My wife has been pestering me to get out of an unused gym membership for some time.  See, as a lawyer, I probably shouldn’t admit this, but I neglected to read the small print in the contract. It said that, unless I canceled in writing, the contract would automatically renew for one-year terms (kind of like the dreaded Lexis and Westlaw contracts), and if I wanted to cancel, I had to follow a certain procedure. Which I have done. Multiple times. But they’re not getting the message, so I will now need to waste time actually going to the health club to straighten things out. It’s on my to do list, but I don’t know when it will happen.

The pesky “fine print” in contracts can cause many problems, and sometimes those problems go beyond mere annoyance. One thing for you to be aware of, if you’re in risk management: Lately, more and more insurance policies are including “choice of forum” clauses that are extremely unfavorable to policyholders. Busy courts, looking to clear their dockets, are inclined to enforce such clauses, no matter how unfair that seems.

I thought of this recently, when I read a decision from the Western District of Pennsylvania involving Dick’s Sporting Goods.  Dick’s allegedly sold an inflatable exercise ball to an unlucky customer named Donald Royce, in Pennsylvania. According to Royce, when he attempted to use the ball, it collapsed, and he was seriously injured. (Ouch.  I’ve been eyeing my own exercise ball suspiciously after reading this case.) He brought suit against Dick’s in Philadelphia County Court.

Dick’s was an additional insured under a products liability insurance policy sold by the “People’s Insurance Company of China” (PICC). Unfortunately for Dick’s, the policy contained a forum selection clause, reading in part: “All disputes under this insurance arising between the Insured and the Company shall be settled through friendly negotiations. Where the two parties fail to reach an agreement after negotiations, such dispute shall be submitted to arbitration or to court for legal action. Unless otherwise agreed, such arbitration or legal action shall be carried out in the place where the defendant is domiciled.”  (Emphasis mine.)

I think you can see where this is going. The negotiations between Dick’s and PICC weren’t so “friendly,” and the policy was sold through a PICC branch located in Suzhou, China, west of Shanghai.  According to Trip Advisor, there are many interesting things to do in Suzhou (see link here), but Dick’s felt that litigating an insurance claim probably wasn’t one of them, and argued to the Court that the forum selection clause was unfair and shouldn’t be enforced, since all the facts relating to the claim took place in Pennsylvania, which is pretty far from mainland China.

Bon voyage to your claim, said the Court, writing: “[Dick’s] did not meet its burden of showing that the destination forum, China, is seriously inconvenient for the trial of the action. Beyond the obvious fact that China is on the other side of the globe from Western Pennsylvania, [Dick’s] did not demonstrate why litigation in China would be seriously inconvenient. The…insurance contract designated Dick’s Sporting Goods International Limited, a Hong Kong Limited Liability Company, as an ‘other insured.’ While no further information on the extent of [Dick’s] Chinese business activities is before the Court, [Dick’s] has a Chinese corporate presence via a Hong Kong business entity. Thus it is not ‘seriously inconvenient’ for [Dick’s] to bring this action in China.”

Personally, I don’t really think the Court needed to go beyond the “obvious fact.”  Most of the relevant witnesses and evidence are in Pennsylvania.  But, of course, I’m not wearing a black robe.

So what does this all mean for you?  Well, while your insurance policy may not require you to litigate coverage disputes in China, it may contain other types of nasty forum-selection or choice of law clauses. Lately, for example, we’ve been seeing more and more insurance policies that require the policyholder to arbitrate coverage disputes.  That can be costly, and it removes the threat of a jury trial from the insurance company.  To give a real world example, not long ago, we represented a manufacturing company against a major insurance company in a dispute over a retrospective rating program. The relevant agreement, unfortunately, required arbitration before a panel of three insurance executives. While we succeeded on some claims, the damages award was nowhere near what we thought was appropriate, and the cost of paying three arbitrators was extreme.

The law is full of fiction. (I was going to use a different word, but I’ll settle for “fiction.”) Included in that fiction is the idea that policyholders are responsible for reading and understanding their insurance policies. Insurance policies are often an impenetrable thicket of incomprehensible jargon, and contain many hidden loopholes. Since even experienced judges in different states often disagree on what the terms in insurance policies mean, it’s sort of ridiculous to suggest that normal policyholders are on a level playing field, and that all they need to do is read their policies to know how the contract works. But, in any contract you’re dealing with, including an insurance policy, you should always be on the lookout for “choice of forum” or arbitration clauses requiring you to litigate coverage disputes in an unfavorable place or faraway land. If you see such a provision, try to negotiate out, or try to find another carrier who will sell you similar coverage without the forum selection cause. (By the way, it’s not too hard to imagine a theory of professional liability against insurance brokers for not advising their clients of draconian forum selection clauses.)

Also keep in mind that being an “additional insured” may not offer you the level of protection you think it does.  But that’s a topic for another day.