On Monday, March 6, the U.S. Supreme Court agreed to hear a dispute over insurance coverage, Great Lakes Insurance SE v. Raiders Retreat Realty Co., LLC. Insurance cases are few and far between in the Supreme Court, so both policyholders and their insurers will be looking at Great Lakes case of great interest. Notably, while the case concerns the specialized area of maritime law, how the Supreme Court chooses to address the choice-of-law issue it presents could have much broader implications.
The Great Lakes the case prompts the Supreme Court to consider whether the “strong public policy”; of a state where a suit is brought can override the presumptive validity of a choice-of-law provision in a marine insurance contract. However, the firm legal question does not tell the whole story. IN Great Lakesparties dispute whether the choice-of-law clause of a shipowner’s policy governs the state law applicable to the shipowner’s extracontractual “bad faith” claim against its insurer, which refused to pay damages after a vessel foundered. . Different states apply very different legal standards for determining whether an insurer denied coverage in bad faith, and determining which state’s law applies can be critical to the outcome. Here, the insurer says the policy’s choice-of-law provision (which favors New York law) is unenforceable under federal maritime law and invalidates the policyholder’s bad faith claims under Pennsylvania law. The shipowner disagrees, arguing that Pennsylvania, the state in which the coverage case is filed, has a “strong public policy” of holding insurers liable for their bad faith conduct, making New York’s choice-of-law provision unenforceable. Both sides rely on various long-standing Supreme Court maritime law precedents for their respective positions.
The insurer asked the Supreme Court to take it Great Lakes case on appeal from the Third Circuit, which sided with the shipowner that the maritime choice-of-law provision would have to give way if the forum state “Pennsylvania has a strong public policy that would be thwarted by applying New York law.” In its decision, the Third Circuit also referred to the “more intriguing argument” that the choice-of-law provision in the Marine Insurance Policy, even if valid, did not unambiguously dictate that New York law applied to the shipowner’s extra-contractual-bad-faith claims. However, the Third Circuit declined to reach the ambiguity issue, because the policyholder had not raised it in the district court case.
How the Supreme Court addresses the choice of law issue here could have significant implications not only for maritime cases going forward, but also for other disputes over choice of law provisions. On the one hand, the court could narrowly conclude that federal maritime law maintains choice-of-law rules for both contractual and extra-contractual claims, regardless of any conflicts with forum state law. That ruling can be limited to the maritime legal space. Alternatively, however, the court could decide, as did the Third Circuit, that a choice-of-law provision cannot be used to defeat the public policy of the forum state, particularly in the context of insurance claims that depend on state law. This latter approach, although within the framework of maritime law i Great Lakes, would undoubtedly encourage parties to challenge the application of conflict-of-law rules in a variety of insurance disputes. As a result, court watchers predict that both policyholders and insurance groups will seek permission to present amicus arguments to the court supporting their respective views.