Forum selection clauses specifying where suits must be brought are becoming much more common in surplus lines. These are often put in place by excess insurers and can cause a lot of extra costs for a policyholder who has to litigate in a remote location.
A recent example is a case where a Napa winery suffered damage in a wildfire and is now being sued by its excess carrier in New York federal court. The complaint alleges:
Mt. Hawley brings this action for a declaratory judgment concerning the rights and obligations of the parties under the terms of a $10 million commercial property insurance policy issued by SMV, policy no. MCP0170029, covering over $10 million in underlying insurance that SMV procured from other insurers. SMV incurred some losses during a forest fire in St. Helena, California, which began on September 27, 2021(the “Glass Fire”). SMV contends that its covered losses from the Glass Fire are sufficient to reach and actually exhaust the coverage under Mt. Hawley’s Excess Policy. Mt Hawley has investigated SMV’s claims, but SMV recently said it would no longer comply with the policy terms or cooperate with the investigation and has accused Mt. Hawley for breach of contract and bad faith for not paying the claim. Mt. Hawley disputes these allegations. Thus, there is an actual, legal controversy regarding Mt. Hawley’s payment obligations, if any, under the terms of the parties’ insurance agreements.
How did a California wildfire dispute end up in a Napa winery in New York federal court? Mt. Hawley had a forum selection clause in the policy, which noted in the complaint:
Mt. Hawley’s excess commercial property policy issued to SMV, discussed more fully below, includes a New York forum selection clause that reads in part:
all named insureds… shall submit to the jurisdiction of a court of competent jurisdiction in the State of New York and shall comply with all requirements necessary to confer jurisdiction on such court… Nothing in this clause constitutes or shall be construed as a waiver of the Company’s right to remove an action to a United States District Court.
The winery is trying to avoid having to litigate in New York because it claims it never received the contract, agreed to the forum selection clause and was unaware of it until after the fire. In its brief against the New York action, the winery noted:
Mt. Hawley has filed a motion to dismiss the California Action on jurisdictional grounds. SMV’s opposition to that motion is based in part on the facts that Mt. Hawley did not disclose to SMV or its agent Arthur J. Gallagher & Co. (“AJG”) that Mt. Hawley’s policy allegedly contained a forum selection clause in New York until after the fire.
The lesson is to analyze post-loss policies for these clauses and others that may provide that the applicable law is another state. We will follow this case as it raises an interesting point – how do you know about the clause in the policy if it is not given to you before the loss occurs?
Men are like wine – some turn to vinegar, but the best improve with age.
— Pope John XXIII