In a recent decision, the Court of Appeal concluded that claims which are peripheral to an insurance policy containing an arbitration clause are not subject to that arbitration clause.

In the particular case, the dispute arose out of an alleged agreement between a lead French insurer and the following English market. A claim was brought by a third party against the insured which was settled by the insured and the English and French markets. It was then alleged that the settlement had been induced by fraudulent misrepresentation by the insured and the two sets of insurers. This second claim was settled by the French market, who then sought a proportionate contribution from the English market.

The policy contained an arbitration clause. But the dispute between the English and French markets arose out of a separate alleged agreement between them. Arbitration proceedings were issued in France. The English market then issued proceedings in England seeking a declaration of non-liability to the French market. The French market challenged the jurisdiction of the English court on the basis that it had to be arbitrated under the arbitration clause.

The Court of Appeal held:

  • the subject matter of the claim was covered by the European Regulations on jurisdiction and the enforcement of judgments. So was the preliminary issue of the enforceability of the arbitration clause in the policy to this dispute;
  • the correct course of action for a party claiming proceedings had been brought in breach of an arbitration agreement would have been to apply for a stay under Section 9 of the Arbitration Act 1996. The French market had not done so;
  • the nature of the English market's claim was crucial. The English market claimed that it was not liable in respect of the settlement of the second action based on the alleged fraudulent misrepresentation, and was entitled to a declaration of non-liability to that effect. This claim clearly did not arise from the policy. It arose from a different alleged arrangement (a mandate given by the English market) rather than the policy. As such, it was not a claim under the policy and was not governed by the arbitration clause.

This decision serves to highlight that disputes which are peripheral to an insurance contract which contains an arbitration clause will not necessarily be subject to that arbitration clause. The policy is a contract between the insured and insurers. Disputes between the insurers as to rights and liabilities between themselves will not necessarily be subject to an arbitration clause set out in the policy.

Further reading: Youell v La Reunion Aerienne [2009] EWCA Civ 175

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 23/04/2009.