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Choice of Laws in Breach of Contract

Choice of Laws in Breach of Contract

The Appellate Division of the Supreme Court of New York, Second Department recently heard the very interesting case of Jimenez v. Monadnock Construction. This case, like many we’ve looked at in the contractual context, involved a construction contract, and furthermore drew in issues related to the procurement of insurance. However the most interesting aspect of the case, and our focus in this article, is the choice of laws issue.

Civil procedure is a very important area of the law; although distinct from contracts it may have significant impact on actions for breach of contract. Civil procedure, among other things, addresses questions like which court has jurisdiction over the case and what laws apply to the case. Many lawsuits involve complex scenarios in which a corporation based in state A is being sued (for example) by an individual who resides in state B. Thus the court needs to make what is known as a choice of laws – deciding which state’s laws apply to the matter. To the layperson, this issue may seem trivial – however different states often have radically different laws (contrast New York and California, for example) and the choice of laws may actually lead to radically different results in the courtroom.

Background of the Case

The plaintiff was working on a construction project located at Amsterdam Avenue in Manhattan. He alleged he was injured while working for the plaintiff and various contractors including Bedroc contracting, and sued based on negligence and various provisions of the labor law of New York.

Monadnock then commenced what is known as a third party action for indemnification against Bedroc. Monadnock alleges in essence that Bedroc breached a contract that stated Bedroc would obtain appropriate insurance coverage. Bedroc’s insurance company, known as ASCIC, also was dragged into the dispute, based on ASCIC disclaiming or denying Bedroc’s insurance claim for the plaintiff’s injury for various reasons. Bedroc actually sued ASCIC for indemnification, saying it was obligated to pay; ASCIC filed a cross-motion to the Supreme Court asking for summary judgment on the theory that they had no obligation to Bedroc. The Supreme Court granted ASCIC’s motion, and Bedroc appealed to the Appellate Division.

Choice of Laws

The Appellate court focused on the Supreme Court’s decision that New York law applied to the case and that New Jersey law did not. Under New York law, ASCIC’s disclaimer was proper. Under New Jersey law, ASCIC’s disclaimer was improper, and an obligation to defend/indemnify Bedroc attached.

The court laid out the choice of laws factors. The first step was to determine if the different laws actually conflict. Here, NY and NJ law conflict based on the reasons above and other reasons too tangential to go into here.

The court then undertakes a special analysis for contract cases. This is known as the “center of gravity” or “grouping of contacts” analysis – it seeks to assess which State had the most significant relationship to the parties and the events in question leading up to the lawsuit. Many factors go into this analysis, including location of the parties, location of the work, location of the negotiations, and the domicile or primary place of business of any corporation.

Liability insurance contracts undergo an even more special analysis. As in here, when the covered risks are spread over multiple states, “the state of the insured’s domicile [is the] principal location of the insured risk.” Bedroc was a New Jersey corporation, the insurance policy was issued through a New Jersey broker, and contains a New Jersey endorsement. For these reasons the Appellate Division reversed the Supreme Court’s decision, stating that New Jersey law should have been selected, and remanded for a new disposition of the case.

Choice of laws issues may actually determine the outcome of certain cases. It is imperative to retain experienced counsel in these matters simply to protect oneself from unforeseen results - please do not hesitate to contact our office for a consultation.

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