Refusal of insurance coverage (lapse clauses): Supreme Court reaffirms its case-law

Refusal of insurance coverage (lapse clauses): Supreme Court reaffirms its case-law

In two recent decisions the Belgian Supreme Court (Court of Cassation) once again confirmed its well-established case-law regarding the lapsing of insurance coverage.

Many insurance policies provide general exclusions for damages caused by the insured's failure to comply with statutes, rules or customs, if this loss was more or less foreseeable.

This refusal by lapsing (due to default of breach) is not to be confused with exceptions in the policy limiting the scope of the coverage.

Insurance coverage can only lapse in case of default if this is stipulated in the policy for the non-fulfilment of obligations that are clearly contained in this policy, and provided that a causal relationship exists between this non-fulfilment and the loss event (art. 65 of the  New Belgian Insurance Act of 4 April 2014.

In its decisions of 5 February 2016 and 11 February 2016, the Supreme Court reiterated that parties cannot deviate from this, as article 65 of the Insurance Act is an imperative rule of law, like all provisions of this section of the Insurance Act relating to terrestrial insurance contracts.

The judge on the merits must verify whether a clause of the policy that is expressed in different terms, e.g. as a more objective exclusion, not related to defaults, is not in fact a "lapse clause". A clause that permits the insurer to refuse its coverage due to non-fulfilment by the insured of its contractual obligations is not merely an exception, but has to be regarded as a lapse clause as understood in art. 65 of the Insurance Act.

The judge must also examine whether this non-fulfilment by the insured of its contractual obligations is in a causal relation with the occurrence of the loss event. The insurer bears the burden of proof on this.

In so doing, the Court stands by its earlier rulings on the lapse of coverage. For example, in a decision of 10 March 2015, the Court recently also ruled that an exclusion for "damage caused by gross negligence, in particular: - any failure to comply with statutes, rules or customs that regulate the activities of the insured company and whereby, for any person familiar with the subject matter, it must have been clear that this would have to give rise to nearly unavoidable damage", even under the condition that "the policyholder, its bodies or managers were aware and did not do what was necessary in order to remedy the situation", is unlawful. The Court of Appeal’s decision - that by the reference to "any" failure to comply with statutes, rules or regulations, the gross negligence was described with adequate precision - thus was not legally justified.

Earlier, the Court had ruled (in a decision of 4 December 2013) that the exclusion for damage "caused by the absence or removal of legally-required safety equipment", has an excessively general character, in the absence of a definition of the concept of “safety equipment”, as a result of which the provision could not have any effect.

Also the duty of the judge on the merits to examine whether a clause of the policy that is expressed in different terms might not be a lapse clause, given that the involved provisions of (then still) Act on Terrestrial Insurance Contracts are imperative rules of law, was recently reaffirmed in a Cassation decision of 20 September 2012.

For more information on this topic, you can consult Pim van den Bos (author) or Siegfried Busscher (author and unit head).