CGU v. Szabo

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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

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

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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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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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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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.
. 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.
. 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.
. 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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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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