Does the presence of a “rider broker” in the insurance policy work to the insured’s disadvantage? Is the presence of a broker’s rider a disadvantage for the policyholder?

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Publié le 11/11/2023

INSURANCE LAW

1- The brokers’ role and liability under positive law

Brokers are insurance intermediaries. Their role is to act on behalf of the policyholder, towards whom they have a number of obligations (1.1). If they fail to fulfil one of more of their obligations, they could be held liable (1.2).

1.1 The insurance broker, the policyholder’s agent 

The broker is the insurance intermediary who works with the policyholder to guide him in his choice of risk investment.

Before signing an insurance policy, the broker advises his client and negotiates the terms of the policy to ensure that it meets his needs. Once the policy has been signed, the broker’s role is to assist the customer in implementing the cover taken out.

The role of the broker versus that of the insurance agent

Unlike insurance agents who act as agents for one or more insurance companies, brokers are completely independent, although it is true that practice has blurred this distinction. Some insurers have given brokers mandates almost similar to those of agents.

The fact remains that, traditionally, brokers represent their clients in dealings with the insurer and must guide them towards the insurance policy that best suits their needs. This role can sometimes take the form of assisting the policyholder in negotiating certain parts or clauses of the insurance policy, as most of the policy is ‘non-negotiable’ by virtue of ‘market clauses’ or ‘market practices’ invoked by insurers to refuse any changes.

Brokers must comply with their obligations or risk being held liable

Brokers are required  to provide information and advice to the policyholder (1).

When it comes to his duty to adverse, the broker has an obligation to use his best endeavours:

he must take all necessary steps to enable his customer to sign a policy that matches his needs, with full knowledge of the scope of the cover. The obligation to provide information, on the other hand, is a part of the more general framework of consumer protection.

The introduction into the French Consumer Code of the definition of a non-professional allowed policyholders to benefit from certain consumer protection provisions, thereby broadening the scope of the broker’s liability(2).

In terms of liability, insurance agent have an undeniable advantage, since in the event of fault or breach of duty, the insurance company will automatically be held liable(3).

The broker, on the other hand, will have no one to turn to and will necessarily be held liable.

Recent case law provides us with a few examples of cases in which the courts considered that the broker had breached his obligations, leading to his conviction.

1.2 Overview of recent case law holding brokers liable

Several recent rulings, although not new to the area of broker liability, serve as a reminder of the fundamentals.

Brokers must do more than cover obvious risks

In the case of a car stunt show, for example, a policyholder had taken out a civil liability insurance policy for concentrations and events through his broker, covering the organisers’ liability in the event of an accident caused by a motorised land vehicle. But it was during the installation of a metal mast that the accident occurred.

As the broker admitted that “the risks that the policyholders had asked him to cover were not limited to motor risks“, the Cour de cassation ruled that he had “misled the policyholders, thereby failing in his duty to advise them by not specifically drawing their attention to the need to take out optional supplementary insurance” enabling them to be insured for an accident not involving a motor vehicle(4).

The broker must therefore not limit himself to covering the obvious risks that may arise from a show or any other activity, but must look beyond this to cover all of his client’s risk, or else he might be held liable.

Brokers have a duty to their clients to provide accurate information and assistance in handling claims

In another case, this time concerning a non-life insurance policy, the Cour de cassation ruled that it was part of the broker’s duty to advise his client on the limitation periods for his action, even though these were set out in bold type on the general and special terms and conditions of the policy..

The Court of cassation thus considers that once the policy has been taken out, the broker must assist his client in managing the claim, even if the terms of the policy are clear(5).

Another application: in maritime matters, the lessee of a sailing boat had entrusted the delivery of the boat to a professional skipper. During a collision with another vessel, the yacht sank, leading to legal action against the skipper and the brokers through whom the skipper had taken out a professional liability insurance policy.

The skipper had taken to the sea before the first insurance premium had been paid, even though the policy stipulated that the cover was only effective once the premium had been paid.

