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Update: Ninth Circuit Affirms Enforcement of China Venue Clause

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As an update to our blog post on June 2, 2021, the Ninth Circuit recently affirmed an Oregon court’s ruling that a venue clause in a Chinese liability policy required that a coverage dispute between an additional insured and Zurich will have to be litigated in China.

In this case, JPaulJones (JPJ) contracted with a Chinese firm to manufacture products designed by JPJ, and had specified that it would be an additional insured on the manufacturer’s liability policy with a Chinese Zurich affiliate. JPJ was sued in several states, one of them Oregon, for product liability. When Zurich denied the tender of defense, JPJ sued in Oregon—and Zurich moved to dismiss based on a forum selection (or “venue”) clause in the policy. The trial court granted the motion.

The trial court’s decision was unsettling in large part because it rejected application of an important Oregon Supreme Court case, Molodyh, which Oregon’s insurance regulator had said in written guidance meant that venue clauses in insurance policies were unenforceable. The Ninth Circuit’s unpublished decision affirming the trial court did not address this issue.

The key takeaway from the Ninth Circuit’s decision continues to be that companies working with overseas partners, that intend to rely on additional insured status as part of their risk management plan, need to very carefully analyze all of the terms of the insurance policy providing additional insured protection to make sure that there are no surprise provisions that will diminish the value of the additional insured protection—such as a foreign venue clause.

It also appears that the Oregon legislature needs to act to protect Oregon companies from having to litigate coverage disputes in unfavorable venues. Now that there is case law rejecting the Oregon Department of Financial Regulation’s interpretation of the Molodyh decision, specific legislation is clearly needed.