Fantis Foods, Inc. v. NORTH RIVER INS.

• Decision Date: 27 June 2000
• Citation: 753 A.2d 176,332 N.J. Super. 250
• Court: New Jersey Superior Court
• Parties: FANTIS FOODS, INC., Plaintiff-Appellant, v. NORTH RIVER INSURANCE COMPANY, Defendant-Respondent.

753 A.2d 176

332 N.J. Super. 250

FANTIS FOODS, INC., Plaintiff-Appellant, v. NORTH RIVER INSURANCE COMPANY, Defendant-Respondent.

Superior Court of New Jersey, Appellate Division.

Argued September 23, 1999.

Decided June 27, 2000.

David W. Field, for plaintiff-appellant (Lowenstein Sandler, attorneys; Mr. Field, on the brief).

Donald G. Sweetman, Parsippany, for defendant-respondent (Tell, Cheser & Breitbart, attorneys; Mr. Sweetman, on the brief).

Before Judges STERN, KESTIN and STEINBERG.

The opinion of the court was delivered by KESTIN, J.A.D.

This is a declaratory judgment action for insurance coverage. On cross motions for summary judgment, the trial court held that New York law governed and that, under the substantive standards of that state in respect of a single issue, plaintiff could not prevail. Accordingly, an order was entered granting defendant's motion for summary judgment, denying plaintiff's motion, and dismissing the complaint. Plaintiff appeals, arguing only that the motion judge erred in granting defendant's motion. Although we agree with the motion judge's determination that New York law governed the single issue before him, we disagree that New York law required a ruling in defendant's favor. Accordingly, we reverse and remand for further proceedings.

Both parties maintain their principal offices in New Jersey and both conduct business in New York. The general liability policy in question was sold to plaintiff in New York by a New York "producer". It was issued on a renewal basis for the period from August 5, 1995 to August 5, 1996, providing multi-peril, "all risks" coverage for plaintiff's buildings in several states. One of the covered buildings, vacant at the time the risk materialized, is in Manhattan. The underlying issue is whether the policy covers the imminent collapse of that New York City structure. Plaintiff represents that it seeks a judgment of $123,506.38 for repair costs, plus attorneys' fees, interest and costs. We note that plaintiff's "claims for extra-contractual damages, including consequential damages, punitive damages and attorney's fees" were dismissed without prejudice in a consent order entered early in the pendency of the matter.

We agree with the trial court's ruling that, in general, to the extent a difference in substantive law rule between New York and New Jersey is established on the issue before it, see Pfizer, Inc. v. Employers Ins. of Wausau, 154 N.J. 187, 199, 712 A.2d 634 (1998)

(a choice of law decision is necessary "`only ... when the laws of the involved states differ on the point in issue'")(quoting Robert A. Sedler, A Real World Perspective on Choice of Law, 48 Mercer L.Rev. 781, 783 (1997)), that issue must be seen to be governed by New York law.

There are two primary arguments for favoring the choice of New Jersey law. The first is based on the connection each of the parties has with New Jersey as a business domicile, and bears upon this State's interest in ruling the relationships and responsibilities of entities subject to its regulatory sway. The second is grounded upon the fact that the policy at issue covers plaintiff's properties in several states, a factor that tends to weigh in favor of a uniform-contract-interpretation approach to choice of law determinations over a site-specific approach. See Gilbert Spruance Co. v. Pennsylvania Mfrs., 134 N.J. 96, 104, 629 A.2d 885 (1993)

(where the insurance policy covers a group of risks that are scattered throughout two or more states, the location of any one risk has diminished significance). Although the Supreme Court employed a site-specific approach in Spruance, as well as in a number of other recent cases having to do with losses from environmental damage, all those cases involved special considerations that do not apply here. See Pfizer, supra, 154 N.J. at 207-08,

712 A.2d 634 (holding that, in the event of conflict, the "law of the waste site would appear to have the more dominant significant relationship"); Spruance, supra,

134 N.J. at 110-13,

629 A.2d 885 (approving of the idea that commerce would be encouraged by applying the law of the state where toxic waste is deposited and stating that in situations involving foreseeably multistate operations, the "governing law is that of the state with the dominant significant relationship according to the principles of Restatement section 6"). Nevertheless, in the instant matter, given the lack of a choice-of-law provision in the insurance policy, and even regarding the preference in favor of uniform-contract-interpretation approaches to be one of general applicability, all significant party-oriented considerations—save for the fact that both parties do business in New Jersey as well as in New York—have a New York focus.

