Must insurers sue their insureds/beneficiaries of policies in the EU member state of their domicile?

November 26, 2018


The Court of Appeal’s welcome judgment in ‘The Atlantik Confidence’ last week clarifies the position on when an insured can insist on being sued in the Member State in which it is domiciled. The decision is significant for insurers and their insureds, particularly in EU cross-border insurance policies and claims.


Aspen Underwriting Limited (the “Insurer”) brought a misrepresentation claim against the owner and manager of the vessel ‘The Atlantik Confidence’ (the “Vessel”), as well as the secured lender who provided the money for the re-financing of the Vessel (the “Bank”). The owner and manager had presented an insurance claim to the Insurer after the Vessel suffered a fire and sank in 2013, and a $22m insurance pay out was subsequently received. In their claim, the owner and manager represented that the loss was covered by the insurance policy: the fire and subsequent sinking. What they neglected to tell the Insurer, was that the Vessel had been deliberately sunk, at the request of the ‘alter ego’ of the owner and manager. This, unsurprisingly, was not a circumstance to which the policy was designed to respond.

How does the bank fit in?

The security package the Bank took over the Vessel, included an assignment of the insurances on the Vessel. As mortgagee, the Bank was entitled to receive the insurance proceeds, up to the value of its security.

The $22m insurance pay out was finalised in a settlement agreement between the Insurer, the owner and manager. The Bank was not involved in the negotiation of this settlement, but it provided a letter which stated that it consented to the insurance proceeds being paid to the broker, Willis.

The Insurer claimed that the letter by the Bank authorised the owner and manager to settle the claim on behalf of the Bank. It was therefore asserted that the Bank were complicit in the misrepresentation by the owner and manager.

Relevant jurisdictions

The Bank’s argument was that they were entitled to be sued in the Member State in which they were domiciled (the Netherlands) (Article 14 of the Brussels Recast Regulation) as this was a matter relating to insurance. The Insurer argued that it was entitled to sue the Bank in England pursuant to either (a) the jurisdiction agreement between the parties (Article 25), or (b) the place where the harmful event occurred (Article 7(2)). They argued that Article 14 did not apply.

First instance decision

The Commercial Court decided in 2017 that:

  • The effect of the alleged misrepresentation was that the Insurer suffered harm in England, and so if the Bank failed in its argument that it should be sued in the Member State of its domicile, then it may be sued by the Insurer in England.
  • The Bank was not a party to the settlement agreement, nor did the owner and manager act on behalf of the Bank when they settled the claim. Therefore the jurisdiction clause in that agreement did not bind the Bank. The jurisdiction clause in the underlying insurance policy did not bind the Bank either.
  • The misrepresentation claim against that Bank was a “matter relating to insurance” for the purposes of Article 14. The insurance policy was not simply part of the history or pathology of the dispute. There was a sufficient link between the insurance policy and the misrepresentation claim advanced.

However, this was not the end of the matter. Despite concluding this was a matter relating to insurance (and seemingly requiring the Bank to be sued in the Netherlands), the Court then looked at Recital 18 to the Brussels Recast Regulation and the European case law on this subject. It concluded that such case law held that Article 14 was designed to protect the “weaker party”. As the Court decided it could not consider the Bank to be a “weaker party” in comparison to the Insurer, it held that the Bank could not take advantage of Article 14 and insist upon being sued in the Netherlands.

The Bank could therefore be sued in England, as the place where the harmful event to the Insurer occurred.

The appeal

Both the Bank and the Insurer appealed the first instance decision to the Court of Appeal. This was ultimately in vain, though, as the Court of Appeal essentially reached the same conclusion as the Commercial Court.

The Court did however provide some welcome clarification on who may take advantage of the protections contained in Article 14.

It confirmed that a Court should use “common sense” to determine whether a dispute was a “matter relating to insurance” for the purposes of Article 14. It did not commit itself to either a narrow or broad interpretation of this key phrase in Article 14, and it would not be a surprise to see this issue revisited in the future.

The Court also held that unless the defendant was part of a class who could be considered the “weaker party” they would not be able to take advantage of Article 14, even if it was involved in a matter relating to insurance. The Court did however warn against an individual factual assessment of the strength of the economic position of the parties. This does leave some uncertainty about how one goes about assessing who is a weaker party (other than say in relation to consumers).

Impact for Insurers

The Court of Appeal’s judgment provides a welcome authoritative voice on the circumstances in which an EU-based defendant can take advantage of Article 14:

(a) Whether a matter relates to insurance requires a common-sense analysis by the Court;

(b) Unless (c) applies (or there is an exclusive jurisdiction clause or other intervening rule) and the dispute is a matter relating to insurance, Insurers will be required to sue EU-based defendants in the Member State of their domicile;

(c) If the defendant is not the “weaker party” in comparison to the Insurer, then the Insurer may not be required to sue them in their EU state of domicile; and

(d) Whether a defendant is a “weaker party” will not be judged on an individual factual assessment of its economic position. Instead, the Court will look to the “class of business” they conduct, and whether someone in such a class deserves protection.

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