On April 17, 2024, the Second Department issued a decision in Air-Sea Packing Group, Inc. v. Applied Underwriters, Inc., 2024 NY Slip Op. 02032, refusing to enforce a forum selection clause requiring a challenge to an insurance policy under New York law to be heard in Nebraska, explaining:
This action is just one of many such actions commenced across the country alleging that the defendant Applied Underwriters, Inc. (hereinafter Applied Underwriters), and affiliated entities, all subsidiaries of Berkshire Hathaway, Inc., deceptively circumvented state laws and regulations in the marketing and sale of an unlawful workers’ compensation insurance program. Here, the defendants seek to enforce a forum selection clause, in favor of Nebraska, contained in an insurance policy that New York State regulators have found violates New York law. While parties are generally free to select a forum in which to resolve their contractual disputes, here, where it is alleged by the plaintiff, and found by New York State regulators, that New York law has been violated, a foreign corporation may not profit from such violation to the detriment of New York employers and workers. The forum selection clause contained in an illegal insurance policy is not enforceable. As a matter of public policy, New York companies shall not be compelled to litigate in Nebraska to vindicate their rights.
. . .
Contrary to certain contentions raised by the plaintiff, this action falls within the scope of the RPA’s broad forum selection clause, and since the enforceability of a forum selection clause involves a procedural rather than a substantive issue, New York law applies despite the RPA’s inclusion of a Nebraska choice-of-law clause.
Although once disfavored by the courts, New York law now recognizes that contracting parties may freely select a forum to resolve any disputes over the interpretation or performance of the contract. A contractual forum selection clause is prima facie valid and enforceable unless it is shown by the challenging party to be unreasonable, unjust, in contravention of public policy, invalid due to fraud or overreaching, or it is shown that a trial in the selected forum would be so gravely difficult that the challenging party would, for all practical purposes, be deprived of its day in court. Here, under the unusual circumstances presented, the forum selection clause is unenforcable on multiple grounds.
The forum selection clause requiring the plaintiff to commence this action in Nebraska is unenforceable because enforcement would contravene public policy.
That a forum selection clause is unenforceable if it contravenes public policy is consistent with the familiar rule that illegal contracts, or those contrary to public policy, are unenforceable and the courts will not recognize rights arising from them. The maxims that no one shall be permitted to profit by his own fraud, or to take advantage of his own wrong are dictated by public policy and have their foundation in universal law administered in all civilized countries.
. . .
Here, Nebraska-based companies marketed a workers’ compensation insurance program to New York employers that allegedly violated New York’s Insurance Law. Contrary to the defendants’ contention that the complaint contains mere general allegations of fraud, the complaint contains specific allegations of a unique type of fraud, whereby the defendants marketed and sold a workers’ compensation insurance program that allegedly violated several provisions of the Insurance Law and misled New York employers about the nature of the EquityComp program. Many of these allegations are consonant with the consent order’s findings that some aspects of the EquityComp program violated the Insurance Law.
. . .
We find persuasive certain reasoning by the California Court of Appeal, Sixth District, an intermediate appellate court of that state, in one of the other actions challenging the marketing and sale of the EquityComp program. In Jackpot Harvesting, after observing that Applied Underwriters and affiliated entities failed to submit the RPA for prior regulatory approval in violation of California’s Insurance Code, the California Court of Appeals held that an arbitration agreement in the EquityComp program was void due to the defendants’ violation of California’s Insurance Code. The California Court of Appeals reasoned that, in California, workers’ compensation insurance (or an adequate substitute) is mandatory, and the Insurance Commissioner is charged with closely scrutinizing insurance plans to protect both workers and their employers. To accomplish this objective, the Legislature mandated that the Commissioner have full access to insurance information through mandatory filing requirements. It follows that a violation of these requirements prevents crucial regulatory oversight and thus renders the unfiled agreement unlawful and void as a matter of law.
Further, we find persuasive the reasoning of the Nebraska Court of Appeals in cases challenging the marketing and sale of the EquityComp program by Applied Underwriters and its affiliates. Insofar as the fraud alleged in the instant action implicates New York’s regulatory framework for workers’ compensation insurance, New York is better positioned than a Nebraska court to apply New York’s complex workers’ compensation laws.
For these reasons, enforcement of the forum selection clause would contravene public policy. New York courts should interpret the Insurance Law as it relates to this action, and the plaintiff should be permitted to vindicate its rights in a New York forum.
(Internal quotations and citations omitted).