1. INSURANCE - GREECE
Supreme Court affirms validity of 'claims-made' and
'loss discovered' clauses in professional risk cover
July 05 2016 | Contributed by Zemberis, Markezinis, Lambrou & Associates
Facts
Arguments
Decision
Comment
The Supreme Court for civil matters, sitting in plenary session, has issued a judgment (Decision
18/2015) on the validity of 'claims-made' policy clauses. Ending a long period of judicial uncertainty,
the Supreme Court ruled that, insofar as insurance contracts covering professional risks are
concerned, the claims-made principle is fully valid and enforceable. The insurance market has thus
breathed a sigh of relief.
Facts
The Supreme Court rules in plenum and in nine chambers. One of the plenary session's tasks is to
ensure the coherence of jurisprudence generated by the lower civil courts by interpreting the law on
important issues where the courts deviate in their approach. In this context, the Supreme Court's
Civil Law Chamber A1, first seized by the claimant's request for cassation, referred two of the
claimant's reasons for reversal of the Court of Appeal decision to the plenum.(1)
In the framework of bankers' blanket bond cover, the underwriter issued an employee fidelity policy
that contained the following language:
"this policy applies to a loss which was discovered by the insured during the policy period.
Discovery takes place when the insured acquires knowledge of facts which would cause a
reasonable person to assume that some loss covered under this policy has or is about to
occur… this policy does not cover any loss which was not discovered during the policy
period and any loss which occurred prior to the retro-active date mentioned in the
schedule… it is a condition precedent to the insured's right to be indemnified under this
policy, that the insured reports in writing to the insurer any loss discovered as soon as
practicable and in any case within 14 days from discovery date."
An employee of the insured bank embezzled a considerable amount of money. The insured, as
claimant, never disputed the fact that while the actual embezzlement occurred during the policy
period, it was discovered and reported to the underwriter long after the policy period had expired.
Arguments
Claimant's arguments
The claimant put forward two primary arguments in its request for cassation. The claimant first
contended that the policy's discovery period clause was invalid under the law governing insurance
contracts (Law 2496/1997). Article 7.1 of this law states that "[t]he policyholder shall notify the
insurer of the occurrence of the insured event within eight days of the date on which the
policyholder acquired knowledge thereof". Moreover, Article 7.2 states that "[t]he wilful violation by
the policyholder of the obligations set out in paragraph 1 of this Article shall grant the insurer the
right to claim damages". The claimant therefore alleged that any policy language that limits the
AUTHOR
Athanassios
Lambrou

2. insured's right to claim against the underwriter by establishing a timeframe for reporting the loss
other than that stated in Article 7.1 cannot be validly agreed by the parties. According to the
claimant, the policy in question imposed on the insured a duty to report, within the policy period, a
loss of which it may become aware much later. This constituted an impermissible compromise of the
insured's interests, since Article 33.1 of the law states:
"Any and all acts which have the effect of limiting the rights of the policyholder, the insured
or the beneficiary of the indemnity shall be null and void, unless otherwise specifically
stipulated in this Law. This shall not apply to insurance for the carriage of goods, credit
insurance or guarantee insurance, or marine or air insurance."
On this basis, no agreement which limits the insured's rights can validly be made, with the exception
of agreements relating to one of the five commercial risks mentioned in Article 33.1 or cases in which
the law specifically allows for such.
The claims-made principle was the main legal topic addressed by the first and second-instance courts
when dismissing the claimant's case. The claimant's second argument was that this principle was
completely irrelevant to the present case, as it is conceivable only within the framework of liability
insurance, where the underwriter may have to maintain reserves for a long time after the policies
have expired. In the litigation at hand, a 'first-party' policy or 'own-risk' cover had been provided (ie,
employee fidelity) and liability insurance was never invoked. No third party ever claimed any
amount from the insured. The sole issue was whether the underwriter could lawfully be released from
its obligation to indemnify, as the loss was discovered by the insured after the end of the discovery
period granted under the policy.
Defendant's arguments
In response to the claimant's two arguments, the defendant insurer first cited Articles 7.5 and 7.6 of
the law:
"7.5) The insurer shall not be obliged to pay the insurance indemnity if the insured event, in
case of non-life insurance, occurred due to wilful misconduct or gross negligence of the
policyholder or the insured, the beneficiary of insurance, or the persons dwelling with any
of them, or their legal or other representatives, or third parties entrusted professionally to
safeguard the insured item… 7.6) The terms of the policy may provide for an increased
number of cases in which the insurer's liability shall be excluded, if the policyholder or the
insured concludes the policy with a view to covering professional risks."
The defendant alleged that Article 7.6 is a special provision (in the sense of Article 33.1) that allows
the parties to agree on a limitation of the insured's rights if the latter's professional risks are covered
by the policy. According to the defendant, this stipulation is clear and any attempt to construe it
differently would be aninterpretation against the letter of the law that would be difficult to uphold.
The claimant disputed this contention, holding that Article 7.6 should be read together with Article
7.5 and that the former applies only to the provisions of the latter – that is, the sole aim of Article 7.6
is to allow parties to deviate from the degree of fault described in Article 7.5.
Further, the defendant argued that the insured's compliance with its obligation to notify the insurer
within eight days of becoming aware of the loss (pursuant to Article 7.1 of the law) was not the
criterion for the insurer's liability, as the claimant contended; this specific obligation was merely a
duty of timely notice upon discovery of the loss. According to the defendant, the decisive issue was
whether the loss is discovered within the policy period. If it is not – as in this case – the insurer's
liability cannot be triggered, as the risk would fall outside the contractual limits agreed by the
parties.
The defendant further contended that although the claims-made principle is linked to liability and
not to first-party policies, it is not inconceivable that this principle could be applied by analogy to
first-party insurance. In certain types of first-party cover, the insured may become aware of a loss
suffered long after the event causing the loss has taken place. This is particularly true in crime
insurance, where the insured will become aware of (for example) its employees' fraudulent acts long
after they occurred, especially when it comes to large credit institutions. For this reason, the
international insurance market often offers crime coverage of bankers' blanket bond policies on

