{"id":898768,"date":"2021-05-19T15:21:24","date_gmt":"2021-05-19T21:21:24","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=898768"},"modified":"2021-05-19T15:21:28","modified_gmt":"2021-05-19T21:21:28","slug":"forum-selection-provision-insurance","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/forum-selection-provision-insurance\/","title":{"rendered":"How Forum-Selection and Choice-of-Law Provisions in Insurance Policies Can Affect Coverage"},"content":{"rendered":"\n

Jeffrey Mikoni and Matthew Putorti | Policyholder Pulse<\/a><\/p>\n\n\n\n

Location matters. Some states are more protective of policyholder or consumer interests than others. And so, where the case is ultimately litigated, and what law applies, can have profound implications for a policyholder\u2019s recovery.<\/p>\n\n\n\n

In an effort to secure the application of a body of jurisprudence they perceive to be more favorable to them, insurance companies will sometimes include provisions in policies mandating either that cases arising under the policy be filed in a certain court or conducted under a specified state\u2019s laws. We have\u00a0previously noted the limits of such choice-of-law provisions, especially when the selected state\u2019s laws conflict with the fundamental public policy of the state in which a coverage suit is filed. Now, a recent decision from a New York State court illuminates the limits of forum-selection clauses<\/a> in an insurance policy.<\/p>\n\n\n\n

The case is\u00a0North American Elite Insurance Company v. Space Needle, LLC<\/em>, currently playing out before both a state court in New York and a federal court in Washington State. At issue is a $160 million insurance policy that the company that owns the Space Needle, Seattle\u2019s notable landmark, purchased from North American Elite Insurance Company. Even though the Space Needle policy was issued in Washington to a Washington company to insure property in Washington\u2014the Space Needle itself\u2014North American Elite included a\u00a0Governing Law and Jurisdiction provision\u00a0that purported to submit the parties \u201cto the exclusive jurisdiction of the Courts of the State of New York,\u201d while waiving \u201call right to challenge or otherwise limit such jurisdiction.\u201d It also provided that the laws of the State of New York would \u201cgovern the construction and interpretation\u201d of the policy. North American Elite did this despite a Washington statute that prohibits the insertion of forum-selection and choice-of-law provisions into policies issued in Washington.<\/p>\n\n\n\n

Like so many other businesses in the past year, Space Needle sustained losses related to the pandemic, leading it to submit to North American Elite a\u00a0business interruption claim\u00a0for the \u201cmillions of dollars in lost revenues [it sustained] in connection with the Covid-19 pandemic and government orders issued after its outbreak.\u201d<\/p>\n\n\n\n

North American Elite reserved its rights under the policy and brought a declaratory judgment action in New York state court, asking the court to declare that the policy did not provide coverage. A week later, Space Needle sued North American Elite in the United States District Court for the Western District of Washington and argued that Washington law applied to the dispute and that it could litigate in Washington, notwithstanding the Governing Law and Jurisdiction provision.<\/p>\n\n\n\n

North American Elite then filed a motion for preliminary injunction in the New York case, seeking to enjoin Space Needle from continuing its lawsuit in Washington. A New York judge\u00a0denied that motion\u00a0and ruled in favor of Space Needle, refusing to block the federal suit in Washington.<\/p>\n\n\n\n

Recognizing that insurance is an industry regulated by the states, the New York court took note of a Washington statute, dating back to 1947, that prohibits any insurance policy issued in the state from \u201crequiring it be construed according to the laws of any other state\u201d or \u201cdepriving the courts of [Washington] of the jurisdiction of action against the insurer.\u201d By seeking permission to sell insurance in Washington, North American Elite agreed to abide by Washington law, including this statute prohibiting forum-selection clauses in policies and depriving Washington courts of jurisdiction. The forum-selection clause in the Space Needle policy, therefore, violated Washington law, and the New York court declined to enjoin Space Needle from continuing its Washington lawsuit.<\/p>\n\n\n\n

The court reached this conclusion even though it found that New York is a freedom-of-contract state, forum-selection clauses are prima facie valid, the parties are \u201csophisticated,\u201d and the policy language is unambiguous. But none of these considerations permitted North American Elite to sidestep the requirements of Washington state law, applicable to the policy at the time it was issued in Washington.<\/p>\n\n\n\n

This decision may have major implications for Space Needle. As North American Elite argued in the New York action, if the case proceeds in Washington, Space Needle can claim that it is entitled to punitive and bad faith damages\u2014damages that might be more difficult to obtain in New York. But the decision also has important lessons for policyholders everywhere:<\/p>\n\n\n\n