Maritime Insurance Contract
Maritime Law
Choice-of-Law Provisions in Maritime Contracts
Federal Common Law Court
Circuit Split
“Federalism in admiralty and the scope of application of state law in maritime cases is one of the most perplexing issues in the law”.
This Court granted certiorari to resolve a split in the Courts of Appeals regarding the enforceability of choice-of law provisions in maritime contracts.
Maritime contracts often contain choice-of-law provisions that designate the law of a particular jurisdiction to control future disputes. The enforceability of those choice-of-law provisions is governed by federal maritime law. Applying federal maritime law in this case, we conclude that choice-of-law provisions in maritime contracts are presumptively enforceable, with certain narrow exceptions not applicable here.
Under the Constitution, federal courts possess authority to create and apply maritime law. Article III of the Constitution extends the federal judicial power to “all Cases of admiralty and maritime Jurisdiction.” U. S. Const., Art. III, § 2, cl. 1. That grant of jurisdiction contemplates a system of maritime law “‘coextensive with, and operating uniformly in, the whole country.’” Norfolk Southern R. Co. v. James N. Kirby, Pty Ltd., 543 U. S. 14, 28 (2004) (quoting American Dredging Co. v. Miller, 510 U. S. 443, 451 (1994)). The purposes of that uniform system include promoting “the great interests of navigation and commerce” and maintaining the United States’ “diplomatic relations.” 3 J. Story, Commentaries on the Constitution of the United States §1666, p. 533 (1st ed. 1833); see also Norfolk Southern, 543 U. S., at 28; Exxon Corp. v. Central Gulf Lines, Inc., 500 U. S. 603, 608 (1991). To maintain that uniform system, federal courts “make decisional law” for maritime cases. Norfolk Southern, 543 U. S., at 23. When a federal court decides a maritime case, it acts as a “federal common law court, much as state courts do in state common-law cases.” Air & Liquid Systems Corp. v. DeVries, 586 U. S. 446, 452 (2019) (internal quotation marks omitted); see Dutra Group v. Batterton, 588 U. S. 358, 360 (2019). “Subject to direction from Congress,” the federal courts fashion maritime rules based on, among other sources, “judicial opinions, legislation, treatises, and scholarly writings.” Air & Liquid Systems, 586 U. S., at 452; see also Exxon Co., U. S. A. v. Sofec, Inc., 517 U. S. 830, 839 (1996); East River S. S. Corp. v. Transamerica Delaval Inc., 476 U. S. 858, 864 (1986). Exercising that authority, federal courts follow previously “established” maritime rules. Wilburn Boat Co. v. Fireman’s Fund Ins. Co., 348 U. S. 310, 314 (1955).
No bright line exists for determining when a federal maritime rule is “established,” but a body of judicial decisions can suffice. See Bisso v. Inland Waterways Corp., 349 U. S. 85, 89–90 (1955). In the absence of an established rule, federal courts may create uniform maritime rules. See, e.g., Norfolk Southern, 543 U. S., at 23. When no established rule exists, and when the federal courts decline to create a new rule, federal courts apply state law. See Wilburn Boat, 348 U. S., at 320–321. For purposes of this general overview, we will stop there, as the “issue of federalism in admiralty and the scope of application of state law in maritime cases is one of the most perplexing issues in the law.” 1 T. Schoenbaum, Admiralty and Maritime Law §4:4, p. 268 (6th ed. 2018).
The initial question here is whether there is an established federal maritime rule regarding the enforceability of choice-of-law provisions. The answer is yes. Longstanding precedent establishes a federal maritime rule: Choice-of-law provisions in maritime contracts are presumptively enforceable. As a leading treatise says, it is “well established in admiralty that choice of law clauses” will “normally be enforced.” 1 Schoenbaum, Admiralty and Maritime Law §5:19, at 427; see also id., §4:4, at 275; 2 id., §19:6, at 431–432 (similar).
The Court has pronounced 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.” The Bremen v. Zapata Off-Shore Co., 407 U. S. 1, 10 (1972); see also Carnival Cruise Lines, Inc. v. Shute, 499 U. S. 585, 593–594 (1991).
(…) Moreover, by supplying some advance assurance about the governing law, choice-of-law provisions help maritime shippers decide on the front end “what precautions to take” on their boats, American Dredging, 510 U. S., at 454, and enable marine insurers to better assess risk, see Brief for American Institute of Marine Underwriters et al. as Amici Curiae 12–13. Choice-of-law provisions therefore can lower the price and expand the availability of marine insurance. In those ways, choice-of-law provisions advance a fundamental purpose of federal maritime law: the “‘protection of maritime commerce.’” Exxon Corp., 500 U. S., at 608 (quoting Sisson v. Ruby, 497 U. S. 358, 367 (1990)).
