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Of New York Choice-of-Law and Forum Selection Clauses: New York Appellate Division Holds That Sophisticated Parties Should Read State Laws (NY)

December 23, 2021

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<p style="text-align: justify;">In <em><a href="https://www.wcmlaw.com/wp-content/uploads/2021/12/North-Am.-Elite-Ins.-Co.-v.-Space-Needle_-LLC_-2021-N.Y.-App.-Div.-LEXIS-6792-case-2.pdf">North Am. Elite Ins. Co. v. Space Needle, Inc.</a></em>, Case No. 2021-01400, 2021 WL 5702283 (N.Y. App. Div. 1st Dep’t Dec. 2, 2021), a five-judge panel unanimously affirmed an Order of the Supreme Court, New York County, denying North American Elite Insurance Company’s (“Elite”) preliminary injunction against litigating its insurance coverage action in a forum outside of New York––even though both parties agreed to the exclusive jurisdiction of the New York State courts.</p>
<p style="text-align: justify;">In a broad sense, the issue presented was whether choice-of-law and forum selection clauses in insurance contracts can survive state statutes that explicitly prohibit such clauses.  Specifically at issue in <em>Space Needle</em> was whether Elite was required to comply with the Washington Insurance Code’s express provision indicating that no insurance contract delivered or issued for delivery in the State of Washington can include a condition, stipulation or agreement that requires the insurance contract to be construed by the laws of any other state or country.  The five-judge appellate panel considered a recent, similar case involving a New York choice-of-law and forum provision in a Washington State insurance policy, <em>Berkley Assur. Co. v. MacDonald-Miller Facility Solutions, Inc.</em>, No. 19-CV-7627 (JPO), 2019 WL 6841419 (S.D.N.Y. Dec. 16, 2019).  In <em>Berkley</em>, the Southern District of New York held that, under a New York choice-of-law analysis––an analysis which must be implemented at the outset––the law chosen by the contracting parties is valid, and therefore, the <em>Berkley </em>court stated that the forum selection clause is not presumed void.  However, the court in <em>Space Needle </em>observed one difference between the clause at issue in <em>MacDonald-Miller</em> and the clause at issue in <em>Space Needle</em>: The former clause is permissive while the latter is mandatory.  All five judges agreed that a close reading of the Washington statute indicates that it prohibits <em>mandatory</em> choice-of-law and/or venue clauses; and, additionally, that a sophisticated party like Elite should have known the choice-of-law and forum selection clause in the insurance contract would be void per Washington State law.</p>
<p style="text-align: justify;">Hence, the decision signals that insurers should rethink and perhaps reword New York choice-of-law and forum selection clauses in states with prohibitive choice-of-law and/or venue statutes.  Wade Clark Mulcahy LLP will continue to monitor this significant development.</p>
<p style="text-align: justify;">Thanks to Richard Dunne for his contribution to this article.  Should you have any questions, please contact <a href="mailto:mcare@wcmlaw.com">Matthew Care</a>.</p>

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