Insurance Litigation 2022 Comparisons

The statutory and procedural regime that governs the resolution of insurance disputes in France is contained within the French Insurance Code (FIC), the French Civil Code (FCC), the French Commercial Code (FCOMC) and the French Code of Civil Procedure (FCCP). In European and international disputes, special attention is paid to the applicable regulations and conventions, in particular, the specific insurance provision contained in Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (the “Rome I” Regulation) and in Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the “Brussels I bis” Regulation).

Insurance disputes in France are governed by a specific procedural regime on jurisdiction and time limitation (as described in 1.2 Litigation Process and Rules on Limitation). However, this regime does not apply to reinsurance disputes.

Litigation Process

The litigation process in France starts with an out-of-court amicable phase where the parties attempt to reach an amicable solution. Upon failure to do so, the claimant may serve a summons on the defendant and file it with the appropriate court of first instance. In insurance disputes, the decision handed down by the court of first instance may be challenged before the appropriate court of appeal. The decision handed down by the court of appeal may be challenged on limited grounds that relate to points of law (and not on an issue of fact) before the French Cour de cassation, ie, the French Supreme Court for judicial matters (as opposed to administrative matters).

Many insurance disputes in France include a phase where the claimant applies for a court-ordered investigation, under the supervision of a court-appointed expert. Under French law, a court-ordered investigation is the only way to conduct a fact-finding process (inter alia, on technical matters, to assist the court in the determination of liabilities and/or extent of damages) that would be enforceable against all parties. Indeed, in the absence of a court-ordered investigation, the parties to a dispute are only able to present the facts of their case in application of the law on evidence as provided by the FCC and the FCCP.

The relevant law on evidence in insurance coverage disputes is the general law on evidence applicable to contract enforcement. Based on its application to insurance coverage disputes, it requires that, on the one hand, the insured must prove that the conditions of coverage of the invoked insurance policy are met while, on the other hand, the insurer must prove the exclusions of coverage it may raise, as well as of the facts that may indicate a lapse of coverage or voidability of the insurance policy at stake.

In general, first instance proceedings take about 18 months and appeal proceedings take another 18 months. Proceedings before the Cour de cassation would also add another 18 months. These periods can vary depending, inter alia, on the complexity of the case, the number of parties or whether investigative measures are ordered by the court. Urgent proceedings, such as summary proceedings for interim relief and fixed-date proceedings, also exist. These proceedings can take several weeks to several months depending on the complexity of the case.

General Rules on Limitation in Insurance Disputes

The rules on limitation in insurance disputes are provided by Articles L.114-1 to L.114-3 of the FIC and are mandatory for all “actions that stem from the insurance contract” (Article L.114-1 of the FIC).

The claimant disposes of two years to exercise its right of action from the event that gave rise to said right of action. However, the starting point of the time of limitation is postponed:

• in the event of concealment, omission, false or inaccurate statement of the risk incurred, to the day the insurer became aware of it;
• in the event of a loss, to the day the interested parties became aware of it, if they prove they ignored it until then; or
• when the action of the insured finds its source in the action of a third party, to the day this third party exercised judicial action against the insured or was indemnified by the insured.

Article L.114-1 of the FIC also contains specific provisions regarding time limitation for life insurance:

• time limitation is extended to ten years when the insured is not the underwriter of the life insurance policy; and
• time limitation for the beneficiary of the life insurance policy is capped at 30 years from the date of death of the insured.

In addition, Article L.114-1 of the FIC provides that time limitation is also extended to ten years in the case of insurance contracts covering risks of bodily injuries when the beneficiaries are the successors of the deceased insured.

Article L.114-2 of the FIC adds to the general causes of interruption of time limitation by providing that the appointment of an expert following a loss and the sending of a registered letter with acknowledgement of receipt may also interrupt time limitation.

Finally, Article L.114-3 of the FIC provides that parties to an insurance contract cannot agree to amend the length of time limitation or add to the causes of suspension or interruption of time limitation.

It is noteworthy that it is particularly difficult in practice for insurers to raise time limitation issues against insureds as Article R.112-1 of the FIC provides that insurance contracts must recall the provisions of the FIC relating to time limitation and French courts apply this provision very strictly. In the event that insurance contracts are poorly drafted in this regard, French courts have determined that the insurer cannot impose a time limit on the insured.

