Maritime and Commercial High Court decision
Supreme Court decision
As noted in a previous update, the European Court of Justice (ECJ) decided that a jurisdiction clause agreed between an insurer and its insured does not bind a plaintiff claiming directly against the insurer (for further details please see "Jurisdiction clause agreed by insurer and insured does not bind injured party claiming directly against insurer"). The decision implied that the plaintiff could instigate legal proceedings where the harmful event occurred or where the plaintiff is domiciled if the national law applicable to the question of direct action grants a right to claim directly against the liability insurer of the tortfeasor (Article 11(2) of the EU Brussels I Regulation). In case of the insolvency of the insured tortfeasor, Section 95(2) of the Danish Insurance Act provides a legal basis for direct claims against the insurer.
In its follow-up decision of October 9 2017, the Supreme Court was tasked with deciding the law applicable to direct action claims. The decision is noteworthy, as the court analysed the choice of law question of direct action independently from the choice of law principles relating to the contract of insurance and lex loci delicti (ie, the law of the place where the tort occurred).
A Swedish carrier SES bareboat chartered a tugboat from its owners SST, in Norway. SES used the tugboat to transport, among other things, sugar beet to a plant in Nykoebing Falster, Denmark. During carriage from the Port of Assens in Denmark to Nakskov, the tug caused damage to a pier in the port. SES had taken out charterer's protection and indemnity (P&I) insurance through a Swedish insurance broker and the cover was provided by Lloyd's of London. The insurance was subject to English law and it followed from the insurance contract that disputes with the insurer were to be exclusively decided by the High Court in London:
"This insurance shall be governed by and construed in accordance with English law and, in particular, be subject to and incorporate the terms of the Marine Insurance Act 1906 and any statutory modification thereto. This insurance, including any dispute arising under or in connection with it, shall also be subject to the exclusive jurisdiction of the High Court of London."
SES was subsequently declared bankrupt and legal proceedings – in order to obtain compensation for the damage caused to the pier – were brought directly by the port against the insurer before the Maritime and Commercial Court pursuant to Section 95 of the Insurance Contracts Act, which provides for an injured party to claim directly against the liability insurers of the party which is alleged to be liable for the damage. During the proceedings, the insurer submitted that the Danish court did not have jurisdiction to hear the dispute and referred to the exclusive jurisdiction clause in the insurance contract. In particular, the insurer submitted that the jurisdiction agreement also applied to the claim brought by the Port of Assens. The port disputed that the jurisdiction clause was of relevance to the proceedings.
Maritime and Commercial High Court decision
The Maritime and Commercial court found that the jurisdiction clause in the insurance contract was binding on the Port of Assens, as the court found that the injured party claiming damages "steps into the rights of the insured against the insurer", including any special terms and conditions applicable between these parties – in this case, the choice of law and jurisdiction agreement providing for jurisdiction in England and Wales. Consequently, the court dismissed the case.
The judgment was appealed to the Danish Supreme Court, which requested a decision from the ECJ as to whether Article 13(5) and Article 14(2) of the EU Brussels I Regulation should be interpreted to mean that an injured party which, pursuant to national law, is entitled to bring proceedings directly against the liability insurers of the liable party is bound by a jurisdiction agreement entered into between the insurer and the policyholder in accordance with Article 13(5) and Article (14)(2)(a) of the EU Brussels I Regulation (for further information please see "Supreme Court asks ECJ whether jurisdiction clause binds third-party proceedings against P&I insurer")
The ECJ decided as follows:
"Article 11(2) of Regulation No 44/2001, pursuant to which Articles 8, 9 and 10 of that regulation apply to direct actions brought by a victim against an insurer, does not refer to Articles 13 and 14 of that regulation and, accordingly, agreements of prorogation of jurisdiction. It is therefore not apparent from the scheme of the provisions of Chapter II, Section 3, of Regulation No 44/2001 that an agreement on jurisdiction may be invoked against a victim… The view must therefore be taken that an agreement on jurisdiction made between an insurer and an insured party cannot be invoked against a victim of insured damage who wishes to bring an action directly against the insurer before the courts for the place where the harmful event occurred, as recalled in paragraph 31 of this judgment, or before the courts for the place where the victim is domiciled."(1)
Given that ECJ decision C-368/16 clarified that a jurisdiction clause entered into between an insurer and an insured party could not be invoked against a victim of insured damage, the Port of Assens could bring an action directly against the insurer before the courts where the harmful event had occurred, provided that the direct claim had a legal basis under the applicable law.
As Section 95 of the Insurance Contracts Act provides a right for an injured party to claim directly against the liability insurers of the party which is found to be liable for the damage, the merits of the legal proceedings were dependent on whether Danish law was applicable to the plaintiff's direct action.
The Supreme Court emphasised that in its view, the ECJ had not made the plaintiff's right to bring a direct claim against the insurer contingent on whether the plaintiff was the less resourceful party in legal or economic terms.
The English insurer argued that the Supreme Court should dismiss the direct action, as the ordinary choice of law rules contained in Articles 3 and 12 of the Convention on the Law Applicable to Contractual Obligations 1980 dictated that English law was to apply to the insurance contract. However, considering that that no contractual relations were in place between the insurer and the plaintiff, the Supreme Court found the convention to be inapplicable to the direct action dispute.
Instead of considering the insurance contract or lex loci delicti to be decisive, the Supreme Court analysed the choice of law question on direct action independently and considered the particulars of the case, including:
- where the harmful event had occurred;
- the plaintiff's domicile;
- the fact that the insured had carried out business activities in Denmark when the damage occurred;
- the fact that the insurer's domicile was in England; and
- the English law clause in the insurance contract.
Having considered all of these elements, the court found that:
- the direct action claim had the strongest link to Denmark;
- Danish law, including Section 95(2) of the Insurance Contracts Act, should apply to the question of direct action; and
- the plaintiff had rightfully instigated legal proceedings in Denmark.
In international direct action disputes against an insurer, courts must exercise a choice of law analysis to determine which country's law applies to the question of direct action. The test may be subject to different approaches and the resolution of choice of law conflicts may have substantive and practical effects on the chances of successfully bringing a case against the tortfeasor or its insurer. The wording of the Supreme Court's decision suggests that the choice of law analysis applied only in respect of the question of direct action.
One particular insight that can be gleaned from the Supreme Court's decision is the distinction between the court's choice of law analysis regarding the question of direct action and the choice of law regarding liability and the insurance contract, including the scope of coverage and exemptions. When deciding on the law applicable to the question of direct action, a general distinction is conventionally drawn between analysis based on lex causae (ie, the law of the case) and the principle of lex loci delicti and the law of the insurance contract. The insurer in this case argued that the latter was to prevail on the point of direct action, but – given that contractual relations between the insured and the plaintiff did not continue – the Supreme Court dismissed that point.
The Supreme Court's decision is noteworthy given that it made the choice of law analysis subject to a more flexible approach, which considered several particular factors, including the insurance contract. In Danish law, this approach is termed the 'individualising method', which dictates that when deciding the law applicable to a direct action dispute, the court will consider the particulars of the case, including elements pertaining to:
- the insurance contract between the insurer and the insured; and
- the tort between the tortfeasor and the plaintiff.
For further information on this topic please contact Jesper Windahl or Rósing Rasmussen at Windahl Sandroos & Co by telephone (+45 3525 3800) or email ([email protected] or [email protected]). The Windahl Sandroos & Co website can be accessed at www.wsco.dk.