Choice of Law Analysis Re: Liability Insurance Contracts [Extraordinarily Complex Lawsuit Stemming from Mold Rendering a Newly-Constructed Apartment Complex Uninhabitable]

The Second Department sorted out an extraordinary number of coverage, defense and indemnification issues in declaratory judgment actions stemming from mold which made an apartment complex uninhabitable.  The decision deals with too many specific questions to allow summarization.  With respect to a choice of law issue, the court wrote:

Under Pennsylvania law, not only are damages to the work product itself not considered an occurrence, but “damages that are a reasonably foreseeable result of the faulty workmanship are also not covered under a commercial general liability policy” … . The Pennsylvania courts have emphasized fortuity in determining whether a claim constitutes an occurrence … . Mold growth and resulting sickness and property damage would likely be considered by the Pennsylvania courts not to be fortuitous, but, rather, to be, from an objective standpoint, a reasonably foreseeable, natural consequence of faulty workmanship which allowed water to infiltrate the buildings … . Accordingly, because a conflict exists between Pennsylvania and New York law, New York’s choice-of-law rules must be applied to determine which state’s law governs … .

“In the context of liability insurance contracts, the jurisdiction with the most significant relationship to the transaction and the parties’ will generally be the jurisdiction which the parties understood was to be the principal location of the insured risk'” … . However, ” where it is necessary to determine the law governing a liability insurance policy covering risks in multiple states, the state of the insured’s domicile should be regarded as a proxy for the principal location of the insured risk'” … . Because the subject policy covered risks in multiple states, and because Erie’s and Penn National’s named insured was domiciled in Pennsylvania, it is appropriate to apply that state’s law. QBE Ins Corp v Adjo Contr Corp, 2014 NY Slip Op 07342, 2nd Dept 10-29-14