Applicable Law and Jurisdiction Post-Brexit
Use of applicable law and jurisdiction clauses, and arbitration clauses, in insurance and reinsurance contracts.
We attach a briefing note on the enforceability of applicable law, jurisdiction and arbitration clauses post-Brexit.
This note is relevant to insurance and reinsurance contracts being underwritten now, where property or other risks are located or interested parties are resident in an EU member state (“contracts with EU interests”), since a dispute may arise after the current Brexit date: 29 March 2019. The briefing note has been prepared for the LMA by Cooley LLP.
The subject of proper law and jurisdiction and enforcement is complex. We recommend that you read the note for an overview of this subject. For contracts with EU interests, it is clear that Brexit will have an impact on choice of law and whether an express choice in a contract will be enforceable post-Brexit, as now; on which courts will claim jurisdiction to hear disputes; and on enforcement of judgments. It is also clear that some uncertainties may be mitigated substantially by use of arbitration for dispute resolution.
We draw you attention in particular to the Introduction and paragraphs 15 to 19 of the briefing note, which set out potential advantages of arbitration and use of arbitration clauses in contracts.
In practical terms, but subject to the particular profile of a risk being underwritten, the following points may be useful in respect of contracts with EU interests:
- Large risks (see definition in the briefing note) and reinsurance contracts placed in the open market: the use of an arbitration clauses (e.g. with the seat of arbitration in London) may give significantly more certainty than the use of jurisdiction clauses (e.g. where the courts of England and Wales are given jurisdiction), both in terms of where a dispute is resolved and the enforceability of the decision.
- Open market risks placed in London which are not large risks/reinsurance: it is more likely, than for large risks/reinsurance, that the laws of individual EU member states will have a bearing on the effectiveness of choice of law and jurisdiction clauses, because post-Brexit the UK will become a third country in terms of the application of relevant EU regulations (see the briefing note). It remains likely that an arbitration clause (e.g. with the seat of arbitration in London) will give added certainty in respect of where a dispute is resolved and the enforceability of the decision.
- Consumer business and micro business underwritten by a local coverholder in an EU member state: it is often the case that standard form certificates will provide for local law and jurisdiction to apply (particularly where the coverholder only underwrites business located within the member state where it is located and not across borders). It is likely that, post-Brexit, local law and local court jurisdiction will continue to apply, whether or not provision is made for this in the certificate. Therefore, we do not believe the impact of Brexit will be significant in terms of applicable law and jurisdiction of contracts underwritten. An arbitration clause may not be appropriate for local consumer and micro business insurance (e.g. given local consumer protection regimes). However, arbitration as a method of dispute resolution in the binding authority agreement, should the carrier and coverholder need to resolve a dispute, could offer added certainty in terms of where a dispute is resolved and the enforceability of the decision.
- Compulsory classes of business (e.g. employers’ liability): it is more likely that local law and jurisdiction would prevail over an arbitration clause, due to the law of individual members states concerning their compulsory classes. This would need to be explored in respect of the risk presented for underwriting.
This summary and attached briefing note give a general overview. The terms of Brexit (particularly any agreement between the UK and the EU about the continued application of the regulations set out in the briefing note across the EU in respect of the UK) will be crucial in terms of removing uncertainty created by Brexit. However, arbitration clauses may enhance certainty in many open market placements at this time. Advice should be sought where there is concern about dispute resolution.
Please contact Kees: kees.vanderKlugt@LMAlloyds.com at the LMA with any questions about this bulletin and briefing note.
Kees van der Klugt
Director, Legal & Compliance