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The ball is facing the court: US insured may need to judge insurance protection disputes in China



Dicks Sporting Goods ("DSG") sentenced a Chinese insurance company, PICC Property and Casualty Company Limited, Suzhou Branch ("PICC"), seeking coverage under a product liability insurance for personal injury arising from an outbreak bullet. I Dicks Sporting Goods, Inc. v. PICC Prop. & Cas. Co. Ltd. Suzhou Branch No. 2: 16-cv-01635-DSC-RCM (WD Pa, July 28, 2017) found a federal judge in Pennsylvania that an insurance policy's selection clause required DSG to claim its claims in a Chinese court and consequently recommended that DSG's insurance claims be rejected.

Supplier agreements and similar agreements often require suppliers to obtain insurance to protect the buyer from product liability. This view emphasizes the importance of US companies to ensure that such vendors, manufacturers, suppliers or other business partners in the supply chain procure insurance issued in the United States and regulated by US law and that there is no foreign forum selection clause.

In this case, a customer purchased a stability ball manufactured by Dalps & Leisure Products Supply Corporation ("Dalps") from a DSG store in the United States. While the customer was using the stability ball, it exploded to hit its head and lose consciousness. The customer sued DSG for negligence, strict liability and non-warranty, including in the Pennsylvania State Court ("underlying costume").

The PICC had issued an insurance policy that noted Dalps as the insured and identified DSG as an additional insured policy covered claims due to "bodily injury" caused by Dalp's stability balls. PICC failed to respond to DSG's request for coverage for the underlying costume. DSG sued the PICC in the federal court in Pennsylvania and tried to explain that the PICC had a duty to defend and a duty to damage DSG in the underlying suit and claimed that the PICC violates such obligations. PICC moved to reject, claiming that a valid forum selection clause in the insurance policy required DSG to receive the underlying costume in China.

DSG advanced three arguments in response to PICC's movement. First, DSG argued that the forum selection clause did not apply to DSG because the clause concerned only "the insured" and the policy designated DSG as an "extra insured" rather than "the insured". Second, the forum discussed the selection clause was invalid and innocent against DSG because DSG did not negotiate the content of the clause and did not know the clause prior to the trial and because the PICC's conduct is contrary to unfair insurance practice laws. Third, in any case, the PICC waived the selection clause by not negotiating with DSG, which DSG claimed the PICC was required to do under the policy.

The judge dismissed DSG's arguments. While the judge acknowledged that the DSG was an "extra insured" under the policy, DSG was an additional insured legal entity and each of the provisions of the insurance contract relating to DSG, including the forum, selection clause. In addition, since DSG's claims against the PICC were due to the policies of the policy, the fact that DSG did not negotiate or know about the forum selection clause did not affect the enforceability of the clause. Furthermore, the judge considered that there were no requirements for negotiations to occur in order to apply the choice of forum.

The court drafted that federal law adopted forum election clauses valid unless the opposite party bears his burden to show that enforcement of the clause is unreasonable because the clause: (1

) was obtained by fraud or overreach; (2) would violate a strong public policy for the forum where the suit was raised and (3) prescribe a forum that is seriously inconvenient for trial. The court found that DSG did not provide any evidence to suggest that the selection clause was a product of fraud or appeal or that it violated a strong public policy and that DSG failed to meet its burden to show that China would be seriously inconvenient for trials.

This result shows that in order to protect US dealers from having to dispute a potential trial in foreign jurisdiction, they should require that any insurance be procured by their suppliers, manufacturers, suppliers or other business partners to be issued in the United States and governed by US law and to ensure that it does not include a foreign forum selection clause.

If a cross-border insurance dispute arises under a policy that includes a foreign forum choice clause based on the insured, it may still be possible to avoid being subject to a suit in a foreign country. For example, if a policyholder establishes personal jurisdictions in a US court, it may have various arguments at his disposal to show that the forum selection clause is invalid or unattainable through sufficient evidence that the clause was achieved by overreach contrary to a strong public policy of the forum where the action comes and prescribes a forum that is seriously inconvenient for trial. Other arguments may be available based on the specific circumstances of the case and the provisions of the insurance policy.

Retaining experience advisors who help to prepare insurance and compensation claims in contracts with suppliers, suppliers, manufacturers and business partners can help to avoid some of the pitfalls DSG faces in this case. In addition, experienced insurance officers should be consulted to help navigate cross-border insurance claims insured by policyholders, their remuneration, additional insurance, or under a company's business partner's insurance, to ensure that the policyholder is the best position to maximize their insurance assets.


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