Insurer Wins Unanimous Decision in New York Choice of Law Battle

By James E. Mercante

In sports, there’s nothing like a clean sweep, a shutout, a perfect game or a unanimous decision. Anything close to a unanimous decision in the U.S Supreme Court these days is rare. Count a gritty marine insurer as part of the exclusive Supreme Court’s 9-0 club; winners by knockout in a hotly contested marine insurance dispute that braved its way from the District of Pennsylvania to the U.S. Court of Appeals for the Third Circuit and ultimately landed in the Supreme Court. And all the fuss was over the insurance contract’s selection of New York law to govern future disputes.

The financial stakes were not as high in the case as they were for the overall marine insurance market. Indeed, while the legal expense far exceeded the value of the claim, the tenacity of the marine insurer involved in digging in on a major principal of maritime law and not throwing in the towel, will turn out to be worth every penny for the future of marine insurance.

All the insurance company wanted was a fair fight, like any insurer involved in a disputed insurance coverage litigation. But the insured’s retaliation to a declaratory judgment action included extra-contractual counter claims for breach of fiduciary duty, insurance bad faith and breach of Pennsylvania’s Unfair Trade Practices Law. Such claims signal dangerous waters for an insurance company and often have the effect of trumping a fair assessment and adjudication of the claim itself. Faced with claims that could result in a shifting of attorney’s fees, treble damages and more, insurers typically settle rather than risk the pursuit of justice when such pursuit is not solely on the merits of the claim.

That all has changed for marine insurers since the Supreme Court’s unanimous decision on Feb. 21, 2024, to overturn the Third Circuit and enforce the insurance contract’s New York choice of law clause. Great Lakes Insurance SE v. Raiders Retreat Realty Company, 601 U.S. 65 (2024). The effect of enforcing the choice of law clause was to wipe out the state of Pennsylvania’s extra-contractual bad faith claims. This permits a resolution on the merits not clouded by the specter of bad faith and attorney’s fees.

Hitting Rock Bottom

Raiders Retreat (a Pennsylvania company) owned a yacht insured with Great Lakes Insurance for $550,000. The yacht ran hard aground in Florida waters, resulting in extensive hull and machinery damage. The United Kingdom-based marine insurer denied the claim citing alleged misrepresentations in statements by the insured prior to binding coverage and breach of express warranties contained within the policy.

The district court enforced the policy’s New York choice of law clause thereby sinking the extra-contractual claims sounding in Pennsylvania state law. Despite the insurance contract’s clear and unambiguous New York choice of law clause, the Third Circuit vacated and remanded permitting the district court to consider whether Pennsylvania state law has a ‘strong public policy’ to protect citizens insured in its state by applying its own state laws. 47 F.4th 225 (3d Cir. 2022).

With full appreciation of the significance of this ruling not only for the Great Lakes Insurance SE v. Raiders Retreat Realty Company case, but for the marine insurance market and maritime law as a whole, the insurer and its tenacious maritime coverage counsel, The Goldman Maritime Law Group, took an expensive gamble with a pitch to the Supreme Court. The thrust was to resolve once and for all a split in the Courts of Appeal regarding the enforceability of choice of law provisions in maritime contracts.

The decision authored by Justice Brett Kavanaugh concluded that choice of law provisions in maritime contracts are presumptively enforceable. The ruling is of utmost importance to the pursuit of uniformity in maritime laws throughout the United States as it will ‘reduce legal uncertainty’ and avoid a patchwork of marine insurance decisions throughout the 50 states. 601 U.S. *72, 77.

Bright Line Rule Adopted

As stated in the conclusion of my Admiralty Law column prior to oral argument, this would be the “Supreme Court’s opportunity to salvage a bright line federal rule permitting parties to a maritime contract to rely upon choice of law clauses that will be enforced by the courts. This is the only way to avoid parties running aground in mostly uncharted waters and laws of the 50 states…a federal maritime rule adopted by the Supreme Court will have the desired impact of promoting uniformity of law in this maritime nation”. (See, James E. Mercante, “Off to Sea the Wizard: High Court Takes on Marine Insurance Dispute”, New York Law Journal, April 19, 2023).

