Nowsco Well Service, Ltd. v. Home Ins. Co.

• Decision Date: 24 September 1991
• Docket Number: Civ. A. No. 2:90-1047.
• Citation: Nowsco Well Service, Ltd. v. Home Ins. Co., 799 F.Supp. 602 (S.D. W.Va. 1991)
• Parties: NOWSCO WELL SERVICE, LTD. a foreign corporation, Plaintiff, v. The HOME INSURANCE COMPANY, a New Hampshire corporation, Defendant.
• Court: U.S. District Court — Southern District of West Virginia

799 F. Supp. 602

NOWSCO WELL SERVICE, LTD. a foreign corporation, Plaintiff, v. The HOME INSURANCE COMPANY, a New Hampshire corporation, Defendant.

Civ. A. No. 2:90-1047.

United States District Court, S.D. West Virginia, Charleston Division.

September 24, 1991.

William M. Tiano, Charleston, W.Va., for plaintiff.

Stephen R. Crislip, Charleston, W.Va., for defendant.

MEMORANDUM ORDER

COPENHAVER, District Judge.

This matter is before the court on the motion to dismiss of the defendant, the Home Insurance Company.¹

I.

Plaintiff, Nowsco Well Service Ltd. (hereinafter "Nowsco"), initially filed this action in the Circuit Court of Kanawha County, West Virginia, against the defendant, the Home Insurance Company (hereinafter "Home"), alleging that Home breached two contracts of insurance issued to and held by Nowsco by wrongfully and in bad faith denying Nowsco a defense and coverage for damages which it sustained in a lawsuit filed against it in the United States District Court for the Northern District of West Virginia styled Parcoil Corporation v. Nowsco Well Services, Ltd., and Fox Drilling Company, Civil Action No. 86-043-E(K) (hereinafter "Parcoil litigation"). On November 9, 1991, the present action was removed to this court by the defendant on the basis of diversity of citizenship.²

At issue in this case are two comprehensive liability insurance policies which were issued by Home, bearing policy numbers 8017215 and 8018871, which Nowsco alleges insured it for oil and gas servicing and operations conducted in West Virginia and elsewhere. According to plaintiff, Nowsco was contractually bound to a third entity referred to in the complaint as "Fox Drilling Company" (hereinafter "Fox") to drill numerous oil and gas wells in the State of West Virginia and that it had, in accordance with its contract with Fox, employed reasonable and prudent drilling practices in fulfilling its obligations. The policies of insurance in question, plaintiff contends, covered plaintiff for the drilling operations which it performed for Fox. The complaint alleges:

The plaintiff insured provided the defendant with the necessary facts and information in order to adequately cover all the insured's oil and drilling operations and, in return, the defendant covenanted that the plaintiff would be covered for all lawsuits brought against it in Canada or the United States of America.

See Complaint at ¶ 7.

On or about March 24, 1986, the Parcoil litigation was filed against Nowsco and Fox in the United States District Court for the Northern District of West Virginia, alleging fraud, negligence, negligent supervision and, according to plaintiff, "numerous other theories of recovery against Nowsco, all pertaining to the plaintiff's drilling operations performed in West Virginia." See Complaint at ¶ 8. Nowsco contends that, upon receipt of the Parcoil complaint, it complied with all applicable insurance policy provisions regarding notice and forwarded the summons and complaint to Home.

By letter of April 28, 1986, Home denied the plaintiff's request for defense and indemnification on the basis of certain provisions of the insurance policies in question. In a letter in which the requested coverage was denied, Jill Paige, a claim supervisor for Home, explained the basis for the denial as follows:

The Home Insurance Company will be denying any and all liability for damages claimed with respect to this suit. The basis for the denial is that all the damages claimed result from damage to the wells in question. This would fall under Exclusion 10A of your Policy.

....

In reference to the Summons, I refer you to counts 1, 2, 3 and 5. These all allege intentional acts and fraud which are also not subject to coverage under your liability policy. With respect to count # 4, this applies to Defendant Fox. There would obviously be no defence provided.

....

As we are not prepared to extend coverage for this loss, we must advise that it is necessary that you seek legal counsel on your own behalf.

