United States District Court, W.D. Pennsylvania
H.J. HEINZ COMPANY, Plaintiff,
STARR SURPLUS LINES INSURANCE COMPANY, Defendant.
MEMORANDUM ORDER RE: SUBSTANTIVE CHOICE OF LAW PROVISIONS (PLAINTIFF'S MOTION FOR PENNSYLVANIA CHOICE OF LAW (DOC. NO. 61) AND DEFENDANT'S MOTION FOR AN ORDER DETERMINING THAT NEW YORK SUBSTANTIVE LAW APPLIES IN THIS CASE (DOC. NO. 65))
ARTHUR J. SCHWAB, District Judge.
This case centers on an insurance coverage dispute between Plaintiff, H.J. Heinz Company ("Heinz"), a Pennsylvania corporation, with its principal place of business in Pittsburgh, Pennsylvania, and its insurance provider, Starr Surplus Lines Insurance Company ("Starr"), an insurer incorporated in the State of Texas, with its principal place of business in New York, New York. Doc. No. 1. Jurisdiction is based upon diversity of citizenship and an amount in controversy in excess of $75, 000.00. 28 U.S.C. § 1332.
Both Parties seek a declaration from this Court as to Starr's obligations under the Parties' Product Contamination Insurance Policy, and Starr moves this Court to find that the Policy should be rescinded. Doc. Nos. 1 and 29. Presently at issue is whether the substantive laws of the Commonwealth of Pennsylvania or the State of New York apply to this litigation. Doc. Nos. 61 and 65. The Court has provided the Parties with an opportunity to address this issue and the matter is ripe and ready for disposition. See Doc. Nos. 61, 65, 68-69. After review of these documents and the Parties' Product Contamination Insurance Policy, the Court finds that the substantive laws of the State of New York will apply.
II. Choice of Law Provisions in the Parties' Product Contamination Insurance Policy
The Product Contamination Insurance Policy addresses the Parties' intention as to the choice of law in Section 5.10, which reads as follows:
5.10 Choice of Law and Forum The construction, validity, and performance of this Policy will be governed by the laws of the State of New York. The Insurer and the Insured hereby expressly agree that all claims and disputes will be litigated in the Supreme Court of the State of New York in and for the County of New York or in the U.S. District Court for the Southern District of New York.
(emphasis original). This provision is contained within a 19-page document entitled Product Contamination Insurance, for the period of insurance from July 1, 2014, through July 1, 2015. Doc. No. 65-2, pg. 3. The Declaration Page of the Parties' Policy notes under the "Law" heading that the law applied to the Policy will be that of "The Supreme Court of The State of New York." Id. at pg. 4.
The only other potentially applicable provision between the Parties as to the choice of law is contained within a Service of Suit Endorsement, also effective July 1, 2014, which provides, in applicable part, that:
It is agreed that in the event of the Company's failure to pay the amount claimed to be due hereunder, the Company, at the request of the Insured, will submit to the jurisdiction of a Court of competent jurisdiction within the United States and will comply with all requirements necessary to give such Court jurisdiction and all matters arising hereunder shall be determined in accordance with the law and practice of such Court. Nothing in this Endorsement constitutes or should constitute a waiver of the Company's right to commence an action in any Court of competent jurisdiction in the United States, to remove an action to the United States District Court, or to seek a transfer of a case to another Court as permitted by the laws of the United States or any State in the United States.
Doc. No. 65-2, pg. 30. The preface of this document includes language noting that "[t]his endorsement modifies the insurance coverage form(s) listed below that have been purchased by you and evidenced as such on the Declarations page." Id . The Policy, including the Section 5.10 and the Service of Suit Endorsement, is unambiguous, but the Parties disagree as to the interpretation of Policy and dispute the effect, if any, of the Service of Suit Endorsement upon the Parties' Choice of Law clause.
At the threshold, the Court must determine whether the Service of Suit Endorsement supersedes or significantly modifies Section 5.10 Choice of Law and Forum. As jurisdiction is based upon diversity of citizenship, this Court must apply Pennsylvania's choice of law provisions. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). In this case, the sophisticated Parties elected that New York law would apply to any disputes as to the Product Contamination Insurance Policy. Doc. No. 65-2, pg. 15. Pennsylvania Courts have adopted Section 187 of the Restatement, Second, Conflict of Laws, which provides that a choice of law clause will be honored unless either: (a) the chosen state does not have a substantial relationship to the parties or the transaction and there is no reasonable basis for the chosen forum, or (b) application of the law of the chosen state would contradict a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which would be the state of the applicable law in absence of an effective choice of law by the parties. Restatement (Second) of Conflict of Laws § 187 Law of the State Chosen by the Parties (1971). Before undertaking such review, the Court must determine if the Service of Suit Endorsement supersedes or modifies the Choice of Law provision. The Court holds that it does not.
The plain language of the Parties' Service of Suit Endorsement sets forth that Starr will consent to the jurisdiction of any Court chosen by Heinz and, additionally, that any dispute in the chosen forum would be conducted "in accordance with the law and practice of such Court." Doc. No. 65-2, pg. 30. The Court finds that the phrase "in accordance with the law and practice of such Court" does not imply that the substantive laws of the chosen forum also control. Instead, this language merely details the permissive suit provision, and does not modify the unambiguously expressed intent of the sophisticated business Parties that "[t]he construction, validity and performance of this Policy will be governed by laws of the State of New York." Id. at pg. 15. Despite Heinz's contentions, the absence of explicit reference to Section 5.10 Choice of Law and Forum in the Service of Suit Endorsement does not "evidence Starr's intent for the Endorsement to control choice of law." Doc. No. 69, pg. 2. Rather, at most, the language reflects an intention that the Court of the chosen forum determine the appropriate laws to apply according to the Policy's provisions. See Allianz Ins. Co. v. SSR Realty Advisors, Inc., No. 02-7253, 2003 U.S. Dist. LEXIS 9585, * 15-16 (E.D. Pa. June 5, 2003) ("If the drafters had ...