Choice of Law in Insurance Coverage Disputes Strategies and - - PowerPoint PPT Presentation

Choice of Law in Insurance Coverage Disputes Strategies and Perspectives From Policyholder and Insurer Counsel

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Presenting a live 90-minute webinar with interactive Q&A Stephanie V. Corrao, Counsel, Crowell & Moring, Washington, D.C. Harry J. Moren, Attorney, Orrick Herrington & Sutcliffe, San Francisco Derrick R. Ward, Attorney, Carrington Coleman, Dallas

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Choice of Law in Insurance Coverage Disputes

Strategies and Perspectives from Policyholder and Insurer Counsel

Strafford Webinars: June 26, 2019 1:00 EDT

• Stephanie Corrao, Crowell & Moring LLP
• Harry J. Moren, Orrick
• Derrick Ward, Carrington Coleman

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Overview

Choice of Law Matters

• Significance of Choice of Law in Insurance Dispute
• Basic Fact Pattern:
• Injury takes place outside the policyholder’s home state
• Analytical challenges
• Complex
• Time consuming
• Uncertain
• Uniformity vs. Flexibility/Uncertainty

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Contractual Choice of Law Provisions

The Challenge of Choice

• In the absence of a choice-of-law provision, the process for determining the

applicable law for a given insurance dispute can be complicated, time consuming and expensive.

• It requires the parties to research insurance law of all the potentially applicable

jurisdictions to determine if there is a difference among the states regarding the insurance issues in question.

• If there is a difference among state laws (and there usually is) then the conflict of law rules
• f the forum state must be researched and the relevant factors under those rules analyzed.
• Typically this analysis is necessary before coverage litigation is filed for the parties to

determine the preferred state in which to litigate.

• Once litigation is pending, it is likely the parties will disagree as to applicable law, which

must be submitted to the court for determination.

• This process is time-consuming and expensive, with an unpredictable outcome.

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Overview

Focus Questions for Today’s Discussion

• What are the various choice-of-law tests employed in different jurisdictions?
• What are the best practices for including choice-of-law provisions?
• What strategic and practical considerations should be taken into account?
• What are the current choice of law doctrines and possible future developments?
• What is the current state of play for choice of law provisions in insurance

policies?

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Steps in Approaching Choice of Law

What states are potentially implicated?

Does the substantive law on the specific issue differ?

• If not, then no conflict; use the forum state’s law.

If so, do you have a choice of forum to file suit?

• If you can choose forum, what choice-of-law rules does (each

potential) forum state apply? Federal court in diversity cases must apply the choice-of-law rules of the forum state. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487 (1941).

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Does the insurance contract specify governing law?

Most policies do not include a choice-of-law provision. Courts are inclined to honor such provisions. See Restatement (Second) of Conflict

• f Laws § 187 (1971); Ratajczak v. Beazley Sols. Ltd., 870 F.3d 650 (7th Cir. 2017); H.J.

Heinz Co. v. Starr Surplus Lines Ins. Co., 675 F. App’x 122 (3d Cir. 2017). Not enforceable if unreasonable or violates “fundamental policy” of state with “materially greater interest.” Restatement § 187; Hendricks v. Novae Corp. Underwriting, Ltd., 868 F.3d 542 (7th Cir. 2017). Are there other reasons to disregard it? Arnone v. Aetna Life Ins. Co., 860 F.3d 97 (2d

• Cir. 2017)(court not required to “construe” policy); Selective Ins. Co. of S. Carolina v.

Target Corp., 845 F.3d 263 (7th Cir. 2017) (parties and court disregarded contract’s choice of law).

Orrick; Carrington Coleman;

Steps in Approaching Choice of Law

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Does a forum-state statute apply?

1. Second Restatement § 6(1): “A court, subject to constitutional restrictions, will follow a statutory directive of its own state on choice of law.” 2. Would it resolve the specific issue presented?

