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DMC/INS/08/01
CGU International Insurance Plc v. Ashleigh Szabo & Others
English High Court: Toulson J.: Unreported: 6 November 2001
Alexander Layton QC instructed by Kennedys for CGU
Huw Davies instructed by Jones Day Reavis & Pogue for the Szabo family
Richard Waller instructed by DJ Freeman for the corporate defendants
GLOBAL LIABILITY POLICY: ISSUED IN LONDON: OHIO LAW: EXTENSION OF COVER TO
EMPLOYEE’S FAMILY: EXTENSION OF COVER TO UNINSURED DRIVERS: MEANING OF
INSURED: GOVERNING LAW: JURISDICTION: NEGATIVE DECLARATIONS: COMITY
Case Note contributed by Aleka Sheppard, LLM, PhD, Director of the London
Shipping Law Centre at University College London
Subject: Dispute under a global liability policy placed in London by a firm
of London brokers
Summary
Insurers CGU commenced proceedings for negative declarations that a third
party liability policy that they had issued was not subject to the law of the
state of Ohio and that the defendants were not ‘insureds’ under the policy.
The defendants were unsuccessful in their application to set aside the order
giving leave to serve proceedings on them outside the jurisdiction, on the
grounds that CGU had established a good arguable case that its claim was made in
respect of a contract made within the jurisdiction and there was nothing in the
policy to suggest that the ‘insured’ was intended to have a variable meaning
according to the law of the country of the person claiming to be an insured.
DMC Category Rating: Confirmed
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Facts
The claimant insurance company, CGU, had issued in London an international
company with a policy providing worldwide coverage for three years against
liability for third party injury and property damage incurred by the company in
connection with its business. The policy provided cover in excess of US$1
million for liability arising out of the use of motor vehicles by or on behalf
of the company. On request (which was not made in the present case) the company
could provide its employees with similar cover.
One of the defendants was an employee of the insured. His daughter, whilst a
passenger in a car driven by her cousin, suffered severe injuries in a car crash
in Ohio. Having recovered US$1 million in damages from other insurance policies,
the daughter issued proceedings against CGU in Ohio for compensation, medical
expenses and loss of earnings. Her family also proceeded in Ohio against CGU. A
week after the Ohio proceedings, CGU obtained permission from Aikens J to serve
the present proceedings out of the jurisdiction. In these proceedings, CGU
sought negative declarations that the policy in question was not governed by the
law of Ohio, but by the law of England and that none of the Szabo family was
within that policy’s definition of ‘insured’. The Szabo family challenged
the leave given by the court to serve the claim form on them out of the
jurisdiction.
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Issues
Was it wrong for CGU to institute proceedings in England in order to pre-empt
the proceedings begun by the Szabos in Ohio? Should such forum shopping be
discouraged for putting the Szabo family to the expense and inconvenience of
having to litigate on two fronts?
In particular:
1. Did the English court have jurisdiction to determine, on an application
for negative declaratory relief, whether the liability insurance policy cover
extended to an employee’s family and to uninsured drivers?
2. Was English law the governing law applying the rules of conflict of laws?
3. Which was the appropriate forum, England or Ohio, to rule on the proper
law of the policy and its proper interpretation?
4. Which was the overriding consideration for the court in exercising its
discretion, particularly in a case of negative declaratory relief, to allow the
English action to continue despite conflicting claims in Ohio?
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Judgment
1. On the issue of jurisdiction, the judge
Toulson held that CGU had a good arguable case to proceed in England, in that
its claim related to a contract made within the jurisdiction which was
potentially governed by English law.
2. On the question of governing law and conflict of
laws, the judge decided that CGU had a strong case for saying that the contract
was governed by English law in that the policy was negotiated, concluded and
issued in England, CGU had its headquarters and registered office in England and
the premium was expressed in sterling. The Szabos’ argument that the contract
was severable, in that there were separate contracts between CGU and each
insured, was rejected. The judge also rejected their submission that the
definition of the insured in the case of the Szabos was subject to the law of
Ohio, where the claim arose. There was nothing in the policy to suggest that the
‘insured’ was intended to have a variable meaning according to the law of
the country of the person claiming to be an insured. This would be inconsistent
with the fundamental idea of a governing law and with the rule of the Rome
Convention that, if the governing law has not been chosen by the parties, it
should be that of the country with which the contract is most closely connected.
While certain provisions of the policy may be regarded as severable from other
provisions for certain purposes, the definition of the insured cannot be
dissected and be given different meanings by different systems of law.
3. On the question of the appropriate forum, the
court, having decided that CGU had a strong case that the policy was governed by
English law, determined that the English court was the natural and appropriate
forum for determining the construction of the policy, namely whether the Szabos
had a claim under the policy for the daughter’s unfortunate accident.
4. As regards the exercise of the court’s
discretion and comity considerations towards the Ohio court, the judge
took into consideration the guidelines set out in New Hampshire
Insurance v. Phillips Electronics North America Corp. [1998] IL Pr.
256 CA, per Phillips L.J., namely, that the court must be particularly careful
to ensure that where negative declarations are sought, they are sought for a
valid and valuable purpose and not in an illegitimate attempt to pre-empt
the jurisdiction in which the dispute was to be resolved. For this purpose
the court should answer two separate questions:
(a) was there justification for seeking such a relief? and
(b) was England the appropriate forum in which to seek the relief?
Assisted also by Lord Woolf’s treatment of negative declarations in Messier-Dowty
Ltd v. Sabena SA [2000] 1 WLR 2040, at 2050-51, namely that they should be
scrutinised and their use rejected where it would serve no useful purpose in
ensuring that the aims of justice are achieved, the judge held that the English
action for a negative declaration would not involve any lack of comity towards
the Ohio court, for if the English court should decide that the policy was
governed by Ohio law, CGU’s claim would fail.
As regards the risks of delay and duplication of expense, the English action
was likely to be short and -although there was a potential risk of conflicting
outcomes - justice would not be served by staying the action on account of that
risk.
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Comment
The two previous Court of Appeal decisions cited and relied upon by the judge
have clarified the law particularly with regard to the treatment of applications
for negative relief and forum shopping. It is of particular interest, for the
purposes of legal risk management, that the caution of Lord Woolf MR given in
the case cited about negative declarations should be born in mind by litigants:
"while negative declarations can perform a positive
role, they are an unusual remedy in so far as they reverse the more usual
roles of the parties. The natural defendant becomes the claimant and vice
versa. This can result in procedural complications and possible injustice to
an unwilling "defendant". This in itself justifies caution in
extending the circumstances where negative declarations are granted, but,
subject to the exercise of appropriate circumspection, there should be no
reluctance to their being granted when it is useful to do so."
The case re-affirms that, when the court pays regard to the issue of comity
towards the jurisdiction of a foreign court, the aims of justice are the
overriding consideration.
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