A federal bankruptcy judge found that Texas law should apply to a maritime insurance contract instead of New York law as provided in the policy. In re ATP Oil & Gas Corporation, 531 B.R. 694 (Bank. S.D. Tex., June 5, 2015).
The United States sued a rig owner for discharging pollution from an offshore platform in the Gulf of Mexico. The insured’s pollution liability policy required it to give prompt notice of a claim, which it did not. Whether the insurer must show prejudice from late notice depended on whether Texas or New York law applied. The policy provided that the law of the state of New York applied. The insured was based in Texas. The Texas Insurance Code provides that a policy of insurance issued to a citizen of Texas is a contract made and entered into in Texas and that Texas law should apply.
The court determined that maritime law, not bankruptcy law, controlled the choice of law question because bankruptcy law would not be determinative. Next, the judge analyzed the Restatement of Laws, Conflict of Laws to find that the factors weighed most heavily in favor of Texas law being applied instead of New York. The court reasoned that while New York normally required a finding of prejudice – but made a distinction for the field of maritime insurance such as this – that distinction was heavily outweighed by Texas’ regulatory needs. It was held that where a state has enacted laws to protect its citizenry as beneficiaries of insurance policies, those laws create a compelling interest in favor of the state’s regulatory scheme. The court concluded it was mandated to apply Texas law.