Late payment of premium – Supreme Court’s latest decision

Over the years, the Supreme Court has expressed contrasting views on the consequences of the late payment of premium.

 

Legal framework

Pursuant to Article 1901 of the Civil Code:

• If the policyholder doesn’t pay the premium or the first instalment of the premium agreed in the contract, the insurance cover is held in abeyance. The cover restarts at midnight from the day the policyholder pays the premium.
• If the policyholder fails to pay the subsequent premiums on the agreed due dates, the insurance is held in abeyance from midnight of the 15th day after the due date.

According to some decisions, the insurer’s acceptance of the late payment should be interpreted as an implied waiver by the insurer of their right to deny coverage of claims made/losses occurred during the suspension period set forth in Article 1901 of the Civil Code (Supreme Court, 26 January 2006, decision no. 1698; Supreme Court, 19 July 2004, decision no. 13344, Supreme Court, 2 December 2000, decision n. 15407).

According to more recent rulings, accepting late payment, on the contrary, cannot entail any waiver by the insurer, in the absence of an express and unequivocal declaration in this respect by the insurer (see Supreme Court, 10 February 2022, decision no. 4357; Supreme Court, 14 March 2014, decision no. 5944; Supreme Court, 30 November 2012, decision no. 21571; Supreme Court, 1 July 2002, decision no. 9554).

By decision no. 6623 of 12 March 2024, the Supreme Court recently confirmed this second view.

 

The case at issue

An insurer issued a policy but the insured (via the broker) paid the premium after several months from issue. The day before the (late) payment of premium, an accident occurred and the insurer denied coverage under Section 1901 because the accident occurred at the time when the premium had not been paid.

The insured challenged the denial on the basis that the insurer had accepted to issue the policy providing coverage since the very date of issue.

 

The Supreme Court decision

According to the Supreme Court, the insurer lawfully denied coverage since:

• Coverage becomes effective only upon payment of the premium.
• The parties can agree that coverage is effective before the payment of the premium. But the agreement must be express.
• The insurer can waive the remedy under Section 1901. However, waiver must be unequivocal (see Court of Cassation, 14 March 2014, decision no. 5944; Court of Cassation, 1 July 2002, decision no. 9554, Court of Cassation, decision no. 21571/2012).
• Acceptance of the late payment of premium with no objections by the insurer is not to be considered as a waiver of the remedy under Section 1901 because mere acceptance of late payment cannot be construed as an indication that the insurer intended not to rely on Section 1901 (see Court of Cassation, 10 February 2022, decision no. 4357).