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A federal appeals court overturned a lower court ruling in a maritime law case Tuesday and ruled against a Munich Re unit on the issue of which state’s law should apply in a case involving a damaged yacht.
A yacht owned by Abington, Pennsylvania-based Raiders Retreat Realty Co. that was insured by Munich Re unit Great Lakes Insurance SE ran aground, incurring at least $300,000 in damage, according to the ruling by the 3rd U.S. Circuit Court of Appeals in Philadelphia in Great Lakes Insurance SE v. Raiders Retreat Realty Co. LLC.
Great Lakes filed suit in U.S. District Court in Philadelphia, seeking a declaration that Raiders’ alleged failure to recertify or inspect its fire-suppression equipment – even though there had been no fire – rendered the policy void from its inception.
Raiders responded with five counterclaims, including three arising under Pennsylvania law for breach of fiduciary duty, insurance bad faith and breach of Pennsylvania unfair trade practices and consumer protection law.
The district court ruled that the policy’s choice-of-law provision precluded Raiders’ Pennsylvania-law based counterclaims, dismissing them and holding that New York law should apply.
A three-judge appeals court panel overturned the ruling, based on maritime law. The district court “needed to consider whether Pennsylvania had a strong public policy that would be thwarted by applying New York law,” it said, in vacating the lower court’s ruling and remanding the case for further proceedings.
Raiders attorney Shawn M. Rodgers, a partner with Goldstein Law Partner with Goldstein Law Partners LLC in Hatfield, Pennsylvania, said in a statement that the 3rd Circuit ruling “has the potential to change the landscape in the context of maritime insurance law.”
He said many insurers, like Great Lakes, “include choice of law provisions in their insurance contracts, selecting state law – such as New York law – that does not recognize separate causes of action for bad faith insurance claims.”
The 3rd Circuit ruling will force insurers such as Great Lakes “to face the likelihood that choice-of-law provisions will not shield the insurer from litigating bad faith insurance claims, where such causes of action evidence a ‘strong public policy’ of the forum state,” the statement said.
Munich Re attorneys did not respond to a request for comment.