There is a never-ending dilemma faced by insurers/brokers worldwide regarding how to draft a governing “jurisdiction clause” in insurance contracts to protect their interests best. In the majority of cases, there is a conflict between the insurer and insured if based in a different jurisdiction and wanting to agree to jurisdiction in their country of domicile. To meet the needs of both parties, underwriters end up incorporating ambiguous clauses without realising the devastating effect the same can have if there is a future dispute between parties. So, what exactly is a well-drafted jurisdiction clause? The answer to the same may not be so simple.

In one of the recent judgements, dated 29 July 2022, passed by the English Commercial Court in Al Mana Lifestyle Trading LLC & Ors. v United Fidelity Insurance Company PSC & Ors [2022] EWHC 2049 (Comm) case, the Court dealt with the interpretation of a somewhat ambiguous jurisdiction clause governing insurance policies for business interruption losses. The Claimant operates in the Middle East and Gulf region, while the Defendants are insurance companies in the Middle East.

The jurisdiction clause reads as below:

“APPLICABLE LAW AND JURISDICTION:

In accordance with the jurisdiction, local laws, and practices of the country in which the policy is issued. Otherwise, England and Wales UK Jurisdiction shall be applied…”

The Court upheld the Claimant’s approach, ruling that the jurisdiction clause permitted the parties either to initiate proceedings in the country where policies are issued or in England, granting a non-exclusive jurisdiction to English Courts. The court rejected the Defendants’ arguments regarding English courts being “forum non conveniens” due to a lack of strong reasons. The Defendants argued that none of the parties is based in England; the alleged losses were not sustained in England; that policies will be governed by the laws of the country in which policies were issued, and local courts will be best placed to apply those laws; all the relevant evidence will be located primarily in the Middle East, and the Defendants reinsurers were not even based in England.

The said judgment would have opened a pandora’s box considering the likely consequences that could ensue in relation to cross-border enforcement of foreign judgments. However, very recently, Defendants were successfully able to overrule the said judgment in their favour in appeal. The appellate court upheld that the ordinary meaning of the not very well drafted provision is that the former part is a mandatory requirement for suing in the local court, supplemented by another mandatory requirement if that provision is ineffective.

Therefore, it must be an essential consideration while negotiating insurance contracts that vaguely worded clauses can give much room for interpretation to the courts, which can be commercially and strategically devasting for either of the parties.

For more information, please click on the link: https://fichtelegal.com/the-interpretation-of-otherwise-in-a-jurisdiction-clause/