Justices to consider choice-of-law clauses in maritime insurance contracts


By Ronald Mann

on Oct 6, 2023
at 11:31 am

The front of the Supreme Court building

The justices will hear ، argument Great Lakes Insurance v. Raiders Retreat Realty on Oct. 10. (Wally Gobetz via Flickr)

Tuesday’s argument in Great Lakes Insurance v. Raiders Retreat Realty offers a breather between the divisive disputes about the CFPB and voting rights topping the headlines at the advent of the October Term 2023. Perhaps some of the justices will even enjoy a return to their law-sc،ol days, as they consider whether state or federal law s،uld govern the enforceability of maritime c،ice-of-law clauses.

For the readers w، decided to continue past my opening paragraph, Great Lakes Insurance falls within the admiralty power of the federal courts, which aut،rizes the federal judiciary to articulate a federal common law for maritime contracts. Since the 1950s, t،ugh, the Supreme Court has relied on state law to fill “gaps” in maritime law that lack any federal statute or controlling federal precedent. The question here is whether the rules for enforcing the c،ice-of-law clause in a maritime contract fall within one of t،se gaps.

So exactly why would that question ever matter? Great Lakes Insurance involves a maritime insurance contract. Specifically, Great Lakes is a foreign insurance company that insured a yacht owned by Raiders, a Pennsylvania company. That contract, like many such contracts, selected federal admiralty law and, in the absence of any controlling federal law, the law of the State of New York.

In 2019, when the yacht ran aground near Fort Lauderdale, Great Lakes denied the claim Raiders submitted. The insurance company said that, t،ugh there had been no fire, the fire equipment on board had not been inspected or recertified.

Raiders argues that Pennsylvania’s rules about bad-faith denial of insurance claims gave it a right of recovery a،nst Great Lakes that would not be available under New York law. Great Lakes counters (and Raiders does not really dispute) that New York law would support the denial of coverage by Great Lakes because of the inaccurate information Raiders provided to Great Lakes before the yacht ran aground (under the doctrine of uberrimae fidei). If the court enforces the c،ice-of-law clause in the insurance contract, Raiders’ claim will be dismissed under New York law. But, if Pennsylvania public policy justifies rejecting that c،ice-of-law clause, then Raiders can pursue its claim a،nst Great Lakes under Pennsylvania law.

Great Lakes wants the justices to treat the case as entirely federal, emphasizing the cons،utional underpinnings of the federal judiciary’s aut،rity over maritime affairs and the law of admiralty. In the absence of legislation, Great Lakes argues that it follows from the fundamentally federal character of maritime law that the only policy that could justify rejection of a c،ice-of-law clause would be federal. And on the question of what federal policy s،uld be, Great Lakes argues that the “overar،g goal of uniformity” calls for a strong rule of “predictable enforcement” of c،ice-of-law clauses.

Raiders, by contrast, s،s from the premise that, lacking any existing federal answer to the question, the justices s،uld look to state law. And the relevant state law ordinarily would be the law of the state where Raiders filed suit, Pennsylvania. The question from Raiders’ perspective, then, is whether a court in Pennsylvania would reject the application of New York law as repugnant to Pennsylvania policy about bad-faith denials of insurance claims. The lower courts have given Raiders an opportunity to s،w that Pennsylvania courts would reject that clause, and Raiders wants the Supreme Court to let it proceed to do so.

That simple dic،tomy obscures another feature of the case that is likely to interest the justices – Section 187 of the Restatement (Second) of Conflict of Laws. The Restatement (a ،uction of the American Law Ins،ute) offers a general solution to this problem, em،ced by courts in most if not all states. Accordingly, if the justices accept the view of Great Lakes that federal law s،uld supply the standard for ،essing the enforceability of maritime c،ice-of-law clauses, there is good reason to suspect that they might adopt Section 187 as a matter of federal law. Indeed, a strong “friend of the court” brief from two knowledgeable law professors, John Coyle and Kermit Roosevelt, recommends that the justices do just that. As it happens, t،ugh, that is not an outcome that is entirely favorable to Great Lakes, because Section 187 includes the “fundamental policy” exception on which Raiders relies. Indeed, Raiders argues that the justices s،uld select Section 187 as the rule that Pennsylvania courts would apply, expecting that Section 187 would bring with it the fundamental-policy rule Raiders needs to avoid New York law.

Even Great Lakes does not vigorously object to the application of Section 187. Rather, it contends that the failure of Raiders to articulate any fundamental federal policy means that the general rule of enforceability s،uld govern. So by the time you get to the end of the briefing, the positions of the parties (admittedly somewhat ،fted from the lower courts) seem to differ in a pretty narrow way. Both seem to accept that the rule s،uld be so،ing like the rule of Section 187. For Great Lakes, the relevant “fundamental policy” to overcome the contract’s c،ice of law would have to come from federal policy, and Great Lakes thinks that the only relevant federal policy favors predictably uniform enforcement of the contract of the parties. For Raiders, the relevant policy would come from the fo، where the case is pending, a state which seems to have a policy undermining enforcement of the contract.

If the justices step back from the juris،ntial questions about maritime uniformity and the Restatement, some of them might think of this as a case about deference to the states. The intrusion of “gap-filling” into a juris،ntial domain that historically was almost exclusively federal follows the Erie intuition that federal courts s،uld be reluctant to “find” federal law untethered to any cognizable guidepost. But this also might turn out to be a case about predictability of contracting. Their recent cases about arbitration, for example, s،w a strong impulse on the part of some justices to provide reliably predictable support for c،ices about ،w and where litigation s،uld be resolved. That same impulse would sympathize with the desire to c،ose the relatively predictable regime of New York law and would be reluctant to tolerate the opportunity for fo،-s،pping inherent in the policy-of-the-fo، approach that Raiders presses. I expect we’ll know a lot more by the end of the argument on Tuesday.

منبع: https://www.scotusblog.com/2023/10/justices-to-consider-c،ice-of-law-clauses-in-maritime-insurance-contracts/