U.S. Supreme Court Grants Writs in Marine Insurance Case
Great Lakes Ins. SE v. Raiders Retreat Realty Co., LLC, 47 F.4th 225 (3rd Cir. 2022), writ granted, 2023 U.S. LEXIS 1078 *, 2023 WL 2357327 (Mar. 6, 2023)
Nearly 70 years have passed since the U.S. Supreme Court has agreed to review a case involving a contract of marine insurance. Its last foray in this maritime field was the famous (or infamous) Wilburn Boat Co. v. Fireman's Fund Insurance Co.[1] in which the Supreme Court declined to enter the arena of “the regulation of marine insurance”[2] and deferred to the states.
Great Lakes applied for writs on two issues:
1. Under federal admiralty law, what is the standard for judging the enforcement of a choice of law clause in a maritime contract?
2. Under federal admiralty law, can a choice of law clause in a maritime contract be rendered unenforceable if enforcement is contrary to the "strong public policy" of the state whose law is displaced?[3]
The Supreme Court granted the writ solely to the second question.
Raiders Retreat Realty Co. insured its yacht with Great Lakes and then filed a claim for after the vessel was damaged due to grounding. Great Lakes denied the claim on the basis that the insured misrepresented “the vessel's fire-suppression system's operating ability…”[4] and maintained that the policy was void ab initio.[5] The loss was not caused by the failure of that equipment.[6] Great Lakes then filed for declaratory judgment. The policy contained a choice of law clause electing New York law as the governing law.[7] The insured[8] countered with 5 counter-claims under Pennsylvania law.[9]
The trial court held in favor of Great Lakes and determined that New York law would apply to the exclusion of Pennsylvania law. On appeal, the Third Circuit panel reversed relying on The Bremen v. Zapata Off-Shore Co.[10] and Carnival Cruise Lines, Inc. v. Shute[11] reasoning that the precedent of those cases applies equally to choice of law clauses as to choice of forum clauses in maritime contracts. Accordingly, the trial court must consider whether the choice of law clause would thwart the strong public policy of the forum state.[12]
Great Lakes then applied for writs on the two issues previously noted. Though the issue is the enforceability of a choice of law clause in any marine contract, the effect of the Court’s ruling will have obvious repercussions on marine insurance. If the Court upholds the Third Circuit, then trial courts will be required to determine if a state has a “strong public policy” regarding the contested legal issue and whether that will be “thwarted” by the choice of law clause.
[1] 348 U.S. 310, 75 S.Ct. 368, 99 L. Ed. 337 (1955).
[2] 348 U.S. at 321.
[3] U.S. S.Ct., No 22-500, Great Lakes Insurance SE v. Raiders Retreat Realty Co., LLC, (Mar. 6, 2023).
[4] Great Lakes Ins. SE v. Raiders Retreat Realty Co., LLC, 47 F.4th 225, 227 (3rd Cir. 2022).
[5] Id.
[6] Id.
[7] “It is hereby agreed that any dispute arising hereunder shall be adjudicated according to well established, entrenched principles and precedents of substantive United States Federal Admiralty law and practice[,] but where no such well established, entrenched precedent exists, this insuring agreement is subject to the substantive laws of the State of New York.” Id. at 228.
[8] Raiders is based in Pennsylvania. Id. at 227.
[9] Id.
[10] 407 U.S. 1, 15, 92 S. Ct. 1907, 32 L. Ed. 2d 513 (1972).
[11] 499 U.S. 585, 588, 111 S. Ct. 1522, 113 L. Ed. 2d 622 (1991).
[12] 47 F.4th 225 at 233.
