ECJ ruling puts liability insurers at risk of direct actions at foreign jurisdictions

Maritime and transport law  Ports and shipping  Written on 12.09.2017

A third party permitted under national law to bring a direct action against a liability insurer, is not bound by an exclusive jurisdiction agreement between insurer and policyholder in the insurance contract.

This became clear though a ruling of 13 July 2017 by the European Court of Justice (ECJ) in the matter of the Port of Assens vs. Navigators Management Ltd. Attorney Henrik Frandsen and DELACOUR Law Firm has acted for the Port of Assens.

The case in brief
In 2007, a Swedish company undertook sea carriage of sugar beets from the Port of Assens in Denmark. The company was time charterer of a tugboat and took out P&I insurance with Navigators Management in London in that regard. While operating the tugboat and barges, the port installations in Assens suffered damages.

Subsequently, the Swedish company went into liquidation without paying compensation to the Port of Assens, so on behalf of the Port of Assens, DELACOUR Law Firm brought a direct action against the insurer at the Maritime & Commercial Court in Copenhagen based on the EU regulation on jurisdiction in insurance matters (the former Brussels I Regulation). The wording of the P&I policy instructed that it was governed by the law of England and Wales and therefore subject to the exclusive jurisdiction of the English & Welsh courts. Consequently, the insurer contested Danish jurisdiction.

The questions at the core of the case
At first instance, the Danish Maritime and Commercial Court dismissed the case based on the argument that Denmark did not have jurisdiction with reference to the jurisdiction clause in the policy. Upon appeal from the Port of Assens, the Danish Supreme Court decided to seek clarification from the ECJ of the applicable EU regulation, i.e. whether a party in a direct action against an insurer from a different EU country, is bound by a jurisdiction agreement in the insurance policy.

The decision and its impact
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 injured party is domiciled. Article 11(2) provides that these general jurisdictional rules also apply to direct actions brought by an injured party against the insurer – where such direct actions are permitted under national law.

On the other hand, Article 13, point 5, read in conjunction with Article 14, point 2(a), provides that it is possible to derogate from the general rules on jurisdiction-by-jurisdiction clauses in insurance contracts covering liabilities arising from the use or operation of vessels. The ECJ decided that the insurer could not invoke the agreement on jurisdiction in the policy against a third party in a direct action against the insurer (provided that such direct action is permitted under national law).

Final hearing to be held at Danish Supreme Court on 2 October 2017 and judgment is expected to be pronounced one week later. The Port of Assens will rely on the ECJ decision and argue that the decision from the Maritime & Commercial Court to dismiss the case should be overturned.

According to Henrik Frandsen from DELACOUR, the ECJ decision has significant implications for liability insurers: “This could put other liability insurers at risk of direct actions across EU jurisdictions, as insurer may not be able to rely on a jurisdiction clause to have proceedings transferred to the place specified by the policy.