Private International Law of Reinsurance and Insurance

Raymond Cox; Louise Merrett and Marcus Smith

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11 INSURANCE OF RISKS IN THE EEA: CHOICE OF LAW AND THE INSURANCE DIRECTIVES

11.1 The Insurance Directives apply to contracts of insurance covering risks situated in an EEA State.1 But unfortunately, in several significant respects, the precise scope of the Insurance Directives and the overlap between the various regimes is unclear. In particular, it is unclear which regime applies where the risk is situated in an EEA State but the insurer is established outside the EEA. Article 1(3) of the Rome Convention, as we have seen, provides that the rules of the Convention do not apply to contracts of insurance which cover risks situated in the territories of the Member States of the EEC. This exclusion is not drafted by reference to the place of business of the insurer. One would assume that the Rome Convention and the directives would be back and, thus, one would then turn to the specialist insurance directives, expecting that they would apply instead. At first sight it appears they do, applying whenever the risk is situated in an EEC state.2 Thus the Insurance Directives appear to plug the gap left by Article 1(3). Unfortunately the position may not be as simple as at first appears. 11.2 It has been suggested3 that an examination of the history of the Directives shows that their scope is actually narrower than it appears. The history of the Directives was considered in detail in Chapter 2. As we have seen, the Insurance Directives were implemented against the background of two of the substantive rights which the EU seeks to uphold, i.e. the right of establishment and the right to provide services. Thus, it is argued that the subject of the Insurance Directives are those to whom the two fundamental community rights are given; that is, insurers established in the EU. 11.3 However, the scope of the first Directive merits further consideration. One of the ways of promoting freedom of establishment is to harmonise rules on authorisation amongst the Member States. But there is no reason why those rules should not then apply to any insurance provider in fact providing services in that state regardless of whether they were guaranteed the right to do so under the Treaty. Thus, it is acknowledged in the preamble to the first Directive that “the coordinated rules concerning the taking-up and pursuit of the business of direct insurance within the Community should, in principle, apply to all undertakings entering the market, consequently also to agencies and branches where the head office of the undertaking is situated outside the Community”. The rules in the first Directive are in two parts: Title II contains the rules applicable to undertakings whose head offices are situated within the Community, including the requirement of authorisation under Article 6; Title III contains rules applicable to agencies and branches established within the Community and belonging to undertakings whose head offices are outside the Community including, under Article 23(1),

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an obligation to make access to the relevant insurance business subject to official authorisation. Thus, the first Directive applies to any insurer setting up a branch or agency within the EU although those with a head office outside the EU will have no right to do so. 11.4 Thus, the basic premise on which the above argument was built, that is, that the first directive applies only to insurers established within the EU, is questionable. Accordingly, even if the fact that the choice of law rules are inserted in Title I of the second Directive is enough to demonstrate the intention that they are to have the same scope as the first Directive, it is not only undertakings established in the Community which fall within the scope of the first Directive. The second Directive provides that for the purposes of Title I and II, undertaking means any undertaking which has received official authorisation under Articles 6 or 23 of the first Directive (including therefore branches or agencies established in a Member State where the head office is outside the Community) whereas for the purposes of Titles III and V (which contains the provisions peculiar to the freedom to provide services) undertaking means only those authorised under Article 6. Article 7, which contains the conflict of laws provisions, is in Title II. Accordingly, on any view, the provisions seem to apply to the situation where the insurer has a branch or agency in the EU which has been authorised under Article 23 of the first Directive, even if its head office is outside the EU. But given that the first Directive potentially applies to all insurers who may wish to open a branch in the EU, there seems to be no reason, based on the directives themselves, why the conflicts provisions should be limited in any way, provided of course that the risk is situated in the EU. 11.5 This debate may in any event be academic. Regardless of any debate which might be had about the scope of the directives, the English Insurance Regulations, which implement the directives, appear to apply to contracts of insurance which cover risks situated in an EEA state (without reference to the place of establishment of the insurer).4

B. OVERVIEW

11.6 As we have seen, the insurance directives draw a fundamental distinction between contracts of general insurance and contracts of long-term insurance.5 The choice of law rules as regards both types of contract are contained in the Financial Services and Markets Act 2000 (Law Applicable to Contracts of Insurance) Regulations 2001, general insurance being dealt with in Part II and long term insurance in Part III.6 11.7 As regards non-life business, although the parties are given some freedom of choice over the applicable law, there are - in contrast to the Rome Convention - substantial limits to that freedom. The extent of that freedom depends on the type of non-life insurance in question, and the Regulations draw a series of distinctions as to this. In the absence of choice, or where the parties’ choice is invalid because of the limits imposed by the insurance directives, there are provisions which identify the relevant law. These are very different to those in the Rome Convention. This is, of course, a matter of great significance given that it is the Rome Convention that applies to reinsurance. 11.8 As regards life business, the position is similar. Although there is an element of freedom of choice, that choice is more fettered than in the case of the Rome Convention. In

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the absence of choice, or where there has been an ineffective choice, an applicable law is selected. 11.9 Although the primary aim of the choice of law provisions in the Insurance Directives was to achieve a uniform regime across the EEA, there is a clear secondary aim of protecting the weaker party to the transaction. This is reflected in the restrictions on the parties’ freedom of choice. 11.10 The following sections consider the choice of law rules applicable first to contracts of general insurance and then to contracts of long-term insurance.

C. NON-LIFE BUSINESS

1. Expression of choice

11.11 Regulation 6(1) provides that:

“Any choice made by the parties under regulation 4 must be expressed or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case.”

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