Chennault International Airport Authority v. Starr Surplus Lines Insurance Co.
Chennault International Airport Authority v. Starr Surplus Lines Insurance holding is one step forward in invalidating mandatory forum selection clauses in surplus line insurance policies.
In Chennault International Airport Authority v. Starr Surplus Lines Insurance, the Court denied defendant insurer’s motion to transfer venue because the forum selection clause contravened Louisiana’s strong public policy. Further, the Court granted plaintiff’s Motion for Partial Summary Judgment, holding that Louisiana Law is considered in determining applicable public policy interests.
The plaintiff’s claims arose from property damage caused by Hurricane Laura and Hurricane Delta. The plaintiff, an airport and political subdivision of the state, maintained a surplus lines policy with defendant insurer at all relevant times. The policy contained a mandatory forum selection clause which read as follows:
“Any suit, action, or proceeding against the COMPANY must be brought solely and exclusively in a New York state court or a federal district court sitting within the State of New York. The laws of the state of New York shall solely and exclusively be used and applied in any such suit, action, or proceeding, without regard to choice of law or conflict of law principles.”
When the defendant insurer failed to fully compensate the plaintiff for their claims, plaintiff filed suit in the Western District of Louisiana. Immediately, defendant motioned to transfer venue, pursuant to the mandatory forum selection clause.
Plaintiff opposed the motion to transfer venue, alleging that it was not bound by the policy’s New York choice of law clause and requesting the Court to consider Louisiana Revised Statute 9:2778 when determining the enforceability of the clause. La.R.S. 9:2778 declares that clauses in “public contracts involving the state or a political subdivision of the state” and requiring resolution of disputes thereunder outside of the state or under the laws of a different state are “null, void, and unenforceable, and against public policy[.]” Thereby, plaintiff argued, the choice of law and forum selection clauses in the defendant insurer’s policy was unenforceable.
Ultimately, the Court agreed with the plaintiff, making several important findings in the process. First, the Court determined that Louisiana law, as opposed to federal law, could be used to challenge the enforceability of the clause. In holding such, the Court cited the Fifth Circuit’s decision in Haynsworth v. The Corporation, requiring consideration of whether “the enforcement of the forum selection clause would contravene a strong public policy of the state” to determine “fundamental unfairness.”
The plaintiff correctly identified La.R.S. 9:2778 as Louisiana’s strong public policy. While defendant insurer maintained that La.R.S. 9:2778 excludes insurance policies, the Court examined the legislative history and applicable case law and found that the application of 9:2778 “suggests a broad construction of the term ‘public contract,’” thus including a political subdivision’s property insurance policy.
Defendant insurer also argued that Louisiana insurance policies are governed by the Louisiana Insurance Code, Title 22. In making this argument, defendant states that La.R.S. 22:868(D) specifically exempts surplus lines policies, like the policy at issue, from Title 22’s prohibition on forum selection clauses.
In considering the defendant’s argument, the court found that, while La.R.S. 22:868 may not evidence a strong public policy against forum selection clauses in surplus lines policies, it “does not mean that it does not exist.” La.R.S. 9:2778 contains the strong public policy and the legislature failed to cross-reference 9:2778 with 22:868(D) or give any indication that Title 22 supersedes all other statutes on the subject.
Therefore, the court found that the policy’s forum selection and choice of law clause was unenforceable because the plain terms of the 9:2778 indicate Louisiana’s strong public policy against both forum selection clauses and choice of law clauses in an insurance policy requiring a political subdivision of the state to litigate its insurance claim in New York and under New York law. Significantly, while denying the motion to transfer venue, the Court explicitly narrowed the holding, stating that “This is clearly a valid area of state concern; it does not relate to private actors and their right to contract but to clauses in public contracts that would potentially subject a state actor to litigation under the laws of another state in an out-of-state forum.”
The Chennault holding is incredibly significant to contractors and public entities alike. As the holding states, strong public policy against forum selection clauses can exist outside of Title 22, and when the other statutes do not cross reference Title 22 or indicate that Title 22 supersedes, courts must consider other contract statutes invalidating forum selection clauses as evidence of a strong public policy.
La. R.S. 9:2779, is the proceeding statute and relevant to the construction industry, and states that provisions in construction contracts, subcontracts, and purchase orders for public and private works projects requiring disputes to be resolved in a forum outside Louisiana are inequitable and against public policy, when one of the parties is domiciled in Louisiana, and work is done in Louisiana. For the same reason that this case found that an insurance policy can fall under the purview of a “public contract,” it follows that an insurance policy for a construction contract, i.e., CGL policy or builder’s risk policy, can be categorized as a construction contract. Therefore, Chennault International Airport Authority v. Starr Surplus Lines Insurance provides persuasive authority and is one step forward in invalidating forum selection clauses in construction insurance policies as a matter of strong public policy.