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Fantis Foods, Inc. v. North River Insurance Co.

June 27, 2000


Before Judges Stern, Kestin and Steinberg.

The opinion of the court was delivered by: Kestin, J.A.D.


Argued: September 23, 1999

On appeal from the Superior Court of New Jersey, Law Division, Civil Part, Bergen County.

This is a declaratory judgment action for insurance coverage. On cross motions for summary judgment, the trial court held that New York law governed and that, under the substantive standards of that state in respect of a single issue, plaintiff could not prevail. Accordingly, an order was entered granting defendant's motion for summary judgment, denying plaintiff's motion, and dismissing the complaint. Plaintiff appeals, arguing only that the motion judge erred in granting defendant's motion. Although we agree with the motion judge's determination that New York law governed the single issue before him, we disagree that New York law required a ruling in defendant's favor. Accordingly, we reverse and remand for further proceedings.

Both parties maintain their principal offices in New Jersey and both conduct business in New York. The general liability policy in question was sold to plaintiff in New York by a New York "producer". It was issued on a renewal basis for the period from August 5, 1995 to August 5, 1996, providing multi-peril, "all risks" coverage for plaintiff's buildings in several states. One of the covered buildings, vacant at the time the risk materialized, is in Manhattan. The underlying issue is whether the policy covers the imminent collapse of that New York City structure.

Plaintiff represents that it seeks a judgment of $123,506.38 for repair costs, plus attorneys' fees, interest and costs. We note that plaintiff's "claims for extra-contractual damages, including consequential damages, punitive damages and attorney's fees" were dismissed without prejudice in a consent order entered early in the pendency of the matter.

We agree with the trial court's ruling that, in general, to the extent a difference in substantive law rule between New York and New Jersey is established on the issue before it, see Pfizer, Inc. v. Employers Ins. of Wausau, 154 N.J. 187, 199 (1998)(a choice of law decision is necessary "'only . . . when the laws of the involved states differ on the point in issue'")(quoting Robert A. Sedler, A Real World Perspective on Choice of Law, 48 Mercer L. Rev. 781, 783 (1997)), that issue must be seen to be governed by New York law.

There are two primary arguments for favoring the choice of New Jersey law. The first is based on the connection each of the parties has with New Jersey as a business domicile, and bears upon this State's interest in ruling the relationships and responsibilities of entities subject to its regulatory sway. The second is grounded upon the fact that the policy at issue covers plaintiff's properties in several states, a factor that tends to weigh in favor of a uniform-contract- interpretation approach to choice of law determinations over a site- specific approach. See Gilbert Spruance Co. v. Pennsylvania Mfrs., 134 N.J. 96, 104 (1993) (where the insurance policy covers a group of risks that are scattered throughout two or more states, the location of any one risk has diminished significance). Although the Supreme Court employed a site-specific approach in Spruance, as well as in a number of other recent cases having to do with losses from environmental damage, all those cases involved special considerations that do not apply here. See Pfizer, supra, 154 N.J. at 207-08 (holding that, in the event of conflict, the "law of the waste site would appear to have the more dominant significant relationship"); Spruance, supra, 134 N.J. at 110-13 (approving of the idea that commerce would be encouraged by applying the law of the state where toxic waste is deposited and stating that in situations involving foreseeably multistate operations, the "governing law is that of the state with the dominant significant relationship according to the principles of Restatement section 6"). Nevertheless, in the instant matter, given the lack of a choice-of-law provision in the insurance policy, and even regarding the preference in favor of uniform-contract-interpretation approaches to be one of general applicability, all significant party-oriented considerations--save for the fact that both parties do business in New Jersey as well as in New York--have a New York focus.

The Restatement (Second) of Conflict of Laws (1971) provides the general choice of law factors to be applied where a claim springs from a contract:

§ 188. Law Governing in Absence of Effective Choice by the Parties

(1) The rights and duties of the parties with respect to an issue in contract are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the transaction and the parties under the principles stated in § 6.

(2) In the absence of an effective choice of law by the parties . . ., the contacts to be taken into account in applying the principles of § 6 to determine the law applicable to an issue include:

(a) the place of contracting,

(b) the place of negotiation of the contract,

(c) the place of performance,

(d) the location of the subject matter of the contract, and

(e) the domicil, residence, nationality, place of incorporation and place of business of the parties.

These contacts are to be evaluated according to their relative importance with respect to the particular issue.

(3) If the place of negotiating the contract and the place of performance are in the same state, the local law of this state will usually be applied, except as otherwise provided in §§ 189-199 and 203.

Applying the type of reasoning used in the flexible governmental interest analysis approach required for resolving other like questions, see Veazey v. Doremus, 103 N.J. 244, 247 (1986) (dealing with tort cases); State Farm Mut. Auto. Ins. Co. v. Estate of Simmons, 84 N.J. 28, 34-37 (1980) (recognizing Restatement ยงยง 6 and 188 as the source of the "most significant relationship test", and that said test, sharing certain factors with the governmental interest analysis, applies in contract actions), we conclude that New York's connection with the subject matter and the risks it engenders is far more extensive and qualitatively meaningful in the practical sense than is New Jersey's association with the parties simply because they are business domiciliaries. ...

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