Edited by Jürgen Basedow, Giesela Rühl, Franco Ferrari and Pedro de Miguel Asensio
Chapter I.10: Insurance contracts
I. Concept and notion
Dealing with questions of private international law in matters relating to insurance requires attention to several peculiarities applying in this field. First of all, the practical relevance of private international law will depend on the degree to which the cross-border provision of insurance services is actually taking place. This will depend on various circumstances, not least on the way insurance is regulated by national legislatures. Most importantly, provision of insurance services is commonly permitted only if the company obtains a licence (for the EU see art 14(1) of the Solvency II Directive (Directive 2009/138/EC of the European Parliament and of the Council of 25 November 2009 on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II),  OJ L 335/1)) and operates in compliance with the relevant supervisory requirements. As long as a licence is dependent on the insurer being established in the country in which it provides services and such licence grants access to the national market at the place of establishment only (see, eg, with a view to insurers seated in a third country, art 162, in particular section (2)(b) of the Solvency II Directive), it will not allow for cross-border trade in insurance and, thus, the relevance of private international law will remain limited. In contrast, private international law becomes more important when supervisory law no longer presents a barrier to market entry. This applies where the cross-border provision of services does not require authorization by the supervisory board (ie where under the applicable national rules of supervision non-admitted business is lawful) or where a national licence is fully recognized abroad. The latter is the case within the European Union due to the imposition of a single licence system (see art 15(1) of the Solvency II Directive) and in the USA due mainly to the →Full faith and credit clause of the US Constitution (art IV, section 1 of the United States Constitution). Opening national insurance markets at the regulatory level may, however, not be sufficient for an integration of markets. While it seems that there is a considerable amount of cross-border business being conducted in the USA, cross-border business in the EU remains restricted mainly to large risk insurance, where parties have the option to choose freely the applicable law. In contrast, in mass risk insurance, where party autonomy is restricted considerably, little cross-border business activity of insurers can be observed, in spite of the introduction of the single licence system. It seems that insurers shy away from the application of a foreign law to their insurance products.
The second peculiarity concerning insurance is the fact that insurance is provided for nearly all aspects of human life. It is provided to consumers, small and medium-sized enterprises (SME), large companies and groups of companies and even to insurers themselves which take out reinsurance. There is an obvious imbalance in power between insurers and consumers as well as small and medium-sized enterprises, whereas such an imbalance becomes less obvious in relation to large companies and usually disappears in relation to insurance companies taking out reinsurance. This fact strongly impacts private international law in matters p. 955relating to insurance because mass risk insurance contracts (consumer and SME contracts) are subject to protective rules, whereas large policyholders and insurers taking out reinsurance usually enjoy party autonomy. Moreover, large risk insurance and reinsurance are often governed by arbitration agreements giving parties the utmost freedom.
The third peculiarity is the fact that insurance contracts very often concern third parties which may be resident in a foreign country and, thus, provide a foreign element even to an otherwise purely domestic contract. There are many examples particularly concerning liability insurance. International groups of companies frequently contract for liability insurance through their head company but to the benefit of all members of the group, nationals as well as foreign ones. At the same time, such risks are usually very large and not borne by one insurer only. Instead, several insurers from various countries commonly share the overall risk through co-insurance, excess-insurance or similar arrangements. Thus, international insurance programmes conducted by international groups of companies raise complex questions of private international law. This is also the case when claims are brought by a foreign victim directly against the insurer.
Life insurance poses a fourth peculiarity. It is often structured as an investment product commonly used for old age provision. Thus, it is frequently subject to special legislation outside the scope of contract law. For instance, a life insurance contract will have to be structured in a particular way in order to qualify for a privileged tax treatment or for public subsidies. Equally, it may be used for structuring occupational pension schemes, requiring the life insurance contract also to be subjected to the relevant national legislation on such schemes. Tax rules as well as rules on occupational pension schemes will apply irrespective of the applicable contract law. Moreover, such life policies are commonly taken out by the employer as a group organizer on behalf of its employees. Such employees will include those working in the head offices of the employer, but also employees working abroad (expatriates). These and other group insurance policies may raise complex questions of private international law.
