Insurance and reinsurance in France: overview
A Q&A guide to Insurance and Reinsurance in France.
The Q&A gives a high level overview of the market trends and regulatory framework in the insurance and reinsurance market; the definitions for a contract of insurance and a contract of reinsurance; the regulation of insurance and reinsurance contracts; the forms of corporate organisation an insurer can take; and the regulation of insurers and reinsurers, including regulation of the transfer of risk. It also covers: operating restrictions for insurance and reinsurance entities; reinsurance monitoring and disclosure requirements; content requirements for policies and implied terms; insurance and reinsurance claims; remedies; insolvency of insurance and reinsurance providers; taxation; dispute resolution; and proposals for reform. Finally, it provides websites and brief details for the main insurance/reinsurance trade organisations in Finland.
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This Q&A is part of the global guide to insurance and reinsurance. For a full list of jurisdictional Q&As visit www.practicallaw.com/insurance-guide.
Market trends and regulatory framework
The French insurance market is characterised by a large number of distribution channels (institutions engaged in "bancassurance", insurance agents, brokers, direct contacts of potential insureds (that is, policyholders) and cold-calling).
Due to the strict solvency rules imposed by Directive 2009/138/EC on the taking-up and pursuit of the business of insurance and reinsurance (Solvency II Directive), strong competition and the need to improve profitability, the French insurance market has seen increasing concentration. Mergers and acquisitions have been significant within the insurance and the reinsurance markets.
In 2015, the turnover for the French insurance market amounted to EUR208 billion, according to the French Federation of Insurance Companies (Fédération Française des Sociétés d'Assurances) (FFSA) (www.ffsa.fr).
In 2014, France was the fifth largest insurance market in the world and ranked as the second biggest in the European insurance market after the UK, in terms of the premium volume according to the European Insurance and Reinsurance Federation (www.eubusiness.com/Members/CEA). The FFSA also reported that in 2014, total gross written premiums reached EUR197.1 billion. This represents a 6% growth compared with 2013, mainly driven by the life insurance industry.
In 2014, the French reinsurer SCOR was the fifth largest reinsurer in the world. According to Standard & Poor's, SCOR generated a premium volume of EUR12.3 billion.
The FFSA noted that the amount of insurance benefits remained stable in 2014. Non-life insurers paid out EUR36 billion in claims to policyholders. Life insurers paid out EUR119.1 billion in benefits to insureds.
Recent laws and case law are also driving changes in insurance practice.
Unclaimed life insurance contracts
On 1 January 2016 increased obligations and sanctions were imposed on life insurers by Law 2014-617 of 13 June 2014 relating to inactive bank accounts and unclaimed life insurance contracts.
Life insurers are obliged to find the beneficiaries once the insured has died and to identify each year the unclaimed life insurance contracts and consult the national register of physical persons (Registre d'identification des personnes physiques) (RNIPP) to verify if their insureds are deceased.
New French class action
Another notable change, which will have a financial impact on both insurers and reinsurers, is the introduction of a new French class action set out in the French Consumer Act 2014-344 of 17 March 2014. Consumers are now allowed to bring class actions when they have sustained a loss resulting from a breach of contract or statutory duty in the context of a contract for the sale of goods or the supply of services or anti-competitive practices under French and European Law.
The new French class action increases the exposure of insurers for the coverage of their insureds' liability to class actions (professional indemnity insurance) and the reinsurers within the professional liability portfolio covered by their reinsurance agreements. It is important that the reinsurers look at the definition of "insured event" and define the extent of the coverage in the reinsurance contracts.
The future risk is even greater as class actions are intended to be extended to cases of work discrimination, medical products and environmental damage.
Questionnaires relating to risk
Following a judgment of 7 February 2014 from the Supreme Court, insurers are deprived of their right to invoke an intentional omission or misrepresentation by the insured (see Question 27) when they use questionnaires with pre-formulated clauses to assess the risks.
Therefore, most insurance companies need to look at the drafting of the questionnaires by which they assess a risk, and replace pre-formulated clauses with questions that the insured must answer by itself.
Multi-year reinsurance contracts and long term contracts
In a competitive market, the current trend for both reinsurers and insurers is to secure business by offering multi-year reinsurance agreements and long term contracts (LTA).
Multi-year reinsurance contracts and LTAs have a fixed annual price for each year and no cancellation is permitted at the end of any given year, except in specific cases defined by the parties. In practice, these cases are increasingly flexible and impact on the binding effect of the multi-year reinsurance contracts and LTAs.
French insurance supervisory authority's recommendations and soft law
Professionals involved in the insurance and reinsurance markets are considering the legal value of the recommendations and position statements issued by the French insurance supervisory and regulatory authority (Autorité de Contrôle Prudentiel et de Résolution) (ACPR), often referred to as "soft law".
The recognition of ACPR'S recommendations and statements as a "quasi" source of insurance law is the subject of continuing debate.
The highest administrative jurisdiction, the Conseil d'Etat, has recently accepted to hear appeals against position statements and press releases of the French financial markets authority (Autorité des marchés financiers) (AMF) (Conseil d'Etat, 21 March 2016, n°368082 and n°390023).
The FFSA has brought an action against the recommendation of 3 July 2014 regarding life insurance contracts distribution issued by the ACPR. The decision of the Conseil d'Etat is expected in the course of 2016.
EU insurance and reinsurance law
European Union Directives are the principal source for the administrative and financial regime of insurance and reinsurance companies (Directive 2009/138/EC of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II Directive); the EU Life and Non-Life Insurance Directives setting out the principles governing the right of establishment of the freedom to provide services (Insurance Directives), as well as intermediation activities and the distribution of insurance products (Directive 2002/92/EC on insurance mediation (Insurance Mediation Directive), which will be repealed by Directive 2016/97/EC on insurance distribution, as of 23 February 2018.
