Baybutt Const. Corp. v. Commercial Union Ins. Co.

• Citation: 455 A.2d 914
• Parties: BAYBUTT CONSTRUCTION CORP. v. COMMERCIAL UNION INSURANCE CO.
• Decision Date: 04 January 1983
• Court: Supreme Judicial Court of Maine (US)

Page 914

455 A.2d 914

BAYBUTT CONSTRUCTION CORP. v. COMMERCIAL UNION INSURANCE CO.

Supreme Judicial Court of Maine.

Argued March 9, 1982.

Reargued Nov. 9, 1982.

Decided Jan. 4, 1983.

Vafiades, Brountas & Kominsky, Eugene C. Coughlin (orally), Bangor, for plaintiff.

Gross, Minsky, Mogul & Singal, P.A., George C. Schelling (orally), Bangor, for defendant.

Before McKUSICK, C.J., GODFREY, NICHOLS, ROBERTS, VIOLETTE and WATHEN, JJ., and DUFRESNE, A.R.J.

DUFRESNE, Active Retired Justice.

Commercial Union Insurance Co., the defendant, appeals from a summary judgment rendered against it in favor of Baybutt Construction Corp., the plaintiff in a declaratory judgment action in which, as the named insured of a comprehensive general liability insurance policy issued to it by the insurance company, it sought a determination that the defendant was obligated to provide it with coverage for and defense of the pending action for damages brought by the City of Waterville on account of the roof collapse of its Junior High School building. ¹ We affirm the judgment of the Superior Court, Penobscot County, as modified, declaring that the defendant insurance company has to defend the plaintiff construction company in the reference action of the City of Waterville, and deny the appeal.

1. Facts

In January, 1979, the City of Waterville initiated an action against Baybutt Construction Corp., the company involved in building the Waterville Junior High School, and other parties such as the engineering firm hired to design and supervise its construction, the insurance company that acted as surety on the performance bond, and the outfit that had supplied the trusses for the roof. As against the present plaintiff, Baybutt Construction Corp., the City in its complaint alleged that Baybutt Construction had provided materials for, and performed construction work on, the Waterville Junior High School building, and that the roof had collapsed during harsh winter weather. It set out several theories under which it contended that Baybutt Construction was liable for the damages incurred: negligent construction, breach of an implied warranty that the contracted services would be performed in a workmanlike manner, and breach of an implied warranty that the product would be fit for its intended purposes.

During the period of construction, the plaintiff was insured under a comprehensive general liability policy issued by the defendant. The plaintiff, a New Hampshire corporation doing business in Maine, purchased the reference policy in New Hampshire through a New Hampshire insurance agency; the defendant is a Massachusetts entity doing business in Maine; the policy purported to cover the insured's construction activities in Maine, New Hampshire, and Vermont.

After the City of Waterville commenced its action for negligence and breach of warranties, the insured plaintiff notified the defendant and demanded that it provide a defense against the City's claims. The defendant denied coverage and refused to defend the plaintiff in the underlying action. The plaintiff then brought the instant action in the Superior Court pursuant to 14 M.R.S.A. §§ 5951-5963, seeking a judgment which declared that the provisions of its insurance contract with the defendant obligated the defendant both to cover and defend the plaintiff in the City's suit.

2. Choice of law

A. By-passing the issue

In its opinion underlying the ensuing summary judgment to the effect that the defendant insurance company was obligated to cover and defend the plaintiff construction corporation in the pending action of the City of Waterville arising out of the roof collapse of its Junior High School building, the court below purported not to resolve the noticed preliminary choice-of-law issue existing in the case, for the stated reason that the intention of the parties in relation thereto was a question of fact which precluded summary judgment in respect to that particular issue. Notwithstanding the court's purposeful avoidance of the choice-of-law issue, if the ultimate decision granting summary judgment in favor of the plaintiff is correct under the circumstances, then the court's decision must stand.

Where the trial court's ultimate conclusion is correct in law, it must be sustained on appeal, although its conclusion may have been reached by an incorrect process of legal reasoning. Laferriere v. Paradis, 293 A.2d 526, 529 (Me.1972); Allstate Insurance Company v. Lyons, 400 A.2d 349, 352 (Me.1979).

