The United States Supreme Court is due to assess a case central to the enforceability of choice-of-law clauses in maritime insurance contracts; Great Lakes Insurance v. Raiders Retreat Realty. The case falls under the admiralty power of federal courts, which allows the creation of a federal common law for maritime contracts. This law, a long-standing fixture since the 1950s, leverages state law to bridge gaps in maritime law currently lacking a federal statute or overriding federal precedent. Read more about the case here.
The case concerns whether the rules for enforcing the choice-of-law clause in a maritime contract fall within one of these identified ‘gaps’. The case’s core disagreement originates from a maritime insurance contract between Great Lakes, a foreign insurance company, and Raiders, a Pennsylvania company, that insured Raiders’ yacht. The contract specified federal admiralty law, or in the absence of any controlling federal law, the law of the State of New York.
When an insurance claim was denied by Great Lakes after the yacht ran aground in 2019, Raiders argued for their right of recovery using Pennsylvania’s rules surrounding bad-faith denial of insurance claims – something unavailable under New York law. Addressing the choice-of-law clause ultimately determines the dismissal or proceeding of Raiders’ claim. If the court enforces this clause, New York law will dismiss the claim. However, if Pennsylvania’s public policy warrants rejecting the choice-of-law clause, Raiders can pursue its claim against Great Lakes under Pennsylvania law. Additional details can be found here.
The case presents an interesting dichotomy; Great Lakes asserts the case is entirely federal, arguing the absence of legislation mandates that any policy justifying rejection of a choice-of-law clause has to be federal. Raiders, however, argue that the justices should default to state law due to there being no existing federal answer, with Pennsylvania law having precedence.
This is further complicated by the potential inclusion of Section 187 of the Restatement (Second) of Conflict of Laws. This offers a viable solution for assessing the enforceability of maritime choice-of-law clauses, with both parties not objecting to its application. However, their positions differ slightly; Great Lakes believes that in order to overcome the contract’s choice of law, a fundamental federal policy is needed, whereas Raiders contend this policy should come from the state where the case is pending. Insights from two law professors can be viewed here.
The case could set critical precedents for future maritime insurance contracts, especially concerning the tension between the predictable enforcement of choice-of-law clauses and the policy of the forum, a state which seems to have a policy undermining contract enforcement.