Opinion ID: 3009802
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Heading: New Jersey Choice of Law Principles

Text: 10 At the outset, we must carefully distinguish between the environmental coverage disputes, which are not at issue in this appeal, and the (new) lead paint coverage actions, which are. We must also keep conceptually separate the underlying merits actions (certainly not at issue here) from their corresponding coverage litigation. This distinction is not only important for limiting our decision to what is properly at issue in this appeal; it also reflects a crucial distinction in New Jersey's choice of law jurisprudence. In many areas of the law, New Jersey has eschewed slavish devotion to rigid principles. See Diamond Shamrock Chems. Co. v. Aetna Casualty & Sur. Co., 609 A.2d 440, 465 (N.J. App. Div. 1992), certif. denied, 634 A.2d 528 (1993); Bell v. Merchants & Businessmen's Mut. Ins. Co., 575 A.2d 878, 880 (N.J. App. Div.), certif. denied, 585 A.2d 395 (1990); State v. Curry, 532 A.2d 721 (N.J. 1987); Veazey v. Doremus, 510 A.2d 1187 (N.J. 1986). Choice of law is no exception. Although the law of the place of contracting has historically governed the choice of law in insurance contract interpretation cases, see, e.g., Buzzone v. Hartford Ac. and Indem. Co., 129 A.2d 561 (1957), in keeping with the general trend the New Jersey courts have moved away from the mechanical application of this rule in favor of a more flexible approach focused on determining which state has the most meaningful connections with and interests in the transaction and the parties. See State Farm Mut. Auto Ins. Co. v. Simmons' Estate, 417 A.2d 488 (N.J. 1980); Gilbert Spruance Co. v. Pennsylvania Mfrs. Ass'n Ins. Co., 629 A.2d 885, 888 (N.J. 1993) 11 (reaffirming and applying Simmons); Colonial Penn Ins. Co. v. Gibson, 552 A.2d 644, 646-47 (N.J. App. Div. 1989) (applying the law of the place of contract unless the Restatement Conflict of Laws (Second) § 6 factors compel a contrary result). Nonetheless, the factors that formerly controlled the choice of law analysis remain important considerations in the modern, more flexible approach embraced by the New Jersey courts. Thus, under New Jersey choice of law rules, the law of the place of contracting should ordinarily be applied unless some other state has the dominant relationship with the parties and issues. [T]he law of the place of the contract will govern the determination of the rights and liabilities of the parties under the insurance policy. This rule is to be applied unless the dominant and significant relationship of another state to the parties and the underlying issue dictates that this basic rule should yield. State Farm Mut. Auto. Ins. Co. v. Estate of Simmons, 417 A.2d 488, 493 (N.J. 1980). The presumption in favor of the place of contracting serves two objectives: (1) protecting the reasonable expectations of the parties as to their insured risks, and (2) advancing certainty, predictability and uniformity. Id. at 496; see also Gilbert Spruance, 629 A.2d at 888 (reaffirming general approach and motivating policies); Gibson, 552 A.2d at 646-47.0 0 For these purposes, the place of contracting is the place where the parties executed and delivered the insurance policy. See, e.g., Nelson v. Insurance Co. of North America, 264 F. Supp. 501, 503 (D.N.J. 1967); Empire Mut. Ins. Co. v. Melburg, 336 A.2d 483, 484 (N.J. 1975); Melick v. Stanley, 416 A.2d 415, 417 (N.J. App. Div. 1980). If a company from another state uses an insurance broker to negotiate and purchase its insurance policies, then the 12 Factors and contacts set forth in the Restatement Conflict of Laws (Second) §§ 6 and 188 determine whether or not the place of contracting should in fact govern. See Gilbert Spruance, 629 A.2d at 888; Simmons, 417 A.2d at 491-92. The Restatement lists the following factors and contacts for a court to consider in determining whether the law of a state other than that of contracting has the requisite dominant relationship. (a) the needs of the interstate and interna- tional systems, (b) the relevant policies of the forum, (c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue, (d) the protection of justified expectations, (e) the basic policies underlying the particular field of law, (f) certainty, predictability and uniformity of result, and (g) ease in the determination and application of the law to be applied. Restatement Conflict of Laws (Second) § 6(2) (1988). For contract actions in particular, § 188 of the Restatement contains the general rule that the law of the state with the most significant relationship to the transaction and the parties should apply. See Gilbert Spruance, 629 A.2d at 888; Simmons, 417 A.2d at 491-92. Section 188 also provides an enumeration of contacts -- such as the domicile, residence, nationality, place of incorporation and place of business of the parties, and the places of contracting and performance -- to place of contracting is the place where the broker negotiated the policies. See Diamond Shamrock Chems. Co., 609 A.2d at 465. 13 guide the identification of the state with the most significant relationship. Id. One additional Restatement section is implicated here - -§ 193 of the Restatement. That section explains that, in the context of casualty insurance contracts, the application of the contacts articulated in § 188 and the concerns of § 6 should focus on determining which state the parties understood . . . to be the principal location of the insured risk during the term of the policy unless with respect to the particular issue, some other state has a more significant relationship . . . to the transaction and the parties. . . . Gilbert Spruance, 629 A.2d at 889 (citation omitted, final ellipsis in original). This focus on the parties' understanding of the principal location of the risk serves to protect both the parties' expectations as to which law would apply and the interests of the state where the risk is principally located in determining the extent of coverage under the insurance contract. See Restatement of Conflicts (Second) § 193 cmt. c; Gilbert Spruance, 629 A.2d at 889.