This is precisely what the court’s decision has accomplished. Having attended oral argument on behalf of the New York Law Journal, it was quite encouraging to hear nine Justices (none with maritime backgrounds to speak of) questioning and opining on intricate issues of maritime law and marine insurance history dating back six decades to the court’s last marine insurance dispute in Wilburn Boat v. Fireman’s Fund Insurance, 348 U.S. 310 (1955).

Justice Clarence Thomas was highly critical of Wilburn Boat in his concurring opinion and seemed eager to have the opportunity to reverse course on a decades old Supreme Court decision. Here, Thomas was adamant that Wilburn Boat was wrongly decided and reiterated that ‘uniformity’ and federal admiralty law requires strict compliance with express warranties in a marine policy. Similarly, under New York insurance law, a breach of warranty does not require a causal connection between the breach and the loss.

Judging Risk

A New York choice of law clause will be upheld according to the Supreme Court, unless the parties can “furnish no reasonable basis for the chosen jurisdiction.” 601 U.S. at *76. The court acknowledged that New York was a reasonable choice because its insurance law is well developed, well known and well regarded.

A choice of law clause enables the parties to a maritime contract to determine in advance (before a conflict arises) what law will govern a dispute, and in the case of a marine insurer, to better assess risk of exposure and the insurance premium to be charged. Thus, the Supreme Court’s decision is a giant step toward streamlining maritime contract disputes. It will avoid a tug-of-war over what law to apply when numerous jurisdictions are potentially implicated while providing a fair and unclouded judicial resolution on the merits of marine insurance litigation.

We are proud to announce that our attorney, Michael Stern, has been featured in the 16th edition of Millennium, A Marquis Who’s Who Magazine!

Michael Stern is an admiralty and insurance coverage attorney.  He is a litigator with more than 30 years of experience representing cargo insurers, terminal operators, vessel owners, charterers and operators, the Protection & Indemnity Associations, recreational vessel owners and their insurers, marinas, domestic and international insurers, reinsurers, reinsurance intermediaries, and international commodities trading houses in a wide variety of contract and claim specific issues for which his guidance or counsel is sought.  He maintains an active litigation and arbitration practice before federal, state, and international courts and arbitral bodies.  He has considerable experience acting in conjunction with foreign attorneys in contested matters pending before courts and arbitral fora in countries, including England, Singapore and Japan. 

See Michael’s feature here: https://marquismillennium.com/16th_Ed/278

 

Plaintiff was employed by GVK’s client when he was involved in a work-related accident while working on a project for Con Ed.  During discovery, we established through document responses and deposition testimony there was no written agreement between plaintiff’s employer and Con Ed. Citing the lack of a contract or grave injury, we moved for summary judgment arguing Workers’ Compensation Law § 11 prohibited Con Ed’s third-party claims against GVK’s. Despite a $4.5M demand by plaintiff, Con Ed conceded its claims against GVK’s client lacked merit and voluntarily discontinued its third-party action.

One of our new practice areas with the addition of Bruce M. Friedman and his team from Rubin Fiorella Friedman & Mercante LLP, is a full-service reinsurance practice. Bruce is among the most experienced reinsurance practitioners in the country. Bruce’s bio may be found at the GVK website.

While reinsurance is far removed from the daily thought processes and operations of claim adjustors and defense counsel, the actions of those persons can have implications on the reinsurance collection process.  The manner in which claim files are documented and maintained, settlements packaged and reported to reinsurers, and substantive reinsurance reporting, can all affect not only reinsurance recoveries but the speed with which reinsurance claims are paid.

Every insurance company purchases substantial reinsurance, both treaty and facultative, to protect its books of business and to enable the company to grow its premium base.  While insurers and their reinsurers are in an active trading relationship, few disputes are likely to develop.  However, there are always going to be principled disagreements relating to coverage.  Opioid, other public nuisance, COVID, sexual misconduct and cyber claims, occurrence-related issues, and reinsurance contract interpretation, are driving the majority of current reinsurance disputes, while asbestos and environmental claims continue to drive disputes on legacy business.

