New Supreme Court verdict may widen the scope of recourse claims from insurers

In the recently pronounced judgement HR-2019-2386-A, the Norwegian Supreme Court concluded that the Norwegian Act on Compensation for Damages (Nw. Skadeserstatningsloven) (the “Act”) section 4-3 cf. section 4-2 does not limit the insurer’s access to claim recourse for costs they have covered for a policyholder who would have been able to claim compensation from a third party for breach of contract in accordance with the Norwegian Alienation Act (Nw. Avhendingslova).

The Case

In the present case a real estate was sold with a defect. The buyer’s insurance company covered costs related to documenting the seller’s liability for defects in advance of legal proceedings. The buyer’s insurance company subsequently claimed these costs covered by the seller’s insurance company, who maintained that the Act section 4-3 cf. section 4-2 precluded such recourse.

The question at hand was whether the Act section 4-3 cf. 4-2 prevents the insurance company from claiming recourse for the insured’s contractual claims arising from the Alienation Act.

The Norwegian Act on Compensation for Damages

In accordance with the Act section 4-3, an insurer who has made an indemnity payment for damages to property or other economical loss is entitled to claim recourse from the responsible tortfeasor as long as the injured party could have directed a claim towards the tortfeasor himself according to the Act section 4-2.

Section 4-3 is in accordance with the prevailing law on recourse, which provides that whoever covers another man’s obligations is entitled to recourse. According to other judgments by the Norwegian Supreme Court, hereunder HR-2017-2414-A paragraph 47 and HR-2018-577-A paragraph 36, preclusion of recourse demands legal basis.

The Act section 4-2 provides such legal basis for limiting the right to recourse. Pursuant to the provision, the injured party’s access to claim indemnity towards the tortfeasor is limited if the injured party has insurance covering the damage. In this case, the injured party can only claim damages towards the tortfeasor given that the injury is caused by
• intent,
• gross negligence, or
• in the tortfeasor’s occupation or business.

Outside the scope of the abovementioned criteria the injured party must adhere to his insurance company. Pursuant to the Act section 4-3, the insurance company’s access to claim recourse is limited accordingly, with the result that the insurance company can only claim recourse if the claimant is eligible for indemnification according to section 4-2. None of the criteria were met in the present case.

The Norwegian Supreme Court’s Ruling

For the Norwegian Supreme Court, the present question was whether the Act section 4-3 cf. 4-2 precludes recourse in contractual obligations stemming from the Alienation Act or whether section 4-3 cf. 4-2 mainly applies outside the scope of contracts.

In the judgement, the Supreme Court emphasize the wording of the law, claiming that a natural construction of the scope of the limitation to recourse, by reference to, amongst others, the sections’ wording, weigh heavily against the limitation being applicable in a settlement following a property handover. In addition, the Supreme Court considered the removal of a section in the Act which previously provided that there does not exist limitations to recourse where liability governed by contracts is concerned, and whether this influenced the construction of the scope. The Supreme Court did not find that the removal was intended to extend the scope of section 4-3 cf. 4-2 to encompass contractual liability in general (though they commented that this is the general principle and will not always apply). Further, by considering the Act’s preparatory work, the Supreme Court found no basis for legislators intending to limit the access of claiming recourse in a contractual obligation such as the present case.

The Supreme Court concludes that the Act does not limit an insurance company’s right to recourse for costs paid to a policyholder, which relate to documenting a seller’s liability for defects in advance of legal proceedings, when the policyholder is entitled to indemnification in accordance with the Alienation Act. The Supreme Court states that by accepting the buyer’s insurance company’s claim for recourse, the costs will ultimately be covered by the seller; as it should