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Choice of law analysis in marine insurance contracts: how the Fifth Circuit can look out for the little guy with a more consumer friendly analysis.

I. INTRODUCTION

A unique feature of the marine insurance industry is its close connection with maritime commerce. (1) Marine insurance developed as an industry by structuring agreements that distributed risk among commercial entities engaged in transporting goods. (2) Modern courts continue to recognize the predominantly commercial nature of marine insurance by framing legal issues in light of normative goals of commercial contract law. (3) The fact that most marine insurance policies are negotiated as arm's length transactions between sophisticated business entities with equal bargaining power supports the idea that the provisions of these agreements should be given "full effect" by courts. (4) The choice-of-law ("COL") clause is a widely used contractual provision that pre-determines the law a court is to apply in the event there is a lawsuit between the parties. (5) From an industry standpoint, COL clauses promote efficient markets by reducing transaction costs and litigation expenses. (6) Thus, courts tend to favor enforcing COL clauses in marine insurance contracts. (7) However, where an individual proprietor must secure marine insurance on a single vessel that may only be used to support a small-scale business operation, the traditional goals of commercial contract law are significantly less important. (8) In disputes between individual insurance consumers and their insurance companies, the traditional interests of commercial contract law are minimal because the relationship between the parties is qualitatively different from the typical marine insurance agreement. (9) Typically, insurance policies are offered by sophisticated businesses to comparatively unsophisticated consumers on a 'take it or leave it' basis. (10) The terms of the policy are rarely conveyed in a way that ensures the consumer meaningfully understands how his legal rights will be affected in the event of litigation. (11) Because insurers have almost complete control over every detail of the transaction, individual consumers are particularly vulnerable to abusive commercial practices. (12) Consequently, states have endeavored to make the typical insurance transaction less one-sided by enacting laws that protect a resident consumer's reasonable expectations concerning his legal rights under the policy. (13) A state's interest in legislatively protecting unsophisticated insurance consumers is a fundamental policy decision that should not be disregarded on the basis of commercial expediency. (14) Therefore, courts should acknowledge relevant state consumer protection laws when evaluating COL provisions in marine insurance policies issued to unsophisticated consumers. (15)

The Restatement (Second) Conflict of Laws ("Restatement") provides a COL analysis that unambiguously prohibits a court from enforcing a COL clause if doing so would result in an unsophisticated insured losing the benefit of his home state's consumer protection laws. (16) While the Restatement approach is designed to evenhandedly resolve lawsuits between unsophisticated insureds and their insurance companies, recent decisions from the Fifth Circuit seem to imply that a court may disregard an otherwise applicable consumer protection law when resolving COL disputes. (17) This approach vitiates consumer confidence in the marine insurance industry (18) and also marginalizes the integrity of our interstate system itself. (19) Therefore, this comment argues that the Fifth Circuit should adopt the Restatement as the applicable COL test when resolving lawsuits between unsophisticated insurance consumers and their insurers. (20)

This comment proceeds by first discussing how federal maritime COL principles have developed under the Supreme Court. The third section shows how the Restatement addresses COL disputes. The fourth and fifth sections discuss how the COL test has developed under the Fifth Circuit and demonstrates why it may be problematic by examining a hypothetical scenario. The sixth section concludes by offering reasons by the Fifth Circuit should adopt the Restatement analysis.

II. BACKGROUND

The Supreme Court has interpreted Article III's grant of admiralty and maritime jurisdiction to empower federal courts to develop a federal common law of admiralty. (21) Congress may also supplement this law as it sees fit. (22) Thus, federal maritime law in the United States consists of both Congressional statutes and judge-made common law. When interpreting a COL provision in a marine insurance contract, a court must first determine which law governs the interpretation of the clause itself. (23) The Supreme Court has established that contracts for marine insurance confer federal maritime jurisdiction. (24) This means that courts must apply federal maritime COL rules when deciding marine insurance disputes. (25) The Restatement is now an established standard that many courts use as guidance in analyzing COL clauses in marine insurance disputes. (26) The Restatement provides a systematic process that addresses fundamental conflicts of law generated by the use of COL provisions. (27) Specifically, the Restatement test identifies which state has the most significant relationship to the dispute. (28) Most importantly, the Restatement does not allow enforcement of a COL clause that will result in a violation of a state's fundamental public policy. (29) In this way, the Restatement's "public policy exception," acts to limit the enforceability of a COL clause. (30)

III. THE RESTATEMENT PROTECTS STATE INSURANCE INTERESTS

Section 187 of the Restatement specifically addresses how a court should interpret contractual COL provisions. Broadly speaking, the Restatement analysis can be divided into two main stages. The first stage is designed to identify the state law that would apply if the COL clause were absent. (31) This forum law is known as the "lex causae," (32) and is identified in the Restatement as the state having "a materially greater interest than the chosen state in the determination of the particular issue." (33) The second stage identifies whether or not enforcement of the COL clause would violate a fundamental public policy [hereinafter public policy exception] of the lex causae identified in stage one. (34) The second stage of the analysis is crucial because if the court determines that enforcement of the COL clause would violate an interested state's fundamental public policy then the court will decline enforcement and will apply the law of the lex causae instead.

