Direct actions against overseas insurers post-Brexit

The impact that the United Kingdom’s exit from the European Union has had on private international law may not – at least at first blush – appear to be one of the more significant consequences of Brexit. However, the impact on the cross-border personal injury market has been stark.

Where previously a prospective claimant who alleged to have suffered injury abroad may have been able to assert a right to pursue a claim against a European liability insurer before their home court in the UK, that right has now been extinguished. 

Contents

1. Synopsis 
2. The situation before Brexit
3. The impact of Brexit
4. Post- Brexit, can a claim against a liability insurer still be pursued?
5. How might a claim against an insurer be pursued?
6. The scope of article 18
7. Outcome

Synopsis

The impact of Brexit on private international law, specifically in the context of cross-border personal injury claims, has been significant. Before Brexit, UK residents could benefit from regulations like the Recast Brussels Regulations and the Lugano Convention, allowing them to assert a right to pursue a claim against a European liability insurer in their home court. However, post-Brexit, these rights have been extinguished.

The loss of these regulations means that claimants must now seek court permission to serve outside the jurisdiction, facing more hurdles and uncertainties.  

Article 18 of Rome II, allows a person who has suffered damage to bring a claim directly against the insurer if the applicable law permits. The article suggests that, despite Brexit, a claimant could still establish a cause of action against a foreign insurer, but the battle would now shift to jurisdictional issues.

The scope of Article 18 is explored, indicating that whether a claim is based on the law applicable to the contract of insurance or the law of the tort (lex delicti), the insurer's obligations are determined by the law governing the insurance contract. Despite the cause of action being based on the lex delicti, the insurer can rely on limitations on liability permitted by the law of the contract of insurance.

In conclusion, the opportunity for a claimant to bring a foreign insurer before the Courts of England and Wales still exists post-Brexit. However, the real challenge now is establishing whether England and Wales are the most appropriate forum for these claims, emphasising the need for insurers and lawyers to consider the costs and benefits of jurisdictional challenges in this new legal landscape.

The situation before Brexit

With membership of the EU, residents of the UK were able to benefit from both the provisions of the Recast Brussels Regulations (44/2001) and the Lugano Convention. These provisions provided a cohesive set of jurisdiction rules across the EU (in the case of the Brussels Regulations) and between the EU and the contracting EFTA states (in the case of the Lugano Convention). This provided predictability and clarity as to which state ought to have jurisdiction over a claim and ensured that a judgment in one jurisdiction should be recognised and capable of enforcement in another.  

These rules placed a particular focus on ensuring that so-called ‘weaker parties’ had an opportunity to issue claims against particular categories of overseas defendants in the claimant’s home court, irrespective of where the accident or harm may have occurred. This emphasis on the protection of ‘weaker parties’ manifested in specific jurisdictional regimes including the provision, at section 3 of the Brussels Regulations, for a claimant to be able to bring a direction right of action against the insurer of a tortfeasor in their home court.  

Other benefits included special regimes in respect of consumer contracts and contracts of employment.  Whilst the latter two regimes have, to an extent, been retained in domestic law, by virtue of sections 15B and 15C of the Civil Jurisdiction and Judgments Act 1982, the near automatic right to pursue a claim directly against an insurer in a claimant’s home court has been lost as a result of Brexit.

In terms of the mechanics of pursuing a claim, by article 11(1)(b) and article 13(2) of the Recast Brussels Regulations and as confirmed by the CJEU in FBTO Schadverzekeringen NV v Jack Odenbreit, a claimant could pursue a claim against an overseas insurer in their home court if the ‘national law’ so permitted.  There followed a series of domestic cases to consider what was meant by the term ‘national law’. However, clarity followed in the form of article 18 of Rome II (864/2007) which provided that a claimant could bring their claim “directly against the insurer of the person liable to provide compensation if the law applicable to the non-contractual obligation or the law applicable to the insurance contract so provides.”

Given that it is a requirement of EU Member States to pass legislation enabling direct rights of action against motor insurers, by virtue of Regulation 2009/13, it came as no surprise that the majority of so-called ‘Odenbreit claims’ were against motor insurers. However, such claims were not limited to motor claims and in countries such as Belgium, France and Spain direct rights of action could be pursued against public liability insurers.  Further, in Dawes v DNB Livsforsikring ASA [2018] 12 WLUK 791 the Odenbreit principle was found to apply to the Lugano Convention in a case against a Norwegian employer’s liability insurer.