A specific and lighter regime applies to marine insurance. Article L.172-31 of the FIC provides for a two-year time limitation and Article R.172-6 provides for the relevant starting points. The insurer is not compelled to recall the provisions of the FIC in the marine insurance contract to enforce the time limitation regime. Also, parties can agree on causes of interruption or suspension of time limitation.

As for reinsurance disputes, rules on limitation are enshrined in the common regime applicable to contracts governed by the FCC.

In the last decade, the French legislature has enacted several laws encouraging ADR.

France remains a very favourable jurisdiction for arbitration proceedings, both domestic and international. In this regard, insurance and reinsurance disputes fall within the scope of this practice. Arbitration is the prevalent, if not exclusive, ADR mode in reinsurance disputes and is increasing in popularity in insurance disputes. Accordingly, in 2016, arbitration clauses were introduced for non-professional entities (including consumers). In the past, arbitration clauses could only be entered into by professional entities. Now, they are valid in every contract with the condition that they cannot be enforced against a party that has not contracted within its professional activity (whereas an insured who does not act in a professional capacity can enforce the arbitration clause against the insurer).

Consequently, ADR is promoted in France, and the parties are constantly required to attempt to reach an amicable solution before initiating judicial proceedings.

The Decree No 2019-1333 of 11 December 2019, taken in application of the Law No 2019-222 of 23 March 2019, has recently strengthened the parties’ obligation to strive for an amicable settlement.

It is the obligation of the parties to a dispute to take steps in order to reach an amicable resolution of the dispute for claims which do not exceed EUR5,000, under the penalty of inadmissibility of the claims, which is outlined in Article 750-1 of the FCCP. It is required by Article 54 5° of the FCCP that the claimant mentions such steps in the writ of summons, or the writ may otherwise be declared null and void by the court.

The courts encourage the parties to reach an amicable settlement in addition to the above-mentioned obligations. In any event, the parties remain free to resolve their dispute in any way they choose, such as via amicable discussions or mediation. A mediation can be conducted in insurance disputes under the aegis of the French Insurance Ombudsman, a body associated with the Ministry of the Economy and Finance, whose activity have grown significantly in recent years.

Rules over Choice of Jurisdiction

In France, there are specific procedural rules that govern the determination of territorial jurisdiction in most insurance disputes. In all proceedings related to the determination and payment of insurance indemnities, Article R.114-1 of the FIC provides that the defendant shall be summoned to appear before the court of the insured's domicile. In addition, this article provides that:

• in the case of real estate or movable property by nature, the defendant shall be summoned to appear before the court where the insured property is located; and
• in the case of insurance against accidents, the insured may bring a claim against the insurer before the court of the place where the harmful event occurred.

As far as subject-matter jurisdiction is concerned, insurers are accustomed to appearing before both civil and commercial courts. Commercial courts have exclusive jurisdiction if all the parties to the dispute are commercial entities. If, however, a claimant is a non-commercial entity, but the defendant is a commercial entity, the former can choose before which court, commercial or civil, it will bring its action.

The above French internal rules mandatorily apply and parties cannot agree otherwise.

In European disputes, the Brussels I bis Regulation provides in Articles 10–16 the applicable jurisdiction in matters relating to insurance. While Articles 10–14 provide applicable rules of jurisdiction, Article 15 and Article 16 provide the limited situations under which parties may enter into a jurisdiction clause that would provide otherwise. French courts tend to apply a narrow interpretation of the validity and enforceability of jurisdiction clauses, for instance, in situations where the insurer wishes to enforce a jurisdiction clause against an insured who is not the policyholder.

Rules over Choice of Law

The FIC provides in Articles L.181-1 to L.183-2 the applicable law regime in insurance contracts when the risk is located in one or several countries that are parties to the Agreement to the European Economic Area (EEA). This regime provides limited situations in which the parties can enter into a choice-of-law clause, either where the risk is not located in France or where the policyholder has its registered office outside of France, and limited options of applicable laws they can elect.

Choice-of-law provisions are not valid for risks covered as a result of an obligation to take out insurance, which are governed by French law.

Under French law, choice-of-law provisions in insurance contracts must be express or stem with certainty from the other clauses of the contract or the facts of the case. If not, the governing law will be that of the EEA state that has the closest ties with the insurance contract, which is presumed to be the law of the state where the risk is located.

