English Jurisdiction Clauses in Insurance Policies and Direct Actions by EU Third Parties: The European Court strikes - Michael McParland QC

On 13 July 2017 the European Court of Justice handed down their ruling in Case C-368/16 Assens Havn v Navigators Management (UK) Limited.  In Assens Havn, the Court held that an English jurisdiction clause in an English law marine insurance policy, between a marine insurer of a tug and its insured policyholder, is not binding in respect of a direct action claim for compensation brought against the insurer by a third party claiming for damage allegedly caused by the insured tug to port installations in Denmark. The Assens Havn case is an important one for anyone advising marine or non-marine insurers in cross-border disputes. Its implications are far-reaching.

The Facts

In 2007, Skåne Entreprenad Service AB (‘Skåne Entreprenad’), a Swedish company, chartered a number of tugs and lighters, including the tug Sea Endeavour I, to carry a cargo of sugar beet between two ports in Denmark, and took out liability insurance with Navigators. The insurance policy contained an English choice of law and exclusive English jurisdiction clause:

‘Choice of law and jurisdiction This insurance shall be governed by and construed in accordance with the law of England and Wales and each party agrees to submit to the exclusive jurisdiction of the courts of England and Wales.’

 Furthermore, Navigator’s conditions of insurance also emphasised that

 “… [t]his 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 under or in connection with it, shall also be subject to the exclusive jurisdiction of the High Court in London (United Kingdom)”.

When the tug arrived at its destination at Assens Havn, some damage was caused to the quay installations. How the damage occurred and who was liable for it was in dispute. However, by the time proceedings were to be commenced, the insured policyholder, the Swedish company Skåne Entreprenad, had gone into liquidation. Therefore, Assens Havn brought a direct action under Danish law claiming compensation for damage in the Danish Maritime and Commercial Court against Navigators as the liability insurer of the party who allegedly caused the harm.

The Danish Action

At first instance, the Danish court dismissed the action on the grounds that it did not have jurisdiction, on the basis that the agreement on jurisdiction concluded between the parties to the insurance contract was binding on the injured party, Assens Havn. On appeal, however, the Danish Supreme Court referred a question to the CJEU, asking in essence whether the special insurance jurisdiction provisions of the Brussels I Regulation had to be interpreted so that third parties bringing a direct action against an insurer are bound by an agreement on jurisdiction validly concluded between the insurer and the policyholder?

The CJEU’s Decision

The CJEU answered that question with a resounding “no”. The Court concluded that not only did the special jurisdiction provisions of the Brussels I Regime intended to protect the weaker contracting party (the policyholder) but also eased the situation of a victim of insured damage by enabling them, in particular, to sue the insurer in question before the courts for the place where the harmful event occurred provided that the national law permits such a direct action. In such circumstances, in relation to matters of insurance, agreements on jurisdiction must be interpreted strictly and can jurisdiction clauses that might alter that situation only be invoked strictly in accordance with terms of the Brussels I Regulation.

Despite the fact that the Regulation did provide for agreements on jurisdiction to be entered into in relation to any loss or damage arising from the use or operation of vessels, the Court concluded 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. To permit otherwise was considered the compromise the Regulation’s objective to protect the economically and legally weaker party.

As a result, Assens Havn were not bound by the English jurisdiction clause, and can bring their action in Denmark against Navigators. Not a happy position for the insurers, and one that may be repeated in any number of European cases in the future.