• Examples:
• Montana: Mont. Code § 28-3-102 (general choice-of-law rule);

Tidyman’s Mgmt. Servs. Inc. v. Davis, 330 P.3d 1139 (Mont. 2014)

• Texas:
• Tex. Ins. Code § 21.42 mandates application of Texas law to

an insurance policy when: “(1) the insurance proceeds are payable to a Texas citizen or inhabitant; (2) the policy is issued by an insurer doing business in Texas; and (3) the policy is issued in the course of the insurer’s business in Texas.” Reddy Ice Corp. v. Travelers Lloyds Ins. Co., 145 S.W.3d 337 (Tex. App. 2004).

Orrick; Carrington Coleman;

Steps in Approaching Choice of Law

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Does a forum-state statute apply?

2. Would it resolve the specific issue presented?

• Additional Examples:
• Arizona: A.R.S. § 20-1101 provides Arizona “statutes governing

insurance contracts . . . do not apply to ‘Policies or contracts not issued for delivery . . . nor delivered in [Arizona].’” Gomez-Silva v. Jackson Nat’l Life Ins. Co., 2011 WL 1656507 (D. Ariz. 2011).

• New York: Carlson v. AIG, Inc., 89 N.E.2d 100 (N.Y. 2017), held a policy

was “issued or delivered” in New York, and therefore subject to New York law, “where both insureds and risks are located in this state.” 3. Is it enforceable? Such provisions must be narrowly construed to avoid giving them “extraterritorial effect.” Austin Bldg. Co. v. Nat’l Union Fire Ins. Co., 432 S.W.2d 697 (Tex. 1968).

Orrick; Carrington Coleman;

Steps in Approaching Choice of Law

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Choice of Law Tests

First Restatement

Lex Loci Contractus

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• Historical Landscape
• US Supreme Court: Comity  Constitutional Limitations
• Art. IV Full Faith & Credit Clause
• Due Process Clause of 14th Amendment
• “Vested rights” Theory
• Traditional justifications: “1) It is relatively easy to apply; 2) It

improves predictability of outcome; 3) It discourages forum shopping; and 4) It is symmetrical.” Ingersoll v. Klein, 262 N.E.2d 593 (Ill. 1970).

• First Restatement of Conflicts of Laws (1934)
• Advocated mechanical application of lex loci contractus
• Territorialist Aproach: Controlling law is the state of contracting
• Academic criticism & judicial abandonment

“[T]he law of the place of execution governs questions regarding the formation of the contract, while the law

• f the place of performance

governs issues relating to the performance of the contract.” Wood Bros. Homes v. Walker Adjustment Bureau, 601 P.2d 1369 (Colo. 1979)..

Choice of Law Tests: First Restatement

Lex Loci Contractus

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• First Restatement of Conflicts of Laws (1934)
• Advocated mechanical application of lex loci contractus
• Territorialist Aproach: Controlling law is the state of contracting
• Routinely criticized for being “unduly inflexible, leading to harsh and unjust

results.” Wood Bros. Homes, 601 P.2d at 1372. Place of execution or performance is increasingly hard to determine in the “cyber age.”

• Still used in some states, e.g.,
• Tennessee: Goss v. Green, 664 F. App’x 560 (6th Cir. 2016).
• Maryland: Interstate Fire & Cas. Co. v. Dimensions Assurance
• Ltd. 843 F.3d 133 (4th Cir. 2016); Am. Motorists Ins. Co. v. ARTRA

Grp., Inc., 659 A.2d 1295 (Md. 1995).

Choice of Law Tests: First Restatement

Lex Loci Contractus

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Choice of Law Tests: First Restatement

States Adhering to Lex Loci Contractus

• Alabama
• Florida
• Georgia
• Kansas
• Maryland (plus Renvoi)
• New Mexico
• North Carolina
• Oklahoma (by statute)
• Tennessee
• Virginia
• West Virginia (hybrid with

Restatement)

• FN. 1 See Klepper, Steven M., “Choice of Law for Coverage Disputes,” General Liability Insurance Coverage: Key

Issues in Every State (4th ed.), Maniloff & Stempel, Wolters Kluwer N.V., 2018, Ch. 2); Murray, James and Sou, Kimberly, “Choice of Law Standards Re: Insurance Coverage – A 50 State Survey” (September 2016).