Enforcement of foreign judgments in insurance matters/against insurers is no different from the general enforcement of civil or commercial court orders.

Civil and commercial foreign court decisions can be enforced in France according to different international conventions, or European or domestic law, depending upon the origin of the court decision, for instance:

• When the decision has been handed down by an EU member state (with the exception of Denmark), the Brussels I bis Regulation has eliminated the necessity for an exequatur procedure. Hence, a court decision handed down in one member state is automatically enforceable in another member state.
• When the court decision has been handed down by a state that is not an EU member state, it is necessary to verify the existence of a bilateral or multilateral convention between France and this state. These conventions often provide for a simplified exequatur regime. For example, to enforce a court decision in France that is handed down by a Swiss court, one should refer to the Lugano Convention.
• When the foreign decision has been handed down by a state outside the scope of international instruments (this is currently the case of the United Kingdom, since Brexit), the conditions for recognition are set out in French internal law, which gives three cumulative conditions for the recognition and enforcement of a foreign judgment in France, namely the indirect jurisdiction of the foreign court, the absence of fraud, and the judgment’s compliance with French international public order.

Court-Ordered Investigations

In France, the party that wishes to evidence a factual issue (eg, the cause of a loss) should file for a court-ordered investigation. The court-appointed expert will conduct investigations in accordance with the terms of reference set out by the court, in the presence of all parties to the dispute. Hence, court-ordered investigations must adhere to due process. In this phase, parties are usually represented by their legal counsel and technical counsel, who are best positioned to interact with the court-appointed expert.

Experts appointed by the court are not allowed to reach legal conclusions, such as on issues of liability. However, even if their factual findings are not binding on the court that will rule on the merits of the case, practice indicates that the court is often heavily influenced by said findings.

As a consequence, insurers must be particularly cautious during this phase of the proceedings and should not wait until the merits stage to seek technical assistance.

Evidence before French Courts

Unlike in common law jurisdictions, proceedings before French courts do not include a discovery phase.

Pursuant to Articles 132–137 of the FCCP, each party must produce the documents relied upon in its submissions and communicate copies thereof to the other parties. Parties may file document production requests before the court but must demonstrate the likely existence of requested documents and their utility in the solution of the dispute.

Enforceability of Time Limitation Provisions against Insureds

As indicated in 1.2 Litigation Process and Rules on Limitation, international insurers should also be aware of the strictness of the French courts regarding enforcement of time limitation provisions against insureds.

Quite often, international insurers tend to overlook this legal requirement when drafting insurance contracts. This entails, in practice, that limitation clauses rarely comply with the FIC and insurers struggle to enforce time limitations against their insureds.

Strict Appreciation of the Validity of Exclusion Clauses

French insurance law follows a very strict regime regarding the validity of exclusion clauses. As per Article L.113-1 of the FIC, exclusion clauses must be formal and limited, and Article L.112-4 of the FIC specifies formatting requirements so that exclusion clauses must appear clearly in the policy (these requirements are typically met by drafting them in capital letters and in bold).

According to the formal and limited requirements, exclusion clauses in insurance policies must not be vague, must not require interpretation, and must not void the insurance policy's coverage. The latter means that the scope of the exclusion clause(s) may not be so extensive that no losses will remain covered under the litigious guarantee. A special attention is paid to the specifics of the case, particularly the insured's activity.

The strict regime may lead to legal uncertainty, since insurers may be required to cover events or types of damages that were not anticipated during the underwriting phase of the insurance policy. As a result, they should take special care when drafting insurance policies.

This strict regime is limited to insurance contracts and does not apply to reinsurance contracts, which are governed solely by the FCC and not the provisions of the FIC.

French courts enforce arbitration provisions in commercial insurance and reinsurance contracts.

In this respect, Article 1448 of the FCCP provides that when a dispute under an arbitration agreement is brought before a state court, the court shall rule that it has no jurisdiction unless the matter has not yet been brought before the arbitral tribunal, and the arbitration agreement is patently void or unenforceable, which is a very high standard.

France ratified the New York Convention facilitating the recognition and enforcement of foreign arbitral awards (the "New York Convention"). It was adopted on 10 June 1958 and came into force on 26 June 1959.

The New York Convention provides for non-discriminatory treatment between the enforcement of awards handed down in foreign jurisdictions and domestic awards. It further provides that the rules of procedure to be applied are those of the territory where the award is relied upon, in this case, France.

