Jurisdiction clauses in insurance policies
Assens Havn v Navigators Management (UK) limited
In a judgment handed down on 13 July 2017, the European Court of Justice (ECJ) held that a jurisdiction clause in a marine insurance policy was not binding on a third party in respect of a direct claim brought against the insurer.
In case C-368/16 Assens Havn v Navigators Management (UK) limited, the Danish Supreme Court had put forward a preliminary question to the ECJ, regarding Article 13, point 5, of Regulation No. 44/2001 considered in conjunction with Point 2(a) of Article 14.
The Supreme Court asked whether a third party, who is entitled to bring a direct action against a liability insurer, is bound by an agreement on jurisdiction concluded between the insurer and the insured, who has caused harm to the third party.
The ECJ concluded that an agreement on jurisdiction cannot be invoked against a third party victim. As a result, a third party can bring an action directly against the insurer before the courts of the place where the harmful event occurred.
The judgment contravenes the general notion under Danish insurance law that the provisions of the insurance policy bind third parties, who are entitled to bring a direct claim against an insurer. The implications of the ECJ judgment may therefore be far-reaching.
The Danish action
A tug chartered by a Swedish company to carry a cargo of sugar between two ports in Denmark caused damage to quay installations at the port of Assens. The liability insurance policy contained an English choice of law and an 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.”
The insurance policy also included a reference to the Marine Insurance Act 1906 and any statutory modifications thereto.
The owner of the port facilities in Assens, Assens Havn, raised a claim against the policyholder, the Swedish company. As it so happened, the policyholder went into liquidation.
Under Danish law, it is a well-established principle, and following an amendment of the Danish Insurance Contract Law, section 95, now also a statutory right that a third party can bring an action directly against the liability insurer if the insured is undergoing insolvency procedures.
Accordingly, Assens Havn was entitled to bring a direct action against the liability insurer, Navigators. Assens Havn initiated legal proceedings before the Danish Maritime and Commercial Court in Copenhagen.
The Maritime and Commercial Court dismissed the action and referred to the jurisdiction clause of the insurance policy. On appeal, the Danish Supreme Court referred the question of the applicability of the jurisdiction court to the ECJ.
In respect of the rights and obligations of a third party, it has been established through case law that a third party is bound by the provision of the insurance policy. A third party cannot obtain a better position than the insured. The only exception from this general principle regards provision that would make a direct action against the liability insurer illusory.
On appeal, Assens Havn argued that the jurisdiction clause of the insurance policy would limit its access to putting forward a direct claim against the liability insurers where such a direct claim was otherwise possible. Assens Havn further argued that it was entitled to bring a claim before the courts of the place where the harmful event had occurred. Cf. Article 10 of Regulation No. 44/2001 and further that Article 13 and 14 of the Regulation did not apply because those two articles only refer to agreements between a policyholder and an insurer.
As mentioned, the EJC found in favour of Assens Havn.
The rationale of the ECJ
Firstly, the Court held that:
- In cases involving workers and consumers, actions involving insurance are characterised by an imbalance between the parties and that Regulation No 44/2001 seek to correct this imbalance by giving the weaker party the benefit of rules of jurisdiction more favourable to his interests.
- It is not apparent from Regulation No. 44/2001 that an agreement on jurisdiction may be invoked against a victim.
- Article 13 of Regulation 44/2001 lists exhaustively the cases in which the party may derogate from the general rules on jurisdiction.
- Agreements on jurisdiction have no legal force if they are contrary to Article 13 and such agreements must be interpreted strictly.
- A third party victim of insured damage is even farther removed from the contractual relationship involving an agreement on jurisdiction than an insured beneficiary, who did not expressly consent to that agreement.
The ECJ then goes on to conclude that an agreement on jurisdiction between an insurer and an insured party cannot be invoked against a victim/third party, who wishes to bring an action directly against the insurer. The Court concludes that this would compromise the objective pursued by Regulation 44/2001 and the jurisdiction provisions, namely to protect the economically and legally weaker party. As usual, the ECJ bases it findings on ECJ case law.
As mentioned, the judgment contravenes the general conception that a third party cannot obtain a better position than the insured party. According to Danish case law, Section 95, Paragraphs 1 and 2 are interpreted quite strictly. It is worth noting that the EJC ruling does not alter the requirements for bringing a direct claim against an insurer, and the requirements remain strict. However, with the new ECJ ruling it seems clear that a third party, who is given the benefit of section 95, is – no longer – bound by a jurisdiction clause of the insurance policy. This will undoubtedly impact international insurance programmes.
To our knowledge, the Assens Havn case it the first case to question the applicability of a jurisdiction clause in relation to a direct claim against an insurer.
In addition to the strict legal implications of the ECJ judgment, we particularly note that the Court seems to stress that actions involving insurance are – always – characterised by an imbalance between the parties, thus implying that there is – always – a weaker party – and it is not the insurance company. The Court also seems to find that to the benefit of the said weaker party, an agreement on jurisdiction shall – always – be interpreted strictly.
It may not come as a surprise that the ECJ endeavours to protect the economically and legally weaker party of an insurance contract. Bearing in mind, however, that Assens Havn is not a consumer, but a professional insurance policyholder, the ECJ does seem to stretch the concept of being a weak party.
It remains to be seen whether the ECJ will consider other professionals such as global corporations as weak parties when it comes to insurance.
We await the final Danish Supreme Court ruling, though we suspect that the parties involved will consider settling the claim.