French insurance and reinsurance law
The above EU Directives have been transposed into French law and the corresponding rules can be found in the Insurance Code. Specific rules applicable to insurance and reinsurance activities can also be found in the Monetary and Financial Code.
Other sources of law for insurance and reinsurance activities include the:
Case law precedents established in particular by the French Supreme Court (Cour de cassation).
Professional custom (for example, regarding the relationship between insurers and brokers).
Regulation of insurance and reinsurance contracts
There is no legal definition of insurance contracts under French law, except to the extent that Article 1964 of the Civil Code provides that such contracts fall into the category of "aleatory contracts", that is contracts which are reciprocal agreements and whose positive or negative effects on all the parties, or one or several of them, depend on an uncertain event.
French authors generally define an insurance contract as an agreement whereby, in exchange for the payment of a premium, one of the parties (the insurer) is liable towards the other party (the policyholder) to cover a risk by performing an obligation in favour of the policyholder or a third party if the risk occurs.
Article L. 310-1-1 of the Insurance Code provides that reinsurance is an activity consisting of accepting insurance risks ceded by an insurance or reinsurance company, a mutual insurance company, a prudential institution or Lloyd's. There is no further legal definition of a reinsurance contract, however Article L. 111-3 of the Insurance Code expressly provides that a reinsurance contract is not binding on the insured, and that the reinsurer must be solely liable to the cedant company.
All marine and non-marine insurance contracts are specifically regulated, except credit insurance policies, which are governed by general rules of civil law.
The specific rules applicable to insurance contracts are mainly found in the Insurance Code.
Many provisions in this Code relating to non-marine insurance contracts are mandatory and cannot be amended by agreement of the parties except those listed at Article L. 111-2 of the Insurance Code. There are fewer mandatory provisions applicable to non-marine insurance contracts.
Insurance contracts are also subject to the general rules on contracts insofar as these general rules are not contrary to the specific rules provided by the Insurance Code.
Additional rules can apply depending on who the insured is and the class of insurance to which the contract relates. These rules are found in the Consumer Code, the Commercial Code, the Monetary and Financial Code or in specific laws and regulations which have not been codified.
Article L. 111-1 of the Insurance Code expressly excludes reinsurance contracts from the scope of the rules set out in the Insurance Code. There is no other specific legal text applicable to reinsurance contracts which, therefore, are governed by the rules of law applicable to contracts in general.
Guarantees and financial products issued by insurance companies are similar in some ways to insurance contracts but fall outside the scope of regulation.
An insurer must be a legal entity and take one of the three corporate structures provided by Article L. 322-1 of the Insurance Code:
Joint stock company (société anonyme) (SA).
Mutual insurance company.
European Company (Societas Europaea) (SE).
SA and SE are commercial companies, whereas mutuals are treated as civil companies.
Regulation of insurers and reinsurers
All insurers and reinsurers are regulated by the provisions of the Insurance Code. They are generally subject to the same regulations.
They are both subject to the control of the state (Articles L. 310-1 and L. 310-1-1, Insurance Code) and under the permanent supervision of the French insurance supervisory and regulatory authority (ACPR). ACPR closely monitors the financial situation of insurers and reinsurers to ascertain their ability to honour their obligations, as well as their compliance with their regulatory obligations. It has a right to access all information concerning insurers and reinsurers, to investigate, to make recommendations and to impose disciplinary sanctions (Articles L. 310-13 to L. 310-19, Insurance Code).
Requirements for the insurer
The same legal entity cannot be licensed for both life insurance and non-life insurance (Article L.321-1-1, Insurance Code).
As a general principle, an insurer must restrict its activities to the provision of insurance services (Article L. 321-1, Insurance Code).
However, insurance companies are entitled to carry out other operations than insurance, if their importance remains limited in comparison to the company's entire business (Article L. 322-2-2, Insurance Code) or if they arise directly from insurance activities, to the exclusion of all other commercial business (Article R. 322-2, Insurance Code).
Insurance companies are also permitted to undertake direct marketing of banking services or other financial services (Article L. 341-3, Monetary and Financial Code).
Requirements for the reinsurer
A reinsurer's activities must also be restricted to the provision of reinsurance services.
A reinsurance institution can be licensed both for life or non-life insurance for all classes (Article L.321-1-1, Insurance Code).
Insurance portfolio transfer
The voluntary transfer of insurance portfolios held by French insurance companies or their branches is regulated by Article L. 324-1 of the Insurance Code.
The transfer of a portfolio covering risks located on the territory of an EU member state, held by a French insurance company or its branches located in the EU, or by the French branches of foreign entities licensed in France, may be effected in favour of:
A French-registered insurance company or one of its branches located on the territory of another EU member state.
An insurance company whose state of origin is an EU member state or one of its branches established on the territory of the EU.
An insurance entity established and licensed to provide insurance services in the state where the risk is located within the EU.
The transfer requires the prior authorisation of the French insurance supervisory and regulatory authority (ACPR), which will ensure that the:
Transfer is not prejudicial to the interests of creditors, insureds, policyholders or beneficiaries of the insurance contracts.
Insurance company to which the portfolio is transferred has an adequate solvency margin.
Once approval is granted by the ACPR, the transfer of the insurance contracts is binding on the insureds, policyholders and beneficiaries of these contracts as well as on the creditors of the insurance company. However, the insured can terminate the contract within one month from the date on which the ACPR's approval is published in the Official Journal.
Reinsurance portfolio transfer
The voluntary transfer of reinsurance portfolios or of claims to be paid is governed by Article L. 324-1-2 of the Insurance Code and is also subject to prior approval by the ACPR who will, similarly, ensure that the:
Transfer is not prejudicial to the interests of reinsureds.
Entity benefiting from the transfer has an adequate solvency margin.
The transfer is notified to the reinsureds by the entity wishing to operate the transfer, by registered letter with acknowledgement of receipt. The transfer is binding on the reinsured if he does not oppose it within three months from the receipt of the above mentioned letter.
