Application fraud

On February 7, 2014, the mixed chamber of the French Cour de cassation laid down a rule every French underwriter knows: an insurer can only rely on a misrepresentation if it arises from answers to questions the insurer itself asked when the contract was concluded. Application fraud plays out precisely in those answers. The policyholder lies to pay less. He gives a provincial address while the car sleeps in the Paris suburbs, lists a parent as main driver instead of the nineteen-year-old son (what the British call fronting), keeps quiet about two claims and a cancellation by the previous insurer, or presents a warehouse as an office. The Insurance Code handles the response on two levels. If the misrepresentation is intentional and changes the subject of the risk or the insurer's assessment of it, article L. 113-8 renders the contract void, and the premiums paid remain with the insurer as damages. If bad faith is not established, article L. 113-9 applies: discovered before a loss, the omission allows the insurer to maintain the contract against an additional premium or to cancel it; discovered after, the indemnity is reduced in proportion to the premium rate paid compared with the rate that should have been paid. The whole difficulty lies in proving intent, which rests on the insurer and which trial judges assess at their own discretion. Insurers now cross-check declarations against claims history, geocoding of the address and vehicle data, and online distribution has shifted the fraud towards repeated quotes, where the applicant tweaks an answer until the premium drops. The heaviest case remains fraud uncovered on the back of a large motor bodily injury claim: avoidance hits the policyholder, but the insurer cannot in principle raise it against the victim, whom it compensates before turning against its own client.