(Article from Insurance Law Alert, March 2026)
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Holding
An insurance policy’s choice-of-law clause selecting New York law is enforceable, despite the policyholder’s argument that the Texas Insurance Code requires Texas law to govern insurance contracts issued by insurers doing business in Texas. Danaby Rentals, Inc. v. Mt. Hawley Ins. Co., No. 24 Civ. 3481 (JPC), 2026 LX 45735 (S.D.N.Y. Feb. 17, 2026).
Background
An insurance coverage dispute arose between Danaby Rentals, Inc., the owner of commercial properties in Texas, and its insurer, Mt. Hawley Insurance Co., concerning storm damage to Danaby’s properties. Mt. Hawley declined coverage on the ground that Danaby failed to comply with a policy condition requiring prompt notice of the loss or damage. Danaby filed suit in federal district court in Texas asserting claims for breach of contract, bad faith, and violations of the Texas Prompt Payment of Claims Act. Pursuant to the contract’s forum selection clause, the case was transferred to the Southern District of New York.
Decision
The court found the choice of law provision applying New York law to disputes arising under the policy was enforceable. The court also found that Texas law governed the extra-contractual tort claims.
The policy provided that New York law shall govern “all matters arising hereunder including questions relating to the validity, interpretation, performance and enforcement of this Policy.” The Texas Insurance Code, however, states that “Texas law governs insurance contracts payable to citizens or inhabitants of Texas by an insurance company doing business there.”
The court determined that a choice-of-law analysis was necessary because Texas and New York law are in actual conflict as to whether an insurer may disclaim coverage based on untimely notice. Under New York law, for policies issued outside of New York, an insurer may decline coverage based solely on untimely notice. Texas law, by contrast, requires the insurer to demonstrate prejudice resulting from the late notice. Because the case was transferred pursuant to the policy’s forum selection clause, the court concluded that New York supplied the governing choice-of-law rules.
Under New York General Obligations Law § 5-1401, parties may agree that New York law governs their contract if the transaction involves at least $250,000. When such a clause is present, courts need not perform a traditional choice-of-law analysis. Danaby argued that § 5-1401 could not apply because the choice-of-law clause was void ab initio under Texas public policy prohibiting surplus lines insurers like Mt. Hawley from contracting around Texas insurance law.
The court rejected this argument, concluding that allowing another state’s public policy to invalidate a contractual selection of New York law would undermine § 5-1401’s purpose of eliminating uncertainty regarding the governing law. Accordingly, the court held that the policy's choice-of-law clause was valid and that the policy must be interpreted under New York law.
Regarding Danaby’s constitutional arguments, the court concluded that the policy’s choice-of-law and forum-selection clauses constituted sufficient contacts with New York to support application of New York law. The court reasoned that New York has a legitimate interest in promoting predictability for parties that select its law to govern their agreements. The court emphasized that enforcing the parties’ contractual choice is not hostile to the laws of another state and therefore does not violate the Full Faith and Credit Clause. Nor does it violate due process as “it is hardly unfair or arbitrary to honor the contractual choice of the parties.”
The court reached a different conclusion regarding Danaby’s extra-contractual claims. The court explained that the choice-of-law provision is inapplicable to such claims because the provision applies to “[a]ll matters arising hereunder,” which the court determined did not encompass tort claims. The court concluded that Texas has the strongest interest because the policy was delivered in Texas, Danaby is based in Texas, the alleged statutory violations arise under a Texas statute, and the alleged injury occurred in Texas.
Comments
This decision highlights choice-of-law and forum-selection provisions in insurance policies covering risks across multiple jurisdictions. Differences across state insurance law—such as notice requirements and the availability and scope of statutory or common law bad faith claims—can have significant effect on the outcome of coverage disputes. By enforcing the policy’s choice-of-law clause, the court reaffirmed New York’s strong policy favoring predictability and certainty in commercial agreements. The ruling also serves as a reminder that whether such provisions may extend to extra-contractual claims depends on the language of the choice-of-law provision.