Should a third party, bringing a direct action against an insurer, be bound by dispute resolution clauses concluded between the insurer and the insured?

Abstract

An injured third party may not always have the opportunity to initiate proceedings against a wrongdoer for compensation due to various reasons. For example, in a maritime context, shipowners are likely to go bankrupt following a major shipping disaster. Consequently, those who suffer damages or injuries from a negligent shipowner (the assured) might find themselves in a very difficult position to recover, and may sometimes be left without compensation. However, there are mechanisms that enable an injured third party to bring a direct action claim against the tortfeasor's insurer. Nonetheless, an injured third party may not be able to bring their claim in their preferred jurisdiction due to a jurisdiction clause contained in the wrongdoer’s insurance policy. Direct actions are permitted under various mechanisms in different jurisdictions, and thus the nature and scope of a direct action may vary from one jurisdiction to another. As a result, the effects of such jurisdiction clauses on third parties can differ under different circumstances. Although a recent CJEU judgment provided protection for the weaker party against such jurisdictional clauses, the legal framework is not as straightforward as it appears. Moreover, recent legal and political developments in the UK and Europe have added more uncertainty to this topic. Therefore, the aim of this paper is to understand the nature and scope of direct action in relation to jurisdiction clauses. The paper will begin by introducing basic contractual concepts to establish a legal foundation, then delve deeply into the characterization of direct action, various direct-action mechanisms, governing laws, and jurisdictional matters, to answer one simple question: Should a third party bringing a direct action against an insurer be bound by dispute resolution clauses concluded between the insurer and the insured?

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Identifiers

ORCID for Hasan Tahsin Azizagaoglu: orcid.org/0000-0002-4110-0505

ORCID for Stephanie Law: orcid.org/0000-0003-2551-7615

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