In France, the recognition and enforcement of a foreign arbitral award must be decided by a judicial authority. Furthermore, exceptions to the enforcement of a foreign award are provided in Article V of the New York Convention, which mentions cases where the judicial authority may refuse its enforcement. Article VII offers the judicial authority of a contracting state the possibility to refuse to enforce an award if the arbitration convention is null and void under the law of the country the parties chose, or under the law of the seat of arbitration.

Arbitral awards handed down by foreign jurisdictions must comply with provisions of the FCCP to be enforced. Pursuant to Articles 1514–1517 of the FCCP, enforcement of foreign arbitral awards can only be sought before the Paris Judicial Tribunal which may hand down an exequatur order.

In accordance with Article 1488 of the CPC, the Paris Judicial Tribunal may refuse to grant an exequatur order only if the award is patently contrary to international public policy. The extent of its control is therefore very limited.

However, a party may challenge the exequatur order granted to a foreign arbitral award before the Paris Court of Appeal on the limited number of grounds indicated in Article 1520 of the FCCP. The grounds are the same as those available to challenge and set aside an arbitral award, as follows:

•       the arbitral tribunal wrongfully ruled that it had or did not have jurisdiction;

•       the arbitral tribunal was wrongfully constituted;

•       the arbitral tribunal did not comply with its terms of reference;

•       there was a breach of due process; or

•       the recognition or enforcement of the award is against international public policy.

These grounds are limited and do not allow the court of appeal to rule again on the merits of the case. In this respect, France can be categorised as a jurisdiction which is very respectful of international and domestic arbitral awards.

Over the years, arbitration as a dispute resolution mechanism has attracted growing interest from the insurance industry and has been the most common means of managing disputes in reinsurance matters. As a result, specialised arbitral institutions, such as the CEFAREA-ARIAS, are dedicated to insurance and reinsurance arbitration.

Other specialised institutions may handle insurance matters, such as the Chambre Arbitrale Maritime de Paris, which specialises in maritime matters, including marine insurance.

Usually, arbitral awards cannot be appealed. There is no exception to this rule in international arbitration. As for domestic arbitration, appeals are also excluded unless the parties agree otherwise, which they almost never do.

However, as indicated in 3.2 The New York Convention, parties may file a request to set aside the arbitral award, or to challenge the exequatur order of an arbitral award on a few limited grounds.

The French legal system does not have a doctrine of implied terms as some common-law jurisdictions do. The regime of terms and obligations in insurance contracts can be found in Book 1 of the FIC related to the insurance contract.

Specifically, Chapter III of Title I of Book 1 (applicable to property insurance) describes the obligations of both the insurer and the insured. Some of its provisions define the obligations of the insured and the insurer that must be expressly stipulated in the contract. The contract may also contain other provisions that, in the absence of an express term, would still constitute a part of the contract. The FIC provides, for instance, in Article L.113-1 (in Chapter III of Title I of Book 1 of the FIC) that the insurer will not cover losses caused by the wilful or fraudulent misconduct of the insured.

There are similar provisions in the FIC for other types of insurance, such as marine insurance.

However, in practice, insurance policies usually reproduce all applicable provisions of the contract, leaving no room for discussion of implied provisions.

A stated in Article L.113-2 2° of the FIC, the insured has an obligation to notify the insurer of the risks prior to the initiation of the policy. However, the regime of this declaration contains strict obligations for the insurer as it bears responsibility for the questions it asks the insured, while the insured may only be liable for the answers it provides to those questions. The Cour de cassation has added to this regime that an insurer may invoke a spontaneous declaration made by the insured.

However, an insurer may never invoke against an insured the absence of a declaration outside the scope of the questionnaire submitted to the insured.

If made in bad faith, misrepresentations made by the insured can entail the voidability of the insurance policy. When the insurer cannot evidence bad faith on the insured’s part, it may invoke misrepresentation either to raise the insurance premium (if accepted by the insured), to terminate the contract, or to reduce the insurance indemnity after a loss.

Due to the COVID-19 pandemic, the majority of coverage disputes in the last 12 months have involved the coverage of non-physical damage business interruption losses suffered by insureds following the administrative measures enacted by the French government. The challenges at stake are discussed in 7. Impact of COVID-19.

