CERTAIN UNDERWRITERS AT LLOYD‘S, LONDON, et al., Plaintiffs, v FOSTER WHEELER CORPORATION, Appellant, and AFFILIATED FM INSURANCE COMPANY et al., Respondents, et al., Defendants, et al., Nominal Defendants.
First Department, September 28, 2006
[822 NYS2d 30]
Crowell & Moring LLP, Washington, DC (Clifton S. Elgarten, Kathryn A. Underhill, Jonathan H. Pittman and Amy B. Newman of counsel), and Levin & Glasser, P.C., New York City (Paul G. Burns of counsel), for Century Indemnity Company, respondent.
Cozen O‘Connor, New York City (James B. Dolan, Jr., Thomas G. Wilkinson, Jr., and Melissa F. Brill of counsel), for AIU Insurance Company, and others, respondents.
Riker, Danzig, Scherer, Hyland & Perretti LLP, New York City (David A. Niles and Brian E. O‘Donnell of counsel), for Mitsui Sumitomo Insurance Company, Ltd., and others, respondents.
Bates & Carey LLP, Chicago, Illinois (Krista C. Sorvino and Maria G. Enriquez of counsel), for American Re-Insurance Company and another, respondents.
Coughlin Duffy, LLP, Morristown, New Jersey (Adam M. Smith of counsel), for Zurich American Insurance Company, respondent.
OPINION OF THE COURT
FRIEDMAN, J.P.
The question presented is whether New York law or New Jersey law governs a large number of excess liability insurance
This declaratory judgment action seeks an apportionment of responsibility for the defense and indemnity costs of hundreds of thousands of asbestos-related personal injury claims (the asbestos claims) among defendant Foster Wheeler Corporation (FW Corp.), its subsidiary, Foster Wheeler Energy Corp. (FW Energy), and their liability insurers. The asbestos claims, which have been asserted in jurisdictions throughout the United States since the 1970s, are based on allegations that the claimants or their decedents were exposed to asbestos contained in boilers and other steam-generating equipment designed and built for industrial customers by FW Corp. (from the early twentieth century until 1973) or by FW Energy (since 1973, when FW Energy took over FW Corp.‘s commercial operations). FW Corp. was incorporated under New York law from 1900 until 2001, when it was merged into another entity in a corporate restructuring. FW Energy, which is now a subsidiary of FW Corp.‘s successor-by-merger, has been incorporated under Delaware law at all times since its formation in 1973. We use the term “Foster Wheeler” to refer to FW Corp. and FW Energy collectively.
From its founding in 1900 until 1962, Foster Wheeler‘s principal place of business was located in New York City. From 1962 to the present, Foster Wheeler‘s principal place of business has been in New Jersey. After the 1962 move to New Jersey, Foster Wheeler continued to maintain a small office in New York City, where only one employee was assigned on a full-time basis. It is undisputed that, at all relevant times, Foster Wheeler‘s operations relating to the design and building of asbestos-containing products were conducted throughout the United States, and that its customers purchasing such products were similarly widespread.
Before the order appealed from was rendered, Foster Wheeler reached settlements with all of its insurers except for defendants-respondents (the nonsettling insurers). From 1970 to 1981, the nonsettling insurers sold Foster Wheeler certain excess liability policies (the unsettled policies) that covered various periods between February 1, 1970 and October 1, 1982. Thus, all of the unsettled policies were issued while Foster Wheeler‘s principal place of business was in New Jersey. The
The parties agree that the underlying asbestos claims are based on injuries that are deemed, for purposes of insurance coverage, to have been suffered continuously over extended periods of time. This makes it necessary to allocate each injury “horizontally” over the period of its occurrence in order to determine the coverage obligation of each nonsettling insurer. The conflict-of-laws issue in this case arises from the circumstance (on which the parties agree, as more fully discussed below) that New York and New Jersey prescribe different mathematical methods of performing such an allocation. The matter is further complicated by the need, once an allocation is made to each year (whichever method is used), to allocate the loss for that particular year “vertically” among the various layers of insurance purchased for that year, with primary policies paying first within each year. Thus, as the nonsettling insurers point out, “the way in which liabilities are allocated to policies in the primary layers will determine when those primary policies are exhausted, and thus when excess layer policies [such as the unsettled policies] are reached, if at all.”
Since there is no suggestion that methods of allocating a loss “horizontally” over time can be derived from the terms of the relevant policies, such an allocation method must be supplied by the applicable state law. As the relevant policies do not contain choice-of-law provisions, we are required to make that determination in accordance with our state‘s established choice-of-law principles.