Much of what has been said about life insurance also applies to compulsory insurance, yet in a modified manner. For instance, when private health insurance is taken out as an alternative to social health insurance, mandatory rules of the law of the state which provides for such →substitution must be complied with (see art 206 of the Solvency II Directive). Similarly, rules setting up a regime of compulsory (liability) insurance will override the law otherwise applicable to the insurance contract (see in detail art 7(4) of the Rome I Regulation (Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (Rome I),  OJ L 177/6; →Rome Convention and Rome I Regulation (contractual obligations))).
II. Legal sources
1. Uniform law
Insurance contract law has thus far not been subjected to international unification. Equally, EU legislation on insurance hardly covers aspects of contract law. The Solvency II Directive only lays down very few contract law provisions, such as the right of cancellation in individual life insurance (art 186 of the Solvency II Directive) or the free choice of a lawyer in legal expenses insurance (art 201 of the Solvency II Directive). Other directives, such as the Dir 2009/103/EC (Directive 2009/103/EC of the European Parliament and of the Council of 16 September 2009 relating to insurance against civil liability in respect of the use of motor vehicles, and the enforcement of the obligation to insure against such liability,  OJ L 263/11) covering motor vehicle liability insurance and the Directive on distance marketing of consumer financial services (Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer financial services and amending Council Directive 90/619/EEC and Directives 97/7/EC and 98/27/EC,  OJ L 271/16) covering the distance selling of (among other things) insurance contracts to consumers add to this list.
Attempts have been made to prepare uniform insurance contract law. In 2015, the second edition of the Principles of European Insurance Contract Law (PEICL, Jürgen Basedow and others (eds), Principles of European Insurance Contract Law (2nd edn, Sellier 2015)) was published. These principles, which cover general rules as well as rules on liability, life and group insurance, represent a model optional instrument of European insurance contract p. 956law. According to art 1:102, a choice in favour of the PEICL will be freed from any restrictions of private international law. Based on the model of the PEICL, a new research group was set up in 2015, aiming at drafting international ‘Principles of Reinsurance Contract Law’ (PRICL). Such principles could be chosen by the parties to a reinsurance contract as the governing law at least when the contract is subject to arbitration (see the first sentence of art 28(1) of the UNCITRAL Arbitration Model Law (United Nations Commission on International Trade Law, UNCITRAL Model Law on International Commercial Arbitration as adopted on 21 June 1985, and as amended on 7 July 2006, UN doc A/40/17 and A/61/17); →Arbitration, (UNCITRAL) Model Law).
2. Private international law of insurance
There has hardly been any international harmonization of the private international law of insurance. The subject is barely touched upon by the Hague Convention of 4 May 1971 on the Law Applicable to Traffic Accidents (Hague Convention of 4 May 1971 on the law applicable to traffic accidents, 965 UNTS 415) which determines the law applicable to direct claims in art 9.
In contrast, private international law of insurance has been largely unified at EU level. Special rules apply to insurance for determining jurisdiction (see arts 10–16 of the Brussels I Regulation (recast) (Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast),  OJ L 351/1; →Brussels I (Convention and Regulation))) whenever the defendant is domiciled in a Member State within the meaning of the Regulation (ie all of the EU Member States except →Denmark). An insurer which is not domiciled in a Member State will nevertheless be subject to arts 10 ff of the Brussels I Regulation (recast) if it ‘has a branch, agency or other establishment in one of the Member States’ (art 11(2) of the Brussels I Regulation (recast)). If those criteria are not met, national rules on jurisdiction will apply.
Rules on the law applicable have also been unified in the EU (see in particular art 7 of the Rome I Regulation; see also art 18 (→Direct action) and art 19 (Subrogation) of the →Rome II Regulation (non-contractual obligations) (Regulation (EC) No 864/2007 of the European Parliament and of the Council of 11 July 2007 on the law applicable to non-contractual obligations (Rome II),  OJ L 199/40)). The Rome I and II Regulations do not directly apply to Denmark and the contracting states of the European Economic Area which are not EU Member States (Iceland, Liechtenstein and Norway). However, art 178 of the Solvency II Directive provides that those states must apply the Rome I Regulation, but not the Rome II Regulation, to insurance contracts falling within the scope of art 7 of the Rome I Regulation.
