.

Defense Digest

Enforceability of Choice-of-Law Provisions in Maritime Contracts

Defense Digest, Vol. 30, No. 4, December 2024

December 1, 2024

by Ashley L. Davis

Key Points: 

  • Choice-of-law provisions in maritime contracts are enforceable.
  • The U.S. Supreme Court decision in Great Lakes Ins. SE v. Raiders Retreat Realty Co., LLC helps with the uniformity of federal maritime law.
  • This decision helps save on costs and time if there is a future dispute to the contract.

General Overview

A choice-of-law provision is a contractual provision that would be used to specify what law will govern the contract should a future dispute arise. Choice-of-law provisions have been known to be an issue when it comes to insurance contracts. A dispute arises when there are two different states’ laws that may be applicable to a contract and the parties do not agree on which one should be applied. If the parties do not agree and cannot decide which state’s law to apply, the court must then decide. These issues ultimately arise when the parties to the contract are in different jurisdictions. In many maritime contracts, the parties are from different jurisdictions, so this issue is one that comes up frequently. Enforceability of a choice-of-law provision is governed by federal maritime law. 

The Supreme Court of the United States recently applied federal maritime law in Great Lakes Ins. SE v. Raiders Retreat Realty Co., LLC, 144 S. Ct. 637, 642 (2024). Their decision has streamlined this issue by holding, when there is a choice-of-law provision in a maritime contract, the court must enforce it, except if one of the two exceptions applies. Further, the Supreme Court stated that a “[l]ongstanding precedent establishes a federal maritime rule: Choice-of-law provisions in maritime contracts are presumptively enforceable.” Before this case, the Court had not addressed this issue, but other lower courts had. 

Rule on Choice-of-Law Provisions 

In its unanimous decision, the Supreme Court determined that choice-of-law clauses in maritime contracts are presumptively enforceable under federal maritime law, subject to two narrow exceptions: (1) when the chosen law would contravene a controlling federal statute or an established federal maritime policy; or (2) when the contracting parties cannot show any reasonable basis for the chosen jurisdiction. With regard to the second exception, the court must apply “substantial deference to the contracting parties.” 

Advantages of Rule on Choice-of-Law Provision 

The Supreme Court stated: “By identifying the governing law in advance, choice-of-law provisions allow parties to avoid later disputes—as well as ensuing litigation and its attendant costs.” Great Lakes Ins. SE v. Raiders Retreat Realty Co., LLC, 144 S. Ct. 637, 644 (2024). Further, by allowing a choice-of-law provision to be enforceable in a contract, it will save time and money that would be expended on motions and hearings to determine which state’s law should apply to the dispute. If a maritime contract has a provision with the choice-of-law already agreed upon, there would be no dispute as to what law the court would apply to the case. Moreover, determining the choice-of-law in advance helps maritime shippers to decide on the front end “what precautions to take” on their ships (American Dredging Co. v. Miller, 510 U.S. 443, 454 (1994)) and enable[s] marine insurers to better assess risk (see Brief for American Institute of Marine Underwriters et al. as Amici Curiae, at pp. 12–13). Choice-of-law provisions, therefore, can lower the price and expand the availability of marine insurance. Should a dispute between parties arise, the court would then turn to the choice-of-law provision in the contract as the law to be applied, unless the contract falls within one of the two exceptions listed above. 

The Future

The Supreme Court did not discuss the “issue of federalism in admiralty and the scope of application of state law in maritime cases...” Great Lakes Ins. SE, 144 S. Ct. at 642 (quoting 1 T. Schoenbaum, Admiralty and Maritime Law § 4:4, p. 268 (6th ed. 2018). As stated above, this rule on choice-of-law provisions applies to federal maritime law. However, if a state court is hearing a maritime case, it can apply its state laws, as long as they do not conflict with the federal maritime law.

