Property Casualty Focus

Not all policies contain forum-selection provisions or choice-of-law provisions. However, they likely will be enforced, as was the case for the insurer in Danaby Rentals Inc. v. Mt. Hawley Insurance Co., which stemmed from a coverage dispute over whether a commercial property policy provided coverage for damage sustained after a windstorm and hailstorm in South Texas. The insured, a Texas commercial property owner, was insured under a policy with both a New York forum-selection provision and a New York choice-of-law provision.

A dispute arose over what coverage was owed under the policy, prompting the insured to file suit in the U.S. District Court for the Southern District of Texas. In the first clash over jurisdiction, the insurer’s motion to transfer venue based on the policy’s forum-selection provision was successful, resulting in transfer of the case to the Southern District of New York.

After the transfer, the parties moved for summary judgment, revealing a second jurisdictional clash — this time, over choice of law. The insured, who asserted claims under the Texas Insurance Code, argued that Texas law applied. The insurer countered that the policy’s choice-of-law provision dictated that New York law applied. Rejecting the insured’s arguments that Texas public policy voids the policy’s choice-of-law provision and that enforcing the policy’s choice-of-law provision would violate the Constitution, the court held that New York law applied.  

First, the court determined that it must apply New York choice-of-law rules to evaluate each of the insured’s arguments because it was a court sitting in diversity in the state of New York. Upon that analysis, the court determined that New York choice-of-law rules prohibit engaging in a conflict-of-laws analysis where the parties have chosen to include choice-of-law provisions in their contracts. Further, the court found that there was no support for the argument that one state must invoke another state’s public policy to void a choice-of-law provision.

The court likewise rejected the insured’s constitutional arguments, finding that enforcement of the choice-of-law provision would not violate the due process and full faith and credit clauses. Acknowledging that aside from the policy’s New York choice-of-law provision, the parties lacked a connection to New York, the court relied on prior cases that “upheld the constitutionality of enforcing New York choice-of-law [provisions] where at least one of the contracting parties had additional contacts with New York, such as having an office in New York or engaging in activities there,” as well as cases suggesting that “choice-of-law and forum-selection clauses constitute sufficient contact with New York to support that state's interest in applying its law.”

Noting that New York, “as an international financial center,” has an interest in “affording predictability to parties who select its law” to serve as a model for which parties can structure their agreements and that the Supreme Court long abandoned the unpredictability of a complex balancing of interests approach, the court found that enforcing the choice-of-law provision would not violate the full faith and credit clause, originally aimed at eradicating policies of hostility toward sister states. The court likewise found that no party’s due process rights would be violated by enforcing the choice-of-law provision because there is no risk of unfair surprise or frustration of expectations where the parties assented to a choice-of-law provision. Accordingly, the court applied the choice-of-law provision and applied New York law to the parties’ dispute.