Share
On February 21, 2024, the United States Supreme Court decided one of the most important marine insurance cases in the United States since 1955. In Great Lakes Insurance SE v. Raiders Retreat Realty Co., the Court held that choice of law provisions in maritime contracts are presumptively enforceable. This decision stands as a momentous win for the insurance industry as it will inevitably function to reduce legal uncertainty regarding governing law and discourage forum shopping, saving marine insurers considerable legal fees and fostering more fertile grounds for settlement.
The Supreme Court’s decision relied in part upon its prior decisions in The Bremen v. Zaptata Off-Shore Co. and Carnival Cruise Lines v. Shute. Notably, the Court analogized the subject issue of choice-of-law provisions to forum-selection clauses, discussed in the aforementioned cases, which the court has long held are enforceable. The Court reasoned that choice-of-law clauses, like forum-selection clauses, benefit maritime commerce and efficiency as they operate to minimize uncertainty as to the specific law or forum applicable to maritime contract disputes. Despite the topical difference from The Bremen and Carnival Cruise Lines, it was the benefit of certainty that the Court heavily focused upon in Raiders Retreat.
Summary of the Case
Great Lakes Insurance SE (“Great Lakes”), a foreign insurance company organized in Germany and headquartered in the UK, issued a marine insurance policy covering a yacht owned by Raiders Retreat Realty Co. (“Raiders”), a Pennsylvania company. The policy selected New York law to govern any future disputes arising under the contract. After the insured vessel ran aground in Florida, Great Lakes denied coverage for Raider’s tendered claim, basing its denial on the fact that the yacht’s fire suppression system had not been maintained, a requirement of the policy. Notably, the fire suppression system was not a disputed cause of the vessel’s grounding, nor was it related to the underlying incident. Thereafter, Raiders sued for declaratory relief in the US District Court for the Eastern District of Pennsylvania, asserting the Court’s application of Pennsylvania law to its handling of the contractual dispute. Raiders’ push for the application of Pennsylvania law was due to the likely outcome that under that state’s law, its failure to maintain the fire suppression system would not void the insurance contract, as argued by Great Lakes. Conversely, Great Lakes sought the application of New York law as provided for under the plain language choice-of-law provision in the insurance policy. Under New York law, an insured’s breach of warranty voided coverage regardless of whether the breach was causally related to the insurance claim at issue. The Eastern District of Pennsylvania rejected Raider’s claims, reasoning that federal maritime law found choice-of-law provisions presumptively valid.
Raiders appealed the decision to the Third Circuit, which held choice-of-law provisions in maritime contracts presumptively enforceable as a matter of federal maritime law, but with the added caveat that they must yield to a strong public policy of the forum state. Accordingly, the case was remanded to the District Court with instruction to consider whether the application of New York law would sufficiently violate Pennsylvania public policy, such that Pennsylvania law should apply. The US Supreme Court then granted certiorari to address the enforceability of choice-of-law provisions in maritime contracts.
The Court’s Decision
In its argument to the Supreme Court, Raiders echoed its earlier position, asserting that the policy’s choice of law provision must yield to the strong public policy of the state in which suit was brought (here, Pennsylvania). The Supreme Court rejected that argument, noting that to accept such an argument would result in the application of the various and conflicting laws of any state in which suit might be filed, thereby destroying the uniformity in maritime law which court decisions since The Lottawanna in 1875 have held to be crucial in admiralty jurisprudence. Instead, in a unanimous decision, the Supreme Court held that choice-of-law provisions in maritime contracts (not just maritime insurance contracts) are presumptively enforceable under maritime law, subject only to narrow exceptions, none of which were appliable in the present case:
- The choice-of-law provision would contravene a controlling federal statute or conflict with an established federal maritime policy; or
- The parties can furnish no reasonable basis for the chosen jurisdiction.
Furthermore, the Court notably rejected the argument that Wilburn Boat required the application of state law in the current circumstance, specifically stating that Wilburn Boat "does not control the analysis of choice-of-law provisions in maritime contracts.” The distinction regarding Wilburn Boat is particularly important as that 1955 case established the use of state law as a “gap-filler” where there is an absence of uniform maritime law on point. For the very reasons that Raiders Retreat is a cause for celebration today, Wilburn Boat has been colored with perpetuating the opposite. In a concurring opinion, Justice Thomas went a step further, calling Wilburn Boat deeply flawed and at odds with the fundamental precept of Admiralty law--Uniformity.
Comment
Again, the decision in this case is a significant victory for the maritime insurance industry, as it is likely to result in considerable savings in the handling of maritime claims in the United States. Defense counsel should almost always attempt to enforce a policy’s choice of law provision. Now, when policyholders’ counsel seek to apply the law of a more “friendly” jurisdiction, defense will have the upper hand on this issue going forward. In fact, due to the nature of this decision, we’re sure to see a significant diminution in future litigation over the enforcement of choice-of-law provisions. Even more exciting is the scope of the Court’s decision, applying not just to maritime insurance contracts, but to maritime contracts generally. As such, the application of this decision is wide reaching and signals a continued trend in the desirable establishment of predictability in maritime contracts.
Insurance and reinsurance
United States