The Supremacy of Maritime Law Supreme Court Upholds Selection of Law Clause in Marine Insurance Contract

Great Lakes Ins. SE v. Raiders Retreat Realty Co., LLC, 2024 U.S. LEXIS 996, 2024 WL 694920 (S.Ct., Feb. 21, 2024).

            Marine insurers were likely relieved when a unanimous U.S. Supreme Court in an opinion by Justice Kavanaugh with one concurrence by Justice Thomas reversed the U.S. Court of Appeals for the Third Circuit and held unequivocally that selection of law clauses in maritime contracts are presumptively valid. There are generally two exceptions to this rule: (1) When the law chosen in the contract “contravene[s] a controlling federal statute”[1] or (2) When the chosen forum has no reasonable basis.[2]

            The district judge in this case held for the insurer in the declaratory judgment action brought by the insured on the basis that a selection of law clause in a maritime contract is presumptively enforceable.[3] On appeal, the Third Circuit reversed holding that selection of law clauses must yield to the public policy of the forum state remanding the case to the district court to determine if the application of New York law would violate the public policy of Pennsylvania.[4]

            The Supreme Court granted writs to resolve the circuit split. Previously, the U.S. Court of Appeals for the Ninth Circuit held that an arbitration clause in a marine insurance contract is enforceable though state law may conflict.[5] The Federal Court of Appeals for the Fifth Circuit earlier upheld a choice of law provision in a maritime catering contract requiring Louisiana law to apply.[6]

            The Court in Great Lakes drew an analogy from its precedent upholding forum selection clauses in maritime contracts.[7] Like forum selection clauses, selection of law clauses present the parties predictability as to what law will apply and allow marine insurers a better chance to assess risk.[8]

            Raiders’ argued that Wilburn Boat[9] prevented a presumption of enforceability of selection of law clauses. Great Lakes claimed that the holding of Wilburn Boat is in tension with modern jurisprudence. While recognizing this tension the Court sidestepped it distinguishing Wilburn Boat as it did not involve a choice of law provision, held that state law applied to a warranty issue when there was no uniform federal law and because the Court did not want to create substantive maritime law from scratch.[10]

            The public policy of a state, however strong, does not justify jettisoning federal maritime law upholding a choice of law clause. The judgment was reversed.

            Justice Thomas, in concurring with the opinion, took the opportunity to address the long-criticized Wilburn Boat and the confusion it engendered. In light of the recent jurisprudence of the Supreme Court, namely, Norfolk Southern R. Co. v. James N. Kirby, Pty Ltd.,[11] 543 U. S. 14, (2004) and Air & Liquid Sys. Corp. v. DeVries,[12] which stressed the uniformity principle of maritime law, “it is not clear what, if anything, is left of Wilburn Boat’s rationale.”[13]

            A copy of the Lexis version of the opinion is attached.

[1] 2024 U.S. LEXIS 996 at *17.

[2] Id.

[3] Id. at *6. The insured brought claims under Pennsylvania law.

[4] Id. at *6-7

[5] Galilea, LLC v. AGCS Marine Ins. Co., 879 F. 3d 1052 (9th Cir. 2018) The insureds who resided in Montana wanted Montana law to apply as it invalidated arbitration provisions in insurance contracts. As the contract is a marine insurance contract and thus a “maritime transaction” under the Federal Arbitration Act, federal law applies to the contract.

[6] Stoot v. Fluor Drilling Services, Inc., 851 F.2d 1514, 1517 (5th Cir. 1988). The court upheld the choice of law provision as Louisiana had a substantial relationship to the parties and Louisiana law did not conflict with maritime law.

[7] The Bremen v. Zapata Off-Shore Co., 407 U. S. 1 (1972); Carnival Cruise Lines, Inc. v. Shute, 499 U. S. 585 (1991).

[8] 2024 U.S. LEXIS 996 at *10-11.

[9] Wilburn Boat Co. v. Fireman’s Fund Ins. Co., 348 U. S. 310 (1955).

[10] Id. at *13-14.

[11] 543 U.S. 14 (2004).

[12] 139 S. Ct. 986 (2018).

[13] 2024 U.S. LEXIS 996 at *29.