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Choice of Law Tests

Second Restatement

• Sections 6, 188, 193
• Claim Specific Approach
• Policyholder Headquarters Approach

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• Choice of Law “Revolution”
• Second Restatement of Conflicts of Laws (1971)
• Specific rules for Contracts & Insurance Contracts
• § 193: Insurance Contracts
• § 188: Contract Disputes Generally
• General Methodology: §6 Most Significant Relationship – 7 FACTORS
• Springboard for center-of-gravity theory; the interest weighing

influence theory; the grouping of contracts theory

• 1981 U.S. Supreme Court Legitimized a “Flexible Interest-

based Analysis”

• Allstate Ins. Co. v. Hague, 449 US 302 (1981)

Choice of Law Tests: Second Restatement

Most Significant Relationship: Framework

In the absence of a valid choice of law clause, courts apply the law of the state with the most significant or substantial contacts with the parties and the transaction underlying the lawsuit.

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The validity of a contract of fire, surety or casualty insurance and the rights created thereby are determined by the local law of the state which the parties understood was to be the principal location of the insured risk during the term of the policy, unless with respect to the particular issue, some other state has a more significant relationship… to the transaction and the parties, in which event the local law of the other state will be applied.

Choice of Law Tests: Second Restatement

Section 193: Insurance Contracts

Section 193: Location of the Insured Risk unless…

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(1) The rights and duties of the parties with respect to an issue in contract are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the transaction and the parties under the principles stated in § 6. (2) In the absence of an effective choice of law by the parties (see § 187), the contacts to be taken into account in applying the principles of § 6 to determine the law applicable to an issue include: (a) the place of contracting; (b) the place of negotiation of the contract; (c) the place of performance; (d) the location of the subject matter of the contract; and (e) the domicil, residence, nationality, place of incorporation and place of business of the parties. These contacts are to be evaluated according to their relative importance with respect to the particular issue.

Choice of Law Tests: Second Restatement

Section 188: Contract Disputes Generally

Section 188: Relative importance of contacts with parties & contracting events with respect to the “particular issue”

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(1) A court, subject to constitutional restrictions, will follow a statutory directive of its

• wn state on choice of law.

(2) When there is no such directive, the factors relevant to the choice of the applicable rule of law include: (a) the needs of the interstate and international systems; (b) the relevant policies of the forum; (c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue; (d) the protection of justified expectations; (e) the basic policies underlying the particular field of law; (f) certainty, predictability, and uniformity of result, and (g) ease in the determination and application of the law to be applied.

Choice of Law Tests: Second Restatement

Section 6: Guiding Principles

Section 6(2): Factors for determining which state is most significantly related to the particular issue

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Choice of Law Tests: Second Restatement

States Adopting Restatement Second

• Alaska
• Arizona
• Arkansas
• Colorado
• Connecticut
• Delaware
• Idaho
• Indiana
• Iowa
• Kentucky
• Maine
• Massachusetts
• Michigan
• Mississippi (“center of gravity”)
• Missouri
• Nebraska
• Nevada
• New Hampshire
• New Jersey
• New York
• Ohio
• Pennsylvania (plus governmental interest)
• Rhode Island (but lex loci carries most weight)
• Texas
• Utah
• Vermont
• Washington
• Wisconsin (grouping of contacts)
• Wyoming

See FN.1 supra.

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• Under Section 193, identifying the “location of the insured risk” is simple where the policy insures a fixed risk.
• When the risk of loss is confined to one state, the law of that state will control.
• If, in that case, delivery of the policy occurs in a state other than the location of the insured risk, the flexible Second

Restatement approach yields a better result than does lex loci contractus, while fulfiling the goals of certainty, predictability, and uniformity of result.