The Rennes Court of Appeal, hearing the case, pointed out that it is a matter of principle that “professional insurance brokers have a duty to advise and provide accurate information to their clients, in particular by drawing their attention to the suitability of the terms and conditions for the cover to take effect for the insured’s personal situation, and that it is the broker’s responsibility to provide proof of this, even if the client is not a novice in the field covered by the policy taken out“.

It therefore had no difficulty in concluding that the broker had “failed in his duty to advise by failing to warn the skipper of the risk that the insurer might refuse him cover in the event of a claim before the premium had been collected“(6).

Brokers must offer their customers a choice that meets their needs

In another case, a self-employed person had taken out life insurance through a broker and wished to switch over 60% of his savings to riskier investments. A dispute arose over the value and number of units held at the time of the arbitration.

The policyholder criticised “the broker’s management of the policy, accusing him of not knowing its content, of not having the necessary tools in his possession and of failing in his duty to inform, manage and advise“.

The Court of Appeal in Aix-en-Provence agreed with the lower court that the arbitrage was for a riskier investment. The broker should have had his client complete “a new risk profile or at least a detailed questionnaire providing him with an up-to-date understanding of his situation” to offer him an investment choice in line with his situation, objectives and needs (7).

In the same vein, the broker’s liability for breach of his duty to advise and inform was also upheld by the Court of Appeal of Toulouse, due to the absence of any response to a letter from a curator with a view to taking out a motor insurance policy for a protected adult who was subsequently involved in a road accident(8).

On reading these decisions, there is no doubt that the broker, as the professional to whom the insured refers, plays a fundamental role with the policyholder, and that the slightest error may result in the broker having to answer for his actions before the courts.

This raises the question of whether the intervention of a broker in the drafting of an insurance policy can have consequences for the policy, its interpretation and, consequently, on the liability of the insurance professional.

2- Consequences of the broker’s involvement in the drafting of an insurance policy

In order to answer this question, it is necessary first to examine the rule of interpretation of the policy, particularly in the light of the introduction into the Civil Code of a new article 1190 by the Order of 10 February 2016 (2.1), before then attempting to identify the consequences of the broker’s intrusion into the drafting of the insurance policy (2.2).

2.1 Interpretation of the insurance policy 

While for many years a rule of interpretation in favorem of the insurance policy had been laid down for the sole benefit of the policyholder  as a consumer, the new article 1190 of the French Civil Code raises the question of whether this rule has changed.

The initially limited scope of the in favorem interpretation directive

For several decades it has been accepted, on the basis of article L. 133-2, paragraph 2, of the French Consumer Code (now L. 211-1 of the same Code)(9) that insurance policies should be interpreted in favour of the insured(10).

One condition was necessary for this principle to apply, the clause should leave “room for doubt” :  its clarity prevented interpretation(11).

To establish the principle of in favorem interpretation, the case law relied on a provision specific to the French Consumer Code and consequently reserved it for consumers only.

However, the 2016 reform of the law of obligations seems to have extended this principle of interpretation to all policyholders.

The impact of the new article 1190 of the Civil Code

Article 1190 now lays down the following interpretation guideline: “When in doubt, a contract by mutual agreement is interpreted against the creditor and in favour of the debtor, and a policy of adhesion against the person who proposed it.”

And we know that, according to article 1110, paragraph 2, of the Civil Code, “A policy of adhesion is one which contains a set of non-negotiable clauses determined in advance by one of the parties“.

The insurance policy, traditionally described as a policy of adhesion

On first reading, it seems obvious to consider that an insurance policy is a policy of adhesion for the policyholder , to whom the insurer imposes a policy. In fact, this is the main position adopted by case law. All insurance policies should therefore be interpreted in favour of policyholders.

But is it that simple?

Can the new article 1190 of the Civil Code be applied to insurance policies?

Firstly, taken literally, article 1190 of the French Civil Code states that the principle of in favorem interpretation of a contract of adhesion applies “against the person who proposed it“. However, such a wording is difficult to reconcile with the qualifications of insurance law, in which the person who proposes the policy is the policyholder  or subscriber and not the insurer (12): the new article 1190 of the Civil Code would thus give the benefit of the principle of interpretation in favorem to the insurer and not to the insured.

