In George K. Baum & Co. v. Twin City Fire Insurance Co., 2014 U.S. App. LEXIS 14368 (8th Cir. July 25, 2014), the United States Court of Appeals for the Eighth Circuit addressed the choice-of-law issue with respect to a Twin City Fire Insurance Co. (Twin City) policy, which did not contain a choice-of-law provision. Disagreeing with the lower court’s conclusion that Missouri law governed the policy, the court ruled that New York law applied.
As background, George K. Baum & Company (Baum) underwrote municipal bonds that it represented to clients were tax exempt. The IRS disagreed. Baum timely notified Twin City of its potential civil liability arising out of the IRS determination. Several years later, a number of derivative lawsuits were commenced against Baum. Baum did not provide notice to Twin City until two years thereafter.
A conflict of laws between Missouri and New York arose in connection with Twin City’s late notice defense. Notably, Missouri requires that an insurer suffer prejudice in order to demonstrate late notice, whereas New York had no such requirement.
The Eighth Circuit found the following facts relevant to its conflict of laws determination. Although Baum operated out of Missouri, Baum requested that Twin City issue the policy to its New York office in order to avoid paying Missouri surplus lines taxes. Additionally, the policy included a New York-specific amendatory endorsement, which expressly referred to New York statutes and regulatory entities and incorporated certain New York statutory language verbatim. Perhaps most important, in analyzing the conflict of laws under the Restatement, the Eighth Circuit found guidance in and relied upon the Section 187, i.e., an insurance contract’s legal expressions or references to legal doctrines that are peculiar to the local law of a particular state may be persuasive evidence that the parties to the policy intended to have that state’s law govern the contract.
Ultimately, the Court of Appeals affirmed the lower court, finding the notice provisions in the policy ambiguous. Nevertheless, the Court’s choice-of-law determination is significant for coverage cases where the policy does not expressly contain a choice-of-law clause. Moreover, the Court relied on the lesser-cited Section 187, rather than Sections 188 and 193, which are more commonly used to decide conflict of laws issues in insurance coverage matters. This provides parties with an additional basis to argue the application of one state’s law over another’s.