The judgement should not be of concern to the market because of (1) the leading approach of the Joint Division of the Supreme Court on the validity of such clauses, and (2) new law provisions which confirmed the lawfulness and enforceability of claims made clauses combined with retroactivity and/or extended reporting periods of the policy.
Recent judgment No. 10506/2017 of Supreme Italian Court’s Third Division handed down a decision which declared the unfairness and invalidity of claims made clauses.
This judgment created a bit of confusion in the Italian legal world in relation to the validity and enforceability of these clauses in Italy: are they valid or not? Is there any difference between the application of these clauses in Italy and abroad? Someone called it a “surprising decision”, while others are trying to understand if there will be any problem in relation to the effectiveness of such clauses in Italy and to its possible consequences for the insurance business in Italy.
There is a need to shed some clarity on this matter.
First, it needs to be highlighted that this judgment constitutes a mere dissenting opinion of what Supreme Court’s Joint Divisions stated in 2016 (judgment no. 9140/2016) on claims made clauses’ validity and therefore it should not worry for the reasons as described below.
Supreme Court’s Joint Divisions in 2016 acknowledged unequivocally the validity of these clauses, whose legality and effectiveness shall no more be a matter of concern neither in relation to its alleged inequitable feature (carattere vessatorio) nor to its retroactive applicability to claims related to facts occurred in the period before the conclusion of the insurance contract.
This judgment just left open the question related to the possible invalidity of the claims made clauses which in certain circumstances can result not worthy of legal protection. In order to establish if a clause is or not worthy of legal protection, according to the Supreme Court, the Courts of merit shall do a case by case examination, which should be based on the circumstances of the fact at hand relevant to this evaluation such as the presence of a violation of client’s contractual freedom or of an information asymmetry between the parties.
In the recent judgment No. 10506/2017 the Supreme Court fell out of line because it stated a principle of law - which cannot be taken as a general principle applicable to all similar cases - but it must be taken as the evaluation made by the Court on that specific case and therefore it must be considered as valid for those circumstances only.
Furthermore, the validity of claims made clauses was confirmed by new legislation recently enacted in Italy and in particular by Decree of the Ministry of Justice of September 2016 on lawyers’ compulsory professional insurance and by Law 08 March 2017 number 24 on doctors’ compulsory professional insurance. Both legislations confirmed that claims made clauses are legally valid and binding when structured in combination with the provision of, inter alia, retroactivity clauses and of an extended reporting period aimed at protecting professionals should they cease their activity and be no longer insured. Both the retroactivity period and the extended reporting period should at least be equal to ten years each, taking into account the relevant statute of limitation period.
We should consider the fact that judgment No. 10506/2017 is based on facts and law principles in force prior the above new regulations, so it cannot be taken into consideration in order to evaluate the general validity of claims made clauses. On the contrary the validity of such clauses which was acknowledged by the Supreme Court Joint Divisions shall be scrutinized on a case by case basis taking into consideration that the provision of an extended reporting period will not be considered in all cases as a requirement for its validity.
We could say that judgment no. 10506/2017 of Supreme Italian Court’s third division constitutes just an “out of line” opinion for which insurers shall not be too much concerned, provided that careful attention is given when structuring claims made clauses.
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