CJEU holds that third party bringing a direct action against a marine insurer is not bound by jurisdiction/choice of law agreement between insurer and insured
Under Regulation 44/2001 (which has since been replaced by Regulation 1215/2012, but the relevant provisions in this case have remained the same), special jurisdiction rules apply to insurance (but not reinsurance) contracts. Broadly, an insured can only be sued in the place of his domicile although the insured can sue its insurers in his own domicile, or that of the insurers, or in the place of the loss (usually that position applies even if there is a valid jurisdiction clause, but there are some exceptions, one of which is referred to further below). The Regulation further provides that an injured third party which is allowed under local law to bring a direct action against an insurer is also permitted to sue the insurers, in his own domicile, or that of the insurers or in the place of the loss. Of issue in this case is whether a valid jurisdiction clause in the insurance contract can override that position in respect of the injured third party. The CJEU has now held that it cannot.
The facts of the case are that a Swedish charterer took out liability insurance with the UK insurer. The vessel caused damage to the Port of Assens in Denmark, which sought to bring a subrogated claim against the insurer under Danish law when the Swedish charterer/insured went into liquidation. The insurance policy contained an English choice of law and jurisdiction clause and the issue was whether the Danish courts nevertheless could hear the claim brought by the Port of Assens.
The fall-back provisions regarding jurisdiction and insurance referred to above can be departed from by (amongst other things) a jurisdiction agreement which relates to a policy which covers risks set out in Article 14 of Regulation 44/2001 (which includes "any liability….arising out of the use or operation of ships…"). However, it was held that that article does not apply to direct action claims brought by an injured third party – it only applies to actions between the insurer and the insured. Hence the third party was not bound by the English jurisdiction clause: "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… or before the courts for the place where the victim is domiciled".
COMMENT: The Third Parties (Rights against Insurers) Act 2010 is the UK equivalent of the Danish Act which gave rise to the third party direct action against insurers in this case. It applies where the insolvency procedure takes place under the law of one of the parts of the UK. However, jurisdictional issues regarding where that claim should be brought are governed by Regulation 44/2001 or, now, Regulation 1215/2012. Although marine and aviation and "large risks" insurers can in certain circumstances contract out of the jurisdictional rules laid down by the Regulations in their policies, this case confirms that that contracting out will not affect the ability of an injured third party which can bring a direct action against insurers to rely on those jurisdictional rules. Whilst (as the CJEU pointed out) the third party never directly contracted out of jurisdiction in the first place, the decision is noteworthy because the third party's claim is still a subrogated/assigned claim and usually third parties can have no better rights than the insured into whose shoes they step. Nor will insurers be able to protect themselves against this risk, in the absence of the third party's agreement.