A. Stage One: The Significant Relationship Test

The court's substantive analysis begins with [section] 187(2)(b), which directs the court to identify the lex causae, or the law that would be applied absent a COL clause. (35) Importantly, the Restatement analysis only considers the competing interests of other states in determining the lex causae. (36) In many situations, the consumer's home state will be the state with the most substantial relationship to the dispute, (i.e. the lex causae), because that is generally the state where the marine policy is negotiated, where the insurable property is located, and where the suit is usually initiated. (37) If the consumer's home state provides a statute addressing conflict of law issues, then the court must follow those statutory provisions, (38) but if no governing statue exists, then the court must determine the lex causae based on the location of certain contacts (39) The court then assesses the relative importance of each contact with respect to COL policy considerations. (40) By looking to the location of relevant contacts and the relative importance of each contact with respect to the dispute, the Restatement provides the court an effective means to evaluate which state in fact has the most 'significant relationship' to the case. (41)

B. Stage Two: The Public Policy Exception

Once the court determines the state with the most significant relationship to the case, the court then asks whether or not enforcement of the COL clause will violate a fundamental public policy of that state. (42) The comments to [section] 187 provide insight into what constitutes a fundamental policy. (43) Although comment e echoes the normative goals of predictability and uniformity in contractual relations, (44) comment g suggests that contractually justified expectations can and will be limited in certain situations by state regulatory interests. (45) To illustrate the point further, comment g lists examples of laws that would likely be considered fundamental, such as state laws designed to protect resident consumers from oppressive or superior bargaining power and laws that protect insureds against their insurers. (46) The two mentioned examples seem to suggest that state laws regulating consumer protection in the insurance industry are 'fundamental' for analysis under [section] 187(2). Supporting this proposition is the fact that both courts and commentators have acknowledged that a core feature of [section] 187 is its protection of weaker parties from exploitation by large, sophisticated companies. (47) Therefore, the consumer protections found in a state's insurance code should be treated as 'fundamental,' and should preempt a contravening COL clause. (48)

C. Example of how a court strictly applies the Restatement to a Choice of Law Analysis in a Marine Insurance Contract

In Martin v. Great Lakes Reinsurance (U.K.), P.L.C., (49) the court applied the Restatement to a COL clause in a marine insurance policy issued to an Arizona resident by a New York insurer. (50) After identifying [section] 187 as the appropriate test, the court determined the state with the most substantial relationship to the dispute by listing the relevant contacts of [section] 188(2) and then considering the significance of those contacts in light of the policy considerations found in [section] 6(2). (51) The substantial relationship inquiry revealed three important facts: (a) the insureds were residents of Arizona, (b) the insurance policy was issued to the insureds while in Arizona and (c) the court noted that Arizona had a strong policy connection to the case because of its interest in regulating insurance contracts within the state that involve its residents. (52) Based on these facts, the court determined that Arizona was the state law that would apply absent the COL clause. (53)

The court's analysis of [section] 187's public policy exception hinged on the fact that enforcing the COL clause would force an Arizona resident to waive his right to sue the New York insurer for bad faith. (54) Arizona permitted an action for bad faith against an insurer, while New York did not recognize the action. (55) The court reasoned that because enforcing the COL clause would undercut the very purpose of the bad faith doctrine that had been established by Arizona courts, upholding the COL clause would violate a fundamental public policy of Arizona. (56)

IV. FIFTH CIRCUIT COURTS HAVE EFFECTIVELY REMOVED THE RESTATEMENT ANALYSIS FROM THE CHOICE OF LAW INQUIRY

In Hale v. Co-Mar Offshore Corp., the Fifth Circuit offered a COL analysis that resembled the language of the Restatement. (57) In relevant part, Hale held that under maritime law, a COL provision in a maritime contract would be upheld unless the selected state's law contravened the fundamental policy of the jurisdiction whose law would apply absent the COL provision. (58) In Hale, the court concluded that federal maritime law was the lex causae because the contract at issue conferred maritime jurisdiction. (59)

The Fifth Circuit simplified the Hale test in Stoot v. Fluor Drilling Services, Inc., holding that a COL clause in a marine contract is enforceable if the selected law did not conflict with federal maritime law. (60) The Stoot decision builds on Hale and strongly suggests that the only pertinent inquiry a court faces in determining enforceability is whether the selected state's law contradicts federal admiralty law, without--seemingly--any requirement that the court consider other forum interests. (61) Although the Stoot court would have likely reached the same decision under the original Hale analysis, the court's cosmetic alteration of Hale likely reflected its attempt to clarify what Hale had already suggested implicitly. (62) Recall that the contact inquiries under [section] 188 and [section] 6 highlight various state forums that may have a strong interest in the dispute. (63) However, based on the language in Stoot, it is very unclear whether a court must consider these competing interests when analyzing the enforceability of a COL clause.

