Facts
- On September 28, 1837, Compagnie d’assurances L’Alliance (L’Alliance), a fire insurer, and Prunier, the insured, entered into a premium fire-insurance policy.
- Article 15 of the policy provided that disputes concerning fire damage, the work of experts (loss assessment), or the execution/performance of the policy would be submitted to arbitration.
- The clause called for a panel of three arbitrators seated in Paris, but it did not name the arbitrators in advance.
- After the policy was executed, a loss and resulting disagreement arose between Prunier and L’Alliance concerning the policy.
- Prunier pursued the dispute before the ordinary civil courts rather than initiating arbitration in Paris.
- L’Alliance relied on Article 15 to argue that the dispute had to be arbitrated and that the courts should decline jurisdiction.
- The controversy reached the Cour de cassation (civil chamber) on review of the lower-court handling of the arbitration clause’s effect.
Issues
- Is a pre-dispute arbitration clause (clause compromissoire) in a fire-insurance policy valid and binding so as to require arbitration and bar proceedings in the ordinary courts?
- Can Article 51 of the Code de commerce (relating to arbitration in commercial matters) be invoked to support enforcement of such a clause in this insurer–insured relationship?
- If the clause is not enforceable, do the ordinary civil courts retain jurisdiction to hear the insured’s claim notwithstanding the contractual reference to arbitration in Paris?
Decision
- The Cour de cassation refused to give binding effect to the policy’s pre-dispute arbitration clause in this dispute.
- The court held that the insurer could not rely on Article 51 of the Code de commerce because the fire-insurance policy did not create “commercial relations” between L’Alliance and Prunier in the sense required for that provision.
- Because the clause could not oust the courts’ authority, Prunier’s action in the ordinary civil courts could proceed.
Legal Principles
- A contractual promise to arbitrate future disputes in an insurance policy could be treated as void or without binding force under the French law of the period, and therefore could not be specifically enforced to force arbitration.
- Statutory rules favoring or requiring arbitration in commercial matters (including Article 51 of the Code de commerce) did not automatically extend to an insurer–insured relationship where the contract was not considered “commercial” between the parties.
- An arbitration clause inserted in a standard-form insurance policy could not, by itself, deprive the insured of access to the ordinary courts when the law did not recognize the clause as binding.
- When a clause compromissoire is ineffective, the state courts remain competent to decide the dispute, and the party resisting arbitration may sue without first obtaining an arbitral submission agreement after the dispute arises.
Conclusion
In Judgment of 10 July 1843, Cie L’Alliance v. Prunier, the Cour de cassation held that a fire-insurance policy’s pre-dispute arbitration clause requiring three arbitrators in Paris could not be enforced to block the insured’s court action; Article 51 of the Code de commerce did not apply because the policy did not create the type of commercial relationship needed to compel arbitration, so the ordinary civil courts retained jurisdiction.