[authors: Andrew Houghton and Ira Steinberg]
In Wayne County Airport Authority v. Allianz Global Risks U.S. Insurance Co., No. 11-15472, 2012 WL 3134074 (E.D. Mich. Aug. 1, 2012), a federal court in Michigan denied the defendant insurers’ motion to dismiss seeking to enforce a forum selection clause providing that any suit be brought in the courts of New York.
The Wayne County Airport Authority operated the Willow Run Airport located in Ypsilanti, Mich. After a hangar at Willow Run sustained $5 million in water damage, the airport authority brought suit against its insurers, Lexington, XL, Allianz, and Federal, which together provided 100 percent of the coverage for the period at issue under separate policies. The airport authority alleged that the defendants-insurers failed to pay the claim in a timely manner.
The defendant-insurers brought a motion to dismiss, arguing that the airport authority improperly brought the action in the Eastern District of Michigan, rather than New York, contrary to the terms of the forum selection clause contained in each of the policies that provided that “[in] the event that any disagreement arises between the Insured and the Company requiring judicial resolution, the Insured and the Company each agree that any suit shall be brought and heard in a court of competent jurisdiction within the State of New York.” The airport authority argued that the forum selection clause should not be enforced because the policy of the lead insurer, Lexington, included a Standard Property Conditions endorsement containing a Service of Suit Clause that stated “In the event of failure of the Company to pay any amount claimed to be due hereunder, the Company, at the request of the Insured, will submit to the jurisdiction of a court of competent jurisdiction within the United States.” The airport authority argued that the endorsement trumped the forum selection clause. Applying Michigan law (as no parties objected to it despite the policy apparently providing that New York law governs), the court concluded that the forum selection clause had been “bargained away” and that the defendant-insurers were not entitled to enforce the forum selection clause over the terms of the endorsement.
The court went further and, applying the Sixth Circuit Court of Appeals’ criteria for determining whether a forum selection clause should not be enforced, found that the policy’s forum selection clause was not reasonable. The three factors considered as part of the test are “(1) whether the clause was obtained by unconscionable means, such as fraud or duress; (2) whether the forum selected would ineffectively or unfairly deal with the dispute; and (3) whether the selected forum would be ‘seriously inconvenient’ such that it would be unjust to require the plaintiff to go there.” The court found that all three factors were met.
The court was persuaded by the airport authority’s claim that it did not “knowingly or willingly” agree to the inclusion of the forum selection clause, noting that the policies were the “result of complex negotiations.” However, there is no indication in the opinion how the court equated the insured’s suggestion of its own error with purported fraud, duress or other “unconscionable means” leading to inclusion of the clause. As to the second factor, the court found that a New York court would “ineffectively or unfairly deal with the dispute” because it would be “more efficient” to handle a dispute over damage to a Michigan property in a Michigan court. It would appear, however, there is no basis to conclude that a court in New York or any other state would “ineffectively or unfairly deal with the dispute” simply because the damage occurred in another forum. Finally, as to the third factor of “serious inconvenience,” the court concluded that the airport authority’s choice of its home forum should be given great deference, which reflects a focus on considerations more appropriate to a motion to transfer gives no weight to the U.S. Supreme Court’s direction that forum selection clauses generally are to be enforced.