ECJ ruling exposes liability insurers to direct actions across the EU

Denmark flag boat

The ECJ 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 any jurisdiction agreement between the insurer and policyholder in the insurance contract.

In this case, a tug caused damage to the port installations of the Port of Assens. The bareboat charterer of the tug subsequently went into liquidation and the port brought a direct action against its P&I insurers under Danish national law. The insurance policy was governed by English law and subject to the exclusive jurisdiction of the courts of England and Wales.

The Danish Maritime and Commercial Court dismissed the case on the grounds that Denmark did not have jurisdiction. On appeal, the Danish Supreme Court stayed proceedings and referred to the ECJ the question whether a party bringing a direct action against an insurer is bound by a jurisdiction agreement in the insurance policy.

In deciding that an insurer could not invoke an agreement on jurisdiction in the policy against a third party victim bringing a direct action, the ECJ analysed the jurisdictional rules in the Brussels I Regulation and their underlying objectives.

The ECJ observed that Article 11(2) provides that the general jurisdictional rules relating to insurance set out in Articles 8 to 10 (including that a liability insurer may be sued in the place where the harmful event occurred) apply to direct actions brought by an injured party against the insurer but, crucially, Article 11(2) 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 ECJ therefore concluded that it is not apparent that an agreement on jurisdiction may be invoked against a victim.

The ECJ noted that Recital 13 of the Regulation states that, in relation to insurance, the “weaker” party should be protected by jurisdictional rules that operate to its advantage. The ECJ therefore took the view that an insurer cannot invoke an agreement on jurisdiction against a third party victim bringing an action directly against the insurer in the place where the harmful event occurred because that party is removed from the policy and did not expressly consent to any agreement on jurisdiction.

This judgment is likely to have significant implications for P&I Clubs and other insurers who may now be exposed to direct actions across EU jurisdictions and will not be able to rely on a jurisdiction clause to get proceedings transferred to the venue specified in the policy.

The judgment does not deal with the situation where the policy contains an arbitration clause so it remains to be seen whether the same approach will apply to arbitration agreements.

The judgment addresses the application of the Brussels I Regulation which has been superceded by the new Brussels I Recast Regulation which applies to legal proceedings commenced on or after 10 January 2015. The Recast Regulation has the same provisions on insurance (albeit numbered differently) so the same reasoning will apply in respect of jurisdiction agreements but it is not clear whether the enhanced arbitration exclusion in the Recast Regulation would lead to a different outcome for arbitration agreements.;jsessionid=9ea7d2dc30d655b2788246294d41b10dce921f6b7ac7.e34KaxiLc3qMb40Rch0SaxyMaxz0?text=&docid=192701&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=124682

Chris Crane