The relationship between a borrower and his bank turns into an obstacle course when a dispute arises over loan insurance. This protectionwhich is often required in practice when taking out a mortgage, suffers from a chronic lack of information.
This complex mechanism involves three players: the insurer who draws up the policy, the bank that offers it, and the borrower who takes out the policy. Case law has gradually strengthened the information requirements to protect the borrower.
The pre-contractual information obligation
The obligation to provide pre-contractual information is the first line of protection for borrowers. The Insurance Code and case law require the underwriter (the bank) to provide clear, precise and comprehensible information on the cover offered.
In a ruling dated 5 April 2018 (Cass. 1re civ., 5 Apr. 2018, no. 13-27.063), the Court of Cassation stated that the standardised information sheet cannot be equated with the contractual documents. It must enable the borrower to understand the essential features of the contract.
This pre-contractual information must in particular cover :
- Risks covered and excluded
- How cover comes into effect
- Formalities to be completed in the event of a claim
- Warranty conditions and exclusions
This obligation arises in particular from article L.141-4 of the Insurance Code, which states that only clauses brought to the attention of the policyholder are enforceable.
Formalising the agreement: the membership form
The application form sets out the agreement between the insurer and the borrower. This document must include :
- The identity and address of the parties
- Details of risks and guarantees, with their amounts
- Naming the beneficiary (usually the bank)
In practice, the beneficiary designation is often pre-established, leaving the borrower little room for manoeuvre. As Professor Véronique Nicolas has pointed out, this mechanism may seem "tricky for the lay borrower, who is not a lawyer, to understand that he is signing up to a framework contract negotiated by his lender, who then has the status of subscriber and who, moreover, is the beneficiary of this contract".
This complexity justifies the need for enhanced information.
The obligation to provide information in the event of changes to the contract
The credit relationship often spans several decades. L'loan insurance may undergo changes during this period. The legislator has provided specific protection in this case.
Article L.141-4 of the Insurance Code requires the policyholder to inform members in writing of any changes to their rights and obligations. Proof of this information is the responsibility of the policyholder.
The member then has the option of withdrawing from the contract. However, this protection is still inadequate, as the law does not stipulate a minimum period between notification and implementation of the change.
For home loans, article L.312-9 of the Consumer Code reinforces this protection by specifying that a subsequent change in the risks covered cannot be invoked against a borrower who has not consented to it.
The evolution of case law towards the duty to warn
Case law has considerably strengthened borrower protection. In a landmark ruling on 2 March 2007, the Assemblée plénière of the Cour de cassation (French Supreme Court) imposed a genuine duty to warn on the policyholder.
The ruling states that "a banker who offers a loan to a customer to take out a group insurance policy to cover all or part of his commitments in the event of the occurrence of various risks is obliged to inform the customer that the risks covered are appropriate to his personal situation as a borrower, and providing the notice is not sufficient to satisfy this obligation".
This decision marks a turning point. It is no longer enough simply to provide a notice. The banker must check that the contract is appropriate for the borrower's personal situation.
This case law has been further strengthened. In a judgment of 5 September 2018, the Commercial Chamber of the Court of Cassation ruled that the policyholder must even inform the insured of the abusive nature of the insurer's refusal of cover.
These requirements reach their limit when the bank does not know all the necessary circumstances, in particular the borrower's exact state of health, or when the borrower is disloyal by withholding information.
Consequences of failure to provide information
Failure to comply with the obligation to provide information has two major consequences:
- Unenforceability of clauses not brought to the attention of the policyholder. The Court of Cassation has ruled that a limitation of cover set out in the general terms and conditions but not included in the application form cannot be enforced against the borrower.
- The policyholder's civil liability. The bank is liable if the borrower suffers loss as a result of its failure to provide information. The courts award compensation for losses suffered.
However, in a ruling dated 1 December 2015, the Commercial Chamber of the Court of Cassation specified that such liability presupposes actual loss. In this case, it had rejected the action of a member who criticised the policyholder for failing to warn him of a limitation on cover linked to age, considering that the chance of finding an insurer offering cover without an age limitation was virtually nil.
The specific nature of loan insurance warrants particular vigilance. The rigorous framework provided by case law is evidence of persistent imbalances. Our firm regularly assists borrowers who have been refused cover after paying premiums for years. These difficulties can often be avoided by examining contracts in detail beforehand and analysing your personal situation. Do not hesitate to visit before signing your credit agreement or at the first sign of disagreement with your insurer.
Sources
- Insurance Code, article L.141-4
- Consumer Code, article L.312-9
- Cass. ass. pl., 2 March 2007, no. 06-15.267
- Cass. 1st civ., 5 Apr. 2018, no. 13-27.063
- Cass. com. 5 Sept. 2018, no. 17-15.866
- Cass. com. 1st Dec. 2015, no. 14-22.134
- Nicolas V., "Essai d'une nouvelle analyse du contrat d'assurance", LGDJ, 1996
- Nicolas V., "L'assurance perte d'emploi ou la nébuleuse pour l'assuré-consommateur", Contrats, conc. consom. 1995, chron. 8.
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