Conclusion

This decision is favorable for insurers as these provisions will generally be upheld in future contracts. Also, by having these provisions in maritime contracts going forward, insurers will be saving time and costs on disputing these issues pre-trial. Lastly, knowing what law will apply to the contract gives the contracting parties the advance opportunity to determine what protections/precautions they should take.

*Ashley is an associate in our Casualty Department and works in our Mount Laurel, New Jersey, office. 


 

Defense Digest, Vol. 30, No. 4, December 2024, is prepared by Marshall Dennehey to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2024 Marshall Dennehey. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact tamontemuro@mdwcg.com.

Firm Highlights

Thought Leadership

PA Middle District Dismisses Claims Against School District and its Superintendent, Principal, Special Education Director, and Classroom Teacher

A five-year-old special education student was enrolled in the Wyoming Valley West School District and attended the State Street Elementary School during the 2024-2025 school year. The student refused to clean up classroom toys at dismissal. When his teacher allegedly grabbed him by the wrist to walk him back to his seat, the student dropped to the floor and began crying. The teacher then allegedly grabbed the student by the ankle and dragged him across the floor. Following an investigation, criminal charges were not advanced by the county DA, and the school permitted the teacher to return to the classroom. The student’s parents sued, lodging thirteen legal counts under both state and federal law, which sought monetary damages from the teacher, the school district, the superintendent, the principal, and the director of special education. The plaintiff’s 42 USC 1983 claims were dismissed as to the school district for failure to allege a policy or custom violation, and the failure to alleged deliberate indifference in the failure-to-train context. As to the superintendent, building principal, and special education director, the Section 1983 claims were also dismissed for failure to allege personal involvement on the part of the individuals. Regarding an equal protection claim asserted against all defendants, the motion to dismiss was also granted for a failure to advance a plausible equal protection claim, holding that “plaintiffs' single-act allegations do not include a factual basis to even infer that the act was motivated by discriminatory animus rather than some other non-discriminatory impulse.” The court further dismissed the plaintiff’s negligence-based claims including negligence against the teacher and district administrators, NIED, and vicarious liability under the Political Subdivision Tort Claims Act (PSTCA). The federal claims under the IDEA, Section 504, and the ADA were also dismissed in various respects. The IDEA claim was dismissed against all defendants with prejudice for failure to exhaust administrative remedies. The Section 504 claims against the individual defendants were also dismissed with prejudice, as districts, not individuals, are the recipients of federal funds under Section 504. However, the Section 504 and ADA claims were dismissed without prejudice as to defendant Wyoming Valley West, and the plaintiff was permitted leave to amend.

Thought Leadership

U.S. Supreme Court Decides Key Issue Regarding Interstate Freight Broker Liability

