From: Linklaters  at www.linklaters.com

United Kingdom, USA
March 1 2007

“In the latest case featuring the efforts of insurers to avoid being sued in the US courts, an insurance claim had been the subject of an arbitration. After an award had been made in London, the plaintiffs sued the defendant captive insurer in a US Federal Court in Vermont. The defendant’s case was that the claim had been determined by the award. The plaintiff applied to the judge in Vermont for an order to prevent the defendants from pre-empting the US proceedings in the English courts. The judge dismissed the defendants’ application.

The defendants then applied in the English courts to restrain the plaintiffs from continuing the US proceedings. Lord Justice Toulson agreed that it was not open to the plaintiffs to re-open the arbitration. He made a declaration to that effect, but refused to grant the injunction, no doubt considering that the US court would take due notice of his findings without an injunction to that effect being needed.

One reason why plaintiffs prefer to sue in the US courts is the prospect of recovering punitive damages, which are very rarely awarded in the English courts. The Supreme Court of the United States has, however, recently curbed the enthusiasm of state courts in making such awards. Last month it set aside a $79.5 million punitive damages award against tobacco manufacturer Philip Morris. It considered that the award punished Philip Morris for harming non-parties. The judges, however, split 5 to 4 on this issue. Insurers can sometimes protect themselves from US suits by arbitration or jurisdiction clauses in their contracts. The contract may also expressly exclude non-compensatory damages. Sometimes, however, US state insurance regulators may require foreign insurers to “submit to personal jurisdiction in the courts of this state for the purpose of resolving any legal claims brought by policyholders”. A requirement to this effect was, for instance, imposed recently on a UK insurer by the Delaware Insurance Commissioner.”