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holding that § 193 did not apply where the insured facilities were located in thirty states
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CIVIL ACTION NO. 01-CV-2524
October 27, 2003
MEMORANDUM AND ORDER
Presently before the Court are Defendant The Continental Insurance Company's Motion for Partial Summary Judgment as to Choice of Law (Doc. No. 34, "Def.'s Mot.") and Plaintiff Manor Care, Inc.'s Motion for Partial Summary Judgment as to Choice of Law (Doc. No. 37, "Pl.'s Mot."). For the following reasons, The Continental Insurance Company's Motion for Partial Summary Judgment will be granted in part and denied in part and Manor Care Inc.'s Motion for Partial Summary Judgment will be granted in part and denied in part.
Background
This is a diversity case arising out of the alleged breach of insurance contracts. Plaintiff Manor Care, Inc. ("MCI") is a Delaware corporation headquartered in Ohio. (Doc. No. 18 ¶ 1, "Am. Compl.") Until early 1999, MCI was headquartered in Maryland. (Def.'s Mot., Ex. C., at 6-7, "Alcorn Dep"; Ex. D at 48-49, "Sandbank Dep.") MCI establishes and operates nursing homes and long-term health care facilities. (Pl.'s Mot., Ex. A at 16.) As of December 31, 2000, MCI, through its subsidiaries, operated 298 skilled nursing facilities and 56 assisted living facilities in 32 states. (Id.) Each facility is operated by a subsidiary corporation of MCI. (Def.'s Mot., Ex. A. ¶¶ 2-3, "Bixler Aff")
Defendants The Continental Insurance Company ("Continental") and PHILCO Insurance Company ("PIC") provided MCI with general and professional liability insurance coverage under the terms of various insurance policies. The various PIC policies were effective from June 1, 1993, until June 1, 1997. (Alcorn Dep. at 22, 35.) The Continental policy was effective from June 1, 1997, until June 1, 1999. (Id. at 9-10 and Ex. 1.) For the period immediately following June 1, 1999, MCI was self-insured up to a limit of $500,000. In excess of that amount, MCI was insured under a policy issued by First Specialty Insurance ("First Specialty"). (Am. Compl. ¶ 11; Alcorn Dep. at 26-28.)
MCI and Continental agree on the insuring language in the Continental policy relevant to this case. In that policy, Continental agreed to "pay those sums that the insured becomes legally obligated to pay as damages because of a `professional incident' in the course of performing professional services for [the MCI] resident health care facility policy to which this insurance applies." (Pl.'s Supp. Brief, Ex. A, Continental Policy, Resident Health Care Facility Professional Liability Coverage Part, at 1.) The Continental policy insures damages caused by a professional incident only if the professional incident occurs during the policy period. (Id.) A professional incident is defined as "[a]ny act or omission in the furnishing or failure to furnish professional services. . . ." (Id.)
The Continental policy was negotiated, brokered, delivered, received and countersigned in Maryland. (Sandbank Dep. at 14-21; AlcornDep. at 10-11, 14-16.) Some negotiations also took place in Illinois. (Sandbank Dep. at 19.) MCI paid the premiums for the Continental policy from its Maryland headquarters to its insurance broker in Maryland. (Id. at 21.) The Continental policy named as insureds MCI facilities located in more than 30 different states. (Id. at 27-30; Alcorn Dep. at 16-21.) Approximately 17.6% of the named insureds were located in Pennsylvania, more than in any other state. (Alcorn Dep., Ex. 1.) Approximately 13.2% of the named insureds were located in Illinois. (Id.)
MCI alleges that it notified Continental and PIC of numerous claims or lawsuits (the "Underlying Claims") wherein residents of MCI's facilities alleged that they suffered damages as a result of the care and treatment they received at MCI's facilities during the coverage periods of the Continental and PIC policies. (Am. Compl. ¶ 20.) The Amended Complaint describes only one of the Underlying Claims in detail. MCI alleges that it settled a claim with the Administratrix of the Estate of Bessie Graber (the "Graber Action"). In the Graber Action, the plaintiff alleged that MCI "was negligent in hiring, training and supervising nursing assistants and failed to implement an adequate safety program for residents during the term of Bessie Graber's stay at the . . . [MCI] facility," and that as a "direct and proximate result," Bessie Graber suffered injuries. (Am. Compl. ¶ 14.) The plaintiff in the Graber Action alleged that Bessie Graber resided at an MCI facility from November 14, 1998, until June 4, 1999, a period implicating both the Continental policy and MCI's period of primary self-insurance. (Am. Compl., Ex. B.) MCI alleges that it has notified Continental of numerous other similar lawsuits.