Great Lakes Reinsurance, P.L.C. v. Durham Auctions, Inc., (64) involved a marine insurance dispute between an assured corporation, (Durham), with its principal place of business in Mississippi, and a United Kingdom insurer, (Great Lakes), which maintained an office in New York. (65) The insurance policy at issue contained a COL clause that directed the application of either federal maritime law or in the alternative, New York law. (66) Citing Hale and Stoot, the court enforced the COL clause, holding that New York law did not fundamentally conflict with federal maritime law. (67) Interestingly, the opinion added a qualification to the Stoot test, "We hold that Durham has not carried its burden of showing that application of New York law ... would be unreasonable or unjust." (68) While the court did not offer a concrete example of what constitutes 'unreasonable or unjust,' the court seems to concede that violating a statute of the lex causae, (in this case Mississippi), (69) would have weighed against enforcing the COL clause. (70) Although the opinion appears to dismiss the discussion on this point as non-determinative, (71) the analysis is significant because it suggests that Fifth Circuit courts may not be confined to the analytic parameters of Stoot in lawsuits that invoke consumer protection laws. (72) Thus, at least in theory, Durham appears to require a court to invalidate a COL clause if enforcing the clause would result in upsetting a consumer protection law of the insured's home state. (73) However, a Fifth Circuit decision released subsequent to Durham casts doubt on whether individual insureds may rely on such legal protections. (74)

A. St. Paul fire & marine ins. Co. v. Board of commissioners of the port of New Orleans

The litigation in St. Paul Fire & Marine Ins. Co. v. Board of Com'rs of Port of New Orleans involved an insurance coverage dispute between the Port Board of New Orleans ("the Board") and its insurance broker, Aon Corporation, against an underwriting insurer, St. Paul Fire & Marine Insurance Company ("St. Paul"). (75) The Board and Aon Corporation argued that the underwriters, pursuant to the excess insurance policy between them, were obligated to indemnify the Board from liability as a result of a personal injury lawsuit against the Board. (76) St. Paul sought a policy defense of late notice. (77) Applying Stoot, the court found that New York law, which provides a complete defense to insurers for a late notice of claim, was not contrary to any fundamental purpose of maritime law. (78) In rejecting Aon's argument that the district court misapplied the Stoot test, (79) the court read Durham to affirmatively establish that courts must only consider how enforcement of the COL clause would affect federal maritime law. (80)

A strict application of sections 187, 188 and 6 to the facts in St. Paul would have actually required the court to look to Louisiana conflict of laws. (81) Recall that [section] 187(2)(b) directs the court to [section] 188. (82) [section] 188(1) further directs the court to ascertain which state(s) have a significant relationship to the issues in dispute as per [section] 6. (83) [section] 6(1) then further directs the court to look to the local forum's own statutory directives on choice of law. (84) While most states do not have conflict of law statutes, the Louisiana Civil Code directly addresses choice of law questions. Articles 3515 and 3537 direct the court to apply the law of the state whose policies would be most prejudiced if its law was not applied to the issue(s) in the case. (85) Each article then provides factors for a court to consider in making its determination. The analysis is strikingly similar to that of Restatement in that article 3515 provides the significant relationship factors of [section] 6(2) and article 3517 provides the significant contacts factors of [section] 188(2). (86)

Using these factors, the St. Paul court would have determined the following: (1) the contract was both executed and performed in Louisiana, (2) the operations insured were based in Louisiana, (3) both Aon and St. Paul were licensed to do business in Louisiana, and (4) the Port of New Orleans had its principal place of business in Louisiana. (87) These facts would have clearly indicated that Louisiana had an important interest in the dispute and that the parties had a number of significant contacts within Louisiana, thus, arguably satisfying [section] 187's significant relationship inquiry. (88)

The Public Policy inquiry would have revealed Louisiana Jurisprudence that requires an insurer to demonstrate that a breach of timely notice resulted in prejudice in order for the insurer to prevail in a complete defense to coverage. (89) Although not explicitly embodied in a statute, this principle in Louisiana law may be what Civil law scholars identify as " Jurisprudence constante." (90) Therefore, while it does not carry the full weight of a statute, this Louisiana practice may still rise to the level of a fundamental public policy under the Restatement. (91)

V. PROPOSAL

This comment urges that the Fifth Circuit adopt the Restatement COL analysis for disputes between individual consumers of marine insurance and large insurance companies, while the COL rule established in Stoot should continue to govern in scenarios that involve sophisticated, commercial litigants.

Hypothetical

Consider the following hypothetical which is based on the facts of the Fifth Circuit case in Albany Ins. Co. u. Anh Thi Kieu, 927 F.2d 882, 885 (5th Cir. 1991):

A man ["owner"] immigrates to the United States from South Vietnam and takes up residence in Texas. The owner uses the majority of his savings to purchase a small, previously owned shrimping trawler from a local seller. (92) When the owner asks about the vessel's history, the seller fraudulently conceals that the trawler had actually been involved in a prior accident which, required substantial repairs. Wanting to obtain insurance for the trawler, the owner contacts a broker who in turn obtains an application for marine insurance from a New York based insurance company. While completing the insurance application, the owner encounters a question asking whether or not the vessel had ever been involved in a prior accident. Relying on information provided by the seller, the owner answers no. Written in fine print towards the middle of the document are two important provisions: The first states that the entire policy will be null and void in the event of any material non-disclosure or misrepresentation by the assured. The second is a COL clause indicating that any dispute between the parties regarding the policy is subject to the laws of the state of New York.

