National Semiconductor v. Allendale Mut. Ins. Co.

• Decision Date: 22 October 1982
• Docket Number: Civ. A. No. B-80-125.
• Citation: 549 F. Supp. 1195
• Parties: NATIONAL SEMICONDUCTOR CORPORATION, Plaintiff, v. ALLENDALE MUTUAL INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of Connecticut

549 F. Supp. 1195

NATIONAL SEMICONDUCTOR CORPORATION, Plaintiff, v. ALLENDALE MUTUAL INSURANCE COMPANY, Defendant.

Civ. A. No. B-80-125.

United States District Court, D. Connecticut.

October 22, 1982.

COPYRIGHT MATERIAL OMITTED

William H. Narwold, Cummings & Lockwood, Stamford, Conn., for plaintiff.

Robert M. Wattson, Robins, Davis & Lyons, Minneapolis, Minn., Shaun S. Sullivan, Wiggin & Dana, New Haven, Conn., for defendant.

RULING ON DEFENDANT'S MOTION IN LIMINE

ZAMPANO, District Judge.

In this action plaintiff, National Semiconductor Corporation, ("National") seeks to recover damages under the provisions of an insurance policy issued by defendant, Allendale Mutual Insurance Company, ("Allendale"). National is a Delaware corporation with its principal place of business in Santa Clara, California. Allendale is incorporated and maintains its principal place of business in Rhode Island. Among other states, it conducts insurance business in California.

The contract of insurance between the parties, effective during the period April 1, 1977 to April 1, 1980, provided protection inter alia for National's business interruption losses caused by an accident at any of its manufacturing plants located in various states. In October 1978, poisonous gases were released on two occasions from machinery in plaintiff's factory situated in Danbury, Connecticut.

National contends these "accidents" caused substantial loss of earnings and injury to personal property for which Allendale is obligated to pay. Allendale argues that these incidents do not constitute covered perils under the policy, that National's damages are grossly overstated, and that, even assuming coverage, National used an erroneous standard to measure its losses.

Upon Allendale's refusal to honor National's claim, National filed suit against Allendale in the Superior Court for the County of Santa Clara, State of California, on March 19, 1979. The case was removed on diversity grounds to the United States District Court for the Northern District of California, which in turn, transferred the matter to the District of Connecticut. On January 7, 1982, National amended its complaint and under the present state of the pleadings requests compensatory and punitive damages against Allendale based on causes of action for breach of contract and for breach of the duty of good faith and fair dealing.

Presently pending before the Court is National's motion for a pretrial determination that the law of California and not Connecticut governs the resolution of the disputes between the parties.

I

A threshold question raised by plaintiff's motion is whether in this diversity action the Court must apply Connecticut's or California's conflict of laws rules. This issue merits little discussion. It is settled law that when a case is transferred to another district, the transferee district court must apply the state law that would have governed the case had there been no change of venue. Van Dusen v. Barrack, 376 U.S. 612, 639, 84 S.Ct. 805, 820, 11 L.Ed.2d 945 (1964). Here, the California district court would have applied the substantive law of California, including its choice-of-law rules. Klaxon v. Stentor Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85 L.Ed. 1477 (1941); Erie Railroad Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938). This Court, therefore, is required to do the same.

II

Unlike Connecticut, which applies mechanical common law choice-of-law rules, see, e.g., Grand Sheet Metal Prods. Co. v. Aetna Casualty & Sur. Co., 500 F.Supp. 904, 908-909 (D.Conn.1980); Whitfield v. Empire Mut. Ins. Co., 167 Conn. 499, 505-06, 356 A.2d 139, 143 (1975), California employs the "governmental interest analysis" approach in both contract and tort actions. Offshore Rental Co. v. Continental Oil Co., 22 Cal.3d 157, 148 Cal.Rptr. 867, 583 P.2d 721, 729 (1978); Bernhard v. Harrah's Club, 16 Cal.3d 313, 128 Cal.Rptr. 215, 546 P.2d 719 (1976); Hurtado v. Superior Court of Sacramento County, 11 Cal.3d 574, 114 Cal. Rptr. 106, 522 P.2d 666 (1974); Robert McMullan & Son, Inc. v. United States Fidelity & Guar. Co., 103 Cal.App.3d 198, 162 Cal.Rptr. 720 (Ct.App.1980). Under this test, California substantive law controls unless a party litigant invokes the law of a foreign state. Bernhard, 16 Cal.3d at 317-18, 128 Cal.Rptr. at 217, 546 P.2d at 721. The Court must then determine whether the forum state and the foreign state each has an interest in applying its laws to the issues in question. 16 Cal.3d at 318-19, 128 Cal.Rptr. at 218, 546 P.2d at 722. If only one state is found to have a legitimate interest in the application of its law and the other state has none, the California courts regard the conflict as "false" and apply the law of the interested state to the issue. Offshore Rental Co., 22 Cal.3d at 163, 148 Cal.Rptr. at 870, 583 P.2d at 724; Cable v. Sahara Tahoe Corp., 93 Cal.App.3d 384, 390-91, 155 Cal.Rptr. 770, 774 (Ct.App. 1979). If, however, it is determined that California and its sister state each has a legitimate but conflicting interest in employing its own law to the issue, then a "true" conflict exists, which is resolved by applying the law of the state whose interest would be more impaired if its laws were not applied. Offshore Rental Co., 22 Cal.3d at 163-65, 148 Cal.Rptr. at 871-72, 583 P.2d at 725-26; Bernhard, 16 Cal.3d at 319-20, 128 Cal.Rptr. at 218-19, 546 P.2d at 722-23.

