Private International Law of Reinsurance and Insurance

Raymond Cox; Louise Merrett and Marcus Smith

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9 LEGAL REGIMES DETERMINING CHOICE OF LAW

9.1 In contracts, the will of the parties is unsurprisingly accorded substantial pre-eminence, and the choice of law rules applicable to contractual questions are no exception. As will be seen, the various treaties and directives applicable to contracts of insurance and reinsurance accord primacy to the contractual will of the parties, as does the common law, when applicable. 9.2 An important anterior question is the source of the parties’ autonomy. Is the source of the parties’ ability to choose the law governing their contract simply based upon their will or is the parties’ autonomy confined to selecting from amongst the options offered by a particular system of municipal law? If the latter is the case, then a further question arises: which system of municipal law is applicable? 9.3 In an article lamenting the coming into force of the Contracts (Applicable Law) Act 1990,1 the late Dr F. A. Mann debated whether the unfortunate consequences of the 1990 Act could be avoided by contracting parties agreeing that the applicable law should be “English law excluding the Act of 1990”. Clearly, if choice of law is simply based upon the parties’ will, such a choice ought to be given effect to. If, however, the choice of the parties must be based upon the conflicts rules of a particular legal system, then the parties’ freedom of choice may be restricted by that system. It may very well be that English law would not give effect to the sort of choice of law contemplated by Dr Mann. 9.4 The prevailing view is that the parties’ choice is subject to municipal law, and that the parties’ choice can therefore be fettered. This is the prevailing view, not only in England but generally.2 Indeed, this is the only way of explaining why it is not possible to specify a “floating” applicable law (i.e. a proper law chosen at a time later than the commencement of the contract).3 9.5 The relevant municipal law is the law of the forum.4 9.6 In English law, the process of determining which law is the proper law involves three stages.5 First, it is necessary to characterise the issue that is before the court, e.g. is the question regarding the interpretation of a contract. Secondly, the court must identify the “connecting factor” for the issue in question. The connecting factor is the rule of (English) conflict laws that ties the issue before the court to a particular legal system. Thirdly, having identified the connecting factor, the court must apply it so as to identify the applicable legal system.

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9.7 In an ideal world, the answers obtained in these three stages would be the same, in whatever country they were determined.6 These days, as we have seen (paras 2.77-2.99 above) choice of law questions relating to contracts of insurance and reinsurance are largely governed by treaty and directive in order to achieve a harmonisation of the conflict of law rules applied across the nations of the European Union. Short of harmonising the substantive laws themselves, this is the best way of ensuring that the same outcome occurs whatever the jurisdiction: if each state adopts the same choice of law rules, then the same substantive law should be applied to the case, whatever that substantive law may be. 9.8 The Rome Convention on the Law Applicable to Contractual Obligations (“the Rome Convention”) and various EC Directives on Insurance (“the insurance directives”) are the instruments whereby such harmony is sought to be introduced. As is the case in relation to the various regimes applicable to jurisdiction, together they make up a complicated patchwork of regulation, which - with some exceptions - will apply to determine all choice of law questions arising out of contracts of insurance and reinsurance, thus leaving the common law with a residual, and peripheral, role. The process of answering a choice of law question in the context of insurance and reinsurance must begin by identifying the applicable legal regime. This question is considered in the next section.

B. IDENTIFYING THE APPLICABLE REGIME

1. Overview

9.9 The various regimes draw a fundamental distinction between contracts of insurance and contracts of reinsurance. Provided the contract of reinsurance was concluded on or after 1 April 1991, the Rome Convention will apply. Contracts of reinsurance concluded before that date will be governed by the common law. 9.10 So far as contracts of insurance are concerned, the Rome Convention will only apply to contracts of insurance covering risks situated outside the territories of the Member States of the European Union. Again, where such contracts were concluded before 1 April 1991, the common law will apply. 9.11 As regards contracts of insurance covering risks situated in the territories of the Member States of the European Union, the Insurance Directives will apply. These distinguish between contracts of “general insurance” (or “non-life insurance”) and contracts of “long-term insurance” (or “life insurance”). The Directives will apply to non-life insurance entered into after 1 July 19907 and life insurance entered into after 20 May 1993.8 Contracts concluded before those dates will be governed by the common law. 9.12 A flow diagram, identifying which regime applies when, is shown in Appendix 2.1. In the following sections, the Rome Convention will first be considered, and then the Insurance Directives.

2. Scope of the Rome Convention

9.13 The Rome Convention applies to “contractual obligations” in any situation involving a choice between the laws of different countries. The basic question of what is a contract has already been considered in the context of Article 5(1) of the Brussels Regulation (which

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confers jurisdiction in matters relating to contract - see paras 5.140-5.173 below). As we have already seen in a number of areas in the context of jurisdiction this is a question of characterisation which depends ultimately on community law rather than any individual national law. The key feature of a “contract” is a voluntary agreement giving rise to obligations capable of being enforced by law.9 It is unlikely that an issue will often arise in reinsurances cases as to whether the reinsurance agreement itself is contractual - it almost certainly will be - although as we will see issues can arise in relation to third parties. Much more difficult is the question of whether the law applicable to that contract will govern issues such as misrepresentation, breach of warranty, subrogation and assignment (these issues will be considered further in para. 9.36 below). 9.14 The rules of the Rome Convention apply “in any situation involving a choice between the laws of different countries”: their application is not limited to international contracts. Thus the rules apply to a contract of reinsurance concluded between a New York insurer and a New York reinsurers but containing an English choice of law clause. Indeed, if the proceedings arose before the English courts, the Rome Convention would apply to the same contract even if it had a New York choice of law.10 “Countries” includes for these purposes each territorial unit of a state where each unit has its own rules of law in respect of contractual obligations (Article 19). Thus, and by virtue of section 2(3) of the 1990 Act, the Convention applies where an English court is determining whether Scots law is applicable and vice versa. An English court will similarly apply the Convention in determining whether Jersey law is applicable, although in this case the converse is not the case. 9.15 As we have seen, the Rome Convention applies to some contracts of insurance and all contracts of reinsurance, provided of course these contracts were concluded on or after 1 April 1991.11 Article 1(3) provides:

“The rules of this Convention do not apply to contracts of insurance which cover risks situated in the territories of the member states of the European Economic Community. In order to determine whether a risk is situated in those territories the court shall apply its internal law.”

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