The Cour de cassation has handed down a number of decisions regarding the validity of exclusion clauses. As mentioned in 2.3 Unique Features of Litigation Procedure, the decisions handed down confirm a well-established jurisprudence on these issues and remind us that exclusion clauses in insurance policies must not be vague, must not require any interpretation and must not empty the written coverage.

Earlier this year, the Paris Court of appeal issued a first of its kind decision on the regime of sanction clauses (21 June 2022, No 20/10832). In a matter relating to the enforcement of a D&O policy, the insurer invoked a sanction clause to deny coverage. For the first time, the Court qualified this clause as an exclusion clause and ruled that it was not formal and limited, hence, not meeting the conditions of Article L.113-1 of the FIC. As the wording of the clause at hand was a quite standard sanction clause, this decision may have important repercussions for the French market if it is made final.

On an issue related to the aggregation of losses, the Cour de cassation handed down a landmark decision on 24 September 2020 (Nos 18-12.593 and 18-13.726). In this decision, the court determined that several losses resulting from the liability of a professional who breached their duty of information and advice could not be aggregated, since the duty of information and advice, as such, has an individual component that prevents the characterisation of a single technical cause or harmful event in accordance with Article L.124-1-1 of the FIC.

Insurance coverage disputes most often start with significant amicable discussions between the insured and the insurer. In this respect, a broker often intervenes, on behalf of the insured, to conduct said discussions. If no amicable solution to the dispute is found, insurance disputes are resolved before state courts or arbitral tribunals.

In insurance coverage disputes, insurers are particularly aware in France of the severity of the state courts when it comes to the validation of exclusion clauses and the enforcement of time limitations.

When it comes to reinsurance disputes, the location and length of amicable discussions are even more important, and practice shows that parties turn to arbitration as a last resort.

Insurance coverage disputes are not affected by the fact that the insured is a consumer. However, even if being a consumer does not bring additional protection in insurance law, it is worth mentioning that the category "insureds/policyholders/beneficiaries of insurance" is subject to some special insurance law protection that may be compared with the protections provided to consumers under other contractual arrangements.

A distinction may be made between insureds based on their qualification for large risks. A distinction of this type could result in differing enforcement regimes for certain clauses in an insurance contract, such as the choice of law and jurisdiction provisions.

Action of a Third Party in Enforcement of an Insurance Contract

The principle of privity of contracts applies to insurance contracts and, as a general rule, only the parties to said contract may enforce it.

However, there are notable exceptions to this principle:

• insurance contracts where the insured or beneficiary of the insurance policy is not the policyholder; and
• liability policies, where the third-party victim can take direct action to enforce the insurance policy and claim insurance indemnity against the insurer in application of L.124-3 of the FIC (for property insurance) and L.173-23 of the FIC (for marine insurance).

Action of a Third Party in Connection with an Insurance Contract

A third party to an insurance contract may sue an insurer in connection with an insurance contract in torts. To do so, the third party would have to prove that a breach by the insurer of the insurance contract has caused it some damage. This kind of situation may arise, for instance, when an insurer is late in its payment of the insurance indemnity to its insured, which may cause damage to third parties.

Insurance contracts, in application of the general law of contracts, must be performed in good faith. Under certain conditions, bad faith on the insured’s part in performing the insurance contract, for instance, in its obligations to notify losses, may entail a lapse of the insured’s right to an insurance indemnity, but only if the insurance contract stipulates this.

Under French law, good faith is always presumed, and the burden of proof lies with the party that invokes bad faith against the other party.

Good faith and bad faith also have an impact on the consequences of misrepresentation by the insured. In this respect, Articles L.113-8 and L.113-9 of the FIC state different penalties for misrepresentations by the insured based on whether or not bad faith is established.

Article R.112-1 of the FIC states that insurance contracts must indicate the timeframe within which insurance indemnities must be paid. Insurers that pay claims late may be ordered to pay late penalties equal to interest at the legal rate on the insurance indemnity.

In addition, an insured who has suffered a discernible loss due to late payment may claim damages against the insurer in torts.

It is worth mentioning that insurers have a regulatory obligation to handle claims properly. Pursuant to Article L.113-5 of the FIC and L.612-39 of the French Financial and Monetary Code, insurers who pay claims late may face an administrative fine of up to EUR100 million or 10% of the insurer's turnover.

