Goldstein Law Partners filed an interlocutory appeal on March 23, 2021, asking the Third Circuit to decide how federal courts exercising admiralty jurisdiction should determine the enforceability of contractual choice of law provisions.  Michael Yanoff and Shawn Rodgers, together with renowned appellate advocate Howard Bashman, represent the Appellant-Defendant, Raiders Retreat Realty Co., LLC, against Great Lakes Insurance SE.  The seemingly narrow question has the potential to create widespread tidal waves felt throughout federal admiralty law.

Many maritime insurance contracts, like the one at issue, contain contractual choice of law provisions.  And many of these provisions call for state law in jurisdictions like New York to apply in the absence of a controlling maritime rule.  These choice provisions supplant the standard maritime rule that, in such situations, would ordinarily apply the law of the state forum where the District Court sits.  Why is such a nuanced procedural question so significant to the landscape of federal admiralty law?  Many admiralty cases concern maritime insurance contracts, and particularly whether such contracts provide coverage for the loss – or whether insurers properly denied the insured’s claim.  Some jurisdictions, like Pennsylvania, provide statutory protection to consumers who suffer a bad faith denial of insurance coverage.  The penalties for the insurer are substantial.  They are designed as deterrence against such practices.  Other jurisdictions, however, do not afford consumers this type of protection.  The insurer may be required to pay contract damages, but typically not the type of penalties available in jurisdictions that explicitly protect against bad faith denials of coverage.  The choice of law in maritime insurance contracts often has the power to entirely shape the available damages.  The difference could be hundreds of thousands of dollars.

The District Court in this case decided to enforce the choice provision and, as such, dismiss Raiders’ claim for statutory bad faith.  The Third Circuit must decide the proper analytical framework that federal courts, siting in admiralty, must use to determine the enforceability of contractual choice of law provisions.  Raiders maintains that the U.S. Supreme Court and several other Courts of Appeal hold that choice provisions cannot be enforced if doing so would “contravene a strong public policy of the forum[.]”  If the Third Circuit applies this analysis, enforcing the provision at issue would apply New York law and therefore contravene Pennsylvania’s “strong public policy” against bad faith denials of coverage.

The Fifth, Ninth and D.C. Circuits seem to apply the analytical framework advocated by Raiders; however, in those decisions the parties did not – or were unable to – identify a strong pubic policy that would have been contravened by enforcement of the provision.  This may be the first case where the record demonstrates that enforcing the contractual choice provision would clearly contravene the forum state’s public policy – a public policy that would not be contravened under the default maritime rule, which would apply Pennsylvania law.