In re Aiu Ins. Co., 02-0648.

CourtSupreme Court of Texas
Citation148 S.W.3d 109
Docket NumberNo. 02-0648.,02-0648.
PartiesIn re AIU INSURANCE COMPANY, Relator.
Decision Date03 September 2004

Mark A. Ticer, Law Office of Mark Ticer, Dallas, George O. Wilkinson, Vinson & Elkins, Houston, for other interested parties.

Rosemarie Kanusky, W. Wendell Hall, Fulbright & Jaworski L.L.P., San Antonio, Robert L. Guerra, Thornton Summers Biechlin Dunham & Brown, McAllen, Richard W. Bryan, Richard S. Kuhl and Elisa A. Eisenberg, for relator.

Staton Michael Childers, Strausburger & Price, Levon G. Hovnatanian, Dale Jefferson, Joe E. Luce, Christopher W. Martin, Bruce Edwin Ramage, Martin Disiere Jefferson & Wisdom, L.L.P., Arlo Dean Van Denover, Louis Dreyfus National Gas Corp., Houston, Edward D. Burbach, Office of Atty. Gen., Austin, Jaime A. Gonzalez, Gonzalez & Associates Law Firm, P.C., McAllen, for respondent.

Justice OWEN delivered the opinion of the Court, in which Justice HECHT, Justice SMITH, Justice WAINWRIGHT and Justice BRISTER joined.

The trial court denied a motion to enforce a contractual provision under which the parties agreed that all dispute resolution proceedings, including litigation, would take place in the State of New York. Because the facts are undisputed and the trial court clearly abused its discretion, we conditionally grant a writ of mandamus directing the trial court to dismiss this case.


Louis Dreyfus Corporation obtained $70 million of pollution liability coverage for itself and its subsidiaries from AIU Insurance Company. AIU agreed to provide an additional $35 million in coverage in the event the initial amount was exhausted and Louis Dreyfus Corporation paid additional premiums. At the time the policy was obtained, AIU was a New York corporation with its principal place of business in New York. In the policy, Dreyfus listed its address as New York, and the broker retained by Dreyfus to obtain a policy and negotiate coverage was also located in New York. The insurance policy contained a forum-selection clause by which the parties agreed that all disputes would be resolved in the State of New York:

L. Choice of Law and Forum — In the event that the Insured and the Company dispute the validity or formation of this policy or the meaning, interpretation or operation of any term, condition, definition, or provision of this policy resulting in litigation, arbitration or other form of dispute resolution, the Insured and the Company agree that the law of the State of New York shall apply and that all litigation, arbitration or other form of dispute resolution shall take place in the State of New York.

One of Luis Dreyfus Corporation's subsidiaries was Louis Dreyfus Natural Gas Corp., a Delaware corporation with its principal place of business in Texas. This subsidiary was listed as an insured in the AIU policy, and we will refer to it as Dreyfus. A few months after the policy issued, Dreyfus merged with American Exploration Company, which had wells and a pipeline gathering system in Hidalgo County. About a year and a half after the policy became effective, Dreyfus was added as a defendant in a suit in Hidalgo County in which it was alleged that Dreyfus had contaminated the air, soil, and ground water. The suit had originally been brought against American Exploration Company prior to the merger and about three years before the AIU policy became effective.

AIU provided a defense under a reservation of rights and disputed coverage. Dreyfus sued AIU in Hidalgo County seeking a declaratory judgment that the environmental contamination claims against it were covered. Dreyfus also sued AIU for breach of contract, insurance code violations, intentional and negligent misrepresentation, and fraudulent inducement. AIU filed a motion to dismiss based on the insurance policy's forum-selection clause. AIU also filed a declaratory judgment action against Dreyfus in New York seeking resolution of the coverage issues. The Hidalgo County trial court denied AIU's motion to dismiss, and the court of appeals denied mandamus relief. AIU petitioned this Court for issuance of a writ of mandamus.


