The U.S. Supreme Court held on February 21, 2024 that “choice-of-law provisions in maritime contracts are presumptively enforceable as a matter of federal maritime law, with certain narrow exceptions.” Great Lakes Ins. SE v. Raiders Retreat Realty Co., LLC, 217 L.Ed.2d 401, 413 (U.S. 2024). The Supreme Court’s decision promotes uniformity and predictability in the interpretation and implementation of maritime contracts.
The Supreme Court recognized two exceptions. First, choice-of-law provisions are not enforceable in maritime contracts “when the chosen law would contravene a controlling federal statute,” id. at 411, for example because the chosen law allows the carrier to avoid liability for negligence in violation of U.S. federal maritime law. Second, choice-of-law provisions are also not enforceable “when parties can furnish no reasonable basis for the chosen jurisdiction.” Id. at 412. The Supreme Court recognized that the choice of a law that is “well developed, well known, and well regarded”, such as New York law, provides a sufficient basis to avoid falling under the second exception, even if the contract has no connection to the law chosen. Id.
The choice of New York law was therefore upheld as a “well-known and highly elaborated commercial law,” in the Great Lakes case. Id. at 412. The contract at issue was a marine insurance contract between a Pennsylvania vessel owner and an underwriter organized in Germany and having its headquarters in the United Kingdom. The underwriter denied coverage after the vessel ran aground in Florida, and rejected the claims that the vessel owner had asserted under Pennsylvania law, on the basis that the contract was governed by New York law. The district court agreed with the underwriter, but its judgment was vacated by the U.S. Court of Appeals for the Third Circuit, on the basis that there is a public policy exception to the enforceability of a choice-of-law clause that may apply in that case. The Supreme Court has now reversed that decision unanimously in an opinion written by Justice Kavanaugh.
The Supreme Court decision is significant. It resolves a split among the U.S. federal appellate courts on the enforceability of choice-of-law provisions in maritime contracts. It expands the scope of the Supreme Court’s landmark The Bremen decision, which held that “forum-selection clauses in maritime contracts are ‘prima facie valid’ under federal maritime law and ‘should be enforced unless’ doing so would be ‘unreasonable’ under the circumstances.” Id. at 408 (citing The Bremen v. Zapata Off-Shore Co., 407 U. S. 1, 10, 92 S. Ct. 1907 (1972)). The Supreme Court reasoned that this precedent “dictate[s] the same conclusion for choice-of-law provisions.” Id. at 409. The Supreme Court did not decline to create a new rule of federal maritime law on the issue that was presented to it, as it had done in Wilburn Boat Co. v. Fireman’s Fund Ins. Co., 348 U.S. 310, 75 S. Ct. 368 (1955), when faced with a novel maritime insurance warranty issue, resulting in the application of state law as a gap-filler. As Justice Thomas noted in a concurring opinion, “Wilburn Boat has been met with universal criticism over the past 70 years.” Great Lakes, 217 L.Ed.2d at 416 (Thomas, J., concurring). The Supreme Court also did not limit its decision to maritime insurance contracts only; the Supreme Court’s holding applies to all types of maritime contracts.
The Supreme Court’s decision on the enforceability of choice-of-law clauses will help promote uniformity and predictability, two fundamental precepts of U.S. maritime law. It may also encourage U.S. and foreign parties to choose New York law to govern their maritime contracts, knowing that this choice will be upheld absent special circumstances making it unreasonable or contrary to U.S. federal statutes, even if they have no connection to New York.
