Consistent, not state-by-state, law should apply in Lloyd’s dispute

A global insurance program should be interpreted by a consistent law, not on the underlying contract law of the individual states where the claims arose, says the Delaware Supreme Court, in overturning a lower court ruling in an environmental case.

As a result, New York law, rather than Ohio and Arkansas law, should be used to interpret insurance contract language in environmental claims disputes involving Philadelphia-based Chemtura Corp., said a unanimous three-judge panel of the Delaware Supreme Court in Thursday’s ruling in Certain Underwriters at Lloyds, London et al. v. Chemtura Corp.

Chemtura’s predecessor, Uniroyal, was found to be partially responsible for environmental contamination at sites across the United States and Mexico, and also incurred liabilities in connection with their cleanup as well as personal toxic tort suits, according to the ruling.

While a settlement covering 33 sites in 15 states and two Canadian sites has been reached, Chemtura is now litigating losses related to sites in Arkansas and Ohio, the ruling said.

Chemtura argued coverage should be based on Arkansas and Ohio law, which use the “all sums approach” where each insurer is liable for the entire risk, within policy limits. 

But in overturning an April 2016 ruling by the Delaware Superior Court, the Supreme Court held New York law, which uses a pro-rata approach where each insurer is only liable for its proportionate share of the risk, applies.

“We agree with the insurer that the Superior Court erred in its application of the relevant choice-of-law principles and, instead, apply a consistent choice of law principle,” said the Delaware Supreme Court ruling.

“Because Uniroyal and its successors obtained an overall set of insurance coverage addressing risks across all of its operations, and because New York was the principal place of business for Uniroyal and the beginning of the coverage and there were a number of contacts with New York over time after the beginning the coverage, this Court determines that the most significant relationship among the parties for this insurance program and its contracts is New York, and so New York law should be applied to resolve the contract dispute.

“This is based, in part, on the sensible understanding that a company’s headquarters staff is usually heavily involved in managing insurance programs that cover the entire company,” the ruling said.

The alternative, it said, “would result in a court being forced to inconsistently apply the same contract language based on the happenstance of remaining sites with liability and the meaning of certain terms varying on that happenstance,” said the court.

“Insurance programs like this one are intended to work together to provide overall protection to the insured. That result would be frustrated if identical policy language, granting identical coverage, was interpreted in different ways based on the happenstance of the geographic location at a particular incident of environmental damage,” said the court, in remanding the case for further proceedings.