Payment of premium through the intermediary and rule of appearance

Comment to Cass. Civ. 16 February 2017 n. 4112

Insurance Litigation Alert

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The captioned judgment states a well-known case law principle in the field of motor third party liability, i.e. the damaged party enjoys full insurance cover if the insured party, liable for the accident, holds the certificate of insurance and has exposed the insurance sticker on his car. Any vice affecting the policy is a matter to be discussed between the insurer and the insured solely, and shall not limit the damaged party rights (rule of appearance), with few exceptions (art. 127, par 2 of the Insurance Code).

However, in this particular case this rationale appears to be unnecessary and redundant to the purpose of the decision. Indeed, the Court might have relied, in a much simpler way, on the provisions of the law, and in particular on art. 1188, 1228 and 1903 of the Civil Code, which say that the payment made to the creditor's representative is fully satisfactory; that the obliged party is responsible for his conduct and the one of the persons instructed by him to discharge his obligations; and that the agent's powers are full unless their limitations are made duly public.

The judgment refers to a case occurred before the Insurance Code was enacted (Legislative Decree 7 September 2005, n. 209).

Art. 118 of the Insurance Code provides that «the premium payment made in good faith to intermediaries or their collaborators is regarded as made directly to the insurance undertaking».

There is no doubt therefore that the Insurance Code has added clarity to the disputes regarding payments made through the intermediaries, especially when they fail to forward the money to the undertaking.

Nevertheless, the Court should have reached the same conclusions based on the above provisions of the Civil Code also in relation to the present case.

The dispute takes origin from a sub-agency agreement between Assiconsult s.n.c., general agent to Unipol, and Z.M.

Assiconsult complains that the sub-agent has retained the renewal premium of a MTPL policy for over 40 days, and paid it to the agent only after the insured caused a road accident.

Therefore Assiconsult summons Z.M. in court for redress of damages, including the cost of the claim and reputational damages vis-à-vis the insurer.

According to the agent, there was no insurance cover as the subagent did not remit the premium to him.

The courts of merit dismiss the case, and the agent appeals the decision in front of the Corte di Cassazione.

The Supreme Court also rejects the claim, on the basis of the rule of appearance, also affirming that «the present case entails that the policy was ineffective, because the premium was not paid, so the cover could not attach before payment was performed (art. 1901 of the Civil Code). However, the sub-agent released the certificate of insurance and the insurance sticker».

This particular statement does not appear to be accurate.

It is a well-known principle in the case law that if the agent has the power to represent the company, it has also the power to collect the premiums, or more generally the sums owed to the insurer (Cass. 16 December 1991 n. 13523).

Scholars have then clarified that based on the Civil Code principles payment performed to the agent or to his employees or associates is fully satisfactory, even if the money is not forwarded to the undertaking (Rossetti).

It has also been argued that art. 1901 c.c. does not apply, so that insurance cover duly attaches, if the insured was unable to pay the premium for the insurer's fault, as when the premium is collected at the insured's premises and there is a "no show" of the person instructed by the insurer for collection in the agreed day and time (Buttaro).

Although this latter opinion may be sound a bit radical, it is undoubted that art. 1901 only provides for abeyance of cover if «the policyholder does not pay the premium».

In the case brought to the Court's attention, the policyholder timely paid the premium to the duly empowered agent's collaborator.

Therefore, reference to the art. 1901 of the Civil Code does not seem to be justified here. There is no evidence that the insurer rejected the claim because of art. 1901 (on the opposite, we understand that he paid the claim), but he could not have done so anyway, as the policyholder had paid it to his duly empowered representative.

Also the rule of appearance seems to be out of context here. The Court might have relied, more consistently with the law, on the principle that payment made to the creditor's representative is fully satisfactory under art. 1188 and 1903 of the Civil Code.

In other words, in this case there was no need to safeguard the trust of the policyholder (or the damaged party) in the validity of the contract in spite of an inherent vice to it (as in the case of agent acting beyond the scope of his powers), as a thoughtful application of the provisions of the law should have led to the conclusion that the policy (and the related premium payment) had been duly executed between the parties and their respective representatives.

Of course, the law is now even clearer because of art. 118 of the Insurance Code, providing that «the premium payment made in good faith to intermediaries or their collaborators is regarded as made directly to the insurance undertaking».