient to show that the limitation period has been interrupted.
1.2 Refusal of amicable settlement offer by the injured party
One year later, on 20 September 2021, the Court was once again given the opportunity to rule on the application of Article 89, §5, Insurance Act.
According to the Court, the interruption of the limitation period only ends once the injured party is able to know with certainty, based on a written communication of the insurer, whether the insurer will compensate its damage not. The Court clarifies that it is up to the court deciding on the merits to assess whether the communication of the insurer is sufficiently clear.
In this case, the insurer had made a written amicable proposal to the injured party, which was not accepted by the injured party. Despite this refusal, the insurer still transferred the offered amount onto the injured party's bank account. The settlement proposal stated that "this proposal is made without acknowledgement of liability and without prejudice to the rights and legal actions of the insured. Moreover, we shall regain our full discretion in case in case of discussions regarding the amount offered".
According to the court of appeal ruling on the merits, this amicable proposal qualified as a decision by the insurer to provide compensation for the claimed damages, which was then made concrete by the actual payment. The court also ruled that "even if [the insurer] had expressed reservations, [the injured party] could in any case (...) no longer be unaware that [the insurer] had made the decision to provide compensation, since the payment had effectively been made".
The Court of Cassation set aside this judgment of the court on the merits. According to the Court of Cassation, it could not have been deduced from these statements alone that the injured party was in a position to determine whether the insurer would compensate his damage or not. The letter had therefore not put an end to the interruption of the limitation period. The subsequent payment by the insurer did not change this.
Insurers must therefore always state clearly and unequivocally whether or not they will compensate the injured party for the loss in order to interrupt the limitation period. If the insurer makes a proposal for an amicable settlement and the insured refuses it, the limitation period is not necessarily interrupted. To end the interruption, it is important that the insurer indicates in its proposal that the refusal of such offer by the insured party means that the insurer shall not provide compensation for the damages.
2. Legal costs borne by the civil party in the criminal court
Pursuant to Article 153, § 5, Insurance Act, the insurer can voluntarily intervene in a lawsuit which is brought against the insured before the criminal court, under the same conditions as if the claim had been brought before the civil court. Article 162bis, line 2 of the Code of Criminal Procedure provides that a civil party can only be ordered to pay a procedural indemnity for proceedings conducted before the police court ("tribunal de police/politierechtbank") if the civil party has brought a direct claim against the defendant, or joined the direct claim of another civil party, and is subsequently found to be in the wrong.
In this case, the insurer had voluntarily intervened in criminal proceedings initiated against its insured, whereupon that insured, in turn, initiated legal action against its insurer. However, the civil action of the insured against his voluntarily intervening insurer was declared unfounded. The court ruled that the insured did not owe the insurer any procedural indemnity. The insurer did not agree and appealed to the Court of Cassation. Before the Court of Cassation, the insured argued that the insured would have to pay a procedural indemnity given that it had been unsuccessful in civil proceedings.
On 30 March 2021 the Court of Cassation dismissed the appeal in cassation. The Court ruled that, based on the correlation between Article 162bis, line 2 of the Code of Criminal Procedure and Article 153, § 5, Insurance Act, that a civil party which has not initiated criminal proceedings cannot be ordered to pay procedural indemnities to a voluntary intervener against whom it has wrongly initiated a civil action.
3. Mandatory information in the insurer's notification to seek redress against the policyholder/insured
3.1. Ground on which the action is brought
Art. 152, line 2, Insurance Act, which concerns the insurer's duty of notification of its decision to seek redress against the insured/policyholder, reads as follows:
"The insurer must, under penalty of forfeiture of its right of recourse, notify the policyholder or, where appropriate, the insured who is not the policyholder, of its intention to seek redress as soon as it becomes aware of the facts on which that decision is based."
The appeal judgement which was later disputed before the Court of Cassation stated that the purpose of the notification duty set forth in Article 152, line 2 Insurance Act is to inform the insured party or policyholder of whether the insurer will initiate legal action against them, and not to inform this party of the legal grounds on which such legal action shall be based.
However, the Court of Cassation ruled in a judgment dated April 16, 2021, that it is clear from the legislative history of Article 152, line 2 Insurance Act that the purpose of the notification duty of the insurer is to "allow the policyholder and the insured to safeguard their rights with a view of the possible recovery by the insurer of its expenses for the benefit of the injured party."