Today, with insurers and reinsurers increasingly selling off their discontinued lines of business, companies now find themselves having to collect reinsurance from or pay reinsurance to companies with whom they did not enter into the reinsurance contracts.  It is in this so-called “run-off” space that most of today’s reinsurance disputes are spawned.

Bruce and his team can be of assistance to GVK clients in many areas, including:

Our clients may already be familiar with Bruce and his reinsurance practice capabilities.  If not, we would appreciate the opportunity to introduce Bruce and his team to your ceded and/or assumed reinsurance staff.

On May 25, 2024, a federal court jury rendered a defense verdict following a week of trial concerning allegations that the defendant driver rear-ended plaintiff’s vehicle in a collision that occurred in the far left lane at the intersection of First avenue and 29th Street, Manhattan,  in the early morning hours of January 20, 2022. Plaintiff claimed to have been rendered unconscious by the collision, and later sought treatment from pain management specialists, chiropractic care and acupuncture. He later underwent surgeries to both shoulders claiming that the accident caused various tears to his shoulder tendons.

Plaintiff claimed in addition that he sustained herniations to his cervical and lumbosacral discs from the collision. He attended roughly 1000 visits to various medical professionals and claimed at trial that none of the treatment provided-including serial injections-afforded him any relief from his unrelenting pain. Plaintiff claimed at trial that the accident caused him to retire from his job as a driver for United Cerebral Palsy and further alleged that his disability required his wife to provide care for him as a paid homecare attendant. He alleged that he was rendered unable to perform his activities of daily living and that his wife had to perform these functions for him, including dressing him and providing for all his daily needs.

On cross examination Mr. Vitucci brought to the jury’s attention that plaintiff had suffered from a stroke two years prior to his retirement and in fact had attributed his retirement to the stroke in a letter signed by him and contained in his employment file. The letter was written two years prior to the subject accident.

After ruling on objections, the court admitted the letter into evidence as a prior inconsistent statement.

Mr. Vitucci further had admitted into evidence photographs which directly contradicted plaintiff’s testimony that the accident involved a rear-end collision. Over objection the court allowed testimony of the defendant driver that his view of the photographs-which he took at the scene of the accident-showed that there was only driver’s side damage including openings to the sheet metal of the driver’s side doors which could only have come from the rotary action of the truck tire’s lug nuts on the tractor’s driver’s side front tire.

Mr. Vitucci elicited testimony from the defendant driver that it was plaintiff who caused the contact by driving into the front right of the defendant’s tractor by trying to pass him from right to left. The testimony elicited was supported by the vehicle damage photographs which appeared to show a sideswipe event occurring from back to front on the driver’s side of plaintiff’s Toyota Camry.

It was ultimately argued that despite counsel’s contention that the matter involved a violent collision occasioned by a loaded tractor trailer weighing in excess of 26,000 pounds- that what really was in issue was a sideswipe impact caused by the negligent actions of the plaintiff.

The experts called by Mr. Vitucci supported this conclusion. Both medical experts opined-supported by their exams of plaintiff and their reading of MRI’s taken of the allegedly injured body parts that what was shown in the films and their exams was a typical presentation of degenerative body pathology that would be common for any 63 year old such as the plaintiff with no evidence of trauma being identified in their view.

Mr. Vitucci sharply questioned plaintiff’s medical experts with an eye to establishing that there was no need for the surgeries plaintiff underwent a month following the collision, and that in addition there was no evidence of causal relation of the accident to the claims of spinal issues and their after -effects. Defendant’s neurosurgeon instead pointed to the obvious prior conditions caused by his stroke. Both took issue with the idea that any of the plaintiff’s subjective complaints were in any way the result of the subject collision.

Plaintiff requested in summation that the jury award his client 1.25 million dollars for past and future pain and suffering and medical expense. After several hours of deliberation, the jury returned a verdict in favor of the defendants finding that the defendant driver was not negligent in the happening of the accident.

