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Choice of Law in Insurance Coverage Action Determined by “Principal Location of the Insured Risk”

Determining which state’s law applies is an important issue in any insurance coverage dispute.  Indeed, the outcome may depend on it, as different states have different rules on the interpretation and enforcement of policy provisions, what the claims the insured can bring, and a host of other issues.  Frequently, however, insurance policies do not have choice-of-law provisions.  Thus, the applicable law must be determined under a conflicts of law analysis.  A recent decision from Judge Glenn T. Suddaby of the NDNY, Ben Weitsman & Son of Scranton, LLC v. Hartford Fire Insurance Co., Case No. 3:16-CV-0780 (N.D.N.Y. Feb. 13, 2018) provides a helpful overview of the conflicts of law rules applied to insurance coverage disputes under New York law.  As Judge Suddaby explains:

In cases involving insurance contracts, courts look primarily at which state “the parties understood was to be the principal location of the insured risk” unless (with respect to the particular issue) some other state has “a more significant relationship” to the transaction and the parties (such as being where the parties resided and/or where the contract was issued and negotiated).  Zurich Ins. Co. v. Shearson Lehman Hutton, Inc., 84 N.Y.2d 309, 318 (N.Y. 1994); Colonial Penn Ins. Co. v. Minkoff, 338 N.Y.S.2d 444, 445 (N.Y. App. Div., 1st Dep’t 1972), aff’d, 33 N.Y.2d 542 (N.Y. 1973); Steinbeck v. Aetna Casualty and Surety Co., 81 A.D.2d 382, 385-86 (N.Y. App. Div.,1st Dep’t 1981); Fireman’s Fund Ins. Co. v. Great Am. Ins. Co., 10 F. Supp. 3d 460, 496 (S.D.N.Y. 2014); cf. Munzer v. St. Paul Fire and Marine Ins. Co., 145 A.D.2d 193, 200-01 (N.Y. App. Div., 3d Dep’t 1989) (characterizing the understood location of the insured risk as the “primary factor” in the application of the “grouping of contacts rule" in an insurance case).

When the insured risk is essentially restricted to one state, the understood location of the insured risk is given “overriding consideration in determining applicable law.” O’Neill v. Yield House Inc., 964 F. Supp. 806, 810 (S.D.N.Y. 1997).  When, however, the understood location of the insured risk is spread across multiple states, the understood location of the insured risk is given “less significance.” O’Neill, 964 F. Supp. at 810. In such a case, the insured’s principal place of business is the primary factor. In re Liquidation of Midland Ins. Co., 16 N.Y.3d 536, 544 (N.Y. 2011); Certain Underwriters at Lloyd's, London v. Foster Wheeler Corp., 36 A.D.3d 17, 24, 27 (N.Y. App. Div., 1st Dep’t 2006), aff'd, 9 N.Y.3d 928 (N.Y. 2007); Fireman’s Fund Ins. Co., 10 F. Supp. 3d at 496.

Having said all of that, while grouping of contacts is the primary analytical tool in contract cases, in certain instances “the policies underlying conflicting laws in a contract dispute are readily identifiable and reflect strong governmental interests, and therefore should be considered.” Zurich Ins. Co., 84 N.Y.2d at 318-19 (quoting Matter of Allstate Ins. Co., 81 N.Y.2d at 226). Theoretically, in a proper case, a foreign State’s sufficiently compelling public policy could preclude an application of New York law otherwise indicated by the grouping of contacts analysis, particularly where New York’s policy is weak or uncertain.” Zurich Ins. Co., 84 N.Y.2d at 319.

In this case, the Court found no actual conflict between New York and Pennsylvania law with respect to the policy exclusion at issue. Judge Suddaby noted that if there were a conflict, Pennsylvania law would apply because “the parties to th[e] policies clearly understood Pennsylvania to be the principal location of the insured risk,” and “even if the understood location of the insured risk was spread across multiple states (i.e., Pennsylvania and New York)," the Court would give "controlling weight" to the fact that "Plaintiff Ben Weitsman & Son of Scranton, LLC’s principal place of business was in Pennsylvania."

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