Insurance policy choice of law provision again faces a public policy challenge | Hinshaw & Culbertson – Perspectives for Insurers


A Missouri Federal District Court became the second court in the past 15 months to consider whether a state’s public policy trumps the choice of law provision of an insurance policy. Maritz Holdings v. Certain underwriters at Lloyd’s London, n ° 4: 18-CV-00825 SEP, 2020 US Dist. LEXIS 222400 (ED Mo. November 30, 2020), concerned an insurance coverage dispute regarding alleged losses resulting from cybersecurity events. After insurers refused coverage, the insured took legal action, making claims for breach of contract as well as bad faith under Missouri’s vexatious refusal to pay.[1] The policies contained a choice of law provision designating New York law as the applicable law governing disputes arising from the policies. The insurers sought judgment on the pleadings regarding the bad faith claim “because it is made under Missouri law and therefore does not present a claim under applicable law.”

While recognizing that “the contracting parties may choose the State whose law will govern the interpretation of their contractual rights and duties”, the court ruled:

The Missouri Vexatious Denial Act … relating to the fair and just treatment of Missouri insureds, is not only a matter of substantive Missouri law, but also a public policy statement of the state. … And in this case, there is an obvious local interest in being protected by its application. In these circumstances, the Court finds that the provisions relating to the choice of law appearing in insurance contracts do not preclude [the insured’s] statutory remedy for alleged vexatious conduct by insurers.

A choice of law provision was similarly challenged last year in a California case where the insured raised various defenses, including late notice. Pitzer Coll. vs. Indian Harbor Ins. Co., 251 cal. Rptr. 3d 701, 447 P.3d 669 (2019). New York law has been identified in the police choice of law provision. The insurer successfully argued in the California Federal District Court that it was not required to show injury to outweigh its defense of late notification under New York law (which enforces a no-damage rule for insurance policies issued and delivered outside New York). On the certified issues of the Ninth Circuit following the insured’s appeal, the California Supreme Court noted that choice of law provisions are generally enforceable unless the law conflicts with basic public policy of a state and that state has a significantly greater interest in resolving the matter than the designated state.[2] The court concluded that the California bias rule is a fundamental public policy of the state, but left to the Ninth Circuit the question of whether California had a significantly greater interest than New York in determining the outcome. of the issue of coverage.

Pansies to go

Although the provisions relating to the choice of applicable law are generally applied, the Maritz Holding and Pitzer College rulings are reminders to insurers who express the terms of policies may be subject to public policy challenges in certain circumstances. These considerations should be kept in mind when evaluating the choice of forum for coverage actions.

[1] Mo. Rev. Stat. § 375.420 (“[I]f it appears from the evidence that [an insurance] company has refused to pay such loss without reasonable cause or excuse, the court or jury may, in addition to the amount thereof and interest, allow the plaintiff that damages do not exceed twenty percent of the first fifteen one hundred dollars of the loss, and ten percent of the amount of the loss of more than fifteen hundred dollars and reasonable attorney’s fees; and the court will pronounce judgment for the full sum found in the verdict. “)

[2] See, for example, Nedlloyd Lines BV v. Superior court, 11 cal. Rptr. 2d 330, 834 P.2d 1148 (1992) (Consistent with the “modern approach of Section 187 of the Restatement Second of Conflict of Laws”, the choice of law provisions “are generally followed by the courts of California” .)


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