IN A UNANIMOUS DECISION THAT IS VERY SIMILAR TO NELF’S AMICUS BRIEF, THE UNITED STATES SUPREME COURT RULES THAT, UNDER FEDERAL MARITIME LAW, CHOICE-OF-LAW CLAUSES CONTAINED IN MARINE INSURANCE POLICIES ARE PRESUMPTIVELY ENFORCEABLE, AND THAT THE COMPETING PUBLIC POLICY CONCERNS OF OTHER STATES CANNOT INTERFERE WITH THIS RULE OF FEDERAL MARITIME LAW.
In his Supreme Court amicus brief for NELF, Ben argued, on behalf of the marine insurance company, Great Lakes Insurance SE, that a federal court sitting in admiralty should enforce a choice-of-law clause contained in a maritime contract without considering the competing public policy concerns of another state interested in applying its law to the dispute. The federal interest in a harmonious system of maritime commerce, advanced through the uniform enforcement of parties’’pre-dispute contract clauses, should outweigh the local interests of third-party states with connections to the parties’ dispute.
This case involved a marine insurance policy. While the policy falls under federal maritime law, the Court in Wilburn Boat Co. v. Firemans Fund Ins. Co., 348 U.S. 310 (1955), held that such a policy is governed by state insurance law, in the absence of an established rule of admiralty law governing the underlying dispute. In essence, the Court in Wilburn Boat concluded that the federal interest in the uniform interpretation of maritime contracts must yield to the states’ traditional regulation of the insurance industry. The Court also concluded that it lacked the institutional competence to regulate marine insurance, by issuing rules of decision on a case-by-case basis.
However, Wilburn Boat’s twin concerns of federalism and institutional competence do not apply to a choice-of-law clause contained in a marine insurance contract. First, the clause is not part of substantive insurance law. Instead, it resolves the threshold issue, created by Wilburn Boat itself, as to which state’s law will apply to parties’ insurance disputes. Second, the enforcement of choice-of-law clauses has long been the subject of judicial rule-making. Therefore, Wilburn Boat should not impede the fashioning of a rule of admiralty law to ensure the uniform enforcement of choice-of-law clauses contained in marine insurance policies.
Wilburn Boat did not provide any guidance in how to decide which state’s law would apply to future marine insurance disputes. The decision also exposed the marine insurer and insured to the inherent uncertainty of a court’s post hoc selection of a state’s law to apply to the parties’ prior conduct that gave rise to their dispute.
Subsequently, in M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972), the Court recognized the paramount importance of enforcing a pre-dispute contract clause in a maritime contract, due to the inherent uncertainty concerning where in the world a marine accident and its legal resolution might occur. While The Bremen involved a forum selection clause, contained in an international marine towage contract, “the forum clause was also an effort to obtain certainty as to the applicable substantive law.” The Bremen, 407 U.S. at 13 n.15 (emphasis added). Moreover, The Bremen’s recognition of the geographical and jurisdictional uncertainty inherent in maritime disputes should apply equally to the international and domestic spheres, especially because Wilburn Boat held that an indeterminate state’s law would apply to marine insurance disputes.
NELF argued that, under The Bremen, and in response to Wilburn Boat, parties to a marine insurance contract should be able to designate a stable body of law to govern their contractual rights and duties, from the outset of their commercial relationship. The parties’ chosen law is instrumental to the contract’s formation, price, and performance. The clause allows the parties to fulfill their contractual obligations in compliance with a known body of law. Admiralty law, in turn, should uphold the parties’ legitimate contractual expectations by enforcing their designated law, in order to protect maritime commerce itself.
The federal interest in the uniform enforcement of choice-of-law clauses in marine insurance contracts cannot accommodate a disruptive challenge to the validity of the parties’ designated law, potentially in every case, based on the subordinate and variable policy concerns of other states. While this concern for interstate comity is a familiar element of a conflict-of-laws analysis under state law, it should yield to the weightier federal concern for a harmonious system of maritime commerce that underlies Article III’s grant of admiralty jurisdiction.
If decided otherwise, this case would allow a federal court to subject the parties, after the fact, to unanticipated liability under the law of a third-party state that the court has chosen, based on its assessment of that state’s public policies. This result would undermine the certainty and uniformity of result that are essential to the smooth functioning of maritime commerce.
NELF also argued that the Third Circuit misinterpreted language in The Bremen stating that “[a] contractual choice-of-forum clause should be held unenforceable if enforcement would contravene a strong public policy of the forum in which suit is brought, whether declared by statute or by judicial decision.” The Bremen, 407 U.S. at 15 (emphasis added). The lower court has understood this language to refer to a strong public policy of the forum state in which a federal admiralty court sits. This is incorrect. The Bremen Court was faced with a potential international conflict of laws between two co-equal sovereign nations, England and the forum nation of the United States. Nowhere did the Bremen Court authorize a federal court to subordinate the national maritime interest in enforcing pre-dispute contract clauses to the local public policy concerns of the forum state.
In its unanimous decision of February 21, 2024, the Court enforced the parties’ choice-of-law clause and held that such clauses are presumptively valid, as a rule of federal maritime law. As NELF had argued, the Court rejected any consideration of another state’s interest in applying its law to the parties’ insurance policy. The Court also distinguished Wilburn Boat on the same grounds that NELF had argued in its brief, namely that the issue here is the enforceability of a pre-dispute, choice-of-law clause, not substantive insurance law. This is an issue of federal maritime law warranting uniform national enforcement, falling well within the Court’s competence to decide. The Court also explained the misunderstood language from The Bremen, as NELF had argued, above–i.e., that The Bremen was addressing a conflict of the laws between two co-equal sovereign nations, not between federal law and state law. And finally, as NELF had pointed out, the Court concluded that the familiar concern for interstate comity that underlies the Restatement (Second) of Conflict of Laws has no place in federal maritime law, where national uniformity must prevail over a third-party state’s public policy concerns