Justices Side With Insurers in Rare Fight Over Yacht Policy

The US Supreme Court ruled in favor of a Munich Re unit against a Pennsylvania yacht owner in a marine insurance dispute, emphasizing the need for predictability in maritime contracts.

The case revolves around a choice of law provision in Raiders Retreat Realty Co.’s policy with Great Lakes Insurance SE. The provision said federal admiralty law would be used to resolve any disputes, with New York state’s insurer-friendly law serving as the backup.

“Choice-of-law provisions in maritime contracts are presumptively enforceable under federal maritime law, with narrow exceptions not applicable here,” the Supreme Court held in a unanimous opinion on Wednesday written by Justice Brett Kavanaugh.

Courts can refuse to apply the provision if it violates public policy. However, the parties disagree over whether federal or state public policy can void the provision. The Supreme Court reversed a Third Circuit decision that said last year that Pennsylvania’s insured-friendly public policy prevents carriers from implementing the choice of law clause.

“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 determinations,” Kavanaugh wrote in the opinion. “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 appealed the case to the US high court, saying the Third Circuit’s approach creates uncertainty by allowing different states to apply their own policies to override maritime contracts.

But Raiders asked the high court to respect that insurance matters are governed by state law. It pointed to the Supreme Court’s 1955 decision in Wilburn Boat Co. v. Fireman’s Fund, which held that state law governs marine insurance contracts when there is no federal law.

The choice of law provision is prevalent in both maritime contracts—used by cruise lines, cargo carriers, and shipbuilding facilities—and marine insurance policies that cover the transportation of goods over land and sea. Key maritime players, from ferry operators to offshore energy and construction companies, have been closely watching the case.

The case stems from a June 2019 accident when Raiders’ yacht ran aground near Fort Lauderdale, Fla., sustaining at least $300,000 in damages.

Great Lakes is represented by Sullivan & Cromwell LLP and The Goldman Maritime Law Group. Raiders is represented by the Law Offices of Howard J. Bashman, Jenner & Block LLP, and Goldstein Law Partners, LLC.

The case is Great Lakes v. Raiders, U.S., 22-500, 2/21/24.