As previously indicated, the parties agree (and we accept for purposes of this appeal) that New York and New Jersey (the only states suggested as the source of applicable law on the allocation issue) each uses a different mathematical method of effecting a pro rata allocation of an insured loss over the period of its occurrence. The “time-on-the-risk” method that was approved by the New York Court of Appeals in Consolidated Edison Co. of N.Y. v Allstate Ins. Co. (98 NY2d 208, 225 [2002]) derives the portion of the total loss allocable to the term of a given policy “by multiplying the [total loss] by a fraction that has as its denominator the entire number of years of the
In the proceedings before the motion court, Foster Wheeler moved for partial summary judgment declaring all disputed issues to be governed by New Jersey law, while the nonsettling insurers moved for partial summary judgment declaring New York law to govern. In the order appealed from, the motion court ruled that New York law applies. We now reverse and hold that New Jersey law applies.
Under New York‘s “center of gravity” or “grouping of contacts” approach to choice-of-law questions in contract cases, we are required to apply the law of the state with the “most significant relationship to the transaction and the parties” (Zurich Ins. Co. v Shearson Lehman Hutton, 84 NY2d 309, 317 [1994], quoting Restatement [Second] of Conflict of Laws [hereinafter, Restatement] § 188 [1]). This approach generally dictates that a contract of liability insurance be governed by the law of “the
In adopting the “grouping of contacts” theory to resolve choice-of-law issues in contract cases, the Court of Appeals noted that the merit of this approach “is that it gives to the place having the most interest in the problem paramount control over the legal issues arising out of a particular factual context, thus allowing the forum to apply the policy of the jurisdiction most intimately concerned with the outcome of the particular litigation” (Auten v Auten, 308 NY 155, 161 [1954] [internal quotation marks, brackets and citation omitted]). Thus, although contract cases do not call for use of the pure “interest analysis” employed in tort cases (see Zurich, 84 NY2d at 319), the respective “governmental interests” of the competing jurisdictions nonetheless “should be considered” (Zurich, 84 NY2d at 319, quoting Matter of Allstate Ins. Co. [Stolarz—New Jersey Mfrs. Ins. Co.], 81 NY2d 219, 226 [1993]).
The governmental interests implicated by an insured‘s claim against an insurer of risks located in multiple states are those in: (1) regulating conduct with respect to insured risks within the state‘s borders; (2) assuring that the state‘s domiciliaries are fairly treated by their insurers; (3) assuring that insurance is available to the state‘s domiciliaries from companies located both within and without the state; and (4) regulating the conduct of insurance companies doing business within the state‘s borders (see Fireman‘s Fund Ins. Co., Inc. v Schuster Films, Inc., 811 F Supp 978, 984 [SD NY 1993] [applying New York choice-of-law principles]). In the case of a corporate insured seeking coverage under a policy covering risks in multiple states, the foregoing interests, in aggregate, weigh in favor of applying
Additional goals of choice-of-law analysis are “certainty, predictability and uniformity of result” and “ease in the determination and application of the law to be applied” (Restatement § 6 [2] [f], [g]; see Zurich, 84 NY2d at 318 n 5 [“Section 6 of (the) Restatement . . . embodies the general choice of law principles“]). These goals, too, will be furthered by applying the law of the insured‘s domicile to liability insurance policies covering multistate risks. The state of the insured‘s domicile is a fact known to the parties at the time of contracting, and (in the absence of a contractual choice-of-law provision) application of the law of that state is most likely to conform to their expectations. As a Rhode Island federal court addressing a similar choice-of-law issue has observed, “common sense suggests that, knowing of the potential for claims in any number of states and even in foreign countries, the parties would consider the insured‘s principal headquarters as the one jurisdiction which ties all potential parties together” (CPC Intl., Inc. v Northbrook Excess & Surplus Ins. Co., 739 F Supp 710, 715 [D RI 1990], reconsideration granted on other grounds 839 F Supp 124 [D RI 1993], affd 46 F3d 1211 [1st Cir 1995]; accord Liggett Group Inc. v Affiliated FM Ins. Co., 788 A2d 134, 138 [Del Super 2001]). Moreover, the state of the insured‘s domicile can be ascertained in any subsequent litigation without fact-intensive inquiry or unguided weighing of different contacts, and making the insured‘s domicile the primary factor in selecting applicable law minimizes the likelihood that contemporaneous policies will be deemed governed by the laws of different states. Thus, in addition to rendering the resolution of choice-of-law issues less difficult, adoption of a rule to apply the law of the insured‘s
What emerges from the foregoing is that, where it is necessary to determine the law governing a liability insurance policy covering risks in multiple states, the state of the insured‘s domicile should be regarded as a proxy for the principal location of the insured risk. As such, the state of domicile is the source of applicable law. This conclusion accords with prior decisions of this Court and of the Third Department. Most recently, in Steadfast Ins. Co. v Sentinel Real Estate Corp. (283 AD2d 44 [2001]), this Court held that, where the policy in question covered the risks arising from “the nationwide scope of [the insured‘s] operations, the principal location of the insured risk should be deemed to be the state where [the insured] is incorporated and has its principal place of business” (id. at 50), i.e., the insured‘s domicile.3 Similarly, in Munzer v St. Paul Fire & Mar. Ins. Co. (203 AD2d 770 [1994]), the Third Department held that the “primary factor” in ascertaining the law governing a liability policy covering risks in multiple states was that the insured was “a Vermont based business” (id. at 772), notwithstanding that, among other things, the policy had been procured by a New York broker from the insurer‘s New York office (id. at 771).4 Finally, in Regional Import & Export Trucking Co. v North Riv. Ins. Co. (149 AD2d 361 [1989]), this Court held that “a policy delivered to a New Jersey corporation to insure against a loss occurring ‘anywhere’ should be subject to the law of that State” (id. at 362).