Authorisation or licensing
Insurance and reinsurance companies
Companies with their head office in France, wishing to conduct insurance or reinsurance business in France or in another EU member state under the freedom of services or freedom of establishment regimes must obtain a prior authorisation from the French insurance supervisory and regulatory authority (ACPR) (Articles L. 321-1 and L. 321-1-1, Insurance Code).
Companies with their head office in another EU member state can operate in France under the licence they hold in their country of origin in accordance with the rules applicable to the free provision of services or the right of establishment.
Non-EU insurance companies from an EEA state and non-EEA insurance companies must obtain a licence to open an establishment in France (Article L. 321-7, Insurance Code).
Licences are granted by class, by the ACPR who will check that the following criteria are met (Article L. 321-10, Insurance Code):
The fitness and properness, expertise and experience of the company's officers and directors.
The administrative, technical and financial resources offered to guarantee the solvency of the company in keeping with its operations programme.
The shareholding distribution and the quality of the shareholders to guarantee a financially secure management.
The terms of the constitution of the "establishment fund" for mutual insurance companies.
Insurance and reinsurance intermediaries
Under Article L. 512-1 of the Insurance Code (transposing Directive 2002/92/EC on insurance mediation (Insurance Mediation Directive)), insurance and reinsurance intermediaries have to be registered with the Organisation for the Register of Insurance Intermediaries (ORIAS), which is placed under the authority of the Director General of the Treasury and Economic Policy (DGTPE).
Intermediaries must comply with four conditions:
Be of good repute.
Have a relevant professional capacity, depending on the category and type of insurance contract distributed.
Hold professional liability insurance.
Hold a financial guarantee.
The registration application must be made by the company wishing to carry out the intermediation activity, or, if it is an individual carrying out this activity in its own name, by the individual himself. Where an individual or entity is acting as agent for an insurance intermediary, the registration application must be made by the principal on behalf of its agent.
Inward reinsurance activity
Inward reinsurance activity carried out on the margin of an insurer's direct insurance activities is exempt from licensing obligations (Article L. 321-1, Insurance Code).
Insurers and reinsurers benefiting from the European passport
Insurance and reinsurance companies with their head office in another EU member state, wishing to provide insurance services in France under the freedom of services or freedom of establishment regimes do not have to obtain a licence in France if they are licensed in their home jurisdiction (Article L. 362-1 and seq, Insurance Code).
Similarly, insurance and reinsurance companies with their head office in another EEA member state do not need to obtain a licence if they are licensed in their home jurisdiction (Article L. 362-1 and seq, Insurance Code).
Restrictions on ownership or control
Insurance and reinsurance providers
There are no general restrictions on the ownership or control of insurance-related entities.
However, prior to granting a licence, the French insurance supervisory and regulatory authority (ACPR) verifies that the shareholding structure and the quality of the shareholders will guarantee the sound and prudent management of the company. The ACPR will also refuse to grant a licence if the use of its supervisory powers can be hampered by the existence of close links between the applicant and other legal or natural persons, or by the laws, regulations or administrative provisions of a country not belonging to the EEA which apply to one or more of those persons (Article L. 321-10, Insurance Code).
After the licence has been granted, changes in the shareholding structure are under the control of the ACPR (see Question 12).
There are no general restrictions on the ownership or control of insurance intermediaries.
Under Article L. 322-4 of the Insurance Code, changes in shareholding structure are regulated in two situations:
Acquisition of ownership interests, which needs prior authorisation by the French insurance supervisory and regulatory authority (ACPR) (Articles R. 322-11-1 and 2, Insurance Code).
Any transaction enabling a person, acting alone or in concert with other persons, as defined in Article L. 233-10 of the Commercial Code, to acquire or increase its ownership of an insurance or reinsurance undertaking, or of a parent company having its registered office in France requires a prior authorisation from the ACPR:
where such transaction results in the proportion of voting rights held by that or those person(s) rising above one-tenth, one-fifth, one-third or one-half of all voting rights;
where the insurance or reinsurance undertaking becomes a subsidiary of that or those person(s).
Disposals of ownership interests require prior notification to the ACPR (Article R. 322-11-3 of the Insurance Code).
The ACPR must be notified in advance of any transaction enabling a person, acting alone or in concert with other persons, as defined in Article L. 233-10 of the Commercial Code, to dispose of, or reduce, its ownership of an insurance or reinsurance undertaking, or of a parent company having its registered office in France:
Where such a transaction results in the proportion of voting rights held by that person or those persons falling below one-tenth, one-fifth, one-third or one-half of all voting rights.
Where the insurance or reinsurance undertaking ceases to be a subsidiary of that person or those persons.
Ongoing requirements for the authorised or licensed entity
Insurance/ reinsurance providers
Insurance and reinsurance companies have to comply at all times with the main following requirements provided by the Solvency II Directive:
Capital requirements. They have to hold sufficient financial resources to withstand financial difficulties and comply with two requirements in terms of capital:
The minimum capital requirement (MCR): the minimum level of capital below which policyholders would be exposed to a high level of risk.
The solvency capital requirement (SCR): the capital that the company needs in cases where significant losses have to be absorbed.
Risk management systems. They have to put in place and maintain an adequate and transparent governance system with a clear allocation of responsibilities, They must act prudently and must monitor their own risk and solvency assessments on a regular basis.
Supervision. They must submit a supervisory review process (SRP) that enables the French insurance supervisory and regulatory authority (ACPR) to review and evaluate the insurance companies' compliance with the rules. Each insurance group (that is, a company with entities providing services in one or more European countries) must have a group supervisor that has specific responsibilities in close co-operation with the national supervisors involved.
They must also, at all times, comply with various regulations such as anti-money laundering rules.
Insurance/ reinsurance intermediaries
Insurance and reinsurance intermediaries must fulfil the conditions set out in Articles L. 512-1 and seq. of the Insurance Code:
Registration with Register of Insurance Intermediaries (ORIAS).
