Many business contracts between entities in different states contain what are called forum selection clauses. These clauses specify both the state and court in which a legal action between the parties may be brought. A common example of such clauses can be found in insurance policies, which frequently specify the state in which disputes between the insurer and the insured must be litigated.

A contract was recently upheld by the Louisiana Supreme Court in a business law dispute between a Baton Rouge shopping center owner and its insurance company. In the case, Creekstone Juban I, LLC v. XL Insurance America, 2018-CC-0748 (La. 5/08/2019), the dispute arose from water damage to the Juban Crossing shopping center on the outskirts of Baton Rouge. The owner of Juban Crossing purchased an insurance policy that covered more than 100 properties in 20 states. The policy contained a clause that required all disputes between the insurer and the insured to be litigated in New York. 

In August 2016, the shopping center was immersed in four to five feet of flood waters. After the insurer paid over $5 million in claims, certain issues were still unresolved, and the owner sued the insurer. The insurer moved to have the case dismissed based on the forum selection clause in the insurance contract. Both the trial court and the First Circuit Court of Appeals denied the motion. The state supreme court, however, ruled that the forum selection clause was valid, and the case should be dismissed.

In ruling for the insurer, the Louisiana Supreme Court held that a state statute that governs insurance policies, R.S. 22:868, did not apply. The statute says that no insurance policy delivered in Louisiana can deprive Louisiana courts jurisdiction in a dispute. The court ruled that there is a distinction between venue and jurisdiction, and that the contract in question did not deprive Louisiana Courts of jurisdiction such that the clause would violate the Louisiana statute, according to the plain language of the law. The court pointed out that several Louisiana statutes specifically disallow a choice of forum; the statute in this case did not. The court also pointed out that these were both “sophisticated Delaware entities engaging in a commercial transaction, and they exercised contractual freedom to resolve any dispute related to the contract in a particular forum in arm’s length negotiations.

In dissent, Justice Jeff Hughes pointed out what he said were three errors made by the court. First, that Louisiana had a public policy as cited in the statute, of disallowing insurance companies from providing a contract that deprives this state of jurisdiction. Secondly, Justice Hughes said it was improper that the court distinguished between “sophisticated” businesses versus “single” Louisiana residents, when he said that law was intended to apply to all Louisiana insurance contracts. Finally, the Court in its analysis distinguished between “jurisdiction” and “venue,” pointing out that the statute dealt with jurisdiction, while in actuality the contract itself did not mention the word, “venue,” but only jurisdiction. Justice Hughes stated, “It is difficult to figure what purpose the Legislature had in mind with this statute other than preventing what is happening here.”

The case will be the basis for other suits involving businesses and insurance contracts, requiring businesses making Louisiana claims to litigate in foreign jurisdictions, at least until the Louisiana legislature intervenes to clarify the statute.

Tags: Business Law

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