Legal Alert – Insurance Contracts – How Reliable is the Jurisdiction Clause
The insurance contract in question entered into between an insurance company and policyholder stated that the jurisdiction for settling disputes would be Finland. The Finnish Supreme Court ruled (case number 2014:3), however, that this provision did not bind the insured party whose place of domicile at the time of the claim was in another EU state, who was not a party to the insurance contract and who had not otherwise explicitly agreed to the relevant jurisdiction clause. As a result, the claim submitted by the insurer in Finland was ruled inadmissible. The case has potential practical and cost implications for insurance companies going forwards.
CONSEQUENCES OF THE RULING
The judgment for this case was handed down on 4 February 2014 and confirms that the jurisdiction clause in an insurance contract entered into between an insurance company and policy holder may not bind the insured party in certain circumstances. This risk is now evident at least in situations where the insured is residing in a foreign state or has, subsequent to the execution of the insurance contract, moved to a foreign jurisdiction without having explicitly agreed to the underlying jurisdiction clause.
The implication for insurance companies is that in future they will need insured parties to explicitly agree to the jurisdiction clause in addition to the policy holder.
Otherwise, rather than knowing that disputes can always be settled in the country specified in the insurance contract (and being able to re-insure on that basis) they face the prospect of bringing claims in a variety of jurisdictions with different laws, procedures and sanctions. Such lack of contractual certainty places insurance companies in a difficult position in terms of risk analysis and re-insurance cover.
OUTLINE OF THE CASE NUMBER 2014:3
The insurance company in question (the “Insurance Company”) had provided the management of a Finnish company (the “Company”) with a liability insurance policy (the “Policy”). A state prosecutor then issued a claim against a member of the Company’s management team (the “Insured Party”). In accordance with the Policy the Insured Party claimed for compensation of their legal costs of 461,649.44 euros which was duly paid. The Insured Party was, however, found guilty under the subsequent proceedings and under the Policy was obliged to repay the compensation received for legal costs. When the Insured Party refused, the Insurance Company issued proceedings at Espoo District Court.
Terms of the Policy and the Brussels I Regulation
The Insurance Company highlighted that it had been agreed in the Policy that disputes would be handled subject to Finnish law and in the jurisdiction of Finland. At the time of execution of the Policy both the Insurance Company and the Company had their place of domicile in Finland. In addition, the jurisdiction clause was in accordance with Article 13 (3) of the Brussels I Regulation which allows a policyholder and insurer domiciled in the same Member State to confer jurisdiction on the courts of that State even if the harmful event were to happen abroad. Further, the jurisdiction clause was compliant with Article 13 (5) of the Brussels I Regulation which allows jurisdiction clauses in insurance contracts that cover one or more of the specific risks defined in the Brussels I Regulation. Furthermore, the Insured Party had at least had the opportunity to review the contractual terms and having proceedings in Finland did not weaken the Insured Party’s position.
In response the Insured Party argued, in accordance with Article 12 of Brussels I Regulation, that the relevant place of jurisdiction was the defendant’s Member State of domicile (which was now the United Kingdom), that parties’ freedom to contract was restricted by protection of the weaker party and that the jurisdiction clause applied to disputes between the Insurance Company and the Company. As the Insured Party was not a party to the Policy and had by no means approved the conditions, he was not bound by the jurisdiction clause.
The Supreme Court’s Ruling
In summary the Supreme Court found in favour of the Insured Party’s arguments ruling, inter alia, that the relevant jurisdiction was the Insured Party’s domicile at the time of the claim. The Supreme Court reasoned that as long as the insured had not explicitly agreed to the jurisdiction clause, it was irrelevant whether the jurisdiction clause fulfills the criteria of Article 13 of the Brussels I Regulation. In line with the recent precedents of the Court of Justice of the European Union, for a jurisdiction clause to be valid, it must be agreed explicitly with all the parties that are intended to be bound by it and fulfill the requirements of Article 23 of the Brussels I Regulation. Since it was not even argued that this would have been the case, the claim in Espoo District Court was ruled inadmissible.