Facts
- Raiders Retreat Realty Co., LLC (Raiders), a Pennsylvania business, bought a marine insurance policy from Great Lakes Insurance SE (Great Lakes), a marine insurer organized in Germany and headquartered in the United Kingdom, to cover Raiders’ yacht.
- The policy was a maritime insurance contract and included a choice-of-law provision selecting “well-established principles of federal maritime law” and, where no such principles existed, New York law (often summarized as selecting New York law for disputes).
- Before a renewal, a survey recommended that the yacht carry fire extinguishers; Raiders later certified compliance.
- The renewed policy contained a warranty stating that if the yacht was fitted with fire-extinguishing equipment, the equipment would be properly installed and maintained in good working order.
- In June 2019, the yacht ran aground in Florida, and Raiders submitted an insurance claim.
- Great Lakes denied coverage, asserting that Raiders breached the policy by failing to maintain the yacht’s fire-suppression system.
- Great Lakes sued in the U.S. District Court for the Eastern District of Pennsylvania, seeking a declaratory judgment that Raiders breached the insurance contract and that coverage was unavailable.
- Raiders filed counterclaims invoking Pennsylvania law (including Pennsylvania insurance law) and argued it was entitled to recover.
- Great Lakes responded that the choice-of-law clause required application of federal maritime law and New York law, under which Raiders could not recover on its counterclaims.
- The district court enforced the choice-of-law clause and rejected Raiders’ Pennsylvania-law counterclaims.
- The Third Circuit reversed and remanded, holding the choice-of-law clause was presumptively enforceable but that the presumption could be overcome if applying New York law would violate a strong public policy of Pennsylvania regarding insurance.
- The Supreme Court granted certiorari on whether a maritime choice-of-law clause may be held unenforceable based on the strong public policy of the state whose law would otherwise apply.
Issues
- Under federal maritime law, can a choice-of-law provision in a maritime contract be rendered unenforceable because enforcement is contrary to the strong public policy of the state whose law is displaced?
Decision
- No. The Court held that choice-of-law provisions in maritime contracts are presumptively enforceable under federal maritime law.
- The Court rejected a freestanding “strong public policy of the displaced state” exception as a basis to refuse enforcement of a maritime choice-of-law clause.
- The Court identified only limited, federal-law grounds for nonenforcement, including traditional contract defenses (such as fraud or overreaching) and conflicts with controlling federal statutes or fundamental federal maritime policies; the Court also recognized that the chosen law must have a reasonable basis.
- Because none of the recognized federal exceptions applied, the policy’s choice-of-law provision controlled, requiring use of federal maritime principles and, where needed, New York law.
- The Court reversed the Third Circuit and remanded for further proceedings consistent with enforcing the choice-of-law clause. (Justice Kavanaugh wrote for a unanimous Court; Justice Thomas concurred.)
Legal Principles
- Under federal maritime law, choice-of-law clauses in maritime contracts are presumptively enforceable.
- A court may refuse to enforce such a clause only on narrow federal grounds, including traditional contract-law defenses (e.g., fraud, duress, or overreaching), lack of a reasonable basis for the selection, or conflict with a controlling federal statute or a fundamental federal maritime policy.
- The strong public policy of the state whose law would otherwise apply is not, by itself, an additional basis to invalidate a maritime choice-of-law clause.
- Where an established federal maritime rule governs the enforceability question, state conflicts doctrines do not supply a different test.
Conclusion
Great Lakes Insurance SE v. Raiders Retreat Realty Co. holds that federal maritime law presumptively enforces choice-of-law provisions in maritime contracts and does not allow courts to refuse enforcement solely because the displaced state’s public policy would point to a different result; only narrow federal exceptions and standard contract defenses can defeat the clause, so the policy’s federal-maritime/New York choice-of-law provision governed the dispute.