Tuesday, May 6, 2014

Superior Court holds that contractual choice of law clause does not apply to case over validity of policy term

Catlin Specialty Insurance issued two consecutive claims-made Professional and Pollution Legal Liability Insurance policies to AMSC and its subsidiary Windtec.  The first policy had a policy period of April 1, 2010 to April 1, 2011.

On December 6, 2010, Ghodawat notified the insured that it was terminating a 2008 license agreement between the two due to technical problems with the wind turbine that was the subject of the agreement and that the insured  had supplied and installed.  Ghodawat leveled an accusation of gross negligence and stated that it would pursue a claim unless an amicable resolution was reached.  Settlement discussions followed in February 2011. 

In the meantime, the insured submitted an application for a second year of coverage with Catlin.  In the application it denied any claim, suit, notice or action had been brought or that it was aware of any other circumstances or incidents which may result in a claim being filed against it.  A new policy was issued without Catlin being informed of the Ghodawat allegations.

On May 12, 2011 Ghodawat commenced arbitration proceedings against the insured.  The insured requested coverage from Catlin. 

In Catlin Specialty Is. Co. v. Am. Superconductor Corp., 2014 WL 840693 (Mass. Super.), the Superior Court held that there was no coverage for the claim under either policy because the policy provided coverage only if a claim was both made and reported during the same policy period.  The claim was made in the first policy period and reported in the second policy period. 

The court noted that the purpose of the requirement that notice of a claim be given within the policy period is fairness in rate setting.  Therefore an inquiry into whether an insurer has been prejudiced with respect to the particular claim, relevant to an occurrence policy, is irrelevant to a claims-made policy. 

AMCS argued that under New York law coverage can be denied for breach of the notice provision only if there is prejudice.  The court did not reach that issue because it held that under Massachusetts conflict of law doctrine Massachusetts law applies to the coverage dispute. 

The court held that a choice of law clause in the policies, providing that the "policy shall be subject [to] interpretation under the law of the State of New York" did not apply because the disputed issue is not one of policy interpretation but the validity of  the policy clause requiring that claims be made and reported in the policy period. 

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