Court Finds That New York Law Governs Reinsurance Agreement, Denies Insured’s Statutory Claim for Punitive Damages and Penalties Against Reinsurer October 6, 2009 | Print this page | Email this page Plaintiff Callon Petroleum Company (“Callon”) commenced an action against National Indemnity Company (“NICO”) to recover for a judgment Callon obtained against NICO’s cedent, Frontier Insurance Company (“Frontier”). The reinsurance agreement between NICO and Frontier, pursuant to which Callon’s claim was made, requires NICO to pay all amounts of “Ultimate Net Loss” due to other persons “as and when due directly on behalf” of Frontier.

Callon subsequently moved to amend its complaint, seeking to include a statutory claim for punitive damages and penalties under Louisiana law against NICO. Louisiana law allows an insured or party claiming third-party rights under a contract, such as Callon, to seek punitive damages for breach of an insurance contract in certain contexts. Under New York law, however, punitive damages are not recoverable for a breach of contract claim.

The Court denied Callon’s motion to amend, finding that New York law governed the reinsurance agreement, and thus Callon could not assert a cognizable claim for punitive damages. In so holding, the Court noted that, in breach of contract cases, New York courts apply a “center of gravity” or “grouping of contacts” test to determine the proper choice of law. Under this analysis, a court analyzes “the place of contracting, negotiation and performance [of the subject contract]; the location of the subject matter of the contract; and the domicile of the contracting parties,” although the places of contracting and performance are given the heaviest weight.

Examining these factors, the Court held that New York law applied because the reinsurance agreement was negotiated and entered into in New York, the place of performance was New York, and Frontier was domiciled in New York. Moreover, although not relevant to the choice of law test, the Court noted that the reinsurance agreement contained an arbitration clause providing that any arbitration commenced thereunder would be held in New York, pursuant to New York law, thus reflecting the contracting parties intention to incorporate New York into their agreement.

Click here to review a copy of the Court’s decision, captioned Callon Petroleum Co. v. National Indemnity Co., et al., No. 2:06-CV-0573 (E.D.N.Y. Aug. 24, 2009).