Tetley (2002) introduction to conflict of laws 5

Reinsurance

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  To understand conflicts you need to understand two laws, and have expertise over the subject you are considering (example if defamation in the Internet)
  
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  An insured may not sue the reinsurer or his insurer (should the insurer go bankrupt for example) in the absence of an express stipulation in the policy (Marine Insurance Act S.C. 1993, c. 22 at s.9(2), also under Texas, English, Canadian and Bermudian law)
  
• 
  The law of the place of business/head office of the insurer is inappropriate to reinsurance. More appropriate is the law of the place where the reinsurance was written as held in Citadel Ins. Co.
  
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  “Mechanics of creation test” = where many different insurance polices, possibly subject to many different laws, are reinsured by one reinsurance treaty, then greater consideration will be given to the law of the place where the reinsurance is managed.
  
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  The Rome Convention applies to reinsurance both inside and outside of the EU. The rebuttable presumption of art. 4(2) is that the principal place of business of the insurer is to be paramount in marine insurance, where no other law has been expressly or implicitly chosen by the parties.
  
• 
  Suppose McGill goes through a broker in London who reinsure with someone in Switzerland – it would be nice if the risk were described the same but the applicable law is quite different
  

1. Citadel Ins. Co. v. Atlantic Union, [1982] 2 Lloyd’s Rep. 543.

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  English law applies and England has jurisdiction.
  
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  Because England is very careful to choose its law in its jurisdiction.
  
• 
  See also HIB v. Guardian Ins. Co (1997).
  

4. Direct Action

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  Procedure in tort or delict where a third party may in certain cases sue the underwriter – I slip on your sidewalk and you go bankrupt or disappear but you have insurance – in certain jurisdictions you can sue the insurer (one of these is Quebec)
  
• 
  Suppose I’m insured for people slipping on my sidewalk and someone does, but I’m bankrupt – how does this person recover? By direct action and suing the insurer directly if the insured is bankrupt. What if one place allows direct action but another does not?
  
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  England has put direct action in for automobiles
  
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  It is extremely important and is the case of the third party going over the head of the insured to sue the underwriter
  
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  Some cases in New Orleans have favored direct action but may be overturned. So, this idea has been virtually snuffed out, even in New Orleans – England has it or is going to have it but not in marine matters and the European Union is considering it
  

a) Indemnity policies

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  Indemnity policies are less adapted to direct action than liability policies because they require that the insured have paid a claim before the insurer is obliged to indemnify the insured.
  

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  Protection and Indemnity Clubs (P& I Clubs) are ship-owners' mutual insurance associations and are indemnity insurers and thus resist direct action. The courts have said that the above is not possible in indemnity policies – it takes a specific law to allow this for these kinds of policies (Quebec has it in the Code but not as secure as we would like and New Orleans has tried to have it).
  
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  Almost all marine insurers are indemnity insurers so this often cannot happen – also a conflict problem with these types of direct actions as well.
  

b) Defenses of the insurer

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  An insurer should not be able to oppose a direct action against it by claiming it is not responsible until the insured has paid the claim to the third party – no “indemnity defense”
  
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  Under a proper and equitable direct action statute, the insurer should be able to raise against the third party:
  

ii) All the legitimate defenses of the insurer against the insured under the policy (material misrepresentation of risk, default in payment of premium, time for suit, statutory limitation of liability, etc.

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  The third party should not have more rights than the insured under the law.
  

• 
  Certain international maritime conventions authorize direct actions against insurers:
  

ii) Nuclear Ships Convention – similarly for nuclear damage

a) United Kingdom

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  Third Parties Act 1930 – permits action by third parties against insurers under liability policies in the case of the assured's bankruptcy or winding up, but does not grant a right of direct action against a P & I Club (indemnity insurer). Does not permit direct action, as per The Padre Island (No.2) against an indemnity insurer (considered including it in UK Marine Insurance Act of 1906 but did not).
  
• 
  UK is also planning a Third Parties Bill which was drafter in 2001 – p.34 CB
  

b) United States

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  Because there is no federal admiralty law on direct action according to Wilburn Boat, then state law applies. Whether suit is permitted against marine insurers, indemnity insurers and P&I Clubs, depends on the wording of the state statute and at times the terms of the insurance contract. Direct action not permitted in general, for example in New York direct action is permitted on both liability and indemnity policies, but not on marine insurance policies, whether liability or indemnity.
  

