Insurer prevails in ruling over destroyed yacht in forum selection case

A federal appeals court agreed with a lower court on Wednesday that an insurer can enforce its policy’s forum selection clause in litigation over a destroyed yacht.

The Princess Alia, a 62-foot yacht destroyed by fire in 2021 while harboring in Cabo San Lucas Mexico, was owned by Ralph Eads through his company, Princess Alia LLC, according to the ruling by the 5th U.S. Circuit Court of Appeals in New Orleans in Ralph Eads; Princess Alia LLC v. Spheric Assurance Co. Ltd.

The yacht’s insurer, British Virgin Islands-based Spheric, denied coverage, citing various warranty violations and a lack of clarity as to the fire’s cause, according to the ruling.

Plaintiffs sued Spheric in state court in Texas, alleging breach of contract, bad faith and unfair settlement practices.

Spheric moved the litigation to the U.S. District Court in Houston, then filed a motion to dismiss the case based on the policy’s forum selection clause, which called for litigation to be held in the British Virgin Islands.

The plaintiffs opposed the motion on public policy grounds, contending British Virgin Islands law “would allow Spheric to evade its alleged coverage obligations based on immaterial warranty violations, while Texas law would not,” the ruling said.

The district court granted the motion to dismiss the lawsuit, affording plaintiffs leave to refile in the British Virgin Islands. Its ruling was affirmed by a three-judge appeals court panel.

The issue of whether Texas public policy “allows enforcement of a forum selection clause mandating a jurisdiction with purportedly less favorable insurance laws – has already been decided in the affirmative,” said the panel, citing the 5th Circuit’s ruling in May in another forum selection case involving a yacht, Noble House LLC v. Certain Underwriters at Lloyd’s, London.

In that case, the appeals court affirmed a ruling in Lloyd’s of London underwriters’ favor and held that coverage litigation over a damaged yacht must be held in England or Wales rather than in the United States.

Further, to the extent the earlier ruling on this issue “is not perfectly analogous, Plaintiffs nonetheless fail to carry their ‘heavy burden of proof’ to resist enforcement of the forum selection clause,” the ruling said, in citing another case.

“In short, Texas law may leave open some avenue for disregarding selection clause on public policy grounds, but the Supreme Court of Texas” has “declined explicit invitations to do so,” the ruling said, in affirming the lower court’s ruling.

Attorneys in the case had no comment or did not respond to a request for comment.