• The analysis becomes complicated when the risk insured spans multiple states.
• “[T]he location of the risk has less significance… where the policy covers a group of risks that are scattered throughout two
• r more states.”

Restatement (Second) of Conflict of Laws § 193 cmt. b (1971).

• The Second Restatement provides little guidance specifically for situations in which a policy covers nationwide
• risks. Courts have adopted variations on two primary approaches:
• Claim-Specific Approach
• Policyholder Headquarters Approach

Choice of Law Tests: Second Restatement

Analysis: Identifying the Location of the Insured Risk

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• Some jurisdictions hold that the state where the injury occurs has the

most significant relationship to insurance coverage dispute.

• Typically environmental coverage cases
• States applying this approach: California, Connecticut, Hawaii, Maine,

Montana, Nebraska, Nevada, New Jersey. See also Minnesota, Ohio, Vermont (conflicting authority in these states).

• Rationale: Section 193; understanding of the parties; overriding state

interest

• Drawbacks of this Approach:
• Applicability outside environmental context unclear
• Contrary to probable expectations of the parties
• Does not serve judicial economy to apply different states’ laws in same case

Choice of Law Tests: Second Restatement

Analysis: Location of the Insured Risk – Claim Specific Approach

US Court of Appeals for the Second Circuit: “that the laws of as many as fifty states should simultaneously govern the same clause of the same insurance policy… would be amusing, had it not been advanced with such sincerity.”

• Md. Cas. Co. v. Cont’l Co.,

332 F.3d 145, 154 (2d Cir. 2003)

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• “Interest of the Tort Plaintiff”
• E.g., Int’l Ins. Co. v. Stonewall Ins. Co., 86 F.3d 601, 606 (6th Cir. 1996)
• But tort plaintiff not a party to the insurance contract
• “Number of Sites”
• Impact of number of sites in environmental cases on choice of law

determination;

• See E.B. & A.C. Whiting Co. v. Hartford Fire Ins. Co., 838 F.Supp. 863, 854-66 &

n.7 (D. Vt. 1993)

• Ignores intentions of the parties; choice of law depends on fortuity of number
• f sites
• “Insurer Loses” Approach
• Absence of a choice-of-law clause creates ambiguity that should be construed

against insurer by adopting the state’s law preferred by the policyholder

• Analytically unsound; c/l clauses not always enforced; ignores Restatement

factors

Choice of Law Tests: Second Restatement

Analysis: Location of the Insured Risk – Variations on Claim Specific Approach

Variations do not cure defects in Claim- Specific Approach

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• Multiple jurisdictions have found that the state with the most significant

contacts to a policy covering liability in multiple states is the state where the policyholder maintained its principal place of business.

• Justifications for this approach:
• § 193 (comment b or p/h location as ultimate location of risk)
• Balance of considerations under § 188 against location of insured risk
• Intentions of the Parties – parties probably expected law of PPB to

control

• Eliminating fortuity – increase certainty, predictability, uniformity
• State Interest – which state has the stronger interest in

interpretation of the policy

Choice of Law Tests: Second Restatement

Analysis: Location of the Insured Risk – Policyholder’s Headquarters

Policyholder HQ adopted in: Colorado, Delaware, District of Columbia, Illinois, Louisiana, Massachusetts, Michigan, Mississippi, Missouri, New Hampshire, New York, North Dakota, Oregon, Pennsylvania, Puerto Rico, Washington, West Virginia, Wisconsin

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Choice of Law Tests

Other Multifactor Tests

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Under the “governmental interest” analysis, the court

• First determines if the law of the competing states

differs;

• If it does, th court looks to whether each state has an

interest in seeing its law applied?

• If both states have an interest, the court must engage

in a unique “comparative impairment analysis” to deermine which state’s interest would be more impaired if its law were not applied.

Ledesma v. Jack Steward Produce, Inc., 816 F.2d 482 (9th Cir. 1987); Stonewall Surplus Lines Ins. Co. v. Johnso n Controls, Inc., 14 Cal.App.4th 637, 646 (1993). But see California Civil Code §1646 and more recent case law., discussed below.

