The Power of the Jurisdiction Clause
Updated: Nov 15, 2021
The jurisdiction clause can be a very powerful card if played correctly.
Have you ever looked at or given much thought to jurisdiction clauses in an insurance policy? Until recently, I didn’t appreciate how powerful they can be.
A jurisdiction clause dictates where the parties have agreed that a dispute between them can be determined. It might be global, country or state based. But what if the clause is multi-jurisdictional and the jurisdictions offer different potential outcomes?
I encountered this very challenge the other day.
I was dealing with a US policy. Its jurisdiction clause recorded the parties’ agreement to submit any dispute under the policy to any US court.
Proceedings against my client, the insured, were commenced in California. Notice of the proceedings was given to the insurers who were based in New York. They denied my client indemnity but agreed, after some protracted correspondence, to attend a mediation in New York.
The dispute was about what some words in the insurers’ policy meant. No agreement could be reached.
Throughout the mediation the insurers kept reminding us that New York courts favoured insurers and, if they referred this matter to a court in New York, that court would support the insured.
Yet they had overlooked their agreement to submit to any US court. Not all US courts favour the insurers. The courts in California favour the insured.
By the end of the day it was too late for the insurers to commence proceedings in New York but the courts in California were still open and, recognising that the jurisdiction clause permitted this matter to be heard in California, I had organised for my client to retain lawyers to commence proceedings there.
My client now had a real edge.
My client played its jurisdiction card. It threatened to commence proceedings in Los Angeles. The matter settled within fifteen minutes.
Jurisdiction clauses might not have such a dramatic effect in every matter, but they are certainly worth paying attention to particularly where they offer multiple jurisdictions and varying outcomes.
Well played, the jurisdiction clause may close the deal.