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Multi
jurisdictional policies are a headache when it comes to
figuring out which jurisdiction and choice of law applies,
even where the policy includes a jurisdiction/choice of law
clause.
Traditionally
jurisdiction and choice of law are termed as "bolt on
clauses". As
the name suggests they are usually included to tidy up the
agreement and to ensure that all aspects of the contractual
arrangement are covered by the agreement. As you can imagine, jurisdiction/choice of law clauses do not
provoke the sexiest of debates in a soft market, and are not
a significant issue in a hard market.
There
are currently a large number of jurisdiction and choice of
law clauses used in the market.
The effectiveness of these clauses in securing
insurer's preferred jurisdiction and choice of law varies
significantly. Whilst
such a clause may purport to provide certainty as to
jurisdiction/choice of law, the matter is not that clear cut.
So,
what happens when an insurer based in the UK, who has insured
a global organisation, the subsidiaries of which each
constitute an insured entity under the policy, finds itself
embroiled in a dispute with one of the far flung
subsidiaries, perhaps in a country which is particularly
insured/claimant friendly? Consider the implications if the
country in the scenario above has a civil code which
recognises punitive or exemplary damages? What of the
situation where there are multiple areas of insurance and
each layer is written in a different jurisdiction, providing
that a different law applies?
What happens when the policy in question has no
jurisdiction and/or choice of law clause?
Insurers would be wise to read on…
The
Legal Framework
The
questions of correct jurisdiction and applicable law are
related but distinct. The
legal framework which applies is very complicated and a
minefield even for experts.
The
UK court's approach
Composite
Policies
Where
a global composite policy is involved, the UK courts have
shown that they prefer to take a consistent approach to
disputes and are opposed to disputes proceeding in multiple
jurisdictions at the same time, as to do so would give rise
to the possibility of conflicting judgements. In addition the UK courts are keen to observe the long
established principle of respect for the civil codes of
foreign countries (i.e. the principle of comity).
Jurisdiction
There
are two distinct regimes which govern the UK court's
jurisdiction over claims which have a foreign element.
Jurisdiction
Convention
The
first regime is contained in Council Regulation (EC) 44/2001
on Jurisdiction and the Recognition and Enforcement of
Judgments in Civil Actions (" the Jurisdiction
Convention"), which supersedes the Brussels Convention.
The Jurisdiction Convention applies where at least one
of the parties to a claim is domiciled in a Member State of
the EU/EFTA, and the matter falls within the scope of the
Jurisdiction Convention, and proceedings were issued
after the 1 March 2002.
The
Jurisdiction Convention establishes a mandatory code that
regulates matters of jurisdiction between the Member States.
If a party can found jurisdiction under the provisions
of the Jurisdiction Convention in favour of the court of a
particular Member State, that party can assert that
jurisdiction as of right. The regime provides a strict set of rules and the court's
discretion in respect of their application is severely
curtailed. The
basic position under the Jurisdiction Convention is that a
defendant should be sued in his home court.
Common
Law
The
second regime is the common law regime which provides a fall
back position where the provisions of the Jurisdiction
Convention do not apply.
Under the common law, the UK courts can exercise
jurisdiction as of right where the party is present in the
UK, or as a result of the application of CPR6.20.
CPR 6.20 sets out twenty grounds under which UK courts
can assume jurisdiction over a foreign party.
The claimant must also show that he has a reasonable
prospect of winning his case and that the UK is the
proper place to bring the claim, i.e. it is the forum
conveniens for the trial of the action.
Forum
Conveniens
To
show that England is forum conveniens, the party asserting
English jurisdiction must show that England is the most
appropriate forum where the case may most suitably be tried
for the interests of all the parties and the ends of justice.
Factors the court will consider include the location
of the witness/documents, the applicable law, the residence
of the parties, and the location of ongoing related
proceedings in another jurisdiction, if any.
Discretionary
powers – Forum Non Conveniens
The
UK court may also stay proceedings if, after a consideration
of the factors above, the court concludes that England is not
the most appropriate jurisdiction.
The
burden of proof is on the party applying to stay UK
proceedings in favour of an alternative jurisdiction to show
that there is clearly and distinctly a more
appropriate court which is competent to hear the dispute.
Once the applying party has established this, the
burden of proof then shifts back to the party asserting UK
jurisdiction to show that it would be unjust to require him
to proceed in that other forum.
