FORUM-SELECTION CLAUSES REIGN SUPREME, EVEN OVER PRINCESSES’ PREFERENCES

The Southern District of Texas recently held that an insurance policy’s forum-selection clause overrode even the Texas Insurance Code’s prescription that insurance contracts payable to Texas residents are subject to Texas law.  In Ralph Eads, III et al. v. Spheric Assurance Company, LTD, 2023 WL 417477, the Princess Alia, a Jamaican yacht, caught fire and sunk in port in Mexico.  Its owners were Texas residents that filed for coverage with Spheric, their insurance company.  Spheric denied coverage based on technical breaches of the policy under British Virgin Island law, citing the policy’s forum-selection of the British Virgin Islands.  Under Texas law, there would be no such breaches, so the owners sued Spheric, seeking court-endorsed Texas forum selection.

They argued that Texas Insurance Code § 21.42 required Spheric to use Texas law and therefore pay the policy.  The Court disagreed, stating that while that provision has been interpreted to be a choice-of-law rule, that only applies in the absence of a valid forum selection clause.  Because there was a forum selection clause in this case, Spheric was entitled to a dismissal of the case.