In the →USA, choice-of-law rules are neither unified nor do states provide for a specific and comprehensive regulation of insurance contracts. Rather, insurance contracts largely follow the common law rules governing contracts in each state. There are, however, special rules on insurance to be found. Long-arm statutes often expressly govern jurisdiction over non-resident insurance companies. Moreover, when determining the applicable law, some states provide for special statutory rules, whereas other states adhere to general principles of choice-of-law.
III. Current regulation
1. Jurisdiction in general
EU rules on jurisdiction (arts 10–16 of the Brussels I Regulation (recast)) aim at protecting the weaker party (in particular the policyholder, insured and beneficiary). For that purpose, the policyholder, insured or beneficiary, as the case may be, is given an extended choice of forum (→Choice of forum and submission to jurisdiction). Plaintiff policyholders, insured persons or beneficiaries may sue an insurer in the court of the Member State in which the insurer is domiciled or in the court where the plaintiff is domiciled (art 11(1)(a) and (b) of the Brussels I Regulation (recast)). Further options are provided to the plaintiff for specific situations. In cases of co-insurance, all participating insurers may be sued in the court of a Member State where the leading insurer is sued (art 11(1)(c) of the Brussels I Regulation (recast)). In cases where the insurance contract is concluded through a ‘branch, agency or other establishment’, another forum is provided at the place of such establishment (art 10 in connection with point 5 of art 7 of the Brussels I Regulation (recast)). In cases of liability insurance and insurance of immovable property, p. 957the place where the harmful event occurred provides another forum (art 12 of the Brussels I Regulation (recast)). Finally, a liability insurer may be joined in the proceedings brought by the victim against the insured (art 13(1) of the Brussels I Regulation (recast)).
In contrast, insurers ‘may bring proceedings only in the courts of the Member State in which the defendant is domiciled’ (art 14(1) of the Brussels I Regulation (recast); for limited exceptions, see art 14(2) and art 10 of the Brussels I Regulation (recast)).
In principle, choice-of-forum agreements may not be used to derogate from the rules on jurisdiction to the detriment of the policyholder, insured or beneficiary (see in detail the limits set out in art 15 of the Brussels I Regulation (recast)). This does, however, not apply to insurance contracts covering special and large risks as set out in art 16 of the Brussels I Regulation (recast). While such special and large risk insurances are subject to arts 10 ff of the Brussels I Regulation (recast), those rules are not mandatory in such cases and, thus, may be derogated from even to the detriment of the policyholder. Moreover, arts 10 ff of the Brussels I Regulation (recast) have been held not to be applicable to cases where an action is brought by an insurance company against another insurance company. Typically, this is the case in matters relating to reinsurance (ECJ in Case C-412/98 Group Josi Reinsurance Company SA v Universal General Insurance Company (UGIC)  ECR I-5925) and in relation to recourse actions (ECJ in Case C-347/08 Vorarlberger Gebietskrankenkasse v WGV-Schwäbische Allgemeine Versicherungs AG  ECR I-88661). Thus, when bringing actions against each other, insurance companies have to follow the general rules set out in arts 4 ff of the Brussels I Regulation (recast) and cannot rely on the protective rules contained in arts 10 ff of the Brussels I Regulation (recast).
US law on jurisdiction in matters relating to insurance is less peculiar but to a similar effect. States have enacted long-arm statutes, some of which specifically govern jurisdiction over non-resident insurers. Accordingly, jurisdiction is granted to the courts of a particular state when an insurance company is ‘contracting to insure any person, property, or risk located within the state at the time the contract was made’. While other long-arm statutes do not provide for such explicit regulation of actions brought against an insurer, they usually establish a general rule which will be applied very much in line with those statutes governing actions against insurers expressly. As a result, plaintiff policyholders are usually provided with a forum in their home state.
2. Jurisdiction for direct actions
→Direct action claims brought by victims are subject to art 13(2) of the Brussels I Regulation (recast). This provision refers to arts 10, 11 and 12 of the Brussels I Regulation (recast) and, thus, all choices of forum by the policyholder are also made available to the victim. This includes jurisdiction of the courts in the Member State in which the victim is domiciled (ECJ in Case C-463/06 FBTO Schadeverzekeringen NV v Jack Odenbreit  ECR I-11321).
