Rouse Co. v. Federal Ins. Co.

Decision Date14 January 1998
Docket NumberCivil No. Y-96-3335.
Citation991 F.Supp. 460
PartiesTHE ROUSE COMPANY, et al. v. FEDERAL INSURANCE COMPANY.
CourtU.S. District Court — District of Maryland

Jay I. Morstein, Kathleen A. Ellis, Baltimore, MD, for Plaintiffs.

E. Charles Dann, Jr., Stephen E. Marshall, Baltimore, MD, for Defendant.

MEMORANDUM OPINION

JOSEPH H. YOUNG, Senior District Judge.

I.

The Rouse Company and Rouse-New Orleans, Inc., a subsidiary of The Rouse Company (collectively, "Rouse") bring this diversity action against Federal Insurance Company ("Federal") seeking a declaratory judgment that Rouse was covered under an executive and corporate liability insurance policy issued by Federal for losses suffered from a multi-million dollar verdict against Rouse in Louisiana state court. Rouse con-comitantly contends that Federal breached the insurance contract by refusing to pay under the policy. The case is now before the Court on cross-motions for summary judgment.

The evidence before the Court establishes the following undisputed facts. Rouse purchased executive and corporate liability insurance from Federal in 1989 and renewed the policy without change in its substantive provisions for the period of May 13, 1990 through May 13, 1991 by endorsement originating from New Jersey, where Federal is located. The policy was negotiated, paid for, and delivered in Maryland.

In November 1990, Robert P. Guastella Equities, Inc., not a party to this litigation, sued Rouse, New Orleans Riverwalk Associates, New Orleans Riverwalk Limited Partnership, Connecticut General Life Insurance Company, and the World Trade Center of New Orleans, Inc. in the Civil District Court for the Parish of New Orleans, Louisiana. Guastella alleged wrongful acts of Rouse which undisputedly fell within the policy's coverage. In 1993, a Louisiana jury returned a verdict in favor of the plaintiff, and judgment was entered against The Rouse Company and New Orleans Riverwalk Associates, and against New Orleans Riverwalk Associates and Connecticut General Life Insurance Company for their 50% share each of $9,530,400, plus interest and costs. The Louisiana Court also entered judgment against The Rouse Company of New Orleans, Inc. "to the same extent as New Orleans River-walk Associates."

In November 1993, after the trial, Plaintiffs first notified Federal of a claim based on the Louisiana litigation. Federal denied coverage by letter dated February 23, 1994 for Rouse's failure to provide written notice of the claim as required by Policy Section 4.1. Federal also maintained it was not liable for the costs of defending the suit because Federal's consent was not first obtained, as required by Policy Paragraph 6.1. Although Rouse subsequently informed Federal of later developments in the case, and invited Federal to discuss post-trial settlement negotiations, Federal maintained coverage did not exist and that its consent was irrelevant. Ultimately, the suit settled for $4,750,000. Rouse estimates that its legal fees and costs exceed $1,400,000.

Plaintiffs argue that its policy with Federal covers the Louisiana claim because Federal has failed to demonstrate that lack of notice resulted in actual prejudice. Plaintiffs assert that Maryland law applies because the policy was delivered and the premiums paid in Maryland, or because New Jersey, where the policy was allegedly countersigned, would apply Maryland law. Federal contends that Louisiana law governs the question of notice as a condition precedent to coverage and that Maryland or New Jersey would apply Louisiana law. Federal concurrently argues that under Louisiana law, Plaintiffs' failure to provide notice bars coverage.

II.
A.

Initially, the Court must determine what law applies under Maryland's choice of law rules, which this Court must follow when exercising diversity jurisdiction. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). The absence of a forum selection clause in the policy requires the Court to follow Maryland's general rule of lex loci contractus by looking to the law of the place where the contract was made to determine its meaning and operation. American Motorists Ins. Co. v. ARTRA Group, Inc., 338 Md. 560, 570, 659 A.2d 1295 (1995). Under the lex loci principle, a contract is "made" where the last act necessary for its formation is performed. Grain Dealers Mut. Ins. Co. v. Van Buskirk, 241 Md. 58, 66, 215 A.2d 467 (1965). In the context of insurance contracts, the "last act" necessary to form the contract is usually the delivery of the policy and the payment of premiums, which undisputedly occurred in Maryland. E.g., Aetna Cas. & Sur. Co. v. Souras, 78 Md.App. 71, 77, 552 A.2d 908 (1989) (citing Sun Ins. Office v. Mallick, 160 Md. 71, 81, 153 A. 35 (1931)). However, if the insurance contract requires the counter-signature of a representative of the insurance company to render the contract effective, the countersignature is the last act needed to form the contract. E.g., Eastern Stainless Corp. v. American Protection Ins. Co., 829 F.Supp. 797, 799 (D.Md.1993).

The first page of the policy between Federal and Rouse states that the policy "shall not be valid unless also signed by a duly authorized representative of the Company." The signatures of Federal's vice-president and assistant secretary appear below this declaration. Accordingly, the policy requires a countersignature to become effective, and the jurisdiction where the countersignature is made is the lex loci contractus under Maryland law. Unlike Eastern Stainless, however, this first page contains no indication as to where Federal signed it, and the parties proffer no admissible evidence concerning the location of the countersigning.

B.