Even if there is no reason to consider that there is a coincidence between the ‘proposal’, within the meaning of article 1190 of the French Civil Code, and its meaning in insurance law, this first element already casts a doubt on the scope of application of the new provisions of the French Civil Code.

The impact of negotiating the insurance policy on its interpretation

Another difficulty is that, although in most cases the clauses of the policy are drafted by the insurer and imposed on the policyholder, this is only a statistical truth. Some policy clauses are open to negotiation.

This may be the case when the cover is taken out by a professional policyholder and relates to a “major risk”(13). In the case of optional insurance, the will of the parties is sometimes important: certain clauses may be the result of negotiation between the insurer and the policyholder, either directly or indirectly if the policyholder is represented by a broker.

In such a case, could the classification of the insurance policy as a contract of adhesion be discussed and, consequently, the rules of interpretation governing it called into question?

It is conceivable(14).

Do the provisions of article 1190 of the Civil Code really impose a rule of interpretation ?

Before the reform of the law of obligations, the interpretation guidelines given by the French Civil Code to the courts were not regarded as mandatory by the Cour de cassation(15).

However, article 1190 (new) of the French Civil Code is the result of a modification of  former article 1162, which provided that ‘In case of doubt, a policy is to be interpreted against the person who has stipulated it and in favour of the person who has entered into the obligation’.

It therefore seems difficult, in the light of this case law, to consider that the provisions of article 1190 (new) of the French Civil Code are mandatory and impose an interpretation of the insurance policy in favour of the policyholder. On the contrary, if the old case law were to be maintained, the directive in article 1190 of the French Civil Code would, unlike the provisions of the French Consumer Code, have a purely indicative value and the judge would not be obliged to follow it.

Nevertheless, the question remains open: the report to the French President presenting the text seemed to envisage a rule of mandatory interpretation, and some legal writers seem to support this view(16).

As can be seen, the new provisions of the French Civil Code leave many questions unanswered , and the involvement of a broker in the drafting of an insurance policy multiplies the uncertainties.

2.2 A changing interpretation due to the involvement of the broker, which could be decisive in assessing the liability of this insurance professional

Exclusion of classification as a contract of adhesion?

As we have seen, the new provisions of article 1190 of the French Civil Code could be interpreted as requiring an interpretation of the insurance policy in favour of the policyholder, when certain clauses  are ambiguous. However, this starting point is not self-evident when the policy leaves room for  negotiation and, in particular, when a broker is involved in drafting the policy and negotiates certain clauses  on behalf of the policyholder, in the form of a rider . The agreement could then no longer qualify as a contract  of adhesion but would be considered as a private policy.

To our knowledge, the Cour de cassation has not yet ruled on the question of the classification of an insurance policy in such a case, but some lower courts have had to rule on this point.

Recent decisions by lower courts

A number of rulings classify those policies as over-the-counter.

The Brest Commercial Court very recently ruled: “The court notes that the policy was taken out through a broker (…) and that there are grounds for considering that it is an over-the-counter policy which is interpreted in doubt against the person who proposed it and in favour of the person who accepts it” (18).

The Rennes Court of Appeal adopted the same reasoning in a ruling handed down on 16 March 2022 (18), stating that: “X demonstrates that the insurance policy taken out in 2018 was negotiated by an insurance broker (…). Although this negotiation concerned the special terms and conditions, the fact remains that these terms and conditions were decided on the basis of the policyholder’s wishes in order to adapt the general terms and conditions to his situation”.

The Court concluded that: “It is not possible to classify the general conditions as a policy of adhesion, since adhesion is defined as a policy in which one of the parties proposes a set of non-negotiable contractual clauses to its contractual party, and in the present case, X chose firstly to subscribe to the special contractual conditions and secondly to accept the general conditions, as shown on the first page of the special conditions. Accordingly, the insurance policy must be regarded as a private policy”.

The uncertain scope of classifying a policy as an private contract

What would be the consequence of such a classification?

