The U.S. Supreme Court recently made a landmark decision that choice-of-law provisions in marine insurance contracts are presumptively enforceable. This ruling in the case of Great Lakes Insurance SE v. Raiders Retreat Realty Co. is expected to reduce legal uncertainty and discourage forum shopping, thereby saving marine insurers significant legal fees and promoting more conducive environments for settlement, according to Kennedys writing in JD Supra.

Great Lakes Insurance SE had issued a marine insurance policy to Raiders Retreat Realty Co., a Pennsylvania company. The policy covered a yacht owned by Raiders and stipulated that New York law would govern any disputes arising under the contract. After the insured vessel ran aground in Florida, Great Lakes denied coverage for Raider’s claim, citing that the yacht’s fire suppression system had not been maintained as required by the policy.

Raiders sued for declaratory relief in the U.S. District Court for the Eastern District of Pennsylvania, pushing for the application of Pennsylvania law to the contractual dispute. The company believed that under Pennsylvania law, its failure to maintain the fire suppression system would not void the insurance contract. Conversely, Great Lakes sought the application of New York law as provided for in the insurance policy, which would void coverage in the event of a breach of warranty regardless of its relation to the insurance claim at issue.

The U.S. District Court rejected Raider’s claims, reasoning that federal maritime law found choice-of-law provisions presumptively valid. The 3rd U.S. Circuit Court of Appeals upheld this decision but added that such provisions must yield to a strong public policy of the forum state. The case was remanded to the District Court to consider whether the application of New York law would violate Pennsylvania public policy. The U.S. Supreme Court then granted certiorari to address the enforceability of choice-of-law provisions in maritime contracts.

In a unanimous decision, the Supreme Court held that choice-of-law provisions in maritime contracts are presumptively enforceable under maritime law, subject only to narrow exceptions. The Court rejected Raiders’ argument that the policy’s choice of law provision must yield to the strong public policy of the state in which the suit was brought, noting that such an approach would destroy the uniformity in maritime law.

Scorecard: The U.S. Supreme Court’s decision upholds the enforceability of choice-of-law provisions in marine insurance contracts, thereby reducing legal uncertainty and discouraging forum shopping. This ruling is expected to save marine insurers significant legal fees and promote more conducive environments for settlement.

Takeaway: The decision underscores the importance of clearly defined choice-of-law provisions in marine insurance contracts. It also highlights the need for insurers to carefully consider the implications of these provisions when drafting and negotiating contracts. &

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