FSM SUPREME COURT TRIAL DIVISION

Cite as Phillip v. Marianas Ins. Co.,11 FSM Intrm. 559 (Pon. 2003)

[11 FSM Intrm. 559]

NAITEN PHILLIP, individually, and NAITEN
PHILLIP d/b/a KASELELHLIA CAR RENTAL,

Plaintiff,

vs.

MARIANAS INSURANCE COMPANY
LIMITED, FREDDIE O. BENITEZ, FSM
INSURANCE GROUP, and LILY IRIARTE,

Defendants.

CIVIL ACTION NO. 2002-009

ORDER DENYING MOTION TO DISMISS

Andon L. Amaraich
Chief Justice

Decided: March 13, 2003

APPEARANCES:

For the Plaintiff:               Michael J. Sipos, Esq.
                                        P.O. Box 2069
                                        Kolonia, Pohnpei FM 96941

For the Defendants:        Mary Berman, Esq.
                                        P.O. Box 163
                                        Kolonia, Pohnpei FM 96941

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HEADNOTES

Contracts – Forum Selection Clause

A forum selection clause is an agreement that disputes relating to the parties' contract will be heard by a designated court and unambiguously names a forum. A threshold question is whether contractual language at issue is a forum selection clause. Phillip v. Marianas Ins. Co., 11 FSM Intrm. 559, 561 (Pon. 2003).

Contracts – Forum Selection Clause; Insurance

The FSM Supreme Court does not look kindly upon contractual provisions that can only be understood by individuals who possess an advanced degree in insurance law. Clear, understandable, precise language is a condition to a finding that an insured must bear the cost of litigating in a remote forum. Phillip v. Marianas Ins. Co., 11 FSM Intrm. 559, 562 n.3 (Pon. 2003).

Contracts – Forum Selection Clause

A properly drafted forum selection clause's purpose is to eliminate uncertainty as to where

[11 FSM Intrm. 560]

disputes between the parties will be litigated. Such clauses can further eliminate uncertainty by specifying the law that will be applied. When a clause accomplishes neither purpose, and when it would be fundamentally unfair to conclude that the contract provision's ambiguous language constitutes an agreement that claims may be litigated only in a certain place, it does not constitute a forum selection clause. Phillip v. Marianas Ins. Co., 11 FSM Intrm. 559, 562 (Pon. 2003).

Contracts

In order to be binding, an agreement must be definite and certain as to its terms and requirements; it must identify the subject matter and spell out the essential commitment and agreements with respect thereto. Phillip v. Marianas Ins. Co., 11 FSM Intrm. 559, 562 (Pon. 2003).

Contracts – Forum Selection Clause; Insurance

To the extent that a purported forum selection clause could be interpreted to require suit in a foreign country, it must be struck down as void as against public policy unless it is a freely negotiated, arms-length agreement between parties with relatively equal bargaining power. An insurance contract that seeks to oust the FSM Supreme Court's jurisdiction will not be upheld when the insured is an FSM citizen and resident, the insurance policy is obtained in the FSM from an FSM-based agent, the premiums are paid in the FSM to cover vehicles operating in the FSM, and the incident giving rise to a claim occurred in the FSM. The clause is against public policy because it impedes the administration of justice relating to insurance claims, and would undermine the public's confidence in business dealings if upheld. To require such lawsuits to be filed in a foreign country would not only be onerous, but would essentially render insurance companies immune from suit. Phillip v. Marianas Ins. Co., 11 FSM Intrm. 559, 562-63 (Pon. 2003).

Contracts – Interpretation

When interpreting a contract, the FSM judiciary may not simply assume that reasonably intelligent Micronesians will perceive the same meaning as would reasonably intelligent Americans. The court may not blind itself to the pertinent aspects of Micronesian society, such as less facility in the English language, less exposure to business concepts, and paucity of legal resources, which might cause a reasonably intelligent Micronesian to perceive a meaning differently than would a person from some other nation. Phillip v. Marianas Ins. Co., 11 FSM Intrm. 559, 563 n.4 (Pon. 2003).

Contracts – Forum Selection Clause

A forum selection clause will be stricken from a contract when it is unenforceably vague and ambiguous, and void as against public policy. The court will not make this decision lightly, as judicial restraint requires the exercise of extreme caution in striking down a portion of any contract that is entered into freely. Phillip v. Marianas Ins. Co., 11 FSM Intrm. 559, 563 (Pon. 2003).

