A unanimous United States Supreme Court today decided an important question of marine insurance law. In Great Lakes Insurance SE v. Raiders Retreat Realty Co., LLC, the Court held that choice of law clauses in marine insurance contracts are presumptively enforceable. The case involved a boat that ran aground near Fort Lauderdale. The marine insurance policy on the boat required the owner to maintain a fire-suppression system. The insurer denied the owner’s claim based on its failure to comply with this policy warranty, even though the grounding did not involve a fire. Under New York law, warranties in a marine insurance policy are strictly enforced, even though their breach did not cause or contribute to a loss. Florida law, on the other hand, requires a showing that the warranty breach increased the risk that led to the vessel damage.
On appeal from a lower court decision, the United States Court of Appeals for the Third Circuit had held that enforcement of a choice of law clause could be refused based on a public policy conflict between the forum state (Pennsylvania) and the state chosen by the insurance contract (New York).1 Pennsylvania’s laws for bad faith and the like are arguably tougher on insurers than those of New York.
The Court’s opinion by Justice Kavanagh recognized an “established federal maritime rule” under which choice of law clauses were presumptively enforceable. While the notorious case of Wilburn Boat Co. v. Firemans’ Fund Insurance Co.2 had suggested that state law applied to marine insurance polices in the absence of an entrenched federal maritime rule, Justice Kavanagh read Wilburn as holding that “state law applied as a gap-filler in the absence of a uniform federal maritime rule.” As there was a uniform federal maritime rule on choice of law clauses, no gap-filler was needed. And although there are narrow exceptions to enforceability of such clauses, the Court declined to recognize state public policy as such an exception. A federal presumption of enforceability would “not be much of a presumption if it could be routinely swept aside based on 50 States’ public policy determinations.”
Interestingly, Justice Kavanagh recognized that a choice of law clause might be unenforceable if there was “no reasonable basis for the chosen jurisdiction.” It would, for example, be unreasonable to “pick the law of a distant foreign country without some rational basis for doing so.” He recognized, however, that “maritime actors may sometimes choose the law of a specific jurisdiction because…that jurisdiction’s law is ‘well developed, well known and well regarded.'”3 This is true of New York law and would presumably also be true of other widely chosen bodies of law, most notably English law.
Justice Thomas concurred separately, in what might be described as a broadside against Wilburn. He marshaled numerous examples of legal scholarship critical of the 1955 decision by Justice Hugo Black, and also cited treatises from America and England all standing for the strict interpretation of marine insurance warranties–a rule the Wilburn court had found not to be entrenched. Justice Thomas concluded by admonishing litigants and courts that “general maritime law applies in maritime contract disputes unless they ‘so implicate local interests as to beckon interpretation by state law.'”4