Suspension of coverage in case of lack of payment of the premium: the nature of the coverage exclusion and the consequences of the acceptance of the late payment of the premium

The judgment of the Supreme Court of Cassation no. 4357 of 10 February 2022 offers the opportunity to examine the suspension of policy for lack of payment of the premium under article 1901 of Italian Civil Code.

The article at issue states that “If the policyholder fails to pay the premium or the first instalment of the premium set by the contract, the contract remains suspended until twenty-four hours of the day on which the policyholder pays the amount due. If the policyholder fails to pay the subsequent premiums on the agreed dates, the insurance cover shall be suspended from midnight on the fifteenth day after the date on which they fall due [...]”.

In the case at stake before the Supreme Court, the plaintiff argued that:

1. the coverage exclusion should have been declared inadmissible as it was an objection (so called “in senso stretto”) to be raised promptly and not by a late defensive pleadings;
2. the Insurers’ acceptance of the late payment of the premium should have been considered as a tacit waiver of the suspension of insurance cover under article 1901 of Italian Civil Code.

The Court analysed the abovementioned arguments and rejected them.

This ruling is important for two main reasons.

Firstly, the Supreme Court - while considering that article 1901, paragraph 2, of Italian Civil Code constitutes the application of the exception of non-fulfilment as per article 1460 of the Italian Civil Code - denied the nature of exception “in senso stretto” of the exception of suspension of insurance cover. This is because of the peculiarities of the insurance contract in which the insurer’s bearing of the risk is conditional on the payment of the premium and considering the reason of the premium which is the co-participation of the insured in sharing the risks taken out by the insurer.

In relation to the second aspect, the Supreme Court clarified that any claim that occurred during the suspension will not be covered by the policy, even if the insurer has accepted the late payment of the premium by the insured since such acceptance is not sufficient to express the insurer’s wish to renounce to the suspensive effect. On the contrary, the insurer’s waiver of the suspension pursuant to article 1901 of Italian Civil Code can only be inferred from a clear conduct implying a negotiating intention, by which the right to indemnity is acknowledged and the favourable effect of the law is abdicated.