Great Lakes Insurance SE v. Raiders Retreat Realty Co., LLC
On February 21, 2024, the U.S. Supreme Court (the “Court”) decided on Great Lakes Insurance SE v. Raiders Retreat Realty Co., LLC.[1] The Court held that choice-of-law provisions in maritime contracts are presumptively enforceable under federal maritime law with limited exceptions that were not applicable in this particular case.
Raiders Retreat Realty Co., LLC (“Raiders”), a Pennsylvania limited liability company, insured a yacht for up to $550,000 with Great Lakes Insurance SE (“Great Lakes”), a German insurer headquartered in the United Kingdom.[2] The underlying insurance contract had a choice-of-law provision, selecting United States federal admiralty law and, where such federal admiralty law did not exist, New York law. In June 2019, the yacht ran aground in Florida. Raiders submitted a claim to Great Lakes, but Great Lakes denied coverage asserting that Raiders breached the insurance contract by failing to maintain the yacht’s fire-suppression system.[3]
Great Lakes sued Raiders in the United States District Court for the Eastern District of Pennsylvania. Great Lakes asked the District Court for a declaratory judgment that Raider’s negligence in upkeeping the yacht’s fire-suppression system rendered the policy void. Raiders raised several counterclaims based on Pennsylvania law. The District Court dismissed those counterclaims, finding that the policy’s choice-of-law provision required the application of New York law.[4]
Raiders argued that there is no established federal maritime rule governing the enforceability of choice-of-law provisions. Raiders claimed that the Court’s decision in Wilburn Boat Co. v. Fireman’s Fund Ins. Co.[5] precludes a uniform federal presumption of enforceability for choice-of-law provisions in maritime contracts, and that federal courts should assess choice-of-law provisions under state law.[6] The Court rejected this argument stating that Wilburn Boat did not involve a choice-of-law provision, but Wilburn Boat simply determined that state law applied as a gap-filler in the absence of a uniform federal maritime rule on a warranty issue in a marine insurance contract.[7]
The issue before the Court was whether choice-of-law provisions in maritime contracts are unenforceable if enforcement would conflict with “strong public policy” of the state whose law is displaced.[8] In order to answer this question, the Court quickly addressed the issue of whether there exists an established federal maritime rule regarding the enforceability of choice-of-law provisions in maritime contracts.[9] The Court determined that long-standing precedent[10] establishes a federal maritime rule that choice-of-law provisions in maritime contracts are presumptively enforceable and that the narrow exception to the presumption did not apply to the case before it. These narrow exceptions exist (i) when enforcing the choice-of-law provision would contravene a controlling federal statute or would conflict with an established federal maritime policy; or (ii) when parties have no reasonable basis for the chosen jurisdiction.[11]
Raiders wanted the Court to recognize an additional exception to the presumptive enforceability that the Court found lacked “historical roots.”[12] Raiders asserted that the choice-of-law provision should not be enforced where the law of the designated state contravenes “strong public policy” of the state with the greatest interest in the dispute.[13] The Court found that this approach proposed by Raiders would result in disuniformity and uncertainty.[14] The Court also disagreed with Raiders’s argument that the choice-of-law provision was unenforceable under the Court’s ruling in The Bremen v. Zapata Off-Shore Co.,[15] which held that under federal admiralty law, a forum-selection provision should be held unenforceable “if enforcement would contravene a strong public policy of the forum in which suit is brought” referring to conflicts between federal maritime law and a foreign country’s law.[16] The Court found that Bremen did control, but Raiders’s interpretation of Bremen was incorrect. Bremen was referring to “the possibility of a conflict between federal maritime law and a foreign country’s law,”[17] and state law was not relevant to the Bremen decision.
A choice of law provision identifying the law that will apply in adjudicating claims brought under the contract is not given much attention until there is a dispute but it can have a material impact on how a contract is interpreted and enforced, especially where the parties to a contract are from different jurisdictions. Great Lakes v. Raiders solidifies the maritime rule that choice-of-law provisions in maritime contracts are presumptively valid and enforceable. The Court’s decision compels courts to prioritize uniformity of law[18] over state sovereignty in cases where federal maritime laws and rules are well-established.
[1] Great Lakes Ins. SE v. Raiders Retreat Realty Co., LLC, 601 U.S. 65, 144 S. Ct. 637 (2024).
[2] Great Lakes Ins. SE v. Raiders Retreat Realty Co., LLC, 47 F.4th 225 (3d Cir. 2022), cert. granted in part sub nom. Great Lakes Ins. SE v. Raiders Retreat Realty Co., LLC, 143 S. Ct. 999, 215 L. Ed. 2d 137 (2023), and rev’d, 601 U.S. 65, 144 S. Ct. 637 (2024).
[3] Id.
[4] Great Lakes Ins. SE v. Raiders Retreat Realty Co., LLC, 521 F. Supp. 3d 580 (E.D. Pa. 2021), vacated and remanded, 47 F.4th 225 (3d Cir. 2022), rev’d, 144 S. Ct. 637 (2024).
