The EC Regulations known as Rome II came into force on 11 January 2009. The Regulations contain a set of rules to be applied in all EU member states (except Denmark) that will determine the law governing most non-contractual disputes between parties.
We set out the particularly important terms in Rome II in our Law Now of 12 January 2009: Click here to view it. We have also looked at the impact of Rome II on claims against insureds under liability policies: Click here to view this Law-Now.
Rome II contains at least two further regulations which concern insurance policy issues, even though Rome II itself does not concern contractual claims. First, Rome II clarifies the law which applies to disputes relating to pre-contractual misrepresentation and non-disclosure (these are called non-contractual obligations arising out of dealings prior to the conclusion of a contract). Secondly, it sets out the law which governs whether or not third parties can bring direct claims against insurers.
Law applicable to pre-contractual obligations
Rome II states that the law which applies to non-contractual obligations arising prior to the conclusion of a contract will be the same as would govern the contract itself if it was in fact valid. So, where an insurer alleges misrepresentation or non-disclosure by the insured or the insured’s agent, the law which will determine this dispute will be the same as that which would govern the actual policy if it existed.
This is, in fact, an echo of the provisions of the Rome Convention which concerns contractual obligations (including all reinsurance contracts and all insurance contracts where the risk is situated outside of the EEA). These state that the law which determines the existence and validity of a contract (or of any term of a contract) shall be the same as the law which would govern the contract (or term) assuming it was valid.
If, for example, an English broker makes a presentation to insurers in London for bankers’ blanket bond cover for a French bank, there is a good chance that absent express choice of law, the applicable law governing the policy will be French law. In that case, whether or not the insurer could rely on misrepresentation or non-disclosure will be a question of French law. This is so even though the jurisdiction of the dispute is England (in other words, the English courts must determine the impact of any misrepresentation or non-disclosure as a matter of French law). This will be particularly important to insurers given that French law does not recognise any duty of disclosure outside of marine insurance whereas of course English law does.
Rome II only applies to disputes being heard in EEA member states, although if they are being heard in a member state, it does not matter if the other party (or indeed either party) is based outside the EEA. This means that if a US court, for example, is hearing a dispute, it will not apply Rome II. At least some jurisdictions in the US may reach the opposite conclusion on the law governing breach of a pre-contractual duty: the governing law may be that of the state in which the duty was breached not the law of the state which would govern the contract if valid.
Direct claims against insurers
Rome II also sets out provisions concerning the law which determines whether or not a non-contractual claim can be brought directly against the insurer of a wrongdoer. It states that a third party can bring a claim against an insurer if either (a) the law applicable to the non-contractual dispute would allow this; or (b) the law which governs the insurance policy would allow this.
In English law, the main example of direct rights of action for third parties against an insurer is provided under the Third Parties (Rights Against Insurers) Act 1930. Where the insured is insolvent, the third party may have a direct right of action against its liability insurers. Foreign jurisdictions may, however, allow a third party to claim directly from an insurer in far more situations. In Belgium, a third party can sue a liability insurer directly. Similarly, in France, once the liability of the insured is established a direct claim may be brought against the insurer.
This means that where, for example, the underlying dispute between the third party and the insured is governed by Belgian law, the insurer can be sued directly. This is so even if the policy is subject to English law, which would not allow such a claim, and the matter is being heard by an English court (applying Belgian law). What if a claim was brought in tort against an English bank by a Belgian client for advice given which was relied on in Belgium? The correct jurisdiction for the tort claim, absent agreement, might be the English courts, but the matter would under Rome II be governed by Belgian law. This would meant that the insurer could be joined to the English proceedings if this was permitted as a matter of Belgian law, even though it would not be permitted as a matter of English law.
