The Supreme Court Clarifies on Direct Action Claims against P&I-Insurer

Aktuelt | 16.05.18

Shipping og offshore
Norwegian insurance law provides for third parties to bring claims for compensation directly against the insurer (direct action).

The Supreme Court Clarifies on Direct Action Claims against P&I-Insurer

Further, in the event that the assured is insolvent, the rule enabling direct action is mandatory, meaning it cannot be departed from to the detriment of the injured party. A practical consequence, is that so-called "pay to be paid" clauses will be of no effect to the insurer if the assured is insolvent and the third party liability claim is brought before a Norwegian Court.

However, in order to bring a direct action claim before a Norwegian court, the court must have jurisdiction to hear the matter. In short, the jurisdiction of Norwegian courts is regulated by the Lugano Convention which in practice corresponds to EU law (Brussel I 2001).

In a recent decision (HR-2018-869-A), the Norwegian Supreme Court tried a case where the Court of Appeal had established jurisdiction in Norway to hear a direct action claim against the Norwegian P&I insurer Gard. The claim arose out of a collision in Indonesian waters between two foreign-owned and foreign-registered vessels.

Firstly, the Supreme Court held (with dissenting votes) that jurisdiction in direct action-matters against insurers is exhaustively regulated by the special provisions of the Lugano Convention section 3. In short, this would mean that jurisdiction cannot be based on article 2 of the convention (domicile jurisdiction). 

Secondly, the Supreme Court held that jurisdiction of Norwegian courts in direct action matters is conditioned upon Norwegian law (or another law permitting direct action) governing the claim in question (lex causae), cf. the Lugano Convention article 11.2 that allows jurisdiction only "where such direct actions are permitted". The question of choice of law is determined on basis of Norwegian private international law, which – in short – prescribes that unless there is Norwegian legislation or judicial practice answering the choice of law, it will depend on which country the matter is most closely connected to based on an overall assessment. The Supreme Court did not determine the choice of law issue in the Gard-case, but decided to send the case back to the Appeal Court in order for it to reconsider its approach on the jurisdiction/choice of law. Additionally, however, the Supreme Court provided quite specific guidelines to the Appeal Court by stating that the intention of the legislators, as documented in relevant preparatory work, had been to include a choice of law provision concerning direct actions claims when passing the Norwegian Insurance Contract Act. In consequence, the Supreme Court held that the legislators' intentions regarding direct actions in Norway should be heavily emphasized when determining the choice of law-issue, which in turn may allow for Norwegian courts seizing jurisdiction.

In our opinion, the Supreme Court may have prepared the ground for quite wide-ranging jurisdiction for Norwegian courts in matters regarding direct action. The reason why the Supreme Court did not go all the way and determine the jurisdiction/choice of law issues, seem to have been that the Supreme Court's competence was restricted due to procedural rules allowing only the review of the Court of Appeal's interpretation of the Lugano Convention. 

It will be interesting to see how the Court of Appeal deals with this matter henceforth. This topic remains open and we will soon have an update.