The Court held that this notification duty also relates to the ground on which the insured bases its legal action. Therefore, the insurer shall be considered as having forfeited its right of recourse if it exercises its action against the policyholder/insured on a ground other than that of which it has given timely notice to the policyholder/insured.
It is therefore crucial for insurers, when notifying the policyholder/insured of their intention to seek redress, to always clearly state the grounds on which they will exercise this right.
3.2 Reporting a conflict of interest
Also on 16 April 2021, the Court of Cassation ruled for the second time on the interpretation of Article 152, line 2 Insurance Act.
The contested judgment, rendered by the Dutch-speaking Court of First Instance in Brussels on appeal, ruled that an insurer had not complied with its notification obligation under Article 152, line 2 Insurance Act by merely sending a letter to its insured in which it announced that it would take legal action against the insured. The disputed judgement ruled that the insurer should also have notified the insured that, as of that letter, there was a conflict of interest between the insurer and the insured, and that the latter would be best advised to seek its own counsel. The court found that, as a result, the insured did not get the chance to organize its defense.
The Court of Cassation confirmed that Article 152, line 2 Insurance Act stipulates that the notification given by the insurer of its intention to seek redress must be clear and unambiguous. However, according to the Court, this does not mean that the insurer must inform its insured of the existence of a conflict of interest as of the notification or that the insured should be assisted by his/her own counsel and organize its own defense. The Court therefore set aside the contested judgment.
The first commented judgment of the Court of Cassation thus interpreted the notification obligation set forth in Article 152, line 2 Insurance Act broadly, while the second judgment sets a clear limit to this obligation.
4. Clear and understandable conditions
Article 23 Insurance Act provides that the general and special terms and conditions of insurance, the entire insurance contract and all individual clauses must be clear and precise. In case of doubt, the unclear clause will be interpreted in favor of the policyholder.
The contested judgment concerned a car that was insured for civil liability and 'multi-risk' (comprehensive insurance). The vehicle was subsequently stolen and could not be recovered.
The special terms of the insurance policy stipulated that the vehicle had to have a certain anti-theft system if the value of the vehicle was between EUR 30.000 and EUR 50.000. At the time of the theft, the vehicle in question did not have such protection.
A discussion arose between the insurer and the insured party about the value that had to be taken into account to fulfil the aforementioned clause. The insured argued that the current market value should be used (and that the clause would thus not apply). According to the insurer, the value of the vehicle as indicated by the insured when the contract was executed should be taken into account instead (and the clause would thus apply).
The Court of Appeal ruled in favor of the insurer. According to the Court of Appeal, the fact that the clause did not explicitly state the exact value was not enough for the clause not to apply under the pretext of an interpretation favorable to the policyholder.
However, in a judgment dated 8 October 2021, the Court of Cassation ruled that the contested judgment was contrary to Article 23 Insurance Act.
As such, the Court of Appeal had rejected the interpretation most favorable to the policyholder based on the parties' joint intention. According to the Court of Appeal, the factual background showed that both parties intended to maintain the requirement of a specific anti-theft system. Changes were made to other policy conditions over the years, but this clause remained unchanged.
The Court of Cassation did not agree with this analysis. According to the Court, Article 23 Insurance Act requires that the interpretation that is most favorable for the insured takes precedence over the interpretation which is based on the common intention of the parties. Thus, one cannot depart from the interpretation most favorable to the insured by taking into account the common intention of the parties.
This judgment highlights once again the importance of clear and concise policy conditions. In order to avoid doubt, and consequently an interpretation in favor of the insured, it is important detail the insurance conditions as completely as possible.
5. Notification by the insured of increases in risk
Article 81, §1, first line, Insurance Act states that the policyholder must inform the insurer of any new or changed circumstances that "are of such nature as to considerably and permanently increase the risk of the insured event occurring". It follows from that provision that policyholders must inform the insurer spontaneously, fully and correctly of such circumstances, and that insurer is not obliged to verify them.
The factual background of the commented case law concerned a fire insurance policy applicable to premises used as private dwellings. Some months after the execution of the policy, the policyholder informed his fire insurer through his insurance broker that the insured property had been reallocated to a new purpose.
The policyholder described the new purpose of the building in very general and vague terms as a "drinking establishment (bar??)" without mentioning that it was in fact a brothel or private club with room hire.
On 21 October 2021, the Court of Cassation ruled that, in such circumstances, the insurer did not have a duty to investigate the policyholder's statements regarding the purpose of the property. The Court thus underlines the importance of the notification duty applicable to policyholders on risk increases.