2022 renewals: risky practices

Publié le 07/01/2023 par Jérôme Goy

The tightening that has been experienced by the insurance market since 2017 is bringing some contractual practices back to the forefront to seal interim agreements. Each of them has its benefits…and its dangers !

Insurance practitioners over the age of 45 will remember : on September 11th 2001, the Twin Towers were insured by…a cover note. Gone are the days of insurance contracts negotiated for two or three years and tenders promising more coverage and less premiums. By causing the insurance market to turn around in 2017 in Asia and 2019 in Europe, insurers have created a reduction in insurance offerings, lowering coverage amounts and multiplying exclusions. It resulted in an extreme stiffening of renewal negotiations… and their conclusion at the last minute or even a little after the final date, often January 1st in France. And when the reduction, or even the removal, of the notice of termination has not been enough, it is necessary to play the prolongation game and find short-term solutions. Lawyers know that haste is their enemy: it is the breeding ground for future litigation.

Inventory of provisional renewal practices.

Contract with a short-term rate

Definition. Contract renewed for a short period of time (a few weeks or months, giving the parties time to finalize negotiations not completed at the expiration date) and carrying a specific premium for this duration, generally very high (and thus dissuasive in case of non-agreement on a final contract). It is replaced by the final contract if concluded.

Background. Common practice in the Anglo-Saxon market, quite rare in France.

Risk. Low if the variable only concerns the amount of the premium. But if it is a new contract: all the co-insurers must give their agreement.

The cover note

Definition. A provisional document issued by the insurer or its agent in lieu of an insurance contract before the regularization of the final contract, which will replace it immediately. It is an autonomous pre-contract if it has been issued for a limited period, the time to study the risk (CA Toulouse, 27/11/19).

Context. The cover note is most often supposed to intervene once the final agreement has been reached between the parties, the final contract only confirming it in detail.

Legal regime. Quoted by article L112-3 of the insurance code, it is not subject to any condition of form. A certificate can be a cover note (Cass 1° civ, 30/03/94) as well as an exchange of faxes between two agents (ref TBC).

Risk. This is the responsibility of the insurer or its agent. If the terms of the contract are not precise, it will be interpreted in favor of the policy holder/insured. Litigious example : more restrictive condition of guarantee in the contract than in the cover note, the loss having occurred at an uncertain date.

The “tenu-couvert”

Fabrice Domange, Chairman of the Board of Marsh France, announced it as a mark of seriousness for the renewals on April 1st 2020, during the Covid crisis: “No tenu-couvert at Marsh France for this deadline” (L’argus de l’assurance, M-C Carrère, March 23, 2020)

Definition. Contract identical to the contract with a short term rate, but without a short term rate, the “tenu couvert” maintains temporarily the conditions of the terminated or non-renewed policy.

Risk. Non agreement of the co-insurers to the said provisional renewal. Because the “tenu couvert” actually constitutes a new policy, requiring the agreement of all the parties.

Differentiated co-insurance

The English never quite abandoned this practice; it seems to be coming back in France.

Definition. An insurance contract in which one or more co-insurers benefit from different contractual conditions (price, cover texts, etc.).

Context. This is obviously a stopgap measure, the intermediary not having been able to obtain from the co-insurers their complete alignment with the conditions negotiated between the leading insurer and the policyholder.

Risks. Examples.

Ordinary case: the leading insurer has agreed to a multi-year contract (LTA), while the co-insurers are only committed for one year.

Reverse case. Under an LTA, the co-insurers are only committed for one year. At the time of the annual renewal, the leading insurer obtains from the policyholder the addition of a significant exclusion clause. The co-insurers accept it except for one, who refuses it. The potential consequence is that, in the event of a claim covered under the first year’s policy wording but excluded under the new exclusion, and pursuant to the agent clause contained in the policy, the leading insurer will be required to manage, including in court, the application of a coverage that they have excluded for themselves.

The co-insurance gap

Here begin the practices that put aside the hazard to focus on the risk, that has become reality.

Definition. A portion of the risk (co-insurance portion) is not placed at the time

the policy begins. Claims are therefore only partially covered.

Risk. For the intermediary, if he has not very clearly notified his client, and also the leading insurer, of the said “hole”. In this case, we can only recommend that the intermediary explicitly warns the parties by registered letter, from the first day of the hole.

For the leading insurer,a presumption of representation mandate of the co-insurers if the co-insurance clause is not sufficiently clear and the co-insurers do not contest it (Cass 2° civ, 08/06/17)

The provisional… non-guarantee

Definition. Failure of placement within the allotted time. The risk remains unsecured for a few weeks while the contractual solution is found

Risk. Besides the obvious non-insurance, the risk is for the intermediary: the failure to inform his principal of the non-insurance entails his liability.

What about the insurance intermediary?

There is no doubt that, in the absence of any kind of insurance coverage, the search for the deep pocket can end up in that of the intermediary. It should simply be recalled that the intermediary must prove his compliance with his duty to inform and advise, by written proof. The urgency of an insurance’s policy renewal may lead to neglect a written agreement, even more so in a professional world in which oral communication plays a major role. However, it should prevail : the intermediary must write.