[5] Wilburn Boat Co. v. Fireman’s Fund Ins. Co., 348 U.S. 310, 75 S. Ct. 368, 99 L. Ed. 337 (1955).
[6] Great Lakes Ins. SE v. Raiders Retreat Realty Co., LLC, 601 U.S. 65, 144 S. Ct 637 (2024).
[7] Id.
[8] Id.
[9] Id.
[10] See Liverpool & Great Western Steam Co. v. Phenix Ins. Co., 129 U.S. 397, 458 (1889); See also, The Kensington, 183 U.S. 263, 269 (1902). Courts of Appeals have held that choice-of-provisions in maritime contracts are presumptively enforceable under federal maritime law. See Great Lakes Ins. SE v. Wave Cruiser LLC, 36 F. 4th 1346, 1353–54 (11th Cir. 2022); Great Lakes Reins.(UK) PLC v. Durham Auctions, Inc., 585 F. 3d 236, 242–43 (5th Cir. 2009); Triton Marine Fuels Ltd., S. A. v. M/V Pacific Chukotka, 575 F. 3d 409, 413 (4th Cir. 2009); Chan v. Soc’y Expeditions, Inc., 123 F. 3d 1287, 1296–97 (9th Cir. 1997); Milanovich v. Costa Crociere, S.p.A., 954 F. 2d 763, 768 (D.C. Cir. 1992).
[11] Great Lakes Ins. SE v. Raiders Retreat Realty Co., LLC, 601 U.S. 65, 144 S. Ct. 637, 646 (2024).
[12] Id. at 647.
[13] Id.
[14] Id.
[15] M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S. Ct. 1907, 32 L. Ed. 2d 513 (1972).
[16] Great Lakes Ins. SE v. Raiders Retreat Realty Co., LLC, 601 U.S. 65, 144 S. Ct. 637, 647 (2024) (quoting M/S Bremen v. Zapata Off-Shore Co., 407 U.S. at 15).
[17] Great Lakes Ins. SE v. Raiders Retreat Realty Co., LLC, 601 U.S. 65, 144 S. Ct. 637, 647 (2024).
[18] The uniform federal “presumption of enforceability for choice-of-law provisions in maritime contracts facilitates maritime commerce by reducing uncertainty and lowering costs for maritime actors.” Id. at 643.
Vedder Thinking | Articles Great Lakes Insurance SE v. Raiders Retreat Realty Co., LLC
April 30, 2024
On February 21, 2024, the U.S. Supreme Court (the “Court”) decided on Great Lakes Insurance SE v. Raiders Retreat Realty Co., LLC.[1] The Court held that choice-of-law provisions in maritime contracts are presumptively enforceable under federal maritime law with limited exceptions that were not applicable in this particular case.
Raiders Retreat Realty Co., LLC (“Raiders”), a Pennsylvania limited liability company, insured a yacht for up to $550,000 with Great Lakes Insurance SE (“Great Lakes”), a German insurer headquartered in the United Kingdom.[2] The underlying insurance contract had a choice-of-law provision, selecting United States federal admiralty law and, where such federal admiralty law did not exist, New York law. In June 2019, the yacht ran aground in Florida. Raiders submitted a claim to Great Lakes, but Great Lakes denied coverage asserting that Raiders breached the insurance contract by failing to maintain the yacht’s fire-suppression system.[3]
Great Lakes sued Raiders in the United States District Court for the Eastern District of Pennsylvania. Great Lakes asked the District Court for a declaratory judgment that Raider’s negligence in upkeeping the yacht’s fire-suppression system rendered the policy void. Raiders raised several counterclaims based on Pennsylvania law. The District Court dismissed those counterclaims, finding that the policy’s choice-of-law provision required the application of New York law.[4]
Raiders argued that there is no established federal maritime rule governing the enforceability of choice-of-law provisions. Raiders claimed that the Court’s decision in Wilburn Boat Co. v. Fireman’s Fund Ins. Co.[5] precludes a uniform federal presumption of enforceability for choice-of-law provisions in maritime contracts, and that federal courts should assess choice-of-law provisions under state law.[6] The Court rejected this argument stating that Wilburn Boat did not involve a choice-of-law provision, but Wilburn Boat simply determined that state law applied as a gap-filler in the absence of a uniform federal maritime rule on a warranty issue in a marine insurance contract.[7]
The issue before the Court was whether choice-of-law provisions in maritime contracts are unenforceable if enforcement would conflict with “strong public policy” of the state whose law is displaced.[8] In order to answer this question, the Court quickly addressed the issue of whether there exists an established federal maritime rule regarding the enforceability of choice-of-law provisions in maritime contracts.[9] The Court determined that long-standing precedent[10] establishes a federal maritime rule that choice-of-law provisions in maritime contracts are presumptively enforceable and that the narrow exception to the presumption did not apply to the case before it. These narrow exceptions exist (i) when enforcing the choice-of-law provision would contravene a controlling federal statute or would conflict with an established federal maritime policy; or (ii) when parties have no reasonable basis for the chosen jurisdiction.[11]
Raiders wanted the Court to recognize an additional exception to the presumptive enforceability that the Court found lacked “historical roots.”[12] Raiders asserted that the choice-of-law provision should not be enforced where the law of the designated state contravenes “strong public policy” of the state with the greatest interest in the dispute.[13] The Court found that this approach proposed by Raiders would result in disuniformity and uncertainty.[14] The Court also disagreed with Raiders’s argument that the choice-of-law provision was unenforceable under the Court’s ruling in The Bremen v. Zapata Off-Shore Co.,[15] which held that under federal admiralty law, a forum-selection provision should be held unenforceable “if enforcement would contravene a strong public policy of the forum in which suit is brought” referring to conflicts between federal maritime law and a foreign country’s law.[16] The Court found that Bremen did control, but Raiders’s interpretation of Bremen was incorrect. Bremen was referring to “the possibility of a conflict between federal maritime law and a foreign country’s law,”[17] and state law was not relevant to the Bremen decision.
