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The Travelers Indemnity Co. v. CNH Industrial America, LLC

Supreme Court of Delaware

July 16, 2018

CNH INDUSTRIAL AMERICA, LLC, Plaintiff-Below, Appellee.

          Submitted: May 9, 2018

          Court Below: Superior Court of the State of Delaware C.A. No. N12C-07-108

          Before STRINE, Chief Justice; SEITZ, and TRAYNOR, Justices.



         (1) This is an insurance coverage dispute between the Travelers Indemnity Company and CNH Industrial America, LLC. CNH seeks coverage from Travelers for historic asbestos-related liabilities at J.I. Case, Inc., some of whose assets were transferred to CNH during a 1994 corporate reorganization. The focus of this appeal is one issue-whether three Travelers insurance policies issued in 1972, 1978, and 1985 were validly assigned to CNH by J.I. Case's former parent, Tenneco, Inc., as part of the 1994 corporate reorganization. The validity of the assignments, in turn, depends on the state law governing the dispute. If Wisconsin law applies, where J.I. Case was headquartered, CNH can overcome the policies' anti-assignment provisions. If Texas law applies, where Travelers claims the policies were negotiated, contracted, and performed, CNH concedes that the policies were not properly assigned to it by Tenneco during the reorganization, negating coverage.

         (2) Because the insurance policies were silent on choice of law, the Superior Court applied the "most significant relationship" test in the Restatement (Second) of Conflict of Laws. It decided that J.I. Case, and not Tenneco, was the relevant party to focus on to resolve the choice of law question. Of the Second Restatement factors, the Superior Court gave the greatest weight to J.I. Case's principal place of business in Wisconsin, and applied Wisconsin law to the coverage dispute.

         (3) After the Superior Court's choice of law ruling, this Court decided Certain Underwriters at Lloyds, London v. Chemtura Corp.[1] In Chemtura, insurance policies covering environmental claims were part of a comprehensive insurance program addressing risks across corporate operations in multiple jurisdictions. The policies were silent on choice of law. We emphasized that, when applying the Second Restatement factors to a corporate-wide insurance program, the inquiry should center on the insurance contracts and not the underlying claims. Otherwise, the insurance policies could be subject to different interpretations depending on the state law where each claim arose. We also held that the contracting parties' intentions at the time of contracting were best met by applying a consistent body of law across all the policies. Because New York was the insured's principal place of business and the center of its insurance activities, New York had the most significant relationship to the dispute and thus its law governed the coverage issues.

         (4) We follow Chemtura to decide this appeal. Tenneco, a Texas-based company, sought insurance coverage from Travelers through a corporate-wide insurance program covering operations across multiple jurisdictions. Tenneco negotiated and secured insurance coverage, and managed its insurance program, out of its Texas offices. Thus, under the Second Restatement factors, Texas has the most significant relationship to the contracting parties and the dispute, and Texas law applies. Because the parties agree that Tenneco's assignment of the policies to CNH without Travelers's consent is invalid under Texas law, we reverse the Superior Court's decision and direct that judgment be entered in favor of Travelers.

         Background Facts

         (5) Tenneco Inc. is an oil and gas corporation with its headquarters, principal place of business, and insurance department located in Houston, Texas. In 1970, Tenneco acquired J.I. Case, a Wisconsin corporation with its headquarters and principal place of business in Racine, Wisconsin.

         (6) Before the acquisition, J.I. Case secured insurance coverage through CNA Financial. Its CNA Financial policies expired in 1972, at which time Tenneco purchased for J.I. Case a one-year insurance policy through The Travelers Indemnity Company, with J.I. Case as the named insured.[2] After that year, Tenneco added J.I. Case to its general insurance policies.[3] The policies were part of an insurance program that existed from 1971 to 1986 and covered Tenneco and its wholly owned subsidiaries located in various states.[4] Insurance broker Marsh & McLennan negotiated the policies with Tenneco in Texas, where the policies were purchased, delivered, and managed.[5] In addition, Texas "was the central contact for all underwriting and claims issues, including those related to J.I. Case."[6]

          (7) Each of the Travelers policies included an anti-assignment provision: "Assignment of interest under this policy shall not bind the company until its consent is endorsed hereon."[7] In 1994, J.I. Case assigned certain assets and liabilities to CNH Industrial America, LLC, a Delaware limited liability company formed in 1994 with its principal place of business in Racine, Wisconsin.[8] CNH claims that insurance coverage was part of this assignment.[9] Neither Tenneco, J.I. Case, nor CNH sought Travelers' consent to assign to CNH the policies covering J.I. Case.[10]

