Italian claims-made principle

The long debate around claims made policies in Italy has moved from their validity as opposed to loss occurrence policies to the retroactive date and extended reporting period.

Until 2005, claims made policies were held null and void because they depart from the loss occurrence regime set out in the Civil Code (Art. 1917 Civil Code) as they would end up covering risks already occurred by the time the policy is taken out (breach of Art. 1895 Civil Code, under which the insurance contract is null and void if the risk has never existed or has ceased prior to the inception of the policy).

In 2005, claims made policies were accepted as “atypical contracts” pursuant to Article 1322 of the Civil Code which allows the parties to enter into contracts which are not specifically predetermined by the law, provided that such atypical contracts be aimed at realizing interests worthy of protection by the Italian legal system. To this end, the judge should verify whether the claims made clause results, in concrete, in a significant restriction of the insurer’s obligations towards the insured otherwise it would be ineffective as “unfair” as per Article 1341 of the Civil Code. [1 Supreme Court decision no. 5624 of 15 March 2005]

In 2016, the Supreme Court made a step forward and ruled that claims made clause was valid as it defines the scope of insurance. As such, it was not unfair, but should be tested on a case-by-case basis to verify that its effects are compliant with the Italian legal system, otherwise the loss occurrence scheme would apply. [2 Supreme Court, Joint Divisions, decision no. 9140 of 6 May 2016]

In 2017, the Italian legislator reformed the medical profession and imposed claims made PI policies with 10-year retroactivity and 10-year extended reporting period if the insured ceases its activity (Art. 11 Law no. 24/2017 “Gelli-Bianco”). The same rule was then extended to legal profession (Art. 2 Law no. 247/2017 effective from 11 October 2017).

Further to those new laws, in 2018 the Joint Divisions of the Supreme Court finally affirmed that claims made scheme was now “typical” – as expressly indicated by the law – so that the scrutiny around its compliance with the Italian legal system was no longer required. Yet it shall be assessed whether the overall contract is adequate and balanced on a case-by-case basis so to avoid gaps in coverage, otherwise it shall be integrated with appropriate retroactive date and/or extended reporting period and/or deeming clause. [3 Supreme Court, Joint Divisions, decision no. 22437 of 24 September 2018]

While the validity of claims made policies in itself is no longer an issue following the key decision by the Supreme Court in 2018 (despite some isolated and contrary decisions), the debate has now moved around the retroactive date and, especially, the extended reporting period.

In a case where we were defending the D&O insurer and maintained that coverage was not triggered because the claim occurred one year after the expiry of the 3-year extended reporting period (and so on the 4th year from the natural expiry of the policy), in 2023 the Court of Rome ruled that a 3-year extended reporting period was not consistent with the 5-year statute of limitation applicable to D&Os and so applied ex officio a 5-year extended reporting period, thus triggering the policy. Some other decisions have similarly held that a too short retroactive date would make the policy unbalanced and shall be replaced with mandatory provisions of law otherwise the whole contract is null and void. [4 Supreme Court, decision no. 9616 of 11 April 2023]

By contrast, the most punctual case-law has held that 1-year extended reporting period did not make the policy unbalanced as it was still affording some tail coverage to the insured and was in line with the 3-year continuity. [5 Supreme Court, decisions no. 18413 of 9 July 2019 and no. 10482 of 21 April 2021]

We have therefore challenged the decision of the Court of Rome on the grounds of the abovementioned case-law and successfully managed to have that decision stayed until the appeal is ruled upon.

More recently, the Supreme Court has finally clarified that the extended reporting period is not mandatory in itself, nor it shall mirror the statute of limitation applicable to the insured (normally, 10 years for doctors and lawyers and 5 years for directors and statutory auditors).

If also clarified that the extended reporting period is mandatory in PI insurance for lawyers and doctors only in the event that the insured ceases its activity permanently. According to the Supreme Court, the interpreter will have to verify that the actual combination between the retroactive date and the extended reporting period, in light of the premium paid by the insured and the risk undertaken by the insurer, does not deprive the policy of any concrete rationale, but results in a balance of the parties’ respective interests. [6 Supreme Court, order no. 6490 of 12 March 2024]