Private International Law of Reinsurance and Insurance

Raymond Cox; Louise Merrett and Marcus Smith

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12 REINSURANCE AND INSURANCE: CHOICE OF LAW UNDER THE COMMON LAW

12.1 The common law will continue to apply to:

(1) contracts of reinsurance entered into before 1 April 1991;
(2) contracts of insurance where the risk is situated outside the Member States entered into before 1 April 1991;
(3) contracts of insurance where the risk is situated inside a Member State entered into:
- (a) in the case of non-life insurance, before 1 July 1990; and
- (b) in the case of life insurance before 20 May 1993;
4) contracts of insurance entered into by Friendly Societies before 1 February 19931;
(5) contracts of insurance where the risk is situated within a Member State but the contract falls outside the scope of the insurance directives.2

B. THE APPROACH AT COMMON LAW

1. Introduction

12.2 As was stated in Chapter 1, although at common law (re)insurance disputes involve their own particular “spin”, the fundamental private international law tests for choice of law are the same whether the dispute relates to (re)insurance or some other contractual dispute. Thus, at common law, the starting point is that every contract is governed by its “proper law”. When the parties have expressed their intention as to what law should govern, that intention, in general, determines the proper law. When there is no express selection, an intention can be inferred from the terms and nature of the contract and from the general circumstances of the case. Otherwise the contract is governed by the system of law with which the transaction has its closest and most real connection, in other words through the application of an “objective test”.3 12.3 This has been referred to as a tripartite hierarchy of express, inferred and objective choice.4 However, there is some overlap between the final “objective” stage and the earlier two steps. In theory, in any given case, the court first looks to whether it can determine the actual intention of the parties as to which law should govern. If no such intention is expressed and cannot be inferred from the terms of the contract or circumstances of the case, then the court carries out an objective assessment. However, the factors which the court will consider

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at the first and second stages are very similar and often could lead to a conclusion under either test.5 Moreover, even at the third stage there was often a suggestion that the reason why the contract is governed by the system of law with the closest and most real connection is because that is what the parties would have intended.6 However, whilst it is possible to see “imputed” intention as reflecting what the parties would have agreed to had they thought about it, there is an important distinction between this and the actual intention (whether express or implied) of these particular parties. 12.4 A good example of the blurring of the distinction in a (re)insurance context is DR Insurance Co. v. Central National Insurance Co. of Omaha.7 Moore-Bick QC (sitting as a Deputy Judge of the High Court) held:

“… when parties enter a particular market in order to transact business they can usually be taken to intend that their relationship will be governed by the system of law in force in that market unless they provide some clear indication to the contrary. Whether it be viewed as an implied choice of law or simply the application of the system of law which has the closest connection with the transaction, the result will be the same.”

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