         (8) In 2012, CNH filed suit against Travelers, CNA Financial, and other primary insurers, seeking coverage for defense costs and losses incurred in defending asbestos-exposure suits. CNH filed a motion for summary judgment directed at CNA Financial, asserting that it was covered under CNA Financial's policies issued to J.I. Case from 1965 to 1971. The Superior Court held that Wisconsin law governed the CNA Financial insurance policies, but specifically stated that its decision did not apply to the Travelers policies-"[t]his opinion addresses only the issue of the CNA Defendants' duty to defend in connection with the three policies. It does not address and is without prejudice to the rights or liabilities or any other party or any other policies."[11] After the court's order, CNH and CNA Financial settled their coverage dispute.

         (9) Turning to Travelers, CNH argued it was covered under three policies: a policy specific to J.I. Case from January 1, 1972 to January 11973, [12] and two Tenneco general liability policies, one from January 1, 1978 to September 1, 1978, [13]and the other from September 1, 1985 to September 1, 1986.[14] Travelers filed a motion for summary judgment on the choice of law, arguing that Texas law should apply because the insurance policies were negotiated, paid for, and managed by Tenneco in Texas. In response, CNH argued that Wisconsin law should apply 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.

         (10) The Superior Court denied Tenneco's summary judgment motion but decided the choice of law issue. Applying the Second Restatement factors, the court found the most important factor was the insured's primary place of business. According to the court, even though Tenneco contracted, negotiated, and purchased the policies in Texas, Tenneco was not the relevant party in this dispute.[15] Instead, "it was J.I. Case, a Wisconsin corporation, that was the insured and that possessed the indemnification rights against Travelers that CNH now seeks to enforce."[16] J.I. Case's principal place of business was "the situs which link[ed] all the parties together, "[17] and thus, Wisconsin had the most significant relationship to the parties and the subject matter.

         (11) The Superior Court held that, under Wisconsin law, Tenneco validly assigned the policies to CNH. After further proceedings, the Superior Court entered judgment against Travelers for $13, 714, 989.11. Travelers has appealed several of the Superior Court's rulings. Because the choice of law issue is dispositive, we need not reach the other issues on appeal. This Court reviews the grant of a motion for summary judgment de novo.[18]

         The Chemtura Decision

         (12) As we noted in Chemtura, there are three threshold elements to the choice of law analysis:

i) determining if the parties made an effective choice of law through their contract; ii) if not, determining if there is an actual conflict between the laws of the different states each party urges should apply; and iii) if so, analyzing which state has the most significant relationship.[19]

         Here, the parties did not choose the law to be applied to the policies. And there is an actual conflict between the laws of Texas and Wisconsin regarding the effect of the policies' anti-assignment provisions.[20] Thus, the Second Restatement's most significant relationship factors control the choice of law issue.

         (13) In Chemtura we re-evaluated how the Second Restatement factors should be applied to a dispute involving a comprehensive corporate insurance program. We traced the Second Restatement's "three layers of guidance for determining the state with the most significant relationship to the dispute and thus the applicable state law."[21] At the first layer, the court looks to the presumption in § 193, which states that "[t]he validity of a contract of . . . insurance and the rights created thereby are determined by the local law of the state which the parties understood was to be the principal location of the insured risk during the term of the policy."[22] The presumption, however, "does not apply to policies [that] provide broad-based coverage across many jurisdictions for a company's enterprise-wide risks.[23] This is because § 193 "makes assumptions . . . that the term of the insurance policy will be 'relatively brief,' that it is possible to predict 'with fair accuracy where the risk will be located,' and that the risk is likely something singular and tangible, an 'immoveable object' or 'particular building'"-assumptions that do not apply to a "complex, multistate insurance program" like the one at issue here.[24] Thus, when addressing a comprehensive insurance program, "§ 193's presumption is, at best, directionally helpful but arguably not conclusive."[25] Rather, "§ 188's factors are the most appropriate way to determine the appropriate law."[26]

         (14) At the second layer, "[f]or contract disputes more broadly"-such as here, where the insured risk is spread across multiple states-the court should weigh the five factors set out in § 188: "(a) the place of contracting, (b) the place of negotiation of the contract, (c) the place of performance, (d) the location of the subject matter of the contract, and (e) the domicile, residence, nationality, place of incorporation and place of business of the parties."[27]