The intervention of an insurance broker, or another insurance intermediary, in the drafting of the declaration of risk, is common practice.

The issue of whether the insured is bound by representations made by its broker is highly dependent on the facts of the case. In the event where a mistake is included in a declaration, the insured should not be able to rely on the broker’s intervention to avoid the sanctions provided by Articles L.113-8 and L.113-9 of the FIC for misrepresentations (in certain specific situations, the French courts have found that irregularity in the declaration of risk that is exclusively due to an intermediary, ie, it does not come from information communicated by the insured to its broker, for example, when the broker has mismanaged its files, may not be invoked against the insured).

In any event, the insured should be able to seek the broker’s liability, either on the sole basis of its mistake or on the basis of the broker’s duty of advice to the insured.

When an insurer invokes a misrepresentation or an absence of declaration of the risk to its insured, the latter is often tempted to argue that said misrepresentation or absence of declaration stems from the intervention of the insurance intermediary. In this respect, it must establish that the intermediary encouraged it into the misrepresentation.

Delegated underwriting or claims handling for insurance intermediaries is common practice in the French insurance market. It allows insurers to focus on tasks with more added value, such as the management of risks and the development of new insurance products.

This practice does not lead to specific litigated issues. Insureds sometimes file their insurance claim against delegated claims handlers. However, courts routinely dismiss these claims on the basis that these entities are not the insurers.

Indeed, delegated underwriters or claim handlers may still be liable for their wrongdoings in the course of their mission, in the event that said wrongdoings cause damage to the insured.

For instance:

• insurance intermediaries have a duty to inform and advise their insured clients and a breach of said duty may lead to the insured not being covered for a loss that occurred in an essential part of its activity, which could entail the insurance intermediary’s liability; and
• the claims handling entity could also face the risk of being held liable in case of late management of a claim causing damages to the insured.

Insurance companies fund the defence of their policyholders through legal protection insurance or specifically included clauses in liability insurance policies. These contracts provide for insurers to bear the fees of experts and bailiffs, the attorneys' fees in civil, commercial, administrative and criminal proceedings, and other procedural costs.

The main areas of claims relate to the liability risks covered by multi-risk home insurance policies, directors' and officers' (D&O) liability, product liability, health liability, bodily injuries, and automobile liability.

Insurance professionals foresee that the legal protection insurance market is likely to grow with the general increase in judicial procedures, which makes legal protection insurance more attractive. However, it is anticipated that the main areas of claims will not change significantly, except for the development of cyber-liability risks for businesses.

There has been no specific trend in terms of the cost or complexity of litigation in the main areas of claims where insurers fund the defence of insureds. No significant changes are foreseeable in the future.

Legal protection insurance is not limited to funding the defence of the insured but may also include the funding of the representation of the insured as claimant in civil, commercial, criminal or administrative proceedings.

The costs covered by legal protection insurance in this case are not different from those borne by the insurer when it funds the defence of the insured. These costs generally include experts and bailiff fees, attorneys' fees in civil, commercial, administrative, and criminal proceedings, and other procedural costs. However, only the legal protection insurance policy at stake specifically determines the costs covered by the insurer.

Once an insurer has indemnified its insured and has been subrogated into its rights, the FIC and the FCC provide insurers with a right of action to recover sums from third parties causing loss to the insured.

This right of action is limited to the amounts paid by the insurer to its insured. It is common practice, however, for the insured to grant the insurer power of attorney to recover the amounts not covered by the insurer (eg, the deductibles paid by the insured).

As a result of subrogation, the insurer benefits, in application of the principle of full transmission of the rights of the insured to the insurer, from the rights that the insured could have asserted against the third party.

The FIC provides the specific regime of legal subrogation in insurance contracts in its Article L.121-12 (for property insurance) and Article L.172-29 (for marine insurance). In addition to these specific regimes, the insurer may also invoke the general regime of legal subrogation as provided by Article 1346 of the FCC or the regime of contractual subrogation as provided by Article 1346-1 of the FCC.

It is also worth noting that the regime of certain types of insurance coverage contains provisions related to subrogation:

• insurance of persons for the reimbursement of indemnity benefits (Article L.131-2 of the FIC);
• political risk insurance and trade credit insurance (Article 22 of Law No 72-650 of 11 July 1972); and
• automobile insurance (Articles 28–34 of Law No 85-677 of 5 July 1985).

