Louisiana Supreme Court: No Prohibition Against Forum Selection Clause in Commercial Property Policy

The Louisiana Supreme Court has determined that state law does not expressly prohibit a clause in a commercial property insurance policy that specifies that any coverage dispute ending up in litigation must be heard in a forum, or venue, named in the policy.

The high court made that determination in Creekstone Juban I, L.L.C. v. XL Insurance America, Inc., a case that concerns a dispute over claims related to flood damage to commercial property in Louisiana.

In writing for the court’s majority, Justice Scott J. Crichton explained that the underlying case involves claims filed with XL following massive flooding in Louisiana in August 2016, in which the property, Juban Crossing, “sustained extensive flood damage to the buildings and their contents, including loss of revenue.”

Before the lawsuit was filed, XL paid $5 million to Creekstone Juban, the entity that owns the property, for damage caused by the flooding. XL did not immediately pay additional amounts requested by Creekstone, which subsequently filed suit against the insurer in the 21st Judicial District Court in Livingstone Parish.

The suit against XL was over various disputes, but the Louisiana Supreme Court opinion released on May 8 only addressed the issue of the forum selection clause.

“The Policy includes a forum selection clause, whereby the parties agreed that ‘any disagreement’ related to the Policy ‘shall’ be brought exclusively in the State of New York,” Crichton wrote.

In answer to Creekstone’s suit filed in Louisiana district court, XL filed a motion to dismiss, citing the forum selection clause, under which “the parties agreed to litigate all issues involving the contract” in New York state.

Opposing XL’s motion to dismiss, Creekstone contended that “the forum selection clause was invalid under La. R.S. 22:868, which provides that no insurance contract ‘delivered or issued for delivery’ in Louisiana and covering subjects in Louisiana shall contain any provision ‘[d]epriving the courts of this state of the jurisdiction of action against the insurer.”

The trial court agreed with Creekstone that “upholding the forum selection clause would violate public policy.”

In a split decision, the five-judge panel of the First Circuit Court of Appeal, denied XL’s application for supervisory writ.

Accepting the case, the state supreme court recognized that the “narrow legal question” raised by the forum selection clause requiring litigation be heard in New York state is whether the clause violates Louisiana law and public policy.

Creekstone argued that the clause goes against public policy as it deprives Louisiana jurisdiction over the dispute. XL countered that the clause doesn’t deprive Louisiana of jurisdiction, rather it “sets forth a contractual agreement that New York is the proper venue for any action under the Policy, and leaves the court’s subject matter jurisdiction unaffected,” the opinion states.

The Louisiana Supreme Court in its opinion pointed out that it has previously explained that “jurisdiction and venue are distinct legal concepts.”

The court then agreed with XL, finding the plain language of the statute “does not prohibit the forum selection clause at issue in this case, as it chooses New York as the venue for the dispute, and does not deprive Louisiana courts of jurisdiction.”

The Court also pointed out that “the parties to this contract are 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.”

Upholding the trial court’s “ruling in this case would undermine the ability of the parties to freely engage in sophisticated contractual agreements and thereby impair the ability of companies to do business in this state.”

Additionally, the court said, Creekstone had “offered no evidence whatsoever of difficulties it would encounter in litigating in another forum.”

The trial court’s judgement was reversed “insofar as it denied the exception of improper venue.”

The court’s decision was not unanimous. Justices Genovese and Hughes dissented.