III

One of the issues isolated by the parties for review under California's conflict approach is whether Connecticut or California law applies to Allendale's affirmative defense that it was not given a notice of loss by National "without unnecessary delay" as prescribed by the notice provision of the policy.

Connecticut law provides that non-compliance with the notice provisions of a policy voids coverage, even in the absence of prejudice. Employers' Liability Assurance Corp. v. Travelers Ins. Co., 411 F.2d 862, 866 (2 Cir.1969); Preferred Accident Ins. Co. v. Castellano, 148 F.2d 761, 762 (2 Cir.1945); Kolibczynski v. Aetna Life & Casualty Co., 176 Conn. 676, 678-79, 410 A.2d 485, 486-87 (1979); Lee v. Casualty Co., 90 Conn. 202, 205 (1916), 96 A. 952, 953-54. California law differs in that an insurer must prove prejudice in order for a delay to be a valid defense to liability. See, e.g., Healy Tibbitts Constr. Co. v. Foremost Ins. Co., 482 F.Supp. 830, 835 (N.D.Cal. 1979); Northwestern Title Sec. Co. v. Flack, 6 Cal.App.3d 134, 141, 85 Cal.Rptr. 693, 696-97 (Ct.App.1970).

These rules would appear to involve a conflict between the laws of the two states requiring the Court to determine whether the forum state and the foreign state each has an interest in applying its laws to the issues in question. California has an interest, because National has its principal place of business in California and the insurer conducts insurance business in that state. Furthermore, the insurance contract involved in this case is entitled "Standard Fire Insurance Policy for California." Connecticut, in turn, has an interest in applying its laws, because the insurance policy was issued in part to cover a plant located in Connecticut. In view of the fact that the interests of the concerned states conflict, the Court is faced with a true conflict, and, therefore, the Court must assess the "comparative impairment" of each state's policies.

At the outset it is important to point out that the two states have expressed almost identical purposes and concerns with respect to the enforcement of notice provisions in insurance policies. Both Connecticut and California recognize that a notice of loss stipulation in an insurance policy is a perfectly proper condition to impose on an insured.

On the one hand, an insurer must have the opportunity, at or near the time of the event, to ascertain the scope of a loss, to investigate effectively the circumstances surrounding the loss, and to determine its obligation to pay for or to defend against the loss. Thus the notice provision, which usually can readily be complied with by the insured, is reasonably necessary for the protection of the insurance company. See, e.g., Hanover Ins. Co. v. Carroll, 241 Cal.App.2d 558, 50 Cal.Rptr. 704 (Ct.App.1966); Valladao v. Fireman's Fund Indem. Co., 13 Cal.2d 322, 89 P.2d 643 (1939); Purefoy v. Pacific Automobile Indem. Exch., 5 Cal.2d 81, 53 P.2d 155 (1935); Hynding v. Home Accident Ins. Co., 214 Cal. 743, 7 P.2d 999 (1932); Arton v. Liberty Mut. Ins. Co., 163 Conn. 127, 132, 302 A.2d 284, 288 (1972); Rochon v. Preferred Accident Ins. Co., 118 Conn. 190, 197, 171 A. 429, 432 (1934); Lee v. Casualty Co., 90 Conn. at 206, 96 A. at 954.

On the other hand, the two states appreciate the need to protect an insured from the severe consequences of a forfeiture of a rightful payment, based on technical grounds or on a rote application of contract principles. In balancing the competing interests of an insurer and an insured in the context of a late notice situation, California has established the requirement that an insurer must prove substantial prejudice before it is absolved from liability. See, e.g., Northwestern Title Sec. Co., 6 Cal.App.3d at 140-43, 85 Cal.Rptr. at 696-97; Campbell v. Allstate Ins. Co., 60 Cal.2d 303, 32 Cal. Rptr. 827, 384 P.2d 155 (1963). This rule furnishes the insurer with sufficient protection in the event of a late notice, and, at the same time, provides a safeguard to an insured to recover on a liability which the insurer has expressly undertaken. See, e.g., Hanover, 241 Cal.App.2d at 565-66, 50 Cal. Rptr. at 708-709.

Connecticut has not taken such a direct route in striving to achieve the same end. While framing notice questions in terms of strict compliance with "conditions precedent" in contract, Connecticut courts have fashioned a series of exceptions to a wooden application of contract principles. In addition to the doctrines of waiver and estoppel, see, e.g., Curran v....