Supreme Court Upholds Choice Of Law In Marine Insurance Contracts

In a unanimous decision applauded by marine interests for reaffirming a long-standing practice and bringing more certainty to marine insurance, the Supreme Court on February 21 upheld “choice of law” provisions in marine insurance contracts under maritime law. It was the first marine insurance case decided by the Supreme Court in more than 50 years.

Great Lakes Insurance and Raiders Retreat Realty Company entered a maritime insurance contract. Great Lakes was organized in Germany and headquartered in the United Kingdom, and Raiders was headquartered in Pennsylvania. The parties’ contract selected New York law to govern any future disputes.

After Raiders’ boat ran aground in Florida, Great Lakes denied coverage for the accident and filed a related declaratory judgment action in the U. S. District Court for the Eastern District of Pennsylvania. Raiders responded by advancing contract claims against Great Lakes under Pennsylvania law. The District Court enforced the choice-of-law provision in the parties’ contract and rejected Raiders’ Pennsylvania-law contract claims.

The Third Circuit recognized the presumptive validity and enforceability of choice-of-law provisions in maritime contracts but held that presumption must yield to a strong public policy of the state where a suit is brought. The Third Circuit remanded for the District Court to consider whether applying New York law would violate Pennsylvania’s public policy regarding insurance.

The Supreme Court ruled that “Raiders’ proposal lacks support in case law, and its application would undermine the fundamental purpose of choice-of-law clauses. … Longstanding precedent in both this Court and the Courts of Appeals establishes a federal maritime rule that choice-of-law provisions in maritime contracts are presumptively enforceable.”

Justice Brett Kavanaugh wrote for a unanimous court; Justice Thomas filed a concurrent opinion.