INSURANCE: An Introduction to France

The French Supreme Court Clarifies the Concept of “Overriding Mandatory Provision” for Insurance Policies Governed by Foreign Law

The French Supreme Court (Cour de cassation) recently addressed the question of the enforcement of the French Insurance Code in relation to an insurance policy governed by foreign law. In a ruling handed down on 19 December 2024, the Court determined whether Article L124-3 of the Insurance Code, which authorises direct action by a victim against liability insurers, constitutes an “overriding mandatory provision” (loi de police) applicable to an insurance policy governed by Dutch law. On this occasion, the French Supreme Court provided a definition of “overriding mandatory provision”.

The ruling concerned a clause reducing the duration of the liability insurer's coverage to a period shorter than the duration of the insured's liability. The French victim, a third party to the insurance contract, argued that such a clause should be unenforceable on the grounds that it was contrary to public policy since it deprived him of his right of direct action against the insurer.

While the French Supreme Court acknowledges that such a clause should be invalid under French law, it nevertheless points out that the insurance policy at stake was governed by Dutch law. The Court therefore explains that it is required to ascertain whether the disputed clause is contrary to French international public policy and, to this end, to determine whether article L124-3 of the Insurance Code constitutes an overriding mandatory provision.

The Court undertook a detailed characterisation process by adopting the European Union Court of Justice's case law, according to which an overriding mandatory provision constitutes a rule “so crucial to the safeguarding of the political, social or economic organization of the Member State concerned to such extent that compliance with it must be imposed on any person on the national territory of that Member State or on any legal relationship located therein” (EUCJ, 17 October 2013, C-184/12, paragraphs 47 and 48).

The ruling also refers to Article 9 of the Rome I Regulation on the law applicable to contractual obligations, which defines “overriding mandatory provisions” as “provisions the respect for which is regarded as crucial by a country for safeguarding its public interests”, so that a national provision whose sole purpose is to protect individual interests does not qualify as such.

The ruling sets out several criteria for characterising a rule as an overriding mandatory provision. The national provisions under consideration must protect an essential interest of the state, thus excluding the mere protection of individual interests except when “the protection of the individual interests of a category of persons… corresponds to a public interest”. To qualify as an overriding mandatory provision, the national court must therefore verify whether the rule under consideration is intended to protect “the political, social or economic organization of the State”. This will lead the judge to carry out a detailed analysis of the rule, taking into account its precise terms, its general structure and the circumstances in which it was passed.

The Supreme Court ruled that, in this case, Article L124-3 relating to the victim's direct action against the insurer is not a rule protecting the preservation of the political, social and economic organisation of France, so that it does not constitute an overriding mandatory provision applicable to an insurance policy governed by foreign law.

This decision is very interesting since it provides a definition of the mandatory law in line with the European principle of freedom of choice of the applicable law to the contract by the parties.

Indeed, pursuant to Articles 3 and 7 of the Rome I Regulation, the insurance contract covering large risks (as defined in Article 5(d) of the First Council Directive 73/239/EEC of 24 July 1973) is governed by the law chosen by the parties, and, in the absence of choice, the governing law is the one of the country where the insurer has its habitual residence.

This ruling will therefore restrict the characterisation of rules from the French Insurance Code as overriding mandatory provisions. These rules, most of which are mandatory under the French internal public policy, will therefore not automatically be considered as overriding mandatory provisions, and the French judge will have to carry out a detailed verification of the aforementioned criteria in order to characterise a rule as such.

This issue particularly arises with regard to the exclusion clauses, which the French Insurance Code requires to be formal, limited and drafted in very legible wording in order to be valid. In a ruling dated 15 June 2023, the French Supreme Court held that these rules were applicable “regardless of the law governing the contract”. The Court did not raise the question of whether these rules should be characterised as overriding mandatory provisions and grounded its decision solely on their mandatory nature under French internal public policy.

The ruling handed down on 19 December 2024 therefore challenges this position by enabling the French Supreme Court, in a subsequent decision, to reject the characterisation of the rules on exclusion clauses as overriding mandatory provisions. Such an interpretation would be consistent with the fundamental principle of freedom to provide services and the freedom of choice of governing law by the parties. Let us hope that future cases will allow the Supreme Court to amend its position in this respect.