Subrogation claims are made on behalf of the insurer since, once the insured receives payment of its claim from the insurer, it loses its standing to sue third parties, and its claim against them would be found inadmissible.

In accordance with Article L.121-12 of the FIC, several conditions must be met for an insurer to exercise its right of action.

• The insurer must establish that it has paid the insurance indemnity to its insured in application of its insurance policy. As an example, an insurer that pays an insurance indemnity to its insured but is not liable in application of the insurance policy due to an exclusion clause, will not benefit from the effects of subrogation. In practice, however, insurers will be required to produce the insurance policy at stake in order to justify their subrogated rights.
• The action of the insured against the liable third party needs to exist, since the purpose of the action is for the insurer to act against a liable third party.

If the above conditions are cumulatively met, the insurer will be able to exercise all the rights of the insured against the third party.

In addition to legal subrogation, the insured may assign its rights of action against liable third parties to its insurer through contractual subrogation, as provided by Article 1346-1 of the FCC. For an insurer to invoke the benefits of contractual subrogation, it must demonstrate that it paid its insured at the same time the insured assigned its action rights to it.

COVID-19 has significantly affected the types or amounts of insurance litigation by exposing coverage disputes related to non-physical damage business interruption losses, in particular, those suffered by the hospitality industry.

A variety of wordings were submitted to courts of first instance in France, which handed down hundreds of decisions, with major inconsistencies, even regarding identical wordings.

The main issues at stake in the coverage disputes involving COVID-19-related losses relate to the definition of coverage conditions and the validity of exclusion clauses. The issue of insurability of losses stemming from a pandemic has also been raised. Moreover, it is noteworthy that insureds have attempted to invoke a covenant to their insurance policy imposed by their insurers and adding a so-called “COVID-19” clause exempting pandemic risks in an effort to establish the scope of their prior disputed coverage.

Furthermore, the pandemic has accelerated the use of ADR in insurance coverage disputes. Based on a report issued by the French insurance ombudsman dated 8 July 2021, on professional insurance and the health crisis, 32% more requests for ADR were submitted under its aegis in the previous year.

The conflict in Ukraine and the sanctions imposed on Russia have not yet yielded any court decisions. Nevertheless, they have raised a number of diverse coverage issues among (re)insurers and insureds regarding, inter alia, the exclusion of war clauses and other definitions, particularly in the property, marine and political risks lines of business.

The regime of sanction clauses may also lead to coverage disputes, especially following the 21 June 2022 decision rendered by the Paris Court of appeal (as outlined in 4.3 Significant Trends in Policy Coverage Disputes).

It is expected that the number of coverage disputes in COVID-19-related matters will decrease with the increase in the number of decisions handed down by the courts of appeal and, furthermore, with the Cour de cassation making its first rulings in these matters.

The French insurance regulator, Autorité de Contrôle Prudentiel et de Résolution (ACPR), published its annual report on 28 May 2021 providing guidelines for the insurance industry. In this report, the ACPR recommends insurers clarify their contractual clauses to make sure policyholders understand what is covered.

Additionally, the French insurance ombudsman’s report dated 8 July 2021 contains recommendations that could influence the way insurance disputes are resolved in the future:

• the ombudsman advocated for the amicable settlement of disputes and stated that policyholders ought to be informed of the possibility of having recourse to insurance mediation under the aegis of the French insurance ombudsman; and
• the ombudsman recommended that contractual mediation be sought where an insurer refuses to participate in insurance mediation under its aegis. To this end, the ombudsman recommended the CEFAREA-ARIAS institution.

The COVID-19 pandemic raised a number of coverage issues including:

• the definition of “administrative closures” and “prohibition/denial of access” clauses with regards to the diversity of administrative measures enacted by the French government since March 2020;
• the definition of an “epidemic” and whether an epidemic may have a spread limited to a single establishment; and
• the validity of several exclusion clauses (for collective closures; for administrative closures impacting more than one establishment in the same department for the same cause).

The pandemic did not result in test cases in France since the FCCP does not provide this mechanism. However, it is anticipated that the Cour de cassation will issue a decision in the next few months that will likely set the tone regarding the above-mentioned insurance coverage issues.

The COVID-19 pandemic has affected the appetite of insurers to cover non-physical damage business interruption losses and it has led insurers to conduct an audit of their wording and explicitly exclude from their coverage the potential consequences of a pandemic/communicable disease.