After eight months, a large vessel piloted by a negligent captain collides with the owner's trawler causing significant damage rendering the trawler completely obsolete and leaving no prospect of salvage. The owner of the negligently piloted vessel files for bankruptcy soon after the incident. After this, the owner discovers that the tort feasor failed to procure a collision policy. (93) The owner of the shrimper files a claim with the New York insurance company who sends an adjuster to Texas. In researching title documents and previous accident reports the adjuster discovers that the vessel had in fact been involved in a previous accident. The insurance company promptly files a declaratory judgment action in Texas Federal court seeking to deny coverage based on the owner's material misrepresentation in the policy concerning the vessel's accident history. The insurer relies on the COL clause because under New York law any material misrepresentation automatically voids the agreement ab initio regardless of whether the misrepresentation was unintentional or mistaken. (94)

In response, the owner argues that the COL clause should not be enforced because the New York law is contrary to Texas law, which prohibits an insurer from voiding coverage for misrepresentations that are only unintentional or mistaken. (95) The owner also argues that Texas has more of a substantial relationship to the dispute than New York considering that the policy was negotiated, delivered and executed in Texas. Further, he argues that because Texas has a material interest in protecting Texas residents from an insurer's denial of coverage based on unintentional misrepresentations, the dispute implicates Texas public policy to a greater degree than New York public policy.

Relying on Durham, the court notes that in COL disputes involving marine insurance contracts, a court is only required to determine if the selected law would contravene federal maritime law as per the rule in Stoot. Finding that enforcement of the New York law would not violate federal maritime law, the court holds the COL provision to be enforceable.

VI. CONCLUSION

Circuit courts recognize that COL clauses in maritime contracts are presumptively valid. (96) These clauses are useful tools that significantly reduce uncertainty in future litigation and generally help streamline commercial transactions. (97) However, if the consumer is an unsophisticated vessel owner, then the situation begins to resemble the kind of one-sided relationship that state consumer protection laws seek to regulate. (98) A central goal of state insurance regulation is to protect consumers who lack the capacity to meaningfully assert their legal rights. (99) The Restatement safeguards residents as insurance consumers. (100) Specifically, the Restatement puts a limit on party autonomy by invalidating a COL clause that contravenes a fundamental policy of a consumer's home state. (101) Recognizing this fact, courts have adopted the Restatement analysis to ensure that COL clauses do not invalidate state consumer protection policies. (102)

While a strict application of Stoot to the facts of St. Paul was proper because both parties were sophisticated business entities engaging in an arm's length transaction, the same cannot be said if Stoot exclusively controlled the outcome of the hypothetical presented in this comment. Because the language in Durham is unclear as to whether a court must consider consumer protection laws of an insured's home state, the outcome of the hypothetical may be entirely possible under the present COL framework in the Fifth Circuit. (103) For this reason, the Fifth Circuit would improve its present COL doctrine by adopting the Restatement analysis in disputes between the unsophisticated insured and their insurance companies.

(1.) Mitchell J. Popham & Chau Vo, Misrepresentation and Concealment in Marine Insurance Contracts: An Analysis of Federal and State Law Within the Ninth Circuit, 11 U.S.F. Mar. L.J. 99, 103 n.18 (1999).

(2.) See Schoenbaum, Thomas J., Key Divergences Between English and American Law of Marine Insurance: A Comparative Study. 3 n.2 Centreville, Md.: Cornell Maritime Press, 1999; and Popham & Vo, supra note 1, at 130.

(3.) See Restatement (Second) Conflict of Laws (1971) [section] 187 comment e, ("Rationale. Prime objectives of contract law are to protect the justified expectations of the parties and to make it possible for them to foretell with accuracy what will be their rights and liabilities under the contract. These objectives may best be attained in multistate transactions by letting the parties choose the law to govern the validity of the contract and the rights created thereby. In this way, certainty and predictability of result are most likely to be secured. Giving parties this power of choice is also consistent with the fact that, in contrast to other areas of the law, persons are free within broad limits to determine the nature of their contractual obligations."); and M/S Bremen v. Zapata Off-Shore Co., 92 S.Ct. 1907, 1915 (U.S. Fla. 1972) (stating that "The elimination of all such uncertainties by agreeing in advance on a forum acceptable to both parties is an indispensable element in international trade, commerce, and contracting.").

(4.) See M/S Breman, 92 S.Ct. at 1915.

(5.) William J. Woodward, Jr., Constraining Opt-Outs: Shielding Local Law and Those It Protects from Adhesive Choice of Law Clauses, 40 Loy. L.A. L. Rev. 9, 13 (2006).

