Insurance: jurisdiction clause not binding in direct claim by third party against insurer

The Court of Justice of the European Union (CJEU) has held in Assens Havn v Navigators Management (UK) Ltd that a third party pursuing a direct claim against insurers was not bound by the terms of a jurisdiction clause in the policy between the policyholder and insurer.

Consequently, the third party was entitled to bring an action against the insurers in the Danish courts (where the underlying incident and loss occurred) notwithstanding the exclusive English jurisdiction clause in the policy.

Background

The underlying facts concern the transport of sugar beet to a factory in Denmark by a Swedish company, who were insured by Navigators.

During shipping, damage was caused to a port in Denmark owned by Assens Havn. The cause of the damage was in dispute, but before that dispute could be resolved the Swedish company went into liquidation. Assens Havn therefore sought to pursue a direct claim against Navigators, which was permitted in Danish law where a policyholder had entered liquidation.

Assens Havn sought to bring the claim before the Danish courts. At first instance, the Danish court ruled that it did not have jurisdiction as the agreement between the policyholder and Navigators contained English choice of law and exclusive English jurisdiction clauses. The claimant appealed. The Danish Supreme Court referred to the CJEU the question of whether Assens Havn, which under Danish law had a direct right of action against the liability insurer of the insolvent insured, was bound by the jurisdiction clause in the policy.

The Law

The reference to the CJEU was made under the Brussels Regulation which applies in cases where proceedings were commenced before 10 January 2015. The Brussels Regulation has been repealed and superseded by EU Regulation No 1215/2012 (the Recast Brussels Regulation) but the provisions relevant to this case have not changed.

Section 3 of the Brussels Regulation concerns jurisdiction in matters relating to insurance (but not reinsurance). Article 9 provides that an insurer in a Member State may be sued in the courts of the Member State where the insurer is domiciled or in the Member State where the claimant (policyholder or third party) is domiciled. Under Article 10, in liability insurance the insurer may also be sued where the harmful event occurred.

The Brussels Regulation allows the parties to depart from the insurance regime set out in section 3 in certain circumstances, for example where the risk is a “large risk” or in marine or aviation insurance. As in this case, this permits the parties to agree a choice of jurisdiction clause in a policy covering liability “arising out of the use or operation of ships”.

The question before the CJEU was whether a third party bringing a claim against the liability insurer was bound by the jurisdiction clause contained in the policy, i.e. an agreement between the policyholder and insurer.

Decision

The CJEU held that the third party, Assens Havn, was not bound by the jurisdiction clause in the policy.

In reaching their decision, the CJEU said that the aim of the insurance regime in the Brussels Regulation was to protect the interests of the “weaker party”. The rules “ease the situation of a victim of insured damage” and the right to depart from the ‘fall back’ position had to be strictly circumscribed to protect the economically weaker party. This concept applied even though Assens Hayn was not a consumer.

Applying a strict interpretation to the rules, the CJEU held that an agreement on jurisdiction made between an insurer and its policyholder cannot be invoked against a “victim of insured damage”. Assens Havn were therefore not bound by the jurisdiction clause in the policy and were entitled to bring a claim in Denmark.

Comment

The case has potentially wide-reaching consequences, specifically in respect of the operation of liability policies. In EU Member States where a third party is permitted to bring a direct claim against an insurer, marine and aviation insurers and insurers of “large risks” will not be able to rely on jurisdiction clauses in their policies as against claims brought by third parties.

The direct right of action in this case arose under Danish law because the insured was insolvent, the equivalent UK legislation being the Third Parties (Rights against Insurers) Act 2010 which also allows a third party to bring a claim directly against a liability insurer where the insured is subject to one of the insolvency procedures provided for in the Act. The wording of the Brussels Regulation is not, however, limited to direct actions in cases of insolvency. Where the laws of EU states permit direct actions in other situations it would seem that insurers facing such claims will also find that they are unable to rely on express choice of jurisdiction clauses.

This gives third parties in marine, aviation and “large risks” cases similar protection to that already available in consumer insurance. In consumer insurance, an express jurisdiction clause would not, in any event, be enforced under the Brussels Regulation if it was disadvantageous to the consumer.

Although the Brussels Regulation has been replaced by the Recast Brussels Regulation, the provisions governing jurisdiction in insurance are largely the same and it is highly likely that a similar stance will be adopted by the courts. Given the early stage of Brexit negotiations, it is not yet clear whether the Recast Brussels Regulation will continue to apply in the UK post-March 2019 (and if not whether the 1968 Brussels Convention will be resurrected or common law rules on jurisdiction apply). For the present, however, the rules in the Recast Brussels Regulation remain in force.

Of general comment is the language used by the CJEU, and the seemingly automatic assumption that there will usually be an imbalance between the insurer and policyholder/third party, with the latter being the “economically weaker party”, even in non-consumer cases. While in many circumstances this is correct, it is questionable whether it is sensible or appropriate for a court to assume that this is the case for all matters.

Further reading: Assens Havn v Navigators Management (UK) Ltd [2017] EUECJ C-368/16 (13 July 2017)