Have the right professional skills.
Have professional liability insurance in place.
Have a financial guarantee in place.
Other providers of insurance/reinsurance-related activities
The Insurance Code also contains specific provisions applicable to each category of intermediary, that is, insurance and reinsurance brokers, general agents, insurers' representatives and intermediaries' representatives.
Penalties for non-compliance with legal and regulatory requirements
Failure to comply with applicable legal and regulatory requirements exposes insurers and reinsurers to:
Sanctions imposed by the French insurance supervisory and regulatory authority (ACPR) (Article L. 612-39, Monetary and Financial Code) which are:
disciplinary sanctions, which range from a simple warning to the withdrawal of the license; and/or
administrative fines up to a maximum amount of EUR100 million.
The sanctions are published in the official public register of the ACPR and may be made public in any publications, newspapers or media it may wish to use.
Criminal sanctions (Article L. 310-27, Insurance Code). Legal persons who engage in illegal insurance activity can be punished by a fine of EUR1 million and by a prohibition to conduct business either definitively or for a maximum period of five years. Individuals who engage in illegal insurance activity can be punished by a three year prison sentence and a fine of EUR75,000 (Article L. 310-27, Insurance Code). The publication of the decision may be ordered as an additional penalty.
Failure to comply with applicable legal and regulatory requirements exposes insurance intermediaries to:
Sanctions imposed by the ACPR (Article L. 612-41, Monetary and Financial Code) which include:
disciplinary sanctions, which range from a simple warning to a prohibition from carrying on an intermediation activity; and/or
an administrative fine up to a maximum amount of EUR100 million.
The sanctions are published in the official public register of the ACPR and may be made public in any publications, newspapers or media it may wish to use.
Criminal sanctions (Article L. 514-1 and L. 514-2, Insurance Code). Intermediation carried out in violation of the provisions of the Insurance Code must be punished by a two year prison sentence and a fine of EUR6,000. The act of presenting in view of underwriting or underwriting contracts on behalf of entities engaged in illegal insurance activity must be punishable by a fine of EUR3,000 and, in the event of a repeated offence, a six months' prison sentence.
Under Article L. 310-2 of the Insurance Code, contracts underwritten by a non-approved insurer are null and void, but such nullity does not affect the rights of the insured or policyholder against the unlicensed company if the latter was in good faith at the time the contract was made.
Restrictions on persons to whom services can be marketed or sold
Restrictions stemming from general contract law apply and, in particular, insurance contracts cannot be sold to minors or to persons placed under guardianship or any other similar regime of protection.
Insurers and reinsurers can also be prevented from marketing or selling their services and contracts to certain persons by international financial sanctions and embargoes.
Reinsurance monitoring and disclosure requirements
There are no legal requirements, or legal impediments, to the monitoring by reinsurers of underwriting, claims and settlements by the cedant company. Reinsurers and cedants are free to define, in the reinsurance agreement, which documents the cedant must provide to the reinsurer and the extent to which the reinsurer can monitor the cedant's decisions. Claims co-operation or control clauses can be freely negotiated.
The cedant company is bound by the general principles of contract law, in particular the duty of good faith. In addition, the parties are free to agree in the insurance contract the disclosure and notification obligations of the cedant company to the reinsurer. Generally, in facultative reinsurance, the cedant company must notify the reinsurer of any modification affecting the underlying insurance policy (changes of expiry date, limit of liability, risk increase).
Insurance and reinsurance policies
Content requirements and commonly found clauses
Under Article L. 112-3 of the Insurance Code, insurance policies must be made in writing. Article L. 112-4 provides a list of information which must be included in any insurance policy:
Name and domicile of the parties.
Description of the risk insured.
Inception date and duration of the cover.
Amount of cover.
Amount of the premium.
Address of the insurer.
Name and address of the regulatory body.
Other information must be compulsorily included in certain types of policies (such as, in particular, Article R. 112-1 of the Insurance Code relating to the time-bar for actions arising from an insurance contract and Article L. 124-5 of the Insurance Code relating to the trigger in liability policies, the most commonly found being a "claims made" basis with a subsequent cover of five years after the termination of the policy).
Exclusions clauses, clauses providing for causes of nullity or avoidance of cover and the duration of the policy must be drafted in "very apparent characters" (that is, they must be stated in a form that makes them stand out in comparison with the rest of the policy (capital letters, bold, highlighted background).
Treaty reinsurance is more common than facultative reinsurance.
The most commonly found clauses in reinsurance contracts are the following:
An errors and omissions clause stipulating that in the event of errors or omissions, the reinsured must not be prejudiced in the fulfilment of the agreement, provided that such errors or omissions must be corrected as soon as they are discovered.
An access to records clause whereby the reinsurer is allowed to access the insurer's books, records and other documents and information pertaining to the reinsurance agreement. This includes related underwriting and claims information for the purposes of the reinsurer obtaining information concerning the reinsurance agreement or its subject matter.
A "follow the settlement" clause providing that the reinsurer will cover settlements made by the reinsured in a businesslike manner, provided the settlement is arguably within the terms of the reinsured's policy and the reinsurance agreement settlement is not affected by fraud, collusion or bad faith.
A "follow the fortunes" clause providing that the reinsurer must follow the underwriting fortunes of its reinsured and, therefore, is bound by the decisions of its reinsured in the absence of fraud, collusion or bad faith.
An arbitration clause whereby the parties agree to submit their disputes to a panel of arbitrators, usually acting as "amiables compositeurs", namely who are not bound to apply strict rules of law.
A clause referring to a non-judicial adjudicator(s) tribunal rather than a court of law, in charge of producing an award ultimately enforceable by a court of law.
Insurance implied terms
An important number of the provisions of the Insurance Code are mandatory and are therefore implied into the insurance contract even if not expressly stipulated.
