Greenberg, Nygaard and Weis, Circuit Judges.
The opinion of the court was delivered by: Weis, Circuit Judge
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY
D.C. Civ. No. 09-cv-02125
In this case, we are called upon to answer as a controlling question of law whether the law of the forum-- New Jersey--applies to liability insurance policies covering environmental damage claims arising out of numerous sites in many states. We answer that, in the circumstances here, New Jersey choice of law rules point to the law of the state where the insured had its principal place of business and executed the policies. If, however, that law differs from that of the state where the waste site is located, then the law of the waste site will apply.
This is the second of two declaratory judgment actions brought to establish the extent of insurance coverage for a number of claims against NL Industries arising out of its nationwide lead processing activities. Instituted by NL, these actions were brought in the United States District Court for the District of New Jersey under diversity jurisdiction. NL was incorporated in New Jersey until recently and still has some industrial plants there, but its national headquarters and principal place of business are located in New York. The insurance contracts were negotiated and executed by NL with a New York broker.
NL initially filed the actions against Commercial Union Insurance Company, which then joined as third-party defendants, among others, certain underwriters at Lloyd's of London and Insurance Company of North America. NL later amended its complaint to add as defendants several other carriers, including International Insurance Company, International Surplus Lines Insurance Company, and Lexington Insurance Company.
In the first case, we determined that under the law of the forum--New Jersey--coverage for the product liability claims at issue in that litigation would be governed by the law of the state of contracting--New York. NL Indus. v. Commercial Union Ins. Co., 65 F.3d 314, 329 (3d Cir. 1995) (NL (I)). However, we also concluded that New Jersey might treat environmental claims differently in light of the substantial weight given to the law of the states where the contamination occurred.
In this case, NL sought coverage for environmental pollution at 93 sites in 28 states. One of the carriers has informed us that the numbers have increased to 202 sites in 34 states. Thirty-two sites are located in New Jersey.
In the course of pretrial proceedings, the parties agreed to select as representative locations contaminated sites in Illinois and Oregon to explore the choice of law questions basic to the litigation. Specifically, the parties dispute the meaning of the pollution exclusion and the late notice provisions in the policies. Differing interpretations of the two provisions by the various states involved presented the district court with complex choice of law problems.
The district court granted partial summary judgments limited to choice of law issues, concluding that the law of the contaminated sites--Illinois and Oregon--would apply, rather than that of New York or New Jersey. See NL Indus. v. Commercial Union Ins. Co., 938 F.Supp. 248 (D.N.J. 1996), reconsidering 926 F.Supp. 1213 (D.N.J. 1996). The court then certified as a controlling question of law under 28 U.S.C. § 1292(b) whether the law of Illinois or Oregon, respectively, applied when interpreting the pollution exclusion and late notice clauses of the policies. We agreed to accept the question for review.
At that time, in addition to the Discussion in NL (I), we had the benefit of two decisions applying New Jersey choice of law rules to environmental coverage issues. See General Ceramics, Inc. v. Firemen's Fund Ins. Cos., 66 F.3d 647 (3d Cir. 1995); Gilbert Spruance Co. v. Pennsylvania Mfrs. Ass'n. Ins. Co., 629 A.2d 885 (N.J. 1993). Neither of these cases, however, involved coverage claims for multiple sites in multiple states.
After oral argument in the case presently before us, the New Jersey Supreme Court issued three opinions that removed much of the uncertainty surrounding application of its choice of law principles to multi-site, multi-state, environmental insurance coverage cases. Those cases presented facts closely analogous to those here, so we need not do more than briefly apply their holdings. See Pfizer, Inc. v. Employers Ins. of Wausau, 712 A.2d 634 (N.J. 1998); Unisys Corp. v. Insurance Co. of N. America, 712 A.2d 649 (N.J. 1998); H.M. Holdings, Inc. v. Aetna Cas. & Sur. Co., 712 A.2d 645 (N.J. 1998); see generally Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941) (in a diversity case, law of the forum provides the applicable choice of law rules).
In Pfizer, a corporate policyholder contended that New Jersey law should apply to its claim for insurance coverage in an environmental contamination case. The insured had its headquarters and principal place of business in New York and the policies were negotiated there, but it also had substantial operations in many other states, including New Jersey. Three states' laws competed for application--New Jersey's, New York's, and the waste site's. As in this case, the choice of law issues focused on interpretation of the pollution exclusion and late notice clauses in the policies.
Following Gilbert Spruance, the New Jersey Supreme Court held that the answer to the choice of law questions should be determined by analyzing the factors set forth in the Restatement (Second) of Conflict of Laws §§ 193 and 6. Pfizer, 712 A.2d at 638-39. Under section 193, the court should apply the law of the place that " `the parties understood . . . to be the principal location of the insured risk . . . unless some other state has a more significant relationship under the principles stated in [section] 6 to the transaction and the parties.' "
Id. at 638 (citing Gilbert Spruance, 629 A.2d at 885). This site-specific approach to choice of law is straightforward when the policyholder's operations are confined to one state.
When an insured's business is "predictably multistate," however, less significance attaches to the principal location of the insured risk.
In that scenario, New Jersey law requires a "careful site-specific determination, made upon a complete record," of the state with the dominant, significant relationship to the parties and ...