Cass. civ 1ère, Dec. 18, 2024, No 21-23.252, Published in the Bulletin
This decision by the French Supreme Court, published in the Bulletin, answers a novel question: the effectiveness of "pay to be paid clauses in French law. These clauses stipulate that the insurer is only obliged to pay the insurance indemnity to its liable insured, once the latter has compensated the third-party victim. The effect of these clauses is to prevent any direct action by the victim against the insurer. They are valid under English law and well known in the marine insurance world, as they are often stipulated in policies underwritten by P&I clubs.
In this decision, the Cour de cassation ruled that these clauses were ineffective under French law, as they were unenforceable against a victim taking direct action against the insurer of the liable party.
In this case, a ship collided with the gangway at the base of the helipad in the port of Cannes. The Commune sued its damage insurer, the ship owner (subsequently placed in liquidation) and the latter's liability insurers (the "Insurers").
The Insurers contested the direct action brought by the Commune against them, invoking the "Pay to be paid" clause stipulated in their insurance contract, subject to English law. The Aix-en-Provence Court of Appeal, endorsed by the French Supreme Court, rejected their arguments.
To this end, the Cour de cassation qualifies the "Pay to be paid" clause as a provision relating to the possibility of direct action, at least in terms of its effects. The Court then ruled that the question of the possibility of direct action is determined by the law designated by the conflict rule of the court seized. In French private international law, a direct action is possible if it is permitted either by the law of the principal obligation (in this case, French law, as the law of the place of the damage and therefore of the ship's tortious liability), or by the law of the insurance contract. In other words, if the law of the main obligation authorizes it, the law of the insurance contract cannot stand in the way. In French law, Articles L.124-3 (for land insurance) and L.173-23 (for marine insurance) of the Insurance Code provide for the possibility of direct action.
This decision is also an opportunity for the Cour de cassation to reiterate the unenforceability of jurisdiction clauses stipulated in insurance contracts against third-party victims. Such clauses can only produce effects between contracting parties. As a further consequence of this unenforceability, the judgment handed down by the London High Court in the denial action brought by the Insurers against the liable insured and the third-party victim is not recognised in France. In fact, the High Court's jurisdiction was based on the clause that was unenforceable against the third-party victim.
Arnaud Attias joined our department in March 2025 as Counsel to strengthen the practice in marine and transportation, reinsurance and cyber. This appointment completes the firm's 14-member Insurance practice (6 lawyers and 8 claims handlers), headed by Romain Dupeyré, partner in charge of the practice in Paris.
