Insurance Law360
May 1, 2017
When faced with insurance policies covering large national or multinational companies that have insured locations scattered around the globe, courts can struggle when applying a choice of law analysis when there is no governing law provision in the insurance policy. In a recent opinion, the Delaware Supreme Court appeared to resolve conflicting Delaware lower court decisions on how to properly apply the Restatement (Second) of Choice of Law in such situations.[1]
In Certain Underwriters at Lloyds, London, the Delaware Supreme Court was faced with a series of insurance policies originally issued by Certain Underwriters at Lloyd's, London (Lloyds) to United States Rubber Company beginning in the 1950s.[2] Over time, United States Rubber Company changed its name to Uniroyal and was subsequently purchased by Chemtura.[3] These policies provided coverage for United States Rubber Company’s global operations.[4] At issue in the Lloyd’s coverage litigation was the availability of coverage for environmental cleanup costs at two locations in Ohio and Arkansas.[5] The original dispute between Chemtura and its insurers had included as many as 33 sites in 15 states and two Canadian provinces.[6]
In the Superior Court, Chemtura and Lloyds filed cross-motions on the choice of law issue.[7] Chemtura argued that Arkansas law should apply to the site in Arkansas and Ohio law should apply to the site in Ohio.[8] Lloyds, on the other hand, argued that New York law alone should apply to the interpretation and application of the policies.[9] Not surprisingly, the choice of law determination was critical to the outcome of the parties’ dispute: Arkansas and Ohio would require each insurer to be liable for the entire risk up to the policy limits, while New York law used a pro rata allocation.[10]
The Superior Court determined that §193 of the Second Restatement applied to the choice of law analysis.[11] This section makes a presumption, for insurance contracts, that the principal location of the insured risk has the most “significant relationship” to the dispute.[12] Applying §193 resulted in the application of Arkansas and Ohio law with respect to each site.[13] In doing so, the Superior Court relied on prior Superior Court opinions that had similarly relied on §193 to apply the law of the site to policies that insured multiple locations.[14] The Superior Court distinguished apparently contradictory precedent that had applied a singular state’s law to claims arising from multiple locations.[15].
The Supreme Court, in reversing the Superior Court, found the Superior Court’s application of the Second Restatement was flawed.[16]...