Choice of Law Tests: Other Multifactor Tests

Governmental Interest Analysis

The state whose interest would be more greatly impaired by not applying its law is the state whose law must apply.

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• New York’s “center of gravity” or “grouping of

contacts” test seeks to apply the law of the state with the most significant relationship to the transaction and the parties.

• Factors include “the places of negotiation and

performance; the location of the subject matter; and the domicile or place of business of the contracting parties.” Fireman’s Fund Ins. Co. v. Great American

• Ins. Co. of New York, 822 F.3d 620 (2d Cir. 2016);

Certain Underwriters v. Foster Wheeler Corp., 822 N.Y.S.2d 30 (N.Y. App. Div. 2006), aff’d, 876 N.E.2d 500 (N.Y. 2007).

Choice of Law Tests: Other Multifactor Tests

Center of Gravity

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• Leflar Analysis:
• Predictability of results;
• Maintenance of interstate order;
• Simplification of judicial task
• Advancement of forum’s governmental interest
• Better rule of law.

Robert A. Leflar, Choice-Influencing Considerations in Conflict of Law, 41 NYU L.Rev. 267, 282 (1966)

• E.g., Daley v. American States Preferred Ins. Co., 587 N.W.2d 159 (N.D.

1998).

Choice of Law Tests: Other Multifactor Tests

Leflar’s Five Choice-Influencing Factors

The so-called “Better Law” Approach

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Choice of Law Tests: Other

Governmental Interest/”Better Rule”/Other

• California (mixed whether

statute or “governmental interest” analysis)

• District of Columbia

(governmental interest)

• Hawaii (analysis based on

interests of the states and applicable public policy reasons; presumption Hawaii law applies)

• Illinois (variation of Restatement

considering contracting factors

• r principal place of business of

policyholder)

• Minnesota (“better rule” –

LeFlar)

• North Dakota (“better rule” –

LeFlar) See FN.1 supra.

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• Frequently criticized as tedious, unnecessarily complicated,
• verly burdensome, unpredictable, and subject to manipulation

to achieve desired result.

• Visteon Corp. v. Nat’l Union, 777 F.3d 415 (7th Cir. 2015) (Posner,

J.)

• Approves Indiana’s “uniform-contract-interpretation”

approach; criticizes requirement to consider all factors.

• “Insurers should negotiate with insureds” to select

governing law.

Criticism of Multifactor Tests

“a bane of modern jurisprudence”

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Recent Decisions and Trends

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• Disputed policies issued in Mich. to Honeywell predecessor, Bendix
• Substantive difference between N.J. and Mich. on allocation issue
• Applied Second Restatement test
• Strong New Jersey contacts under Section 188
• Longtime residence of Bendix since 1983, and of Honeywell
• Place of performance of the contractual defense of Honeywell
• Weaker Michigan contacts
• Place of contracting; place of negotiation
• Less important because insured risk is not site-specific – liability

for commercial product distributed nationally

• Section 6 factors warrant application of N.J. law

Recent Decisions and Trends

Cont’l Ins. Co. v. Honeywell Int’l, Inc., 188 A.3d 297 (N.J. 2018)

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• American Fire & Casualty Company v. Hegel, 847 F.3d 956 (8th Cir.

2017).

• Relatively recent Multifactor analysis that looks to “better

law” approach and governmental interests

• A mix of factors analyzed
• Mega Construction Corporation v. XL American Group, 684 F.

App’x 196 (3d Cir. 2017).

• Applying Section 193 to find PA law applicable for coverage
• f an apartment development in PA
• Fireman’s Fund Insurance Company v. Great American Insurance

Company of New York, 822 F.3d 620 (2d Cir. 2016).

• Applying Center of Gravity and multifactor analysis to find

MS law applicable over Texas for Texas dry dock collapse

Recent Decisions and Trends

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Contractual Choice of Law Provisions

Restatement §187 Applicable Statute

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Contractual Choice of Law Provisions

Will it be Enforced?

