Direct actions against insurers - floodgates now open? July 2017
In a decision with significant implications for P&I Clubs and other insurers, the European Court of Justice has set aside a jurisdiction agreement in an insurance policy and allowed a claimant to bring its action directly against the insurer.
As reported in our href="http://www.hfw.com/A-victory-for-insurers-September-2016">briefing a tug caused damage to the quay installations in the Port of Assens, Denmark (the port). The tug's bareboat charterer (Skåne Entreprenad) was entered for P&I risks with Navigators Management (UK) Limited (Navigators). The insurance policy was governed by English law and subject to the exclusive jurisdiction of the courts of England and Wales. Navigators' rules also provided that the insurance should be subject to English law and the exclusive jurisdiction of the High Court in London.
Skåne Entreprenad subsequently became insolvent, and the port brought a claim directly against Navigators. Navigators successfully defended the claim in the Danish Maritime and Commercial High Court on the basis that the Danish courts did not have jurisdiction to determine the claim because the port was bound by the jurisdiction agreement in the P&I policy. The port appealed to the Danish Supreme Court on the issue of jurisdiction. Since this question involves the interpretation of a rule of EU law1, the Danish Supreme Court referred to the ECJ the question whether a party bringing a direct action against an insurer is bound by a jurisdiction agreement in the insurance policy.
EU Legal principles
As in cases involving workers or consumers, with actions involving insurance there is an inherent imbalance between the parties. Brussels Regulation 44/2001 (Brussels I) seeks to redress this imbalance by giving the weaker party the benefit of more favourable rules on jurisdiction. The Recitals to Brussels I provide that "The rules of jurisdiction must be highly predictable"2, but that "In relation to insurance ... the weaker party should be protected by rules of jurisdiction more favourable to his interests than the general rules provide for." 3 In particular, the victim of insured damage is entitled to sue the insurer in the courts of the place where the harmful event occurred, provided that the national law permits such a direct action.
The general rule is that an insurer may be sued in the courts of the Member State where he is domiciled4 or, in the case of actions brought by the insured or a beneficiary, in the courts of the place where the claimant is domiciled5. In respect of liability insurance, the insurer may additionally be sued in the place where the harmful event occurred6. These provisions apply to direct actions against the insurer, in jurisdictions where such direct actions are permitted7.
Section 3 Articles 13(5) and 14(2) of Brussels I together provide that these general rules may be derogated from by a jurisdiction agreement "… which relates to a contract of insurance in so far as it covers ... any liability, other than for bodily injury to passengers or loss of or damage to their baggage… arising out of the use or operation of [seagoing] ships…"
The question was, is an injured party bringing a direct action against an insurer bound by such a jurisdiction agreement concluded between the insurer and insured?
The ECJ noted that Article 11(2) of Brussels I, which provides that the general rules on jurisdiction apply also to direct actions against an insurer, does not refer to jurisdiction agreements. There is therefore no express provision in Brussels I allowing a jurisdiction agreement to be invoked against a victim.
Given the Regulation's aim of protecting the economically weaker party in matters of insurance, and the provision that jurisdiction agreements have no legal force if they are contrary to Article 13, the ECJ concluded that derogations from the general jurisdictional rules in matters of insurance must be followed strictly.
Moreover, the ECJ noted that a third party victim of insured damage is even farther removed from the contractual agreement on jurisdiction than an insured party who did not expressly consent to that agreement. The ECJ therefore took the view that an agreement on jurisdiction concluded between an insurer and insured cannot be invoked against such a third party victim who wishes to bring an action directly against the insurer in the place where the harmful event occurred.
Accordingly, a victim entitled to bring a direct action against the insurer of the party which caused the damage is not bound by any jurisdiction agreement made between the insurer and that party.
As anticipated in our previous briefing, this decision has potentially wide-ranging consequences for insurers, who may face claims from unknown parties in unknown jurisdictions (and subject to unfamiliar procedural rules) which were never contemplated in the insurance contract. Unlike the insurance policy in this case, P&I Club rules typically provide for disputes to be resolved in arbitration rather than in the courts. Since arbitration is expressly excluded from the scope of Brussels I, in those circumstances it would be up to the court where the direct action was brought to determine (without regard to Brussels I) whether to stay the action in favour of the agreed place of arbitration. It remains to be seen, therefore, whether the floodgates have been opened for an increase in direct actions against insurers.
The English text of the ruling is available at href="http://curia.europa.eu/juris/document/document.jsf;jsessionid=9ea7d2dc30d655b2788246294d41b10dce921f6b7ac7.e34KaxiLc3qMb40Rch0SaxyMaxz0?text=&docid=192701&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=124682">http://curia.europa.eu/juris/document/document.jsf;jsessionid=9ea7d2dc30d655b2788246294d41b10dce921f6b7ac7.e34KaxiLc3qMb40Rch0SaxyMaxz0?text=&docid=192701&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=124682.
For more information, please contact the authors of this briefing:
Paul Dean Partner, London T +44 (0)20 7264 8363 E href="mailto:email@example.com">firstname.lastname@example.org
Emilie Bokor-Ingram Senior Associate, London T +44 (0)20 7264 8463 E href="mailto:email@example.com">emilie.bokor-ingram @hfw.com
- Articles 13(5) and 14(2)(a) of Brussels Regulation 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (OJ 2001 L 12, p. 1) ("Brussels I")
- Recital 11
- Recital 13
- Article 9(1)(a) of Brussels I
- Article 9(1)(b) of Brussels I
- Article 10 of Brussels I
- Article 11(2) of Brussels I