The Underlying Claims have been brought in at least 13 different states. (Id., Ex. D.) As in the Graber Action, some of the other Underlying Claims involve persons who resided at MCI facilities both before and after the effective coverage dates of the Continental and PIC policies. (Id.) MCI claims that Continental is liable for all sums that MCI pays as damages and defense costs related to those Underlying Claims wherein an incident is alleged to have occurred during the Continental policy coverage period. (Id. ¶ 40, 42, 44.) MCI also claims that PIC is liable for all sums that MCI pays as damages and defense costs related to those Underlying Claims wherein an incident is alleged to have occurred during the PIC policy coverage period. (Id. ¶¶ 41, 43, 45.) MCI alleges that between June 1996 and June 1999 both PIC and Continental breached their contracts with MCI by refusing to indemnify and defend MCI in connection with the Underlying Claims. (Id. ¶¶ 42-43, 46.) MCI also alleges that Continental acted in bad faith because it knew or recklessly disregarded the fact that Continental had no reasonable basis to breach its contract. Qd ¶¶ 35-38.)
A11 claims against PIC have been stayed pending resolution of its rehabilitation.
Continental claims that it has no obligation to pay defense costs, settlements or judgments incurred in connection with errors and omissions occurring before June 1, 1997, or after June 1, 1999 (the effective start and end dates of the Continental policy). With respect to those Underlying Claims wherein it is alleged that the triggering incident occurred during more than one insurers' policy period (or during MCFs period of self-insurance), Continental asks this Court to allocate to each insurer (and MCI as a self-insurer) their proportionate share of indemnity and defense obligations. Continental also claims that it is entitled to reimbursement from PIC, First Specialty, MCI and certain of MCI's subsidiaries for their proportionate share of defense and settlement costs that Continental has already expended in connection with the Underlying Claims.
The MCI subsidiaries from whom Continental seeks reimbursement are HCR Manor Care, Inc., Manor Healthcare Corp., Manor Healthcare Services, Inc., Manor Care of Akron, Inc., Manor Care of Willoughby, Inc., Manor Care of America, Inc. Manor Care of Columbia, Inc., Manorcare Health Services of Georgia, Inc., Manor Care of Sarasota, Inc. and Four Seasons Nursing Centers.
Continental also argues that coverage under its policy is triggered only if an injury occurs during the Continental policy period. MCI contends that only a professional incident need occur during the Continental policy period to trigger coverage. We need not decide which party's view is a correct reading of the Continental policy at this time. MCI and Continental agree that some of the Underlying Claims will trigger successive periods of insurance coverage or self-insurance.
Subject Matter Jurisdiction
We have subject matter jurisdiction of this case under 28 U.S.C. § 1332(a)(1), 2201(a) and 2202 because it is a declaratory judgment action, the parties are diverse and the amount in controversy exceeds $75,000. See Reliance Ins. Co. v. VE Corp., Civ. A. No. 95-538, 2000 WL 217511, at *7 (E.D. Pa. Feb. 10, 2000); Teamsters Pension Trust Fund of Philadelphia Vicinity v. Littleiohn, 155 F.3d 206, 208 (3d Cir. 1998) (declaratory judgment action under 28 U.S.C. § 2201 and 2002 is proper because diversity is an independent basis for jurisdiction) (citing Skellv Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671 (1950)). Venue is proper because one or more of the claims for which MCI seeks coverage occurred in Pennsylvania. See 28 U.S.C. § 1391(a)(2).
I. Choice of Law
A. Legal Standard
MCI and Continental have each moved for partial summary judgment on the proper choice of law governing interpretation of the Continental policy. Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." FED. R. Civ. P. 56(c). In considering a motion for summary judgment, "a court does not resolve factual disputes or make credibility determinations, and must view facts and inferences in the light most favorable to the party opposing the motion." Siegel Transfer, Inc. v. Carrier Express, Inc., 54 F.3d 1125, 1127 (3d Cir. 1995). The moving party bears the burden of proving that no genuine issue of material fact is in dispute. Adickes v. S. H. Kress Co., 398 U.S. 144, 157 (1970). Once the moving party has carried its initial burden, the non-moving party "may not rest upon the mere allegations or denials of his pleading, but his response . . . must set forth specific facts showing that there is a genuine issue for trial." FED. R. Civ. P. 56(e).
