Feature: Commerical and dispute resolution Insurance coverage disputes Crossing the Atlantic With insurance coverage disputes on the rise, Global insurance policies offer a number of advantages to the policyholder such as corporate policyholders need to ensure that they economies of scale, centralised adminis- clearly understand the terms of their policies. Jane tration and reduced risk of overlap or gaps in coverage. However, the cross-border na- Harte-Lovelace, Thomas Reiter and Matthew ture of such policies means that, in the event of a dispute with an insurer, complex Smith set out the main legal issues under UK and issues often arise as to the correct law Illustration: Rhona Garvin and/or forum for resolving the dispute. US law that a policyholder should consider when Insurance coverage disputes are on the facing a potential dispute with its insurer and at rise, particularly in the US and the UK ( see box, The growth in insurance cover- the policy negotiation stage. age disputes: UK and US ), and often PLC Cross-border Quarterly ■ January-March 2006 ■ The journal for subscribers to www.practicallaw.com/crossborder 1 Find this article and related materials at www.practicallaw.com/3-201-5526
Commercial and dispute resolution: insurance coverage disputes The growth in insurance coverage disputes: UK and US There have been a number of key drivers for the growth of insurance � Changing public sentiment against big business and in favour of coverage disputes in the US: polluter pays in a jury based legal system. � The scale of the successful asbestos and environmental con- While the UK does not have jury-assessed damages there are a tamination claims against major US companies and thus their in- number of parallels to the US experience including: surers. � Asbestos liabilities claims against not only manufacturers but also � The relaxation of procedural and causation issues combined the actuarial profession (estimated recently at GB£20 billion (about with out of date and often loosely drafted policies. EUR29.5 billion or US$35.2 billion) over the next 30 years). � The aggressive position asserted by insurers to rebut claims. � Financial services related claims, including mis-selling. � The emergence of a specialist bar acting only for corporate poli- � Errors and omissions (E&O) claims and directors and officers cyholders, unconstrained by the “conflict” of also representing ma- (D&O) claims against executive directors and, now, non-executive jor insurance groups. directors. � The pressure by shareholders on corporate management to pro- � The increasingly aggressive positions being adopted by insurers tect the company’s assets and maximise insurance recovery. in resisting policyholder claims. involve a cross-border element. A cross- ent meanings depending on whether US or ated within the EEA, the issue as to the ap- border dispute typically involves the poli- UK law governs the terms of the policy . plicable law of the contract of insurance is cyholder bringing proceedings in one ju- determined by reference to the Rome Con- risdiction for an indemnity under the pol- � The correct forum or jurisdiction for vention 1980, which is implemented by the icy and the insurer issuing parallel resolving disputes. Although the choice of Contracts (Applicable Law) Act 1990. proceedings in another jurisdiction for a law and jurisdiction are often linked, the declaration that the policyholder has no parties may agree that the policy should The rules for determining conflict of law entitlement to such an indemnity . be governed by , for example, Pennsylvania issues differ depending upon which of law but subject to the exclusive jurisdic- these two statutory schemes applies. The decision as to the correct law and/or tion of the English courts. forum may have a fundamental impact on In the US, the conflict of law rules to be ap- a policyholder’s claim and even in some � Whether there is an arbitration clause plied typically are those of the forum, that circumstances determine the outcome of in the policy and, if so, what law is to be is, the state in which the insurance cover- the claim. For example, a claim by a poli- applied by the arbitrator in resolving the age proceedings take place. Insurance cyholder may be statute-barred on the dispute. coverage disputes in the US are generally grounds of limitation in one jurisdiction considered to present issues of state, as but not in another, or the policyholder ( See also box, Choice of law and forum opposed to federal, law. may be deprived of an entitlement to re- selection: some general guidance .) cover an indemnity for punitive damages. It is therefore not possible to establish Law governing the policy any firm principles that would apply There may be sound reasons to keep the across the US, there being no established policy silent as to the choice of law and/or Under UK conflict of law rules the proper uniform conflict of law rules. However, a jurisdiction (for instance, because of tac- law of an insurance policy entered into af- large number of states including, for ex- tical considerations). However, it is worth ter 1 April 1991 can be determined by ref- ample, New Jersey , follow the Restate- global policyholders considering these is- erence to one of two statutory schemes de- ment (Second) Conflict of Law Rules sues carefully before the policy is issued pending upon where the risk covered by promulgated by the American Law Insti- and in the event of a potential dispute over the policy is located: tute (the Restatement), which sets out coverage. principles for resolving conflict of law is- � Risks located inside the European Eco- sues. This article sets out the main legal issues nomic Area (EEA) . For risks located within under UK (England and Wales) and US law a member state of the EEA, the applicable There are three possible scenarios in rela- that a policyholder should consider when law of the insurance policy is determined tion to choice of law in an insurance pol- faced with a potential dispute with its in- by reference to the Financial Services and icy: surer. In particular, it highlights the follow- Markets Act 2000 (Law Applicable to Con- ing issues that should be determined: tracts of Insurance) Regulations 2001 (the � Where the parties provide expressly in FSMA Regulations). These regulations im- the policy for the choice of governing law. � The law governing the policy . Choice of plement EU directives. law considerations are particularly impor- � Where there is no governing law clause tant in insurance coverage litigation. For � Risks located outside the EEA. Where but a choice of a particular governing law example, particular terms may have differ- the risk covered by the policy is not situ- can be implied. 2 PLC Cross-border Quarterly ■ January-March 2006 ■ The journal for subscribers to www.practicallaw.com/crossborder
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