Case Law Summaries

Pemaquid Underwriting Brokerage, Inc. v. Mutual Indemnity (Bermuda) Ltd.

• Opinion Date: September 24, 2003
• Business Law
• E-Mail

CONTRACTS; FORUM SELECTION—A party entering into separate, but related contracts with two companies affiliated with each other can be bound to litigate in two different jurisdictions if each contract has an otherwise enforceable forum selection clause, even if the suits concern the same subject matter.

An insurance broker entered into a business relationship with a Pennsylvania insurance corporation and its sister corporation, a Bermuda corporation. It acted as the insurance companies’ broker in procuring and servicing worker’s compensation and employer’s liability policies. To secure its payment to the insurance companies of any money it might owe either of them under their agreements, the broker provided letters of credit. When the Pennsylvania corporation filed a voluntary rehabilitation action, the letters of credit were presented and honored by the banks. The broker then sued to restrain the banks from honoring the letters of credit and sued the insurance companies for fraudulently inducing it to renew their contracts by concealing the Pennsylvania corporation’s distressed financial condition. The complaint was dismissed based on a venue clause in the agreement with the Bermuda corporation that set Bermuda as the exclusive venue for dispute resolution. The broker appealed, but the Appellate Division agreed with the lower court. A forum selection clause is presumed to be enforceable if it was entered into between sophisticated commercial entities that have equal or essentially equal bargaining power. Once it is established that the two parties are sophisticated and had nearly equal bargaining power, the party attempting to challenge the forum selection clause has the burden of proving that there was not equal bargaining power. It must also show that there was fraud or coercion, or that enforcing the forum selection clause violated public policy. The Court found that the broker failed to prove that the forum selection clause was unenforceable. It rejected the broker’s argument that the two related insurance companies fraudulently inserted different forum selection clauses in their contracts to require the broker to sue them independently. It also rejected the claim that the insurance companies’ requirement that broker sue in multiple jurisdictions violated the entire controversy doctrine. The Court noted that, since the broker’s suit against the banks was dismissed and the Pennsylvania corporation could not be sued because of its bankruptcy, the entire controversy issue was moot.

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