The recent judgment in Ace Capital Ltd v CMS Energy Corp [2008] EWHC 1843 (Comm) has provided welcome clarification on the effect of a US service of suit clause in a policy that contains an English arbitration provision.

ACE (together with other subscribing underwriters) insured CMS under certain political risk insurance policies (the Policies). The Policies were governed by English law and provided that all disputes related to the policies be submitted to arbitration at the London Court of International Arbitration. The Policies also included US service of suit clauses.

CMS instituted proceedings in Michigan for indemnities under the Policies. In the proceedings before the English High Court, ACE sought a permanent injunction to restrain CMS from continuing the proceedings in Michigan. The central issue before the English High Court was whether, despite the inclusion of an agreement to arbitrate all disputes, the service of suit clause entitled CMS to sue the underwriters on the merits in the US.

In reaching his decision Mr Justice Christopher Clarke addressed the purpose of the service of suit clause, namely to ensure that out of state surplus lines insurers can readily be sued in the US. Clarke J also noted it was not the purpose of the service of suit clause to prevent or restrict the arbitration of insurance or reinsurance claims. The judge also had regard to both English and US authorities on the interaction between an arbitration clause and a service of suit clause and observed that the majority of US authority treated an arbitration clause and a service of suit clause as not inconsistent with each other, interpreting the service of suit clause as intended "to ease any difficulty that might arise in establishing personal jurisdiction for the purposes of enforcement".

In granting ACE a permanent injunction restraining CMS from continuing the proceedings on the merits in Michigan, Clarke J concluded that the service of suit clause did not absolve CMS from its contractual obligation to arbitrate all disputes.