• 
  Marine insurance falls within the admiralty jurisdiction of US District Courts and courts in such cases must apply federal as opposed to state conflict of law rules. But since only state law treats direct action, the federal conflict rules must decide which state's direct action law should apply (and if the state permits direct action at all).
  

c) Canada

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  In the common law provinces, direct action is generally permitted only if a judgment has been obtained against the insured (this is not really direct action).
  
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  In Quebec, direct action is specifically permitted in non-marine liability insurance under 2500 - 2502 CCQ. The defenses of the insurer against the third party are those of the insured at the time of the loss. These articles are found under liability insurance, which is part of non-marine damage insurance. Article 2628, however, imposes direct action with respect to marine insurance. The Quebec provisions permit direct action, regardless of whether or not the insured is bankrupt.
  
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  Although these provincial direct action provisions appear ultra vires in light of the SCC's decision in Triglav and the adoption of the federal Marine Insurance Act 1993, it may be strongly contended that Parliament has not occupied the specific field of direct action in marine insurance and that these enactments are therefore operative (through paramountcy).
  

Assume law in New Orleans permits direct action, but U.K. law does not.

With product liability, interest analysis was used by the USSC to apply Louisiana law.

Must ask whether sitting in admiralty (federal conflict of law rules) or diversity (where citizen from different states or countries involved – state conflict of law rules) jurisdiction.

Marine insurance so federal conflict of law rules but must decided which states direct action law should apply…this is unclear. Seem to apply law of the state where the contract is issued and delivered, while others apply law of the state with the most significant nexus with the contract.

Has not yet been determined by a court…one theory would be subject the matter to the applicable law in tort and the actionable but not justifiable rule from Phillips v. Eyre would come into play. Some may also extend this through the contract as an extension of it and thus is subject to the proper law of the contract (most authors would rather this rule). Should be left to courts to decide.

Generally would apply English law.
Australia

Lex loci delicti with respect to automobile accidents, the law of the place of registration of the vehicle or the law where the automobile is insured, regardless of the law covering the main claim. No specific recommendations.
France

The law of the place of the wrongful act – lex loci delicti.

• 
  the Prestige case has an aspect of direct action as well – there are two parties with any money: the classification society and the underwriters for the ship (the P & I Club)
  
• 
  Tetley expects that there will be a direct action against them but it may be very difficult
  
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  different zones – territorial zone, contiguous zone, economic zone
  

In conclusion, one may say that direct action is a juridical act having a proper law of its own, which may or may not be similar to the law applicable to the principal contract of insurance. It appears correct to apply the proper law of the insurance contract to the right of a third party to sue the insurer, since that right flows from the contractual relationship between the assured and the insurer, which is the principal contract.

• 
  Canadian vessel insured through a NY broker who through a London broker has the risk underwritten at Lloyd’s in London – the premium was not paid and the NY broker cancelled the policy…the ship was lost at sea (under U.S. law a broker may cancel for non-payment of premium but in English law the premium is deemed paid and the insurer may only recover from the broker)
  
• 
  in insurance you have an underwriter who is the insurer and the broker who is an agent of both parties but now is usually for the insurance company
  
• 
  a contract – you with your broker and your broker with the insurer through another broker, for example, in London (see above)
  

1. Ruby S.S. v. Johnson and Ruby S.S. v. Commercial Union Assurance (1927, 1933)

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  The 2nd Circuit applied US law and held that, as between the broker and the insured, US broker was justified, under the terms of the contract, in canceling the policy for non-payment of the premium.
  
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  When the owner then sued the underwriter in England (Commercial Union), the Court of Appeal also applied US law, holding that the relationship of the assured with the US broker was a question of authority of the agent (the US broker), and therefore subject to the law of the country where the agency relationship was created. The English underwriter could accept cancellation of the policy from the American broker for non-payment of premiums without incurring liability to the insured.
  

• 
  Good illustration of depeçage
  
• 
  Tetley: "The English decision can be criticized on the ground that the assured's rights against the US broker are separable from its rights against the English underwriter, which latter rights should be determined by the proper law of the insurance contract (English law, in this case). Had English law been applied, the assured would have recovered from the underwriter, since at English law the premium is deemed to have been paid when the policy is issued and the broker is not permitted to cancel the policy." (As per Xenos v. Wickham.)
  
• 
  Note: Under US law a broker may cancel for non-payment of the premium. Under UK law the premium is deemed paid and the insurer may only recover from the broker.
  