First Specialty filed an unopposed Memorandum of Law requesting that no determination be made as to the choice of law governing Continental's claim against it, noting that counsel for Continental agreed that it was not seeking a choice of law determination as to its claim against First Specialty. Accordingly, we make no determination as to which law governs Continental's claim against First Specialty. As all claims have been stayed against PIC, we also make no determination as to which law governs interpretation of the PIC policies.
B. Discussion
MCI contends that Pennsylvania law should govern interpretation of the Continental policy. It argues that Maryland and Pennsylvania law do not significantly diverge with respect to an insurer's duty to defend and indemnify its insured. If there is no conflict among the potentially applicable laws, MCI argues that the law of the forum, Pennsylvania, should apply. MCI argues in the alternative that if the Court finds a true conflict of laws, then Pennsylvania law should still apply. According to MCI, Pennsylvania has the most significant interest in this coverage dispute because 17.6% of the insured facilities were located in Pennsylvania, more than in any other state. Therefore, MCI argues, Pennsylvania was the principal location of the insured risk and its choice of law rules require that its law applies.
Continental contends that Maryland law should apply. It argues that the laws of Pennsylvania and Maryland diverge with respect to how defense and indemnity obligations are allocated among successive liability insurers and self-insurers whose periods of coverage or self-insurance are triggered. Thus, Continental argues, this case presents a true conflict of laws for the Court to resolve. When Continental applies the relevant choice of law rules, it finds that Maryland has the most significant relationship to this case and that its law should apply. It considers the following facts significant in its choice of law analysis: Maryland was the place the insurance contract was countersigned, negotiated and performed; Maryland was a location of some of the insured entities; and Maryland was the place MCI was headquartered when the Continental policy was issued.
Choice of Law Rules
In a diversity case we determine the choice of law by applying the choice-of-law rules of the forum state, Pennsylvania. Compagnie des Bauxites de Guinee v. Argonaut-Midwest Ins. Co., 880 F.2d 685, 688 (3d Cir. 1989) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97 (1941)). Pennsylvania has adopted a "flexible approach" to the choice of law issues "which combines a relationship and interest analysis."Id. (citing Griffith v. United Airlines. Inc., 203 A.2d 796 (Pa. 1964)); Gould Inc. v. Continental Cas. Co., 822 F. Supp. 1172, 1175 (E.D. Pa. 1993) (holding Pennsylvania's choice-of-law rules require the court to "perform a governmental interest analysis along with the significant relationships approach set forth in the Restatements (Second) of Conflicts of Laws"). "However, before a choice of law question arises, there must actually be a conflict between the potentially applicable bodies of law." On Air Entm't Corp. v. National Indem. Co., 210 F.3d 146, 149 (3d Cir. 2000). If there are no differences between the laws of Maryland and Pennsylvania relevant to this case, the court should avoid the choice of law question and can refer interchangeably to the applicable laws of Maryland and Pennsylvania. Id. But see Furman Lumber, Inc. v. Mountbatten Sur. Co., Inc., Nos. 96-7906, 96-8168, 96-8352, 1997 WL 539685, at *8 (E.D. Pa. Aug 06, 1997) ("In the absence of a conflict, the Court applies the law of the forum state. . . ."). If the court identifies a conflict of laws with respect to any particular issue, the court must follow Pennsylvania's choice of law rules to determine which law to apply. Chemetron Inv., Inc. v. Fidelity Cas. Co. of New York, 886 F. Supp. 1194, 1199 (W.D. Pa. 1994).
"The process of applying different state's law to different issues in a case is known as `depecage.'. . . In the absence of controlling authority from the Pennsylvania Supreme Court, this Court is guided by the interpretation of Pennsylvania choice of law principles articulated by the Court of Appeals for the Third Circuit, which has repeatedly recognized that the choice of law process is issue-specific."Chemetron Inv., Inc. v. Fidelity Cas. Co. of New York, 886 F. Supp. 1194, 1199 (W.D. Pa. 1994) (citing Compagnie des Bauxites, 880 F.2d at 691).
