Credit insurance is a very familiar mechanism at the Rungis wholesale market. Its objective is to cover companies against the risks of non-payment. The principle is very simple: when a company sells its merchandise, especially by export, it can protect itself against the risk of non-payment by taking out insurance with a credit insurer.
In case of payment arrears, the insurer steps in for the company’s customer, and pays all or part of the unpaid sum, depending on the amount insured. This system enables the policyholder to reduce their commercial risk, and avoid endangering their business in case of default by its partners. In return, the policyholder pays the insurer a premium calculated as a percentage of its turnover.
This somewhat special insurance is exempt from the provisions of the French insurance code, which for the most part protect the policyholder. However a seemingly insignificant article is applicable, which stipulates that the insurance policy clauses allowing for annulment or forfeiture of coverage are only valid if they are presented in highly prominent characters (in bold type, in colour, in large print, etc.). The aim is to draw the reader’s attention to these particularly important clauses which can lead to complete loss of coverage.
Insurance companies are of course reticent in highlighting these sorts of provisions which enable them to take away their coverage, under conditions that they set. Credit insurance policies often do not comply with the law, offering contracts which do not in any way draw the policyholder’s attention to clauses which, however, might be disastrous for them. Generally speaking, the policyholder barely reads the general conditions of their contract, or does not even receive it.
Recently, our firm was consulted by a company working at the Rungis wholesale market. It had applied to its insurer for approval for two new foreign customers. These approvals were granted without difficulty. When these foreign customers failed to pay what they owed, the company claimed on its insurance coverage. Imagine its surprise when the insurer declared a forfeiture of coverage and refused to pay out!
It turned out that the policyholder had, in all good faith, committed an error in its declarations, and so had paid only part of its premiums. The insurance company applied a coverage forfeiture clause contained in the general conditions, of which the policyholder was completely unaware. This provision stipulated that in the absence of payment of all or part of the premiums, the insurer could refuse coverage. The policyholder offered to rectify its error and pay its premiums; the insurer did not want to know.
We were able to take the case to court. We argued that the forfeiture clause was presented in the same way as the rest of the contract, i.e. it was not presented in highly prominent characters. Therefore this clause was void, and the insurer should compensate the policyholder. The President of the Commercial Court, who is not a professional judge, refused to apply the article of law cited and rejected our plea.
Convinced of our case, we launched an appeal. In an order of 12 November 2014, the Paris Court of Appeal ruled in our favour, annulled the coverage forfeiture clause and sentenced the insurance company to compensate the policyholder. Thus, not only did the insurer not receive the premiums, but also had to compensate the policyholder for the approvals granted. This was a first in the history of credit insurance!
Sometimes, a minor point of law can lead to major effects. However, be aware that insurers are now trying to adjust their tactics and modify their general conditions. So the lesson is to pay close attention to the documents you sign.
Delphine Abecassis, Paris Bar Association lawyer
Partner of the law firm “1804”
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