Insurance coverage disputes often begin with a battle over the appropriate forum for litigation. This can impact matters from the judge and jury who hear the case to the body of state law that governs the coverage issues. The U.S. Supreme Court may have given policyholders (and their opponents) more options in fighting this battle.
Recent Supreme Court authority in the realm of personal jurisdiction—most significantly Mallory v. Norfolk Southern Railway Co., 600 U.S. 122 (2023)—may permit suit against insurers (and other companies) anywhere they do business so long as the forum state has a business registration statute that requires submitting to in-state lawsuits. Though the dust has not settled, Mallory gives state legislatures a path (if they have not already done so) to removing limits on suing out-of-state insurers and other companies that do business in the state.
Here, we survey the scene since Mallory and what it could mean for corporate policyholders.
What’s Old Is New: Mallory Revives “Jurisdiction by Consent” Statutes, (Perhaps) Unsettles Recent Limitations on Jurisdiction Over Corporations
In Mallory, a divided Supreme Court held that Pennsylvania’s statutory requirement that an out-of-state corporation must consent to general personal jurisdiction as a condition of registering to do business in Pennsylvania does not violate the Due Process Clause of the Fourteenth Amendment. Mallory found “controlling” the Court’s mostly-forgotten, more than century-old decision in Pennsylvania Fire Ins. Co. of Philadelphia v. Gold Issue Mining & Milling Co., which held that a foreign insurer submitted to jurisdiction in Missouri by filing a statutorily required power of attorney consenting to suit in the state. Mallory means that a foreign defendant can be sued on any claim in a forum state without violating its due process rights—even claims with no connection to the state—if the defendant complied with a “jurisdiction by consent” business registration statute (or, for insurers, an insurance licensure statute as in Pennsylvania Fire).
The Mallory decision surprised many observers who expected the Court to strike down Pennsylvania’s jurisdiction-by-registration requirement as unconstitutional under modern personal jurisdiction doctrine that has been controlling since the Supreme Court decided International Shoe Co. v. Washington. As refined in recent years, International Shoe and its progeny permit courts to hear claims against businesses where they are subject to general jurisdiction (i.e., a corporation’s state of incorporation or principal place of business) or “specific jurisdiction” (i.e., the plaintiff’s claims “arise out of or relate to” an out-of-state defendant’s purposeful contacts with the forum state). These rules meant that a corporation could engage in extensive business activity in a state where it is not “at home,” but avoid suit there on claims that lack sufficient connection to those in-state activities.
As the Supreme Court’s composition has changed in recent years, more justices have questioned whether these rules make sense in the modern era of interstate commerce across increasingly transient borders and the virtual world. To the Mallory dissenters, this is what explains the Court’s new (re)embrace of statutory consent-to-jurisdiction: Mallory provides a means to subject companies to general jurisdiction on any claim wherever they do business—at least if courts find that the legislatures in those states have laid the requisite statutory groundwork.
Implications for Policyholders: In Which States Does Mallory Apply? How Will Insurers Respond in Litigation and Before Policy Procurement?
Historically, many states enacted statutes similar to the insurance registration law at issue in Pennsylvania Fire to safeguard (as Justice Gorsuch wrote in his plurality opinion in Mallory) against “strategems” that foreign insurance companies employed to avoid suit despite transacting business or insuring risks within their states. Other states may require consent to jurisdiction through general business registration statutes, like the Pennsylvania statute at issue in Mallory.
This means policyholders and other plaintiffs (even insurers at times) have opportunities to rely on consent-by-registration as an additional basis to secure jurisdiction in states with consent statutes comparable to those in Mallory and Pennsylvania Fire. But the particulars of these statutes may vary from state to state, just as courts may interpret them differently (and in some cases already have). This has already spurred significant litigation over whether statutory “consent to jurisdiction” applies when other bases for jurisdiction are disputed.
Plaintiffs have pocketed early wins. Most recently, in PDII, LLC v. Sky Aircraft Maintenance, LLC, an appellate court held that an out-of-state defendant’s registration to do business in North Carolina required it to defend a lawsuit alleging its defective part caused the fatal crash of a plane owned by a North Carolina business. Because of Mallory, the court found it immaterial that the defendant neither maintained a physical presence in North Carolina nor directed products or services into the state. It was enough that the North Carolina code requires a registered foreign business to be treated like a domestic corporation when sued there. PDII demonstrates how Mallory (when applicable) prioritizes plaintiffs’ choice of forum over inconvenience to the defendants.
Mallory has an important caveat. While four justices fully embraced this jurisdiction-by-consent theory, their fifth vote—Justice Alito—concurred in the judgment but wrote separately to express that consent statutes like Pennsylvania’s may violate a different constitutional limit on state power: The “dormant” Commerce Clause, which “prohibits state laws that unduly restrict interstate commerce.” This gives businesses worried about more geographically diverse exposure to lawsuits an avenue to contest jurisdiction-by-registration statutes.
Even so, insurers will find it difficult to challenge jurisdiction by consent. Insurers would bear the burden to prove that a consent-by-registration law adversely impacts interstate commerce, and that its negative effects outweigh a state’s local interest in regulating insurers in that manner. That burden may be insurmountable because Congress delegated regulation of the business of insurance to the states under the McCarran-Ferguson Act.
What else is on the horizon? For one thing, while policyholders have more options when deciding where to file insurance cases, the same is true for tort plaintiffs and even for insurers when filing declaratory judgment actions against policyholders. This could lead to more forum disputes in both insurance and tort litigation. Particularly in the insurance context, it is possible that giving parties on both sides of a contract more flexibility to select the forum in which to file suit will result in more motions practice challenging forum selection, and more parallel litigation in competing actions while courts sort out which forum is most suitable to preside over the parties’ dispute. Mallory does not prevent defendants from challenging the plaintiff’s chosen forum based on forum non conveniens or other doctrines that courts may rely upon to abstain from exercising jurisdiction, though dislodging the plaintiff’s choice of forum can be difficult.
There could also be impacts during the policy procurement process. To limit variables in a future coverage dispute, insurers may increase their use of forum selection clauses, choice of law provisions, or arbitration clauses. Policyholders placing new coverage will need to be alert to these provisions and consider their implications with the help of qualified insurance coverage counsel.
Another possibility is that insurers and other companies might even consider withdrawing registration to do business in states where they generate little business and wish to avoid defending litigation.
Ultimately, the shifting ground rules on where businesses can sue or be sued will create more litigation options, risks, and business implications. Corporate policyholders should watch this space.