District court decision
Supreme Court decision
An insurer and a major Finnish public limited company had agreed in a directors' and officers' liability policy that the Finnish courts had jurisdiction to settle any disputes arising from the insurance contract. X was the company's general manager and thereby insured by the policy.
After being charged with a criminal act, X made a notice of claim and requested compensation for defence costs from the criminal proceedings. Consequently, the insurer paid the legal costs of €461,649.44.
However, under the insurance conditions, the insured was obliged to reimburse the insurer for advanced defence costs if the insured was found guilty of a criminal act. X received a suspended sentence and the insurer sought repayment of the defence costs. X repudiated the claim for repayment and the insurer filed a claim with the Espoo District Court. X's domicile at the time was in the United Kingdom.
Pursuant to EU Regulation 44/2001, the dispute was over the issue of whether X was bound by the jurisdiction clause in the insurance policy.
Under Articles 13(3) and (5) of the regulation, the district court examined whether the clause conferring jurisdiction was valid against X. The court held that the valid jurisdiction clause agreed between the insurer and the company could not be relied on against X as the insured third party, although the insurance conditions were an otherwise clear advantage to X. Considering that the purpose of Regulation 44/2001 is to protect the interests of a weaker party, there was no reason to make an exception to the main rule in case of significant risks. The court found that it had no jurisdiction to hear the case.
The Helsinki Appeal Court upheld the decision on June 17 2010.
On February 4 2014 the Supreme Court (KKO 2014:3) confirmed that the Finnish court had no jurisdiction. The Supreme Court stated that the validity of the jurisdiction clause against X must be based on European Court of Justice (ECJ) case law in accordance with the circumstances at the time that proceedings were instigated.
The Supreme Court referred to C-112/03, Paragraph 31 and stated that by aiming to protect the economically weaker party, the provisions which derogate from the jurisdictional rules in insurance matters must be interpreted strictly. The Supreme Court noted the ECJ's finding that a literal interpretation of the provisions does not disclose whether or under what conditions a jurisdiction clause may be relied against an insured beneficiary. However, taking the rules' aims into consideration, a jurisdiction clause cannot be relied on against a beneficiary under a contract which has not subscribed expressly to that clause and is domiciled in a contracting state other than that of the policy holder and insurer. The Supreme Court pointed out that in insurance matters, EU Regulation 44/2001 has strengthened the position of the weaker party when compared with protection resulting from the Brussels Regulation (C-463/06, Paragraph 28). The Supreme Court also referred to ECJ Case C‑543/10, where the ECJ held that in order for a third party to be bound by the jurisdiction clause, that the third party must have consented to the clause under the conditions of Article 23.
Unlike the lower court decisions, the Supreme Court's decision was based on Articles 12(1) and 23. The Supreme Court stated that the insured's position was protected by mandatory jurisdiction rules, and the parties to the insurance could not have bound X to the agreement giving the insurer the right to issue proceedings in a member state other than that in which X was domiciled at the time proceedings were instigated. In this regard, the questions referred by the insurer regarding whether there was a valid jurisdiction between the insurance parties pursuant to Article 13(3), and whether the policy was a large-risk policy pursuant to Article 13(5), were irrelevant in relation to X's position as insured.
Finally, the Supreme Court considered that an insured might be bound by a jurisdiction clause in an insurance contract if the clause has been expressly accepted by the insured in accordance with Article 23. However, in this case it had not been contended that X had accepted the jurisdiction clause in that way. The court stated that X's position as a general manager of the company and the fact that he had been paid compensation in accordance with the insurance policy did not indicate his acceptance of the jurisdiction clause.
For further information on this topic please contact Matti Komonen or Herman Ljungberg at Hammarström Puhakka Partners, Attorneys Ltd by telephone (+358 9 474 2207), fax (+358 9 474 2247) or email ([email protected] or [email protected]). The Hammarström Puhakka Partners, Attorneys Ltd website can be accessed at www.hpplaw.fi.