Danish Supreme Court confirms direct action against P&I insurers

Maritime and transport law  Ports and shipping  Written on 20.10.2017

By judgment of 9 October 2017, the Danish Supreme Court has affirmed that under Danish law an injured third party has a direct claim against P&I insurers for damage caused by the insured vessel when the policyholder is insolvent/in bankruptcy.

In the matter, the ECJ had already ruled that the injured party was not bound by an exclusive jurisdiction clause agreed between insurer and policyholder; the Supreme Court recently affirmed this.

DELACOUR acted for claimant, the Port of Assens against the P&I insurers, Navigators Management Ltd of the United Kingdom. The following is an update to our recent information following the ECJ decision of 13 July 2017, which affirmed that the jurisdiction clauses in the insurance policy were not binding for the port; i.e. the port was able to rely on the rules of the EU regulation providing for venue in Denmark for the direct claim against the UK insurers.

How the case unfolded
As reported in our previous information the Port of Assens had brought a direct action against the P&I insurers at the Maritime & Commercial Court in Copenhagen for damages to port installations caused by a tugboat. The bareboat charterers of the tugboat had taken out P&I insurance with Navigators Management. Subsequently, the charterers went into liquidation without payment of compensation to the port. The port brought a direct action against the insurers before the Danish courts based on the EU regulation on jurisdiction in i.a. insurance matters (the former Brussels I Regulation). The P&I policy provided for the law of England and Wales to apply subject to the exclusive jurisdiction of the English & Welsh courts and based on this the insurer’s contested Danish jurisdiction.

The Maritime and Commercial Court initially dismissed the case based on the argument that Denmark did not have jurisdiction with reference to the jurisdiction clauses in the insurance policy. Upon appeal from the Port of Assens, the Danish Supreme Court decided to seek clarification from the ECJ on the Brussel I Regulation, i.e. whether a party in a direct action was able to rely on the jurisdiction provided for in the EU regulation despite an exclusive jurisdiction clause in the insurance policy. As explained in our information of 12 September, the ECJ affirmed this. Following the ECJ ruling, the Danish Supreme Court had to render its judgment on the aspects of choice of law and jurisdiction.

The Supreme Court confirms direct action under Danish law
In its judgment of 9 October 2017 the Danish Supreme Court found that the decision of the ECJ from 13 July 2017 was not restricted to only apply to financially weak and legally incapable injured parties (e.g. consumers, employees etc.) but is also applicable when the claimant is a commercial port.

The Supreme Court went on to check whether, under Danish law, the port had a direct claim against insurers as this is required when relying on Article 11(2) of the Brussel I regulation. The Supreme Court held that according to Section 95 of the Danish Act on Insurance the port would have a right to direct action when the policyholder had been liquidated if Danish law was applicable to the question of direct action. As the claim of the port was found to have a closer relation to Denmark (rather than the UK), the Supreme Court held that Danish law was applicable to direct action of the port. Based on this the Supreme Court approved Danish venue for the claim and revoked the decision to dismiss the case and referred to matter back to the Maritime & Commercial Court.

A significant ruling with major impact
According to Henrik Frandsen from DELACOUR, the judgment of the Danish Supreme Court is a landmark ruling as it rejects the notion that the choice of law agreed upon between the policyholder and insurers is also to determine whether the injured third party has a right of direct action. The question of direct action has to be determined separately using the choice of law rules of the forum state (lex fori).

It is not surprising that the Supreme Court reiterated the ruling of the ECJ, saying that the jurisdiction clauses agreed upon between the policyholder and the insurers are not binding for the injured third party; this despite of the fact that the injured party was relying on the insurance policy to fund the direct action against insurers. It means that on the issue of venue and applicable law the insurers are not able to rely on the terms stated in the insurance policy agreed upon with the policyholder.