A choice of law provision identifying the law that will apply in adjudicating claims brought under the contract is not given much attention until there is a dispute but it can have a material impact on how a contract is interpreted and enforced, especially where the parties to a contract are from different jurisdictions. Great Lakes v. Raiders solidifies the maritime rule that choice-of-law provisions in maritime contracts are presumptively valid and enforceable. The Court’s decision compels courts to prioritize uniformity of law[18] over state sovereignty in cases where federal maritime laws and rules are well-established.
[1] Great Lakes Ins. SE v. Raiders Retreat Realty Co., LLC, 601 U.S. 65, 144 S. Ct. 637 (2024).
[2] Great Lakes Ins. SE v. Raiders Retreat Realty Co., LLC, 47 F.4th 225 (3d Cir. 2022), cert. granted in part sub nom. Great Lakes Ins. SE v. Raiders Retreat Realty Co., LLC, 143 S. Ct. 999, 215 L. Ed. 2d 137 (2023), and rev’d, 601 U.S. 65, 144 S. Ct. 637 (2024).
[3] Id.
[4] Great Lakes Ins. SE v. Raiders Retreat Realty Co., LLC, 521 F. Supp. 3d 580 (E.D. Pa. 2021), vacated and remanded, 47 F.4th 225 (3d Cir. 2022), rev’d, 144 S. Ct. 637 (2024).
[5] Wilburn Boat Co. v. Fireman’s Fund Ins. Co., 348 U.S. 310, 75 S. Ct. 368, 99 L. Ed. 337 (1955).
[6] Great Lakes Ins. SE v. Raiders Retreat Realty Co., LLC, 601 U.S. 65, 144 S. Ct 637 (2024).
[7] Id.
[8] Id.
[9] Id.
[10] See Liverpool & Great Western Steam Co. v. Phenix Ins. Co., 129 U.S. 397, 458 (1889); See also, The Kensington, 183 U.S. 263, 269 (1902). Courts of Appeals have held that choice-of-provisions in maritime contracts are presumptively enforceable under federal maritime law. See Great Lakes Ins. SE v. Wave Cruiser LLC, 36 F. 4th 1346, 1353–54 (11th Cir. 2022); Great Lakes Reins.(UK) PLC v. Durham Auctions, Inc., 585 F. 3d 236, 242–43 (5th Cir. 2009); Triton Marine Fuels Ltd., S. A. v. M/V Pacific Chukotka, 575 F. 3d 409, 413 (4th Cir. 2009); Chan v. Soc’y Expeditions, Inc., 123 F. 3d 1287, 1296–97 (9th Cir. 1997); Milanovich v. Costa Crociere, S.p.A., 954 F. 2d 763, 768 (D.C. Cir. 1992).
[11] Great Lakes Ins. SE v. Raiders Retreat Realty Co., LLC, 601 U.S. 65, 144 S. Ct. 637, 646 (2024).
[12] Id. at 647.
[13] Id.
[14] Id.
[15] M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S. Ct. 1907, 32 L. Ed. 2d 513 (1972).
[16] Great Lakes Ins. SE v. Raiders Retreat Realty Co., LLC, 601 U.S. 65, 144 S. Ct. 637, 647 (2024) (quoting M/S Bremen v. Zapata Off-Shore Co., 407 U.S. at 15).
[17] Great Lakes Ins. SE v. Raiders Retreat Realty Co., LLC, 601 U.S. 65, 144 S. Ct. 637, 647 (2024).
[18] The uniform federal “presumption of enforceability for choice-of-law provisions in maritime contracts facilitates maritime commerce by reducing uncertainty and lowering costs for maritime actors.” Id. at 643.
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