Freight brokers are intermediaries.  They connect shippers of goods with trucking companies that transport those goods.  Freight brokers match a load of freight with a trucking company and oversee the logistics of the transportation. For a number of years there has been a division among the Federal Circuits regarding the potential liability of freight brokers when the trucking companies that they retain for interstate loads are involved in accidents.  At the center of this division was the Federal Aviation Administration Authorization Act of 1994 (FAAAA).  Some Federal Circuit Courts have held that state law negligent hiring claims against freight brokers were preempted by the FAAAA .  Other Federal Circuits Courts have held that even if preemption applied, the “safety exception” in the FAAAA saved state law negligent hiring claims from federal preemption.  On May 14, 2026, the U.S. Supreme Court addressed the conflict in Montgomery v. Caribe Transport II, LLC, et al, No24-1238. In that case freight broker C.H. Robinson selected Caribe Transport to haul an interstate load. The commercial truck driver employed by Caribe Transport allegedly caused an accident and the plaintiff, Montgomery, was seriously injured. Montgomery brought an action against the driver, Caribe Transport and C.H. Robinson. The allegation against C.H. Robinson was that it negligently retained Caribe Transport when it knew, or should have known, that it was an unsafe company. The Seventh Circuit Court of Appeals held that Montgomery’s claims against C.H. Robinson were preempted by the FAAAA. The plaintiff appealed to the U.S. Supreme Court.  The U.S. Supreme Court’s decision focused primarily on the safety exception in the FAAAA.  That provision provides that the FAAAA preemption “…shall not restrict the safety regulatory authority of a State with respect to motor vehicles.” C.H. Robinson argued, as freight brokers historically have, that their function was not “with respect to motor vehicles” because they do not own trucks or employ drivers. They are merely intermediaries, connecting entities who need freight moved with entities who can do that job. Therefore, C.H. Robinson argued that preemption applied, not the safety exception. The U.S. Supreme Court did not accept that argument. The Court focused on the meaning of the phrase “with respect to” in the safety exception. The Court held that it means “referring to”, “concerning” or “regarding”. Therefore, writing for a unanimous Court, Justice Barrett concluded that “[r]equiring C.H. Robinson to exercise ordinary care in selecting a carrier therefore “concerns” motor vehicles—most obviously, the trucks that will transport the goods. So, Montgomery’s negligent-hiring claim falls within the FAAAA’s safety exception, which saves it from preemption.” Justice Kavanaugh, in his concurring opinion, noted the effect this ruling may have on freight brokers and their insurers throughout the country: Importantly, the Court's decision today should not be read to mean that brokers will routinely be subject to state tort liability in the wake of truck accidents. As even plaintiff's counsel stressed, brokers should be able to successfully defend against state tort suits if the brokers have acted reasonably and arranged transportation with reputable trucking companies. Tr. of Oral Arg. 27-29. In plaintiff's counsel's words, the brokers "just have to hire carriers that actually have a reasonable policy," and "the broker is not going to have a problem if it's asking the hard questions of the carrier." Id., at 42, 45. In addition, the proximate-cause requirement in typical state tort law should help protect brokers from excessive liability. Id., at 25. That said, the brokers rightly caution against naivete. In the real world, as the brokers forcefully respond, state tort law can be unpredictable, and the costs to brokers of litigation and insurance may be significant even when brokers prevail in lawsuits. Moreover, the costs of litigation and insurance, as well as the costs of brokers' conducting more substantial inquiries into trucking companies, will cascade through the economy and be paid in part by American consumers in the form of higher prices. The concerns expressed by the brokers are legitimate and weighty. The key point here is that freight brokers can no longer claim they are protected from negligent retention claims by the FAAAA (in cases involving interstate transportation). The challenge will be to determine what is considered ”reasonable efforts” used by brokers when retaining transportation companies. 

Result

No-Cause Jury Verdict Secured in Wrongful Death Trial

We successfully obtained a no-cause jury verdict in a 13-day wrongful death trial. The decedent, a 59-year-old man, was admitted to the emergency room on February 15, 2019, with complaints of abdominal pain, decreased appetite, and constipation, despite the use of laxatives. The patient did not complain of any nausea, vomiting, or diarrhea. He had a significant medical history including diabetes, hypertension, prior coronary artery stenting, morbid obesity (with past gastric bypass surgery), longstanding ventral hernia, and back pain. A CT scan revealed multiple hernias and a potential closed-loop bowel obstruction, leading to a surgery consultation. Our client, an emergency general surgeon, interpreted that the patient did not have a closed loop or any significant obstruction and recommended non-surgical management. The patient was approved to have clear liquids, and had a vomiting incident shortly after, but our client was not notified. The patient was returned to NPO status, and after improving overnight, he was returned to “clears” and additional medical and renal consults were ordered. Our client did not receive any communications from the residents/nurses of any changes in the patient’s condition. On February 18, 2019, two rapid responses were called due to increased heart rate and vomiting. It is believed that the vomiting resulted in aspiration, causing sepsis, ultimately leading to the patient’s death. During the trial, the plaintiff’s sole medical expert highlighted imaging on the wrong hernia, which called into question all of his opinions in the case. We made key objections related to the expert testimony, limiting what the allegations were, and preventing new allegations from being made. After approximately two and a half hours of deliberating, the jury returned a no-cause verdict.