Identifying the Conflict of Laws
Under both Maryland and Pennsylvania law, an "insurer's duty to defend is distinct from, and broader than, its duty to indemnify its insured."Belser v. Rockwood Cas. Ins. Co., 791 A.2d 1216, 1219 (Pa.Super. 2002) (quoting Board of Pub. Educ. of the Sch. Dist. v. National Union Fire Ins. Co., 709 A.2d 910, 913 (Pa.Super. 1998)); Universal Underwriters Ins. Co. v. Lowe, 761 A.2d 997, 1012 n. 15 (Md.Ct.Spec.App. 2000) ("The duty to defend an insured is broader than the duty to indemnify."). Both states require an insurer to defend its insured against all claims alleged in a complaint if any claims are potentially within the scope of the policy, until such time that the claims have been limited to ones outside the policy coverage.See, e.g., Utica Mut. Ins. Co. v. Miller II, 746 A.2d 935, 940 (Md.Ct.Spec.App. 2000) ("[I]f any claims potentially come within the policy coverage, the insurer is obligated to defend all claims, notwithstanding alternative allegations outside the policy's coverage, until such times . . . that the claims have been limited to ones outside the policy coverage.") (quotations omitted); Seaboard Indus., Inc. v. Monaco, 392 A.2d 738, 743 (Pa.Super. 1978) ("[I]f there are two separate causes of action and one would constitute a claim within the scope of the policy s coverage, the insurer has a duty to defend until it can confine the claim to a recovery excluded from the scope of the policy.") (citing Pittsburgh Plate Glass Co. v. Fidelity and Cas. Co. of New York, 281 F.2d 538 (3d Cir. I960));Municipality of Mt. Lebanon v. Reliance Ins. Co., 778 A.2d 1228, 1235 (Pa.Super. 2001) (citing General Accident Ins. Co. of America v. Alien, 692 A.2d 1089, 1095 (Pa. 1997)). Because Maryland and Pennsylvania law do not conflict with respect to the scope of an insurer's duty to defend, we will avoid the choice of law question as to this issue. See On Air Entm't, 210 F.3d at 149.
The laws of Maryland and Pennsylvania do conflict with respect to how indemnity and defense obligations are allocated among successive liability insurers and self-insurers whose periods of coverage or self-insurance are triggered. Despite the rule that an insurer is obligated to defend all claims when any claim is potentially within the policy coverage, in cases when successive periods of coverage or self-insurance are triggered, Maryland courts will prorate indemnity and defense obligations among the respective carriers and self-insurers based on their time on the risk. See Mayor of Baltimore v. Utica Mut. Ins. Co., 802 A.2d 1070, 1101 (Md.Ct.Spec.App.) (holding "the obligation to indemnify the insured under the circumstances of this case, which involves continuing asbestos product property damage, is to be prorated among all carriers based on their time on the risk. . . . [and] an insured who elects not to carry liability insurance for a period of time . . . will be liable for the prorated share that corresponds to periods of self-insurance or no coverage"), cert. granted, 810 A.2d 961 (Md. 2002), and appeal dismissed by petitioner, 821 A.2d 369 (Md. 2003); Nolt v. United States Fid, and Guar. Co., 617 A.2d 578, 584 (Md. 1993) (affirming declaration that two insurers who both provided primary insurance coverage to insured for the same period were "jointly liable for counsel fees and expenses incurred in the defense of [the insured]").
On the other hand, Pennsylvania law permits an insured to choose to be indemnified under any policy in effect at the time of the claimed incident, even though other policies may be implicated. J.H. France Refractories v. Allstate Ins. Co., 626 A.2d 502, 508 (Pa. 1993) (holding insured "should be free to select the policy or policies under which it is to be indemnified"). When more than one insurer has a duty to defend with respect to a single claim, the insurers may select the insurer or insurers to undertake the defense. Id. at 510 ("The defense of a claim is a right, as well as a duty, falling upon the insurer. In order to effectuate that right, we hold that the selection of the insurer or insurers to undertake a defense is to be made by the insurers."). "In the event that the insurers are unable to agree as to the conduct of the defense, then [the insured] shall be entitled to select an insurer." Id. However, "[t]here is no bar [under Pennsylvania law] against an insurer obtaining a share of indemnification or defense costs from other insurers under `other insurance' clauses or under the equitable doctrine of contribution."Id. at 509. See also Koppers Co., Inc. v. Aetna Cas. and Sur. Co., 98 F.3d 1440, 1454 (3d Cir. 1996) ("Under J.H. France, the insured gets indemnified first (pursuant to the insuring agreements) and then the insurers may seek to redistribute the burden among themselves.") (emphasis in original).
