Holds choice-of-law provisions in marine insurance contracts are presumptively valid.
For the first time in 69 years, the U.S. Supreme Court has issued an opinion that addresses marine insurance. The result of the decision - a big win for marine insurance companies and a big win for maritime uniformity. In the case, the U.S. Supreme Court has reinforced the concept of federal uniformity of maritime law. While the decision is important in that it concludes that federal maritime law governs the enforceability of choice-of-law provisions in maritime contracts, the concurring opinion by Justice Thomas could be the larger win for the marine insurance industry. In his opinion, he suggests to lower courts that they should not apply state law to a broad range of marine insurance disputes.
The case began with a simple grounding of a yacht owned by Raiders Retreat Realty Co. (“Raiders”). While investigating the loss, the insurance company (“Great Lakes Insurance SE”) discovered that the yacht’s fire extinguishers had not been properly certified and tagged. The insurance policy included an express warranty that all firefighting equipment would be properly certified and tagged and that any breach of warranty would void the policy. Based on the clear breach of warranty, the insurance company filed a declaratory judgment action in the District Court for the Eastern District of Pennsylvania, seeking a decision confirming that the policy was void and afforded no coverage for the loss.
Raiders responded to the action with counterclaims, including breach of fiduciary duty, insurance bad faith, and breach of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law.
The District Court enforced the choice-of-law provision in the insurance 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 Third Circuit’s decision was appealed to the Supreme Court and for the first time in decades, the admiralty bar as well as marine underwriters would hear from the Court on the topic of marine insurance.
In reversing the Third Circuit in their 9-0 decision, the Court emphasized that under federal maritime law, choice-of-law provisions in contracts are valid. They emphasized that there is no general exception for marine insurance contracts and the Court declined to create an exception where there might be a conflict between laws of different states.
Of interest to the admiralty bar was how the court would address their 1955 decision in Wilburn Boat Co. v. Fireman’s Insurance Co., a maritime insurance case in which the Supreme Court held that when there is no established federal maritime law, a court should apply state law. Justice Kavanaugh, writing for the unanimous court, pointed out that Wilburn did not apply because “that case did not involve a choice-of-law provision.” The question before the court in Wilburn was “what substantive rule applied when a party breached a warranty in a marine insurance contract.” Justice Kavanaugh acknowledged that insurer’s argument that recent Supreme Court cases like The Bremen and Carnival Cruise Lines could undermine the continuing relevance of Wilburn Boat but concluded that “we need not resolve any tension because Wilburn Boat does not control the analysis of choice-of-law provisions in maritime contracts.”
While it would have been an additional victory for proponents of maritime uniformity for the Court to have overruled Wilburn Boat, Justice Kavanaugh did not take that additional step. However, Justice Thomas in his concurring opinion critiqued the decision of the prior Court. “I write separately to highlight how Wilburn Boat rests on flawed premises and, more broadly, how the decision is at odds with the fundamental precept of admiralty law. This Court has already retreated from Wilburn Boat’s unsound holding, limiting it to local disputes. Litigants and courts applying Wilburn Boat in the future should not ignore these developments.” He concluded his opinion with a warning to future litigants and courts, “Litigants and courts should heed our instruction that general maritime law applies in maritime contract disputes unless they “so implicate local interests as to beckon interpretation by state law.” Kirby, 543 U. S., at 27. Wilburn Boat reaches no further.”
While the decision appears to be a victory for marine insurance companies, it is also a victory for uniformity in maritime law.
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