Why Do Agents Sell Insurance Requiring Disputes to Be Fought in Faraway Courts?

I often wonder if insurance agents read the insurance policies they provide to their clients before selling the product. Why do insurance agents sell policies with clauses that require disputes to be in faraway places? Insurance disputes often boil down to policy language, legal interpretations, and jurisdictional battles. A Florida condominium found out that clauses noting where a lawsuit has to be maintained to resolve a coverage dispute can be enforceable.

The United States District Court for the Northern District of Florida sided with the insurers in Summerwind West Condominium Owners Association, Inc. v. Mt. Hawley Insurance Company and Syndicate 1458 at Lloyd’s of London, granting their motion to transfer the case to the Southern District of New York. 1 The ruling enforces a mandatory forum-selection clause in the insurance policy despite the policyholder’s strong objections.

The policy contained the following language:

All matters arising hereunder including questions relating to the validity, interpretation, performance and enforcement of this Policy shall be determined in accordance with the law and practice of the State of New York (notwithstanding New York’s conflicts of law rules).

It is agreed that in the event of the failure of the Company to pay any amount claimed to be due hereunder, any Named Insured, any additional insured, and any beneficiary hereunder shall submit to the jurisdiction of a court of competent jurisdiction in the State of New York, and shall comply with all the requirements necessary to give such court jurisdiction. Any litigation commenced by any Named Insured, any additional insured, or any beneficiary hereunder against the Company shall be initiated in New York. Nothing in this clause constitutes or should be understood to constitute a waiver of the Company’s right to remove an action to a United States District Court.

Summerwind West, a Florida condominium association, sought to keep its insurance dispute in the Northern District of Florida, arguing that it was the proper venue for the case. The insured property—a condominium complex—was in Florida, the damages stemmed from Hurricane Sally, and many witnesses and evidence were based in the state. The association contended that forcing a Florida-based entity to litigate in New York would be unfair and create unnecessary burdens.

The condo association argued in its response to the insurer’s motion to transfer the matter to New York that the reliance by the insurer on the policy’s forum-selection clause was not applicable, asserting that:

The clause was permissive, not mandatory, meaning litigation could still occur in Florida.
Even if it were mandatory, the doctrine of forum non conveniens should apply, as Florida courts had a stronger interest in the matter than a distant New York court.
The forum-selection clause was part of an adhesion contract, giving the insurer an unfair advantage over the policyholder.
The Southern District of New York was already congested with cases, making it an inefficient venue.

Despite these arguments, the court found them unpersuasive. The deciding factor in this case was the forum-selection clause in the insurance policy, which explicitly required that “any litigation commenced by any Named Insured…against the Company shall be initiated in New York.” The court held that this language was mandatory and not permissive and bound the policyholder to file its lawsuit in New York.

The court relied on the U.S. Supreme Court’s ruling in Atlantic Marine Construction Co. v. U.S. District Court for the Western District of Texas, 2 which established that valid forum-selection clauses should be enforced in all but the most exceptional cases. Since the policyholder did not demonstrate extraordinary circumstances justifying a departure from the forum-selection clause, the court found no reason to deny the transfer.

The court rejected the association’s argument that the clause was merely permissive. It emphasized that the use of “shall” in the clause made it a mandatory requirement for litigation to be filed in New York. Courts have consistently ruled that such language creates an exclusive forum, leaving no room for a policyholder to choose an alternative venue.

The policyholder argued that Florida was the more convenient forum since the damage, witnesses, and experts were all located there. However, under Atlantic Marine, when a valid forum-selection clause exists, private-interest arguments about convenience are waived. The court could only consider public interest factors, such as court congestion and a jurisdiction’s interest in adjudicating the dispute. Here, the court ruled that these factors did not outweigh the forum-selection clause.

The condo association claimed that the forum-selection clause was unfair because of the unequal bargaining power between an insurer and its policyholder. However, courts presume that forum-selection clauses in commercial insurance policies are valid unless the policyholder shows evidence of fraud, duress, or undue influence. The court found no such evidence in this case.

Another key factor in the decision was the policy’s choice-of-law provision, which stated that any disputes would be resolved under New York law. The court noted that because a New York court would be more familiar with its own state’s laws, this weighed in favor of transferring the case there.

The lesson for policyholders is about the power of forum-selection clauses in insurance policies. Absent a state law prohibiting these clauses, courts will generally enforce these provisions.  Even when a policyholder has a strong interest in litigating locally—especially when damages, witnesses, and the insured property are all in the same state—courts will generally enforce a mandatory forum-selection clause unless there are truly exceptional circumstances or prohibited to be sold per state law.

For condo associations and other policyholders, this decision provides another lesson about the importance of reviewing policy terms before disputes arise. Insurers often insert provisions that favor their chosen jurisdictions, which may not always be the most convenient or favorable for the policyholder. Understanding and negotiating these terms upfront, where possible, can prevent unpleasant surprises down the road. My experience is that insurance agents do not read the insurance policies they sell and will not warn their customers about these forum selection provisions.

The court’s decision to send this Florida-based insurance dispute to New York serves as yet another reminder that, in the world of insurance litigation, contract language is king. While policyholders may argue for fairness and convenience, the courts are more likely to enforce the terms of the contract—especially when it comes to forum-selection clauses in states where they are not prohibited.

Thought For The Day

“When preparing to travel, lay out all your clothes and all your money. Then take half the clothes and twice the money.”

—Susan Heller

1 Summerwind West Condo. Owners Ass’n v. Mt. Hawley Ins. Co., No. 3:21-cv-01040 (N.D. Fla. Apr. 12, 2022).

2 Atlantic Marine Const. Co. v. U.S. Dist. Ct. for W. Dist. of Texas, 134 S.Ct. 568 (2013).