Indiana Court Adopts Site Specific Approach To Choice Of Law Issue
January, 2010
The Indiana Court of Appeals recently made a critical choice of law ruling which could potentially, and significantly, alter the landscape of environmental insurance coverage litigation pending in Indiana. In National Union Fire Ins. Co. of Pittsburgh, PA v. Standard Fusee Corp., 917 N.E.2d 170 (Ind. App. 2009), the court for the first time applied a law of the site or site specific analysis to situations involving contamination at multiple sites in multiple states. Under this approach, Indiana law would only apply to Indiana sites and, accordingly, could implicate the law of several different states if sites were located in those states. Although the Standard Fusee court attempted to minimize its decision, this ruling represents a clear change in Indiana's choice of law rules.
Facts
Standard Fusee Corporation ("SFC") manufactures emergency signaling equipment, including emergency flares. Throughout its history, SFC has owned and operated a number of manufacturing sites in different states. The particular sites at issue here were located in Indiana and California. SFC manufactured flares at both sites. SFC incurred costs in California defending approximately 250 lawsuits alleging water contamination as well as responding to an abatement order from the California Regional Water Quality Control Board. SFC also entered the Indiana site into Indiana's Voluntary Remediation Program.1 SFC is headquartered in Maryland and a number of actions important to the formation of the insurance policies at issue took place in Maryland. SFC brought suit in Indiana against its insurers to recover its costs claiming Indiana law should apply to all the sites. The insurers, however, asserted that Maryland law should apply to all the sites.
Analysis
The Indiana Court of Appeals first listed the factors to be considered under §6 of the Restatement (Second) of Conflict of Laws, which are as follows:
- (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 a 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.
Then it focused its analysis by looking at another section of the Restatement, §193, which addresses choice of law considerations involving insurance contracts. Section 193 provides:
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 under principles stated in §6 to the transaction and the parties, in which event the local law of the other state will be applied.
Relying on §193, the court reasoned that, where the location of an insured risk could be located, the location of the insured risk was to be "given greater weight than any other single contact in determining the state of the applicable law." Next, the Court of Appeals held that in situations where multiple insured risks were scattered throughout several states, the state's law of each site should apply.
Although the court attempted to minimize its departure from the Dana Corp.2 decision by stating that Dana Corp. had not rejected the site specific approach, this holding is clearly contrary to prior decisions in both Dana Corp. and Coachmen.3 In those cases, the Court of Appeals applied the uniform contract interpretation approach rather than the site specific approach applied here. The Standard Fusee court also criticized the Coachmen court for blindly following the Dana Corp. decision and failing to conduct its own analysis on whether to apply the uniform contract or site specific choice of law approach. The Standard Fusee court also criticized an Eastern District of Michigan opinion4 for failing to properly read the commentary to §193 of the Restatement where that court applied the uniform contract choice of law approach over the site specific approach. Citing to the Supreme Court of Connecticut5, the court set forth the proper standard for evaluating choice of law where the insured has insured risks in two or more states.
The court found that "[s]ection 193 creates a rebuttable presumption in favor of the state where the insured risk is located." This presumption may be overcome if another state has sufficient contacts under a §6 analysis; however, the court found, as a matter of law, that three of the seven factors "(f) certainty, predictability and uniformity of result"; "(g) ease in the determination and application of the law to be applied"; and "(d) the protection of justified expectations" favored applying the site specific approach.
The court recognized that the site specific approach may result in the same policy language meaning different things in different states, but that this potential cost was "outweighed by the significant governmental interests of the various jurisdictions where the insured risks are located, or where the insured entity predictably is going to incur legal liabilities." The court acknowledged that Indiana, Maryland and California had relatively little interest in the sites located outside of their state and a great interest in the sites locate in their state, respectively. Thus, the court applied Indiana law to the Indiana site and California law to the California site.
Learning Points
First, the insurers have filed a petition with the Indiana Supreme Court requesting the case be transferred for their review. Should the Indiana Supreme Court accept the petition, the Court of Appeals opinion will be vacated by rule.
Second, overcoming the presumption in favor of each site's law will be difficult. The four §6 factors not discussed in the opinion are at least facially neutral to or favor the site specific approach. As discussed in the Standard Fusee opinion, the forum's policy interest in the resolution of an insurance coverage dispute involving a potentially contaminated site located outside the state is relatively small, while the state where the site is located has a much more significant interest in having its policies upheld (factors b and c). Also, the site specific approach is a much simpler way to determine the appropriate law that will apply and can be readily determined at the inception of the insurance policy (factor g); conversely, the uniform contract approach cannot be determined until a dispute arises and is evaluated by a court. Finally, the needs of the interstate and international systems considerations are neutral to either approach (factor a).
Finally, this decision should blunt Indiana's status as a favored forum for policyholder plaintiffs in environmental insurance coverage actions. Under the previously utilized uniform contract analysis, if a policyholder could show that Indiana had the most significant interest in an insurance contract dispute, Indiana law and its pro-policyholder rulings would apply to all sites in the dispute. If the Standard Fusee opinion remains intact or is affirmed by the Indiana Supreme Court, there would be much less incentive for a policyholder to file environmental coverage litigation in Indiana regarding sites outside Indiana.
1 The Indiana Department of Environmental Management allows parties to investigate and remediate potentially contaminated sites through a program entitled the "Voluntary Remediation Program," as an alternative to its regulatory enforcement scheme.
2 Hartford Acc. & Indem. Co. v. Dana Corp., 690 N.E.2d 285, 298 (Ind. App. 1997)
3 American Employers Ins. Co. v. Coachmen Indus., Inc., 838 N.E.2d 1172 (Ind. App. 2005)
4 Aetna Cas. & Sur. Co. v. Dow Chemical Co., 883 F. Supp. 1101 (E.D. Mich. 1995).
5 Reichhold Chemls., Inc., v. Hartford Acc. & Indem. Co., 750 A.2d 1051, 1056 (Conn. 2000).
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