In a recent case, Great Lakes Ins. SE v. Raiders Retreat Realty Co., the United States Court of Appeals for the Third Circuit addressed whether, under federal admiralty law, a choice-of-law clause in a maritime contract can be rendered unenforceable if enforcement is contrary to the “strong public policy” of the state whose law is displaced by the clause.
Great Lakes Ins. SE v. Raiders Retreat Realty Co. – Background
In Great Lakes Ins. SE v. Raiders Retreat Realty Co., when a yacht ran aground, the yacht owner submitted a claim with the marine insurer under its policy. The marine insurer denied coverage on the grounds that the owner misrepresented the yacht’s fire-suppression system’s ability, regardless of the fact that the vessel’s damage was not caused by fire.
District Court Decision
The marine insurer filed suit in federal court, seeking declaratory judgment that the owner’s failure to recertify or inspect its fire extinguishing equipment rendered the policy void from its inception. In response, the yacht-owner filed five counterclaims, including three extra-contractual claims arising under Pennsylvania law, even though the yacht-owner’s policy with the marine insurer contained a choice-of-law provision stipulating that all disputes arising under the policy were to be adjudicated under New York law.
Finding that The Bremen did not apply to the choice-of-law issues, the district court reasoned that it did not need to consider Pennsylvania public policy in evaluating the validity of the choice-of-law provision. The district court dismissed the yacht owner’s counterclaims, enforcing the policy’s choice-of-law provision, and determining that the application of New York law precluded the yacht-owner’s Pennsylvania-based counterclaims.
Third Circuit’s Ruling
On appeal, the yacht owner argued that enforcing the choice-of-law provision in the policy would be unreasonable and unjust because New York law would contravene Pennsylvania’s strong public policy protecting insureds in the state from bad faith and unfair trade practices by insurers. In The Bremen, the United States Supreme Court held that forum selection clauses in maritime cases are prima facie valid and enforceable absent a “strong showing” that “enforcement would be unreasonable and unjust,” listing situations where enforcement would “contravene a strong public policy of the forum in which the suit is brought” as one such example. Over two decades later, in Carnival Cruise Lines, the Supreme Court extended The Bremen’s framework to disputes over which state was the proper forum to bring suit under a forum-selection provision.
The Third Circuit determined that the district court should have considered whether applying New York substantive law would contravene Pennsylvania’s “strong public policy” under The Bremen. The marine insurer argued that The Bremen was “utterly irrelevant” because it did it did not pertain to the enforcement of choice of law clauses, such as the one at issue in this case. The Third Circuit disagreed, finding that The Bremen’s framework applies equally to choice-of-law provisions as it does to forum-selection provisions.
In doing so, the Third Circuit rejected the marine insurer’s argument that the principle of generally enforcing choice-of-law provisions in marine insurance contracts is altogether separate from the framework for such provisions set forth in The Bremen. Considering The Bremen’s “strong public policy” exception serving as one aspect of its “unreasonable and unjust” standard, the Third Circuit determined that “‘the strong public policy of the forum [state] in which suit is brought’ could, as to that policy specifically, render unenforceable the choice of state law in a marine insurance contract.” Thus, the Third Circuit ruled that the district court erred in determining that New York law governed and barred the Pennsylvania-law-based counterclaims.
The Third Circuit concluded that the district court needed to consider whether Pennsylvania has a strong public policy that would be thwarted by applying New York law, and remanded the case for further consideration consistent with its holding. Ultimately, the Third Circuit held that The Bremen’s framework, in its entirety, applies to choice-of-law provisions in marine insurance contracts.
 Great Lakes Ins. SE v. Raiders Retreat Realty Co., LLC, 47 F.4th 225 (3rd Cir. 2022).
 The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 15, 92 S. Ct. 1907, 32 L. Ed. 2d 513 (1972).
 Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 588, 111 S. Ct. 1522, 113 L. E. 2d 622 (1991).