Is direct action against insurers allowed?…

Insurance and Reinsurance, Marine Insurance, P and I Clubs — By on November 11, 2016 at 6:06 PM
Aggeliki Gerouki

Aggeliki Gerouki

Is direct action against insurers allowed? The question arises again. A decision is awaited from the ECJ.

by Aggeliki Gerouki*, LLM in Maritime Law

The European Court of Justice (ECJ) has been asked by the highest court of Denmark to decide whether a third party bringing a direct action against an insurer is bound by the jurisdiction agreement between the insurer and insured. In particular, the decision will be extremely important for the marine insurance industry and the P&I Clubs.

The aim of this article is to consider the background of the case and its legal context as well as what the consequences may be if the ECJ finds in favour of the claimant.

As direct action against insurers has been a matter of considerable concern and debate over the years, a quick overview of the legislation regarding this issue before we move on the main part of this article will be useful. The list of jurisdictions, which permit the direct action of third parties against insurers, is currently increasing. Such direct rights exist in most American States, Tunisia and many Scandinavian countries. Whilst, Spain and Turkey enacted new maritime legislations, which include direct rights of action against insurers.

In the UK, under the 1930 Act, a third party could not issue proceedings against an insurer without first obtaining judgement against the insured. This act was reformed by The Third Parties (Rights Against Insurers) 2010 Act, which removed this requirement and allows a third party claimant to issue proceedings directly against the insurer. In relation to marine insurance ‘the pay to be paid’ clause is still valid so that a P&I Club’s position under the Fanti and Padre Island[1] rule is preserved. There is then no direct right of action against P&I Clubs – as there is in Scandinavia and other countries, except now in relation to death and personal injury claims.

In addition, it is also well known that there are a number of International Conventions conferring direct rights of action against liability insurers, such as the International Convention on Civil Liability for Oil Pollution Damage 1992, which covers liability for oil pollution arising from the carriage of persistent oil by the shipowner, the International Convention on Civil Liability for Bunker Oil Pollution Damage 2001, which covers liability for pollution caused by fuel oil carried as bunkers, the International Convention on Liability and Compensation for Damage in connection with the Carriage of Hazardous and Noxious Substances by Sea 1996, which covers pollution caused by the carriage of non-persistent oil, gases, chemicals, and other substances which are hazardous in packaged form, the Athens Convention Relating to the Carriage of Passengers and their Luggage by Sea 2002, which covers liability for injury and death to passengers and the Nairobi International Convention on the Removal of Wrecks 2007, which covers wreck removal liabilities have similar articles.

Before we start the examination of this case, it would be also useful to refresh our memory with two recent, high profile cases involving direct action against P&I Clubs.

In the first one, the Yusuf Cepnioglu[2] case, the English High Court upheld an anti-suit injunction preventing the charterers of the vessel from prosecuting a direct action in Turkey against the owners’ P&I Club and decided that the contract takes priority – a third party bringing a direct action against an insurer is bound by the jurisdiction agreement between the insurer and insured. This decision made it easier for clubs and insurance companies when facing foreign direct claims to seek anti-suit injunctions in support of English law and jurisdiction clauses within the contract of insurance

On the contrary, in the famous Prestige oil spill disaster, which took place in 2002, the Spanish Supreme Court in January 2016 allowed a direct claim against the London P&I Club in Spain even thought a London arbitration clause was incorporated in the P&I policy. The clause was recognised as a judgment by the English High Court and provided that any direct action was subject to London arbitration.

Let us summarise now the facts of the case, which the ECJ examines. The tugboat Endeavour I damaged the quay installations when it was navigating at the Port of Assens in Denmark. The tug’s bareboat charterer was Skåne Entreprenad Service AB and it was insured for P&I risks by Navigators Management (UK) Limited. Subject to the exclusive jurisdiction of the courts of England and Wales, English law governed the insurance policy. Moreover, Navigators’ rules in general also provided for English law and jurisdiction.

