Periodic Penalty Payment and Insurance: When the Judge Orders You to Pay, the Insurer May Refuse to Cover the Periodic Penalty Payment

Imagine: you own a house in Mehun-sur-Yèvre, and after years of litigation with your neighbour, the court orders you to demolish a structure encroaching on his land. You delay, you contest, and finally the judge imposes a periodic penalty payment of €100 per day of delay. You think your civil liability insurance will cover this amount? Wrong. A decision of the Court of Cassation of 17 April 2008 (No. 07-10.065) sets the record straight: the periodic penalty payment is not damages, and the insurer does not have to pay it. Why? Because the periodic penalty payment has a punitive and coercive purpose, not a compensatory one. And if you resist a decision, it is your choice, not your insurer's.

This issue, I have seen it arise in Bourges as elsewhere: a contractor who does not comply with a planning permission, a tenant who refuses to leave premises after notice, a co-owner who blocks works. All believe their insurance covers them. But the case law is clear: the periodic penalty payment is your personal affair. So, how to avoid ending up with a hefty bill? Analysis.

The facts: a story like many that happen every day

The case begins with a planning permission granted on 28 January 1988 by the municipality of Mehun-sur-Yèvre. A property owner, Mr X, obtains permission to build a structure, but without specifying its height. His neighbour, Mr Y, contests: the building, once completed, exceeds planning rules and deprives him of light. A long legal battle ensues.

In 1992, the Bourges Court of Appeal rules in favour of Mr Y and orders Mr X to reduce the height of his building, subject to a periodic penalty payment of €150 per day of delay. Mr X does not comply. He appeals, but the Court of Cassation confirms in 1995. Meanwhile, the periodic penalty payment continues to accrue… and the amount reaches tens of thousands of euros.

Mr X then turns to his civil liability insurer, hoping to be covered. The insurer refuses: the periodic penalty payment, it says, is not a loss covered by the contract. Mr X sues the insurer, but the Bourges Court of Appeal dismisses his claim in 2006. The Court of Cassation, in its judgment of 17 April 2008, confirms: the periodic penalty payment is independent of damages (sums intended to compensate for harm), and its purpose is to compel the party to comply with a decision. Consequently, if the insurance contract does not expressly mention the periodic penalty payment, the insurer is not required to cover it.

The reasoning of the court — analysed

The Court of Cassation relies on Article 1240 of the Civil Code (formerly Article 1382), which provides that "any act of man which causes harm to another obliges the person by whose fault it occurred to repair it." Damages compensate for harm suffered. But the periodic penalty payment does not compensate for anything: it punishes the delay in complying with a court decision.

The highest court clarifies that the periodic penalty payment "by its very nature, aims to compel the party to comply with a judicial decision." It is a coercive measure, not an indemnity. The trial judges (the Court of Appeal) had found that Mr X's insurance contract did not mention the periodic penalty payment in the definition of covered risks. Logically, because civil liability insurance covers the consequences of a fault (for example, a construction defect causing damage to a neighbour), but not the deliberate resistance to a court order.

The judgment confirms consistent case law: since 1996 (Civ. 2nd, 6 March 1996), the Court of Cassation has clearly distinguished the two concepts. Here, it goes further by specifying that even if the periodic penalty payment is linked to a loss (the construction defect), it remains a personal penalty for the insured. The insurer does not have to bear the consequences of its insured's resistance. In other words, if you refuse to obey a judge, it is your choice, and you bear the cost.

What this means for you — concretely

For a landlord: if you are ordered to carry out works (for example, bringing a substandard dwelling up to standard in Bourges) and you delay, the periodic penalty payment that accumulates will not be reimbursed by your insurance. I have seen a case where the amount reached €15,000 for six months of delay.

For a tenant: if you refuse to leave premises after notice for sale, the judge may set a periodic penalty payment per day of occupation. Your home insurance will not pay. You will have to pay out of your own pocket.

For a purchaser: if you buy a property and the seller does not comply with his obligations (for example, to provide a diagnostic report), the periodic penalty payment for delay is not covered by his insurance. You can claim damages, but the periodic penalty payment is a different matter.

For a property professional (developer, builder): if you do not comply with a planning permission, as in the Mehun-sur-Yèvre case, the periodic penalty payment can be massive. Your professional insurance may cover any damages, but not the periodic penalty payment. Check your clauses.

If you are in this situation, you must act quickly: either comply with the decision to stop the periodic penalty payment, or ask the judge to reduce or cancel it (if you prove impossibility of compliance). But do not rely on your insurer.

Four tips to avoid this type of dispute

• Read your insurance contracts: especially the exclusions. If the periodic penalty payment is not mentioned as a covered risk, consider it not covered. Request an endorsement if necessary.
• Comply with court decisions without delay: as soon as a judgment is rendered, even if you appeal, the periodic penalty payment often runs. Call your lawyer to know if provisional enforcement is ordered.
• Negotiate a payment schedule: if you cannot comply immediately, apply to the enforcement judge for a time extension or reduction of the periodic penalty payment. Better to ask than to suffer.
• Anticipate in your contracts: if you are a professional, include a clause in your construction or sale contracts providing that periodic penalty payments are the responsibility of the defaulting party, without recourse against the insurer.

Further reading: related case law and developments

This decision is part of a consistent line of authority. As early as 1996, the Second Civil Chamber of the Court of Cassation (Civ. 2nd, 6 March 1996, No. 94-12.456) held that the periodic penalty payment is not compensation but a coercive measure. More recently, in 2015 (Civ. 2nd, 12 March 2015, No. 13-27.079), the Court reiterated that the periodic penalty payment is "independent of damages" and cannot be covered by the insurer unless expressly provided.

The trend is therefore clear: the courts are strict. No legislative development has changed this position. In practice, insurers increasingly include clauses explicitly excluding the periodic penalty payment. If you want coverage, you would need specific insurance (e.g., enhanced legal protection), but even then, limits are low.

For the future, nothing suggests a change. The logic is simple: liability insurance covers accidents, not deliberate decisions to disobey the court.

Checklist before acting

• Q: Can I contest the periodic penalty payment if I cannot afford to pay?
  A: Yes, you can apply to the enforcement judge for a revision (reduction or cancellation) if you prove that compliance is impossible or excessively difficult.
• Q: Is the periodic penalty payment due if I appeal?
  A: Yes, unless the judge ordered provisional enforcement. Generally, the periodic penalty payment runs during the appeal.
• Q: Can my insurance reimburse me afterwards?
  A: No, unless a very specific clause in your contract. The case law is firm.
• Q: What if the periodic penalty payment has already reached a huge amount?
  A: Comply immediately to stop the clock, then ask the judge for a reduction due to the late but spontaneous compliance.
• Q: Can I negotiate with my neighbour or the other party to avoid the periodic penalty payment?
  A: Yes, a settlement (agreement) can end the dispute and the periodic penalty payment. But it must be approved by the judge if it occurs after the decision.

Are you in a similar situation? A first 30-minute consultation with Maître Zakine (€45) can save you months of proceedings — and often much more. Book an appointment →