The Supreme Court agreed on March 6 to take up an appeal by an insurance company that refused to cover non-fire damage to a yacht after it ran aground while carrying a fire extinguishing system whose inspection had lapsed.
The case is Great Lakes Insurance SE v. Raiders Retreat Realty Co. LLC, court file 20-500.
Great Lakes Insurance SE, a German corporation, is a wholly owned subsidiary of Munich Reinsurance Company. Raiders Retreat Realty Co. LLC is based in Pennsylvania.
The case goes back to 2019 when a yacht owned by Raiders Retreat Realty Co. ran aground, experiencing several hundred thousand dollars worth of damage. Although the damage was not caused by fire, the insurer, Great Lakes, refused to cover the damage because the yacht’s fire suppression equipment had not been inspected or recertified on time. Great Lakes sought a declaration in federal district court in Philadelphia that the insurance policy was invalid and Raiders filed five counterclaims against Great Lakes, according to a SCOTUSblog summary.
The insurance policy contained a choice-of-law provision indicating that the policy should be interpreted according to New York law. This led the federal district court to dismiss three of the counterclaims that were based on the laws of Pennsylvania.
But the U.S. Court of Appeals for the 3rd Circuit went the other way, finding that under U.S. admiralty law the forum selection provision in the policy cannot be enforced if doing so “would contravene a strong public policy of the forum in which suit is brought.” Admiralty law, also known as maritime law, is the body of law that governs shipping and navigation.
The district court should have considered whether Pennsylvania “has a strong public policy that would be thwarted by applying New York law,” the 3rd Circuit ruled. The case was remanded to the district court.
Raiders attorney Shawn M. Rodgers said the 3rd Circuit ruling “has the potential to change the landscape in the context of maritime insurance law,” trade publication Business Insurance reported Aug. 31, 2022.
Many insurers, including Great Lakes, “include choice of law provisions in their insurance contracts, selecting state law–such as New York law–that does not recognize separate causes of action for bad faith insurance claims.”
The circuit court ruling will compel insurers such as Great Lakes “to face the likelihood that choice-of-law provisions will not shield the insurer from litigating bad faith insurance claims, where such causes of action evidence a ‘strong public policy’ of the forum state,” Rodgers reportedly said.
Great Lakes filed a petition with the Supreme Court on Nov. 23, 2022.
In the new decision, the high court granted the petition in an unsigned order that did not explain why the justices agreed to hear the case.
The issue to be decided, according to the court, is whether, “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?”
This legal uncertainty has followed the Supreme Court’s 1955 decision in Wilburn Boat Co. v. Fireman’s Fund Insurance Co. that “threw the law of marine insurance into chaos.”
“Although Wilburn Boat clearly establishes that federal admiralty law is supreme, as it must be under the Supremacy Clause, the practical result has been that venerable marine insurance doctrines … have suffered constant erosion, with federal law constantly ceding ground to encroaching state law.”
“The uncertainty caused by Wilburn Boat means that every case turns into a choice of law battle as the marine insurer attempts to defend these venerable doctrines, which it has relied upon when evaluating risk and setting premium[s], and the disgruntled insured, with the active assistance of encroaching state law [and] attempts to undermine them and to replace them with more favorable state law,” the petition stated.
The Epoch Times reached out to counsel of record for the insurance company, Michael I. Goldman of the Goldman Maritime Law Group, and in an email he replied, “No comment.”
The Epoch Times also asked counsel of record for the realty company, Howard Jonathan Bashman, for comment, but he failed to reply as of press time.
The Supreme Court is expected to hear the case in its new term that begins in October.
