In a recent opinion, Great Lakes Insurance SE v. Raiders Retreat Realty Co., LLC, the Supreme Court of the United States considered the validity of a choice-of-law provision in maritime insurance policies. Great Lakes Insurance insured Raiders Retreat Realty with a maritime insurance policy that included a choice-of-law provision which selected New York law to govern future disputes between the parties. A boat insured under the Great Lakes policy ran aground, and Great Lakes denied the claim. Great Lakes based the decision on the allegation that Raiders breached the insurance contract by failing to maintain the boat’s fire-suppression system. Under New York law, this would void the contract in its entirety.
Great Lakes filed a declaratory action to deny coverage in the Eastern District of Pennsylvania. Raiders responded making contract claims under Pennsylvania law, claiming that Pennsylvania law should be used because, as the location of the trial, it was the jurisdiction that had the most interest in the dispute. The court determined that the choice-of-law provision was enforceable under federal maritime law.
First, the court considered the initial question of whether there were already any federal maritime rules regarding whether choice-of-law provisions in maritime contracts were enforceable. The court noted that it and Courts of Appeals have enforced choice-of-law provisions in maritime contracts. The court compared the choice-of-law provisions in insurance policies to forum selection provisions, which it has upheld in maritime contracts. Ultimately, the court stated it will uphold choice-of-law provisions because they reduce legal uncertainty for the parties and discourages forum shopping.
Next, the court considered whether the choice-of-law provisions should be considered under state law. The court confirmed that there is no state law which will override a choice-of-law provision in a maritime contract. The court reiterated that there is a federal rule that governs whether choice-of-law clauses in maritime contracts are enforceable and refused to create a new rule. Further, the court noted that it will consider whether there is an equitable result when applying maritime rules. Here, the court held that its decision to uphold these clauses was equitable because it will prevent legal uncertainty to parties entering into similar agreements.
The court looked at whether there are any exceptions to this rule as it allowed some in the past. However, the court refused to create a new exception as requested by Raiders because there is no public policy interest in substituting one state’s law for another’s.
Disclaimer: The opinions expressed in this blog are those of the author and do not necessarily reflect those of Soha & Lang, P.S., or its clients.