MCI and Continental agree that at least some of the claims alleged in the Underlying Suits will implicate successive periods of insurance coverage or self-insurance. Therefore, this case presents an actual conflict of laws that must be resolved. If Pennsylvania law applies, MCI can choose to be indemnified in full under any policy in effect at the time of the alleged triggering event. Pennsylvania law also would allow MCI to select an insurer to fund its defense, if MCI's insurers failed to do so. If Maryland law applies, the total indemnity and defense costs associated with the Underlying Claims would be allocated pro rata among the insurers and self-insurers whose periods of coverage or self-insurance are implicated. Though Pennsylvania law permits insurers to seek contribution from any other insurers whose policy is implicated after the underlying tort suit, the practical difference between Maryland and Pennsylvania law is not insignificant especially where, as here, one of the potentially liable insurers is insolvent. As the Third Circuit explained:
[T]he major difference between the J.H. France joint and several approach and an approach where coverage responsibility is apportioned immediately on the basis of "other insurance" clauses, is this: "Under the former, solvent insurers bear the risk that one of their number will be insolvent; under proportional liability schemes, the . . . [insured] bears this risk. . . . A related advantage of . . . [the joint and several liability] approach to insureds, and disadvantage to insurers, is that under it the insured may be able to . . . avoid the effect of deductibles, retroactive premiums, self-insured retentions and the like under the other triggered policies which otherwise would reduce the amount of available coverage."Koppers, 98 F.3d at 1449 n. 9 (quoting Kenneth S. Abraham,Environmental Liability Insurance Law 121-22 n. 45 (1991)). Because we find an actual conflict of laws, we must apply the combined governmental interest analysis and significant relationships choice of law approach used in Pennsylvania to decide which state's law should apply. Gould, 822 F. Supp. at 1175.
To identify a conflict between Pennsylvania and Maryland law relevant to this case, it is enough that at least some of the Underlying Claims will implicate multiple periods of insurance and/or self-insurance.
Most Significant Relationship
In determining which state has the most significant relationship to a insurance contract dispute, Pennsylvania looks to the Restatement (Second) of Conflicts of Laws (the "Restatement"). See, e.g., Compaigne des Bauxites, 880 F.2d at 688-691 (applying Restatement in resolving choice of law question in contract case); Gould, 822 F. Supp. at 1175-76 (same); Continental Ins. Co. v. Beecham. Inc., 836 F. Supp. 1027, 1035-38 (D.N.J. 1993) (same): United Brass Works, Inc. v. American Guar. and Liab. Ins. Co., 819 F. Supp. 465, 468-70 (W.D. Pa. 1992) (same); see also Griffith, 203 A.2d at 801 (applying section 379(2) of the Restatement in resolving choice of law question in tort case). Accordingly, the Restatement shall guide our analysis.
Restatement Section 193
Section 193 of the Restatement specifically applies to contracts for casualty insurance and provides that the "validity" of such a contract "and the rights created thereby are determined by the local law of the state which the parties understood was to be the principal location of the insured risk during the term of the policy" unless another state has a more significant relationship to the transaction and the parties. Restatement § 193. However, comment b to section 193 of the Restatement states that a risk cannot be located principally in a single state "where the policy covers a group of risks that are scattered throughout two or more states." Id. If the risk is scattered throughout two or more states, the location of the risk has "less significance" to the choice of law determination. Id.
MCI argues that the parties understood that Pennsylvania was to be the principal location of the insured risk because 17.6% of the named insureds in the Continental policy were located in Pennsylvania. Continental maintains that there was no principal location of the insured risk because the insured facilities were scattered throughout thirty states and a significant number (42.7%) were located in Illinois, Maryland, Florida, Texas and Ohio. Though a majority of insured facilities were located in Pennsylvania, we fail to see how the insured risk of the Continental policy can be deemed to have been principally located in Pennsylvania when the overwhelming majority of the insured facilities (82.4%) were located elsewhere. Our conclusion is consistent with caselaw holding that section 193 did not apply when the insured risks were located in several states.See, e.g., United Brass Works, 819 F. Supp. at 469 (holding section 193 did not apply when the insurance "policy insures several different risks located in several different states"); Gould, 822 F. Supp. at 1176 (holding section 193 did not apply when "facilities throughout the United States . . . were covered by the same two insurance policies"); Beecham, 836 F. Supp. at 1036 (holding section 193 did not apply when the insured risks were located in five different states). Because section 193 does not apply, the Court must look to the relevant contacts listed in section 188(2) to determine the state with the most significant relationship to this dispute. See United Brass Works, 819 F. Supp. at 470; Gould, 822 F. Supp. at 1175-76.
