Insurance | Arbitration | Are insurers’ recoveries subject to arbitration agreements entered into by the assured?

In a recent case - HR-2023-573-A (Vik Ørsta AS v. MS Amlin Insurance S.E.) – the Norwegian Supreme Court held that a property insurer bringing a recovery claim against the assured’s supplier was bound by the arbitration agreement included in the supply contract. The insurer’s lawsuit against the supplier was therefore dismissed from the ordinary courts. In this newsletter, we discuss the decision’s likely impact on the position of insurers and other third-party claimants.

Insurers’ basis for recovery under Norwegian law

Unlike the position in for instance common law jurisdictions, insurers are under Norwegian law not dependent on being subrogated the right to the assured’s claim to enable recovery from a third-party. Rather, upon settling the assured’s claim, a right of recourse will arise under general Norwegian law principles.

Whilst the above position is well settled Norwegian law, insurers still typically also include an express right of subrogation in standard insurance terms. This approach is useful where the insurers are to pursue recovery in jurisdictions where the subrogation of the assured’s rights is necessary for the insurer to recover from a third-party.

As follows from the above, under Norwegian law insurers will typically have alternative bases for its recovery claim as arising out of either general law or agreement. In this situation, there is a question of whether the insurer is free to choose the legal basis of his recovery or whether one basis prevails over the other. In its recent decision, the Supreme Court did not provide an answer this question but found that insurers are subject to arbitration agreements between the assured and third parties regardless of the legal basis for its recovery.

The key facts and submissions of the case

In HR-2023-573-A, the insurer, following a settlement of a claim for total loss, brought a recovery claim against the supplier of the insured property. The claim was brought before the ordinary courts, despite the contract of supply including an arbitration agreement. There was no disagreement in the case that had the claim been brought by the assured, the claim would be subject to arbitration. The insurer argued, however, that its recovery claim was based in the insurer’s right to recourse under general law and not the (subrogated) position of the assured under the supply contract. By extension, argued the insurer, it was not subject to the arbitration agreement in the supply contract.

The Supreme Court abstained from considering the legal basis for the recovery claim, but instead considered the effect of the arbitration agreement if the insurer’s recovery claim was based in general law. This question turned on the understanding of the Norwegian Arbitration Act section 10 second paragraph, which states:

Unless otherwise agreed between the parties in the arbitration agreement, the arbitration agreement follows a transfer of the legal relationship it pertains to. (Our translation.)

Decisive with regards to the application of section 10 second paragraph was, in the view of the Supreme Court, whether a recourse right arising out of general law constitutes a ‘transfer of the legal relationship’.

In terms of ‘the legal relationship’, the insurer argued that the term applies to transfers of the legal relationship as a whole and not to individual claims within the (otherwise non-transferred) legal relationship. The Supreme Court rejected this argument, finding that section 10 second paragraph applies ‘to the extent’ the legal relationship is transferred. This means that the provision is not limited to transfers of the entire legal relationship, but also applies to transfers of individual claims within a wider legal relationship.

The operative term – ‘transfer’ – was the subject of the main discussion of the Supreme Court. The insurer argued that the term ‘transfer’ does not include claims that arise out of general principles of law, but only transfers by agreement. However, with reference to the preparatory works, the Supreme Court found that ‘transfer’ also includes recourse claims arising out of general legal principles.

The Supreme Court emphasised, however, that where a claim arises independently of the legal relationship to which the arbitration agreement pertains – for instance by virtue of a statutory right – section 10 second paragraph will not apply. An example used by the Supreme Court was direct action claims against insurers pursuant to the Norwegian Insurance Contracts Act section 7-6. Even if such direct action claims are closely related to and would not have arisen without the insurance contract (typically subject to an arbitration agreement), the Supreme Court stated that such claim arises directly for the (third party) claimant by virtue of law and can therefore not be deemed ‘transferred’ for the purposes of section 10 second paragraph.

The main take aways

The Supreme Court has now clarified a practically important issue for insurers’ recovery actions; an insurer will be subject to an arbitration agreement between the assured and a third party as long as the claim would have been subject to arbitration if brought by the assured.

The decision also has implications outside of insurance. It is now clear that a claim transferred to a third party, will be subject to the arbitration agreement even where the legal relationship to which the arbitration agreement pertains is not transferred as a whole.

Lastly, the Supreme Court highlights – along the lines of its landmark decision in HR-2017-1932-A (I.M. Skaugen) – that the Norwegian Arbitration Act is based on the UNICITRAL Model Law on International Commercial Arbitration, intended to contribute to harmonised national rules on arbitration. Accordingly, the approach adopted by other national courts which have legislation based on the Model Law is of relevance to the understanding of the Norwegian Arbitration Act, even where the issue at hand is not regulated by the Model Law. This is a welcomed emphasis that underlines the Norwegian courts “friendly” approach to commercial arbitration and efforts to develop and adhere to international rules and best practice.

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