In the absence of a specific discipline, it has been for about 10 years that in Italy we discuss about the validity of claims made clauses.
While the Supreme Court has ruled on several occasions since 2005 in the sense that claims made clauses are valid, various courts have expressed different opinions causing some uncertainty for the market players.
For some time there was talk of the fact that this matter had been submitted to the scrutiny of the Joint Divisions of the Supreme Court to provide clarification on the issue. The Joint Divisions of the Supreme Court have jurisdictions (inter alia) on law issues on which conflicting decisions have been rendered by different divisions of the same Supreme Court and on those that are of particular importance.
On May 6 2016 the Joint Divisions of the Supreme Court published the long-awaited judgment (9140) on the issue of the validity and enforceability of claims-made clauses.
In line with its own previous judgments (see, in particular, the decisions no. 5624 of 15 March 2005, 22 March 2013 no. 7273 and no. 3622 of 17 February 2014), the Supreme Court established the following additional principles of law:
- Claims-made clauses do not contravene Article 2965 of the Civil Code, which provides that covenants that make it excessively difficult for a party to exercise the right under a contract are null and void.
- Violation of the Civil Code as regards good faith in the execution of a contract will not result in the nullity of contractual covenants (including claims-made clauses). Such a violation may give rise only to liability for damages.
- Claims-made insurance policies do not breach Article 1895 of the Civil Code (which provides for the nullity of insurance contracts covering risks that occur before the conclusion of a contract), since in the insurance of civil liability "the risk to the insured's assets... is realised gradually, because it is not confined only to the wrongful action... but the claim of the damaged third party is also needed". For this reason, a claims-made clause is lawful as it "does not prejudice the existence of the risk that [in consideration of a wrongful action] other elements occur which may affect the damaged third-party insured's assets".
- A claims-made clause is not unfair (under Article 1341 of the Civil Code) as it does not limit the liability of the insurer, but rather defines the insuring grant.
However, the drawbacks of the judgment may be identified in passages which:
(i) after acknowledging the duty of any professional to take out insurance covering his or her professional negligence (as a result of legislative measures passed from 2011 to 2014), state that "the judgment of suitability of the policy is unlikely to be positive in the presence of a claims-made clause, which, however articulated, exposes the insured to gaps in the coverage";
(ii) state that, while the "pure" claims made clauses (i.e. those providing for an unlimited retroactive period) are certainly worthy of protection because in such cases the time of the commission of the wrongful action is totally irrelevant, the assessment of suitability the "mixed" claim made clauses (i.e. those providing for limitations of retroactive period) and, in particular, those requiring that during the policy period both the wrongful action and the claim must occur, is much more problematic.
The recent decision issued by the Joint Sections of the Supreme Court appears to be consistent also with the previous decision issued by the Milan Court on 18 March 2010 which for the first time had thoroughly examined the functioning of claims made policies.
Such decision had established the following principles:
- Section 1917 of the Civil Code (which deals with insurance contracts by making reference to the loss occurrence scheme) is not mandatory and the parties may depart from its provisions if they wish.
- In general terms, a claims-made insurance contract may be more favourable to an insured than a loss occurrence contract.
- A claims-made clause extends the application of the policy to wrongful events occurring before its date of inception, while a loss occurrence contract covers only losses that occur during the policy period.
- An insurance contract structured on a claims-made basis is not 'atypical' within the meaning of Italian law. As with an insurance contract based on the loss occurrence principle, a claims-made contract is based on the risk of wrongful actions committed by the insured. However, in the case of a claims-made policy such an action becomes relevant for the purpose of the policy only once the claim is made against the insured.
Under the Italian legal system, court precedents are not binding and therefore we cannot exclude that particularly merit courts may issue decisions in the future which depart in whole or in part from the principles set by the Supreme Court.