Insurance Post

Banged up abroad

A European Court ruling on road accidents abroad has dramatically changed where the court process occurs - in favour of the visiting claimant. However, Philip Tracey and Patricia Williams reveal the benefits to UK policyholders may not be as pronounced as they seem

Until the end of last year, UK policyholders (and their insurers) injured in road traffic accidents in another European Union country did not have the option to sue the defendant driver's EU insurer through the UK courts.

Instead, they had to go through the courts in the liable insurer's country of residence. But a ruling last December by the European Court of Justice in the case of FBTO Schadeverzekeringen NV v Odenbreit has significantly changed the situation - to the benefit of UK motorists.

In December 2003 Mr Odenbreit, who was living in Germany at the time, was injured in a RTA in the Netherlands involving a Dutch driver insured with FBTO. Mr Odenbreit sued the Dutch insurer in the Aachen Court in Germany.

Mr Odenbreit relied on articles 11(2) and 9(1)(b) of the Judgments Regulation. Article 11(2) provides that "articles 8, 9 and 10 shall apply to actions brought by the injured party directly against the insurer, where such direct actions are permitted". Article 9(1) provides that "an insurer domiciled in a member state may be sued ... (b) in another member state in actions brought by the policyholder, the insured or a beneficiary in courts where the plaintiff if domiciled".

No jurisdiction argument

The Dutch insurer, FBTO, argued that the German courts had no jurisdiction because article 9 applied only to disputes between insurer and policyholder relating to the scope of the policy. The use of the word "beneficiary" in article 9(1)(b) did not include the injured party.

However, the ECJ disagreed and concluded that, taking articles 9 and 11 together, the effect is to widen the scope of categories of those who can sue the insurer direct, adding injured parties to the list of plaintiffs.

It also observed: "To deny the injured party the right to bring an action before the courts in the place of their own domicile would deprive the same protection as that afforded by the regulation to other parties regarded as weak in disputes in matters relating to insurance. (This) would be contrary to the spirit of the regulation."

As a result of the ECJ's ruling, EU policyholders should now be able to have their cases against EU insurers heard in their home courts - provided their own national law allows it. Thus, an UK motorist injured in a car crash in Germany by a German national will be able to sue the German driver's insurers in the UK Courts and receive levels of damages agreed under UK law. The FBTO decision will, therefore, encourage forum shopping and lead to a greater number of claims against EU insurers in UK courts.

Damages difference

Levels of damages in the UK are generally higher than in other EU countries so EU insurers will have to meet higher awards for damages. Another significant concern for EU insurers will arise over costs as, under UK law, costs follow the event. Costs will be a particular concern if a conditional fee agreement is in place as success fees will be another new concept that EU insurers have to grapple with.

UK-based insurers are also likely to find it easier to recover their costs. Previously the cost of bringing a recovery action against an EU insurer in its home country was prohibitive compared with the level of insurers' outlay on their policyholder's claim. Following the FBTO decision, a UK-based insurer will be able to recover costs against an EU insurer in the UK policyholder's home country. Proceedings will still have to be served as appropriate but the recovery process should now be more streamline and cost-effective.

The FBTO decision is not expected to have implications beyond motor claims and only deals with the jurisdiction in which a case is heard. Issues such as liability, heads of damages and limitation are still likely to be covered by the law of the country where the accident occurred.

But with a new regime in force from 11 January 2009, in the guise of Rome II, the impact of FBTO may not be long term. Under Rome II, the applicable law will generally be the law of the country where the accident happened. Article 15(c), however, provides that the applicable law will govern "the existence, nature and assessment of damage or the remedy claimed".

If article 15 is interpreted as relating to how the damage is actually quantified - currently a matter of procedure determined according to the law of the country in which proceedings are brought and not the law of the country where the accident occurred - the impact of the FBTO decision on forum shopping will be diminished. This is because the advantage of suing in UK courts will have gone.

If Rome II is interpreted in this way - which is unlikely, but the wording of article 15 is decidedly ambiguous - it marks a radical departure from the current distinction between what is a matter of procedure. For example, quantification of damages will be determined in line with the law of the country in which proceedings are brought, and substantive issues will be determined in line with the law of the country where the accident occurred.

This would mean that the implications of the FBTO judgment would be seriously diminished as from 11 January 2009, at least in terms of damages for an injury that occurs after that date.

- Philip Tracey is a partner and Patricia Williams is an associate in the injury risk group at national commercial law firm Beachcroft.

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