that the Stock Purchase Agreement and the Agreement of Bulk Reinsurance each provided that they would be governed by New York law. As ASRIC claims to be a third party beneficiary of both agreements, and as at least two of ASRIC's four causes of action relate to these agreements, ASRIC contends that New York law should govern this action.
I do not believe that the choice of British law provisions in the Stetzel-Elkhorn agreement is appropriately applied here. First, ASRIC was not a party to the Stetzel-Elkhorn agreement. On the contrary, it is the co-defendants of Elkhorn/Delta (which was a party to the agreement) that seek to enforce the choice of law provision against ASRIC. In such a situation, it makes no sense that ASRIC should be bound by a choice of law agreement between Elkhorn/Delta and its London insurance agent.
ASRIC's attempt to apply the New York choice of law provisions of the 1983 agreements is more persuasive, at least as to the causes of action premised on the Stock Purchase and Bulk Reinsurance Agreements. The parties to those agreements agreed that disputes arising under them would be governed by New York law. And, the second and third causes of action in ASRIC's Amended Complaint are at least in part predicated on promises of DR, Delta, and National Distillers in the Stock Purchase Agreement and the Agreement of Bulk Reinsurance, of which ASRIC claims to be a beneficiary.
However, the underlying basis for each of ASRIC's causes of action is the liability of Elkhorn to ASRIC on the reinsurance policies themselves. There is no apparent reason to apply the choice of law provisions of those later agreements to ascertain the relevant law for determining Elkhorn/Delta's liability to ASRIC under the earlier reinsurance policies.
B. New York Choice of Law Rules as Applied to the Elkhorn Reinsurance Policies
A federal court, sitting in diversity, applies the choice of law rules of the state in which it sits. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 85 L. Ed. 1477, 61 S. Ct. 1020 (1941); see Arkwright-Boston Mfrs. Mut. Ins. Co. v. Calvert Fire Ins. Co., 887 F.2d 437, 439 (2d Cir. 1989).
New York courts generally apply the law of the jurisdiction having the "greatest concern with the specific issue raised in the litigation." Babcock v. Jackson, 12 N.Y.2d 473, 481, 240 N.Y.S.2d 743, 749, 191 N.E.2d 279, 283 (1963). "In contract cases, New York courts use a 'center of gravity' or 'grouping of contacts' analysis, and apply '"'the law of the jurisdiction having the greatest interest in the litigation.'"'" Walpex Trading Co. v. Yacimientos Petroliferos Fiscales Bolivianos, 756 F. Supp. 136, 140 (S.D.N.Y. 1991) (citations omitted); accord Jefferson Ins. Co. v. Fortress Re, Inc., 616 F. Supp. 874, 877 (S.D.N.Y. 1984) ("New York applies a 'contacts' analysis, applying the law of the state with the greatest interest in the litigation.") (citing cases); see also Hutner v. Greene, 734 F.2d 896, 899 (2d Cir. 1984) (quoting Intercontinental Planning, Ltd. v. Daystrom, Inc., 24 N.Y.2d 372, 383, 300 N.Y.S.2d 817, 825, 248 N.E.2d 576 (1969)) ("New York courts apply a 'paramount interest' test to choice of law issues involving contractual disputes. Under such a test, the 'law of the jurisdiction having the greatest interest in the litigation will be applied and . . . the facts or contacts which obtain significance in defining State interests are those which relate to the purpose of the particular law in conflict.'"); see generally J. Zeevi & Sons, Ltd. v. Grindlays Bank (Uganda) Ltd., 37 N.Y.2d 220, 226-27, 371 N.Y.S.2d 892, 898, 333 N.E.2d 168 (1975) ("'"The rule which has evolved clearly in our most recent decisions is that the law of the jurisdiction having the greatest interest in the litigation will be applied and that the facts or contacts which obtain significance in defining State interests are those which relate to the purpose of the particular law in conflict."'") (citation omitted); cf. Schultz v. Boy Scouts of America, Inc., 65 N.Y.2d 189, 197, 491 N.Y.S.2d 90, 480 N.E.2d 679 (1985) ("'the law of the jurisdiction having the greatest interest in the litigation will be applied'") (tort action).
DR and National Distillers contend that English law should govern because that is where the reinsurance contracts at issue were made. For several reasons, this is unpersuasive. First, although New York's choice of law rules consider the place where a contract was made, the traditional rule of lex loci "has been replaced by interest analysis, which '"gives to the place 'having the most interest in the problem' paramount control over the legal issues arising out of a particular factual context, thus allowing the forum to apply the policy of the jurisdiction "most intimately concerned with the outcome of [the] particular litigation."'" Keoseian v. von Kaulbach, 763 F. Supp. 1253, 1255-56 (S.D.N.Y. 1991) (quoting Intercontinental Planning, Ltd. v. Daystrom, Inc., 24 N.Y.2d 372, 382, 300 N.Y.S.2d 817, 248 N.E.2d 576 (1969) (quoting Auten v. Auten, 308 N.Y. 155, 161, 124 N.E.2d 99 (1954))), aff'd mem., 956 F.2d 1160 (2d Cir. 1992). The place where the contract is made, then, is but one consideration under New York's contacts analysis.
