In Catlin Specialty Ins. Co. v. Am. Superconductor Corp., 12-2314-BLS1 (Mass. Super. Ct. Jan. 29, 2014),  Catlin sought a declaration of no coverage based on late notice, among other reasons.

Catlin, incorporated in Delaware and headquartered in Georgia, issued a claims made professional liability policy for April 1, 2010 to April 1, 2011, to the defendant AMSC, which was also incorporated in Delaware, but headquartered in Massachusetts with satellite offices in Pennsylvania and Wisconsin.   AMSC had reached out to Marsh’s Boston office for help brokering the policy, and Marsh’s Boston office had enlisted support from its New York office.  The policy was ultimately “delivered” to a Marsh New York broker by email, and then on to AMSC’s Massachusetts-based treasurer.

The policy contained a choice-of-law provision which stated that it would be subject to interpretation under the law of the State of New York.

In December 2010, a dispute arose between Windtec, an Austrian subsidiary of AMSC’s, and a customer from India. AMSC proceeded to negotiate this claim, but failed to notify Catlin.  Even when renewing the policy for the subsequent year, Catlin was not notified, though AMSC chose a policy with a higher retention and a lower premium.  The Catlin underwriter testified that had he known of the claim, he would have still written the policy, but charged at least the same premium as the 2010 year and insisted on the higher retention.  This second policy was “delivered” in the same manner as the first; first to a Marsh representative in New York, and then on to AMSC in Massachusetts.  AMSC later reported the claim when the Indian customer sought arbitration, and Catlin brought this declaratory judgment action.

Under Massachusetts law, the notice requirement in a claims-made-and-reported policy is strictly enforced.  However, as AMSC was quick to argue, under New York Insurance Law section 3420, prejudice must be demonstrated from late notice before an insurer can deny coverage for that reason under a policy issued or delivered in New York. Specifically, the statute does not allow the issuance or delivery of any policy without a “no prejudice” provision in New York State.  The court concluded that despite being emailed to Marsh’s offices in New York, these AMSC policies were not “issued or delivered” there because Massachusetts bore the most significant relationship to the insured in the case.

However, the court still had to contend with the choice-of-law provision in the policies that clearly designated New York.  The court cited Jacobson v. Mailboxes Etc. USA Inc., which holds that “a clause providing that the contract is to be ‘governed’ or ‘construed’ by a particular state’s law does not dictate the choice of law applicable to non-contract (e.g. tort or statutory) claims between the contracting parties, or to questions regarding the contract’s validity or enforceability.”  The court ruled that the issue of whether Section 3420 applied was not one of interpretation of the policy, but rather one of its “validity.”  Accordingly, the court held that Massachusetts, not New York, law applied.

As surprising as this outcome may seem, a New York federal court reached the same conclusion last year.  See Indian Harbor Ins. Co. v. City of San Diego, 2013 WL 5430380 (S.D.N.Y. Sept. 25, 2013).  Practitioners would do well to be cautioned when simply relying on a choice-of-law provision when analyzing claims and developing litigation strategy without looking further into the case law interpreting such provisions.