Great Lakes Insurance SE v. Raiders Retreat Realty – Maritime Law in the Supreme Court

The Supreme Court is asked to review thousands of cases every year, and few of those make it to our highest court. Maritime law is a specialized area of law, so having a case that affects maritime law reach the Supreme Court is both rare and impactful to the field. In Great Lakes Insurance SE v. Raiders Retreat Realty, Co., LLC, the Supreme Court considered the following question:

Under federal admiralty law, can a choice-of-law clause in a maritime contract be rendered unenforceable if enforcement is contrary to the “strong public policy” of the State whose law is displaced?

The Supreme Court ruled unanimously in favor of Great Lakes Insurance. Although the decision has been hailed as a victory for insurance companies, there is a silver lining for policyholders. Despite choice-of-law provisions in maritime contracts being presumptively enforceable, significant exceptions under maritime law are still recognized by the Court.

When parties cannot furnish a reasonable basis for the chosen jurisdiction, courts may disregard the choice-of-law clause. While this exception is applied with deference to the contracting parties, it would be unreasonable to pick the law of a distant foreign country without some rational basis for doing so. Foreign laws will also not be applied when doing so would violate US federal law.

When a chosen law would contravene a controlling federal statute or conflict with established federal maritime policy, courts may also disregard the choice-of-law clause. For example, a choice-of-law clause that would release a carrier from liability for negligence cannot be enforced. Exceptions limiting carriers from responsibility for the negligence of themselves or their servants have been ruled as unjust and unreasonable.

By way of example, in The Kensington, a passenger’s baggage was destroyed during a particularly rough voyage, and evidence showed that improper stowage caused the damage. The Supreme Court ruled that (1) the tickets’ express limitation on the ship company’s liability for its own negligence, (2) the tickets’ provision which required the passengers to value their baggage for less than it was worth or to place a higher value on it and thereby waive the company’s liability for negligence, and (3) the ticket’s imposition of an arbitrary limit on the value on the value of the passengers’ baggage without allowing them to increase that valuation by a reasonable and proportionate amount, were all void as against public policy. Succinctly, the contract bound within the ticket, which had a choice-of-law clause stating that “all questions arising hereunder are to be settled according to the Belgium law,” was ruled void, since it “unequivocally sought to relieve the carrier from the initial duty of furnishing a seaworthy vessel for all neglect in loading or stowing, and indeed for any and every fault of commission or omission on the part of the carrier or his servants.”

Ultimately, if a carrier fails to take reasonable action to prevent damage or harm to either a person or property, they are still on the hook. Policyholders will just need to look to maritime law rather than state law.