The Court of Appeal recently confirmed the Commercial Court decision in the West Tankers case, a decision which may strengthen commercial insurers' position defending claims by highlighting the power of arbitrators to make 'negative declarations' and confirming the ability to enforce declarations in the form of a Court judgment.

The judgment in West Tankers v Allianz emphasises insurers' ability to call for arbitration at an early stage in the claims process as a pre-emptive step, and for 'negative declarations' ie the denial of liability, to be within the arbitrators' powers and to be enforced through the Courts.

This dispute concerned insurers of charterers of a vessel (Allianz) and the vessel owners (West Tankers).  The vessel collided with a pier in Italy, which was owned by the charterers.  The vessel suffered extensive damage, and West Tankers commenced arbitration proceedings in England.  Simultaneously Allianz started court proceedings in Italy in respect of the same incident.  The arbitrators concluded that West Tankers were under no liability to Allianz, and in order to avoid conflicting decisions, West Tankers applied to the Court to ask that the arbitral award be enforced in the same way as a judgment.  This leave was granted, and when Allianz appealed, the Court of Appeal upheld the original decision.

Our detailed Law-Now setting out the facts and decision taken in the case is available here.

The decision highlights that arbitrators have the power to make negative declarations, i.e. denials of liability.  The Courts, in turn, have the power to order judgment to be entered upholding such an award.  This may have a significant potential impact on the options available to insurers, and reinsurers, for dealing and responding to claims, given that many insurance - and in particular reinsurance - contracts often contain an arbitration clause.   In this case the party opposing the judgment was an insurer, Allianz, but this decision offers the insurer (or reinsurer) the ability to take pre-emptive action in the event of a dispute arising, immediately applying for arbitration with a view to being awarded a negative declaration.  This approach could mean that lengthy discussions between loss adjusters and assessors may be side-stepped when handling a claim which insurers believe falls outside the scope of cover.

For risk managers and buyers, the situation may be less positive.  Buyers would prefer if insurers did not have the option of a pre-emptive strike and that any award obtained through such a strike should be more difficult to enforce through the Courts.  Insureds would then have more control over the timing of arbitrations.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 06/02/2012.