Choice of Law Clause
The choice of law clause determines the substantive law under which an international policy is construed and coverage questions are decided, independently of the policyholder's domicile or the place of loss.
- Clause type
- Condition
- Origin/Market
- London Market (LMA/NMA/Lloyd’s)
- Favours
- Insurer
- Negotiability
- Negotiable
Purpose
The choice of law clause specifies which substantive law governs the construction of a policy where its wording is disputed or requires interpretation. London market wordings typically select English law, since a deeply developed body of insurance-specific case law exists there, promising predictable interpretation for insurers and cedents alike — regardless of the country in which the policyholder is domiciled or where the loss occurs.
Effect and limits
The choice of law primarily binds contractual construction, not necessarily the regulatory or consumer-protection rules of the policyholder’s or loss country; these may apply as overriding mandatory provisions regardless of the choice of law. The clause must also be distinguished from the jurisdiction clause: a court can apply foreign law where the parties have agreed to it, even where proceedings are conducted before a domestic court.
Negotiation and practice
In international programmes it is advisable to align choice of law and jurisdiction consistently, to avoid situations where a court must apply unfamiliar foreign law. Particular care is needed where local compulsory insurance or mandatory consumer-protection law forces a different choice of law for parts of the programme.