Even assuming that Federal countersigned the policy in New Jersey, where Federal maintains its principal place of business, the Court may apply Maryland law under Maryland's limited rule of renvoi, which permits a Maryland court to disregard the rule of lex loci contractus and apply Maryland law, if: (1) Maryland has a substantial relationship to the contractual issue presented, and; (2) the foreign jurisdiction whose law of contract interpretation would ordinarily apply under Maryland's lex loci principle would, under the foreign jurisdiction's own choice of laws principles, apply Maryland law. ARTRA, supra, 338 Md. at 574, 579, 659 A.2d 1295. Maryland possesses a substantial relationship to this insurance policy because The Rouse Company, the parent company of all persons and entities protected under the policy, is a Maryland corporation, and because the policy was delivered and the premiums paid in Maryland. The remaining question is whether New Jersey would apply Maryland substantive law of contract interpretation under its choice of law rules.

New Jersey applies the RESTATEMENT (SECOND) OF CONFLICT OF LAWS in resolving choice of law issues. When an insurance contract is at issue, New Jersey courts look first to § 193 of the Restatement1 which requires application of the law of the state that "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 ...." Gilbert Spruance Co. v. Pennsylvania Mfrs. Ass'n Ins. Co., 134 N.J. 96, 629 A.2d 885, 889, 893 (1993). The fact that the parties regarded Maryland as the principal place of the insured risk is indicated by the inclusion of The Rouse Company's Maryland address in the insurance contract. Further, the delivery of the policy, and the payment of premiums, in Maryland indicate the parties' understanding that Maryland was the principal location of the insured risk. Under § 193, a New Jersey court should find that Maryland law controls. Federal urges, however, that New Jersey would, and that this Court must, apply Louisiana law. Federal asserts that Comment f to § 193, which concerns multiple risk policies, mandates the application of Louisiana law under New Jersey conflicts of law principles because the lawsuit giving rise to the claim under the policy occurred in Louisiana, giving it the greatest interest in the insurance policy.

Comment f concerns the problems encountered when an insurance policy insures multiple risks located in different states which by statute require specific forms of insuring clauses. In such a case, the single policy insuring multiple risks will usually incorporate the statutorily-mandated forms of the states involved, and the courts will, presumably, treat the policy as involving separate policies, each insuring an individual risk. The example provided in Comment f is a fire insurance policy in states X, Y, and Z, which require special statutory forms of fire insurance. In this circumstance, when the policy contains multiple insuring clauses to comply with each state's statutes, the Restatement suggests that if a fire occurs in state X, the court should apply the law of state X in determining the rights and obligations under the policy.

It is beyond question that the instant policy was intended to cover risks in multiple jurisdictions. Items 6 and 7 of the policy's first page state that the employees, directors, and officers of Rouse and all its subsidiaries are covered. Further, Section 2.3 of the policy states that the coverage extends to claims made anywhere in the world. However, Defendants' argument that New Jersey would apply Louisiana law is erroneous. The language of Comment f indicates that it only applies in the limited situation where states statutorily require special forms of insuring clauses for certain kinds of insurance, and multiple clauses are incorporated in a multiple-risk policy. Continental Ins. Co. v. Beecham, Inc., 836 F.Supp. 1027, 1036 (D.N.J. 1993); United Brass Works, Inc. v. American Guarantee & Liab. Ins. Co., 819 F.Supp. 465, 469-70 n. 3 (W.D.Pa...

To continue reading

Request your trial
38 cases
  • Costco Wholesale Corp. v. Liberty Mut. Ins. Co.
    • United States
    • U.S. District Court — Southern District of California
    • January 24, 2007
    ...states. This Restatement provision is inapplicable to standard-language policies, such as the Policy in this case. Rouse Co. v. Fed. Ins. Co., 991 F.Supp. 460, 464 (D.Md.1998); Cont'l Ins. Co. v. Beecham, Inc., 836 F.Supp. 1027, 1036 ...
  • Baker's Express, LLC v. Arrowpoint Capital Corp.
    • United States
    • U.S. District Court — District of Maryland
    • September 20, 2012
    ...Sys. N. Am., Inc. v. Am. Home Assurance Co., No. WMN-09-2874, 2010 WL 1713866, at *2-3 (D. Md. April 27, 2010); Rouse Co. v. Fed. Ins. Co., 991 F. Supp. 460, 464-65 (D. Md. 1998); Eastern Stainless Corp. v. American Protection Insurance Co., 829 F. Supp. 797, 799 (D. Md. 1993); Riviera Beac......
  • Millennium Inorganic Chemicals Ltd. v. Nat'l Union Fire Ins. Co. of Pittsburgh
    • United States
    • U.S. District Court — District of Maryland
    • September 28, 2012
    ...Sys. N. Am., Inc. v. Am. Home Assurance Co., No. WMN–09–2874, 2010 WL 1713866, at *2–3 (D.Md. Apr. 27, 2010); Rouse Co. v. Fed. Ins. Co., 991 F.Supp. 460, 464–65 (D.Md.1998); Eastern Stainless Corp. v. Am. Protection Ins. Co., 829 F.Supp. 797, 799 (D.Md.1993); Riviera Beach Vol. Fire Co. v.......
  • PG v. LOCAL GOVERNMENT INS. TRUST
    • United States
    • Maryland Court of Appeals
    • July 21, 2005
    ...order to protect themselves in cases where ... the primary insurer is not mounting a strong defense"). But see Rouse Co. v. Fed. Ins. Co., 991 F.Supp. 460, 466-67 (D.Md.1998) (holding that a primary insurer who, unlike the insurer in Washington, did not have the duty to defend or right to s......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT