Under the current draft of Rome II adopted by the European parliament on 18 January 2007 (A6-0481/2006), someone who has suffered damage will (in defined circumstances) be entitled to bring a claim directly against the wrongdoer’s insurer. Before too long therefore, English courts are likely to be hearing direct action claims against liability insurers.
The revised draft waters down the original article 14 of the Commission’s 2003 proposal, which had been criticised by the House of Lords in its report (see the European Union-Eight Report, 30 March 2004), by the British government and by the British insurance industry. The concerns of the British insurance industry were echoed by the European parliament, which proposed (in its amendment no 46) to restrict the right to bring direct action claims.
This amendment was accepted by the Council in its common position, which now provides in article 18 as follows: “The person having suffered damage may bring his or her claim directly against the insurer of the person liable to provide compensation if the law applicable to the non-contractual obligation or the law applicable to the insurance contract so provides.”
The combined application of Brussels I (see Regulation (EC) No 44/2001) – which deals with jurisdiction – and Rome II will give English courts jurisdiction to hear direct actions claims against liability insurers in the examples set out below:
The English courts will have jurisdiction to hear a direct action claim where the law of the insurance contract is subject to the law of a member state that recognises direct action.
A French multinational company has a subsidiary in England, which is insured under a master policy that is subject to French law and issued by a French insurer domiciled in France. A person sustains damage in England as a result of the French subsidiary’s activities. The victim can claim directly against the French insurer under article 18 of Rome II, because the law of the policy (French law) recognises direct action. Furthermore, the proceedings can be brought in England because the injured party is entitled under Brussels I to sue in the courts where it sustained damage.
The English courts will have jurisdiction to hear a direct action claim where the law of the non-contractual obligation is subject to the law of a member state that recognises direct action.
An English company, insured under an English liability policy issued by an English insurer domiciled in England, supplies products to both a French company domiciled in France and its French subsidiary domiciled in England. The products manufactured by the English company are supplied to the French businesses under a distribution agreement which is subject to French law. Damage is sustained in France by the French mother company and in England by its subsidiary as a result of faulty equipment being supplied by the English company.
The French mother company can claim directly against the English insurer under Rome II. This is because French law applies to the breach of the non-contractual obligation, since damage has been sustained in France and French law recognises direct action. Furthermore, this claim can be brought in England under Brussels I because the insurer is domiciled in England. Arguably, the French subsidiary can sue the English company’s insurer directly by relying on the exception set out in article 4(3) of Rome II. This exception provides that the law of the non-contractual obligation may be determined by reference to the law of an existing contract between the parties. The distribution agreement in this case is subject to French law and French law recognises direct action. This claim can be brought before the English courts because, under Brussels I, the insurer is domiciled in England.
Existing direct action
A limited form of direct action against insurers already exists in the UK. For example direct action is available in insolvency cases under the Third Parties (Rights against Insurers) Act 1930. In the case of motor accidents, the European Communities (Rights against Insurers) Regulations 2002 also already provide that EU, EEA and British national victims of a motor accident have a direct cause of action against the wrongdoer’s insurers.
If implemented, the proposal will extend direct action against liability insurers to cases where the law of the policy or the law of the non-contractual obligation recognises direct action. It is anticipated that the courts will allow an insurer to run the same defences against the direct victim that it currently has against its insured, as is the case in France. The European Court of Justice will ultimately rule on the scope of this regulation with a view to harmonising its application throughout the EU.
Rome II is likely to be passed by November 2007 at the latest if the Council and the parliament agree on a joint text by then.