Mass Tort Choice of Law / DE Supreme Ct.

Focus is on Insurance Policies and Place of Contracting, Not Claims, in Determining Applicable Law.

The Delaware Supreme Court reversed the superior court’s ruling that Wisconsin law applied to the dispute at hand and instead held that Texas law applied to the coverage dispute because focusing on the policies of the corporate-wide insurance program, Texas had the most significant relationship to the contracting parties and the dispute.  Under Texas law, the insured’s assignment of policies without the insurer’s consent was invalid.

Tenneco Inc. (“Tenneco”) is an oil and gas corporation with its headquarters, principal place of business, and insurance department located in Texas.  In 1970, Tenneco acquired J.I. Case, a Wisconsin corporation with its headquarters and principal place of business in Wisconsin.  Prior to being acquired by Tenneco, J. I. Case purchased insurance through CNA Financial.  In 1972, after the expiration of J.I. Case’s insurance program, Tenneco purchased for J.I. Case a one-year insurance policy through The Travelers Indemnity Company (“Travelers”) with J.I. Case as the named insured.  Thereafter, Tenneco added J.I Case to its general insurance policies.  Each of the Travelers policies included an anti-assignment provision that required the insurer’s consent for assignment to be valid.  In 1994, J.I. Case assigned certain assets and liabilities to CNH Industrial America, LLC (“CNH”), a Delaware limited liability company with its principal place of business in Wisconsin.   Travelers did not consent to the assignment.  Years later, CNH filed suit against Travelers, CNA Financial and other primary insurers, seeking coverage for defense costs and losses incurred in defending J.I. Case in asbestos bodily injury lawsuits.

CNH argued that as J.I. Case’s assignee it had insurance coverage under the Travelers policy specific to J.I. Case and two Tenneco general liability policies. Travelers filed a motion for summary judgment on the choice of law, arguing that Texas law applied because the insurance policies were negotiated, paid for and managed by Tenneco in Texas.  CNH argued that Wisconsin law applied because J.I. Case and not Tenneco was the relevant party to the dispute, and the events giving rise to the asbestos lawsuits occurred in Wisconsin where J.I. Case had its manufacturing operations. The superior court held that Wisconsin had the most significant relationship to the parties and the subject matter because J.I. Case’s primary place of business was “the situs which link[ed] all the parties together.” Under Wisconsin law, J.I. Case validly assigned the policies to CNH.  Travelers appealed.

After the superior court’s ruling, the Delaware Supreme Court decided Certain Underwriters at Lloyds, London v. Chemtura Corp. 160 A.3d 457 (Del. 2017).  In Chemtura, the Delaware Supreme Court emphasized that when applying the Second Restatement factors to a corporate-wide insurance program, the court should focus its analysis on the insurance contacts and not the underlying claims.   Moreover, Chemtura found that the proper time to assess the reasonable expectation of the parties in comprehensive nationwide insurance programs is at the time the contract was formed, which protects the reasonable expectation of the parties.

Applying the analysis outlined in Chemtura, the Delaware Supreme Court found that Texas had the most significant relationship to the parties and the dispute.  Texas had the more material interest: Tenneco and Travelers negotiated the insurance policies in Texas; the premiums were paid from Texas; and the insurance program was managed from Texas, where Tenneco is domiciled, incorporated, and conducts business.  CNH argued that applying Texas law was contrary to Delaware public policy because applying Texas law, which did not recognize the assignment, would bring about the very type of insurance forfeiture and insurance company windfall that Delaware courts disfavor.  The Delaware Supreme Court disagreed noting that there is no established Delaware law that anti-assignment provisions in insurance contracts are against public policy.  Therefore, because J.I. Case’s assignment of the Travelers policies to CNH without Travelers consent was invalid, the Delaware Supreme Court held that the Travelers’ insurance policies did not provide coverage to CNH for the asbestos bodily injury claims.  Travelers Indem. Co. v. CNH Indus. Am., LLC, No. 420,2017 (Del. July 16, 2018).