[Hague-jur-commercial-law] FYI Draft implications for reinsurance business community

[Manon Ress]

-Original Message-----
 > From:    Schwab, Stephen W. - CHI
 > Sent:    Tuesday, May 04, 2004 12:16 PM
 > Subject:    Proposed Hague Convention on Choice of Court Agreements
 >
    I have just returned from attending the week-long interim drafting
session of the Hague Conference on Private International Law, Special
Commission on Jurisdiction, Recognition and Enforcement of Foreign
Judgments in Civil and Commercial Matters (the "Commission").  I represent
the International Bar Association ("IBA") at the Hague, and am a member of
the IBA's Committee H (Insurance).  The Commission has produced a revised
Draft on Exclusive Choice of Court Agreements (attached).  During the
course of the session, I expressed to the 60+ member State delegations
concerns on various reinsurance-related issues addressed in that
Convention.  I also proposed two amendments in concert with the
International Association of Insurance Supervisors ("IASA"; our proposed
reinsurance-related amendments are also attached).  Certain issues
involved in the Draft Convention will concern international reinsurance
law practitioners, regulators and reinsurance market participants.  I
suspect that the Convention will become a prominent issue in the non-US
reinsurer collateral security negotiations before the National Association
of Insurance Commissioners.

    Background  When a Diplomatic Conference of the Convention failed to
produce a consensus draft Convention (following about seven years of
drafting and negotiation), the Hague convened the Special Commission to
draft a revised Convention for consideration at the next Conference.  That
Conference currently is scheduled for next January.  A Danish lawyer
chairs the Commission, supported by the permanent professional staff of
the Hague, notably Andrea Schulz.  Delegates (many comprising multi-member
delegations) to the Commission may offer comments (by means of
"interventions") in support of or opposition to the draft provisions, and
frequently propose amendments to the Draft.

    The purpose of the Draft is stated in the preamble: "to provide
international trade and investment through enhanced judicial cooperation."
The preamble then describes the following requirement to achievement of
the purpose: "a secure international legal regime that ensures the
effectiveness of exclusive choice of court agreements by parties to
commercial transactions and that governs the recognition and enforcement
of judgments resulting from proceedings based on such agreements."  These
are laudable declarations, but developing consensus on a draft convention
presents many challenges, including differences and inconsistencies in
member State legal systems (civil vs. common law, e.g.); the rising
importance of the European Commission, the growth of the European Union
and the rising economic significance of China and other Asian member
states; and the need to harmonize any Draft with existing Conventions,
treaties and other formal agreements among member States.

    Issues  The Draft Convention is divided into Articles, paragraphs
and subparagraphs.  A number of questions arise from the text of the
current Draft, but three in particular will be of concern to the
reinsurance business community, i.e.:

*    Article 1  Scope:  Nothing in the Draft expressly refers to
insurance or reinsurance.  When we raised this point, the response from
some delegates was, "it is unnecessary; the Convention is intended to
apply to insurance and, unless something is expressly excepted, the
assumption is that it is covered."  The Co-Rapporteurs of the Commission
have been charged to note this intention in their forthcoming Report of
Proceedings, and have declared their intention to do so.  This simplistic
response is problematic, however, when the listed exceptions to the Draft
are considered: proceedings involving insolvency, contracts for carriage
of goods and persons, antitrust/competition matters, nuclear liability and
rights in rem in immovable property.  Complications derivative of insurer
insolvency proceedings and the related in rem jurisdiction of the court
supervising the proceeding are known to most.  Similarly, maritime
insurance is one of the oldest forms of risk assumption.  Competition and
nuclear liability are covered under specialty coverage forms and
endorsements, and the former is quite under-developed at the present time.
In order to sidestep such obvious difficulties, the Draft provides that
proceedings are not excluded from the scope of the Convention if one of
these excepted matters "arises merely as an incidental question."

            For the avoidance of doubt, we/the IBA and the
International Association of Insurance Supervisors ("IASA") jointly
sponsored a proposed amendment as Working Document No. 90, which would
have amended the incidental question provision in paragraph 4.  Russia and
the US supported our amendment, China and the EU opposed it, and Mexico,
the UK and the Swiss said it was unnecessary as already being within the
intent of the Convention's coverage.  The President ordered the Report to
reflect this intent, and suggested that we could raise the issue at the
Diplomatic Conference, in a form other than as an amendment to the
incidental question paragraph; i.e., as a new paragraph to Article 1.  We
intend to do so.