Inappositeness of Gilbert Spruance to Product Liability Cases Until fairly recently, New Jersey choice of law principles did not treat environmental coverage actions differently from other insurance coverage disputes. Courts applied the analysis described above in environmental coverage cases as well as other insurance disputes to select a single state's law to 14 apply to all the related claims, irrespective of where the claims arose. As the appellate division explained: [W]hen comprehensive nationwide coverage is purchased, it is surely the expectation of both insured and insurer that what the insured has bought and insurer has sold is a single protection from liability irrespective of the particular state law under which that liability is determined . . . . [T]he notion that the insured's rights under a single policy vary from state to state depending on the state in which the claim invoking the coverage arose contradicts not only the reasonable expectation of the parties but also the common understanding of the commercial community. See Westinghouse Electric Corp. v. Liberty Mutual Insurance Co., 559 A.2d 435, 442 (N.J. App. Div. 1989). In Westinghouse, the plaintiff insured had sought coverage from 144 insurers for thousands of toxic tort claims and numerous site-remediation (environmental) claims arising from eighty-one sites in twenty-three states. Id. at 436. The trial court severed and dismissed all claims for coverage arising outside of New Jersey on forum non conveniens grounds. The Appellate Division reversed, explaining that the plaintiff was entitled to a single, consistent and final resolution of the choice of law question in a single comprehensive action which will bind it and all its insurers. Id. at 442. Although it specifically declined to reach the choice of law issue, the Westinghouse court reasoned that the combined adjudication of these multitudinous claims would be manageable if the law of only one state is required to be restated. Id. at 443. Concerned by the possibility that resolution of coverage issues under one state's laws might deny coverage to 15 claims involving sites in another state whose laws applied to the underlying action -- thus frustrating the vindication of the site state's environmental policies by rendering many of the judgments uncollectible -- the New Jersey Supreme Court developed a specialized analysis for environmental coverage actions. Although Simmons, 417 A.2d 488 (N.J. 1980), remains the definitive case on the proper choice of law analysis for product liability insurance controversies, see Diamond Shamrock Chemicals, 609 A.2d at 465, a different analysis now governs environmental insurance controversies. In Gilbert Spruance, the New Jersey Supreme Court applied the site-specific rule enunciated in Johnson Matthey Inc. v. Pennsylvania Manufacturers Ass'n Insurance Co., 593 A.2d 367 (N.J. App. Div. 1991), for cases involving policies that did not contemplate a New Jersey risk and waste that, while predictably coming to rest in New Jersey, was generated out of state. See Gilbert Spruance Co., 629 A.2d at 892. Gilbert Spruance involved the interpretation of a pollution exclusion clause contained in a comprehensive general liability policy issued by a Pennsylvania carrier to a defendant incorporated in Pennsylvania. The insurance contracts were negotiated and countersigned in Pennsylvania, and the premiums were paid there. Although the waste was generated by the defendant in Philadelphia, the location of the company's paint manufacturing business, the New Jersey Supreme Court was convinced that the parties could reasonably foresee that a New Jersey waste site would receive the insured's waste products, 16 thus rendering the application of New Jersey law equitable. See 629 A.2d at 886. The state's compelling interest in assuring the financing of a clean up of the New Jersey waste site played a very substantial role in the court's conclusion that New Jersey had the dominant significant relationship necessary to overcome the substantial contacts with Pennsylvania. See id. at 894. Gilbert Spruance thus altered the balance of Restatement § 6 factors in environmental coverage cases. See 629 A.2d at 894. While it rejected a categorical approach selecting the state of either generation or disposal in favor of a more extended analysis pursuant to § 6(2), the Gilbert Spruance court explained that when applying the principles enunciated in Restatement section 6 to a case in which out-of state generated waste foreseeably comes to rest in New Jersey, New Jersey has the dominant significant relationship. See 629 A.2d at 894; see also National Starch & Chem. v. Great American Ins. Cos., 743 F. Supp. 318 (D.N.J. 1990) (earlier case finding that the location of the waste sites is of paramount concern, although not irrebuttable). Gilbert Spruance thus establishes that, in environmental cases, the location of the site carries very substantial weight in the significant relationship analysis, typically adequate to overcome the contacts of the place of contracting.0 0 One might argue that Gilbert Spruance establishes the rule that the law of the state where toxic waste comes to rest will apply, if it was reasonably foreseeable that the waste would end up there, obviating the need for the § 6 analysis. At most, the court left the question open. See 629 A.2d at 894 ([W]e express no view on the proposition stated in J. Josephson, Inc, [626 A.3d 17 NL contends that Gilbert Spruance reduces the importance of the place of contracting in all New Jersey choice of law analyses, even outside of environmental claims. Although the appellate division had left open the possibility that the site-specific approach it adopted could apply outside the environmental coverage context it was considering, Johnson Matthey, 593 A.2d at 373, the policies driving the adoption of the site-specific rule are inapposite in product liability coverage actions. In particular, the adoption of the sitespecific approach rested heavily on the compelling (for § 6 purposes) interest that a waste-site state has in determining the availability of funds for the cleanup of hazardous substances located within its boundaries. Leksi Inc. v. Federal Ins. Co., 736 F.Supp. 1331, 1335 (D.N.J. 1990). But the state's interest in determining coverage for product liability actions is more amorphous and therefore less compelling than its interests in environmental cleanup. 