This Court has never addressed the validity of a forum-selection clause like the one at issue in this case. At one time, forum-selection clauses were disfavored by American courts because such clauses were viewed as "ousting" a court of jurisdiction.1 But in 1972, the United States Supreme Court held in The Bremen v. Zapata Off-Shore Co. that international forum-selection clauses "should be given full effect,"2 absent "fraud, undue influence, or overweening bargaining power."3 Subsequently, in Carnival Cruise Lines, Inc. v. Shute, the Supreme Court enforced a clause that selected Florida as the site of any litigation when the plaintiff sued in the State of Washington.4

In the wake of The Bremen and Carnival Cruise Lines, five of our Texas courts of appeals have enforced forum-selection clauses that provided that litigation must be brought in a particular state.5 In each of those cases, the question was decided on appeal following a final judgment after the trial court enforced the forum-selection clause by either dismissing the case when the clause named a state other than Texas as the forum or holding that a defendant waived any objection to lack of personal jurisdiction by agreeing to a clause naming Texas as the forum.6

Dreyfus contends that the forum-selection clause in its policy should not be enforced because the United States Supreme Court has carved out exceptions that apply to the present controversy. In The Bremen, the Supreme Court held that a "forum clause should control absent a strong showing that it should be set aside," and that "[t]he correct approach [is] to enforce the forum clause specifically unless [the party opposing it] could clearly show that enforcement would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or overreaching."7 The Court indicated that a clause would come within these exceptions if enforcement would contravene a strong public policy of the forum in which suit was brought, or when the contractually selected forum would be seriously inconvenient for trial.8 Dreyfus contends that 1) many if not most potential witnesses regarding coverage issues are in Texas, 2) article 21.42 and former article 21.43, section 9 of the Texas Insurance Code9 apply and require that Texas law governs, and 3) that Texas has a strong public interest in having the coverage issues litigated in Texas because insurance proceeds "could be used to benefit the health and welfare of the citizens and landowners of Hidalgo County, Texas," and the substantial amount of insurance available under the policy "is also likely to dissipate any potential adverse financial effects on" Dreyfus's successor, who has its offices in Houston and employs a large number of people in Texas. We reject each of these contentions.

In The Bremen the United States Supreme Court had before it an international forum-selection clause that selected the London Court of Justice as the forum for dispute resolution.10 The Supreme Court was unmoved by the argument that English courts might enforce an exculpatory clause in the contract of towage and the defendant might therefore be relieved of liability for its own wrongdoing.11 In rejecting this concern as a basis for invalidating the forum-selection clause, the Court said it was not "dealing with an agreement between two Americans to resolve their essentially local disputes in a remote alien forum."12 The Supreme Court explained that in an agreement between Americans regarding essentially local disputes, "the serious inconvenience of the contractual forum to one or both of the parties might carry greater weight in determining the reasonableness of the forum clause. The remoteness of the forum might suggest that the agreement was an adhesive one."13 But the Supreme Court emphasized, "[Y]et even there the party claiming [the agreement should not be enforced] should bear a heavy burden of proof."14 The Supreme Court observed that inconvenience in litigating in the chosen forum may be foreseeable at the time of contracting, and when that is the case, "it should be incumbent on the party seeking to escape his contract to show that trial in the contractual forum will be so gravely difficult and inconvenient that he will for all practical purposes be deprived of his day in court."15

Dreyfus has not made such a showing. It was certainly foreseeable that Louis Dreyfus Corporation's subsidiaries, wherever located, would be required to litigate in New York under the policy's provisions. Dreyfus has not shown that litigating in New York would essentially deprive it of its day in court. Furthermore, the Supreme Court "refine[d] the analysis of The Bremen" in Carnival Cruise Lines, Inc.16 In the latter case, a passenger sustained personal injuries during a cruise and sued in the State of Washington. A forum-selection clause was included in her printed ticket that selected Florida as the location of any litigation "`arising under, in connection with or incident to'" the contract.17 The Supreme Court noted that "a cruise ship typically carries passengers from many locales."18 A forum-selection clause, the Court concluded, "has the salutary effect of dispelling any confusion about where suits arising from the contract must be brought and defended, sparing litigants the time and expense of pretrial motions to determine the correct forum and conserving judicial resources that otherwise would be devoted to deciding those motions."19 This benefited passengers, the Court observed, "in the form of reduced fares reflecting the savings that the cruise line enjoys by limiting the fora in which it may be sued."20 Florida was not "a `remote alien forum' "the Supreme Court concluded.21 The Court continued, "It bears emphasis that forum-selection clauses contained in form passage contracts are subject to judicial...

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