Rather, the Wilburn Boat Court simply determined what substantive rule applied when a party breached a warranty in a marine insurance contract. See id., at 311–316. The Court concluded that no “established federal admiralty rule” governed the warranty issue. Id., at 314; see also id., at 314–316. And the Court declined to create a federal maritime rule on that question, both because States historically regulated insurance and because federal courts were poorly positioned to “unify insurance law on a nationwide basis.” Id., at 319; see also id., at 316–320. The Court therefore ordered that the warranty issue be tried “under appropriate state law.” Id., at 321.
(…) Moreover, Wilburn Boat held only that state law applied as a gap-filler in the absence of a uniform federal maritime rule on a warranty issue. 348 U. S., at 314–316. Here, however, no gap exists because a uniform federal rule governs the enforceability of choice-of-law clauses in maritime contracts.
After Wilburn Boat, maritime actors realized that a lot would depend on which State’s law governed each individual maritime dispute—a question that would be unclear in advance. See 2 Schoenbaum, Admiralty and Maritime Law §19:9. Choice-of-law provisions soon emerged as a ready answer to that problem. See W. von Bittner, The Validity and Effect of Choice of Law Clauses in Marine Insurance Contracts, 53 Ins. Counsel J. 573, 573, 578–579 (1986).
(…) The bottom line: As a matter of federal maritime law, choice-of-law provisions in maritime contracts are presumptively enforceable.
Of course, to say that choice-of-law clauses are presumptively enforceable as a matter of federal maritime law means that there are exceptions when the clauses are not enforceable. The parties agree that the exceptions are narrow—indeed, Raiders “freely concedes that in most every instance, a choice-of-law provision contained in a maritime insurance contract will be effective.” Tr. of Oral Arg. 54. In particular, the parties agree that courts should disregard choice-of-law clauses in otherwise valid maritime contracts when the chosen law would contravene a controlling federal statute, see Knott v. Botany Mills, 179 U. S. 69, 77 (1900), or conflict with an established federal maritime policy, see The Kensington, 183 U. S. 263, 269–271 (1902). For example, The Kensington declined to enforce a choice-of-law clause because the chosen law would have released a carrier from liability for negligence—a result that federal maritime law forbids. See ibid. The parties further agree that, as a matter of federal maritime law, courts may disregard choice-of-law clauses when parties can furnish no reasonable basis for the chosen jurisdiction. Cf. Carnival Cruise, 499 U. S., at 594–595; The Bremen, 407 U. S., at 10, 16–17. For example, it would be unreasonable to pick the law of a distant foreign country without some rational basis for doing so. That said, the “no reasonable basis” exception must be applied with substantial deference to the contracting parties, recognizing that maritime actors may sometimes choose the law of a specific jurisdiction because, for example, that jurisdiction’s law is “well developed, well known, and well regarded.” Brief for American Institute of Marine Underwriters et al. as Amici Curiae 17.
Unable to successfully invoke those exceptions, Raiders says that federal maritime law should recognize an additional exception when enforcing the law of the State designated by the contract would contravene the fundamental public policy of the State with the greatest interest in the dispute. We disagree with that argument. Indeed, Raiders’ request for that novel maritime exception is essentially a repackaged version of its initial argument that the enforceability of choice-of-law provisions in maritime contracts should be determined by state law. The argument fares no better here, for essentially the same reasons.
(…) We disagree with Raiders’ related suggestion that we adopt the choice-of-law approach set forth in §187(2)(b) of the Second Restatement of Conflict of Laws. In relevant part, that subsection says that choice-of-law provisions are enforceable unless they conflict with “a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue.” Restatement (Second) of Conflict of Laws §187(2)(b). As the commentary to the Restatement carefully explains, however, that rule arose out of interstate cases and does not deal directly with federal-state conflicts, including those that arise in federal enclaves like maritime law. See id. §2, Comment c; §3, Comment d; §10, Comment a.
Secondary sources: T. Schoenbaum, Admiralty and Maritime Law §4:4, p. 268 (6th ed. 2018); J. Coyle, The Canons of Construction for Choice-of-Law Clauses, 92 Wash. L. Rev. 631, 633, n. 6 (2017); M. Sturley, Restating the Law of Marine Insurance: A Workable Solution to the Wilburn Boat Problem, 29 J. Mar. L. & Com. 41, 45 (1998); G. Gilmore & C. Black, Law of Admiralty §§1–17, 2–8 (2d ed. 1975); W. von Bittner, The Validity and Effect of Choice of Law Clauses in Marine Insurance Contracts, 53 Ins. Counsel J. 573, 573, 578–579 (1986); Restatement (Second) of Conflict of Laws §187, Comment f, p. 567 (1969).
(U.S. Supreme Court, Great Lakes Insurance SE v. Raiders Retreat Realty CO., LLC, Feb. 21, 2024, Docket No. 22-500, J. Kavanaugh, Unanimous)
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