Last week, the Southern District of New York held that a New York choice-of-law provision in a Texas commercial property insurance policy was enforceable, despite the Texas Insurance Code expressly stating that surplus lines insurers cannot contract around Texas’s insurance laws.
The decision is technical, but its impact is practical. The state law governing an insurance policy shapes the rules of the game. Different states apply different notice standards, interpret policy language differently, and take different approaches to bad faith and damages. The governing law can affect what an insured must prove, what defenses an insurer can assert, and what remedies are available. The same policy and the same loss can be treated very differently depending on which state’s law applies. Insurers understand this and often include “choice of law” provisions to ensure that claims are litigated under insurer-friendly laws.
Here, the Southern District of New York upheld the enforceability of a “choice of law” clause in a surplus carrier’s policy, despite Texas’s effort to statutorily prevent such carriers from contracting around its consumer protections. In doing so, the court signaled that, at least in New York, a policy’s choice-of-law clause takes precedence over another state’s statutes and public policy, even where the insured property is located there and the policy was issued there.
A Texas Policy Dispute in New York
The case, Danaby Rentals, Inc. v. Mt. Hawley Insurance Company, arose from an April 28, 2023, hailstorm that damaged ten commercial properties in South Texas. 1 The insurer failed to issue any payment, while the insured, a Texas company, alleged nearly $2 million in storm-related damage. The insured filed suit in Texas federal court for breach of contract, bad faith, and other Texas statutory violations. The policy contained forum selection and choice of law clauses requiring disputes be litigated in New York under New York law, and the insurer transferred the case, without objection, to the Southern District of New York.
That change mattered because Texas and New York law differ in meaningful ways – particularly regarding notice and bad faith. In Danaby, the insured reported the claim about three months after the storm. Under Texas law, an insurer generally must show it was prejudiced by late notice before denying coverage. Under New York law, no such showing is required in many circumstances. Applying New York law, therefore, strengthened the insurer’s late-notice defense. The insurer also thought that if New York law governed the policy, then the insured’s claims under Texas law would no longer be viable, essentially eliminating any bad faith liability.
The insured argued that Texas law should control because the company and properties were located in Texas, and Texas statutes prohibit surplus lines insurers from contracting around the state’s mandatory insurance protections. The insurer responded that the policy’s choice-of-law clause governed and must be enforced.
The Southern District of New York agreed with the insurer regarding the applicable law. Applying New York choice-of-law rules, it held that the forum-selection and choice-of-law provisions were valid and enforceable, even though the only meaningful connection to New York was the policy language itself.
Are Policyholders really “Free to Agree”?
The court emphasized that parties are “free to agree, and not to agree” to choice-of-law provisions in their contracts, and that this agreement was controlling. However, insurance policies are often not actually negotiated agreements between equals. Instead, they are usually drafted by insurers and presented to policyholders on a take-it-or-leave-it basis. In today’s property insurance market, as insureds pay more money for less coverage, their bargaining leverage is limited. Treating choice-of-law clauses as though they result from equal bargaining overlooks the structural imbalance inherent in insurance contracting.
Courts in neighboring New Jersey have long recognized this reality. New Jersey courts consider insurance policies to be “contracts of adhesion” because insurers draft the forms and control the language. 2 For that reason, they interpret the policies strictly against the insurer and consider the policyholder’s reasonable expectations to account for the fact that their “agreement” to policy language does not necessarily reflect meaningful negotiation. The approach taken in Danaby, in contrast, enforced the choice-of-law clause as written without engaging in that same policyholder-focused analysis.
Summary Judgment Denied
Even though the insurer prevailed on the choice-of-law issue for the contract claim, it did not win the case outright. The court denied summary judgment on the late-notice defense, finding genuine disputes of material fact as to whether or not notice was sufficient.
Critically, the court also rejected the insurer’s argument that applying New York law eliminated the Texas bad faith and prompt payment claims altogether. The court concluded that those statutory and tort claims were separate from the contract itself and therefore fell outside the scope of the policy’s choice-of-law clause. Applying a standard “interest analysis,” the court determined that Texas had the greatest interest in regulating claims handling involving Texas property and a Texas insured. As a result, the Texas bad faith and prompt payment claims survived.
The Danaby decision underscores how powerful forum-selection and choice-of-law clauses can be. A provision buried in the policy could force you to litigate your claim far from home under unfamiliar laws. At the same time, Danaby shows that these clauses are not absolute shields. State consumer-protection statutes may still apply, even when another state’s law governs the contract itself. Policyholders should pay close attention to these provisions, as they can significantly influence how and where a claim is decided. With offices nationwide, our attorneys are equipped to assist policyholders with property insurance claims wherever they arise and wherever they must be litigated.
1 Danaby Rentals, Inc. v. Mt. Hawley Ins. Co., No. 24-CV-3481, 2026 WL 440758 (S.D.N.Y. Feb. 17, 2026).
2 Meier v. New Jersey Life Insurance Co., 101 N.J. 597, 503 A.2d 862, 869 (1986).