See Exh. 4 to Plaintiff's Supplemental Memorandum.³

In this action, Nowsco alleges that, prior to denying its claim, Home did not investigate the claim against Nowsco, did not defend it, and did not indemnify it for its losses in conjunction with the Parcoil litigation. Such failures, Nowsco contends, constitute actionable negligence (Count I), breach of contract (Count II), breach of the implied covenant of good faith and fair dealing (Count III), fraud (Count IV), promissory fraud (Count V), and such willful, wanton breaches and negligence sufficient to support an award of punitive damages (Count VI).⁴

Home has moved to dismiss plaintiff's cause of action under the doctrine of forum non conveniens.⁵ In this regard, Home alleges that Nowsco "is and was a Canadian resident at all pertinent times," and that the contracts of insurance at issue here were Canadian contracts which were issued by Home to Nowsco in Alberta, Canada, by a Canadian insurance broker. Home also contends that "the alleged acts of Home in denying coverage were all done in Canada by Canadian residents."

In light of these allegations, Home argues that Canadian courts provide an alternate and more appropriate forum for resolution of this dispute, and that the balancing of the public and private interests which must be considered in a forum non conveniens analysis preponderates strongly in favor of the adjudication of this action in Canada rather than in West Virginia. Home also argues, contrary to the plaintiff's suggestion, that Canadian substantive law will govern the resolution of this action regardless of whether it is heard in this court or in Canada, citing the recent West Virginia Supreme Court of Appeals decision in Liberty Mut. Insurance Co. v. Triangle Industries, Inc., 182 W.Va. 580, 390 S.E.2d 562 (1990), as controlling on the choice of law issue.

In opposing Home's motion to dismiss, the plaintiff contends that the facts upon which Liberty Mutual was decided are distinguishable from those in the present case and that Liberty Mutual does not control here. Nowsco further asserts that, even assuming that Liberty Mutual controls, this action falls within recognized exceptions to the choice of law rules enunciated in that case, arguing that "West Virginia has a more significant relationship to the transaction and parties," and that "Canadian law is violative of West Virginia public policy." Finally, plaintiff contends that its choice of forum should be respected and that dismissal under the doctrine of forum non conveniens would be inappropriate in that there is no adequate alternative forum for the resolution of plaintiff's claim.

II.

Inasmuch as one factor to be considered in resolving the forum non conveniens issue pertains to whether or not the forum selected by the plaintiff will ultimately be required to "untangle problems in conflict of laws, and in law foreign to itself," the court will first consider the defendant's argument that Canadian rather than West Virginia substantive law will govern the resolution of this dispute. Gulf Oil v. Gilbert, 330 U.S. 501, 509, 67 S.Ct. 839, 843, 91 L.Ed. 1055 (1947).

It is fundamental that a federal district court must apply the substantive law of the state in which it sits, including that state's conflict rules. Erie Railroad Company v. Tomkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Klaxon v. Stentor Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Historically, West Virginia's conflict rule applicable to contract disputes specified that "the law of the state in which a contract is made and to be performed governs the construction of a contract when it is involved in litigation in this state." Michigan National Bank v. Mattingly, 158 W.Va. 621, 212 S.E.2d 754 (1975). The Mattingly rule, however, is applicable only where the contract in question was both made and to be performed in the same state.

Subsequent to Mattingly, West Virginia's Supreme Court has further developed and refined its conflict rule applicable to contract disputes. See, e.g., General Electric Co. v. Keyser, 166 W.Va. 456, 275 S.E.2d 289 (1981);⁶ Lee v. Saliga, 179 W.Va. 762, 373 S.E.2d 345 (1988); Liberty Mutual v. Triangle Industries, 182 W.Va. 580, 390 S.E.2d 562 (1990). In Liberty Mutual, West Virginia's court specifically considered the proper choice of law to be applied when an insurance policy is made in one state to be performed in another. In holding that the substantive law of the state of the contract rather than the law of the state of the insured risk must generally be applied, the court reasoned:

We believe that "certainty, predictability and uniformity of result," as well as "ease in the determination and application of the law to be applied" is essential to the interpretation of an insurance policy when the law is not otherwise chosen by the parties. Given the increasingly complex nature of the insurance industry, we believe that the needs of the "interstate" system of insurance require that law be applied in the most uniform and predictable manner possible. Although we recognize that, in this case, both West Virginia and Ohio have significant relationships to the transaction, the policy was bargained for, created, and agreed to in New Jersey by both parties. We do not believe the insurance company demonstrated any reasonable expectation at the time the contracts were entered into that any litigation over the policy would be based upon West Virginia law.

....

Consequently, in a case involving the interpretation of an insurance policy, made in one state to be performed in another, the law of the state of the formation of the contract shall govern, unless another state has a more significant relationship to the transaction and the parties, or the law of the other state is contrary to the public policy of this state.

Liberty Mutual, 390 S.E.2d at 567 (footnotes omitted).

Inasmuch as the Liberty Mutual decision dealt directly...