The foregoing establishes that, “where the insured risk is scattered throughout multiple states, courts still deem the risk to be located principally in one state” (Maryland Cas. Co. v Continental Cas. Co., 332 F3d 145, 153 [2d Cir 2003] [following Steadfast]), namely, in the state of the insured‘s domicile at the time the policy was issued. It remains for us to discuss whether
Significantly, our conclusion that New Jersey law applies to the unsettled policies finds further support in the fact that Foster Wheeler, as an insured with a New Jersey principal place of business, will look to the New Jersey insurance guaranty fund for payment of its claims against insolvent insurers (see
We recognize that, in contract cases generally, the resolution of a choice-of-law issue involves consideration of five factors enumerated in section 188 of the Restatement (the Restatement factors), viz., the place of contracting, the place of negotiation, the place of performance, the location of the subject matter, and
Foster Wheeler, for its part, argues that New Jersey was the place of contracting, negotiation and performance for each of the unsettled policies. To this end, Foster Wheeler highlights evidence that, among other things: (1) each of the unsettled policies was either mailed or hand-delivered to Foster Wheeler in New Jersey; (2) Foster Wheeler‘s internal activities related to obtaining the policies (e.g., setting specifications, preparing applications, giving brokers authority to act, writing premium checks) were performed in New Jersey; (3) the brokers frequently met with Foster Wheeler in New Jersey; and (4) Foster Wheeler received premium invoices in New Jersey.7
As previously discussed, in cases involving liability insurance covering multistate risks, we regard the state of the insured‘s
In this case, the nonsettling insurers’ argument that the first three Restatement factors point to New York (which the motion court essentially adopted) is based largely on the fact that the unsettled policies were procured by New York-based insurance brokers. As a result of the brokers’ involvement, certain of the relevant activities (negotiations, policy delivery, premium collection) occurred in New York. We agree with Foster Wheeler that the nonsettling insurers’ approach places too much weight on the location of the broker, who, after all, is not a party to the insurance contract (see Munzer, 203 AD2d at 771 [applying the law of Vermont, the state of the policyholder‘s principal place of business, although the “policies were procured through a New York insurance broker from (the insurer‘s) New York office“]; Regional Import & Export, 149 AD2d at 362 [“[t]he mere fact that the policy was placed through a New York insurance broker which negotiated its terms is not a sufficient contact” to warrant application of New York law, given the insured‘s New Jersey domicile]; see also CPC Intl., 739 F Supp at 712 [“the locations of the brokers present mere distractions because the brokers acted only as intermediaries“]; Liggett Group, 788 A2d
In the alternative, the nonsettling insurers argue that, even assuming that the insured‘s primary place of business is the primary factor in resolving the choice-of-law issue presented here (as we now hold), the law governing the unsettled policies cannot be chosen without also considering the settled policies, as well as still earlier lost policies that the nonsettling insurers also consider relevant.9 Many of the settled policies, and all of the lost policies, were issued before 1962, when Foster Wheeler‘s principal place of business was still in New York. Since these pre-1962 settled and lost policies presumably would have been deemed governed by New York law, the nonsettling insurers contend, considering each policy separately for choice-of-law purposes would result in “applying differing allocation approaches to the same sequence of policies.” This, they maintain, “would add insurmountable complexity if not impossibility to the process, undermining the basic principles underlying allocation,” which they describe as “divid[ing] responsibility for a continuing liability in a consistent and coordinated way.” Accordingly, the nonsettling insurers reason, there should be a blanket choice-of-law determination for all policies covering the asbestos claims, whether issued before or after Foster Wheeler‘s 1962 move to New Jersey, and whether settled, unsettled, or lost. In their view, the law chosen to govern all implicated policies should be that of New York, on the ground that, even if the insured‘s principal place of business is the primary factor in choosing the governing law, Foster Wheeler had its principal