3. either:
l a 'loss discovered' basis, which covers losses discovered by the insured during the policy
period and is conceptually similar to the claims-made policies of the liability cover; or
l a 'loss sustained' basis, which covers losses that occurred during the policy period (and that
are usually also discovered in the same period) and resembles occurrence-type liability
policies.
Risk carriers – being aware that, in crime insurance as in liability insurance, their own liability can be
triggered well after the end of the policy period – have sought to manage their exposure through the
loss discovered/claims made and loss sustained/occurrence wordings, respectively.
Decision
The plenum's judge-rapporteur issued his recommendation a few days before the hearing. He
recommended that the claimant's position be accepted by the Supreme Court and that the
underwriters be found liable to indemnify the insured. However, in a rather unusual move, the
plenary session rejected the judge-rapporteur's recommendation (albeit not unanimously) and
dismissed the claimant's cassation request with regard to the two reasons for reversal that were
submitted to the plenum. It then remanded the case to the chamber for examination of the other two
reasons for cassation invoked by the claimant.
The decision did not address the issue of whether the examined policy was rightfully designated a
claims-made policy by the lower courts and the referring chamber. The Supreme Court continued to
refer to this policy as a claims-made policy, since:
"the occurrence of a harmful event during the policy period does not constitute a sufficient
condition for the insurer's liability to be triggered, but the insured must also, during the
same period, claim the insurance amount from the insurer, or, in a more lenient variation,
report the occurrence to the insurer, thus having to discover the occurrence during the
policy period (loss-discovered clause)."
With this language, the Supreme Court essentially placed the loss discovered concept within the
framework of the claims-made principle.
A number of other critical issues were addressed in the decision:
l The wording of consumer policies is subject to the protections provided by Article 33.1 of the
law. The insured consumer is contractually the weakest party and its rights cannot be limited
beyond what is provided in the law (ie, unless the law itself allows for such limitation under
specific circumstances).
l In claims-made or loss discovered policies, the insured's obligation to discover and report the
loss to the underwriter does not constitute a mere "behavioural duty" of the insured (like the
notification under Article 7.1 of the law), non-compliance with which will not affect the
insured's right to claim indemnification. According to the court, "[i]t constitutes a condition,
the fulfilment of which is necessary for the validity of the insured's claim against the
underwriter".
l Art. 7.6 of the law is a standalone provision and does not qualify the content of Article 7.5.
This grants the parties to a professional risk insurance contract the freedom to agree on terms
exempting the insurer's liability beyond the provisions of the law.
Comment
According to the Supreme Court, a first-party policy with a discovery clause (in this case, a crime
policy with a 'loss discovered' clause) falls within the broader concept of claims-made policies.
Despite the qualitative difference between first-party risks and third-party liability risks, the core
reasoning behind the market's invention of these two types of clause is quintessentially the same: the
inevitable time lag between the factual element of the loss-generating event and the manifestation of
its consequences (ie, the third-party claim or the discovery of monetary loss). The grounds for
implementation of discovery periods in both cases are identical to those for liability and first-party

4. policies – they address the 'incurred but not reported' problem, as they contain the claim potential
after expiration of the policy period, allowing insurers to release or reallocate reserves much sooner
than they would have had the policies been based on the loss occurrence or loss sustained concept.
Besides, it is widely accepted that loss discovered polices are similar to claims made liability policies,
while loss sustained policies are akin to occurrence-triggered liability policies. Naturally, the
decisive parameter for obtaining maximum benefits for both parties to the insurance contract in
claims made and loss discovered policies is to intelligently and equitably establish what constitutes a
claim and/or discovery.
The decision also reaffirms a basic principle of claims-made (and reported) policies, which also
applies to loss discovered policies: the notice to the insurer of an underlying claim and the discovery
(and report) of a loss are not simple behavioural duties of the insured (whose breach may have no
impact if the insurer's position is not compromised); instead, they are the criteria for whether the
underwriter's liability is triggered (ie, they define the scope of cover). If the claim is not made and
reported to the insurer in liability risks and if the loss is not discovered and reported in first-party
risks, the injury suffered by the insured falls outside of the scope of cover that the underwriter has
provided.
Finally, the decision establishes that Article 7.6 of the law allows parties to an insurance contract
covering professional risks to limit the insured's rights described in the law, thus ending a period of
uncertainty on this critical matter for the insurance industry. Therefore, under Greek law, claims-
made and loss discovery clauses can validly be agreed by the parties in professional risk insurance
policies.
For further information on this topic please contact Athanassios Lambrou at Zemberis, Markezinis,
Lambrou & Associates by telephone (+30 210 363 6016) or email (athlambrou@zmlaw.gr). The
Zemberis, Markezinis, Lambrou & Associates website can be accessed at www.zmlaw.gr.
Endnotes
(1) The chamber's referring decision was Decision 854/2014; for further details please see "Supreme
Court interprets 'claims made' clauses".
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