*    Article 10  Damages:  The Draft would enable a court presented with
a judgment for enforcement (known as the "court in the requested State")
to refuse to recognize "non-compensatory damages, including exemplary or
punitive damages," as well as "excessive damages," consistent with the
requested State's law.  The implications for insurance and reinsurance
business of this exception are many, including, e.g., protection for
adjudications of bad faith and applicability of the exception to claims
that are covered under primary or excess insurance policies or reinsurance
agreements.  In order to ensure that the joint amendment does not remove
from the reach of the Convention judgments entered against parties to an
insurance or reinsurance contract that otherwise would cover the
judgments, we offered with IASA an amendment in the form of Working
Document No. 103.  It would be fair to say that most, if not all,
delegates have little or no understanding of insurance or reinsurance.
They are unaware, e.g., that 70% of insurance obligations ceded from US
insurers go to non-US reinsurers, and a substantial amount of that
business in turn is retroceded back to US retrocessionnaires.  We spent a
good deal of time explaining this to delegate, but it will take a great
deal of additional lobbying and intervention with delegates to arrive at a
provision that would be acceptable to the international insurance and
reinsurance business community. 

            IASA representative John Oxendine and I explained
both publicly in interventions, as well as private conversations with
member State delegates, that this issue relates directly to a regulatory
issue of tremendous import and attention to the international insurance
and reinsurance community.  Among other things, we explained that non-US
reinsurers and insurance regulators have petitioned the  National
Association of Insurance Commissioners ("NAIC") to reduce the collateral
security obligations imposed on non-US reinsurers under US law.  We
further explained that the issue of contractual choice of court provisions
is very prominent in that work in particular and before the NAIC
generally, as well as before the US National Conference of Insurance
Legislators.  We pointed out that many insurers and reinsurers (including,
most prominently, Lloyd's, Hannover Re, AIG and CNA) around the world have
weighed in on the issue, as well as their trade organizations (including
the Reinsurance Association of America, the International Underwriting
Association, Gesamtverband der Deutschen Versicherungwirtschaft e. V.,
Comite Europeen des Assurances, Federation Francais des Societes
Assurances, and Schweizerischer Versicherungsverband).

*    Article 16 Declarations:  Member States would have the opportunity
to declare that the Convention does not apply to certain types of matters.
For example, Canada has insisted that the Draft provide that a State may
declare that it will not apply the Convention provisions to choice of
court agreements in "asbestos related matters."  Similarly, China has
proposed a similar limitation for "natural resources" and "joint venture"
matters.  In view of the plethora of insurance and reinsurance related
matters concerning asbestos and "natural resources," these are very
troubling proposals.

    There are numerous other issues that are not insurance/reinsurance
specific but will be of interest or concern to international reinsurance
practitioners (such as, e.g., the jurisdiction of the chosen court (Art.
4), obligations of a court not chosen (Art. 5), recognition and
enforcement and the implication of "incidental questions" (Art. 7),
application of the Convention to "non-unified legal systems" such as the
US and Canada (Art. 18), and "Regional Economic Integration Organizations"
such as the EU (Art. 22), and relationship with other "international
instruments" (Art. 19)).

    Further Interventions  The Draft Convention has broad implications
for the international reinsurance business community.  In the event that
insurers or reinsurers are interested in registering an objection or
statement of position they would like to have registered at the Diplomatic
Conference, they should contact their member States' delegates.  I
respectfully submit that European reinsurers in particular should consider
addressing these issues with their respective Convention member State
delegates.  Any affiliate domiciled in a European country also should
consider registering their views with the leader of the European Union
delegation, Mario Tenreiro.  John Oxendine approached Mr. Tenreiro about
the issue and felt rebuffed.  It appeared that Mr. Tenreiro had not been
briefed on the reinsurance implications of the Draft Convention.  Attached
you will find a list of the Delegates to the Commission meeting just
ended.

    Please let me know if you have any questions about the foregoing.
Best wishes.


Stephen W. Schwab
PIPER RUDNICK LLP
203 N. LaSalle St. 15th fl.
Chicago, IL 60601
312.368.2150 direct
312.630.7343 fax
847.366.5490 mobile
stephen.schwab@piperrudnick.com

-- 
Manon Anne Ress
Consumer Project on Technology
www.cptech.org
PO Box 19367, Washington, DC 20036
manon.ress@cptech.org, voice: 1.202.387.8030, fax: 1.202.234.5176