These ‘Odenbreit claims’ afforded a claimant a considerable advantage of being able to pursue a claim, often governed by a foreign law, before their home court, whilst enjoying the benefit of dealing with lawyers from their own jurisdiction. In practice this meant that a claimant who lived in England but was involved in a collision with a vehicle in Germany could pursue an action against the EU motor insurer in England.  Likewise, a Welsh claimant who suffered an injury at a theme park in Spain could issue proceedings against the Spanish public liability insurer in this jurisdiction.  Neither claimant were required to seek the Court’s permission to serve out of the jurisdiction. and would also enjoy the benefits of the Service Regulations. These have also been lost as a result of Brexit.

The impact of Brexit

As the clock struck eleven o’clock on the night of 31 December 2020, the era of Odenbreit claims passed into history.  Claims that had been deemed issued before the clock chimed eleven were able to continue, but any claims remaining were no longer able to enjoy the benefits that the earlier regime offered.

The result was that the claimant who previously might have brought a direct claim against an insurer as of right would now have seek the Court’s permission to serve out of the jurisdiction either on the tortfeasor and/or, possibly, their insurer.   This process would involve ensuring that the claim passed through one of the jurisdictional gateways,   that the Court was satisfied that the claim enjoyed reasonable prospects of success, and that that the Courts of England and Wales were the most appropriate forum for the case to be heard.

This process would then be repeated if, upon being served, the overseas defendant sought to challenge the jurisdiction pursuant to CPR Part 11.

Post- Brexit, can a claim against a liability insurer still be pursued?

This article is not intended to explore the many hurdles that a claimant must overcome in order to successfully gain permission to serve outside the jurisdiction or the issues a defendant may wish to raise after service to challenge the jurisdiction of the Court, under CPR Part 11.  Rather, we propose to focus the remainder of this article whether, in principle, it is still possible for a claimant to pursue a claim against a liability insurer in the Courts of England and Wales since the provisions of Brussels and Lugano have ceased to have effect.

In short, such actions are possible, however the process is less predictable, more uncertain and a little more complex.

For a claimant there are plenty of advantages to pursuing a claim against the liability insurer, rather than risking a claim against the tortfeasor alone.  This includes: 

• That the insurer is likely to be the ultimate paying party.
• They are usually in funds and;
• They tend to engage in the litigation and they may even nominate solicitors within the jurisdiction for service. 

Pursuing an individual tortfeasor is likely to be far more challenging and in general they tend to be less likely to be able to satisfy a judgment.

So how might a claim against an insurer be pursued?

Let’s take the following example.  

• X is a passenger in a hire vehicle driven by Y. 
• Both X and Y are resident in England and are on holiday in Spain, where the accident occurs.
• The accident is the fault of Y.  
• The vehicle is insured by a Spanish motor insurer, Seguros Z. 
• Let’s also assume that Y does not have the funds to satisfy a judgment.

X would like to bring a claim against Seguros Z as the road traffic insurer.  But how could this be done?

Despite the loss of the Recast Brussels Regulations, Rome II remains part of domestic legislation, pursuant to section 3 of the European Union (Withdrawal) Act 2018.  Unlike the Recast Brussels Regulations, Rome II does not require reciprocity between participating states to function and thus, for the time being at least, remains good law. 

In our example, pursuant to article 4(2) of Rome II, English law will apply and both claimant and tortfeasor are domiciled in the same jurisdiction.  However, X will not be able to take advantage of the European Communities (Rights Against Insurers) Regulations 2002, as it only permits direct rights of action to be brought (i) in respect of an accident that occurs in the UK and (ii) involving a vehicle normally based within the UK.  Accordingly, the law applicable to the non-contractual obligation, that being English law,  does not assist X in pursuing a direct claim against Seguros Z.

We return to article 18 of Rome II, which provides that:

The person having suffered damage may bring his or her claim directly against the insurer of the person liable to provide compensation if the law applicable to the non-contractual obligation or the law applicable to the insurance contract so provides.

The wording of article 18 appears to be somewhat curious for a provision that regulates rules of applicable law rather than jurisdiction.  It might be tempting to read article 18 in such a way to permit X to bring their claim against Seguros Z in the claimant’s home court provided that if the law of the tort or the law of the insurance contract so provides.  However, it is clear that the effect of article 18 does not to confer a positive right to bring a claim against an insurer and nor does it provide any rules on the issue of jurisdiction. 