Examples of such implied terms are:
The exclusion of coverage of an insured's wilful misconduct.
The regime of misrepresentation.
The possibility of a tacit acceptance of an amendment proposed by the insured.
Reinsurance implied terms
Under general contract rules, it is an implied term that all contracts must be performed in good faith (Article 1134, Civil Code) and that no contract can be concluded in breach of the rules of public policy.
Some authors consider that "follow the fortunes" or "follow the settlement" clauses are implied by the very nature of reinsurance, even if they are not stipulated expressly in the reinsurance treaty.
The Insurance Code does not draw a general distinction based on the notion of a "customer".
Some provisions of the Consumer Code are directly applicable to insurance contracts, such as the:
Principle of the most favourable interpretation to the customer of contractual provisions (Article L. 133-2, Consumer Code).
Rules related to unfair terms in contracts. Insurance contracts concluded by customers are subject to Article L. 132-1 of the Consumer Code that provides a customer with protection against unfair terms. Unfair terms included in insurance contracts are deemed to be null and void.
Furthermore, the Law of 17 March 2014 on consumer protection has amended Article L. 113-2-1 of the Insurance Code, imposing on the insurer an obligation to state the reasons for the termination of an insurance policy.
Consumer rights protection is also apparent in the possibility for insureds to terminate their insurance policy before their annual term for certain types of insurance contracts which are mostly consumer-related, such as loan insurance (Article L. 113-12-2, Insurance Code).
Insurance policies must also state clearly the time limit applicable to an action by the insured against the insurer, how the time bar can be interrupted, and to whom the insured should address its complaints against the insurer.
Standard policies or terms
The French Government has the power to define standard contract clauses and render their use compulsory (Article L. 111-4, Insurance Code).
Such clauses have been defined mostly for:
Mandatory insurance contracts:
in the building sector, for structural damage and decennial liability insurance policies: (Articles A. 243-1 and A. 243-2, Insurance Code);
for motor liability insurance (Articles A 121-1 and A. 121-2, Insurance Code);
many other instances of mandatory insurance in France (probably over 120). They relate to various aspects of the insurance contract (extent of coverage, limits of cover, exclusions, deductible, duration of cover).
Professional liability insurance contracts covering regulated professions. They impose minimum conditions on the limit of cover and the amount of deductible.
The French Federation of Insurance Companies (FFSA) proposes several dozen models of clauses, as well as full insurance policies for the transport sector, mostly in relation to sea vessels and carriage of goods by sea, by road or by air (hull and machinery, cargo, war risks, and so on). The FFSA also regularly issues recommendations and circulars defining terms used frequently in certain kinds of insurance policies (for instance, "customary techniques" in decennial liability policies, or international sanctions and embargo clauses).
Other professional associations may from time to time issue similar recommendations.
One of the professional associations of insurance brokers, Chambre syndicale des courtiers d'assurance (CSCA), has issued a list customary practices applicable to the relations between insurers and brokers (usages du courtage en assurance).
Insurance and reinsurance policy claims
Establishing an insurance claim
To trigger coverage under an insurance policy, the insured must notify to the insurer that a loss has occurred. The notification must be made no later than the time set out in the contract. No particular form is required for the notice.
The burden to prove that the conditions for cover are satisfied lies on the insured, while the insurer has the burden to prove that an exclusion clause applies.
In policies covering property damage, the loss must result from one of the events covered under the policy and affect insured property.
In liability insurance policies, cover is triggered when a claim is made against the insured by a third party (Article L. 124-1, Insurance Code). A liability insurance policy may be on a "claims made" basis or on a "generating event" basis (Article L. 124-5, Insurance Code).
Third party insurance claims
An insurance contract can be taken out for and on behalf of third parties, whether named or not in the policy. The third party insured can claim directly under the policy.
In addition, Article L. 124-3 of the Insurance Code recognises the right of the victim or of a third party subrogated in its rights to file a claim directly against the liability insurer of the party responsible for the loss. The insurer can invoke, against the third party who claims under the policy, the conditions, limits of cover and exclusions (except forfeiture) that it could invoke against the policyholder (Article L. 112-6, Insurance Code).
In relation to property damage, there is no statutory right of direct action but case law recognises the right of a third party to claim against the insurer on behalf of the insured, if the insured fails to do so, by way of an action oblique subject to Article 1166 of the Civil Code. However, the funds recovered are not paid directly to the third party, but to the insured.
Case law also recognises the right of a third party to bring a civil liability claim against an insurer if the insurer did not meet its obligations under the insurance policy and thus committed a fault which caused a loss to the third party (for instance, a late payment to the insured).
Article L.114-1 of the Insurance Code states that all actions arising from a contract of insurance (including claims by the insured against the insurer) are time-barred two years after the date of the event giving rise to the action.
The limitation period increases to ten years for life insurance contracts when the beneficiary is not the policyholder and in insurance contracts covering personal injury when the beneficiaries are the deceased insured's heirs.
Reinsurance contracts are not governed by the Insurance Code (see Question 4) and therefore they do not fall within the scope of the above rules, which are applicable only to insurance policies. As a consequence, the general time limit for contractual claims of five years is applicable by the reinsured against the reinsurer and reciprocally.
The original policyholder or other third party have no direct right of action or claim against the reinsurer. This is a consequence of the principle of autonomy between the underlying insurance contract and the reinsurance contract set out in Article L. 111-3 of the Insurance Code which states that when an insurer reinsures itself for the risks that it insured, it will be solely liable to the insured.
The question remains as to whether an insured can, by means of an action oblique, compel the reinsurer to pay the insurer.
Consequences of breach by the insured
Where the insured causes a negligent omission or misrepresentation that modifies the risk or decreases the insurer's assessment (Article L. 113-9, Insurance Code):
Prior to the occurrence of a loss, the insurer can either:
continue the contract in consideration of an increase of the premium accepted by the insured; or
terminate the contract ten days after a notice sent to the insured by registered letter, and reimburse to the insured the premium paid for the period running after the termination.