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  "The UK Court of Appeal did not realize that it was not hearing the same claim between the same parties as in the American case and that the two decisions need not have been similar. US law was the proper law of the contract between the broker and the assured and, under US law, the broker was entitled to cancel the policy. English law was the proper law of the contract between the insured and the insurer and, under that law, the UK court should have held the underwriter responsible to the assured." On appeal, Scrutton J. made a big mistake when he said "I decline to sit in an appeal from American courts on American law..."
  
• 
  UK court mistook the New York decision as being res judicata (i.e. that the question had been resolved). However, in order to have res judicata must have (1) identity of the person; (2) identity of the object; and (3) identity of [something]. Here the contracts were different; the English contract was between the underwriter directly.
  
• 
  Court of Appeal said that under American law if you don’t pay it could be cancelled. However, the insured had one right against the broker under U.S. law and an additional and different right against the underwriter under English law. These different rights should have been respected.
  
• 
  Scrutton seems to think the Ruby is looking at an appeal from the previous case but really he is hearing a completely different case between two more people in a different jurisdiction – the courts interpretation of this case is quite wrong
  
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  Ruby sued the broker in NY who he had a K with – the American court said that the broker was permitted to cancel under their law. He then sued the underwriter in England, going over the head of the U.S. broker, where the law said that the coverage could not be denied – however, the court said (Tetley believes her got it wrong) that the case has already been tried in the United States where it had gone to the Court of Appeal so he could not render judgment on an appeal from American courts, even though it was not the same case
  
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  This was an action against the insurer, and the underwriter could not deny coverage against the insurer – this is a perfect case of depecage where there are different laws applicable to the different players involved in a particular series of contracts.
  

2. Edinburgh Assurance Company v. R.L. Burns Corp (1980)

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  The court went on to recognize that English rather than American law governed the interpretation of a marine insurance policy negotiated in London and issued there to an American vessel owner, even though payment of premiums and losses might be made in the US where many of the underwriters do business (i.e. agency arrangements between the insured and the London insurance broker were subject to English law).
  
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  Court conducts interest analysis: “Romero makes clear that points of contact must be evaluated with regard to the needs of a general federal maritime law and respect for relevant interest of foreign nations…” And also recognizes public policy as a determining factor
  
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  "In deciding an international maritime dispute, an admiralty court need not choose only a single law to govern all issues; it may apply domestic law to some aspects of the dispute and foreign law to others, depending on the points of contact with each issue." Fed. Dist. Court recognized that there were two different contracts subject to two different laws.
  
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  Tetley: "This was a proper handling of the conflicts problem."
  
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  Here, they got it right as compared with above – look at Marine Insurance chapter for this – realized here that you can have depecage.
  

• 
  There are really two types if responsibility insurance – indemnity and liability. Indemnity only pays if you are insured to pay the third party – perfect case is Prestige. A protection and indemnity club (P & I Club – a group of ship-owners get together and insure each other) only pays if you’ve paid. See above…
  

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  article 1(1) – discusses scope of convention and where is does or does not apply
  
  • 
    if looking at insurance contract in Rome will apply their rules
    
  • 
    1(3) – doesn’t cover insurance in member states but only outside
    
  • 
    1(4) – (3) doesn’t apply to reinsurance,
    
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  article 3 – sets out principles for depecage and freedom of choice in contract but you may be subject to mandatory rules (subject to law chosen by the parties)
  
  • 
    contract governed by law chosen by the parties, express or known with reasonable certainty…allows depecage (roughly the same as 3111 CCQ)
    
  • 
    (2) – may decide to change which law they want to govern the K at any time
    
  • 
    (3) – if we agree to choose Hong Kong law but all the other elements is relevant to one country it shall not prejudice the choice of law – express choice overridden by mandatory rules of law only where every element/contact is with another country (stricter then 3111(2) CCQ?)
    
    • 
      mandatory rules of a certain country will apply against express choice if everything points to the law of that country
      
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  article 4 – if there is no choice and no inference then it is the closest and most real connection
  
  • 
    absence of choice – in Rome, mandatory rules only apply in a case of express choice when every element is not with the country chosen (stricter then Quebec) as opposed to when there is no choice and we just look at the most real connection
    
  • 
    (2) – characteristic performance – most closely connected with the country where the party who is to perform the prestation that is characteristic of the contract has his residence, or if the act has been made in the ordinary course of business, the place of his establishment
    
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  article 7(1) – like 3079 CCQ
  
  • 
    seems to contradict 3(3) – law of England, Ireland and Luxembourg does not include this law -
    
  • 
    (2) – obligatory foreign court statute – nothing restricts law of forum rules of law where they are mandatory irrespective of the law otherwise applicable to the contract
    

Article 14 – Direct Action – determine the law applicable to the question whether the person sustaining damage may bring a direct action against the insurer of the person liable. The proposed rule strikes a reasonable balance between the interests at stake, giving the person sustaining damage the option, while also limiting the choice to two laws which the insurer can legitimately expect to be applied (the law applicable to the non-contractual obligation and the law applicable to the insurance contract). At all events the scope of insurer’s obligations is determined by the law governing the insurance contract.