The crux of the nonsettling insurers’ concern is that, in determining when their excess layers of coverage are reached, the losses will be allocated to the now-settled primary policies (and lower-level excess policies) in force during the same years (1970 to 1982) in accordance with a state law different from that applicable to the unsettled policies themselves. Specifically, the nonsettling insurers are concerned that the losses will be allocated in accordance with New York law to the policies issued by settled defendant Liberty Mutual Insurance Company (Liberty), which provided underlying primary coverage for all but three years (1972-1975) of the decades of the injuries’ occurrence, at the same time that New Jersey law is applied to the unsettled policies.11 As previously noted, the nonsettling insurers contend that Foster Wheeler was based in New York for most of what they view as the relevant period, and contend, on that basis, that New York law is applicable to the Liberty policies, whenever issued. As also previously discussed, New York law spreads the loss evenly over the entire period of loss occurrence, while New Jersey law shifts more of the loss to periods when more coverage was purchased, i.e., the later years, when the unsettled policies were in force. Therefore, applying New York law to the settled policies underlying the unsettled policies, while applying New Jersey law to the unsettled policies, will result in simultaneously reaching the unsettled policies earlier (through smaller allocations to the lower-level policies) and allocating more of the loss to the unsettled policies.
We are not persuaded by the nonsettling insurers’ contention that all of the settled policies (and the lost policies, assuming
The nonsettling insurers further argue that, even if the foregoing analysis is correct as applied to settled and lost policies in general, certain settled policies—many of which were issued prior to 1962—continue to be at issue insofar as Foster Wheeler, as assignee of the carriers that issued those policies, asserts
In our view, the contribution claims only theoretically place the coverage obligations of Liberty and the London Insurers at issue, and therefore do not affect our conclusion that the settled policies are irrelevant to the choice-of-law determination. Obviously, the nonsettling insurers’ liability cannot exceed their own actual coverage obligations. Thus, as a practical matter, Foster Wheeler‘s assertion of the assigned contribution claims merely forecloses the nonsettling insurers from arguing that their liability should be reduced because Liberty and the London Insurers, in their respective settlements, paid Foster Wheeler more than they actually owed.15 Moreover, it is undisputed that Liberty and the London Insurers are the only carriers that sold Foster Wheeler relevant coverage prior to the 1962 move to New Jersey. Accordingly, it is also irrelevant to the choice-of-law determination that the nonsettling insurers might ultimately argue for reducing their liability on the ground that other settling carriers, which did not assign their potential contribution
In closing, we note that the nonsettling insurers fail to articulate any justification under choice-of-law principles for their argument that we should render a blanket choice-of-law determination for hundreds of different insurance policies issued by dozens of different insurers over several decades. Each policy constitutes a separate contractual transaction, and to treat insurance policies issued at various widely separated points in time, over a span of decades, as one undifferentiated aggregate for the purpose of choosing one state‘s law to govern them all, would do considerable violence to the principle (relied on by the nonsettling insurers themselves at certain points in their argument) that the contacts on which the choice-of-law determination depends should have been known to the parties at the time of contracting (see Restatement § 188, Comment e, at 580 [a contact “can bear little weight in the choice of the applicable law when . . . at the time of contracting it is either uncertain or unknown“]).16 While there may nonetheless be sound practical reasons to adopt the practice suggested by the nonsettling insurers where the issue cannot be avoided, we find that the settlement of all pre-1962 policies in the case before us obviates any need for us to consider doing so here.
Accordingly, the order of the Supreme Court, New York County (Barbara R. Kapnick, J.), entered January 10, 2005, which denied defendant-appellant Foster Wheeler Corporation‘s motion for partial summary judgment declaring that New Jersey substantive law governs all disputed issues in this action, and granted the motions by defendants-respondents for partial summary judgment declaring that New York substantive law governs all disputed issues in this action, should be reversed, on the law, without costs, the motion by Foster Wheeler Corporation granted to the extent of declaring that the liability insurance policies issued by defendants-respondents, and the underlying settled policies providing primary and lower-level excess coverage for the same years, are governed by New Jersey substantive law, and the motions by defendants-respondents denied.
Order, Supreme Court, New York County, entered January 10, 2005, reversed, on the law, without costs, defendant Foster Wheeler Corporation‘s motion for partial summary judgment granted to the extent of declaring that the liability insurance policies issued by defendants-respondents, and the underlying settled policies providing primary and lower-level excess coverage for the same years, are governed by New Jersey substantive law, and defendants-respondents’ motions for partial summary judgment denied.