As article 1190 of the French Civil Code states that “In case of doubt, a policy by mutual agreement is interpreted against the creditor and in favour of the debtor“, the insurance policy would have to be interpreted not in favour of the policyholder but in favour of the insurer.

This solution is not without surprise: the insurance company, as the party in a position of strength, would be favoured; the presence of a broker alongside a policyholder would be a disadvantage in the event of a dispute regarding  the insurance policy.

But here again, this solution is not so obvious.

In practice, brokers only negotiate with insurers on the rider that they offer their clients, a rider  that is supposed to contain conditions that are more favourable to policyholders than the general policy conditions imposed by the insurance companies. Should certain clauses of the policy then be interpreted in favour of the first party and other clauses in favour of the second party?

Such a division seems difficult  to implement: the clauses of an insurance policy are interpreted in relation to each other and this method of interpretation would make it impossible to interpret the policy as a whole.

Moreover, there is nothing to indicate that article 1190 of the French Civil Code lends itself to such a split, since it refers to the two categories of contract by mutual agreement and contract of adhesion, without in any way providing that the same contract, depending on its terms, may only partially fall within one or other of these categories.

And in the absence of such a division of the policy, could the rider  drawn up by the broker attract to itself the general conditions, which are themselves drawn up by the insurer, so that the drawing up by the broker of part of the policy could lead to a unitary classification of the insurance policy as a policy of mutual agreement (19)? Would the rider then have to represent the principal of the policy? In practice, however, the latter hypothesis seems unlikely: no insurance company agrees to waive the general terms and conditions of its policies.

In addition, the insurer has agreed to enter into the policy on the terms and conditions of the rider : could it not be deduced from this that the insurer has made them his own, so that the policy as a whole must retain its status as a policy of adhesion? In this respect, the misnamed “rider is never drawn up for the benefit of a single policyholder. It is agreed between an insurer and a broker, and then incorporated into the policy of the broker’s clients, without any specific negotiation with each policyholder, and is therefore considered to be a policy of adhesion.

Finally, it may seem somewhat artificial to infer from the broker’s capacity as the policyholder’s agent that the policyholder has negotiated the policy’s interlayer: the assumption is that the broker has negotiated the said interlayer on an equal footing with the insurer, which is not true in practice.

Consequences for the broker’s obligations and liability

Recent rulings by the Brest Commercial Court and the Rennes Court of Appeal raise the question of whether a new area of broker liability is emerging.

Brokers’ involvement could lead to their liability being almost systematically questioned.

If the broker’s intervention has an influence on the method of interpretation of the insurance policy – moreover, in favour of the insurer – is it not the broker’s duty to inform his client?

As we have seen, the broker, as a professional, has a duty of “accurate information” towards his client(20). It would seem, therefore, that he cannot fail to explain the potential implications of his involvement in the negotiation of the insurance policy, without incurring liability.

Furthermore, since the burden of proof for providing this information lies with the broker, he should write to his (future) customer before taking out the insurance policy.

The practical difficulties created by the recent decisions of the lower courts are clear to see.

And the uncertainty is even greater for brokers as case law has not clearly established  the interpretation method of the insurance policy in the presence of a rider. As a result, these insurance professionals are unable to fulfil their obligations to provide information and advice as they do not know precisely what the extent of their obligations is.

A solution to be found in the wording of the policy

So how can brokers operate without risking liability ?

One solution could be to systematically insert an interpretation clause in the rider, stipulating that the policy must be read as a whole in favour of the policyholder. As article 1190 of the French Civil Code is not a matter of public policy, this should be possible.

That said, such a stipulation raises new questions: what would be the conditions for this clause to be valid ? Could the policyholder object ?

In short, the latest rulings leave many questions unanswered

We can therefore only call on insurance intermediaries to be even more vigilant in fulfilling their duty to advise and in putting in place riders which, as the case law on Covid loss insurance has shown, are often one of the essential advantages provided to the policyholder by the presence of the broker.

Jérôme Goy, Partner, Enthémis

Elodie Le Prado, lawyer at the Council of state and the Court of cassation

with the assistance of Lynda Saouli, lawyer

Read the article on the La Tribune de l’Assurance website