81 (N.J. Law Div. 1993),] that when another state is the foreseeable location of the waste-site, the court must engage in a section 6 analysis to determine if that state has the most significant relationship with the parties, the transaction, and the outcome of the controversy . . . .). In passing on the case before it, however, the Gilbert Spruance court incorporated the interests of the waste site state into the customary § 6 analysis. Id. at 894. The court also endorsed the approach of allowing resolution of issues by the courts of the states whose interests are immediately affected during the course of litigation which can be effectively managed.. See Gilbert Spruance, 629 A.2d at 895 (emphasis added). We believe that the New Jersey Supreme Court's inclusion of the manageability caveat further signals its intent to preserve a balancing analysis rather than to discard it in favor of an inflexible rule. 18 There is also less predictability concerning the situs of product liability claims, and a manageability problem in light of the potentially far larger number of product liability claims (relative to environmental sites in any given insurance coverage action.) Thus, because the benefits of the site-specific approach are reduced while the problems associated with its implementation are magnified outside the environmental coverage context, we believe that the New Jersey Supreme Court would not extend the site-specific approach to the product liability coverage area.0 There is precedent for our differential treatment of the choice of law question in the product liability coverage situation relative to the environmental coverage situation. In Diamond Shamrock Chemicals Co. v. Aetna Casualty & Surety Co., 609 A.2d at 465, which preceded but foreshadowed Gilbert Spruance, the Appellate Division addressed a case involving both Agent Orange product liability claims and environmental claims stemming from the defendant's manufacture of dioxin. For the Agent Orange toxic tort claims, the court relied on the fact that 0 In applying the new standard to environmental choice of law questions, the New Jersey courts will have to conduct separate choice of law analyses for environmental coverage claims and for mass tort coverage claims even when they arise in a single case. There is nothing anomalous about this result, since § 145 of the Restatement Conflicts of Laws explains that, even within a single action, the choice of law analysis applies to particular issues, not to the case monolithically. Moreover, in repudiating the uniform contract approach, see Gilbert Spruance, 629 A.2d at 892, the New Jersey Supreme Court has demonstrated a willingness to countenance the application of different state laws even to a single issue of coverage. This may of course be quite difficult and time-consuming, and result in serious management problems for the courts applying this rule. 19 the New York was the place of contracting to apply New York law to all of the Agent Orange coverage actions irrespective of where the claims arose. Diamond Shamrock, incorporated and located in Ohio, had used a New York broker to purchase the policies. The court found that the facts that Agent Orange was manufactured in Newark, New Jersey, that it was sold to the government in New Jersey, that some of the claimants were New Jersey veterans, that some of the underlying suits were filed in New Jersey, and that the coverage action was pending in New Jersey did not establish the dominant relationship necessary to override the preference for New York as the place of contracting. However, in determining which law to apply in the dioxin environmental coverage actions, the Diamond Shamrock court correctly anticipated the New Jersey Supreme Court by using the site-specific analysis enunciated by the Appellate Division's opinion in Gilbert Spruance. The court determined that the law of New Jersey, the state where toxic wastes predictably came to rest (dioxin was manufactured in Newark), should apply to the environmental coverage claims involving New Jersey sites. See 609 A.2d at 455. While this case predated Gilbert Spruance, it presaged the principles announced in that decision, and therefore effectively demonstrates how a court confronting environmental coverage claims and other coverage claims in the same suit must perform distinct choice of law analyses for each. In summary, fundamental choice of law principles require that courts consider different issues separately; a 20 single analysis does not typically resolve the choice of law question for all claims in a suit. After Gilbert Spruance, New Jersey's choice of law rules require not only that environmental coverage claims be considered separately from other claims (such as for product liability), but also that they be considered in the site-specific framework, which is distinct from the customary, modified contacts analysis still applicable in other coverage contexts.