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  see page 1 for the general provisions from the CCQ for Private International Law and Conflicts of Law
  

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  3077 – reference to country is reference to law of that country/legal system of that country
  
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  3078 – mandatory rules – characterization made according to the legal system of the court seized of the matter…
  
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  3079 – mandatory rules – allows discretion where legitimate and manifestly preponderant interests so require to apply mandatory rules after considering consequences, etc.
  
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  3080 – rejection of laws
  
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  3081 – public order
  
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  3082 – escape hatch
  

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  3111 – you look to express choice or implied choice of law even if it contains a foreign element
  
  • 
    express choice of law – (3) may be designated to cover the contract in whole or in part (depecage)
    
  • 
    implied or inferred choice (closest connection)
    
  • 
    2^nd paragraph – a juridical act with no foreign element remains subject to the mandatory rules of the country which would apply if none were designated (closest and most real connection)
    
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  3112 – if no law designated or if law designate invalidates the juridical act, then the courts apply the law of the country with the closest and most real connection…
  
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  3113 – how to find the closest connection (residence or place of ordinary course of business, etc.)
  
  • 
    presumption of characteristic performance
    
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  mandatory rules – 3078, 3079, 3111(2), 3119 (notwithstanding any stipulation to the contrary…)
  
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  3119 – notwithstanding any agreement to the contrary (express choice), insurance K’s are governed by laws of Quebec law if property/interest insured is in Quebec or policy is applied for/subscribed to in Quebec by a resident in Quebec if
  
  • 
    the policyholder applied in Quebec or the insurer signs or delivers the policy in Quebec – only need to fall within one of the “or’s”
    
  • 
    notwithstanding express choice, a K of insurance property or interests situated in Quebec or subscribed by person resident is governed by Quebec law, if policyholder applied in Quebec or the insurer signs or delivers in Quebec
    

• 
  Specifically mentioned in both the Rome Convention and CCQ – incredibly important. A very international matter – important.
  

• 
  #1 – House in Quebec is insured against fire, subscribed in Quebec by you a resident of Quebec. The insurer with head office in Quebec signs and delivers the policy in Quebec and the policy calls for the law of England
  
  • 
    a Quebec court would apply…Quebec law because of 3119 CCQ
    
  • 
    a London court would apply…3(3) would have to be applied which would allow the mandatory rules of Quebec to be applied
    
  • 
    a Paris court would apply…3(3) must also be applied and 7(1) is an interesting escape hatch but 3(3) may override it
    
• 
  #2 – McGill Law Faculty is insured against liability and the Quebec insurer delivers the policy in Quebec. The policy calls for the law of England
  
  • 
    Quebec – Quebec law because this is a liability policy and is equal to interest under 3119 therefore QC law
    
  • 
    London – 3(3) so QC law
    
  • 
    Paris – 3(3) so QC law
    
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  #3 – A house in Vermont is insured against first by John Doe resident in Quebec and the Quebec insurer signs in Quebec. The policy calls for the laws of England.
  
  • 
    Quebec – will apply Quebec law because requirements of 3119 CCQ are met
    
  • 
    London – 3(3) but could apply English law because not all other elements are connected with Quebec so they are not obliged to apply Quebec law – don’t have to consider article 7(1) because don’t accept this – will apply 3(1) of Rome Convention
    
  • 
    Paris – same but may have to apply mandatory rules of Quebec because of 7(1)
    
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  #4 – A building in Vermont is insured against liability by McGill University which subscribes in Quebec and the Untied States insurer signs and delivers the policy in Quebec. The policy calls for the law in England.
  
  • 
    Quebec – 3119 would still apply because both sides (subscribed in Quebec and signed/delivered in Quebec) of the equation are met
    
  • 
    London – apply 3(1) because 3(3) doesn’t apply
    
  • 
    Paris – apply 3(1) as well because 3(3) just doesn’t have enough connections to Quebec to apply – more pointing away from Quebec here
    
• 
  it is possible that in #3 and #4 the Paris courts could apply one or the other…discretionary
  

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