Court of Appeals rules that arbitration clauses apply to cargo insurers

An insurer recently filed a redress lawsuit against a ship owner, seeking reimbursement for the amount paid to the insured after the latter was required to fund additional freight.

Background

The insured's cargo was shipped in January 2013 from the Shanghai port to the Paranagua port.

However, in March 2013 the vessel's main engine failed 80 nautical miles northwest of Sumatra and it had to be towed to the closest port of Jurong in Singapore.

General average was declared after it was ascertained that the repairs would take several months. For this reason, the insurer executed a new sea carriage contract to ship the cargo to Paranagua.

Facts

After the insurer reimbursed the additional freight paid for by the insured, subrogating itself to the insured's rights, it filed a redress lawsuit against the ship owner seeking compensation for the additional freight. The lawsuit was assigned to the Sao Paulo Fourth Civil Court.

In its defence, the ship owner invoked the jurisdiction clause stipulated in the bill of lading, which provided that any dispute arising from the carriage should be submitted to arbitration in London.

The ship owner further argued that, as the insurer was subrogated in the insured's legal position – as if it was the contracting party of the maritime carriage – it should consequently be subject to the contractual rules agreed to by the insured.

The insurer denied its agreement to the arbitration clause, holding that:

·         the insurer was not party to the carriage contract; and

·         the jurisdiction clause therefore did not apply.

Rather, the insurer argued that the Brazilian courts – where the insurer and defendant were domiciled – had jurisdiction.

Decision

In April 2016 the court ruled that – under Brazilian civil law – when paying indemnity to an insured, the insurer subrogates itself to the insured's rights and obligations, within the limits of the subjacent contract by which the insurer assumed the insured's legal position.

For this reason, the claim of Brazilian jurisdiction was dismissed by the first-instance court in view of the arbitration clause included in the bill of lading.

On appeal, the decision was upheld. The 38th Chamber of the Sao Paulo Court of Appeals (second instance) ruled that, by virtue of subrogation, the insurer was subject to all of the insured's ancillary rights and obligations, including the carriage contract's arbitration clause.

Comment

The decision sets an important precedent, particularly as it shows the effectiveness of the new Code of Civil Procedure, which prioritizes judicial precedents. The decision also reinforces the need for insurers to assess all aspects and limits of an underlying carriage contract entered into by the insured before issuing insurance cover.