The U.S. Supreme Court granted certiorari in Great Lakes Ins. SE v. Raiders Retreat Realty Co., LLC, 2023 U.S. LEXIS 1078 (Mar. 6, 2023), on the question of the enforceability of a choice-of-law clause in a maritime insurance contract that invokes federal admiralty law, with New York law as a gap filler. Specifically, the U.S. Supreme Court will decide whether “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.”

The question arose in the context of a dispute between the owner of a yacht and the insurer of a yacht, which denied coverage for losses sustained after the vessel ran aground. The yacht owner sought to assert extra-contractual counterclaims against the insurer under the law of Pennsylvania, the state where the action was pending, including for insurance bad faith, breach of fiduciary duty and violation of Pennsylvania’s Unfair Trade Practices Act. The insurer moved for judgment on the pleadings on these counterclaims, arguing that they were precluded by virtue of the contract’s New York choice-of-law clause. 

The district court granted the insurer’s motion, but the Court of Appeals for the Third Circuit reversed because the district court failed to consider whether Pennsylvania had a strong public policy that would be thwarted by applying New York law. The appellate court reasoned that, under maritime law, choice-of-law clauses should be honored unless the party challenging the enforcement can establish that doing so would be unreasonable or unjust, such as where enforcement would contravene a strong public policy in the forum in which suit is brought. The appellate court then remanded the case to the trial court for consideration of whether Pennsylvania has a strong public policy in favor of permitting the claims made by the yacht owner, which would be thwarted by application of the New York choice-of -law provision.

The U.S. Supreme Court’s decision may have broader implications for maritime contracts that select a state’s law that is in conflict with the public policy of the forum where the lawsuit is brought.