• Will courts carry out the intent of the contracting parties

by honoring their specific choice of law provision in the

• contract. E.g., Coderre v. Travelers Ins. Co., 136 A. 305

(R.I. 1927).

• When the parties choose the law of a particular state to

govern their contractual relationship and the chosen law has some nexus with the parties or the contract, that law will generally be applied. Airgo, Inc. v. Horizon Cargo Transport, Inc., 670 P.2d 1277 (Haw. 1983)

• See also Swanson v. Image Bank, 206 Ariz. 264 (2003) (“If

a contract includes a specific choice-of-law provision, we must determine whether that choice is ‘valid and effective’ under Restatement §187.”)

Benefits of Choice-of-Law Clause

• Eliminates expense and

uncertainty

• Creates consistency within

insurance program

• Eliminates potential for gaps

in coverage

• Simplifies the coverage

litigation

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Contractual Choice of Law Provisions

Second Restatement § 187: Law of the State Chosen by the Parties

(1) The law of the state chosen by the parties to govern their contractual rights and duties will be applied if the particular issue is one which the parties could have resolved by an explicit provision in their agreement directed to that issue. (2) The law of the state chosen by the parties to govern their contractual rights and duties will be applied, even if the particular issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue, unless either

(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties’ choice, or (b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of §188, would be the state of the applicable law in the absence of an effective choice of law by the parties.

(3) In the absence of a contrary indication of intention, the reference is to the local law of the state of the chosen law.

The parties’ choice will control unless the state has no substantial relationship, or applying the law would be contrary to the “fundamental policy” of another state with greater interest.

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Contractual Choice of Law Provisions

Second Restatement § 187 comment e: “Expectations of the Parties”

• e. Rationale.
• Prime objectives of contract law are to protect the justified expectations of the

parties and to make it possible for them to foretell with accuracy what will be their rights and liabilities under the contract.

• These objectives may best be attained in multistate transactions by letting the

parties choose the law to govern the validity of the contract and the rights created

• thereby. In this way, certainty and predictability of result are most likely to be

secured.

• Giving parties this power of choice is also consistent with the fact that, in contrast

to other areas of the law, persons are free within broad limits to determine the nature of their contractual obligations.

Enforcement of Choice of Law Clauses furthers Certainty & Predictability

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Contractual Choice of Law Provisions

Second Restatement § 187 comment f: “Reasonable Basis for Parties’ Choice”

• f. Requirement of reasonable basis for parties' choice.
• The forum will not apply the chosen law to determine issues the parties could not

have determined by explicit agreement directed to the particular issue if the parties had no reasonable basis for choosing this law. * * *

• When the state of the chosen law has some substantial relationship to the parties
• r the contract, the parties will be held to have had a reasonable basis for their

choice.

• This will be the case, for example, when this state is that where performance by
• ne of the parties is to take place or where one of the parties is domiciled or has

his principal place of business. The same will also be the case when this state is the place of contracting except, perhaps, in the unusual situation where this place is wholly fortuitous and bears no real relation either to the contract or to the

• parties. …

There must be a reasonable basis for the chosen law. E.g.,

• place of

performance

• Principal place of

business

• Place of contracting

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Contractual Choice of Law Provisions

Second Restatement § 187 comment g: “Reasonable Basis for Parties’ Choice”

• g. Fundamental policy of state of “otherwise applicable” law
• Application of the chosen law will be refused only (1) to protect a fundamental

policy of the state which, under the rule of § 188, would be the state of the

• therwise applicable law, provided (2) that this state has a materially greater

interest than the state of the chosen law in the determination of the particular issue.

• The parties' power to choose the applicable law is subject to least restriction in

situations where the significant contacts are so widely dispersed that determination of the state of the applicable law without regard to the parties' choice would present real difficulties. The more closely the state of the chosen law is related to the contract and the parties, the more fundamental must be the policy

• f the state of the otherwise applicable law to justify denying effect to the choice-
• f-law provision.
• [A] fundamental policy may be embodied in a statute which makes one or more

kinds of contracts illegal or which is designed to protect a person against the

• ppressive use of superior bargaining power. Statutes involving the rights of an

individual insured as against an insurance company are an example of this sort (see §§ 192-193).

