WASHINGTON (CN) — The Supreme Court unanimously ruled that federal law should prevail in a maritime contract dispute on Wednesday, siding with a German insurance provider attempting to avoid claims from a boat accident.
The high court agreed with Great Lakes Insurance that longstanding legal precedent held the insurance dispute should be resolved under federal admiralty law or in New York, an insurer-friendly state that was selected as a backup in the insurance contract.
Justice Brett Kavanaugh, a Donald Trump appointee, wrote in the court’s opinion that the so-called choice of law provision clearly applied in the case.
“Choice-of-law provisions in maritime contracts are presumptively enforceable under federal maritime law, with narrow exceptions not applicable here,” Kavanaugh wrote.
One such exception, argued Raiders Retreat Realty Co., applies in situations where enforcing the law of the state — here, New York — would conflict with the public policy of the state that has the “greatest interest in the dispute,” which Raiders said should be Pennsylvania, where the company is based.
The justices rejected that argument, finding it to be a “repackaged version” of Raiders’ initial claim that choice-of-law contracts should be determined by state law.
“A federal presumption of enforceability would not be much of a presumption if it could be routinely swept aside based on 50 states’ public policy determination,” Kavanaugh wrote. “The ensuing disuniformity and uncertainty caused by such an approach would undermine the fundamental purpose of choice-of-law clauses in maritime contracts: uniform and stable rules for maritime actors.”
Great Lakes issued a policy for a yacht owned by Raiders in 2007. The $550,000 contract required the boat to carry fire extinguishers in good working order on board.
Raiders ran the boat aground in 2019, resulting in $300,000 worth of damage. The company filed a claim on the insured yacht, but it was denied. Great Lakes refused to cover the claim because Raiders had lied about updating its fire equipment in 2016, when the company renewed its policy.
Great Lakes relied on a federal admiralty law principle requiring parties in marine insurance to act in good faith. It says Raiders' inaccurate information about the extinguishers was a violation of this good faith and the policy, refusing to cover the claim.
Raiders fought the denial, arguing that Pennsylvania law should prevail, since that is where the company is based. Raiders said Pennsylvania has rules about bad faith denial of insurance claims that would force Great Lakes to cover its claim regardless of the fire equipment, which was not involved in the accident.
Since Great Lakes is based outside of the U.S., its contract with Raiders used federal admiralty law, defaulting to New York law if no federal laws were present. New York does not have the same bad-faith denial rules as Pennsylvania.
In 2021, District Judge Eduardo Robreno sided with Great Lakes, finding that public policy preferences cannot override choice-of-law principles. The Third Circuit then vacated that ruling and Great Lakes appealed to the Supreme Court.
Part of Raiders’ argument relied on the previous Supreme Court decision in Wilburn Boat Co. v. Fireman’s Fund Insurance Co., interpreting the 1955 decision as precluding a uniform federal presumption of enforceability on choice-of law provisions in maritime contracts.
Kavanaugh rejected the argument, writing in his opinion that the case did not involve such a provision and only determined what “substantive rule” applies when a marine insurance contract warranty is breached.
Justice Clarence Thomas, a George H. W. Bush appointee, wrote a concurring opinion to highlight the flaws in the Wilburn Boat decision and how it fundamentally clashes with admiralty law.
The case involved an insurance claim on a small houseboat destroyed by a fire in Texas, where the owner conceded he breached his insurance policy’s warranty expressly limiting the boat's use to private pleasure by carrying passengers for hire.
The insurer denied coverage, pointing to the owner’s warranty breach, to which the owner countered, saying Texas law should apply and that his breach did not justify denying coverage.
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