In a much-anticipated decision, the United States Supreme Court held that choice-of-law provisions in marine insurance contracts are presumptively enforceable under federal maritime law with a few narrow exceptions. In Great Lakes Insurance SE v. Raiders Retreat Realty Co., LLC, 601 U.S. ___ (2024), the country’s highest court overturned a Third Circuit Court of Appeals decision that had created a circuit split regarding the applicability of choice-of-law provisions in marine insurance contracts and when the law of the forum state can override the choice made by the parties to the contract. The Supreme Court’s decision reaffirms both the supremacy of federal maritime law over state law and the importance of uniformity in maritime law throughout the nation.
Great Lakes Insurance (“Great Lakes”) and Raiders Retreat Realty Co. (“Raiders”) were parties to a marine insurance policy covering Raiders’ vessel. The policy selected New York law to govern all future disputes arising under the contract. Great Lakes is headquartered in the United Kingdom and organized in Germany while Raiders is headquartered in Pennsylvania. Marine insurance policies are maritime contracts which are governed in the first instance by maritime law.
Following the grounding of Raiders’ vessel in Florida, Great Lakes denied insurance coverage for the accident because the vessel’s fire suppression system had not been maintained, which was a requirement of the insurance policy. The fire suppression system was not a cause of the grounding, nor was it related in any way to the casualty. Nevertheless, Great Lakes maintained that the failure to maintain the system was a breach of warranty that voided the entire insurance contract.
Raiders sued for declaratory relief and ultimately raised contract-based claims in the U.S. District Court for the Eastern District of Pennsylvania, arguing that Pennsylvania law should apply. Pennsylvania law would not have voided the insurance policy based on Raiders’ failure to maintain the fire suppression system. Great Lakes argued that New York law applied based on the express choice-of-law provision in the insurance policy, and under New York law, an insured’s breach of warranty will void an insurance regardless of whether the breach was causally related to the insurance claim at issue. Thus, resolution of insurance coverage depended on whether Pennsylvania or New York law applied. The Eastern District of Pennsylvania, finding that federal maritime law finds choice-of-law provisions as presumptively valid, enforced the choice-of-law provision and rejected Raiders’ claims.
On appeal, the Third Circuit took a sharp turn from the majority of federal circuits and held that choice-of-law provisions in maritime contracts are presumptively enforceable as a matter of federal maritime law, but must yield to a strong public policy of the forum state. The case was remanded and the District Court was instructed to consider if the application of New York contract law would violate Pennsylvania’s public policy, meaning Pennsylvania law should apply. The U.S. Supreme Court granted certiorari to resolve the newly-created circuit split regarding the enforceability of choice-of-law provisions in maritime contracts.
In a unanimous decision, the Supreme Court held that choice-of-law provisions in maritime contracts are presumptively enforceable under maritime law, with narrow exceptions not applicable to the contract between Great Lakes and Raiders. Justice Kavanaugh, writing for the Court, made quick work of establishing that choice-of-law clauses are enforceable absent the following exceptions:
- The choice-of-law 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.
In its decision, the Court analogized choice-of-law provisions to forum selection clauses in maritime contracts, which the Court has long held are enforceable. The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 (1972). Choice-of-law clauses and forum selection clauses benefit commerce and efficiency because they displace any uncertainty into what law or forum will apply to disputes arising from maritime contracts. It is the benefits of this certainty that the Court dwelled on for a significant portion of its thirteen-page opinion.
Many in the maritime industry awaited this opinion with baited breathe due to the potential that it would overrule Wilburn Boat Co. v. Fireman’s Fund Ins. Co.1, which established that “state law applied as a gap-filler” in the absence of a uniform maritime law.
Here, the majority opinion made certain that its decision would not be interpreted as ruling on Wilburn Boat. The Court stated that Wilburn Boat “does not control the analysis of choice-of-law provisions in maritime contracts.” The Court emphasized that uniform federal law governs the enforceability of choice-of-law clauses in maritime contracts and Wilburn Boat does not preclude the holding of this case.
In his concurrence, Justice Thomas did not show the same reverence to the Wilburn Boat holding. Justice Thomas focused on the seven decades worth of critiques that Wilburn Boat has received and concluded his concurrence by stating that this case continues to whittle at Wilburn Boat’s holding, which now only applies to maritime contract disputes that “implicate local interest as to beckon interpretation by state law.”2
1 348 U.S. 310 (1955).
2 Norfolk Southern R. Co. v. James N. Kirby, Pty Ltd., 543 U.S. 14, 27 (2004).
Contact Liskow attorneys Ray Waid, Jessie Shifalo, and Elizabeth Strunk for further questions regarding this topic.
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