By David Yucht, J.D.
A California family may be unable to collect a $45-million personal injury judgment from an insurance carrier because of a forum-selection clause in the policy of the bankrupt manufacturer against whom they obtained the judgment.
The U.S. Court of Appeals for the Ninth Circuit affirmed a lower court’s dismissal, based on the forum non conveniens doctrine, of an insurance coverage action filed by a family that suffered severe injuries when lighter fluid in a container caught fire and spewed over them. The case was dismissed due to a forum-selection clause in the insurance policy of the bankrupt lighter fluid manufacturer designating Australian courts as the exclusive forum to resolve disputes (Lewis v. Liberty Mutual Insurance Co., March 30, 2020, Bybee, J.).
Members of a California family suffered severe injuries when lighter fluid in a container caught fire and spewed over them. They obtained a $45-million judgment in a products liability suit brought against EcoSmart, Inc., the lighter fluid manufacturer. When EcoSmart declared bankruptcy, the family brought this action against EcoSmart’s insurer for payment on the judgment. EcoSmart’s insurance policy had a forum-selection clause designating Australian courts as the exclusive forum. Based on this forum-selection clause, the district court granted the insurance company’s motion to dismiss. The family appealed.
Forum selection. The Ninth Circuit upheld the lower court’s decision dismissing the action. The family argued that, as non-signatories to the insurance policy, they were not bound by the forum-selection clause. Additionally, they argued that even if the forum-selection clause applied to them, enforcement of the clause violated California public policy, as found in the California Insurance Code. Lastly, they argued that Australia was an inadequate forum in which to pursue their claims and that it was an abuse of discretion for the district court to grant the insurance company’s motion to dismiss. The appellate panel held that under California law, because the family stood in the shoes of EcoSmart, their third-party creditors’ rights were derivative of the rights and limitations held by the bankrupt insured. Although they were not insured under the policy, they were third-party judgment creditors of EcoSmart, which was insured under the policy. Generally, a third party’s rights are "defined by the contract." Consequently, the forum-selection clause applied.
The panel further held that the family had not shown that the forum-selection clause violated California public policy. California’s Insurance Code provides a direct cause of action against an insurer for anyone who has secured a judgment for bodily injury against the insured. California public policy requires the availability of an action to seek recovery when judgment is rendered against the insured. California’s courts are an available forum for executing judgments against insurance companies. However, California did not make its courts the exclusive jurisdiction for such claims.
Just before the family’s accident, EcoSmart’s insurance carrier instituted a change of coverage making the policy less generous and possibly preventing recovery here. The family alleged that the insurance company failed to give EcoSmart the amount of notice required by California law fora change in coverage to take effect. Accordingly, the more generous policy continued in effect for 60 days, which would have covered the incident. The family argued that Australian law had no similar notice provision, which meant that coverage may not exist if the matter was litigated in Australia. The appellate court, however, noted that a state law’s anti-waiver provision "does not supersede a forum-selection clause." Rather, there must be "a statute or judicial decision that clearly states such a strong public policy" precluding enforcement of the forum-selection clause. None existed here.
The appellate court also found that Australia was an adequate forum for suit. A forum non conveniens dismissal may be granted even though the chance of recovery is less favorable in the alternative forum. A court must enforce a forum-selection clause unless the contractually selected forum offers no remedy at all. The likelihood of a collection did not matter. The panel rejected the family’s asserted inadequacy of the Australian forum based on it being less favorable to them. The appellate court emphasized that the forum in this case probably would make no practical difference because the subject insurance policy included a choice-of-law clause favoring Australian law. Consequently, even if the case remained in California, the court would likely apply Australian law.
The case is No. 18-16140.
Attorneys: Deborah Bull (Perry, Johnson, Anderson, Miller & Moskowitz, LLP) for Nicolette Lewis, Alexis Lewis, Margrett Lewis and Jeffrey Lewis. James R. Carroll (Skadden, Arps, Slate, Meagher & Flom LLP) for Liberty Mutual Insurance Co. and Liberty International Underwriters.
Companies: Liberty Mutual Insurance Co.; Liberty International Underwriters
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