A case about missing cigarettes – and choice of law

Tuesday 13 April 2021

Back to Maritime and Transport Law Committee publications

Rasmus Paus Torp
Bech-Bruun, Copenhagen
rpt@bechbruun.com

On 11 January 2021, the High Court of Eastern Denmark rendered a judgment in a direct-action lawsuit initiated by a tobacco manufacturer against a Dutch freight liability insurer due to the loss of 756 cartons of cigarettes in connection with a carriage by road from the plant in Hungary to the point of delivery in Denmark.

The judgment rendered by the High Court of Eastern Denmark is not only interesting but also noteworthy, as it clarifies and sheds further light on Danish direct-action claims brought by injured third parties against tortfeasors’ liability insurers pursuant to section 95(2) of the Danish Insurance Contracts Act (Forsikringsaftaleloven in Danish).

The judgment is particularly significant in terms of the question of choice of law and, specifically, whether a choice of law clause in an insurance contract between a liability insurer and its policyholder (the potential tortfeasor) is applicable to the injured third party’s direct-action claim against the tortfeasor’s liability insurer, cf section 95(2) of the Danish Insurance Contracts Act.

Direct-action claims pursuant to section 95(2) of the Danish Insurance Contracts Act

In certain situations, Danish law provides the legal basis for injured parties to bring direct-action claims against a tortfeasor’s liability insurer. Consequently, pursuant to section 95(2) of the Danish Insurance Contracts Act, an injured party subrogates into the policyholder’s (the tortfeasor’s) claim against its liability insurer, subject to certain conditions, for example, if the policyholder is declared bankrupt. Accordingly, in this situation, the injured party will be entitled to make a direct-action claim against the liability insurer.

Previous case law on direct-action claims against liability insurers

One of the main questions in the recent High Court of Eastern Denmark judgment relates to the main question considered in the previous case law on direct-action claims in Denmark. In particular, the judgment relates to the European Court of Justice (ECJ) and the Danish Supreme Court rulings of 2017 regarding the direct-action claim of Assens Havn.[1]

In its preliminary ruling, the ECJ held that a direct-action lawsuit could be brought against a UK liability insurer if allowed by Danish law, regardless of whether the liability insurer’s insurance terms contained a specific jurisdiction clause referring potential disputes to the English High Court in London.

Following the ECJ’s preliminary ruling, the Danish Supreme Court rendered its judgment in the national Assens Havn case. In accordance with the preliminary ruling from the ECJ, the Danish Supreme Court held that the injured third-party, that is, Assens Havn, was not bound by the jurisdiction clause contained in the liability insurer’s insurance terms when making a direct-action claim based on section 95(2) of the Danish Insurance Contracts Act against the liability insurer.

The facts of the recent Danish case from the High Court of Eastern Denmark; the lost shipment of cigarettes

In overall terms, the case concerned the loss of a shipment of cigarettes in connection with carriage by road from the plant in Hungary to the point of delivery in Denmark performed by a Dutch carrier in September 2011.

Following the loss of the shipment, the injured tobacco manufacturer filed a lawsuit in England against the contracting carrier as well as the performing carrier. However, due to the lack of English jurisdiction, the lawsuit was ultimately dismissed for lack of jurisdiction in October 2015 by the UK Supreme Court.

In tandem with the English case on jurisdiction, the performing carrier was declared bankrupt in 2012.

As a consequence of the bankruptcy and the dismissal of the claim in England, the tobacco manufacturer filed a direct-action claim lawsuit with the Danish Maritime and Commercial Court against the performing carrier’s Dutch liability insurer.

The tobacco manufacturer based its direct-action claim on section 95(2) of the Danish Insurance Contracts Act.

The Maritime and Commercial Court’s partial decision of 10 November 2017 and judgment of 6 June 2019

The main legal issues of the Maritime and Commercial Court case concerned jurisdiction, choice of law, and time-barring. In particular, whether the jurisdiction clause and choice of law clause contained in the insurance contract between the Dutch liability insurer and its policyholder (the performing carrier) applied to the tobacco manufacturer’s direct-action claim against the liability insurer.

The question of jurisdiction was listed for a separate trial with the Maritime and Commercial Court. With reference to the Danish Supreme Court’s judgment in the Assens Havn case, the Maritime and Commercial Court decided that the case could be heard in Denmark, despite the fact that the insurance contract between the Dutch liability insurer and its policyholder contained a jurisdiction clause stipulating Dutch jurisdiction.

