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Maritime insurers will face increased certainty and less litigation surrounding choice-of-law provisions following a recent Supreme Court decision.
In Great Lakes Ins. SE v. Raiders Retreat Realty Co., LLC, the Supreme Court held that choice-of-law provisions in maritime contracts are presumptively enforceable under federal maritime law subject to limited narrow exceptions. The Court declined to extend those exceptions. 217 L.Ed.2d 401 (U.S. 2024). While choice-of-law provisions have long been recognized as presumptively enforceable in maritime contracts, the defendant in Great Lakes sought an additional exception by arguing that the presumption should not apply where enforcing the law of the state designated by the contract would contravene the public policy of the state with the greatest interest in the dispute. Id. at 412. In a big win for insurers, the Court rejected that exception and found that “such an approach would undermine the fundamental purpose of choice-of-law clauses in maritime contracts: uniform and stable rules for maritime actors.” Id.
The Court clarified the applicable limited exceptions: (1) where the law of the selected forum would contravene a controlling federal statute or conflict with established federal maritime policy; or (2) when the parties could furnish no reasonable basis for the chosen jurisdiction. Id. at 411-12. However, the Court advised that substantial deference should be given to the contracting parties when applying the “no reasonable basis” exception to a choice-of-law provision’s enforceability and expressed approval for choosing jurisdictions simply because their laws are “well developed, well known, and well regarded.”
In light of the Court’s holding that maritime contract choice-of-law provisions are presumptively valid, with substantial deference given to the contracting parties’ chosen jurisdiction, insurers should note the opportunity to gain a competitive advantage even before litigation commences by including a favorable choice of law in the policy.
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