Claims made clause and insured party’s reticence

The case. M.C.S. commenced against the defendant an action for damages for professional liability as a result of attachment proceedings being declared extinct following the time-barring of a receivable claimed by the plaintiff in proceedings in which the defendant had been retained and acted as the plaintff’s lawyer.

The case came before the Italian Supreme Court after the Court of Appeal of Cosenza had rejected the claim of indemnity proposed by the defendant against his Insurance Company.

The Italian Supreme Court, with its judgment no. 7273/13, held that the case concerned an insurance contract containing a claims made clause, whereby the insurer undertook to indemnify the insured party (i.e the defendant) – in the event that the insurance company received a claim from a third party during the period of validity of such insurance policy – from the harmful consequences of such wrongful acts which may have been committed by the defendant for the period preceding the signature of such policy.

The Supreme Court judges specified, however, that this clause did not exempt the insured party from its obligation to provide, upon the policy being signed, complete and truthful statements about such circumstances as might give rise to a risk of a claim of damages being brought in future.

The Supreme Court held that, when the defendant signed the insurance policy with the plaintiff Italia Assicurazioni on June 1, 1995, he was well aware that the losses which were the subject matter of these proceedings,  had already been caused to the plaintiff (for which he would, in all likelihood, be called to account).

The Supreme Court also held that the insured party’s reticence would lead to the insurance contract being annulled when three cumulative conditions were fulfilled: a) The statement given by the insured party was inaccurate or reticent; b) The statement was made willfully or with gross negligence c) This reticence has been instrumental in the insurer giving its consent to the execution of the insurance policy.

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