California Courts May Not Apply New York Choice of Law Clauses
While parties have good reason to seek to achieve some level of certainty through the use of choice of law clauses in insurance policies, the 'Pitzer College' decision serves notice that California courts may disrupt such efforts. In their Corporate Insurance Law column, Howard B. Epstein and Theodore A. Keyes discuss the decision and takeaways.
November 27, 2019 at 12:00 PM
9 minute read
Choice of law clauses in insurance policies are generally included in order to give the contracting parties certainty as to what state law will govern disputes under the policy. States that apply the principles of §187 of the Restatement (Second) of Conflict of Laws may interfere with this goal. Under §187, a choice of law clause will not govern where (1) the chosen state's law conflicts with a fundamental policy of the forum state; and (2) the forum state has a materially greater interest in resolving the issue in dispute than the chosen state. Restatement (Second) Conflict of Laws §187 (1971).
In Pitzer College v. Indian Harbor Insurance Co., 8 Cal.5th 93 (CA 2019), the Supreme Court of California, responding to questions certified by the U.S. District Court for the Ninth Circuit, held that California's notice-prejudice rule is a fundamental policy of the state. The Supreme Court did not decide whether California had a materially greater interest than New York in resolving the issue in dispute, returning the case to the Ninth Circuit for that determination. Nevertheless, the Supreme Court's decision provides California courts with a basis to refuse to apply choice of law clauses in insurance policies where the law of the chosen state conflicts with California law. While the issue presented in Pitzer College involved late notice, the ruling could apply more broadly depending on California courts' views of what constitutes a fundamental public policy and what constitutes a materially greater interest.
'Pitzer College v. Indian Harbor Insurance Co.' In Pitzer College, the insured college sought coverage from Indian Harbor under a pollution insurance policy for the costs of performing on-site soil remediation to address lead contaminated soils. The insured had first discovered darkened soils on campus in January 2011 at the site where a new dormitory was under construction. The college was under pressure to complete the dormitory prior to the start of the 2012 school year. The environmental consultants that Pitzer conferred with recommended on-site remediation through the use of a transportable treatment unit. Remediation work commenced in March 2011 and was completed about a month later at a total cost of approximately two million dollars.
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