B. Applicable law

The issue in this case is whether Commercial Union Insurance Company's comprehensive general liability policy provided coverage to its insured Baybutt Construction Corp. and a duty to defend it for its failure to perform a construction contract in a workmanlike manner and for furnishing work and materials of such poor quality that the resulting product, to wit, the roof of the high school building, was not fit for its intended purpose. Such is the basic issue which, in the instant case, must be resolved by the interpretation to be given to the terms of the insurance contract between the parties. Where, however, the reference insurance policy was issued by a Massachusetts insurance corporation through a New Hampshire insurance agency to a New Hampshire corporation which purchased it for the purpose of insuring itself against liability risks which might result from its construction activities in the three states of Maine, New Hampshire and Vermont, and, where the specific insured risk involved in the underlying suit for damages was located in Maine, the interpretation to be given to the insurance contract, when construed by a Maine court, will depend necessarily on the particular state law applicable to the situation. If the law of New Hampshire is the applicable law, then the Superior Court's grant of summary judgment against the insurance company, insofar as the duty to defend is concerned, was proper, because the New Hampshire Court has construed an identical insurance contract as so providing in a similar situation. See Commercial Union Assurance Companies v. Gollan, 118 N.H. 744, 394 A.2d 839 (N.H.1978). Maine, however, has not addressed the issue, and, thus, it is imperative to decide the conflict-of-laws question in order to assess the correctness of the decision below.

This Court, in the case of The Emerson Company v. Proctor, 97 Me. 360, 54 A. 849 (1903), did state the general rule prevailing at that period of time which governed the construction of a contract involving multiple states to be, that its validity is to be determined by the law of the place where the contract is made. Id. at 363. It further supported its decision that the contract involved in that case was a Maine contract by reason of the fact that it contemplated the construction of a building in Maine to be erected under the superintendence of a Maine corporation, in other words, that performance was to be in Maine.

This doctrine (a) that issues of validity and construction of contracts are to be determined by the local law of the place of contracting and (b) that issues respecting performance of contracts are to be determined by the local law of the place of performance (original Restatement §§ 332 and 358), like the rule governing rights and liabilities in tort, which with certain exceptions required the application of the local law of the "place of wrong," has met with general disfavor when applied to cases wherein the factual scenario indicates that more than one state may be potentially interested in the litigation by reason of the relation of the several states to the transaction and the parties.

In Beaulieu v. Beaulieu, 265 A.2d 610 (Me.1970), in the tort area, we departed from the lex loci delicti rule and adopted a more flexible rule giving controlling effect in a choice-of-law situation to the law of the state which has the more significant contacts, the more substantial relationships to the parties and the occurrence and the more important governmental interests in the solution of the issue before the court. Id. at 617.

We believe the time has come to follow the present trend of the authorities and adopt in the contract area, as we did in the tort context, a more flexible rule in conflict-of-laws situations. As stated in the Restatement (Second) of the Law, Conflict of Laws 2d (1971) § 188, in the absence of an express effective choice of applicable state law by the parties, the rights and duties of the parties with respect to an issue in contract are to be determined at the forum level by the local law of the state which, with respect to that particular issue, has the most significant relationship to the transaction and the parties. Specifically, in a casualty insurance contract, as is involved in the instant case, the validity of the contract and the rights and duties created thereby, are to be determined, in the absence of an express effective choice of law by the parties, by the local law of the state which the parties understood was to be the principal location of the insured risk during the term of the policy, unless with respect to the particular issue involved, some other state has a more significant relationship to the transaction and the parties, in which event the local law of the other state will be applied. Restatement, (Second) of the Law, Conflict of Laws 2d (1971), § 193.

Comparing the relative "contacts" and "interests" of Maine, New Hampshire and Massachusetts with the parties and the particular contract out of which this litigation arises respecting the rights of the insured and the responsibility of the insurer, we notice immediately that Maine's contacts with the parties and with this casualty contract are substantial and that her governmental interest in the activities of the parties and in the resolution of disputes arising out of that contract is of major significance and of greater concern than that of the other two sister states. The plaintiff in the...