In the USA, direct actions are often granted by special direct-action statutes. Such statutes may also govern questions of jurisdiction (Ronald A. Anderson and others (eds), Couch on Insurance (3rd edn, Sweet & Maxwell (November) 2014) § 104:17). For example, the Louisiana Direct Action Statute (Alston Johnson, ‘The Louisiana Direct Action Statute’ (1983) 43 La.L.Rev. 6) provides that a direct action claim may be brought ‘in the parish in which the accident or injury occurred or in the parish in which an action could be brought against either the insured or the insurer under the general rules of venue prescribed by Code of Civil Procedure art 42 only’ (§ 1269(B)(1) Louisiana R.S. 22:1269).
3. Law applicable in general (mass risk and large risk insurance)
While the law applicable to insurance contracts has been unified in the EU (as to the special situation of Denmark, see supra section II.2.), the uniform rules themselves are quite complex and diverse. This can easily be demonstrated by setting out the substantive scope of application of the pertinent rules. Certain insurance contracts, ‘the object of which is to provide benefits for employed or self-employed persons belonging to an undertaking or group of undertakings, or to a trade or group of trades, in the event of death p. 958or survival or of discontinuance or curtailment of activity, or of sickness related to work or accidents at work’, when offered by organizations other than life insurers are exempt from the Rome I Regulation under art 1(2)(i). Article 7 of the Rome I Regulation, which provides for a specific rule on insurance contracts, will not apply to reinsurance (second sentence of art 7(1) of the Rome I Regulation; as to reinsurance, see infra III.7.) or to mass risk insurance covering risks which are not located within the territory of a Member State (first sentence of art 7(1) of the Rome I Regulation). In contrast, insurance contracts covering large risks are fully covered by art 7 of the Rome I Regulation, irrespective of the location of the risks insured. Large risks are defined in art 7(2) of the Rome I Regulation by reference to the rather technical definition provided in the Dir 73/239 (Directive 73/239 of 24 July 1973 on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of direct insurance other than life assurance,  OJ L 228/3, as amended by the Dir 88/357 of 22 June 1988 on the coordination of laws, regulations and administrative provisions relating to the taking-up and pursuit of the business of direct insurance other than life assurance and laying down provisions to facilitate the effective exercise of freedom to provide services and amending Directive 73/239/EEC,  OJ L 172/1) which will soon be replaced by the definition provided in point 27 of art 13 of the Solvency II Directive.
Large risk insurance will be subject to the law chosen by the parties. Parties may choose any law, irrespective of whether the insurance contract has any contact with such law. In the absence of a choice, the law of the country where the insurer has his habitual residence will apply. However, this conflict rule is flexible and, thus, ‘where it is clear from all the circumstances of the case that the contract is manifestly more closely connected with another country, the law of that other country shall apply’ (art 7(2) of the Rome I Regulation).
Mass risk insurance covering risks located within the territory of a Member State is governed by art 7(3) of the Rome I Regulation. Thus, the location of the insured risk not only determines the substantive law to be applied, but also the relevant conflict rules. The location of the risk is to be determined in accordance with the relevant provisions in the directives on insurance law which will soon be replaced by points 13 and 14 of art 13 of the Solvency II Directive. In most cases, the policyholder’s place of habitual residence will be decisive. However, insurance of vehicles covers risks located in the country of registration; insurance of immovable property (→Property and proprietary rights) covers risks located in the country where the property is situated; finally, insurance ‘of a duration of four months or less covering travel or holiday risks’ covers risks located in the country where the policyholder took out such insurance.
Article 7(3) of the Rome I Regulation limits party autonomy by providing parties with specific options only. Member States may, however, broaden the scope of party autonomy and, ultimately, even grant a free →choice of law. Thus, uniformity of conflict rules is not achieved entirely. In the absence of a choice by the parties, the law of the Member State in which the risk is located will apply. Again, the location of the risk is to be determined in accordance with the definitions provided in the pertinent directives which will soon be replaced by points 13 and 14 of Article 13 of the Solvency II Directive. Where an insurance contract covers risks located in more than one Member State, the contract will be split and treated as several contracts covering risks located in different Member States.