Following its decision on jurisdiction, the Maritime and Commercial Court decided that the remainder of the dispute was subject to Danish law as well, including the question of time-barring of the direct-action claim.

As the tobacco manufacturer commenced legal proceedings against the Dutch liability insurer more than three years after the performing carrier was declared bankrupt in September 2012 and as the tobacco manufacturer could not rely on the carrier’s (potential) notification of the incident to the liability insurer prior to the bankruptcy, the Maritime and Commercial Court found that the tobacco manufacturer’s direct-action claim was time-barred under Danish law and ruled in favour of the Dutch liability insurer.

The tobacco manufacturer appealed the case to the High Court of Eastern Denmark.

The High Court of Eastern Denmark’s judgment of 11 January 2021

The High Court of Eastern Denmark affirmed the Maritime and Commercial Court’s judgment in favour of the Dutch liability insurer and dismissed the appeal.

In its reasoning, the High Court of Eastern Denmark referred directly to the Danish Supreme Court’s judgment in the Assens Havn case and declared that no contractual relation existed when a direct-action claim relied on section 95(2) of the Danish Insurance Contracts Act:

‘As stated in the Supreme Court judgment of 9 October 2017 in the case between Assens Havn and Navigators Management (UK) Limited, see UfR 2018.461 H, no contractual relation exists between the parties when the claim is based on section 95(2) of the Danish Insurance Contracts Act. Consequently, the choice of law clause in the insurance agreement between [the liability insurer]and [the performing carrier]is not applicable. Accordingly, and also for the reasons mentioned in the Maritime and Commercial Court ruling of 10 November 2017, it is agreed that the case is most closely connected with Denmark and, consequently, the matter of time-barring is to be decided under Danish law.

‘Under section 95(2) of the Danish Insurance Contracts Act, the claimant, in case of bankruptcy, is subrogated to the insured's rights against the company.

‘For the reasons mentioned by the Maritime and Commercial Court, the High Court agrees that [the tobacco manufacturer] cannot rely on [the performing carrier]accepting a potential suspension of the limitation period.

‘It is further agreed that the [tobacco manufacturer]did not take any steps to suspend the limitation period and, consequently, the claim was time-barred when legal actions were taken on 25 October 2016, see section 3(1) of the Danish Limitation Act.’[2]

Accordingly, the choice of law clause in the insurance contract between the Dutch liability insurer and the performing carrier did not apply to the question of time-barring, and the question was therefore decided in accordance with Danish law.

Impact of the High Court of Eastern Denmark’s judgment

On the face of it, the recent judgment from the High Court of Eastern Denmark is in line with the Danish Supreme Court’s judgment in the Assens Havn case with regard to the injured party’s subrogation into the policyholder’s claim against the insurer.

However, the recent judgment from the High Court of Eastern Denmark seems to extend the scope of the Danish Supreme Court judgment in the Assens Havn case by indicating that the Danish Supreme Court’s reasoning (also) applies to the question of choice of law – and not solely to the question of jurisdiction.

Accordingly, the High Court judgment illustrates that as a general rule, neither liability insurers nor injured third parties will be able to rely on jurisdiction clauses and/or choice of law clauses agreed between a liability insurer and its policyholder (the potential tortfeasor) when it comes to direct-action claims based on section 95(2) of the Danish Insurance Contracts Act. This implies a potential risk for foreign liability insurers to be met by direct-action claims subject to Danish law, despite the fact that the insurance contract contains a specific choice of law clause referring to another choice of law than Danish law.

As to the question of time limitation, the judgment from the High Court of Eastern Denmark (as well as the judgment rendered by the Maritime and Commercial Court) seems to be in line with previous case law from the Danish Supreme Court, including in particular the Danish Supreme Court judgment rendered on 23 January 2018 (UfR 2018.1506H) and the Supreme Court judgment rendered on 29 May 2018 (UfR 2018.2820H).


Notes

[1]See ECJ case C-368/16, Assens Havn v Navigators Management (UK) Ltd, and the Danish Supreme Court judgment rendered on 9 October 2017 in case no 5/2015 (UfR 2018.461H).

[2]Unofficial translation of the High Court of Eastern Denmark’s reasoning.

Back to Maritime and Transport Law Committee publications