CJEU ruling exposes liability insurers to direct actions across the EU
Case C-368/16 Assens Havn v. Navigators Management (UK) Limited
The Court of Justice of the European Union (CJEU) has determined that an injured third party, who is permitted under national law to bring a direct action against a liability insurer, is not bound by an exclusive English High Court jurisdiction agreement between the insurer and policyholder in the insurance contract.
The background facts
In 2007, a Swedish company chartered a number of tugs and lighters in connection with the carriage of a cargo of sugar beet between two ports in Denmark, and took out P&I insurance in that regard. On arrival in the Port of Assens, some damage was caused to the port installations. The parties in the main proceedings disagreed as to how that damage arose and who was liable for it. The charterer of the tug subsequently went into liquidation, so the Port of Assens brought a direct action against the P&I insurers under Danish national law. The P&I policy provided that it was governed by the law of England and Wales and subject to the exclusive jurisdiction of the courts of England and Wales.
The path to the CJEU
At first instance, the Danish Maritime and Commercial Court dismissed the case on the grounds that Denmark did not have jurisdiction since the agreement on jurisdiction in the P&I policy was binding on the injured party. On appeal, the Danish Supreme Court stayed proceedings and referred to the CJEU the question whether a party bringing a direct action against an insurer is bound by a jurisdiction agreement in the insurance policy.
The CJEU decision
In deciding that the insurer could not invoke the agreement on jurisdiction in the policy against a third party victim bringing a direct action, the CJEU analysed the jurisdictional rules in the Brussels I Regulation and their underlying objectives.
Articles 8 to 10 of the Brussels I Regulation set out the general jurisdictional rules relating to insurance, including that a liability insurer may be sued in the place where the harmful event occurred or the place where the victim is domiciled.
Article 13, point 5, read in conjunction with Article 14, point 2(a), provides that it is possible to derogate from the general jurisdictional rules by a jurisdiction agreement in the case of insurance contracts covering liabilities arising from the use or operation of vessels.
However, the CJEU observed that Article 11(2), which provides that the general jurisdictional rules relating to insurance (Articles 8 to 10) apply to direct actions brought by an injured party against the insurer – where such direct actions are permitted under national law – does not refer to Articles 13 and 14, which provide that it is possible to derogate from the general rules by a jurisdiction agreement. The CJEU, therefore, concluded that it is not apparent that an agreement on jurisdiction may be invoked against a victim.
The CJEU pointed out that in relation to insurance, the aim of the insurance is to protect the economically and legally “weaker” party. Moreover, under Article 23(5) of the Brussels I Regulation, agreements on jurisdiction have no legal force if they are contrary to Article 13, which lists exhaustively the cases in which the parties may derogate from the general rules relating to insurance. It follows from those provisions that the Brussels I Regulation establishes a system in which derogations from the jurisdictional rules in matters of insurance must be interpreted strictly.
A third party victim is removed from the policy and did not expressly consent to any agreement on jurisdiction. The CJEU, therefore, took the view that an insurer cannot invoke an agreement on jurisdiction made between an insurer and an insured party against a third party victim who wishes to bring an action directly against the insurer before the courts in the place where the harmful event occurred.
The judgment addresses the application of the Brussels I Regulation that has been superseded by the new Brussels I Recast Regulation, which applies to legal proceedings commenced on or after 10 January 2015. However, the Recast Regulation contains the same provisions on insurance (albeit numbered differently) so the same reasoning should apply in respect of jurisdiction agreements.
The judgment is likely to have significant implications for liability insurers, who may now be exposed to direct actions across EU jurisdictions and may well not be able to rely on a jurisdiction clause to have proceedings transferred to the venue specified in the policy.
It remains to be seen whether the same approach will apply where the insurance policy contains an arbitration agreement, rather than a court jurisdiction agreement, as the judgment does not deal with this situation. In particular, it is not clear whether the enhanced arbitration exclusion in the Recast Regulation (or even the arbitration exclusion under the Brussels 1 Regulation where still applicable) would lead to a different outcome for arbitration agreements.
This decision also raises the question whether an injured third party bringing a direct claim against an insurer is not bound by any choice of law agreement in the policy. Article 18 of the Rome II Regulation on the law applicable to non-contractual obligations (which came into force in England on 11 January 2009) provides that a third party victim may bring their claim directly against the insurer of the person liable if the law applicable to the non-contractual obligation or the law applicable to the insurance contract so provides. Article 14(1) expressly provides that any choice of law agreement between parties must not prejudice the rights of third parties. It, therefore, remains to be seen whether the effect of this decision, together with Article 18 of Rome II, may be that where national law permits direct actions against the insurer, then local law and jurisdiction now apply regardless and any peculiarly English law points arising in the policy have no relevance.
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