Other mass risk insurance covering risks located outside the territory of a Member State is governed by the general conflict rules, arts 3, 4 and 6, where applicable, of the Rome I Regulation. In principle, art 3 of the Rome I Regulation grants parties free choice of law. In the absence of such choice, the law of the country in which the insurer has its habitual residence will apply, unless the contract is manifestly more closely connected with another country. Consumer insurance contracts are, however, subject to art 6 of the Rome I Regulation which requires the application of the consumer’s law and only permits a choice of law if such choice is not to the detriment of the consumer.
Choce-of-law rules in matters relating to insurance in the USA are increasingly governed by special statutory provisions (Ronald A Anderson and others (eds), Couch on Insurance (3rd edn, Sweet & Maxwell (November) 2014) § 24:1). Such specific statutory rules usually prevail even if they conflict with the intentions of the parties. Often, statutes determine the →place of performance to be the decisive →connecting factor and, if such place is not specified in the policy, refer to the place of contract formation. Other statutes intend to protect the p. 959insured and, thus, refer to the law of the insured (as to statutory regimes including examples, see Ronald A Anderson and others (eds), Couch on Insurance (3rd edn, Sweet & Maxwell (November) 2014) § 24:3).
Courts in states without a statutory conflict rule rely on general principles. Often courts tend to follow the rules set out in the Restatement (Second) of Conflict of Laws §§ 187, 188 (general provisions), § 192 (life insurance) and § 193 (casualty insurance) when determining the law applicable (American Law Institute, Restatement of the Law, Second: Conflict of Laws 2d, St Paul 1971) (for courts in New York, see Raymond Cox, ‘Choice of Law: New York and English Approaches to Insurance and Reinsurance Contracts’ in Julian Burling and Kevin Lazarus (eds), Research Handbook on International Insurance Law and Regulation (Edward Elgar 2011) 195, 196 f).
Under § 187(1) Restatement (Second) of Conflict of Laws a choice of law is permitted which is free as far as non-mandatory rules are concerned. A choice of law will, however, also derogate mandatory rules if the law chosen by the parties has a substantial relationship to the case or some other reasonable basis and does not violate fundamental policies of the law otherwise applicable (in detail § 187(2) Restatement (Second) of Conflict of Laws). In any event, choice-of-law clauses contained in contracts of adhesion will be scrutinized by the court (see Comment (b) on § 188 Restatement (Second) of Conflict of Laws mentioning insurance policies as a specific example).
In the absence of a choice of law by the parties, § 188(1) Restatement (Second) of Conflict of Laws requires the application of the law of the state which has the most significant relationship to the contract in the light of the principles set out in § 6 Restatement (Second) of Conflict of Laws (Choice-of-Law Principles). § 188(2) Restatement (Second) of Conflict of Laws lists the contacts which have to be taken into account: (a) the place of contracting, (b) the place of negotiation of the contract, (c) the →place of performance, (d) the location of the subject matter of the contract and (e) the domicile (→Domicile, habitual residence and establishment), residence, →nationality, place of incorporation and place of business of the parties. If the place of negotiation of the contract and performance coincide, this place will prevail over other contacts in accordance with § 188(3) Restatement (Second) of Conflict of Laws.
Life and casualty insurance are governed specifically in § 192 and § 193 Restatement (Second) of Conflict of Laws. Life insurance is subject to the law of the state in which the insured is domiciled at the time the contract is concluded. This connection is due to the fact that there is a particular need to protect the insured in cases of life insurance and that life insurance is subject to particularly intense statutory regulation in most states (Comment (c) on § 192 Restatement (Second) of Conflict of Laws). Exceptionally, another law with a more significant relationship to the life insurance contract may be applied. One of the examples mentioned in Comment (c) on § 192 Restatement (Second) of Conflict of Laws is the case where a policyholder changes his domicile following an application for the policy. Moreover, the law of a new domicile may govern certain aspects of the contract which are not relevant for the obligations of the insurer, such as the question of whether the appointment of the spouse as a beneficiary will automatically be revoked by a divorce (→Divorce and personal separation). Parties may not derogate from such law to the detriment of the insured by a contract of adherence. Detrimental choices of law will only be upheld if there was a real choice for the insured (see Comment (e) on § 192 Restatement (Second) of Conflict of Laws).