(6.) See supra note 3.

(7.) Great Lakes Reinsurance (UK) PLC v. Durham Auctions, Inc., 585 F.3d 236, 242 (5th Cir. 2009).

(8.) Keriann P. Langley, Great Lakes Reinsurance v. Durham Auctions: Why the Lack of Clearly Defined Fifth Circuit "Maritime Choice of Law Principles" Has the Potential to Hurt Insureds, 56 Loy. L. Rev. 1071, 1108 (2010) (stating that "While such an approach [i.e. a traditional contract approach] is likely correct where marine insurance policies are negotiated by sophisticated parties at arm's length or procured to insure luxury yachts, unsophisticated sole proprietors deserve a separate approach when insuring the vessels upon which their livelihoods rely."). (Alteration to original).

(9.) See Langley, supra note 8, at 1106-1107. "First, certain sole proprietors, such as fisherman and shrimpers, are dependent upon their vessels for their livelihood. For such people, marine insurance could reasonably be considered a necessity, since if their vessel is lost or damaged, their means of supporting themselves financially is gone."

(10.) Popham & Vo, supra note 1, at 113.

(11.) Banks McDowell, The Crisis in Insurance Regulation, 4 Westport, Conn.: Quorum, 1994.

(12.) Id. at 25. One of the biggest obstacles facing insureds during the nineteenth century was that insurers would deny claims based on hyper-technical defenses.

(13.) See McDowell, infra note 98 at 121 (noting that consumer-oriented states adopt policies that protect insureds against insurers).

(14.) Woodward, supra note 5, at 15.

(15.) See supra text accompanying notes 8-10.

(16.) See infra text accompanying notes 27-30.

(17.) St. Paul Fire & Marine Ins. Co. v. Bd. of Comm'rs of Port of New Orleans, 646 F. Supp. 2d 813, 819 (E.D. La. 2009) aff'd, 418 F.App'x 305 (5th Cir. 2011) (holding that a COL clause in a marine insurance contract was enforceable because the selected state's law did not violate federal maritime law).

(18.) James J. Healy, Consumer Protection Choice of Law: European Lessons for the United States, 19 Duke J. Comp. & Int'l L. 535, 552 (2009) (citing Cristina Poncibo, The Challenge of EC Consumer Law 3 (European Univ. Inst., Max Weber Programme Working Paper, MWP No. 2007/24, 2007).

(19.) Woodward, supra note 5, at 89.

(20.) See supra text accompanying notes 8-10.

(21.) S. Pac. Co. v. Jensen, 244 U.S. 205, 215 (1917). Superseded by statute

(22.) Id.

(23.) See Woodward, supra note 5, at 18.

(24.) Wilburn Boat Co. v. Fireman's Fund Ins. Co., 348 U.S. 310, 313 (1955) (citing New England Mutual Marine Insurance Co. v. Dunham, 11 Wall. 1).

(25.) Great Lakes Reinsurance (UK), PLC v. Rosin, 757 F. Supp. 2d 1244, 1250 (S.D. Fla. 2010).

(26.) See generally Langley, supra note 5, at 1087-88 ("More American courts follow [section] 187 than any other provision of the Restatement.") (citing Symeon C. Symeonides, American Private International Law 119 (Wolters Kluwer 2008) (2001)); Chan v. Soc'y Expeditions, Inc., 123 F.3d 1287, 1297 (stating that federal common law follows the approach of the Restatement (Second) Conflict of Laws in determining COL disputes); Woodward, supra note 5, at 19 (courts use the Second Restatement of Conflict of Laws analysis because it allows courts to analyze policies that underlie conflicting state laws) (citing for support Phillips v. Gen. Motors Corp., 995 P.2d 1002, 1007 (Mont. 2000) and In re Air Crash Disaster at Boston, Mass, on July 31, 1973, 399 F. Supp. 1106, 1100 (D.Mass. 1975); Symeon C. Symeonides, Choice of Law in the American Courts in 1994: A View "From the Trenches", 43 Am. J. Comp. L. 1, 3 (1995) (noting that the Restatement approach dominates American conflict of law questions).

(27.) Woodward, supra note 5, at 17 (stating that "The relevant conflicts rules for analyzing contractual choice of law clauses have been articulated in the Second Restatement of Conflict of Law Section 187, which is recognized by a plurality of states.") (Citing Restatement (Second) of Conflict of Laws [section] 187(2) (1989) and Symeon C. Symeonides, Choice of Law in the American Courts in 2003: Seventeenth Annual Survery, 52 Am. J. comp. L. 9, 28 (2004).

(28.) Restatement (Second) Conflict of Laws (1971) [section] 188(1).

(29.) See Langley, supra note 5, at 1089.

(30.) Pamela Edwards, Into the Abyss: How Party Autonomy Supports Overreaching Through the Exercise of Unequal Bargaining Power, 36 J. Marshall L. Rev. 421, 429 (2003).

