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Insurance Update: Insurance Forum Selection Clauses are Enforceable

Bill Schwartz - 

In a decision rendered on May 8 by the Louisiana Supreme Court in the case of CREEKSTONE JUBAN I, L.L.C. VERSUS XL INSURANCE AMERICA, INC., the Court held that a forum selection clause in an insurance contract between businesses was not rendered unenforceable by La. R.S. 22:868.

This case concerns a disagreement over a claim for flood damage submitted by Creekstone/Juban I, LLC (“Creekstone”), a Delaware limited liability company, under a commercial property and casualty insurance policy (“Policy”) issued by XL Insurance America, Inc. (“XL Insurance”), a Delaware corporation. The Policy was issued to named insured MRMG Commercial and delivered to MRMG Commercial in Lufkin, Texas. Creekstone was one of 20 unrelated additional insureds who obtained coverage under the Policy, which covers over 100 properties in more than 20 states.

Creekstone is the owner of the insured property (commonly known as Juban Crossing), located in Livingston Parish, which consists of high-end, multi-use facilities for retail sales, restaurants and a theater. Creekstone is a single asset company that has no business other than Juban Crossing. The managing member of Creekstone is a Louisiana resident and Creekstone’s principal business office is in Baton Rouge. XL Insurance is licensed within Louisiana and admitted by the Louisiana Department of Insurance to issue various lines of insurance, including property and casualty insurance. XL Insurance’s address on file with the Louisiana Department of Insurance is in Connecticut.

The Policy includes a forum selection clause, whereby the parties agreed that “any disagreement” related to the Policy “shall” be brought exclusively in the State of New York.

In August 2016, as a result of a massive flood, Juban Crossing sustained  extensive flood damage to the buildings and their contents, including loss of revenue. Due to various issues in dispute that are not before this Court, XL Insurance did not immediately pay Creekstone certain additional requested sums, and Creekstone filed suit in the Twenty-First Judicial District Court, Parish of Livingston, State of Louisiana. In response, XL Insurance filed a Declinatory Exception of Improper Venue, Peremptory Exception of No Cause of Action, and Motion to Dismiss. XL Insurance argued that in the forum selection clause, the parties agreed to litigate all issues involving the contract exclusively in the State of New York. Creekstone opposed the motion, contending that the forum selection clause was invalid under La. R.S. 22:868, which provides that no insurance contract “delivered or issued for delivery” in Louisiana and covering subjects in Louisiana shall contain any provision “[d]epriving the courts of this state of the jurisdiction of action against the insurer.”

After a hearing, the trial court overruled XL’s exceptions and motion, finding that upholding the forum selection clause would violate Louisiana’s public policy. XL Insurance filed an application for supervisory writs, and the Court of Appeal, First Circuit, granted certiorari. After full briefing and argument, a five judge panel denied the writ in a split decision and without opinion. The Supreme Court thereafter granted XL Insurance’s application for supervisory writs.

The Louisiana Supreme Court noted that the U.S. Supreme Court’s decision in Bremen v. Zapata Offshore Co., which held that forum selection clauses “should be deemed presumptively valid and ordinarily enforceable, unless enforcement would be unreasonable, or the consent of the party challenging the clause was obtained through fraud or undue influence, or the chosen forum is unreasonable and seriously inconvenient.” The Louisiana Supreme Court noted that it followed Bremen and its previous decision of Shelter Mutual Ins. Co. v. Rimkus Consulting Group, Inc. of La., 2013-1977, p. 16-17 (La. 7/1/14), 148 So. 3d 871, and held that “[t]he right of parties to freely contract must encompass the correlative power to agree to bring suit under that contract in a particular forum.”

In now following that reasoning, the Louisiana Supreme Court found that “the parties to this contract are sophisticated Delaware entities engaging in a commercial transaction, and they exercised contractual freedom to resolve any dispute related to the contract in a particular forum in arm’s-length negotiations.” They concluded that to uphold the trial court’s ruling in this case “would undermine the ability of the parties to freely engage in sophisticated contractual agreements” and thereby impair the ability of companies to do business in this state. Contractually selecting a forum for resolving disagreements provides certainty and consistency for parties engaged in enterprises in multiple states, and the elimination of uncertainty “relative to the location of litigation by agreement in advance of an acceptable forum to both parties is an indispensable element of trade, commerce and contracting.”

The Court therefore held the case would be remanded back to the trial court to enter a ruling that the forum selection clause in the insurance policy was enforceable.

The Creekstone majority opinion was authored by Justice Crichton. Chief Justice Johnson and Justice Weimer concurred and assigned reasons. Justices Hughes and Genovese dissented and assigned reasons.

Click here for the entire decision.

If you have any questions regarding this insurance matter, please contact Bill Schwartz at (504) 569-2900 or wschwartz@bhbmlaw.com.


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