WASHINGTON — The Supreme Court on Tuesday took up a rare case involving maritime law that could increase state or policyholder power over the federal law that historically governs maritime disputes.
Maritime insurance contracts are governed by federal admiralty law, which authorizes the federal judiciary to decide the law for maritime contracts. But the Supreme Court has relied on state laws when there has been no federal statute or precedent.
The case, Great Lakes Insurance SE v. Raiders Retreat Realty Co., LLC, considers if a so-called choice-of-law clause in a maritime contract can be voided if a state has “strong public policy” objections.
“If the court rejects the policyholders, it will possibly elevate admiralty law as a source of jurisdiction and suggest that the strong policy of the state can’t interfere with it,” David Klein, a lawyer for the law firm Pillsbury, said in an interview. “I think that would be a bit of a realignment compared to the current state of the law.”
Klein, who has resolved insurance coverage disputes throughout his career, added that insurance companies engaging in maritime disputes could have less control over the forum of those disputes and the laws that apply if the Supreme Court rules in favor of a state’s “strong public policy” objections.
In 2019, a yacht owned by Raiders Retreat Realty Co. ran aground, incurring damages of around $330,000. The yacht had been insured by Great Lakes Insurance, a United Kingdom-based company, for around $500,000.
Although no damage occurred as a result of any fire, Great Lakes Insurance SE, or GLISE, rejected Raiders Retreat Realty’s claim on the grounds that the company failed to timely recertify or inspect the yacht’s fire-extinguishing equipment.
Under a “choice-of-law” clause, GLISE decided to apply New York law to the case rather than the laws of Pennsylvania, where Raiders is based. But the U.S. Court of Appeals for the Third Circuit concluded last year that a 1972 Supreme Court case should apply when deciding whether Pennsylvania has a strong public policy objection that could void GLISE’s choice-of-law clause.
The 1972 case, The Bremen v. Zapata Off-Shore Co., determined that maritime choice-of-law clauses must be enforced but made an exception if that enforcement would violate “a strong public policy of the forum in which the suit is brought.” The arguments on Tuesday before the Supreme Court largely centered on the 1972 case and whether it applies to the yacht claim.
Jeffrey Wall, the lawyer representing GLISE, argued before the justices that “almost all federal courts” have held that choice-of-law clauses in maritime contracts are enforceable by federal law. He added a decision to void the choice-of-law clause in this maritime contract could create confusion among states.
“For instance, you could have a Florida district court asking whether Pennsylvania has a fundamental public policy sufficient to overcome the application of New York law,” Wall said. “The answer to that would almost always be hazy, and that lack of clarity would disservice the admiralty world and admiral courts.”
When pressed by Justice Elena Kagan on whether the 1955 case Wilburn Boat Company v. Fireman’s Fund Insurance Co. applied, Wall responded he did not believe so. The Wilburn Boat case — which established marine insurance contracts are subject to state law if there isn’t an established federal admiralty rule — did not override the decisions that followed, like the Bremen case, he said.
Wall later added that none of the related cases emphasized state law and therefore did not represent solid ground in favor of a state’s strong public policy.
“I have everything on my side except the decision from the court,” Wall said.
Howard Bashman, who represented Raiders, argued that state law applies under the Wilburn Boat decision, which he contends indicates that strong public policy is an overriding interest.
“The fundamental public policy of the state with the greatest connection to the dispute can override the contractual choice-of-law provision, selecting the law of another state,” he said.
When pressed by Justices Clarence Thomas and Brett Kavanaugh as to the relevance of Bremen, Bashman responded that the case did not involve insurance disputes, unlike the Wilburn Boat case, and therefore was not relevant.
Multiple justices, however, expressed skepticism during Bashman’s argument. Justices Ketanji Brown Jackson and Amy Coney Barrett suggested they were confused by his position on whether there was a federal policy relating to the enforceability of choice-of-law clauses in maritime contracts.
In response, Bashman said he does not believe such a federal policy exists and continued to state so throughout the remainder of his argument.
“There’s generally no federal policy that would support overcoming a choice-of-law provision in the maritime insurance context,” he said. “Again, I lay that at the feet of Wilburn Boat.”
The Supreme Court’s decision will be released before its term ends next June.