(31.) The court must identify the state "...[which] would be the state of the applicable law in the absence of an effective choice of law by the parties." Restatement (Second) of Conflict of Laws [section] 187 (1971).

(32.) See Langley, supra, note 5, at 1089 (citing Symeon C. Symeonides, American Private International Law 119 (Wolters Kluwer 2008) (2001)).

(33.) Restatement (Second) Conflict of Laws (1971) [section] 187(2)(b).

(34.) Id.

(35.) Id.

(36.) Id. at [section] 188(1) (1971) "The rights and duties of the parties with respect to an issue in contract are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the transaction ..." (for analytic simplicity, the term 'lex causae' means the law of the state that would apply absent the COL clause as well as the law of the state that has the most significant relationship to the dispute).

(37.) Id. at [section] 188(3) "If the place of negotiating the contract and the place of performance are in the same state, the local law of this state will usually be applied."

(38.) Restatement (Second) of Conflict of Laws [section] 188 (1971) "(1) The rights and duties of the parties with respect to an issue in contract are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the transaction and the parties under the principles stated in [section] 6."

(39.) Id. at [section] 188(2) "... the contacts to be taken into account ... to determine the law applicable to an issue include: (a) the place of contracting, (b) the place of negotiation of the contract, (c) the place of performance, (d) the location of the subject matter of the contract, and (e) the domicile, residence, nationality, place of incorporation and place of business of the parties. These contacts are to be evaluated according to their relative importance with respect to the particular issue."

(40.) Id. at [section] 6(2). (The policy considerations are: "... (a) the needs of the interstate and international systems, (b) the relevant policies of the forum, (c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue, (d) the protection of justified expectations, (e) the basic policies underlying the particular field of law, (f) certainty, predictability and uniformity of result, and (g) ease in the determination and application of the law to be applied.").

(41.) Jason E. Pepe, Kansas's Conflict of Laws Rules for Insurance Contract Cases: It's Time to Change Policies, 46 U. Kan. L. Rev. 819, 829 (1998).

(42.) Restatement (Second) Conflict of Laws [section] 187(2)(b).

(43.) Id. at [section] 187, cmt. g. ("No detailed statement can be made of the situations where a 'fundamental' policy of the state of the otherwise applicable law will be found to exist ... [but] a policy must in any event be a substantial one.").

(44.) Id. [section] 187, cmt. c. ("Prime objectives of contract law are to protect the justified expectations of the parties and to make it possible for them to foretell with accuracy what will be their rights and liabilities under the contract.").

(45.) Id. [section] 187, cmt. g. ("Fulfillment of the parties' expectations is not the only value in contract law; regard must also be had for state interest and for state regulation.").

(46.) Id. [section] 187, cmt. e. ("... [A law] which is designed to protect a person against the oppressive use of superior bargaining power. [And] Statutes involving the rights of an individual insured as against an insurance company are an example...").

(47.) Healy, supra note 18, at 541 (citing McKee v. AT&T Corp., 191 P.3d 845, 852 (Wash. 2008)).

(48.) See generally Patricia Martin v. Great Lakes Reinsurance (U.K.), No. CV08-546, 2010 WL 94120 (D. Ariz. Jan. 6, 2010) (declaring that Arizona has a strong policy connection to the transaction because it has an interest in regulating insurance contracts within the state which involve its citizens); State Farm Mut. Auto. Ins. Co. v. Ballard, 54 P.3d 537 (N.M. 2002) (holding that the choice-of-law clause in the policy was unenforceable because upholding the clause would have reduced coverage for a discrete group of individuals based solely on their familial relationship to the insured which violated fundamental principles of justice for New Mexico residents and was therefore void.); Swanson v. Hartford Ins. Co. of Midwest, 46 P.3d 584 (Mont. 2002) (holding COL clause unenforceable because upholding clause would have prevented the insured's recovery of complete reimbursement which the majority viewed as inequitable and violative of Montana precedent).

(49.) Martin, No. CV-08-546, 2010 U.S. Dist. (Ariz. Jan. 6, 2010).

(50.) Id. at *591, *595.

(51.) Id. at *597 n.5.

(52.) Id. at *598 ("Arizona would be the state of the applicable law in the absence of an effective choice of law by the parties.") (internal quotation marks omitted).

(53.) Id.

(54.) Patricia Martin v. Great Lakes Reinsurance (U.K.) P.L.C., No. CV-08-546, 2010 U.S. Dist., *598 (Ariz. Jan. 6, 2010).

(55.) Id. at *598-599.

(56.) Id. at *598 ("Arizona courts have affirmatively created a cause of action to protect an insured from the unreasonable actions of an insurer.").

(57.) Hale v. Co-Mar Offshore Corp., 588 F.Supp. 1212, 1215 (W.D. La. 1984).

(58.) Id.

(59.) Id. at 1215-16.

(60.) Stoot v. Fluor Drilling Servs., Inc., 851 F.2d 1514, 1517 (5th Cir. 1988) (citing Hale, 588 F.Supp. at 1215).

(61.) Id.

