More and more frequently, insurers are including 'choice of forum' provisions in their policies in which these insurers identify a particular state or country where coverage litigation 'must' be pursued. Usually, the required forum is more favorable to the insurer that issued the policy, than to the insured that purchased it. For example, foreign insurers sometimes will include a British forum selection clause. This is not surprising ' British courts generally do not resolve insurance coverage disputes by jury trial or allow bad faith claims that would support an award of punitive damages. Given this favorable treatment for insurers, insurers involved in coverage litigation often are quick to argue that the law is clear with respect to how forum selection clauses should be interpreted. According to these insurers, the provisions must be strictly enforced ' there is no room for any argument regarding where coverage litigation should go forward.
While in the past few decades a body of law has developed in federal courts that provides some support for this approach, the standard is not nearly as rigid as insurers would have their insureds and courts overseeing coverage litigation believe. In fact, there are many arguments that an insured can make to overcome strict application of a forum provision contained in a relevant insurance policy.
The Bremen Decision
Understanding these arguments requires an analysis of case law on the subject that has developed since 1972 when the U.S. Supreme Court issued its ruling in M/S Bremen v. Zapata Off-Shore Co. , 407 U.S. 1 (1972). In that action, the court addressed a dispute between Zapata, a Houston-based corporation, and Unterweser, a German company, regarding damage to Zapata's property that was transported by Unterweser. The contract between the parties initially was drafted by Unterweser and forwarded to Zapata for comments. The draft agreement contained a British choice of forum provision for disputes between the parties. Before finalizing the contract, Zapata modified a number of its provisions, but did not modify the forum provision. Id. at 4. Despite the British forum clause, Zapata sued Unterweser in Florida. Unterweser thus moved to dismiss that action based upon lack of jurisdiction. The trial court denied the motion (and the appellate court upheld that denial), based upon then existing law that stated, 'agreements in advance of controversy whose object is to oust the jurisdiction of the courts are contrary to public policy and will not be enforced.' Id. at 6. The Supreme Court reversed the lower court's ruling observing that then existing law did not address the realities of the modern business world. According to the Court:
the barrier of distance that once tended to confine a business concern to a modest territory no longer does so … The expansion of American business and industry will hardly be encouraged if, notwithstanding solemn contracts, we insist on a parochial concept that all disputes must be resolved under our laws and in our courts. Id. at 8-9.
Based upon that acknowledgement, the Court further ruled that 'a freely negotiated private international agreement, unaffected by fraud, undue influence, or overweening bargaining … should be given full effect.' Id. at 12-13 (emphasis added). Because the Court concluded that 1) the forum clause was a vital part of the parties' agreement, 2) the contract was carefully negotiated, and 3) the contract was not a 'form contract with boilerplate language that Zapata had no power to alter,' it enforced the British forum requirement. Id. at 14 n.14. The Court was not influenced by Zapata's claim that litigating in a foreign forum would be inconvenient, but did specifically hold that 'inconvenience' was an additional factor that could weigh against application of the forum clause if the opponent of enforcement of the clause can show that 'it will be effectively deprived of a meaningful day in court.' Id. at 19.
Overcoming Strict Enforcement
Since Bremen, a number of courts have sought to define its breadth and applicability to determine what circumstances could overcome strict enforcement of a forum provision. Although many courts ultimately have enforced the forum selection clause at issue, a number of these cases make clear that if the right facts are present, such a clause can be rendered unenforceable. See , e.g. , Carnival Cruise Lines, Ltd. v. Shute , 499 U.S. 585 (1991) (' Carnival (Shute) '); Argueta v. Banco Mexicano, S.A. , 87 F.3d 320 (9th Cir. 1996); Fireman's Fund Ins. Co. v. M.V. DSR Atl. , 131 F.3d 1336 (9th Cir. 1997); Holland Am. Line Inc. v. Wartsila N. Am., Inc., 485 F.3d 450 (9th Cir. 2007). Insureds thus should carefully analyze the facts surrounding policy underwriting before they presume that they must litigate in a foreign forum. In fact, depending on the particular circumstances of a given dispute, there may be opportunities to argue that a forum selection clause is not enforceable.