We are not persuaded by the three cases cited by MCI on this point. In American Contract Bridge League v. Nationwide Mut. Fire Ins. Co., the court applied Pennsylvania law to interpret an insurance contract in part because there was only one underlying lawsuit involving parties with substantial contacts to Pennsylvania. 752 F.2d 71, 74-75 (3d Cir. 1985). This case involves many lawsuits brought in different states involving diverse parties. In Colt Indus., Inc. v. Aetna Cas. and Sur. Co., the court did not discuss section 193 of the Restatement and was persuaded to apply Pennsylvania law in part because a majority of the underlying claims were pending there. Civ. A. No. 87-4107, 1989 WL 147615, at *2 (E.D. Pa. Dec. 6, 1989). Section 193, however, focuses on the location of the insured risk, not the underlying claims. See NL Indus., Inc. v. Commercial Union Ins. Cos., 926 F. Supp. 1213, 1224 (D.N.J. 1996) (construing section 193 and holding that it is "highly doubtful that, when the parties entered into the contracts or during the term of these contracts, they anticipated that policy-interpretation questions would be governed by the law of the state that generated the most claims"). In the other case cited by MCI, Hartford Ace. Indem. Co. v. Dana Corp., the court held that Indiana was the principal location of the insured risk in part because more of the insured facilities were located in Indiana than any other state, but failed to note the percentage of facilities located in Indiana or compare the number of facilities in Indiana with the number located in any other state. 690 N.E.2d 285, 289, 294 (Ind.Ct.App. 1997). While more insured MCI facilities were located in Pennsylvania (17.6%) than any other state, a substantial number were located in Illinois (13.2%), and the overwhelming majority (82.4%) were located outside of Pennsylvania. These facts prevent us from concluding that the risk insured by the Continental policy was principally located in Pennsylvania.
Restatement Section 188(2)
Restatement section 188(2) explains that when there is no contractual agreement as to choice of law the following contacts should be considered: (a) the place of negotiation; (b) the place of contracting; (c) the place of performance; (d) the location of the subject matter of the contract; and (e) the parties' domicile, residence, nationality and place of incorporation and business. Restatement § 188(2).
There is no genuine dispute that the Continental policy was negotiated, brokered, delivered, received and countersigned in Maryland. (Sandbank Dep. at 14-21; Alcorn Dep. at 10-11, 14-16.) Because Maryland was the place the Continental policy was countersigned, it was the place of contracting. See Restatement § 188, comment e ("the place of contracting is the place where occurred the last act necessary, under the forum's rules of offer and acceptance, to give the contract binding effect"). There is also no genuine dispute that until MCI relocated to Ohio, all premium payments for the Continental policy were made from MCI's Maryland office to the Maryland office of its insurance broker. (Sandbank Dep. 21; Alcorn Dep. 15-16.) Because the premiums were paid in Maryland, it was the place of performance. See Beecham, 836 F. Supp. at 1037-38 ("The place of performance of an insurance contract, in the absence of a clause specifically dealing with the issue, is the place where the premiums are paid.") (quoting Armotek Indus, Inc. v. Employers Ins, of Wausau, 952 F.2d 756, 761 (3d Cir. 1991)). Based on the foregoing, the place of negotiation, contracting and performance of the Continental policy was Maryland.
Some negotiations also took place in Illinois. (Sandbank Dep. at 19.)
There is also no genuine factual dispute as to the location of the subject matter of the Continental policy. The subject matter of an insurance policy is the risk it insures. See United Brass Works, 819 F. Supp at 470. The parties do not dispute that the insured risks were located in more than 30 different states. (Sandbank Dep. at 27-30; Alcorn Dep. at 16-21.) MCI claims that the risk insured by the Continental policy was principally located in Pennsylvania, where approximately 17.6% of the named insureds are found. As discussed herein, we do not believe that the risk insured by the Continental policy was principally located in any one state. Therefore, this contact does not favor Maryland or Pennsylvania.