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COURT'S OPINION

ANDON L. AMARAICH, Chief Justice:

This action arises out of a dispute regarding a commercial automobile insurance policy issued by defendant Marianas Insurance Company (MIC) and purchased through defendant FSM Insurance Group (FSMIG) by plaintiff for the purpose of insuring plaintiff's fleet of rental vehicles. After one of the insured vehicles was involved in an accident, plaintiff submitted a claim. Defendants denied the claim

[11 FSM Intrm. 561]

and this action ensued.1

Defendants have filed an Amended Motion to Dismiss for Improper Forum based upon the following clause, which is contained in the parties' insurance contract:

Local Jurisdiction Clause. Notwithstanding anything contained herein to the contrary, it is agreed that the indemnity provided herein shall not apply to:

I.     Compensation for damages in respect of judgment delivered or obtained otherwise than by a court of competent jurisdiction within the territories of the Commonwealth of the Northern Mariana Islands;

II.    Costs and expenses of litigation recovered by any claimant from the insured which are not included in and recoverable within territories of the Commonwealth of the Northern Mariana Islands.

Defendants contend that as a result of that language, the courts of CNMI are the only forum in which plaintiff may seek to recover damages for defendants' alleged breach of contract, breach of the implied covenant of good faith and fair dealing, negligence, breach of fiduciary duty, and negligent misrepresentation.2

Defendants characterize the language quoted above as a "forum selection clause" and cite National Fisheries Corp. v. New Quick Co., 9 FSM Intrm. 120, 125 (Pon. 1999), in which this Court held that such clauses are "presumed valid, and enforcement will be ordered absent a strong showing that it should be set aside, unless it clearly would be unreasonable and unjust, or that the clause is invalid for such reasons as fraud or overreaching." Where, as here, there is no claim that the clause was obtained by fraud or overreaching, the role of this court is to enforce forum selection clauses unless "clearly unreasonable and unjust" i.e., unless they are "fundamentally unfair." Id. at 125-26.

The threshold question, then, is whether the contractual language at issue is a forum selection clause. In National Fisheries Corp. v. New Quick Co., 9 FSM Intrm. 120 (Pon. 1999), this Court held that the following language constituted a forum selection clause because it evidenced an agreement that disputes relating to the parties' contract would be heard by a designated court: "This Lease and the relationship of the parties hereto shall be governed and interpreted in accordance with the laws of the United States of America and the parties hereto hereby irrevocably consent to the exclusive jurisdiction of the United States District Court for the State of California." National Fisheries noted that the clause unambiguously names a forum, the United States District Court for the State of California." Id. at 125; see also FSM Dev. Bank v. Gouland, 9 FSM Intrm. 605, 607-08 (Chk. 2000) (forum selection clause must unambiguously name forum). In the present case, the clause makes only a general reference to "a court of competent jurisdiction within the territories of the Commonwealth of the Norther Mariana Islands." In National Fisheries, the parties designated U.S. law as that which would control. Here, the parties' contract contains no such designation. Nothing in the clause indicates which country's laws shall govern the parties' contract. Next, the parties in National Fisheries had expressly consented to

[11 FSM Intrm. 562]

"the exclusive jurisdiction" of the specified court for disputes relating to their lease and their relationship. Here, the language of the contract does not clearly state that a CNMI court shall have exclusive jurisdiction to resolve disputes between the parties. Instead, it refers to "the indemnity provided herein," which might be understood to mean "the insurance coverage (i.e., protection) which I am purchasing." It then states that such indemnity shall not apply to "[c]ompensation for damages in respect of judgment delivered or obtained otherwise than by a court of competent jurisdiction" in the CNMI. That language is virtually incomprehensible.3 To the extent that a reasonably intelligent Micronesian might understand its meaning, he or she might conclude that it means the following: "The insurance coverage which I am purchasing does not apply to lawsuits that are filed against me for damages, unless those suits are filed in CNMI." The reader might actually be left with the belief that he or she possesses greater immunity from lawsuit as a result of the language in this contract. That interpretation is especially plausible in light of the second section of the clause, which excludes "[c]osts and expenses of litigation recovered by any claimant from the insured which are not included in and recoverable within the territories of the Commonwealth of the Northern Mariana Islands." (emphasis supplied). The language of that section appears to provide that if the insured is sued, he or she will not have to pay the other party's costs and expenses unless they were recoverable in the CNMI. Given the juxtaposition of those two sections, the entire "local jurisdiction clause" could reasonably be understood as a type of protection against claims filed by third parties. Yet that interpretation contrasts sharply with the one advanced by defendants.

The purpose of a properly drafted forum selection clause is to eliminate uncertainty as to where disputes between the parties will be litigated. Such clauses can further eliminate uncertainty by specifying the law that will be applied. The clause in the present case accomplishes neither purpose. It would, therefore, be fundamentally unfair to conclude that the ambiguous language utilized in the "local jurisdiction" provision of the parties' contract constitutes an agreement that claims such as those which have now been brought by plaintiff may be litigated only in the CNMI. In sum, the local jurisdiction provision in the present contract does not constitute a forum selection clause.

