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Eastman Kodak Company v. Certain Underwriters at Lloyd’s, London

A-5352-99T2 (N.J. Super. App. Div. 2000) (Unpublished)

INSURANCE; ENVIRONMENTAL LIABILITY—Even though an out-of-state insured is actually incorporated in New Jersey and has a small, polluted site in New Jersey, the court will not use New Jersey law to interpret insurance policy notice and coverage provisions as they apply to non-New Jersey sites.

A major industrial company, incorporated in New Jersey, had polluted sites. It sought insurance for the cleanup. Its main site was located in New York and encompassed 1,650 acres, and 183 buildings, employing 25,000 people. The estimated cost to clean up that site was $274 million. Its polluted site in New Jersey was significantly smaller and remedial efforts to address contamination at that site were expected to cost $5.2 million. The company’s insurance and risk management departments were located at its corporate headquarters in New York. Its insurance brokers were located in New York. None of its insurance companies were located in either New York or New Jersey. Based on those facts and upon the applicable law, the lower court held that the law of New York would apply to the New York cleanup as well as to the issue of late notice and the interpretation of the insurance agreements with respect to the New Jersey location, “unless a conflict exists with the law of a state in which a particular site is located.” “New Jersey and New York law as to the defense of late notice is diametrically opposed.” New Jersey’s law favors insureds and New York law favors insurance companies. The industrial company contended the lower court’s choice of New York law as applied to the contaminated New York property was erroneous. It claimed that New Jersey law selects the law of the state with the most governmental interest in applying its law to each specific legal issue in dispute, not the law of the state with the most significant connections to the parties and transactions as a whole. Along those lines, the industrial company argued that New York’s only governmental interest in applying its restrictive rule on late notice is to protect domestic New York insurance companies. Consequently it argued that because there was no New York insurer in this case, and because it had been incorporated in New Jersey for over 100 years, New York had no interest in applying its law on late notice to the New York location, and New Jersey’s interests in protecting a domestic corporation should have prevailed. The New Jersey Supreme Court set forth four factors “that New Jersey courts must apply in the choice of law analysis.” They are: “(1) the competing interests of the states; (2) the national interest of commerce; (3) the interests of the parties; and (4) the interests of judicial administration.” Unless New Jersey has a more significant state interest “than the place of insured risk, as determined by the application of these relevant factors, the law of the site of the risk must apply.” Consequently, the Appellate Division held that application of the four factors did not overcome the “substantial weight” that must be given to the law of the waste site. Further, New Jersey case law previously held that the “reason for the New York rule is to protect insurance companies so that they may make prompt investigation of claims. ... The reason for the New Jersey rule is to protect the interests of policyholders because insurance contracts are contracts of adhesion and policyholders should not lose the benefits of coverage unless the delay has prejudiced the insurance company.” The New York late notice rule is intended to give insurance companies timely notice, to the end that they are not deprived of the opportunity to investigate a claim, and so that they are less vulnerable to fraud by ensuring that witnesses and facts will still be available, and are better equipped to preserve a sufficient reserve fund. More importantly, “[t]he New York cases do not limit the application of the rule to New York insurers.” Further, “the strong governmental interest that must be accorded to the law of the waste site has not been overcome by the application of any other state interest considerations New Jersey may have had with respect to” these issues. With respect to the New York site, “New Jersey’s regulatory process is not involved, the State’s environment is not affected, and there are no New Jersey victims of the” pollution.

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