Supreme Court: Insurers’ recourse claims are subject to arbitration clauses in the policyholder’s contract
In a recent Norwegian Supreme Court case (HR-2023-573-A), it was determined that an insurer pursuing a recovery claim against the policyholder’s supplier must adhere to the arbitration agreement included in the supply contract. Consequently, the insurer’s lawsuit against the supplier was rejected by the regular courts.
Under Norwegian law, insurers are not required to be subrogated to the policyholder’s claim to recover from a third-party. Instead, a right of recourse arises automatically when the policyholder’s claim is settled. The insurance terms will nevertheless typically include an express right of subrogation.
Typically, Norwegian law allows insurers to have alternative grounds for recovery claims, either through general law or agreement. The Supreme Court did not address whether insurers could choose the legal basis for their recovery, but rather ruled that insurers are subject to arbitration agreements between the policyholder and third parties regardless of the legal basis for their recovery claim.
In the case at hand, the insurer had filed a recovery claim against the supplier of the insured property after settling a total loss claim. The claim was brought to the ordinary courts, even though the supply contract contained an arbitration agreement. The insurer argued that its recovery claim was based on the insurer’s right to recourse under general law and not the policyholder’s subrogated position under the supply contract. Therefore, the insurer claimed it was not subject to the arbitration agreement in the supply contract.
The Supreme Court did not address the legal basis for the recovery claim but focused on the effect of the arbitration agreement if the insurer’s recovery claim was based on general law. The question centered on the interpretation of the Norwegian Arbitration Act section 10, second paragraph. The Supreme Court determined that a recourse right arising from general law constitutes a “transfer of the legal relationship” under section 10.
The insurer contended that “the legal relationship” refers only to transfers of the entire legal relationship, not individual claims within the broader legal relationship. The Supreme Court rejected this argument, stating that section 10 applies “to the extent” the legal relationship is transferred, meaning it is not limited to transfers of the entire legal relationship but also includes transfers of individual claims.
The term “transfer” was the main point of discussion for the Supreme Court. The insurer argued that “transfer” does not include claims arising from general legal principles but only those transferred by agreement. However, referencing preparatory works, the Supreme Court concluded that “transfer” encompasses recourse claims arising from general legal principles.
The Supreme Court emphasized that claims arising independently of the legal relationship to which the arbitration agreement relates, such as those based on statutory rights, are not subject to section 10. The Court used direct action claims against insurers under the Norwegian Insurance Contracts Act section 7-6 as an example. It is thus important to note that this decision does not imply that a claimant who elects to bring a direct-action suit against a tort feasor’s liability insurer will be bound by the policy’s arbitration clause.
The key takeaway from this decision is that insurers will be subject to arbitration agreements between the policyholder and third parties as long as the claim would have been subject to arbitration if brought by the policyholder. The lower courts’ opposite conclusions were indeed somewhat surprising and the Supreme courts decision will be a helpful clarification going forward.
Øyvind Grøneng
Partner – Advokat
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