Partner, Patrick W. Kenny, was successful in obtaining summary judgment for a general contractor client. The client had contracted with the owner of the property to do renovations to various buildings on the property. Plaintiff, an employee of the Owner, alleged he was injured when he was removing garbage from a tenant garbage drop spot on the property when he was impaled on the wrist by a sharp unknown object resulting in two surgeries and nerve damage. Plaintiff claimed the object was construction debris placed there by GVK’s client, and that plaintiff had complained of construction trash bags being commingled with tenant garbage prior to the incident. Mr. Kenny, through the use of affidavits of non party co-workers of the plaintiff, showed that plaintiff’s narrative of the accident and complaints that formed notice were not true; that plaintiff was never able to identify what cut him and thus unable to identify a “defect or condition” that caused his accident; and that under Espinal no duty was owed to the plaintiff by our client. The court agreed, and following oral argument, issued an order and decision granting our client summary judgment and dismissing all claims against the client.

Gallo Vitucci Klar LLP Partner, Michael E. Stern recently prevailed on a motion for summary judgment in the Southern District of New York before the Hon. Ona T. Wang. The lawsuit alleged strict liability for fire damage to vehicles owned and being shipped by Daimler Benz and the M/V HONOR.

The plaintiffs HDI Global SE, as subrogee of Daimler AG and Mercedes Benz USA LLC; and American Roll-on Roll-off Carrier, LLC, owner of the M/V HONOR sued International Auto Logistics, Inc. (“IAL”) claiming that one of the cars carried by M/V HONOR for IAL caught fire causing damage to automobiles owned by Daimler, and to the M/V HONOR. IAL was under contract with the US Department of Defense to arrange for the transportation of personally owned vehicles for service members. In February 2017, IAL delivered about 600 cars to ARC at Bremerhaven, Germany for shipment to the U.S. East Coast. One of the personally owned vehicles, a 2010 Nissan Rogue, caught fire causing damage to Daimler vehicles and the vessel. The origin of the fire was determined to have been the solenoid in the starter motor of the Rogue but the cause could not be determined. The plaintiffs argued that IAL should be held strictly liable for the damages based on the section of the United States Carriage of Goods by Sea Act which provides that a shipper of “goods of an inflammable, explosive, or dangerous nature” can be strictly liable for damages when the carrier “has not consented with knowledge of their nature and character” of the goods.

On the motion for summary judgment, Mr. Stern persuaded the Court that based on the applicable domestic and international codes governing the transportation of hazardous goods, automobiles are not goods of an “inflammable, explosive or dangerous nature” as that phrase is used in COGSA. The Court also ruled that the ocean carrier [ARC] had knowledge of the nature and risks associated with transportation of vehicles. As such, the Court denied plaintiffs’ motion for summary judgment and granted IAL summary judgment dismissing the strict liability claims of both HDI Global and ARC.

Gallo Vitucci Klar LLP Partner, Alan R. Levy recently prevailed on a 2-week bench trial in the Civil Part at the Supreme Court of the State of New York – New York County before the Hon. Dakota D. Ramseur, J.S.C. The lawsuit alleged interference of a commercial lease due to construction incidents had been pending in the New York State Courts for twelve (12) years, resulting in several Summary Judgment Decisions and two (2) Appellate decisions before finally going to Trial, which resulted in a “no cause” verdict on behalf of our commercial landlord clients.

Plaintiff operated a veterinary clinic which was a tenant on the first floor of a commercial building owned by our landlord clients, and alleged from 2010 – 2012, their veterinary operations were interfered with due to ongoing construction projects on the three floors above them. In 2012 (shortly after signing a 10-year lease extension), the Plaintiffs filed suit against the landlords seeking more than $10 million in alleged lost profits along with claims for damaged property, rent abatement, etc. Over the next twelve 12 years, after two (2) separate Appellate decisions in 2014 and 2019, the bulk of Plaintiffs’ claims were dismissed, leaving Plaintiffs to pursue the claim of seeking a full rent abatement for the construction period at Trial, which (after pre-judgment interest) would have added up to approximately $750,000 if Plaintiff had prevailed.  The subject lease agreement included a unique provision stating the tenants were entitled to withhold rent if “more than thirty percent (30%) of the demised premises is damaged or affected thereby and the demised premises cannot be open for business to the general public.” During Trial, Mr. Levy persuaded the Court to preclude Plaintiff’s unreliable evidence as to what percentage of the property had been damaged. In addition, Mr. Levy successfully used Plaintiff’s own financials/accounting documents to show that the Plaintiff’s business had always remained open during the construction period.

