Choice-of-Law Clauses in Marine Cargo Insurance Policy*
January 2009
It is a common practice for London-based insurers
to issue high value marine cargo insurance policies that include choice-of-law
clauses specifying that the laws of England and Wales are to apply to the policy.
by Michael
A. Orlando
Meyer Orlando
LLC
So long as the policy is for marine insurance, any dispute over the policy
filed in a U.S. court should generally fall within federal admiralty jurisdiction.1
For a marine cargo insurance policy, being a marine contract, federal admiralty
law determines the enforceability of the choice-of-law clauses that are contained
in the policy.2
Generally, when a marine insurance policy is issued by British insurers,
it will be difficult to dispute that England does not have a substantial relationship
to the parties and the transaction. Typically, for a slip policy that is underwritten
by Certain Underwriters at Lloyd's of London, the managing agents are located
in London, England, and, again, usually there is no question that this insurance
was negotiated and placed in the London insurance market through a British insurance
broker. Few parties would dispute that Lloyd's connection to marine cargo insurance
dates back to the 17th Century in London, and that the connection
is substantial.
For the second part of the test, generally, English law does not conflict
with the fundamental purposes of federal maritime law. In fact, the prima facie
validity of choice-of-law clauses contained in maritime contracts arises from
federal admiralty law cases. As noted by the Fifth Circuit in
Mitsui & Co. (USA) v. Mira M/V, 111 F.3d 33,
35 (5th Cir. 1997):
The Supreme Court has consistently held forum-selection-clauses
and choice-of-law clauses presumptively valid. Vimar
Seguros y Reaseguros, S.A. v. M/V SKY REEFER, 515 U.S. 528, [538-540](1995)
(foreign arbitration clause); Carnival Cruise Lines,
Inc. v. Shute, 499 U.S. 585, 595 (1991); M/S
BREMEN v. Zapata Off-Shore Co., 407 U.S. 1, 15 (1972); see also
Kevlin Serv., Inc. v. Lexington State Bank, 46
F.3d 13, 15 (5th Cir. 1995). The Court in BREMEN
articulated the policy underlying the presumptive validity of these clauses:
The expansion of American business and industry will hardly
be encouraged if, notwithstanding solemn contracts, we insist on a parochial
concept that all disputes must be resolved under our laws and in our courts....
We cannot have trade and commerce in world markets and international waters
exclusively on our terms, governed by our laws....
The Supreme Court has therefore instructed American courts
to enforce such clauses in the interests of international comity and out of
deference to the integrity and proficiency of foreign courts.
Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,
Inc., 473 U.S. 614, 629 (1985).
The presumption of validity may be overcome, however, by a
showing that the clause is "unreasonable under the circumstances."
BREMEN, 407 U.S. at 10. The burden of proving
unreasonableness is a heavy one, carried only by a showing that the clause results
from fraud or overreaching, that it violates a strong public policy, or that
enforcement of the clause deprives the plaintiff of his day in court.
Id. at 12-13, 15, 18.
111 F.3d 33, 35-36 (Supreme Court Reporter
and Lawyer's Edition citations omitted.).
Noted admiralty scholar Professor Schoenbaum, aptly summarizes the issue
when he states in his seminal treatise, Admiralty
and Maritime Law:
A choice of law provision in a marine insurance contract will
be upheld in the absence of evidence that its enforcement would be unreasonable
or unjust. See 2 T. Schoenbaum,
Admiralty and Maritime Law § 19-7, p.
276 (4th ed., 2004) (citation omitted).
In BREMEN, and a year later in
Carnival Cruise Lines, the Supreme Court required
the enforcement of forum selection clauses in admiralty contracts. The Court
held in BREMEN that, "absent some compelling
and countervailing reason," a negotiated forum-selection clause "should be honored
by the parties and enforced by the courts." 407 U.S. at 12, 92 S.Ct. at 1914.
In Carnival Cruise Lines, the Court extended
its decision in BREMEN to hold enforceable a
forum selection clause contained in a standard form contract of passage.