The final contact — the parties' domicile, residence, nationality and place of incorporation and business — favors Maryland. At the time of negotiation and contracting of the Continental policy, MCI was a Delaware corporation with its principal place of business in Maryland. (Alcorn Dep at 6-7; Sandbank Dep. at 48-49.) The fact that MCI was headquartered in Maryland at the time the Continental policy was issued has greater importance considering that Maryland was also the place of negotiation, contracting and performance. See Restatement § 188, comment e ("The fact that one of the parties is domiciled or does business in a particular state assumes greater importance when combined with other contacts, such as that this state is the place of contracting or of performance or the place where the other party to the contract is domiciled or does business."). Thus, this contact favors Maryland.
Though MCI moved its principal place of business from Maryland to Ohio after the effective date of the Continental policy, this contact still favors Maryland, the state where MCI was headquartered when the parties executed the Continental policy. See Gould, 822 F. Supp. at 1176.
Applying the facts of this case to the relevant contacts under Restatement section 188(2), we find that Maryland clearly has the most significant relationship to this insurance coverage dispute. Pennsylvania's only connections to this case are that some of the underlying claims arose in Pennsylvania and more of the insured facilities were located there than anywhere else. With respect to the first contact, when applying choice of law rules, "Pennsylvania courts have routinely rejected the situs of the occurrence of a tort as a contact relevant to a dispute over an insurance contract."Beecham, 836 F. Supp. at 1038 (citing McCabe v. Prudential Prop, and Cas. Ins. Co., 514 A.2d 582, 586 (Pa.Super. 1986) andNationwide Mut. Ins. Co. v. Walter, 434 A.2d 164, 168 (Pa.Super. 1981)). Thus, the only relevant contact with Pennsylvania is that it is the state where more of the insured facilities were located than any other state. However this contact has "less significance" because the insured risks were scattered throughout thirty states. Restatement § 193, comment b. See also Gould, 822 F. Supp. at 1176 (holding section 193 did not apply when "facilities throughout the United States . . . were covered by the same two insurance policies"). Maryland, on the other hand, has more significant contacts with the Continental policy than any other state. Accordingly, it is the state with the most significant interest to this dispute. See Restatement § 188(3) ("If the place of negotiating the contract and the place of performance are in the same state, the local law of this state will usually be applied. . . .").
Governmental Interest
Though we have determined that Maryland has the most significant relationship to this dispute, under Pennsylvania's choice of law rules we must also inquire as to whether Maryland or Pennsylvania has a greater policy interest in this dispute than the other. United Brass Works, 819 F. Supp. at 470. We find that Maryland has the greater policy interest in interpreting the Continental policy.
To be sure, Pennsylvania has an interest in ensuring insurance coverage for its residents, employees and skilled nursing and assisted living facilities. "At issue, however, is the interpretation of a contract. . . . This policy of Pennsylvania . . . simply lacks the requisite nexus to this action to speak forcefully for the application of Pennsylvania law." Beecham, 836 F. Supp. at 1040 (rejecting the argument that Pennsylvania had an interest in interpreting contracts that "were not negotiated, entered into, or performed in Pennsylvania").
On the other hand, Maryland has a substantial interest in the interpretation of insurance contracts that were issued to a Maryland insured and negotiated, signed and performed in Maryland. See Gould, 822 F. Supp. at 1176 ("Illinois still has a substantial interest in the interpretation of insurance contracts that were issued by an Illinois insurance company, performed in Illinois and negotiated in Illinois"); Chemetron, 886 F. Supp. at 1200. Because Maryland is the state with the most significant relationship to this dispute, and the state with the greatest governmental interest in interpreting the Continental policy, its law applies to determine how defense and indemnity obligations are allocated among MCI and its insurers when successive periods of insurance coverage and/or self-insurance are triggered.
An appropriate Order follows.
ORDER
AND NOW, this ___ day of October, 2003, upon consideration of The Continental Insurance Company's ("Continental") Motion for Partial Summary Judgment as to Choice of Law (Doc No. 34) and the Plaintiff Manor Care, Inc.'s ("MCI") Motion for Partial Summary Judgment as to Choice of Law (Doc. No. 37) and all papers filed in support thereof and in opposition thereto, it is ORDERED as follows:
1. Continental's Motion for Partial Summary Judgment is GRANTED IN PART AND DENIED IN PART. Maryland law will apply to determine how defense and indemnity obligations are allocated among MCI and its insurers when successive periods of insurance coverage and/or self-insurance are triggered; and
2. MCI's Motion for Partial Summary Judgment is GRANTED IN PART AND DENIED IN PART. Pennsylvania and Maryland law will apply to determine the scope of Continental's duty to defend.