Parties’ choice will be refused only to protect (1) a fundamental policy of the state whose law would

• therwise apply

under §188; and (2) that state has a materially greater interest than the state of the chosen law

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Contractual Choice of Law Provisions

Second Restatement § 193 comment e: “Less Protection” for the Insured

• Enforcement of the parties’ choice of law is less favored where the policyholder

has little or no bargaining power, unless it benefits the policyholder:

• Effect will frequently not be given to a choice-of-law provision in a contract
• f fire, surety, or casualty insurance which designates a state whose local law

gives the insured less protection than he would receive under the otherwise applicable law for the same reasons that effect is not given to such a provision in a life insurance contract (i.e., because such contracts are drafted unilaterally and offered on a take-it-or-leave-it basis ).

• Effect is more likely to be given such choice-of-law provision in a situation

where the insured enjoys a relatively strong bargaining position , particularly where one or more of the insured risks is principally located in the state of the chosen law. § 193, comment e.

• Compare § 192, Comment h: Choice-of-law provisions contained in group

life insurance policies are more likely to be given effect than in the case of

• rdinary life insurance because the organization which procures the master

policy will usually have a stronger bargaining position than an individual insured.

Does the “otherwise applicable law” favor an insured with limited bargaining power?

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Contractual Choice of Law Provisions

Case Cites

• Reasonable relationship:
• Cantu v. Jackson Nat. Life Ins. Co., 579 F.3d 434, 437 (5th Cir. 2009) (There was a

reasonable relation between the transaction and the state, because agent, who negotiated the policies, was a Texas resident; while agent was not a party to the final insurance policies, he was a party to the transaction.)

• Cf. Indus. Indem. Ins. Co. v. United States, 757 F.2d 982, 986 (9th Cir. 1985) (predicting that

Idaho would not recognize the parties’ choice of law as valid where Illinois had no substantial relationship to the parties or the transaction, and the contractual 12-month limitation at issue was void under Idaho law).

• Policy Interest:
• Northern Ins. Co. of New York v. Point Judith Marina, LLC, 579 F.3d 61 (1st Cir. 2009) (no

policy interest identified which would override the parties’ choice of RI law.)

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Contractual Choice of Law Provisions

Case Cites

• Insured Risk Override:
• Param Petroleum Corp. v. Commerce and Industry, 686 A.2d 377, 379, 381-82 (N.J. Super.

1997) (in coverage case involving environmental contamination, choice-of-law provision specifying the applicable law as that of New York, would not be given effect where the insured risk was located entirely in New Jersey).

• Procedure Excluded:
• Western-Southern Life Assurance Co. v. Kaleh, 879 F.3d 653 (5th Cir. 2018) (Even if a contract

contains a choice-of-law provision in which the parties have agreed to apply the law of a different state, [Texas] as the forum will apply [its] own law to matters of remedy and procedure.)

• IRB-Brasil Resseguros, S.A. v. Inepar Invs., S.A., 958 N.Y.S.2d 689, (N.Y. 2012) (parties’ choice
• f law referred to substantive law of chosen state, excluding that state’s choice of law

rules).

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Contractual Choice of Law Provisions

Strategic Considerations

• Location of Insured Risk §193
• Environmental case – unique
• Multistate Risk – PPB as proxy
• Substantial Relationship / No Other Reasonable Basis
• Place of performance
• Place of contracting
• Dispersal of contacts
• Fundamental Policy
• Oppressive use of superior bargaining power
• Otherwise applicable law of State with a Materially Greater Interest
• Restatement §188

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The Ninth Circuit certified two questions to the California Supreme Court:

• (1) Is California's common law notice-prejudice rule a fundamental public policy for the

purpose of choice-of-law analysis?