It is clear from these Supreme Court decisions, that the agreements of private
parties, whether freely negotiated or not, are ordinarily to be given full effect
by federal courts. Accordingly, choice-of-law clauses in admiralty contracts,
which are analyzed and interpreted the same way as forum selection clauses,
have generally been held presumptively valid and enforceable.3
Conclusion
Parties should pay particular attention to choice-of-law clauses when requesting
insurance on high value marine policies. As we now have more of a global economy,
U.S. courts are generally enforcing choice-of-law clauses. To the extent U.S.
companies desire to have U.S. or a particular state's laws apply in a maritime
context, then such needs to be spelled out in clear terms in the contract.
*The author gratefully acknowledges the assistance of his
former associate Richard Preston.
1Insurance Co. v. Dunham,
78 U.S. (11 Wall.) 1, 20 L. Ed. 90 (1871) (invocation of admiralty jurisdiction
proper in lawsuit involving marine insurance); Offshore
Logistics Services, Inc. v. Mutual Marine Office, Inc., 639 F.2d 1168,
1170 (5th Cir. 1981) (same); International Sea Food
Ltd. v. M/V Compeche, 566 F.2d 482, 485 (5th Cir. 1978) (long settled
marine insurance is marine contract within the jurisdiction of an admiralty
court).
2See, e.g.,
Haynsworth v. The Corp., 121 F.3d 956, 962 (5th
Cir. 1997), cert. denied, 523 U.S. 1072,
118 S. Ct. 1513 (1998) (noting federal law applies to choice of law clause enforceability
determination); see alsoSembawang Shipyard, Ltd. v. Charger, Inc., 955
F.2d 983, 986 (5th Cir. 1992) (noting choice of law clause is presumptively
valid and no difference between forum selection clauses and choice of law clauses
for purposes of court's analysis of enforceability). "[W]here the parties specify
in their contractual agreement which law will apply, admiralty courts will generally
give effect to that choice." Hawkspere Shipping Co.
v. Intamex, S.A., 330 F.3d 225, 233 (4th Cir. 2003) (citing
Chan v. Soc'y Expeditions, Inc., 123 F.3d 1287,
1297 (9th Cir. 1997), cert. dismissed by,
Society Expeditions, Inc. v. Chan, 522 U.S. 1100,
118 S. Ct. 906, 139 L. Ed. 2d 921 (1998)); Richards
v. Lloyd's of London, 135 F.3d 1289, 1293 (9th Cir. 1998) (en banc) (applying
U.S. Supreme Court law to find English choice-of-law clause enforceable);
Milanovice v. Costa Crociere, S.P.A., 954 F.2d
763, 767 (D.C. Cir. 1992) (finding if "choice-of-law provision is enforceable,
we will use the law that it selects to evaluate the enforceability of the remainder
of the contract terms"); Siegleman v. Cunard White Star,
221 F.2d 189, 193 (2d Cir. 1955) (finding choice of law provision selecting
English law enforceable, and then using English law to interpret the contract);
Jansson v. Swedish American Line, 185 F.2d 212,
218 (1st Cir. 1950) (noting "when the parties contract with the law of some
particular jurisdiction in view, the law of that jurisdiction will be applicable
in determining the interpretation and validity of the contract");
In Re Horizon Vessels, Inc., 2007 WL 655927 at
*11 (S.D. Tex. Feb. 28, 2007) (slip copy) (citing Dupre
v. Penrod Drilling Corp., 993 F.2d 474, 476 n. 4 (5th Cir. 1993) quoting
Stoot v. Fluor Drilling Servs., Inc., 851 F.2d
1514, 1517 (5th Cir. 1988)) (in admiralty law, contractual choice of law clauses
govern unless there is no substantial relationship to the parties or the transaction
or the chosen law conflicts with the fundamental purposes of maritime law).
3See, e.g.,
Sembawang Shipyard, 955 F.2d 983 (5th Cir. 1992);
Cantieri Navali Riuniti v. M/V Skyptron, 802
F.2d 160, 163 n. 4 (5th Cir. 1986).
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