         (15) Before applying the § 188 factors in Chemtura, we highlighted three important issues for framing the analysis.[28] First, when dealing with a corporate insurance program covering risks across many jurisdictions, the dispute is not about the underlying claims triggering the insurance coverage. Rather, it is better described as a contract dispute involving interpretation of the insurance policies. And the justified expectations of the parties are "best served by providing terms in the contract with a meaning that does not vary based on the happenstance of the locations of a particular claim."[29] Second, the subject matter of the contracts is not the narrow coverage claims regarding liability at two specific sites. Instead, the subject matter is the policies that "provide expansive non site-specific coverage, throughout the United States."[30] Thus, the court should not be constrained by the particular claims in a suit when deciding the choice of law issue. And third, the proper time to assess the reasonable expectation of the parties is at the time the contract was formed, which protects the reasonable expectation of the parties. In Chemtura, the § 188 factors all pointed to New York because it was the place of contracting, place of negotiation, place of performance, and the insured's principal place of business.[31]

         (16) And finally, we weighed the § 188 factors in light of the policy interests in § 6 of the Second Restatement, focusing on the parties' expectations and consistency in the law's application to the policies.[32] We explained that because the insurance program in Chemtura was "a comprehensive, nationwide insurance scheme that would invariably involve underlying claims from multiple states, "[33]applying New York law would "best avoid a result that not only would require the meaning of the contract to vary arbitrarily," but would not be contrary to the parties' initial expectations."[34] Thus, applying a single state's law ensured "certainty, predictability and uniformity of result[s], "[35] avoiding the "risk of a court inconsistently applying identical policy language within a single integrated insurance scheme."[36]

         Applying Chemtura to this Appeal

         (17) When Chemtura's Second Restatement analysis is applied to this appeal, Texas has the most significant relationship to the parties and the dispute. As noted before, the § 193 presumption is entitled to little if any weight because the Travelers policies were part of a "complex, multistate insurance program" that provided "broad-based coverage across many jurisdictions."[37] Thus, we turn to the § 188 factors, which we apply based on Tenneco's role as the contracting party with Travelers. Those factors point strongly towards Texas. As the Superior Court found, Tenneco and Travelers negotiated the insurance policies in Texas; paid the premiums from Texas; and managed the insurance program from Texas, [38] where Tenneco is domiciled, incorporated, and conducts business.[39]

          (18) We also consider the § 188 factors in light of the policy interests in § 6 of the Second Restatement. In Chemtura, we focused on § 6(c), which looks at the states' interests in applying their law to the interpretation of the contract.[40] We found that Arkansas' and Ohio's interests in determining the issue were "not as extensive as the Superior Court determined, "[41] because the issue at hand was not whether "a party would be liable for pollution cleanup" nor whether "the state where the pollution occurred will be left on the hook."[42] Rather, the issue was which state had "a material enough interest in [the] contract dispute to upend the expectations of the parties."[43] We held that New York had the more significant interest as the principal place of business where the coverage began. In this case, the question is which state has a material interest in applying its law to the interpretation of the insurance contracts-not the asbestos liabilities. The policies were negotiated, contracted and managed in Texas, where coverage of all of Tenneco's business began; thus, Texas has the more material interest.

          (19) Section 6 also requires us to consider the parties' expectations at the time of contracting.[44] As noted in Chemtura, protecting the parties' expectations is "of considerable importance" in contract disputes[45] and "is best served by providing terms in the contract with a meaning that does not vary based on the happenstance of the locations of a particular claim."[46] Here, applying the law where each Tenneco subsidiary was located could allow "the meaning of the contract[s] to vary arbitrarily."[47] Applying the law of Texas, which has the most significant relationship to the parties and the dispute, maintains "certainty, predictability and uniformity"[48]in interpreting the insurance contracts and provides "ease in the determination and application of the law."[49]

         CNH's Arguments on Appeal

         (20) CNH's main argument on appeal is that J.I. Case was the relevant party to the dispute, and thus the Second Restatement analysis should focus on J.I. Case's location-not Tenneco's.[50] CNH argues that under § 193, the "insured risk" covered by the policies was specific to J.I. Case's facilities in Wisconsin, and thus Wisconsin has the most significant relationship to the dispute.[51] Tenneco, it claims, "has no involvement in the underlying claims or relationship to the coverage dispute."[52]

