rule, a court should look to see what needs and policies other states have adopted or would be likely to adopt. This suggests that, at least in the instant case, the result of the analysis under the interest-of-commerce factor would be identical to that under the state-interest one. New Jersey would have a greater impacting interest than Oregon and New York have on the "sudden" issue regarding the Oregon site and than Illinois and New York on the late-notice issue regarding the Illinois site. In turn, Illinois would have the greater interest than New Jersey and New York have on the "sudden" issue regarding the Illinois site and Oregon would have a more significant interest on the late-notice issue regarding the Portland site.
Another factor to look at is whether applying a particular state's law would increase or decrease the risk of further contamination to Illinois or Oregon. See J. Josephson, 265 N.J. Super. at 244. An examination of this question leads to the same outcome as above.
The insurers argue that New York has the greatest interest here because "the general rule is that contractual rights are determined by the law of the place of contracting" and the needs of the interstate system would be frustrated if contracting parties could not rely on this rule. See, e.g., CU Br., at 14. This argument is irrelevant. It ignores the specific rule outlined in the Restatement for insurance contracts. This rule clearly states that the parties' rights in a case like this are normally determined by the law of the location of the insured risk.
c. Interests of the parties
The next factors are the protection of the parties' justified expectations and their need for certainty, predictability, and uniformity of result. Here, this Court needs to look at whether the parties have justifiably molded their conduct to conform to the law of another state. Also, the Court should emphasize the need for predictability where the parties thought in advance about the legal consequences of their transactions and the need for uniformity where "the transfer of an aggregate of moveables, situated in two or more states, is involved." Restatement, § 6, comment i, at 16.
Here, most of the events involved in the formation of the contract occurred in New York, and, during the negotiation and term of the contracts, the bulk of NL's operations and employees could be found in New Jersey. At the same time, the contracts insured risks located in some 28 states, including Illinois and Oregon. In these latter two states, at least at the Granite City site and Portland sites, the wastes appear to be relatively fixed in place. In short, this case is very different from Gilbert Spruance, General Ceramics, Leksi, and J. Josephson. Not only did those cases involve "mobile" waste, but they all involved sites in either New Jersey and Pennsylvania only (the first three cases), or New Jersey, Pennsylvania, and New York (the last case). In other words, these cases involved only two or three states, all of which neighbor each other and through which it would be foreseeable that waste would be transported.
Conversely, in this case, NL's insured operations were practically nationwide and involved states as geographically disparate as California, Louisiana, and Rhode Island. Given this, it is surprising that the parties did not include a choice-of-law provision in the insurance contracts. That the parties did not, then, implies that they did not greatly value predictability of interpretation. Moreover, that the insured risks at issue were not foreseeably transported across state borders also suggests that the Court should discount the need for uniformity of interpretation. In the absence of any evidence that the parties actually expected New York or New Jersey law to apply across the board, the most reasonable conclusion here would be that the parties' intended that the law of the state where a particular site was located would govern the interpretation of the contracts covering that site.
The insurers disagree. They claim that, at the time the parties entered into the contracts, New York law "required" the standard pollution-exclusion clause (this statute was apparently in effect from 1971 to 1982). This, they claim, implies that the parties must have expected New York law to apply. As support, CU provides a letter dated April 5, 1974, from CU to NL's insurance broker in New York. The letter, headed "N L INDUSTRIES," cites the relevant statute and states that CU has been "advised ... that it is not permissible in this State [i.e., New York] to insure pollution claims unless due to sudden or accidental causes." The letter, though, goes on to admit that
we were not able to check obviously with each and every Insurance Department throughout the country, however, we do believe that this type of law may also exist in other States. It is also possible that the spiritof [sic] this law may exist on a common law basis as being against public policy in other jurisdictions. You may wish to verify some of these points yourself. In any event, I believe this is the information you were looking for.
4/5/74 Letter (emphasis added). Ironically, then, the letter actually undercuts CU's argument. It strongly suggests that CU and NL (through NL's broker) expected that the law of states other than New York would apply to the NL-CU contracts.
The letter's language is most consistent with the notion that the law of the state where the insured risk is located should govern the interpretation of the contracts that cover that risk.
Therefore, this Court finds that, if anything, the scanty evidence available suggests that the parties justifiably expected Illinois law to apply to the Illinois site and Oregon law to the Oregon site. Moreover, such a result, while possibly complex, would also be certain, predictable, and, within each state at least, uniform.
d. Interests underlying the area of law
This factor is not particularly important unless the policies of the interested states are significantly different. Restatement, § 6, comment h, at 15. Here, the relevant areas of law would be insurance and environmental law. Cf. NL Industries, 65 F.3d at 321 (noting that a "different analysis" governs environmental insurance contract controversies and product liability insurance contract disputes, and that, with regard to the latter, the applicable areas of law for this factor are insurance and tort law).
