Forum Selection Clauses in Excess Policies

Forum selection clauses that designate where lawsuits must be brought are becoming much more common in surplus lines carriers. These are often inserted by surplus underwriters and can cause a great deal of extra expense to a policyholder having to litigate in a faraway place.

A recent example is a case where a Napa vineyard suffered damage in a wildfire and now finds itself being sued by its excess carrier in New York federal court. The complaint alleges:

Mt. Hawley brings this action for a declaratory judgment concerning the rights and the obligations of the parties under the terms of a $10 million excess commercial property insurance policy that it issued SMV, policy no. MCP0170029, which sits excess of $10 million in underlying insurance that SMV procured from other insurers. SMV sustained certain losses during a wildfire in St. Helena, California, which commenced on September 27, 2021 (the “Glass Fire”). SMV contends that its covered losses from the Glass Fire are sufficient to reach and indeed to exhaust the coverage under Mt. Hawley’s excess policy. Mt. Hawley has been investigating SMV’s claims, but SMV recently stated it would no longer comply with the policy conditions or cooperate with the investigation and has accused Mt. Hawley of breach of contract and bad faith for not paying the claim. Mt. Hawley disputes those accusations. Thus, there exists an actual, justiciable controversy regarding Mt. Hawley’s payment obligations, if any, under the terms of the parties’ insurance contract.

How did a California wildfire dispute to a Napa vineyard end up in a New York federal court? Mt. Hawley had a forum selection clause in the policy, as noted in the complaint:

Mt. Hawley’s excess Commercial Property Policy issued to SMV, discussed more fully below, includes a New York forum selection clause providing in part:

any Named Insured… shall submit to the jurisdiction of a court of competent jurisdiction in the State of New York, and shall comply with all the requirements necessary to give such court jurisdiction… Nothing in this clause constitutes or should be understood to constitute a waiver of the Company’s right to remove an action to a United States District Court.

The vineyard is attempting to avoid having to litigate in New York because it alleges it was never provided the contract, approved the forum selection clause, and was unaware of it until after the fire. In its brief opposing the New York action, the vineyard noted:

Mt. Hawley has filed a motion to dismiss the California Action on jurisdictional grounds. SMV’s opposition to that motion relies, in part, on the facts that Mt. Hawley did not disclose to SMV or its agent Arthur J. Gallagher & Co. (“AJG”) that Mt. Hawley’s policy purportedly contained a New York forum selection clause until after the Fire.

The lesson is to analyze policies after losses for these clauses and others that may mandate that the law to be applied is that of another state. We will follow this case because it raises an interesting point—how do you know about the clause in the policy if it is not provided to you before the loss occurs?

Thought For The Day

Men are like wine – some turn to vinegar, but the best improve with age.
—Pope John XXIII