Ruling clarifies ease of 'joining' insurers of insolvent insureds to cases under new law

Out-Law Legal Update | 05 Sep 2017 | 10:18 am | 2 min. read

LEGAL UPDATE: A UK court ruling has clarified the effect of the Third Parties (Rights Against Insurers) Act of 2010, which allows a third party to pursue a company's insurers directly when that company has gone out of business.

BAE Systems Pension Funds Trustees Ltd sued four companies for damages over alleged defects in the construction of a warehouse. One of those companies, Twintec, went into administration shortly before the claim was served. It was insured by RSA.

BAE Pensions wanted to join RSA to the claim, but RSA opposed that application on grounds that (i) its insurance did not cover the loss in question; and (ii) the insurance policy's jurisdiction clauses meant that the issue of whether it covered that risk should be decided by a French court or by arbitration.

Was the coverage question relevant?

RSA argued that Twintec had been aware of the problems that were the subject of the damages claim when the insurance was taken out, and that this breached a clause of the policy and meant that there was no cover.

The Court said that the coverage question did not need to be decided before RSA was joined to the case. Interpreting section 2 of the 2010 Act, the court ruled that it was not necessary for either the insured's liability to the third party, or the insurer's liability under the insurance contract, to be established prior to joinder of the insurer.

The Court said that RSA could have the issue of coverage decided before the main trial in order to reduce costs. In response to RSA's concern that the decision would lead to far greater numbers of insurers being joined unnecessarily to cases, the judge said that there might be some cases in which an insurer wouldn't be joined, "where it was simply unarguable that any relevant cover was in place". In those cases, the Court could strike out such proceedings as having no real prospect of success.

Jurisdiction

The Court agreed with RSA that the dispute about coverage must be decided by a French court or arbitration, as set out in the policy. It granted the application to join RSA to the proceedings but placed a stay on the claim against RSA until the issue of its liability to Twintec and BAE Pensions had been resolved.

Interestingly, a ruling by the Court of Justice of the European Union (CJEU) published just one day before this one could impact this part of the ruling.

In a case between Assens Havn and Navigators Management (UK) Limited the CJEU said that the function of the Brussels I Regulation to protect the economically weaker party should inform decisions on the enforceability of jurisdiction clauses.  It found that when a victim of insured damage is taking action against a third party in the place where damage occurred or the place where that victim is based, a foreign jurisdiction clause in the insured's policy would not be enforced and instead the victim could bring the action directly against insurers (provided its national law so permits) in its home courts.  As Danish law (like English law) permitted direct actions against insurers, the victim of the insured damage was able to pursue insurers in Denmark, and was not prevented from doing so by the foreign jurisdiction clause in the policy.

With that in mind it is conceivable that the jurisdiction clause in the BAE Pensions case should not be capable of moving the dispute to France if it can be shown that the event happened in the country of the economically weaker party.

Colin Read and Ben Laurence are insurance experts at Pinsent Masons, the law firm behind Out-Law.com.