With regard to the "sudden" issue and the Illinois site, only New Jersey and Illinois have any significant interests. Given the minor differences between New Jersey and Illinois' interpretation of the "sudden" issue, the policies governing their respective laws on environmental insurance contract law loom large. Here, then, the Court must look to Illinois' strong statutory policy on remediating wastes within its borders. This policy obviously has an impact on how the parties' allocated risk for the environmental claims at issue. Thus, because New Jersey's interest in remediating wastes in Illinois is more limited than Illinois' interest in doing so, Illinois' interest under this factor is obviously weightier. See J. Josephson, 265 N.J. Super. at 244.
Similarly, with regard to the late-notice issue and the Portland site, Oregon's interest must be greater than that of New Jersey and New York's.
As far as the late-notice issue and the Illinois site and the "sudden" issue and the Oregon site, though, the analysis is different. Here, this Court recognizes that New Jersey's policies are quite different from those of the other states. While Illinois, Oregon, and New York give effect to the plain meaning of the insurance contract, New Jersey aims to protects its insureds and promote honesty before its regulatory agencies. Therefore, the Court should apply New Jersey law here.
In response, the insurers argue that the underlying field of law here is really CERCLA law. Since CERCLA is a federal statute, they claim that Illinois and Oregon law are not really implicated here. However, there are several difficulties with this argument. First, the Court is resolving a conflict of law on this motion. If the underlying field of law were really federal, then there would only be a false conflict here and nothing for the Court to decide. Second, the disputed issues in this case involve the interpretation of an insurance contract. This is a state-law issue, one on which states have particular policies. Third, the Court's choice of law here will have some effect on whether or how fast the sites in question are remediated. Thus, its decision implicates respective states' environmental policies.
e. Interests of judicial administration
The Restatement notes that while "ideally, choice-of-law rules should be simple and easy to apply, this policy should not be overemphasized, since it is obviously of greater importance that choice-of-law rules lead to desirable results." Restatement, § 6, comment j, at 16. While the rule employed in deciding this motion is somewhat complex, it is not difficult to apply. Moreover, it is required by the case law. In fact, as the New Jersey Supreme Court suggested in Gilbert Spruance, "short of congressional intervention or a limited overruling of the Erie doctrine to permit the development of a federal common law of contracts intended to be nationwide in scope," some complexity in this area is necessary and inevitable; the goal of uniformity of insurance contract interpretation in the environmental area is an "illusion." Gilbert Spruance, 134 N.J. at 114 (quoting Travelers Indemnity Co., 718 F. Supp. at 1258)).
4. Whether the Court should make a choice-of-law decision for all the environmental claims
NL requests that the Court decide what state's law should apply to all the claims in this litigation, not just those arising from the Granite City and Portland sites. NL avers that the parties cannot reasonably evaluate the likely risks and outcomes of the case unless the Court determines choice-of-law across the board.
While NL's application makes some sense, the Court declines to grant it. First, the New Jersey Supreme Court has made clear that it favors a government-interest sensitive approach over a predictable one. For the Court to resolve which state's law should apply to each of the remaining 91 or so sites, it would need to balance the interests of the state in which the site is located with that of New Jersey and New York. This is an issue that should be properly briefed by the parties. Second, given the reasoning of this opinion, the parties can apply the Court's analysis to the remaining sites themselves, and thus have a fairly good idea about what law the Court would apply. The parties, if they wish, can then use these determinations to decide whether to resolve certain claims or proceed further in litigation on them. Third, deciding choice of law for all the sites would defeat the intent behind the primary case-management technique the Court has already employed, namely requiring the parties to litigate first a small number of representative sites. It is in the parties and the Court's interest to limit the Court's decisions to the representative sites the parties themselves selected; this not only makes discovery and motion practice manageable, but also adheres to the parties' expectations when they designated the representative sites.
For the foregoing reasons, the Court grants all the parties' motions for partial summary judgment on choice of law in part. With regard to the issue of how to interpret the pollution-exclusion clause in the CGL contracts, it determines that Illinois law applies to the Granite City site and New Jersey law applies to the Portland site. Moreover, with regard to the late-notice issue at the two sites, it rules that New Jersey law applies to the Granite City site and Oregon law applies to the Portland site.
William H. Walls, U.S.D.J.
23 May 1996
Walls, District Judge
The Court has reviewed the documents filed in this case and heard oral argument from the parties. For the reasons discussed in the accompanying opinion, the Court rules as follows:
The Court grants all the parties' motions for partial summary judgment on choice of law in part.
With regard to the issue of how to interpret the pollution-exclusion clause in the comprehensive general liability insurance policies, it determines that Illinois law applies to the site in Granite City, Illinois (the "Granite City site") and New Jersey law applies to the site in Portland, Oregon (the "Portland site"). Moreover, with regard to the issue involving timeliness of notice of an occurrence or notice of a claim or suit involving the two sites, it rules that New Jersey law applies to the Granite City site and Oregon law applies to the Portland site.
William H. Walls, U.S.D.J.
23 May 1996