A federal appeals court overturned a lower court’s ruling in a maritime law case on Tuesday, ruling against a Munich Re unit on the question of which state’s law should apply in a case involving a damaged yacht.
A yacht owned by Abington, Pennsylvania-based Raiders Retreat Realty Co., which was insured by Munich Re unit Great Lakes Insurance SE, went aground and sustained at least $300,000 in damage, the 3rd US Circuit ruled Court of Appeals in Philadelphia i Great Lakes Insurance SE v. Raiders Retreat Realty Co. LLC.
Great Lakes filed suit in U.S. District Court in Philadelphia, seeking a declaration that Raiders’ alleged failure to recertify or inspect its firefighting equipment — even though there had been no fire — rendered the policy void ab initio.
The Raiders responded with five counterclaims, including three arising under Pennsylvania law for breach of fiduciary duty, insurance bad faith, and violation of Pennsylvania̵7;s Unfair Trade Practices and Consumer Protection Act.
The district court ruled that the policy’s choice-of-law provision precluded the Raiders’ Pennsylvania law-based counterclaims, dismissed them, and held that New York law should apply.
A three-judge panel overturned the decision, based on maritime law. The district court “needed to consider whether Pennsylvania had a strong public policy that would be thwarted by applying New York law,” it said, vacating the lower court’s decision and remanding the case for further proceedings.
Raiders attorney Shawn M. Rodgers, a Goldstein Law Partner with Goldstein Law Partners LLC in Hatfield, Pennsylvania, said in a statement that the 3rd Circuit ruling “has the potential to change the landscape of marine insurance law.”
He said many insurers, like Great Lakes, “include choice-of-law clauses in their insurance contracts, choosing state laws — such as New York law — that do not recognize separate causes of action for bad faith insurance claims.”
The 3rd Circuit ruling will force insurers like Great Lakes “to face the likelihood that choice-of-law provisions will not protect the insurer from litigating insurance claims in bad faith where such causes of action evidence a ‘strong public policy’ in the forum state,” it said in the statement.
Munich Re lawyers did not respond to a request for comment.