The US Supreme Court Monday agreed to hear a Great Lakes Insurance SE v. Raiders Retreat Realty Co., LLC, which asks the court to determine whether a choice of law clause in a maritime contract can be deemed unenforceable due to “strong public policy.” While this case looks at choice of law in maritime contracts only, the court’s decision could have broader effects on contract law in the future, specifically with choice of law provisions.
Great Lakes Insurance, originates from an insurance dispute over a maritime vessel. The choice of law issue concerns whether Pennsylvania or New York law should be applied to settle the dispute.
Originally, Raiders Retreat Realty filed the insurance policy with Great Lakes Insurance to cover “all risks” for physical damage to their maritime vessel. After a 2019 accident involving the insured vessel, Great Lakes Insurance performed an inspection to determine damages. Upon inspection, Great Lakes Insurance discovered that the fire extinguishers on board the vessel were not properly certified and tagged, which—per their contract—voided any coverage that would have been granted.
Raiders Retreat Realty filed a counterclaim for bad faith breach of contract and breach of fiduciary duty under Pennsylvania law. Great Lakes Insurance countered, citing their original contract stating that any contract disputes must be brought under federal law. If no relevant law was available, the contract said New York law was to apply.
Typically, when a contract states choice of law and both parties consent, the court upholds this choice. Going against the precedent, however, the US Court of Appeals for the Third Circuit ruled that a choice of law contract “might not be enforceable if its election for New York law were contrary to the ‘strong public policy’ of the displaced state, Pennsylvania.”
In their appeal to the US Supreme Court, Great Lakes Insurance argues that the lower court’s decision should be reversed because it places value on state choice of law rules over federal rules. Great Lakes Insurance argues that this violates both judicial precedent and the Supremacy Clause of the Constitution.