3.1. The domestic law: the Insurance Contracts Act
In a ruling, which was not contested, the Court of Appeal had found that Thorco's action would be decided according to Norwegian law.(1)Stolt II paragraph 34, cf. LA-2018-82999 with a detailed discussion on the choice of law issue. The Insurance Contracts Act (of June 16 1989 No. 69) Section 7-6 first sentence allows a direct action against the insurer:
"When the insurance covers the liability of the insured, the injured part may claim compensation directly from the insurer."
This rule is mandatory, but with exceptions for, i. a., marine insurance. Gard has in its conditions an exception in the form of a "pay-to-be-paid" clause: the insured has to pay before he can turn to the insurer. However, the exception is not applicable when the liability insurer is "insolvent" (Insurance Contracts Act Section 7-8).
Section 7-6(5) states that suit against the insurance company according to this section should be instigated in Norway unless it follows otherwise from Norway's international law obligations.
As pointed out by Justice Normann, speaking for the majority in Stolt I, Section 7-6(5) was added due to the insurance companies' concern that the right to bring direct actions could lead to proceedings in countries with different legal traditions relating to actions for damages and the level of compensation.(2) Popularly called «forum shopping». The intent was to avoid such proceedings by making a direct action conditional on it being brought in Norway.