Supreme Court confirms forum selection clause in insurance contract

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About the photo: Juban Crossing Mall occupies 1.2 million square feet in Denham Springs, off Interstate 12 east of Baton Rouge.

In a split decision, the Louisiana Supreme Court overturned a lower court and ruled that the owner of a flooded mall must settle his dispute with his insurer in New York.

The court said in a 3-2 decision that the Livingston Parish Court erred in concluding that Louisiana Public Order invalidated a provision of the XL Insurance policy that required that any dispute be resolved in a court of law. other state. Such choice of court clauses are common in insurance contracts and have generally been observed by states.

Three Louisiana Supreme Court justices saw no reason to rule that XL’s choice of forum was unenforceable, but Judge Jefferson D. Hughes III and James T. Genovese disagreed. Hughes wrote in a dissenting opinion that it is “ludicrous” to require a Louisiana company that employs Louisiana contractors to repair flood damage to litigate a dispute with its insurer in New York City.

“The contempt for the affairs of Louisiana and the Louisiana legislature is remarkable,” said Hughes.

Creekstone / Juban I, LLC built the 1.2 million square foot Juban Crossing Mall in Denham Springs, on the outskirts of Baton Rouge. The company purchased insurance through a policy that included more than 100 properties in 20 states. According to a footnote to the ruling, insurance brokers often build to sell such bundled policies, linking independent policyholders with joint operations into risk groups, to secure more favorable terms.

In August 2016, after prolonged rains, Juban Crossing was submerged in flood waters that reached a height of four to five feet, according to a local report. Initially, XL Insurance paid Creekstone $ 5 million for damages, but various issues remained in dispute.

Creekstone filed a complaint with the 21st District Judicial Court for the Parish of Livingston. XL filed a motion to dismiss the action, citing the clause in the policy that required the parties to argue all issues in New York.

Creekstone objected, citing a state law that prohibits any insurance contract issued in Louisiana from depriving state courts of “jurisdiction of action against the insurer.”

The trial court sided with Creekstone, ruling that the forum’s selection case violated Louisiana public order. The Court of Appeal of the 1st circuit confirmed the decision of the court of first instance.

But the majority of the Supreme Court ruled that Contract XL does not deprive Louisiana courts of jurisdiction over the litigation, it simply declares that New York is the appropriate place for any action. If lawmakers wanted to prohibit insurance contracts from requiring disputes to be settled in specific places, it could easily have written the law to say exactly that, the majority said.

Chief Justice Bernette J. Johnson wrote a concurring opinion noting that she had participated in several decisions in which the Supreme Court had upheld the applicability of choice of court clauses.

“In accordance with my actions in Lejano and Shelter Mutual, I agree with the majority in this case that the sophisticated entities involved were engaged in a commercial transaction and exercised their contractual freedom to resolve any dispute related to this contact in a particular forum, ”Johnson wrote.

Hughes said the cases Johnson mentioned did not involve insurance contracts. Revised Louisiana Law 23: 868, unchanged for 66 years, applies specifically to insurance contracts and prohibits any provision that would deprive Louisiana courts of the jurisdiction of action.

“It is difficult to understand what objective the legislature had in mind with this law other than to prevent what is happening here,” said Hughes.

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