Most of us get into contracts, not fully understanding all the ins and outs of what we are signing. Similarly, the multiple provisions that can slither their way into contracts can include things like forum selection clauses which can be easily overlooked. But when a lawsuit erupts, can you argue a provision isn’t applicable? The United States Court of Appeals for the Fifth Circuit addresses this question in the following case.
Al Copeland Investments, L.L.C. owned a food manufacturing facility in Louisiana. In October and December of 2015, there was some property damage to the facility, and they submitted a reimbursement claim under an insurance policy. Their insurance was held with First Specialty Insurance Corporation (“First Specialty”). They denied this claim, and AI Copeland sued in the Eastern District of Louisiana, believing they were entitled to recover from the costs and damages of the property. First Specialty asked the court to dismiss the case because the policies forum selection clause requires litigation in New York State court, not Louisiana.
A forum selection clause is a section in a contract that states how all disputes must be litigated in a specific court in a jurisdiction that the parties agreed to.
The specific policy in this case stated that:
The laws of the State of New York, without regard to any conflict of laws rules that would cause the application of the laws of any other jurisdiction, shall govern the construction, effect, and interpretation of this insurance agreement.
The parties irrevocably submit to the exclusive jurisdiction of the Courts of the State of New York, and to the extent permitted by law, the parties expressly waive all rights to challenge or otherwise limit such jurisdiction.
The district court ruled in favor of First Specialty and dismissed the case based on forum non conveniens. AI Copeland then appealed the case to the Court of Appeals for the Fifth Circuit, believing the district court erred in denying their motion to recover the costs from First Specialty.
A forum non conveniens motion is similar to venue rules where the court decides where the case can be heard, and it allows a court to decline to hear a case if there is a more appropriate forum in which the case could and should be heard instead.
The appellate court explained that a forum selection clause would only be unreasonable and, therefore, not allowed for a few circumstances. (1) The incorporation of the forum-selection clause into the agreement was the product of fraud or overreaching; (2) the party seeking to escape enforcement will, for all practical purposes, be deprived of his day in court because of the grave inconvenience or unfairness of the selected forum; (3) the fundamental unfairness of the chosen law will deprive the plaintiff of a remedy; or (4) enforcement of the clause would contravene a strong public policy of the forum state. Haynsworth v. The Corporation
AI Copeland relied on Louisiana Revised Statute § 22:868, which states that no insurance contract in Louisiana can have any condition that does not allow the courts of Louisiana any jurisdiction to review the case against the insurer.
The court explained there are two distinct definitions between the words “venue” and “jurisdiction.”
They disagreed with AI Copeland’s reliance on § 22:868 because it specifically stated that provisions in an insurance contract are not allowed only when it would deprive Louisiana courts of jurisdiction. A forum selection clause, which First Specialty had in their contract, deals specifically with venue.
AI Copeland’s first defense was how prior courts used the terms ‘forum’ or ‘venue’ interchangeably instead of the word ‘jurisdiction.’ However, the appellate court explained that this still does not answer the question as to whether § 22:868 prevents forum-selection clauses in insurance contracts.
AI Copeland’s second contention was the district court did not correctly rely on Shelter Mutual Insurance Co. v. Rimkus Consulting Group, Inc. Copeland argued the statutes in the Shelter forbid forum selection clauses in certain contracts and are not limited to just those examples put forth in that case. In other words, AI Copeland argued there are many reasons why a forum selection clause should not be allowed. The appellate court disagreed with AI Copeland and stated that Shelter does not deal with interpreting § 22:868, as the court did here.
The Court of Appeals for the Fifth Circuit agreed that First Specialty made a case to keep the forum selection clause because AI Copeland’s reliance on § 22:868 did not apply.
Contracts are complicated enough even without the problems with clauses that affect where your case can be tried. Ensuring that you are fully and justly compensated for injuries caused by the fault of others requires the assistance of the very best attorneys.
Written by Berniard Law Firm Writer Brianna Saroli
Other Berniard Law Firm Articles on Forum Selection Clauses & Contracts: Jefferson Parish Maritime Case: Are Forum Selection Clauses in Employment Contracts Enforceable in Louisiana? Upholding Contractual Obligations: Legal Remedies for Noncompliance