It is noteworthy that the pandemic contributed to an increase in the savings of French households (EUR33 billion in the second half of 2019, compared to EUR110 billion saved in the first half of 2020). It has stimulated activity in some sectors of the insurance industry, such as life insurance. With contributions from insureds amounting to EUR13.7 billion, life insurance reached historic levels in June 2021.

Cyber-risks have been exacerbated by remote work and current geopolitical tensions. Among all risks, it continues to draw the most attention from insurers.

Underwriting policies have become more stringent, particularly in terms of higher premiums and deductibles. As a result, some brokers have developed and commercialised solutions to assist insureds in preparing for, responding to, and recovering from cyber-incidents. In some industries, such as the marine sector, cyber-attacks are particularly prevalent, and specific solutions are designed to build the cyber-resilience of its actors.

These solutions provide assistance to insureds in finding adequate cyber coverage, as insurers require a high level of handling and management capabilities of cyber-risks from their insureds before they will write coverage for cyber-risks.

It should be noted that several insurtech companies have recently launched their operations in France on the cyber risks market (the last one in June 2022), targeting in particular SMEs.

In light of the hardening of the underwriting conditions and the rise in premiums and deductibles, the industry is particularly concerned about cyberprotection and coverage for mid-cap companies that are still not concerned enough with cyber-risks to accept the rise of premiums and are left uninsured.

Climate change should have a significant effect on the underwriting of property insurance risks, mainly through an increase in insurance premiums and a decrease in the appetite of insurance companies to cover property located in certain areas against fire or drought.

Since 1970, economic losses related to natural perils have been increasing globally. One of the reasons identified for this increase is climate change, which has led to greater frequency of extreme events with associated severe damage.

On 4 May 2021, the ACPR published a report with the results of its study on assessment of the financial risks due to climate change in the insurance and banking industries.

The ACPR foresees that the cost of natural peril claims could increase fivefold over the next 30 years. Insurers who participated in this study indicated that they would elect to raise their premiums as a consequence in order to maintain a constant ratio of losses to premiums.

An example of the impact of climate change on underwriting is the announcement in June 2022 by a global reinsurer that it will close of its property reinsurance business, in a decision driven by the significant and increasing effects of climate change and the challenges faced by the catastrophe reinsurance market.

In addition, in reaction to the global raise in inflation rates, the French Ministry of Economy and Finances has stated in the press that it would ask insurers to lower premiums for motor and housing insurance. However, the French insurance federation has already reacted to underline the high loss ratio in 2022 generated by climate change (drought, storms, floods and forest fires).

Two projects relating to legislative or regulatory developments should be highlighted as they may have a significant impact on insurance coverage and insurance litigation.

The revision of the Solvency II Directive: the president of the FFA, Ms Florence Lustman, was interviewed by the Finance Committee of the French National Assembly on 9 June 2021 regarding the issues involved in the future revision of the Solvency II Directive. In her conversation with members of the French National Assembly, the FFA president indicated that the revision to the Solvency II Directive should meet the following three essential objectives in this time of recovery:

• to consolidate the economic and societal role of insurance by investing in French companies over the long term. By doing so, insurers contribute significantly to the transition towards a sustainable economy;
• to enable insurers to further support investments and offer long-term products (life insurance, retirement, long-term care) so that they can offer a wide choice of insurance products and meet major societal challenges, such as demographic transition and climate change; and
• to strengthen the attractiveness and leadership of French and European insurance in the world.

The revision process is still ongoing. On 22 September 2021, the European Commission presented its proposal to amend Solvency II to the Council of the EU. On 17 June 2022, the Council of the EU agreed on its position (general approach) on the amendments to Solvency II.

It is projected that by the end of 2022, the Council of the EU, the European Parliament and the European Commission should begin negotiations in order for the revised directive to be published in 2024-2025 and to enter into force in 2025-2026.

In the coming months, there may be developments in the regulation of ransom payments, which form a significant part of cyber-insurance. Even though some members of the French National Assembly and some judicial authorities have called for this ban, insurers, represented by the FFA, have opposed it. In March 2022, the French government published a draft legislation regarding the regulation of insurance coverage for ransom payments. Such coverage would be allowed under the draft as long as the insured filed a criminal complaint within 48 hours of the ransom being paid. The legislative process is still ongoing.