• (2) If the notice-prejudice rule is a fundamental public policy for the purpose of choice-
• f-law analysis, can the notice-prejudice rule apply to the consent provision in this case?

Current Cases re Enforcement of Parties’ C/L

Pitzer College v. Indian Harbor Insurance Co., No. S239510 (Cal.) (Oral Argument 6.4.2019)

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Choice-of-Law Statutes

States with Statutory Provisions

 Louisiana  California (?)  Montana  Oklahoma  Oregon  South Carolina  South Dakota  Texas See FN.1 supra.

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• The methodology for drafting the Restatement Third has been described by one of its Reporters (Roosevelt) as “to look

at current choice-of-law decisions under the Restatement (Second), other modern approaches, foreign-country systems, and even the practice of territorial states, and identify categories of cases where the results are consistent enough to be stated in the form of rules. When sufficient convergence exists—and often it does—a rule can deliver right answers while also satisfying the systemic factors. It may not capture all results, and in rare cases the Restatement (Third)’s rules may sacrifice right answers. But as long as the number of errors is small enough, the Draft Restatement still represents progress in choice of law. “

• The ALI Adviser notes: “A Third Restatement would also provide an opportunity to address issues to which the Second

Restatement gave short shrift, or which simply did not exist when it was drafted: mass torts, for instance, or insurance for environmental damage, or internet transactions, products liability, punitive damages, and others. It would allow drafters to harmonize the ALI’s choice-of law position with other domestic codifications that have emerged since the Second Restatement: the Uniform Commercial Code, or the ALI’s works on complex and aggregate litigation, to name just two.”

• ALI Reporters:
• Kermit Roosevelt, III, Professor of Law at the University of Pennsylvania Law School
• Laura E. Little , Professor of Law at the Temple University Beasley School of Law
• Christopher Whytock , Professor of Law and Political Science at the University of California, Irvine,

DRAFT Restatement (Third) Conflict of Laws

The ALI Adviser

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Principle: choice-of-law questions should be resolved so as to promote state interests – i.e., the governmental policies underlying the laws in question Step One. Determining each relevant law’s scope. Step Two. Resolve any resulting conflict through the application of priority rules. See https://www.ali.org/projects/show/conflict-laws/ See also https://www.yalelawjournal.org/collection/restatement-of-conflict-of-laws

DRAFT Restatement (Third) Conflict of Laws

Proposed Approach: Two-Step Theory / Governmental Interest Analysis

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Crowell & Moring | 50 Stephanie V. Corrao is a counsel in the firm's Insurance and Reinsurance Group, where she represents insurers and reinsurers on a range

• f matters, from providing pre-dispute advice

and legal analysis of specific contract provisions and coverage issues to working to resolve complex disputes before courts and

• arbitrators. Stephanie also supports the

firm’s amicus work for insurer trade association clients, and regularly analyzes and advises clients about key coverage decisions throughout the country.

Insurance & Reinsurance

Contact Slide

Derrick Ward is an associate at Carrington

• Coleman. His practice focuses on insurance

coverage, employment litigation, business litigation, investigations, and public law . He regularly litigates in federal and state courts, as well as before state and local agencies, and has co-authored multiple articles on choice-of-law issues involving insurance coverage.

Insurance Coverage, Appellate, Employment Litigation

Harry Moren is a Senior Associate in Orrick's San Francisco office who specializes in commercial litigation. Harry also counsels corporate policyholders on insurance issues and helps them resolve disputes with their

• insurers. Harry writes for Orrick’s Weekly

Auditor Liability Bulletin, and is a regular writer for several Orrick blogs, including Trust Anchor (Cybersecurity & Data Privacy) and Trade Secrets Watch.

Complex Litigation & Dispute, Insurance Recovery, Cyber, Privacy & Data Innovation, Energy Stephanie V. Corrao 202.624.2817 Scorrao@crowell.com Derrick R. Ward 214.855.3102 dward@ccsb.com Harry J. Moren 415.773.5619 hmoren@orrick.com

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Questions?