After the occurrence of a loss, the insurance indemnity will be reduced in proportion to the difference between the premium actually paid and the premium which would have been paid if the risks had been truthfully and exhaustively declared.
Where there is an intentional omission or misrepresentation that modifies the risk or decreases the insurer's assessment (Article L. 113-8, Insurance Code):
The insurance contract is null and void.
The insurer is entitled to:
keep the premiums paid by the insured;
obtain payment of all the premiums provided by the contract;
obtain the reimbursement of any indemnities paid.
Where there is late notification of an increase in the risk or of the occurrence of a loss (Article L. 113-2, Insurance Code):
The insurer can refuse to indemnify a loss if the insured failed to notify within the period provided by the Insurance Code either an increase in the risk insured or the occurrence of a loss if:
this option is provided for in the contract;
the insurer proves that the lateness of the notice caused him a loss;
the lateness of the notice is not the result of unforeseeable natural causes or force majeure.
Where the insured does not pay the premium (Article L. 113-3, Insurance Code):
Within ten days of its due date, cover can be suspended 30 days after the insured has been served with a formal notice to pay.
The insurer is entitled to terminate the contract ten days after the expiry of the 30 day period if the premium still remains unpaid.
Consequences of breach by the insurer
Where there is late or non-payment of a loss, the insured is entitled to obtain the payment of damages and interest at the statutory rate in accordance with the provisions of Article 1153 of the Civil Code.
Punitive damage claims
Punitive damages or exemplary damages granted by judges to punish the wrongdoer are not available under French law. Judges can only award compensatory damages which must fully repair the harm caused according to the "principle of full compensation".
However, since insureds can be exposed to punitive damages in other jurisdictions, this raises the question of their coverage under an insurance policy governed by French law. This is the subject of ongoing debate in France.
Some legal commentators consider that cover for punitive damages violates public policy as well as Article L. 113-1 of the Insurance Code which prohibits an insurer from covering the insured's wilful misconduct. Wilful misconduct is defined as the intent to cause the damage as it occurred, and not another loss.
Others point out that punitive damages are penalties of a civil nature and should therefore be insurable, provided always that if, in the circumstances of a loss, there is evidence of intent to cause the damage as it occurred, the general exclusion of wilful misconduct of the insured will apply.
On the French market, most insurers exclude punitive damages from cover.
Insolvency of insurance and reinsurance providers
Insolvent or financially troubled insurance and reinsurance companies are subject to both general rules on insolvency provided by the Commercial Code and specific rules provided by the Insurance Code.
Depending on the severity of the financial distress of the entity, a number of protective measures can be put in place by the French insurance supervisory and regulatory authority (ACPR) to preserve or restore its financial standing, such as:
Reorganisation measures (Article L. 323-28, Insurance Code), such as a temporary limitation or prohibition of carrying out certain operations or a suspension of directors.
Administrative measures (Article L. 612-34, Monetary and Financial Code), such as a restriction on the freedom of the insurance undertaking to dispose of its assets, suspension of the redemption payments, automatic transfer of portfolios, placement under provisional administration, prohibition of the distribution of dividends.
The most radical measure is the total withdrawal of the company's licence (Article L. 325-1, Insurance Code) which results in the dissolution and liquidation of the company (Article L. 326-2, Insurance Code), even if the insurance or the reinsurance company is not in a situation of cessation of payments within the meaning of general insolvency law.
Troubled insurance and reinsurance companies could also benefit from insolvency prevention procedures (ad hoc mandate and conciliation proceedings) provided by Articles L. 611-3 and seq. of the Commercial Code, with the ACPR's prior consent (Articles L. 310-25 and L. 310-25-1, Insurance Code).
Insolvent insurance and reinsurance companies which are in a situation of "cessation of payments" can be placed into receivership or liquidation, either at the request of the ACPR or by the court acting on its own motion or at the request of the public prosecutor (Articles L. 310-25 and L. 310-25-1, Insurance Code).
Once placed into liquidation, the company loses its licence.
All insurance contracts are automatically terminated on the 40th day after the publication of the withdrawal of the company's licence in official gazettes (Article L. 326-12, Insurance Code).
If the liquidation of the company (following a "cessation of payments" or the total withdrawal of licence) reveals an excess of liabilities over assets, and if a fault in management has contributed to this excess, the court can decide that the company's debts will be borne in whole or in part, by the managers who have contributed to such fault (Article L. 328-13, Insurance Code; Article L.651-2, Commercial Code).
Protections for policyholders
According to Article L. 326-4 of the Insurance Code, in the event of the opening of liquidation proceedings against an insurance company, the policyholder is exempted from notifying his claim to the liquidator as creditors must normally do by application of Article L. 621-43 of the Commercial Code.
Insureds are not treated as general creditors and have preferential rights over the assets of the company, ranking seventh on movable property and ranking second on immovable property (Article L. 327-2, Insurance Code).
Insurers underwriting life insurance or insurance policies covering the risk of bodily injury contribute to a guarantee fund (Fonds de garantie obligatoire des assurances de personnes) which will indemnify the insureds if the insurer is no longer able to fulfil its obligations towards them (Article L. 423-2, Insurance Code).
The right to set-off mutual debts and credits in insolvency proceedings involving an insurer or reinsurer is governed by general insolvency rules and, more specifically, by Article L. 622-7 of the Commercial Code, which provides that set-off of reciprocal claims is possible only where such claims are "related" ("connexes") . The right to set-off may also be impeded by the fact that the indemnity is claimed directly by a third party by way of a direct action, in which case the insured cannot limit the amount payable to this third party by deducting the amount of premiums unpaid by the insured.
Some reinsurance contracts contain a mutual right of offset in the event of the liquidation of one party but the validity of such clauses remains subject to the rules of insolvency law, which are public policy rules.