In Carnival (Shute), for example, a husband and wife who lived in Washington (the Shutes) purchased tickets for a Carnival Cruise Line cruise. In connection with the cruise, Carnival sent to the Shutes tickets that contained a clause designating Florida as 'the agreed-upon fora for the resolution of disputes.' 499 U.S. at 586. While on the cruise, Mr. Shute was injured. The couple sued Carnival in a Washington court to recover for his injuries. The trial court granted Carnival's summary judgment motion regarding forum. However, the appellate court reversed, holding that 'the forum-selection clause should not be enforced under … Bremen … because it was not 'freely bargained for' and because its enforcement would operate to deprive the Shutes of their day in court in light of evidence indicating that they were physically and financially incapable of pursuing the litigation in Florida.' Id.
The Supreme Court disagreed and held that the forum selection clause was enforceable. In doing so, however, the Court reiterated the Bremen Court's conclusion that such a clause is not always valid. In particular, the Court held that 'inconvenience' to the party against whom the clause was to be enforced may, in some instances, be enough to avoid a foreign forum. The Court observed that the inconvenience must be 'serious' and that the requested forum must be 'remote' and 'alien,' such as when a contract is negotiated in the United States among U.S. entities, but includes a forum in a foreign country. Id. at 632. The Court concluded that the record before it was not sufficient to resolve the 'serious' inconvenience factor with respect to a Florida forum, and that, in any event, given the location of the loss and other factors, the Shutes had not met their 'heavy burden of proof.' Id.
The Court's ruling against the Shutes also was based on the fact that the Shutes actually had notice that the tickets they purchased required litigation in Florida. According to the Court, the Shutes 'essentially ha[d] conceded that they had notice of the forum-selection provision.' Id. at 590. By recognizing this fact, the Court suggested that if the Shutes had not been informed of the forum clause at the time of contracting, that fact might support a different result.
In Matrix Z, LLC v. Landplan Design, Inc. , 493 F. Supp. 2d 1242, 1248 (S.D. Fla. 2007), a Florida-based company ('Matrix') entered into a contract with a company based in South Carolina ('Landplan') for a public works project in South Carolina. The contract at issue consisted of an invoice sent by fax from Matrix to Landplan. Once a contract dispute arose between the parties, Matrix sued in a Florida court, claiming that the 'Terms and Conditions' on the back of the form 'invoice' sent by Matrix included a Florida choice-of-forum provision. Id. at 1244. Landplan disputed the Florida forum, claiming that it never received the 'Terms and Conditions' provision and thus never agreed to a Florida forum. Id. at 1245. In the context of ruling on Landplan's objection to 'personal jurisdiction,' the court observed that under Bremen the 'presumption of enforceability of forum selection claimed may be overcome by a clear showing that the clause is unreasonable under the circumstances.' Id. at 1248. In considering whether enforcement was unreasonable, the court looked to whether Landplan actually was given the forum selection clause at the time of contracting. The court concluded that Landplan did not receive the clause, and that it was, therefore, more likely than not that 'the forum selection clause was not part of the contract between the parties.' Id. See also Carnival Cruise Lines, Inc. v. Superior Court , 234 Cal. App. 3d 1019, 1026-27 (1991) (' Carnival (Secard) ') ('We hold that the forum-selection clause is unenforceable as to any particular plaintiff if the court determines that such plaintiff did not have sufficient notice of the forum-selection clause prior to entering into the contract for passage. Absent such notice, the requisite mutual consent to that contractual term is lacking and no valid contract with respect to such clause thus exists.'); Hunt v. Superior Court , 81 Cal. App. 4th 901, 908 (2000) “('[W]hen the [forum selection] clause does not give adequate notice to the defendant that he is agreeing to the jurisdiction cited in the contract, 'the requisite mutual consent to that contractual term is lacking and no valid contract with respect to such clause thus exists.”)
The Ninth Circuit Court of Appeals reached a similar conclusion in Holland America Line Inc. v. Wartsila North America, Inc. , 485 F.3d 450 (9th Cir. 2007). In that action, a fire destroyed a Holland America cruise ship during a voyage between two Tahitian ports. Holland America sought to enforce a Washington state forum selection clause contained in purchase orders that it had issued to the defendants. Holland America sued these entities in Washington, claiming that each defendant had failed to conduct adequate surveys, which resulted in the fire on the ship. Id. at 454. Each of the defendants challenged jurisdiction, claiming that, in part, they had not been given adequate notice of the Washington choice of forum provision. The district court agreed. Id.
