The case : Mrs. Z.’s home was set on fire. As part of her declaration of loss, Mrs. Z. voluntarily increased the value of the damaged property. His insurer refuses to compensate him, claiming the warranty forfeiture clause of the contract, because of the bad faith of his insured. Is the insurer entitled to rely on it?
The lawyer’s response: Yes, when the warranty forfeiture clause appears in the contract and the insurer manages to establish the bad faith of its insured, it is entitled to invoke the warranty forfeiture stipulated in the contract. This is a severe sanction since the insurer can then purely and simply refuse to compensate its insured in bad faith. People to whom the insurer opposes a forfeiture of cover are often surprised and generally dispute on the grounds that the sanction would be disproportionate.
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For them, a “small misrepresentation” is not worth a total refusal of guarantee. And yet! The Court of Cassation indeed recalls that “the forfeiture of cover in the event of false declaration relating to the claim (…), insofar as the insurer establishes its bad faith, cannot constitute a disproportionate sanction” (2nd civil chamber, judgment no. 20-22.836 of December 15, 2022). Moreover, the Court also recalls that when these two conditions are met (clause appearing in the contract and bad faith established by the insured), the forfeiture of cover is then automatic.
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The trial judges do not have to determine whether it would constitute a disproportionate sanction with regard to the consistency of the fraud. The High Court argues that “it is therefore right that the Court of Appeal did not examine the proportionality of the forfeiture of cover incurred by the insured”. So beware of false declarations after disaster, on the amount of damage. The penalty can be fatal, since the insurer is entitled to purely and simply refuse to compensate.
By Barthélemy Lemiale, lawyer at the Court, partner at Valmy
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