(62.) See Original Brief of Plaintiffs--Counter Defendants--Appellees American Home Assurance Co. & Ins. Co. of North America, at 54, St. Paul Fire & Marine Ins. Co. v. Bd. Of Comm'rs of the Port of New Orleans, 418 Fed. Appx. 305 (5th Cir. 2010) (No. 10-30395), 2010 WL 4851853, (arguing that the analysis under both Hale and Stoot is "identical"). But see Langley, supra note 5, at 1095 (arguing that Hale's COL test could have allowed either federal admiralty law or state law to be the lex causae). (Langley's conclusion is correct in cases where maritime law does not apply automatically; however, the same cannot be said in cases involving marine insurance contracts which will always confer federal maritime law. Because a maritime insurance contract automatically confers maritime jurisdiction, then federal maritime law will always be the applicable 'jurisdiction,' (the lex causae), in the absence of a COL clause according to Hale.

(63.) See supra text accompanying notes 43-47.

(64.) Great Lake Reinsurance (UK) v. Durham Auctions, 585 F.3d 236, 241 (5th Cir. 2009).

(65.) Id at 237-38, 240.

(66.) Id at 238-39. ("It is hereby agreed that any dispute arising hereunder shall be adjudicated according to well established, entrenched principles and precedents of substantive United States Federal Admiralty law and practice but where no such well established, entrenched precedent exists, this insuring agreement is subject to the substantive laws of the state of New York.").

(67.) Durham, 585 F.3d at 241; see also Langley, supra note 5, at 1098, (discussing why Durham indicates a strong, judicial presumption favoring the enforcement of COL clauses against non-drafting parties in the marine insurance context).

(68.) Id. at 244.

(69.) See Id. at 237 (The defendant was domiciled and had his principal place of business in Mississippi, the policy was issued and delivered in Mississippi and the incident giving rise to the lawsuit occurred in Mississippi).

(70.) Id. at 245.

(71.) Id. at 244 ("Durham argues that application of New York Law would be contrary to fundamental policy of Mississippi. Assuming, arguendo, that this would be determinative, it has not been shown.") (dictum).

(72.) See Langley, supra note 5 (arguing that the Fifth Circuit has not adopted a clearly defined set of principles for determining COL disputes involving marine insurance contracts).

(73.) See Reply Brief of Plaintiff-Appellant Great Lakes Reinsurance (UK), PLC, at 4-7, Great Lakes Reinsurance (UK), PLC v. Durham Auctions, Inc., 585 F.3d 236 (5th Cir. 2009), 2009 WL 5408864 (C.A.5) (arguing that Mississippi law does not apply based on an earlier ruling by the U.S. Supreme Court and on the language of the Mississippi statute itself).

(74.) St. Paul Fire & Marine Ins. Co. v. Board of Com'rs of Port of New Orleans, 646 F.Supp.2d 813 (E.D.La. 2009) (Pursuant to Fifth Circuit Rule 47.5.4, this case was not published and therefore is not considered precedent. Despite this fact, a discussion of the court's reasoning is still valuable in demonstrating how COL analysis has evolved in the Fifth Circuit).

(75.) 646 F.Supp.2d 813, 816 (E.D. La. 2009).

(76.) at 816.

(77.) Id.

(78.) Id. (citing Stoot, 851 F.2d at 1517).

(79.) St. Paul, 646 F.Supp. at 816.

(80.) Id. (citing Durham, 585 F.3d at 244).

(81.) See supra note 38.

(82.) See supra note 39.

(83.) See supra note 40.

(84.) Restatement (Second) Conflict of Laws (1971) [section] 6(1) ("A court, subject to constitutional restrictions, will follow a statutory directive of its own state on choice of law.") (That is to say, the court will follow the statutory directives of the lex causae assuming that the contacts inquiry demonstrates a significant relationship to the dispute).

(85.) La. Civ. Code Ann. art. 3515 (1992) ("Except as otherwise provided in this Book, an issue in a case having contacts with other states is governed by the law of the state whose policies would be most seriously impaired if its law were not applied to that issue."); La. Civ. Code Ann. art. 3537 (1992) ("Except as otherwise provided in this Title, an issue of conventional obligations is governed by the law of the state whose policies would be most seriously impaired if its law were not applied to that issue.").

(86.) La. Civ. Code Ann. art. 3515 (1992) ("That state is determined by evaluating the strength and pertinence of the relevant policies of all involved states in the light of: (1) the relationship of each state to the parties and the dispute; and (2) the policies and needs of the interstate and international systems, including the policies of upholding the justified expectations of parties and of minimizing the adverse consequences that might follow from subjecting a party to the law of more than one state."); La. Civ. Code Ann. art. 3537 ("That state is determined by evaluating the strength and pertinence of the relevant policies of the involved states in the light of: (1) the pertinent contacts of each state to the parties and the transaction, including the place of negotiation, formation, and performance of the contract, the location of the object of the contract, and the place of domicile, habitual residence, or business of the parties; (2) the nature, type, and purpose of the contract; and (3) the policies referred to in Article 3515, as well as the policies of facilitating the orderly planning of transactions, of promoting multistate commercial intercourse, and of protecting one party from undue imposition by the other.").

