La. Supreme Court Upholds Forum Selection Clause in Insurance Contract

By Jim Sams | May 13, 2019

About the photo: The Juban Crossing shopping center occupies 1.2 million square feet in Denham Springs, off of Interstate 12 east of Baton Rouge.

In a split decision, the Louisiana Supreme Court overturned a trial court and ruled that the owner of a flooded shopping center must litigate its dispute with its insurer in New York.

The court said in a 3-2 decision that the Livingston Parish court erred when it found that Louisiana public policy invalidated a provision in XL Insurance’s policy that required any disputes to be settled in another state. Such forum selection clauses are common in insurance contracts and have been generally upheld among the states.

Three Lousiana Supreme Court justices saw no reason to rule that XL’s choice of forum was not enforceable, but Justice Jefferson D. Hughes III and James T. Genovese disagreed. Hughes wrote in a dissenting opinion that it is “ridiculous” to require a Louisiana business that employed Louisiana contractors to repair flood damage to litigate a dispute with its insurer in New York.

“The disdain for Louisiana business and the Louisiana Legislature is remarkable,” Hughes said.

Creekstone/Juban I, LLC built the 1.2 million-square-foot Juban Crossing shopping center in Denham Springs, on the outskirts of Baton Rouge. The company purchased insurance through a policy that included more than 100 properties in 20 states. Insurance brokers often build sell such pooled policies, linking unrelated insureds with common operations into risk groups, to obtain more favorable terms, according to a footnote in the decision.

In August 2016, after prolonged rains, Juban Crossing was immersed in flood waters that reached four to five feet in height, according to a local news report. Initially, XL Insurance paid Creekstone $5 million for damages, but various issues remained in dispute.

Creekstone filed suitin the 21st Judicial District Court in Livingston Parish. XL filed a motion to dismiss the action, citing the clause in the policy that required the parties to litigate all issues in New York.

Creekstone objected, citing a state law that prohibits any insurance contract delivered in Louisiana to deprive state courts of “jurisdiction of action against the insurer.”

The trial court sided with Creekstone, ruling that the forum selection cause violated Louisiana public policy. The 1st Circuit Court of Appeal upheld the trial court’s decision.

But the majority of the Supreme Court found that the XL contract does not deprive Louisiana courts of jurisdiction over the dispute, it merely states that New York is the proper venue for any action. If the legislature wanted to prohibit insurance contracts from requiring disputes to be settled in specific venues, in could have easily written the law to say exactly that, the majority said.

Chief Justice Bernette J. Johnson wrote a concurring opinion pointing out that she had participated in several decisions in which the Supreme Court had upheld the enforceability of forum selection clauses.

“Consistent with my actions in Lejano and Shelter Mutual, I agree with the majority in this case that the sophisticated entities involved were engaged in a commercial transaction, and they exercised contractual freedom to resolve any dispute related to that contact in a particular forum,” Johnson wrote.

Hughes said the cases that Johnson mentioned did not involve insurance contracts. Louisiana Revised Statute 23:868, unchanged for 66 years, specifically applies to insurance contracts and prohibits any provisions that deprive Louisiana Courts jurisdiction of action.

“It is difficult to figure what purpose the Legislature had in mind with this statute other than preventing what is happening here,” Hughes said.

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