Taxation of insurance and reinsurance providers
Insurers and reinsurers are subject to corporate tax (Article 206, General Tax Code).
Tax on insurance contracts
Insurers are liable to pay a tax on insurance contracts (Article 991, General Tax Code), whose rate depends on the nature of the insurance contract. Reinsurers are exempted from this tax (Article 995-1°, General Tax Code).
Insurers can also be liable to pay additional contributions to guarantee funds (automobile guarantee fund, guarantee fund for victims of terrorism, natural and technological disasters and so on), which are not strictly of a fiscal nature.
Non-life insurance companies are also subject to pay a specific tax when they cancel reserves made over previous fiscal years for the payment of potential claims (Article 235 ter, General Tax Code).
Value added tax (VAT)
Insurers and reinsurers are exempt from VAT for their insurance and reinsurance activities.
Insurance and reinsurance dispute resolution
A mediation procedure has been established by the Federation of French Insurance Companies (FFSA) and the Pool of Mutual Insurance Companies (GEMA) to help insurers and private persons (such as the insured and third parties) to find a negotiated solution.
A similar mediation procedure has been developed by broker members of different professional associations to settle disputes between brokers and their clients.
Disputes between insurance professionals (that is, insurers, reinsurers, intermediaries) or between insurance professionals and persons having a contract intended to cover a professional activity, can be settled through an ordinary mediation procedure. The French Centre for Insurance and Reinsurance Arbitration (CEFAREA-ARIAS) offers the possibility of appointing mediators specialised in insurance and the insurance/reinsurance sector.
Article R. 114-1 of the Insurance Code provides specific rules of territorial jurisdiction for disputes relating to the payment of sums owed under an insurance policy. The defendant must be summoned before the court of the domicile of the insured, except:
When the insurance covers movable or immovable property. The competent court is the court of the place where the insured property is located.
When the insurance covers a casualty of any nature, the insurer may be summoned before the court of the place where the harmful event occurred.
Apart from general rules governing the possibility to arbitrate (see Question 34), disputes between insurance professionals (insurer, intermediary) or between insurance professionals and persons having a contract intended to cover a professional activity, may be resolved through arbitration proceedings in accordance with the rules of the French Centre for Insurance and Reinsurance Arbitration (CEFAREA)
Reinsurance disputes can be submitted to arbitration in accordance with the CEFAREA-CMAP arbitration rules.
Such disputes can also be submitted to ad hoc arbitration, or to arbitration institutions such as the ICC.
Complaint to the French insurance supervisory and regulatory authority (ACPR)
As part of its supervisory role under Article L. 612-1 of the Monetary and Financial Code, the ACPR receives and investigates complaints concerning the failure of an insurer or an intermediary to comply with their obligations.
Arbitration clauses in insurance agreements
Under Article 2061 of the Civil Code, arbitration clauses are valid in "contracts entered into on account of a professional activity".
Therefore, parties are free to insert an arbitration clause in an insurance policy unless the insured is a consumer.
Arbitration clauses in reinsurance agreements
Arbitration clauses are valid and commonly used in reinsurance agreements.
Forum and venue
French law. Under Article R. 114-1 of the Insurance Code, which is mandatory except for marine insurance contracts, claims related to the determination and the payment of insurance indemnities must be brought before the court of the domicile of the insured. Any clause departing from those provisions is deemed non-existent.
For claims falling outside the scope of Article R. 114-1, a choice of forum clause departing from the rules of territorial jurisdiction is valid if the parties to the contract act in a commercial capacity and if the clause is explicit in the contract (Article 48, Civil Procedure Code).
EU law. According to Article 15 of the Regulation (EU) 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (Recast Brussels Regulation), a choice of forum clause departing from the specific rules of jurisdiction in matters relating to insurance is valid if such clause:
Allows the policyholder, the insured or a beneficiary to bring proceedings in courts other than those indicated in section 3 "Jurisdiction in matters relating to insurance".
Is concluded between a policyholder and an insurer, both of whom are, at the time of the conclusion of the contract, domiciled or habitually resident in the same member state, and which has the effect of conferring jurisdiction on the courts of that member state even if the harmful event were to occur abroad, provided that such an agreement is not contrary to the law of that member state.
Is concluded with a policyholder who is not domiciled in a member state, except in so far as the insurance is compulsory or relates to immovable property in a member state.
Relates to a contract of insurance which covers a large risk (as defined by Article 16 of the Recast Brussels Regulation).
To be valid, the choice of forum clause must also comply with the formal requirements provided by Article 25 of the Recast Brussels Regulation.
The parties have a total freedom of choice when the contract relates to:
Large risks (as defined by Article 5(d) of EU Directive 73/239 EEC).
Any risk not situated on the territory of an EU member state.
When the insured risks do not qualify as large risks and are situated on the territory of an EU member state, the parties can only choose the law of:
The member state where the risk was situated when the contract was concluded.
The country where the policyholder has his habitual residence.
The member state where the event covered would occur.
A member state on which one of the risks covered by professional insurance covering several risks situated in different member states is located.
However, rules of French public policy remain applicable.
Directive (EU) 2016/97 on insurance distribution (IDD)
The Insurance Distribution Directive (IDD), to be transposed into French law before 23 February 2018, will supersede the current Directive 2002/92/EC on insurance mediation (Insurance Mediation Directive).
With its extended scope, the IDD applies to all intermediaries and also to insurance and reinsurance undertakings that sell directly to their customers.
The IDD introduces more strict conduct-of-business rules and information requirements (especially on price and costs of the insurance/reinsurance products, insurance products offered together with another non-insurance product or service or as part of a package) and adds professional requirements for insurance/reinsurance distributors.
Ordinance 2016-131 of 10 February 2016 on the reform of general contract law
The Ordinance on the reform of contract law will have a low impact on insurance contracts as they are mainly subject to the specific rules provided by the Insurance Code.
