The Evolving Interpretation of Willful Misconduct in Heavy Litigation: A New Case Linked to a Tax Exemption Program and a Narrower Concept of Fraudulent Misconduct

The evolving interpretation of willful misconduct in heavy litigation

Article L. 113-1, paragraph 2, of the insurance code is the source of significant litigation (on which, see D. Noguéro, The exclusion of intentional or willful misconduct in insurance law, in Blends Suzanne Carval, IRJS Editions, 2021, p. 647). Providing that “the insurer is not liable for losses and damages resulting from intentional or willful misconduct by the insured”, it has given rise to an evolving interpretation by case law, which is still being stabilized. The decision rendered on July 6, 2023 by the second civil chamber provides useful clarification on the requirement of “conscience” of the insured, which relates to the inevitability of the harmful consequences of his act, and not only to the risk of cause the damage.

A new case linked to a tax exemption program

In this case, an individual subscribed in May 2011, for an amount of more than €20,000, to the “Snc GIR Réunion” product, offered by the company Gesdom, for the acquisition and rental of autonomous stations of lighting (SAE), powered by photovoltaic panels on the island of Reunion. The subscriber’s objective was to benefit from an income tax reduction within the framework of the so-called “Girardin industrial” system. The Gesdom company ultimately does not provide him with the tax certificate required to do so, citing a questioning of the said tax reduction following the finance law of December 29, 2010 for the year 2011, which made them ineligible for the tax reduction. tax exemption for investments in electricity production installations using radiative energy from the sun. The subscriber then sued the civil liability insurer of the Gesdom company in order to obtain compensation for his loss. By judgment of March 29, 2019, the Nanterre High Court notably sentenced in solid the insurer to pay the investor the sum of €27,744 in damages to compensate for his material loss, with interest at the legal rate from the judgment, and the benefit of the annual capitalization for the interest due For more than one year. The insurer is appealing this decision. By a judgment of May 20, 2021, the Versailles Court of Appeal overturns the judgment rendered in all its provisions and, ruling again, rejects the investor’s request, retaining the existence of fraudulent misconduct on the part of the insured. , exclusive of any guarantee by the insurer in application of article L. 113-1 of the insurance code. She considers that the Gesdom company was aware of the ineligibility of the products concerned, that it should have suspended their marketing and questioned the tax administration more quickly (pt 9). She deduces that the company “was fully aware of the obvious risk it posed to investors at the time the contract was taken out” (pt 11). She thus affirms that “the deliberate failure of this company to fulfill its duty of prudence resulted in the inevitable realization of the damage which caused the hazard attached to the coverage of the risk to disappear” and thus “committed a fraudulent error exclusive of any hazard , so that insurers are justified in opposing [au demandeur] an exclusion of warranty” (pt 12).

A narrower concept of fraudulent misconduct that is more protective of the interests of policyholders and victims

In his appeal, the plaintiff contests the classification of willful misconduct. Recalling that the latter “presupposes a deliberate act of the insured who could not have been unaware that it would lead to the inevitable occurrence of the loss”, he maintains that “knowledge of the existence of the risk of damage occurring cannot be assimilated to that of the certainty of its occurrence; that it follows that a breach, even deliberate, of the insured’s duty of care, which only makes possible the occurrence of damage, cannot be assimilated to a breach which would lead to the inevitable occurrence of the damage sinister” (pt 5). In their defense, the defendants, relying on the state of the law, argue in particular that, on the one hand, fraudulent misconduct has as its preferred terrain the activity of unscrupulous professionals, originally lucrative faults at the end of which they favor their own interest by sacrificing that of others, even though they are not seeking damage, on the other hand, the court of appeal has, in this case, clearly characterized a fraudulent fault . The Court of Cassation was therefore asked the following question: does the insured person who takes a “deliberate risk” by marketing a tax exemption product commit an uninsurable willful mistake?

Following the investor’s argument, the second civil chamber overturns the decision of the court of appeal for lack of legal basis for the visa of article L. 113-1, paragraph 2, of the code of…