If the resisting party fails to show this the UK court
has the power to stay the UK proceedings.
Overall the question for the court is whether the
interests of justice require a stay - the question is one of
fact.
Applicable
law
The
law applicable to a dispute arising out of an insurance
contract which does not specify, or imply, a choice of law
depends on where the risks covered by the insurance contract
are situated. The framework for deciding the relevant law
depends on whether or not the risks are situated in a Member
State, or whether the contract covers multiple risks situated
both inside and outside the Member States.
The
general position
The
general position is that applicable law is governed by the
Contracts (Applicable Law) Act 1990, which gives effect to
the Rome Convention and which looks to apply the law that is
most closely connected with the contract.
There
is a rebuttable presumption in favour of the country in which
the insurer has its principal place of business or, if the
risk was written through an office other than the insurer's
principle place of business, then the law of country in which
the office is situated.
However, if on the face of the contract as a whole it
appears that there is a country with which the contract is
more closely connected, then the law of that country will
apply. Crucially
in the context of insurance contracts, the Rome Convention
only applies to insurance risks situated outside the
EEC.
The
position in relation to insurance contracts which cover risks
situated solely within the EEC is governed by the
Financial Services and Markets Act 2000.
The relevant provisions are complex and in any event
do not lend themselves to situations where the risks covered
by the insurance contract are situated both inside and
outside the EEC, as is likely to be the case in global
policies. The
court has recently considered the position in American
Motorists v Cellstar and others
[2003] EWCA Civ 206 (“American Motorist”).
American
Motorist
The
dispute concerned a global transportation policy which
provided cover to the defendant policyholder, whose principal
place of business was Texas, and also to each of the
policyholder’s numerous worldwide subsidiaries.
The Claimant insurer was incorporated in Illinois, and
carried on business in Texas.
The
insurer brought proceedings for negative declaratory relief
in the UK in respect of losses claimed by the policyholder on
the basis that it had failed to comply with various
conditions and warranties in the policy.
The policyholder issued bad faith proceedings in
Dallas for wrongful failure to settle a claim.
The
UK court identified the problem in establishing correct
jurisdiction in disputes arising under global policies.
The
court considered whether the correct approach would be to
look at where the substantial part of the risk was located,
or to effectively be “scissor” up the policy to allow
different civil codes to apply to each of the different
subsidiaries. The
court dismissed the latter as unworkable.
The
court also considered whether either the Jurisdiction
Convention or the FSMA regime precluded free choice of law.
The court said that as both regimes would give the same
answer it was unnecessary to consider which regime applied in
order to determine the issue.
The court effectively chose not to answer the
difficult question of where the insurance risk was located.
It said that where a global policy does not specify a choice
of law, as in this case, it would look at whether there was
evidence of an implied choice of law.
In the absence of an implied choice of law, the court
would apply the law of the country with which the policy was
most closely connected.
Crucially
the courts said that, in considering the question of choice
of law, it was correct to treat the policyholder and
subsidiary as the same entity.
Conclusion
The
law is extremely complicated.
There are a number of different regimes which apply in
determining the choice of law/jurisdiction in relation to an
insurance contract dispute.
Robin
Simon recently acted for insurers in the case of Travelers
Casualty and Surety Company of Europe Limited and others v
Sun Life Assurance Company of Canada (UK) Limited and another
[2004] EWHC 1704 (Comm).
The case provides a good example of how the courts
handle this complicated area of law.
All the issues discussed in this article were
considered in the case and the judge found, as asserted by
insurers, that the UK court could exercise its jurisdiction
and that the UK court was the most appropriate forum.
The
importance of dealing clearly and decisively with
jurisdiction issues at the outset of an insurance contract
cannot be understated. Jurisdiction
disputes are phenomenally expensive and, in situations where
insurers may wish to dispute the jurisdiction of a particular
court, hasty or ill-advised actions can result in costly
preliminary hearings.
*
Robin Simon LLP is a specialist insurance law firm.
For further information please contact Nilam Sharma on
+44 (0) 870 839 0804/nilam.sharma@robinsimonllp.com, or Jana
Ratnajothy on +44 (0) 870 839
0872/jana.ratnajothy@robinsimonllp.com, or write to Robin
Simon LLP, Minster House, 42 Mincing Lane, London EC3R
7AE.
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