The rules provided by the revised Civil Code will apply to insurance contracts only if they are not contrary to specific insurance rules (Article 1105, revised Civil Code).
Whether the changes to the Civil Code have any practical impact on reinsurance agreements remains to be seen.
Main insurance/reinsurance trade organisations
French Federation of Insurance Companies (Fédération Française des Sociétés d'Assurances) (FFSA)
Main activities. FFSA is the main insurance and reinsurance trade organisation.
French Group of Mutual insurance companies (Groupement des Entreprises Mutuelles d'Assurance) (GEMA)
Main activities. GEMA is the main trade organisation of mutual insurance companies.
Association of professionals of reinsurance in France (Association des Professionnels de la Réassurance En France) (APREF)
Main activities. APREF is the main trade organisation of reinsurance players in France.
Union of young French insurers and reinsurers (Union des Jeunes Assureurs et Réassureurs Français) (UJARF)
Main activities. UJARF is a trade organisation for insurance and reinsurance professionals in France.
Association of insurance brokers (Chambre Syndicale des Courtiers d'Assurance) (CSCA)
Main activities. CSCA is the main professional association of insurance brokers.
Association for risks management and corporate insurances (Association pour le Management des Risques et des Assurances de l'Entreprise) (AMRAE)
Main activities. AMRAE is the main association for corporate insurance and risk management.
Association for insurance and reinsurance lawyers (Association des Juristes d'Assurance et de Réassurance) (AJAR)
Main activities. AJAR is an association for insurance and reinsurance lawyers.
International association for insurance law (Association Internationale de Droit des Assurances) (AIDA)
Main activities. AIDA is the main association which focuses on insurance law.
Description. This website provides information about the ACPR and contains the recommendations and sanctions issued by the ACPR and prudential rules applicable to the insurance sector.
Description. This website is the official EU law database and contains EU law and case law and information on EU institutions.
Description. This website is the official French law database and contains French legislation and case law.
Description. This is the website of the French Federation of Insurance Companies, which provides information on the insurance market, as well as publications by the FFSA such as standard terms.
Description. This website provides information on the status of insurance intermediaries and gives access to the official register of insurance intermediaries.
Description. This is the website of the French Association of Professional Reinsurers, which provides information on the reinsurance market in France, as well as APREF's publications.
Pierre-Olivier Leblanc, Partner
Holman Fenwick Willan
T +33 1 44 94 40 50
F +33 1 42 65 46 25
Professional qualifications. Paris Bar, 2002; Post-Graduate Diploma (DESS) of Maritime Law, University of Lille; LLM in International Economic Law, University of Warwick; Certificate in English Law, University of Warwick
Areas of practice. Insurance law; national and international litigation and arbitration; marine and shipping law; general liability work; industrial risks; construction/energy (onshore and offshore); transport; ship building; property damage/BI/disputes; policy wording; cyber liability and fraud.
Advising an insurer after the derailment of a high-speed train during a test run in France causing major injuries.
Advising an insurer in a major EPC contract dispute with an energy company.
Instructed by a major carrier to conduct a full review of their fraud and cyberfraud insurance policy for the French market.
Advising an insurer in the course of the arbitration proceedings pending before the Arbitration Committee of the FFSA (French Federation of Insurance Companies).
Languages. French, English
FDCC (Federation of Defense & Corporate Counsel)
The wind of change: emergence of an insurance regime appropriate for French Marine renewable Energy projects? 4 March 2016.
Conflict of laws – European regulation "Bruxelles I" – Direct action for victims of a failure to fulfill contractual obligations, L'Argus de l'Assurance, November 2014.
Europe aims at regulating drones insurance, L'Argus de l'Assurance, September 2014.
The new CEFAREA rules, International Arbitration Quarterly Bulletin, June 2014.
Pauline Arroyo, Partner
Holman Fenwick Willan
Professional qualifications. Paris Bar, 2003; Master's Degree in Business Law, Paris II-Pantheon Assas University, 2000; LLM in International Business Law, King's College, London, 2000; Post-Graduate Diploma (DESS) in International Business Legal Studies, 2001; Graduate of Paris Institute of Political Sciences (Sciences Po Paris), 1998
Areas of practice. Insurance law; civil liability; professional liability; insurance coverage issues; industrial risks; defective products; contentious customs law cases; environmental litigation; construction.
Assisting a major insurer and their insured in relation to the fall of a 465T steam generator in the process of being removed from the nuclear facility operated by EDF in Paluel.
Assisting a major French transports and logistics group, further to an electrical incident which caused the suspension of their activity on their logistics platform mainly dedicated to the storage of products manufactured by Coca-Cola.
Advising a major insurance group on the impact of international sanctions (embargos, asset freezes) in various situations involving several of their insureds.
Advising an insurer on coverage issues in relation to defects in power switches commanding high voltage electrical lines.
Languages. French, English
International Association of Defence Counsel (IADC)
Risks associated to corporate international activities and insurance (Les risques associés à l'activité internationale de l'entreprise et l'assurance), Journal des Sociétés, to be published soon.
Lifting of the sanctions against Iran, analysis of the situation, 1 February 2016.
The new regime of liability applicable to defects in the energetical performance of buildings, October 2015.
Impacts of international sanctions on insurance contracts, Revue Générale de Droit des Assurances, June 2015.
Clarence Lefort, Associate
Holman Fenwick Willan
Professional qualifications. Paris Bar, 2014; Master's Degree, Insurance law, Paris II Panthéon-Assas; Master's Degree, Corporate law, Paris II Panthéon-Assas
Areas of practice. Insurance law; civil liability; professional liability; directors' liability; insurance coverage issues; industrial risks; defective products; construction.
Languages. French, English
Publications. Risks associated to corporate international activities and insurance (Les risques associés à l'activité internationale de l'entreprise et l'assurance), Journal des Sociétés, to be published soon.