In Wednesday’s ruling in Great Lakes Insurance v. Raiders Retreat Realty, the Supreme Court delivered a decision that was largely anticipated by those familiar with last fall’s oral arguments. The bench’s skepticism during the oral argument hinted at their reluctance to uphold a lower court decision that could introduce uncertainty into maritime insurance contracts by limiting the enforcement of choice-of-law clauses. Justice Brett Kavanaugh, writing for a unanimous court, unequivocally rejected this notion, emphasizing the importance of predictable enforcement of such clauses.
To provide context, commercial contracts often contain provisions specifying the jurisdiction for litigation (forum-selection clauses) and the governing law (choice-of-law clauses). In this case, a European insurance company insured a yacht owned by a Pennsylvania company, with the contract stipulating the application of New York law. The dispute arose because applying Pennsylvania law, as favored by Raiders Retreat Realty, would subject the insurer, Great Lakes Insurance, to a tort action not permitted under New York law.
Kavanaugh’s opinion begins by highlighting the constitutional basis underpinning the creation and application of maritime law by federal courts. He underscores the need for a uniform system of maritime law across the country. In the absence of established federal maritime rules, federal courts either create uniform maritime rules or apply state law.
According to Kavanaugh, there is an established federal maritime rule regarding the enforceability of choice-of-law provisions. While the Supreme Court has not directly addressed this issue recently, Kavanaugh points to legal precedent, including leading treatises and decisions from federal courts of appeals. He particularly emphasizes two significant decisions enforcing maritime forum-selection clauses, which he deems analogous to choice-of-law clauses.
Kavanaugh dismisses the precedential force of Wilburn Boat Co. v. Fireman’s Insurance Co., a 1955 decision cited by the yacht owner. He argues that this case is irrelevant because it did not involve a choice-of-law provision but rather addressed a different substantive issue in maritime insurance contracts.
The opinion concludes with Kavanaugh emphasizing the importance of enforcing choice-of-law provisions in maritime contracts. He asserts that such provisions facilitate maritime commerce by reducing uncertainty and costs for maritime actors, including marine insurers.
In summary, the Supreme Court’s ruling in Great Lakes Insurance v. Raiders Retreat Realty reaffirms the significance of choice-of-law clauses in maritime contracts and underscores the need for predictable enforcement to promote maritime commerce.