The Restatement (Second) of Conflict of Laws (1971) provides the general choice of law factors to be applied where a claim springs from a contract:

§ 188. Law Governing in Absence of Effective Choice by the Parties

(1) The rights and duties of the parties with respect to an issue in contract are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the transaction and the parties under the principles stated in § 6.

(2) In the absence of an effective choice of law by the parties ..., the contacts to be taken into account in applying the principles of § 6 to determine the law applicable to an issue include:

(a) the place of contracting,

(b) the place of negotiation of the contract,

(c) the place of performance,

(d) the location of the subject matter of the contract, and

(e) the domicil, residence, nationality, place of incorporation and place of business of the parties.

These contacts are to be evaluated according to their relative importance with respect to the particular issue.

(3) If the place of negotiating the contract and the place of performance are in the same state, the local law of this state will usually be applied, except as otherwise provided in §§ 189-199 and 203.

Applying the type of reasoning used in the flexible governmental interest analysis approach required for resolving other like questions, see Veazey v. Doremus, 103 N.J. 244, 247, 510 A.2d 1187 (1986)

(dealing with tort cases); State Farm Mut. Auto. Ins. Co. v. Estate of Simmons, 84 N.J. 28, 34-37, 417 A.2d 488 (1980) (recognizing Restatement §§ 6 and 188 as the source of the "most significant relationship test", and that said test, sharing certain factors with the governmental interest analysis, applies in contract actions), we conclude that New York's connection with the subject matter and the risks it engenders is far more extensive and qualitatively meaningful in the practical sense than is New Jersey's association with the parties simply because they are business domiciliaries. The omnibus factors to be applied in evaluating the various levels of relationship which are pertinent to the flexible governmental interest analysis approach are also set out in the Restatement:

§ 6. Choice-of-Law Principles

* * *

(2) ...

(a) the needs of the interstate and international systems,

(b) the relevant policies of the forum,

(c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue,

(d) the protection of justified expectations,

(e) the basic policies underlying the particular field of law,

(f) certainty, predictability and uniformity of result, and

(g) ease in the determination and application of the law to be applied.

We observe that even if no feature of this case strongly suggested that the law of one state or the other governed under the Restatement`s choice-of-law tests, no real interest of either of the parties would impel a particular conclusion, apart from a more or less hospitable approach to plaintiff's claim stemming from whatever differing policies and viewpoints may pertain in the two states. See, e.g., Permacel v. American Ins. Co., 299 N.J.Super. 400, 411, 691 A.2d 383 (App.Div.1997)

. As noted by the trial court, even if there were an essential equipoise in factors bearing upon the choice of law determination, the preference for New York law would be buttressed by an insurance-specific provision of the Restatement which establishes "the principal location of the insured risk" as the paramount evaluative standard in the absence of a more significant relationship to another state.

§ 193. Contracts of Fire, Surety or Casualty Insurance

The validity of a contract of fire, surety or casualty insurance and the rights created thereby are determined 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, some other state has a more significant relationship under the principles stated in § 6 to the transaction and the parties, in which event the local law of the other state will be applied.

See, e.g., Pfizer, supra, 154 N.J. at 199,

712 A.2d 634 (the satisfaction of the "justified expectations" of the parties and "their need[ ] for predictability of result ... are basic purposes of contract law, especially insurance law"); HM Holdings Inc. v. Aetna Cas. & Sur. Co., 154 N.J. at 214, 216, 712 A.2d 645 (1998) (addressing the need to balance the public policy concerns of the forum state and the domestic concerns of the state in which the contract was formed and performed); Pharmacia v. American Ins. Co., 316 N.J.Super. 161, 165, 719 A.2d 1265 (App.Div.1998) (factors to be considered are "the competing interests of the states involved, the national interests of commerce among the states, the interests of the parties and the interests underlying contract law, and the interests of judicial administration"); Harrow Stores Inc. v. Hanover Ins. Co., 315 N.J.Super. 547, 553, 719 A.2d 196 (App.Div.1998) (illustrating how the appropriate factors are to be balanced); Permacel,...