“Choice of law” describes the process by which contractual parties agree the
national law that will apply to the contract they have made and document their
agreement with a contractual term. It is particularly significant for cross-border
business, such as the European insurance business of Lloyd’s underwriters. The law applying to an insurance contract in the event of a dispute can have a significant impact on its profitability, as different countries have very different legal requirements.
Since 1980, contractual choice of law rules in the EU have been based on the
Rome Convention, implemented in the UK in 1990. Its rules apply to reinsurance
and to the insurance of risks outside the EU; the rules for insurance of risks in the
EU are set out in the EU’s non-life insurance directives. In summary, the parties to a reinsurance contract or an insurance contract insuring an EU large risk are free to choose any law to apply to the contract. Member states may either give similar
freedom to the parties to an insurance contract insuring an EU mass risk, or may
require the contract to be subject to local law, unless specific criteria apply.
In December 2005, the European Commission announced its intention to convert
the 1980 Rome Convention into an EU Regulation (an EU Regulation is a legislative act that becomes immediately enforceable in all member states, without the need
for national transposition). This is known as “Rome I”, differentiating it from “Rome
II”, which deals with the laws applying to non-contractual obligations.
Originally, Rome I did not include insurance, but in December 2006, at the request of member states, the Finnish and German Presidencies proposed to include insurance and to change the rules applying to it. Their proposal made all EU “mass risk” insurance contracts subject to rigid rules on choice of law, removing member states’ ability to give freedom of choice. UK insurers, including Lloyd’s Government Policy and Affairs (GPA), informed the UK Government of their concerns about this proposal and pointed out that no cost/benefit analysis of the new rules had been carried out.
In the negotiations, the UK therefore argued for retention of the status quo. This
stance was largely successful. Negotiations concluded in December 2007: the EU
Regulation will be adopted later this year and will come into force 18 months later.
It includes rules on insurance contracts in Article 7, which are similar to the existing insurance rules on choice of law.
Britain now has to reconsider whether to opt out from the Regulation, as initially it
proposed to do. In April 2008, the Government issued a Consultation Paper on the
subject, with a deadline for comments of 25 June 2008. It suggested that, as the
Regulation had improved existing rules, the UK should now choose to opt in. Opting out would mean that the new rules would apply throughout most of the EU, but that the UK would be bound by rules in the older Rome Convention and the shortly-tobe- rescinded non-life insurance directives. Lloyd’s GPA has responded to the Consultation Paper, agreeing with the Government that the UK should now opt in.
Lloyd’s underwriters will therefore continue to enjoy a substantial amount of
freedom to agree the national law that will apply to the European contracts that
they underwrite. The history of this proposal indicates, firstly, the importance of
monitoring EU legislative proposals and, secondly, that timely and constructive
intervention in EU debates can be productive.
