The much-expected decision of the Italian Court of Cassation Joint Divisions (n. 22437, dated 5 June 2018) on the validity of the claims made clause was issued on 24 September 2018.
The judgment follows the "submission" of the matter, by the third section (terza sezione) of Court of Cassation, to its Joint Divisions (Sezioni Unite) on 8 January 2018. In particular, the terza sezione of the Court of Cassation asked the Sezioni Unite to decide on whether the following principles were correct:
(i)Parties cannot qualify as "loss" [sinistro in the Italian terminology] facts other than those provided for by art. 1882 of the Italian Civil Code, and, in insurance contracts covering civil liability towards third parties, facts other than those provided for by art. 1917 of the Italian Civil Code;
(ii)in insurance contracts covering civil liability towards third parties, the clause limiting coverage not on the basis of the contractual conditions in force at the time the insured caused the loss, but on the basis of those in force at the time the request for damages is brought against the Insured – i.e. the so called claims made clause – does never deserve protection under the applicable law pursuant to art. 1322 of the Italian Civil Code ("immeritevole di tutela").
In essence, the submission by the terza sezione questioned the validity of the claims made clause both on the ground that the request for damages cannot be qualified as "sinistro" for insurance coverage purposes, and on the ground that the claims made clause is intrinsically flawed and never deserves protection under the applicable law (thus making the clause always and necessarily void for "lack of meritevolezza"), especially in case the policy does not provide a discovery period.
Such submission was issued shortly after the previous Judgement n. 10560/2017 of such terza sezione of the Court of Cassation, which ruled that claims made clauses, in the absence of a discovery period (or postuma), is lacking meritevolezza (and thus void) under the applicable Italian law.
The new, somehow articulated decision of the Sezioni Unite of the Court of Cassation seems eventually clear the existing doubts as to the invalidity of the claims made clause establishing the following principle:
Third party liability insurance
policies on claims made basis – covering the risk of
insureds' losses following a claim – is a valid insurance
and legitimately derogate from the first paragraph of article 1917
of the Italian Civil Code. Indeed, the fact that the policy
operates on the basis of a third party request for damages
communicated to Insurers does not affect the ultimate purpose of
It follows that Courts must not carry out an evaluation of any given insurance contract to ascertain whether it deserves protection under the applicable law pursuant to art. 1322, second paragraph, of the Italian Civil Code. Instead, insureds may invoke protection of their rights in different ways, from the formation phase preceding conclusion of the contract to the execution phase. In particular, the insured may invoke all relevant remedies such as (by way of example): damages for pre-contractual liability also for the case in which the policy is concluded on unfavourable terms; invalidity (or partial invalidity) of the contract for lack of the contract's main purpose ("difetto di causa in concreto"), with amendment of the contract terms in line with the relevant provisions of law or with the principle that insurance contract must be adequate to the practical aim of the parties; modification of the contract in case of unfair clauses, such as the one providing for a right of withdrawal of Insurer following a claim.
In essence, the Sezioni Unite confirmed – hopefully in a conclusive way – that the claims made clause is not structurally (and necessarily) invalid on the grounds mentioned in the sezione terza submission of 8 January 2018. The Court reached this conclusion by arguing, on the one hand, that the claim for damages can be qualified as "sinistro" for policy purposes, and, on the other hand, that Courts cannot evaluate whether the claims made clause deserves protection under the applicable laws (to ascertain whether or not the clause lacks meritevolezza) pursuant to art. 1322 of the Italian Civil Code (notably, the latter principle departs from the previous decision of the same Sezioni Unite of the Court of Cassation on this matter).
It is interesting to note that the Sezioni Unite reached their conclusion through a complex/articulated reasoning where it is, inter alia, clarified that claims made policies fall within the category of "typical contracts" (i.e. contracts recognized by the law or contratti "tipici") and are therefore not "atypical contracts" (which is the pre-requisite to be subject to the meritevolezza test). Moreover, the judgement recognized the role of the so-called deeming clauses (which is an important clause which until now was generally disregarded by case law).
The Sezioni Unite do however take into consideration and confirm the concerns expressed by the previous Court of Cassation rulings in relation to the possible criticalities that claims made clauses may involve, such as those leading in practice to the infamous "coverage gaps" (or buchi di copertura, an expression which, following the Court of Cassation rulings, is becoming part of the legal language surrounding this matter).
In those cases, according to the Sezioni Unite, the Insured protection and the remedies at its disposal are not connected with the Court's scrutiny of the meritevolezza of each claims made clause under art. 1322 of the Italian Civil Code.
Instead, such protection and remedies are to be found in either pre-contractual liability claims for damages towards insurers or intermediaries and/or in the (full or partial) invalidity of the insurance policy for lack of the contract's actual purpose ("difetto di causa in concreto"), through an evaluation of the contract aiming at "verifying whether the insurance contract meets its practical function, as an insurance fit for purpose" to satisfy "the legal need that the insurance contract is adequate for the objective pursued by the parties".
The Judgment does clearly represent an important – hopefully conclusive – step forward to confirm the general validity and admissibility under Italian law of claims made clauses.
However, it is likely that one of the most impacting aspect of this Sezioni Unite judgment will prove that focusing on the above mentioned principle and its practical ramification on wordings, insurance product distribution and commercialization and – last but not least – pending and future coverage disputes.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.