There is a reasonable argument that the effect of article 18 is to permit X to bring a direct claim against an insurer (Seguros Z) if either the law applicable to the non-contractual obligation or the law applicable to the insurance contract so provides.  X is therefore free to choose whichever regime may be the more favourable.  In our case X cannot benefit from the law applicable to the non-contractual obligation (in this case English law) but could choose to rely upon the law applicable to the insurance contract, which we will presume is the law of Spain.

If X is able to establish that the law of the contract of insurance permits a direct right of action, by virtue of article 18 of Rome II, X should be able to establish a cause of action against Z.

This conclusion appears to be supported by the European Court in Prüller-Frey v Brodnig and Axa Versicherung (C-240/14), which has confirmed that the effect of article 18 was not to constitute a conflict of laws rule designating the law applicable to the liability of the insurer or the insured, but merely made it possible to bring a direct action where one or other of those laws provided for this possibility. 

Advocate General Szpunar, made the point even more explicitly:
Article 18 of the Rome Regulation does not constitute a conflict of laws rule ... The sole aim of the article is to determine which law applies to the question ... whether the victim can bring a claim directly against the insurer  and does not concern the extent of the insurer or the liable party's obligations. The liabilities of the insurer continue to be governed by the insurance contract.

Returning to our scenario:

• By article 4(2), the lex causae, the applicable law that governs the substantive claim is English law;
• By article 18, the law of the contract of insurance, which is presumably Spanish law (which will define the scope of the liability under the insurance contract) ; and 
• By Spanish law, the claimant has a direct right of action to bring a claim against Z.

If we change the facts of the case to a motor accident in Spain where Spanish law applied to both the law of the tort and the law of the insurance contract, then X could choose either law as the basis of their cause of action against the insurer.

 We can then see how it might be possible for the claimant to establish a cause of action against a foreign insurer, despite Brexit.  However, unlike before, the claimant cannot rely on the Brussels Regulation or the Lugano Convention to bring such claims in the UK as of right.  The real battle ground will be in respect of jurisdiction and whether the Courts of England and Wales are the appropriate forum for the case to proceed. 

The scope of article 18

Where a Claimant bases their action on the law applicable to the contract of insurance, the situation is relatively straightforward.  They must establish that the insured has incurred liability to them, that the claim falls within the policy coverage under that contract and that the conditions for proceeding directly against the insurer have been met.  Therefore, the claimant will be bound by any indemnity limits, for example, contained in the policy of insurance.

Does the same apply where the cause of action is based on the applicable law, the lex delicti?  In short, yes.  The authors of Plender & Wilderspin, in The European Private International Law of Obligations, observe that: 

Read literally, all that art. 18 does is to give the claimant the option to bring a direct action against the insurer if either of the two laws permits this.30 It does not say that if the complainant bases his action on the lex delicti he can extend the liability of the insurer to him beyond what is stipulated in the law applicable to the insurance policy. That the literal interpretation is the correct one is buttressed by the comment of the Commission in the Explanatory memorandum to the effect that "at all events, the scope of the insurer's obligations is determined by the law governing the insurance contract". If that is the case, then art. 18 is not so much a choice of law rule but rather a rule governing the victim's standing to bring the direct action.

Despite a cause of action being based on the lex delicti, the insurer will still be entitled to rely on any limitations on liability permitted by the law of the contract of insurance. 

In summary, article 18 deals only with whether the claimant can directly claim compensation from the insurer, whereas the scope of the insurer's obligation to pay is subject only to the law of the insurance contract.  

However, as we have seen, where the law of the contract of insurance excludes a cause of action, but the lex delicti allows one, the claimant may choose to take advantage of the more favourable law.

Outcome

When we consider all of the above, there remains the opportunity for a Claimant to bring a foreign insurer before the Courts of England & Wales post-Brexit. We are now beginning to see, filtering through the courts,  that now the real fight is if England & Wales is the most appropriate forum to hear these claims. Absent accession to the Lugano Convention this fight will remain pertinent up until as such time this situation changes. It is key that insurers alongside their lawyers consider a costs/benefits analysis of a jurisdictional challenge and if ultimate savings are possible.

 

This piece was co-written by Ian Denham of Outer Temple Chambers.