Texas Court Finds Marine Insurance Policy's New York Choice of Law Clause Does Not Defeat Extracontractual Tort Claims Brought Under Texas Law

November 2, 2010
By Richard Rusak & Keith Brais on November 2, 2010 4:00 PM | | Comments (0)

Denied Marine Insurance Claim Lawyer.jpgMany boat owners do not know Great Lakes insurance company buries a provision in its marine insurance policy requiring all disputes arising from the policy be governed under New York law in the absence of "well established, entrenched principles and precedents of substantive United States Federal Admiralty law". Even if the boat owner never traveled to New York, any dispute concerning the denial of a claim, in many instances, will be decided by New York law. The reason for this provision is because New York law favors insurance companies especially in the area of denying a claim in bad faith. Many states have statutes which provide for attorney's fees and even punitive damages against an insurance company if a claim is denied when the insurance company knew or should have known the policy covered the claim. For example the Texas Insurance Code provides for attorney's fees to be assessed against the insurance company for its failure to promptly, fairly, and equitably settle of a claim where coverage has become reasonable clear. By invoking New York law, Great Lakes is attempting to side-step any penalties for wrongfully denying marine insurance claims.

Courts throughout the country have found Great Lakes' New York choice of law clause is enforceable. However, a Federal Court in Houston, Texas determined the New York choice of law clauses only governs disputes as to whether a claim is covered or not. The court more importantly found the New York choice of law clause does not govern "extracontractual" claims for deceptive trade practices and attorney's fees for wrongful denial of the insurance claim which is allowed under Texas law. As such, this opinion unravels Great Lakes' strategy of being able to willfully and wrongfully deny marine insurance claims without fear of penalty.

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