(87.) Original Br. of Def. -Counter Claimant - Appellant, Bd. of Comm'rs of the Port of New Orleans, at 26-27, 7, St. Paul Fire and Marine Ins. Co. v. Bd. of Comm'rs of the Port of New Orleans, 418 Fed. Appx. 305 (No. 10-30395).

(88.) See supra text accompanying notes 38-40.

(89.) See Heimbaugh v. Fed. Ins. Co., 281 So.2d 839, 845-46 (La. App. 1st Cir. 1972) ("It is well settled that unless the insurer demonstrates that it has been actually prejudiced by its insured's failure to give notice of the accident or claim immediately, the insurer cannot defeat its liability to its insured under the policy because of [the] non-prejudicial failure of its insured to give immediate notice of the accident."); and 15 La. Civ. L. Treatise, Insurance Law & Practice [section] 7:4 (4th ed.) ("Late notice does not relieve insurer of the obligation to defend (and of liability for defense costs upon refusal to defend) unless the insurer can prove that it was actually prejudiced by the delay."), (citing as examples Moskau v. Ins. Co. of N. Am., 366 So. 2d 1004 (La. Ct. App. 1st Cir. 1978); Heimbaugh v. Fed. Ins. Co., 281 So. 2d 839 (La. Ct. App. 1st Cir. 1973), and Miller v. Marcantel, 221 So. 2d 557 (La. Ct. App. 3d Cir. 1969)).

(90.) See Mary Garvey Algero, The Sources of Law and the Value of Precedent: A Comparative and Empirical Study of A Civil Law State in A Common Law Nation, 65 La. L. Rev. 775, 799 (2005). ("... [W]hen, by repeated decisions in a long line of cases, a rule of law has been accepted and applied by the courts, these adjudications assume the dignity of Jurisprudence constante; and the rule of law upon which they are based is entitled to great weight in subsequent decisions.").

(91.) See supra note 43.

(92.) Julian S. Lim, Tongue-Tied in the Market: The Relevance of Contract Law to Racial-Language Minorities, 91 Cal. L. Rev. 579, 580-81 (2003). ("Continued immigration assures the presence in the U.S. marketplace of millions of monolingual Spanish- and Asian-language-speaking consumers, and thus creates great incentives for American businesses to accommodate Latina/o and Asian minorities. Instead, however, these immigrants meet great disadvantages and unfair practices when encountering business merchants and the morals of the marketplace.").

(93.) Collision policies in marine insurance cover damage to other vessels caused by the assured vessel.

(94.) See generally N.Y. Ins. Law [section] 3105 (McKinney); Nationwide Mut. Fire Ins. Co. v. Pascarella, 993 F. Supp. 134 (N.D.N.Y. 1998) (holding that insurer was allowed to completely void coverage based on a material misrepresentation made by the insured, even if the misrepresentation was purely accidental and unintentional).

(95.) See Mayes v. Mass. Mut. Life Ins. Co., 608 S.W.2d 612, 615 (Tex. 1980) (citing as support Wash. v. Reliable Life Ins. Co., 581 S.W.2d 153 (Tex. 1979); Allen v. Am. Nat'l Ins. Co., 380 S.W.2d 604 (Tex. 1964); Clark v. Nat'l Life & Accident Ins. Co., 145 Tex. 575, 200 S.W.2d 820 (1947)).

(96.) Chan, 123 F.3d at 1296-97 (citing Milanovich v. Costa Crociere, S.P.A., 954 F.2d 763, 767 (D.C. Cir. 1992)).

(97.) Woodward, supra note 7, at 23. But see Langley, supra note 5, at 1109 ("Although COL clauses have been cited as eliminating the time and expense of pretrial motions to determine COL, they actually do not have that effect because parties most often challenge the clauses anyway.").

(98.) Banks McDowell, Choice of Law in Insurance: Using Conflicts Methodology to Minimize Discrimination Among Policyholders, 23 Conn. L. Rev. 117, 122-24 (1990) (citing Leatherberry, Remedies for the Buyer of Beneficiary of an Unsuitable Life Insurance Plan, 32 Rutgers L. Rev. 431, 457-467 (1979)).

(99.) McDowell, supra note 11, at 19. ("Government should protect those people affected by the industry who do not have the power or leverage to compel those insurers that would not voluntarily conform to the industry expectations to do so.").

(100.) See supra text accompanying notes 45-48.

(101.) See supra text accompanying notes 27-30.

(102.) See supra note 26. See also Woodward, supra note 7, at 23 n.42.

(103.) See supra note 71. See also Langley, supra note 5, at 1109 ("...the lack of a clear framework for determining the enforceability of COL clauses could open the door for courts to regularly enforce COL clauses against non-drafting parties in other types of marine insurance policies where the policy is arguably an adhesion contract.").

By Jordan G. McFaull *

* Jordan G. McFaull, Juris Doctor Candidate 2014, Loyola University New Orleans College of Laws
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