The court affirmed because Holland America could not demonstrate that the defendants had received notice of the provision. In fact, as support for its position that the clause should be enforced, Holland America claimed only that: 1) it sent the contract terms (including the forum selection clause) to an unidentified e-mail address and 2) the defendants had notice of the terms because they appeared on Holland America's Web site. The court rejected this evidence and ruled against Holland America's choice of forum based upon its conclusion that '[t]he fundamental element lacking here is any evidence that either Wartsila or Wartsila Finland agreed to the clause.' Thus, the court concluded that Holland America failed to prove sufficient notice of the forum selection clause or that it was agreed to by the parties against whom enforcement of the provision was sought.
The court also rejected Holland America's claim that it would 'be deprived of its day in court' if it were forced to litigate the dispute in a foreign forum, such as France. 485 F. 3d at 457. In particular, Holland America argued that under French law it would have no right to a jury trial, and that fact violated public policy. The court declined to rule substantively on whether that fact was sufficient for Holland America to avoid a French forum. Instead, the court ruled that Holland America waived any such argument by not timely raising it. Id. Thus, the court left open the possibility that under the right set of facts, a party may have a basis to avoid a forum selection clause if it can prove that in a foreign jurisdiction the party's rights or protections would be diminished or otherwise significantly prejudiced. See also, Argueta v. Banco Mexicano, S.A. , 87 F.3d 320, 326-27 (9th Cir. 1996) (forum selection clause may not be enforceable if party can prove with admissible evidence that it cannot obtain counsel in foreign country or that travel to foreign country is impossible or dangerous); McDonnell Douglas Corp., v. Islamic Republic of Iran , 758 F.2d 341, 345-46 (8th Cir. 1985) (court found that there was a 'compelling and countervailing reason' why Iranian forum selection clause should not be enforced because evidence established that McDonnell Douglas 'could not receive a fair day in court in Tehran's Islamic Court of First Instance.')
Perform a Careful Analysis
In light of these and other cases, insureds should not presume that a forum selection clause cannot be disputed or challenged. In fact, case law appears to support an argument that if an insured had no knowledge of a forum clause before a policy in which the clause is contained was issued, there could not have been a 'meeting of the minds' sufficient to bind the insured to the clause. In light of that fact, before an insured acquiesces to an insurer's assertion that coverage litigation must proceed in a specific forum identified in a policy, the insured should perform a careful analysis of the underwriting process for that policy. Indeed, insureds frequently are not given the full text of their insurance policies until well after the policies are bound. Instead, they often are provided with only a quotation letter, binder, or other documentation that only briefly and generally outlines the terms and conditions of the policies purchased. Forum selection clauses may not be included among the disclosed terms and conditions. In those circumstances, forum selection clauses may not even be negotiated or discussed with insureds in advance of binding. Thus, where insureds can show that they were not provided notice of a requirement to litigate in a particular jurisdiction, those insureds should have a strong basis to argue against enforcement of a forum selection clause against them.
Additionally, insureds seeking to avoid application of an unfavorable jurisdictional provision should consider the impact and burden of litigating in the designated foreign forum. In particular, insureds should carefully consider the specific rights, protections, causes of actions, and remedies that may or may not be available in the foreign jurisdiction. For example, many foreign courts applying foreign law do not allow for jury trials, bad faith or punitive damages claims. Insureds may be able to argue that, depending upon the circumstances and applicable case law, these reduced remedies or litigation protections provide a basis to avoid the foreign forum selection clause at issue. Thus, insureds may have additional bases to persuade a court that the forum selection clause is not enforceable.
Conclusion
Every situation, of course, is different, and an insured's ability to argue around an unfavorable forum clause will depend on the particular circumstances of each case and relevant law. But, the cases cited above demonstrate that a careful review of the facts ' both those relevant to the underwriting of the policy and the consequences of litigating in a foreign forum ' must be considered before insureds concede that a policy's forum selection clause is enforceable against the insured.
