NL Industries, Inc. v. Commercial Union Insurance Company

154 F.3d 155 (3rd Cir. 1998)
  • Opinion Date: September 3, 1998

ENVIRONMENTAL LIABILITY; INSURANCE—In a multistate, multisite environmental liability insurance coverage dispute where the sites are not in New Jersey and the policies were not purchased in New Jersey, even though the policyholder does business in New Jersey, choice of law dictates that it is best to apply the law of the situs of each to the sites.

In this case, an insured was seeking a declaratory judgment against an insurance company to establish the extent of insurance coverage for a number of claims against the insured arising out of its nationwide lead processing activities. The outcome was determined by New Jersey choice of law rules. Until shortly before the case was heard, the insured was incorporated in New Jersey and had some industrial plants there, but its national headquarters and principal place of business were in New York. The insurance contracts were negotiated and executed by the insured with a New York broker. The insured initially filed suit against one insurance company, but several others were ultimately joined in the action. In all, the insured sought coverage for environmental pollution to at least 93 sites in 28 states and possibly as many as 202 sites in 34 states. Thirty-two sites were located in New Jersey.

To explore the choice of law question, the parties agreed to select contaminated sites in Illinois and Oregon as representative locations. In particular, they were seeking the meaning of the pollution exclusion and late notice provisions of the policies. Differing interpretations of the two provisions under the law of each state would result in very different outcomes. The District Court granted partial summary judgments limited to choice of law issues, concluding that the law of the contaminated sites—Illinois and Oregon—would apply rather than that of New York or New Jersey. It then certified that question for the Third Circuit to decide.

The Third Circuit felt bound by the reasoning of Pfizer, 712 A.2d 634. It ruled that the insured was not a New Jersey policyholder, because it had its headquarters and principal place of business in New York where the policies were executed and issued. Although it had a presence in New Jersey, the Court concluded that it was not a substantial one. To the extent that New Jersey was the location of some of the contaminated sites, its interest in applying its domestic law did not differ significantly from that of the other polluted locations. New York and the other states where the waste sites were located also had significant interest in having their own law applied. The Court also found that commerce would be hindered by having New Jersey apply its own law since it had neither a dominant interest nor a significant relationship with the waste sites, other than the ones in New Jersey. Since the contracts themselves were silent on the choice of law issue, and a policyholder would expect to be indemnified under the laws of the state where the site is located, the Court concluded that the expectations of the parties pointed to application of the law of the state of each waste site. In the Court’s view, judicial administration would not be hindered by applying the law of the sites and as a result held that New Jersey law does not govern the interpretation of the pollution exclusion clauses except with respect to New Jersey sites. Therefore, the choice of law was found to be between New York (the place of contracting and the location of the insured’s headquarters) and that of the state in which the contamination site was located.