4. Law applicable to compulsory insurance
EU →choice of law provides for a two-step regulation of compulsory insurance. First, art 7(4) of the Rome I Regulation provides that a contract for compulsory insurance will only
satisfy the obligation to take out insurance unless it complies with the specific provisions relating to that insurance laid down by the Member State that imposes the obligation. Where the law of the Member State in which the risk is situated and the law of the Member State imposing the obligation to take out insurance contradict each other, the latter shall prevail.
Moreover, Member States are given the option to provide that the insurance contract shall be p. 960governed by the law of the Member State that imposes the duty to take out insurance.
While any state establishing an obligation to take out liability insurance will enforce it at least by administrative means, the compulsory nature of liability insurance will have little impact on the law of contract to be applied. Courts, in principle, follow the general conflict rules applicable to insurance contracts. In doing so, they discuss the extent to which rules on the mandatory character of liability insurance form part of the public policy of a state. However, this seems to be only exceptionally the case (State Farm Mut Auto Ins Co v Simmons’s Estate, 417 A.2d 488, 492 f (1980); Colonial Penn Ins Co v Gibson, 552 A.2d 644 (1989); Rutgers Casualty Ins Co v Mcadams, App. Div. (per curiam) (2007) unpublished).
5. Law applicable to direct actions
a) Hague Convention of 4 May 1971 on the law applicable to traffic accidents
Article 9 of the Hague Traffic Accident Convention (Hague Convention of 4 May 1971 on the law applicable to traffic accidents, 965 UNTS 415) provides a special conflict rule on direct claims. According to this provision, a direct action shall be granted if the law governing the tort provides for it. If this is not the case, a direct action claim may be granted by subsidiary connections, among them the law which governs the insurance contract. Thus, the Convention favours the existence of a direct claim for the victim.
EU choice of law provides for a special rule governing direct claims. Under art 18 of the Rome II Regulation, a victim will enjoy a direct claim against the insurer of the person liable if either the law governing liability or the law governing the insurance contract provide for such direct claim (alternative connection). Thus, EU choice of law favours the existence of a direct claim for the victim.
Direct-action statutes may determine their own scope of application, often requiring that the place where the harmful event has occurred or sometimes the place where the policy was issued or delivered to be in the state granting direct action (Ronald A Anderson and others (eds), Couch on Insurance (3rd edn, Sweet & Maxwell (November) 2014) § 104:46). But even direct-action statutes intending to apply independently of where the harmful event occurred have been declared as constitutional. Some courts have, however, held that a direct action claim may violate a state’s public policy (see Ronald A Anderson and others (eds), Couch on Insurance (3rd edn, Sweet & Maxwell (November) 2014) § 104:49).
Apart from such unilateral limitations of the geographical application of direct-action statutes, Comment (b) on § 162 Restatement (Second) of Conflict of Laws refers to the law governing claims in tort in accordance with § 145 Restatement (Second) of Conflict of Laws to decide the question of whether an action may be brought directly against the insurer. This view has been followed by some courts (Ronald A Anderson and others (eds), Couch on Insurance (3rd edn, Sweet & Maxwell (November) 2014) § 104:57). Others have considered the direct claim to be a substantive right under the insurance contract and, thus, applied the law governing the insurance contract, ie the law where the contract was made (Ronald A Anderson and others (eds), Couch on Insurance (3rd edn, Sweet & Maxwell (November) 2014) § 104:56). Yet others have classified rights of direct action as procedural and, thus, as being governed by the →lex fori (Ronald A Anderson and others (eds), Couch on Insurance (3rd edn, Sweet & Maxwell (November) 2014) § 104:53).
6. Group insurance
EU choice of law does not provide for special rules governing group insurance. From a formal point of view, the group organizer (‘central entity’) is the policyholder and the law of his habitual residence will apply. A more critical view may regard the organizer more as an intermediary than as a policyholder and the insured more like an individual policyholder, at least where the insured ultimately pays the premium. However, such considerations are not reflected in the current text of art 7 of the Rome I Regulation.