As a result, following 2-weeks of trial testimony and motion practice before Judge Ramseur, the Court issued a decision holding that Plaintiff was not entitled to any recovery and dismissed Plaintiff’s Complaint in its entirety.

The head of Gallo Vitucci Klar LLP’s Maritime Department James Mercante appeared on CBS news to discuss the container ship collision with the Key Bridge in Maryland, the potential malfunctions leading up to the collision and the legal implications to come. Mr. Mercante also discussed the tragic incident on Canada’s Corus/Global News Radio Network, Newsmax with Greg Kelly and The Dan Abrams show.

Mercante also provided insight for The Washington Post’s coverage of the NTSB‘s preliminary findings and for The Baltimore Sun.

See newest article from The Baltimore Sun here.

See CBS news interview here.

See The Dan Abrams Show interview here.

See article from The Baltimore Sun News here.

See article from The Washington Post here.

 

 

The plaintiff, a 25 year old female was a passenger in a vehicle driven by codefendant which was driven into the left rear of an 80K lb dump truck owed by HC Trucking and operated by its employee. The accident occurred at 11:45 p.m. on the southbound Garden State Parkway in Monmouth County NJ.  The occupants of the SUV were returning from a “club” in Hazlet NJ when the operator of the SUV struck the left rear of the dump truck at an estimated 75 m.p.h. The accident happened at the start of a construction zone where the far right lane was being shut down by a tapering, reflective cone line. Signs were posted at least a mile before the construction zone directing a left merge and reducing the speed limit to 45 m.p.h.

Plaintiff alleged that based on a statement provided by the driver of the SUV following the accident and other physical evidence, that the dump truck didn’t see the SUV and changed lanes causing the accident. The defense countered that the SUV was speeding, following to closely, and that the dump truck was not changing lanes when the accident happened.  Defendants maintained the SUV closed on the dump truck at a high rate of speed and failed to complete a left hand swerve to avoid the accident. The defense position was supported by expert testimony from an accident reconstructionist. Th expert had to concede that the damage to both vehicle would have been the same under either version.

At the scene, the SUV operator was observed with slurred speech, bloodshot,  watery eyes and an odor of alcohol from his breath. A blood draw taken 2 hours after the accident indicated the driver’s BAC was .057. The defense expert toxicologist was permitted to testify to the physiological changes a driver experiences at .057 which included reduced inhibition and reaction time, sedation and reduced judgment. As a side note, criminal charges against the SUV driver were reduced to a DWI plea. However, defense counsel was precluded from using the plea at the subsequent civil trial per New Jersey’s “Civil Reservation “ statute.

The plaintiff sustained a traumatic amputation of her dominant right arm just below the shoulder; multiple right rib fractures with a resulting pneumothorax; fractures of the left thumb, left mid radial and ulnar shafts, all of which required ORIF. She also sustained multiple fractured and an injury to her right breast necessitating reconstructive surgery and extensive facial scarring. Due to her young age she also underwent multiple surgeries including revascularization of the right arm using a left thigh vein graft  and skin grafting to repair scaring.

Prior to the trial, Patrick negotiated a “Hi-Lo” agreement with plaintiff’s counsel with a 400K low and a 1M high. Any amount in between the high and low would be calculated by multiplying the plaintiff’s total damages by our client’s percentage of liability.

Following a 2 hour deliberation, the jury found the SUV driver to be 95% negligent and the owner and operator of the dump truck to be 5%. The jury awarded $7,500,000.00 in total damages. If the “Hi-Lo” had not been entered into, Patrick’s clients share of the total damages would have  only been 375K.  Plaintiff’s declined an overture of a 500K offer to settle out during the trial.