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Indiana Supreme Court Resolves Choice of Law with a “Most Intimate Contact” Rule

Blogs, Insurance Coverage

Just after Christmas, the Indiana Supreme Court issued an interesting opinion on the matter of National Union Fire Insurance Company of Pittsburgh, P.A. v. Standard Fusee Corporation. The case itself is a typical insurance coverage dispute over insurers’ obligations to defend and indemnify their insured with respect to claims arising out of environmental contamination at multiple sites in multiple states. At that core of disputes such as this one, is the interpretation afforded to the policies at issue. How those policies are to be interpreted, however, often critically turns on the specific law that is applied. In National Union, the Supreme Court found that Maryland – a state where no contamination occurred – is the state with the most intimate contacts to the facts and that its law should be applied to resolve the entire dispute.

Standard Fusee Corporation (“SFC”), a manufacturer of emergency signaling flares, is incorporated in Delaware and headquartered in Maryland. When it incorporated in 1988, SFC owned one facility in Maryland, two in Pennsylvania, one in New Jersey, and one in Ohio. Also in 1988, SFC began leasing facilities in both Indiana and California. In 1995, SFC ceased operations at its California facility. In 1997, SFC purchased the Indiana facility. Today, SFC has operations in Maryland, Indiana, and Pennsylvania.

SFC purchased comprehensive general liability (“CGL”) primary, excess, and umbrella insurance policies through two brokers, one located in Maryland and one located in Massachusetts. All discussions with respect to the purchase of these policies occurred at SFC’s Maryland headquarters. The policies were delivered to and retained in and all premiums were paid from SFC’s Maryland headquarters. The policies do not contain any provisions specifying the law of the state that would govern their interpretation. 

In 2002, 250 lawsuits were filed against SFC in California, alleging groundwater contamination. In 2004, a voluntary test at the Indiana facility suggested potential contamination. SFC requested a defense and indemnification from its insurers. The insurers either disputed that they had obligations to defend and indemnify SFC or otherwise failed to respond to SFC’s request. This action for declaratory judgment followed.

The two prevailing approaches generally applied by courts when faced with similar choice of law issues are “uniform-contract-interpretation” approach, which applies the law of one state even though the dispute covers multiple risks in multiple states, and the “site-specific” approach, which applies the law of each state where the insured risks are located. After reviewing these approaches, the Supreme Court applied its own version of the “uniform-contract-interpretation” approach – the most “intimate contact” rule. The rule adopted by the Court is very similar to § 188 of the Restatement (Second) of Conflict of Laws (1971), which looks for the state with the “most significant relationship” to the transaction and the parties, and requires consideration of five factors: (1) the place of contracting, (2) the place of negotiation of the contract, (3) the place of performance, (4) the location of the subject matter of the contract, and (5) the domicile, residence, nationality, place of incorporation, and place of business of the parties.

Applying the “most intimate contact” rule to the specific facts of this case, the Supreme Court concluded that Maryland is the state with the most intimate contacts to the facts and that its law should be applied to resolve this dispute.

A copy of this opinion is available here.