Under the Restatement (Second) of Conflict of Laws, § 192 Comment (h), a group life insurance contract will be governed by the law of the domicile of the group organizer (‘central entity’). Thus, each and every individual insured will enjoy the same legal situation (Comment p. 961(h) on § 192 Restatement (Second) of Conflict of Laws). At the same time, a choice of law by the parties will more readily be accepted by the parties because the central entity arranging the group insurance scheme will have a stronger bargaining position than an individual policyholder. Most courts seem to follow this approach (Ronald A Anderson and others (eds), Couch on Insurance (3rd edn, Sweet & Maxwell (November) 2014) § 8:7 where only a few courts are cited applying the law of the domicile of the individual insured).
7. Law applicable to reinsurance
Reinsurance is primarily governed by unfettered →party autonomy. In most cases, parties will agree on an arbitration or jurisdiction clause and determine the law applicable to their reinsurance contract by choice-of-law clauses.
If a choice-of-law clause, whether explicit or implicit, is not included in the contract, mainly two views are put forward. Under the first view, the reinsurance contract should be subject to the law of the situs of the direct insurer ceding a risk to a reinsurer. This approach is based on the view that the reinsurance contract has its most significant relationship to that law. There are a number of arguments why this should be the case. It is held that the reinsured has a much more pressing interest to have its law applied. Usually, it will deal with not only one, but several reinsurers each covering a share of the reinsured risk. Applying the law of the reinsured has the advantage of subjecting all of the →reinsurance contracts concerning the same risk to the same law. Moreover, the structuring of reinsurance risks, the selection of risks to be reinsured as well as the regulation of insurance claims is in the hands of the reinsured who provides these services for the reinsurer. Finally, reinsurers typically provide their services internationally, whereas many direct insurers only operate locally. Thus, submission to foreign law is more acceptable to a reinsurer than to a direct insurer (as to all these and further arguments, see Wulf-Henning Roth, Internationales Versicherungsvertragsrecht (Mohr Siebeck 1985) 584 ff).
Other authors have suggested that the law of the reinsurer should be applied. It is argued that the Rome I Regulation provides for a general rule covering all contracts including reinsurance contracts. According to this general rule (art 4 of the Rome I Regulation), the situs of the reinsurer, as the provider of the reinsurance service which at the same time is the performance giving the characteristics to a reinsurance contract, will be decisive for the law to be applied. Under such a view, the contacts of the reinsurance contract with the law at the situs of the reinsured would not be strong enough to justify a different solution in accordance with the flexibility rule contained in art 4(3) of the Rome I Regulation.
Ronald A Anderson and others (eds), Couch on Insurance (3rd edn, Sweet & Maxwell (November) 2014) Chapter 8 (Group Insurance: Rights and Obligations), Chapter 24 (Law Governing the Insurance Contract), Chapter 104 (Right of Direct Action Against Insurer: Generally);
Jürgen Basedow and Till Fock (eds), Europäisches Versicherungsvertragsrecht, vols I and II (Mohr Siebeck 2002), vol III (Mohr Siebeck 2003);
Jürgen Basedow and others (eds), Principles of European Insurance Contract Law (2nd edn, Sellier 2015);
Julian Burling and Kevin Lazarus (eds), Research Handbook on International Insurance Law and Regulation (Edward Elgar 2011);
Raymond Cox, ‘Choice of Law: New York and English Approaches to Insurance and Reinsurance Contracts’ in Julian Burling and Kevin Lazarus (eds), Research Handbook on International Insurance Law and Regulation (Edward Elgar 2011) 195;
Urs Peter Gruber, ‘art 7 Rome I (insurance contracts)’ and ‘art 18 Rome II (direct action against the insurer)’ in Gralf-Peter Callies (ed), The Rome Regulations (Rome I and II): Commentary on the European Rules for Conflicts of Law (Wolters Kluwer 2011);
Helmut Heiss, ‘arts 10–16’ in Ulrich Magnus and Peter Mankowski (eds), Brussels Ibis Regulation (3rd revised edn, Sellier 2015);
Wulf-Henning Roth, Internationales Versicherungsvertragsrecht (Mohr Siebeck 1985).