The Louisiana Supreme Court rendered a split decision that will have major ramifications for insureds in Louisiana. The court’s decision in Creekstone Juban I, L.L.C. v. XL Insurance America, Inc., (La. May 8, 2019), permits insurance policies to require any litigation be brought in another state, even if the policy was issued in Louisiana covering losses occurring in Louisiana. The appellant argued that La. R.S. § 22:868, prevented litigation in non-Louisiana courts, but the Court disagreed, holding 22:868 did not bar a provision requiring litigation in New York.
The Creekstone decision should not impact disputes arising out of construction contracts, because unlike Section 22:868, La. R.S. § 9:2779 (governing construction contracts for Louisiana projects) prohibits litigation in any forum outside Louisiana. For insurance contract disputes, Creekstone will save insurance companies considerable money and hassle at the expense of those they insure.
The plaintiff filed suit against its property insurer for losses caused by the flooding of its Livingston Parish property. The policy stated that any claims must be adjudicated in New York. The Court found the New-York forum-selection clause was unaffected by La. R.S. § 22:868, which reads, in part:
A. No insurance contract delivered or issued for delivery in this state . . . shall contain any . . . agreement either:
(1) Requiring it to be construed according to the laws of any other state . . . .
(2) Depriving the courts of this state of the jurisdiction of action against the insurer.
The majority in Creekstone observed forum-selection clauses are presumed valid. A party seeking to invalidate such a provision has a “high burden” that the plaintiff in Creekstone did not meet.
Per the Court, Section 22:868 only prohibits a contract from stripping Louisiana courts of jurisdiction. Justice Weimer’s concurrence suggested Section 868 would prohibit a provision requiring arbitration for insurance disputes. However, Section 22:868 does not prohibit a contract from requiring adjudication in courts of another state, because such a clause selects a different venue but does not remove Louisiana courts’ jurisdiction. Thus, the Court found the policy at issue to be valid because it merely made New York the proper venue, which did not violate Section 22:868.
Two justices dissented, with Justice Hughes tersely writing:
It is ridiculous that a Louisiana business . . . that suffers millions of dollars in damages requiring millions of dollars of repairs by Louisiana carpenters, plumbers, and painters in Louisiana insured by an insurance policy delivered in Louisiana should be required to litigate against the insurer in New York . . . .
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As best I can understand, [the majority’s reasoning] works like this: Even though the contract does not contain the word venue, but rather says “jurisdiction”, this court has determined that what the parties really meant was venue, and because jurisdiction and venue are different concepts, and the statute does not refer to venue, it does not apply to this contract. Really.
The majority opinion is not limited to the facts of the case. The case involved “large” companies, none of whom are Louisiana domiciliaries (although the plaintiff’s office is in Baton Rouge and its sole owner resides in Louisiana), and the insurance contract at issue appeared to be issued to a group program in Texas, for which the plaintiff was one of many additional insureds across the country. (As such, 22:868 arguably didn’t apply.) Nevertheless, the majority opinion appears to apply, for example, even to an individual homeowner’s property damage claims.
Of note, and related to Justice Weimer’s concurrence in Creekstone, the U.S. Fifth Circuit recently found Section 22:868 inapplicable under the facts of McDonnel Group, LLC v. Great Lakes Insurance, UK Branch (Matter 18-30817). While Section 22:868 makes void any arbitration provision in a Louisiana-issued insurance contract, the provision at issue in McDonnel required arbitration in another country, which was subject to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Such a treaty is supreme law per Article VI of the United States Constitution, which preempts conflicting state law, including Section 22:868.
Section 9:2779 / Construction Contracts Appear Unaffected
La. R.S. § 9:2779, which applies to Louisiana construction contracts, is different than Section 22:868. Section 9:2779 expressly prohibits contract clauses that require adjudication or arbitration “in a forum or jurisdiction outside of this state,” whereas 22:868 does not express anything about forums outside Louisiana. Therefore, for construction projects in Louisiana where at least one party is a Louisiana domiciliary, Section 9:2779 should still require adjudication in Louisiana, despite Creekstone’s interpretation of 22:868 as permitting forum-selection clauses in insurance contracts.
Insurance Companies Will Make More Money
The Creekstone decision permits insurance companies to dictate that all insurance litigation will occur in the same place, managed by the same New York attorneys and adjusters, and conveniently near their financial centers as opposed to scattered across the States, where the insured losses are located. Smaller and remote claimants will not want or be able to pay for travel expenses to New York or for high-rate New York attorneys to handle matters in New York. This will result in lower settlement amounts, meaning insurance companies making higher profits.
Of note, the Court in Creekstone did not decide if Section 22:868(A)(1) annulled the New York choice-of-law provision (different than the choice-of-forum provision) in XL Insurance’s policy. Apparently, the plaintiff did not argue that issue at the trial-court level. If the choice-of-law provision is also enforceable, 22:868(A)(1) notwithstanding, insurance companies will have the bonus of predictable law from only one state applying to their disputes, and they will only have to lobby for favorable law in one state, New York.
Insured Parties Will Bear Extra Risks
The decision adds to insured parties’ burdens. If an insurance policy requires adjudication in New York, this decision clarifies that the party who suffered the loss can be required to travel to New York and pay additional attorneys in New York (whose rates are more than twice the Louisiana rates) to resolve disputes. Insured parties are often already in a financial pinch, seeking insurance proceeds to cover a loss they suffered. These extra litigation costs will likely persuade insured parties to accept lower settlements than if the adjudication occurred in Louisiana.
The Court did not answer whether Creekstone applies to smaller claimants. The majority’s reasoning focused on large, sophisticated commercial entities’ freedom to contract as they choose. (That said, insurance companies are some of the largest companies in the world, and as a practical matter, they are unlikely to negotiate certain terms in their policies, even with insureds that are sophisticated commercial entities.) If the insured is a low-income homeowner in Louisiana who is seeking proceeds for property damage or an automobile accident that occurred in Louisiana, does that party now have to litigate in New York or, beforehand, somehow negotiate with the insurance company for a provision that would allow litigation in Louisiana? The Court has not clearly answered the question, but the majority opinion in Creekstone suggests the answer is “yes.”
Unless the Louisiana Legislature amends Section 22:868 to expressly prohibit the type of forum-selection clause at play in Creekstone (which it well may), insurance companies are free to require adjudication in other states’ courts like New York. Per Creekstone, such contract clauses are valid, even if the policy was issued in Louisiana to a Louisiana insured who suffered severe damage in Louisiana.