         (21) As noted earlier, Chemtura addressed how the Second Restatement should be applied to coverage disputes involving insurance programs that cover risks across a corporation's operations. Instead of looking to § 193, which is typically applied to one-off policies for site-specific risks, the court should instead apply the § 188 factors, focusing on the insurance program itself and where the parties negotiated and managed the program. Here, Tenneco-not J.I. Case-negotiated and managed its comprehensive insurance program from Texas.[53]

         (22) CNH also argues that its principal place of business should determine the choice of law under § 188 because the conduct giving rise to the asbestos injuries occurred in Wisconsin[54] and the plaintiffs brought their claims against J.I. Case- not Tenneco.[55] But, in Chemtura we explained that, when dealing with a comprehensive insurance program, the subject matter of an insurance coverage dispute is not the conduct that gave rise to the underlying injuries, but rather the alleged breach of the insurance policies.[56] Thus, the relevant location is the place of contracting, not the place where the conduct causing the injuries occurred or where the underlying claims are brought.[57]

         (23) CNH argues that the Second Restatement's § 6 principles are applied to determine the "law applicable to an issue, "[58] and the "issue" in this case "center[ed] primarily on a single policy that Travelers separately issued in Wisconsin to J.I. Case alone."[59] It claims that in its complaint, it "sought relief solely under the J.I. Case policy, not any other policies."[60] The record demonstrates otherwise. CNH sought coverage under three policies procured by Tenneco, one that specifically covered J.I. Case and two that were broad liability policies covering Tenneco and its subsidiaries.[61] CNH did not argue before the Superior Court that the J.I. Case policy was separate from Tenneco's insurance program; rather, it argued that Wisconsin law should apply to all three policies.[62] In addition, the Superior Court did not limit its holding to the separate J.I. Case policy, but addressed the insurance program as a whole, noting that while only one of the three policies specifically named J.I. Case as the insured, [63] "Wisconsin law should apply to the other insurance policies as well."[64] Regardless, "in the case of a comprehensive insurance scheme made up of several different policies . . ., the Restatement analysis should be applied to the contracts as a whole."[65] The policies, when considered as a whole, were procured, negotiated, paid for, and managed in Texas under Tenneco's insurance program.

         (24) Although the Superior Court held that J.I. Case's principal place of business was the key factor in the most significant relationship test, the court also acknowledged that "[t]he facts demonstrate that the place of contracting is Texas," which was "the last act that would have brought together the whole agreement."[66]The court also acknowledged that "[t]he place of the negotiation of the contract, again, would be Texas."[67] Now on appeal, CNH argues that the relationship between J.I. Case and Travelers was "direct, extensive, and centered in Wisconsin and independent of Travelers' relationship with Tenneco." [68] To support its argument, it points to 1974 Special Account Instructions for the policies, which stated that product loss claims after 1974 would be reported in Wisconsin, and also to a Travelers liaison in Wisconsin who would coordinate with J.I. Case.[69]

         (25) The instructions, however, apply to Tenneco's comprehensive insurance program, providing procedures for each subsidiary to "conform to specific requirements of several major divisions, and to conform to more general requirements applicable to all other Tenneco subsidiaries."[70] The instructions varied in some ways-explaining how certain claims would be handled and who the contacts would be at each subsidiary. The instructions, however, mainly provide general procedures for Tenneco and all the subsidiaries, with Tenneco handling most claims and reports from its Houston headquarters.[71] The Special Account Instructions do not support J.I. Case's argument that its relationship with Travelers was "independent of Travelers' relationship with Tenneco."[72] Rather, the instructions explicitly state that the "Travelers policies issued to Tenneco, Inc. provide coverage for all affiliated or subsidiary companies."[73] The policies covered by the 1974 Special Account Instructions were issued to Tenneco-not J.I. Case. J.I. Case's coverage was part of a comprehensive company-wide insurance program managed by Tenneco from its Texas headquarters.

         (26) Finally, CNH argues that applying Texas law is contrary to Delaware public policy.[74] CNH asserts that "[t]here is no reason to believe that the public policy of Delaware . . . would favor hamstringing sales of corporate assets or voiding insurance coverage already bought and paid for, to the potential detriment of tort plaintiffs."[75] According to CNH, applying Texas law, which does not recognize the assignment, "would bring about the very type of insurance forfeiture and insurance company windfall that Delaware courts have long disfavored."[76] CNH relies on Viking Pump Inc., in which the Court of Chancery declined to enforce an anti-assignment provision because it would violate New York public policy.[77] But, the court's decision in Viking Pump, Inc. was based on "well-established" New York law and not an independent analysis of whether ...

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