After re-examining the choice of law issue, the district court essentially adopted its July 11, 1991 choice of law decision in disposing of these four new lead paint coverage claims. The 1991 decision purported to analyze the question for both the environmental coverage action and the lead paint coverage action, (as the combined caption and conflated discussion of the two actions suggest). The district court apparently believed that a single choice had to be made for both. Although it acknowledged that the lead paint cases were the subject of an action separate from the environmental coverage action, it stated: [P]laintiff seeks a declaratory judgment of defendant's liability for those three particular [lead paint] claims in the environmental action as well. Thus, the court must apply the same substantive law in both the lead paint and environmental actions, or else the parties rights and obligations under the policy as it applies to the lead paint claims would be interpreted according to two states' substantive laws. 7/11/91 Op. at 8 n.3. 21 The court also relied on the uniform contract approach articulated in Westinghouse Electric Corp. v. Liberty Mutual Insurance Co., 559 A.2d 435 (N.J. App. Div. 1989), to support its choice of New Jersey law for all the environmental and product liability claims notwithstanding the fact that only some of the waste sites and none of the lead paint actions were located in New Jersey. (7/11/91 Op. at 10). In reaffirming its 1991 choice of law decision, the district court applied the law of the case doctrine and rejected CU's argument that an intervening change in the law wrought by Gilbert Spruance required a different resolution. The court also cited its concerns about the manageability of the site-specific choice of law approach in refusing to apply Gilbert Spruance.0 In its initial (1991) decision, the district court acknowledged the presumption in contract actions in favor of the law of the place of contracting (here, New York). (7/11/91 Op. at 5). Nevertheless, the court relied on the strong public interest in insuring that environmental contamination within the state will be remedied, id. at 8, to find the significant relationship necessary to select New Jersey law instead. Indeed, the court conceded that the other considerations in the contractual significant relationship inquiry, such as the 0 Although the district court was aware of the site-specific test announced by Gilbert Spruance after its original choice of law decision in 1991, it declined to apply the test because its application in the environmental case would result in the choice of 34 different state laws, a result it regarded as so unmanageable that the New Jersey Supreme Court could not have intended it. 22 reasonable expectations of the parties and the need for certainty and legal uniformity, actually favored the choice of New York law as the place of contract and would have resulted in that choice were it not for the significant relationship supposedly established by the presence of some New Jersey waste sites. See 7/11/91 Op. at 10. In sum, the choice of law analysis for the lead paint claim coverage dispute is separate and distinct under New Jersey law from that for the environmental claims, and yet the district court appears to have combined the claims for this purpose in both the original 1991 opinion and its May 26, 1994 opinion. See 7/11/91 Op. at 7-8 and 5/26/94 Op. at 10.0 This was error. 0 While the court seemed to accept the magistrate's conclusion that the law of the case doctrine obviated any need for the court to reconsider the original choice of law decision for the four new lead paint actions, see 4/26/94 Op. at 6, it conceded that Gilbert Spruance's rejection of the uniform contract approach might require the court to re-examine its choice of law decision. Id. at 9. The court did re-examine its 1991 decision, see Id. at 9, but abided by it both because of manageability concerns and because of the court's conviction that New Jersey, where a number of the environmental claims arose, had the dominant significant relationship to the transaction. Notwithstanding the fact that Gilbert Spruance pertained solely to environmental coverage actions, we agree that it precluded application of the law of the case doctrine here. Although federal courts always retain the discretion to reconsider issues already decided in the same proceeding, see Deisler v. McCormack Aggregates Co., 54 F.3d 1074, 1086 n.20 (3d Cir. 1995); Charles A. Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice and Procedure: Jurisdiction, §4478 at 789-90, courts will reconsider an issue when there has been an intervening change in the controlling law, when new evidence has become available, or when there is a need to correct a clear error or prevent manifest injustice. Wright, Miller & Kane, § 4478 at 790. We believe reconsideration was warranted here for two reasons. First, the district court's failure to perform a separate choice of law analysis for the environmental coverage action and for the lead paint coverage action constituted a clear error. Second, to the extent that the 23