The next question is what effect, if any, can be given to the language contained in the contract's local jurisdiction clause. This Court has previously held that, in order to be binding, an agreement "must be definite and certain as to its terms and requirements; it must identify the subject matter and spell out the essential commitment and agreements with respect thereto." Etscheit v. Adams, 6 FSM Intrm 365, 388 (Pon. 1994). As noted above, the clause at issue here refers to "judgment" and "court," but it does not inform the insured that it will determine the forum for lawsuits filed by the insured against the insurance company and that its effect will be to prevent the insured from bringing such disputes into a local court. The clause also could be interpreted as referring to lawsuits filed by individuals who seek to recover damages from one or both of the parties to this contract. In sum, the meaning of the local jurisdiction clause is so vague and uncertain as to render it unenforceable in its entirety.

Moreover, to the extent that the clause could be interpreted and applied in the future, in the manner urged by defendants, it must be struck down as void as against public policy. Unless it is a

[11 FSM Intrm. 563]

freely negotiated, arms-length agreement between parties with relatively equal bargaining power, an insurance contract that seeks to oust the jurisdiction of this Court will not be upheld where the insured is a citizen and resident of the FSM, the insurance policy is obtained in the FSM from an FSM-based agent, the premiums are paid in the FSM to cover vehicles operating in the FSM, and the incident giving rise to a claim occurs in the FSM. The "local jurisdiction" clause in the present contract is against public policy because it impedes the administration of justice relating to insurance claims, and would undermine the public's confidence in business dealings if upheld. To require lawsuits of this type of be filed in a foreign country would not only be onerous, but would essentially render insurance companies immune from suit. Given the limited financial resources of the vast majority of Micronesians, it would be patently unreasonable, fundamentally unfair, and inflict grave social harm if defendants' interpretation of this clause were applied and claimants were required to file suit in a seriously less convenient forum.

Furthermore, the paragraph heading utilized in the contract appears calculated to misinform the insured by its use of the term "local," which has a distinct meaning within the FSM and conveys precisely the opposite of what defendants' interpretation suggests. The average insured would not know that the "local" jurisdiction clause utilized in defendants' pre-printed insurance contract means that the insured cannot utilize the local courts, i.e., those within the Federated States of Micronesia, if the insured brings a breach of contract claim. In sum, the clause is contrary to the reasonable expectations of an insured4 that improperly denied claims may be pursued in local courts.

The "local jurisdiction clause" is hereby stricken from the contract as unenforceably vague and ambiguous, and void as against public policy. The Court does not make this decision lightly, as judicial restraint requires the exercise of extreme caution in striking down a portion of any contract that is entered into freely. However, enforcement of the clause, to the extent that its meaning can be discerned, would be unreasonable under the circumstances.

Accordingly, the Court hereby denies defendants' Motion to Dismiss for Improper Forum. In a previous Order, the timeline for filing an opposition to plaintiff's Motion for Summary Judgment was suspended. That suspension is now lifted, and defendants are hereby ordered to file their opposition on or before April 14, 2003.

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Footnotes:

1 The Complaint alleges five causes of action. One – breach of contract – arises out of the contract, and four are tort claims based upon duties that arise independently of the contract: breach of implied covenant of good faith and fair dealing, negligence, breach of fiduciary duty, and negligent misrepresentation. Defendants have counter-claimed, alleging that plaintiff failed to pay the balance owing on his insurance policy.

2 Defendants take the position that the alleged forum selection clause limits plaintiffs' claims, but their counterclaim to recover unpaid premiums may be litigated in this Court because a separate clause in the contract requires full payment of all premiums once a claim is made under the insurance contract.

3 This Court does not look kindly upon contractual provisions that can only be understood by individuals who possess an advanced degree in Insurance Law. Clear, understandable, precise language is a condition to a finding that an insured must bear the cost of litigating in a remote forum. Cf. Semens v. Continental Air Lines, Inc., 2 FSM Intrm 131, 146 (Pon. 1985) (applying "pristine clarity" requirement to an indemnification clause). For example: "If your vehicle is damaged and you submit a claim to the insurance company, and that claim is denied, you cannot sue the insurance company in the FSM, but instead must bring your legal action in the courts of the CNMI."

4 When interpreting a contract, the FSM judiciary "may not simply assume that reasonably intelligent Micronesians will perceive the same meaning as would reasonably intelligent Americans. We may not blind ourselves to the pertinent aspects of Micronesian society, such as less facility in the English language, less exposure to business concepts, and paucity of legal resources, which might cause a reasonably intelligent Micronesian to perceive [a] meaning differently than would a person from some other nation." Semens, 2 FSM Intrm. at 148-49.

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