Coverage and Exclusions
8/4/2009 1:35:32 PM EST
Josephine H. Hicks and Terry L. Wallace of Parker Poe Adams & Bernstein LLP on “Insurance 101: Choice of Law in Insurance Coverage Disputes”
Attorneys, Parker Poe Adams & Bernstein LLP
An article appearing in the May/June 2009 issue of Coverage by Josephine H. Hicks and Terry L. Wallace of Parker Poe Adams & Bernstein LLP provides an overview of the various choice of law rules that are applied in insurance coverage litigation. The authors point out that the threshold issue of which jurisdiction’s substantive law governs the dispute can be outcome determinative. “The bottom line is that a court interpreting the exact same policy language under two different sets of substantive law could reach entirely different results depending on which state’s law applies.” Insurance coverage issues in which a choice of law analysis can be outcome determinative include:
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Whether insurer prejudice as a result of late notice by the policyholder is a prerequisite to denial of coverage;
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A state’s position on interpreting the “sudden and accidental” pollution exclusion;
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Trigger of coverage;
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Bad faith;
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Tender of defense costs;
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The scope of the duty to cooperate;
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How damages are determined; and
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Whether a party qualifies as an additional insured.
The article surveys the major methods of resolving choice of law issues in insurance coverage disputes:
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The traditional Lex Loci Contractus rule enunciated by the Restatement (First ) Conflict of Laws;
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The modern Most Significant Contacts analysis called for by the Restatement (Second) Conflict of Laws; and
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State statutes that dictate how choice of law issues are to be resolved, specifically those of North Carolina, South Carolina, Texas, and Virginia.
Each of these approaches is analyzed, variations within the approaches are noted, and instructive court decisions are examined. There is an appendix to the article identifying the approach taken by each state and the District of Columbia as well as citations to illustrative court decisions within each of the jurisdictions.
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