The charterer subsequently became insolvent. The value of the tug was insufficient to cover the loss, and as a result the port arrested the tug and brought a claim directly against Navigators as charterer’s insurer. In the first instance, the insurers successfully defended the claim in the Danish Maritime and Commercial High Court on the basis that the Danish courts did not have jurisdiction to determine the claim because the port was bound by the jurisdiction agreement in the P&I policy.

The port doubted the question of jurisdiction and appealed to the Danish Supreme Court. In particular, the Supreme Court was asked to determine whether the port could bring a claim in Denmark against the tortfeasor’s P&I Club where the P&I policy was subject to the exclusive jurisdiction of the courts of England and Wales.

As for the legal context, the Supreme Court took into consideration the Brussels Regulation 44/2001, which may not be directly applicable in Denmark but its provisions have the force of law by virtue of a parallel agreement. Consequently Denmark is allowed to put questions regarding the interpretation of European legislation before the ECJ.

The starting point was Section 3 Article 10 of Brussels Regulation 44/2001, which provides as follows:

“In respect of liability insurance … the insurer may in addition be sued in the courts for the place where the harmful event occurred”.

According to Article 11(2), the above-mentioned article also applies to actions “brought … directly against the insurer, where such direct actions are permitted”.

Danish law permits the direct action against insurers in circumstances where the insured has become insolvent. The relevant statute provides:

“The injured party “steps into” the insured’s rights against the insurer.”

In addition, Section 3 Articles 13(5) and 14(2) of Brussels Regulation 44/2001 together provide that Article 10 may be derogated from by a jurisdiction agreement “… which relates to a contract of insurance in so far as it covers … any liability, other than for bodily injury to passengers or loss of or damage to their baggage, … arising out of the use or operation of [seagoing] ships…”

At this point it would be useful to take into account the ruling of the ECJ about the interpretation of section 3 in two cases. In Société financière et industrielle du Peloux v Axa Belgium[3], the Court held that the list of exceptions allowing derogation from the rules of jurisdiction laid down in Section 3 of Brussels Regulation 44/2001 must be interpreted strictly. The above-mentioned case considered the situation of an insured who had not expressly approved the jurisdiction agreement in the policy, and was therefore held not to be bound by it. Subsequently, in the Réunion européenne and Others v Zurich España and Société pyrénéenne de transit d’automobiles (Soptrans),[4] the ECJ has commented that the provisions of Section 3 were intended to apply only “to relations characterised by an imbalance between the parties”, and in fact exclude (by Article 12(5)) “insurance contracts in which the insured enjoys considerable economic power”.

The question of the Supreme Court for the ECJ was whether the wording of the above mentioned provisions and case law mean that Articles 13(5) and 14(2) together have the meaning that a party bringing a direct action against an insurer is bound by a jurisdiction agreement between insurer and insured.

Since this question is of crucial importance to the case at hand, and involves the interpretation of a rule of EU law, the Danish Supreme Court found it necessary to refer the question to the ECJ. The ECJ is to decide.

After this short analysis, it can be concluded that, If the ECJ decides in favour of the claimant, this would have significant consequences for insurers, as it will allow for direct action against P&I Clubs in any member state in European Free Trade Association or in the European Union where direct action is permitted, without taking into consideration the jurisdiction agreements in the insurance policies. The outcome will be harsh for the insurers, who will have to confront claims from victims in unknown jurisdictions and according to domestic legislations, which were never contemplated in the insurance contract.


[1] (1887) 19 QBD 458

[2] Shipowners’ Mutual Protection and Indemnity Association (Luxembourg) v Containerships Denizcilik Nakliyat Ve Ticaret AS [2015] EWHC 258 (Comm)

[3] C-112/03

[4] C-77/04

*For any further interest or information, viewers can contact Aggeliki Gerouki at: gerouki.a@gmail.com

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