Update for Lenders – Supreme Court considers jurisdiction in claim by Insurer against an assignee and loss payee of an insurance policy

• United Kingdom

• Banking and finance
• Insurance and reinsurance
• Litigation and dispute management

17-06-2020

In the recent case of Aspen Underwriting Ltd & Others v Credit Europe Bank, the Supreme Court has held that the High Court of England and Wales did not have jurisdiction to hear an insurer’s claim of fraudulent misrepresentation or restitution, in respect of sums that were alleged to have been wrongly paid to the bank as assignee and loss payee of a policy.

Factual Background

The claimant insurer (Aspen Underwriting Ltd) had insured the owners of a vessel, which had an exclusive jurisdiction clause in favour of the Courts of England and Wales. The owners’ bank (who were domiciled in the Netherlands) was an assignee of the policy and also named as a loss payee.

The vessel was lost and the claimant insurer settled the claim for $22 million. The bank issued a letter to the insurer in its capacity as loss payee, which authorised payment of the settlement sum to the bank via the owners’ insurance broker.

Several years later, in separate proceedings, it was subsequently held by the Commercial Court that the vessel had been deliberately sunk by the owners, and the insurer sought to recover the sums paid under the policy to the bank via restitution or as damages for fraudulent misrepresentation.

The bank challenged the jurisdiction of the English Court under Brussels Regulation Recast (Regulation (EU) 1215/2012) (“the Regulation”) and argued that proceedings ought to have been brought in the Netherlands. The insurer, however, argued that the bank, by issuing the letter of authority, had asserted a claim under the policy for payment of the insured sums as assignee and loss payee and had submitted to the jurisdiction of the English Courts.

The Supreme Court was asked to determine the following points:

a)   Whether the High Court of England and Wales had jurisdiction to hear the insurer’s claims against the bank pursuant to the exclusive jurisdiction clause in the Policy.

b)   Whether the insurer’s claims were “matters relating to insurance” for the purposes of the Regulation.

c)    If the answer to (2) was yes, whether the protections in section 3 of the Regulation apply only where the defendant is a “weaker party” in relation to the insurer.

d)   Whether the insurer’s claims of misrepresentation and/or restitution were matters relating to “tort, delict or quasi-delict” under Article 7(2) of the Regulation and thus ought to be heard in the High Court of England and Wales as the location where the harm allegedly occurred.

Supreme Court’s judgment

The Supreme Court held that a jurisdiction agreement in an insurance policy does not bind a third party beneficiary of insurance, who is domiciled in a different contracting state and who has not expressly subscribed to the clause. The bank was not a party to the policy in its capacity as assignee or loss payee and was therefore entitled to be sued in its own member state, on the basis that the insurer’s claims were “matters relating to insurance” within the meaning of the Regulation.

Comment

Where a lender is not a composite insured on a policy but is an assignee and/or loss payee, it will need to have this decision in mind when agreeing the terms of a policy. A lender may or may not wish to take advantage of an exclusive jurisdiction clause and will need to ensure the drafting reflects its wishes.

The case also highlights the importance of ensuring that lenders scrutinize insurance policies which they are relying on. The bank was vindicated in this case, but the legal fees involved in having the claim heard in the Supreme Court would have been significant, bearing in mind this was a dispute about jurisdiction, with the dispute about restitution to be heard separately.