Second, as the above narrative makes clear, it is not so easy to say where the contracts at issue here were "made." Both ASRIC and Elkhorn were represented in the arrangement of reinsurance by insurance brokers in London. Although the procedures of the London reinsurance market are such that the reinsurance deals were arranged there, the actual reinsurance contracts were made in pieces; Elkhorn/Delta, the reinsurer, signed on to the policies in its offices in New York (either by signing the acknowledgment forms or, in some cases, by signing the signature page of the formal policies). I therefore do not believe this is a simple case of two parties coming together in London and signing a single contract. Cf. Swing v. Dayton, 124 A.D. 58, 108 N.Y.S. 155 (3d Dept. 1908).
Applying New York's contacts analysis to this set of complex facts, I conclude that a New York court would apply New York law to the claims in ASRIC's Amended Complaint. The relationship of New York to this reinsurance litigation is at least as significant as its relationship to any other jurisdiction. Almost every party to this action, including the counterclaim defendants, is an American corporation. Indeed, the two moving defendants, DR and National Distillers both have their principal place of business in New York. The central contractual dispute involves an American insurance company based in Georgia that insured North American risks
through an insurance program set up by an insurance broker based in New York and then obtained reinsurance for these risks with an American company based in New York. See Monarch Insurance Co. v. Insurance Corp. of Ireland Ltd., 835 F.2d 32, 35-36 (2d Cir. 1987) (applying New York law). The reinsurance scheme set up by these policies also had significant contacts with New York. ASRIC would refer claims on the risks it insured to a New York law firm, which would submit claims on the reinsurance policies to Stetzel in London. After processing the claims, Stetzel would submit them to syndicate members, including Elkhorn/Delta in New York, for approval and payment. In addition, as I suggested in my 1986 decision, New York has an interest in assuring that fronting companies licensed to do business in the state, and companies such as DR and National Distillers, with their principal places of business in New York, pay their debts. American Special Risk Ins. Co. v. Delta American Re Insurance Co., 634 F. Supp. at 119; see also Kristinus v. H. Stern Com. E Ind. S.A., 463 F. Supp. 1263, 1265 (S.D.N.Y. 1979); Travelers Ins. Co. v. Buffalo Reinsurance Co., 735 F. Supp. 492, 498 (S.D.N.Y.), vacated on rearg. on different grounds, 739 F. Supp. 209 (S.D.N.Y. 1990). These considerations convince me that New York has the "paramount interest" in applying its law to the claims in the Amended Complaint.
DR and National Distillers point to several other factors, which I have considered, but which do not convince me that New York law is not appropriately applied to the reinsurance contracts at issue here. Defendants emphasize the interest of England in regulating the business of insurance and reinsurance. A review of the English decisions submitted to the court on this motion, however, makes clear that any interest England has in making insurance and reinsurance contracts entered into by unlicensed companies unenforceable is minimal at best. Although the Insurance Companies Acts of 1974 and 1981 (consolidated in the Insurance Companies Act of 1982) have been interpreted by at least the lower courts of England as making a contract entered into by an unlicensed insurance company unenforceable (in fact, these acts make it a criminal act for an unlicensed company to enter into such a contract), Parliament amended the relevant law in 1986 so that such an insurance contract made by an unlicensed company will still be enforceable, at least against that party. Financial Services Act of 1986 § 132. Although the English courts have interpreted this change in the law as not applying retroactively to the period during which unlicensed Elkhorn/Delta entered into the reinsurance contracts at issue here, Parliament's change of the law certainly suggests that England's interest in making all such contracts void and unenforceable is hardly significant.
Defendants also contend that English law should be applied to ASRIC's claims because otherwise "substantial injustice" would result. One of the English decisions upon which defendants rely, DR Insurance Co. v. Seguros America Banamex (July 30, 1992) (unpublished), held that Elkhorn/Delta's agreements with the other members of the Stetzel reinsurance syndicate were void, based on the fact that Elkhorn/Delta was not licensed to engage in insurance in England at the time it entered into those contracts. Accordingly, DR has lost its indemnification rights against other syndicate members, and so may be "whipsawed" if it is found liable in this litigation for Elkhorn/Delta's commitments. Although such a result might be unfortunate for DR, it would be entirely attributable to the actions of Elkhorn/Delta, DR's predecessor in interest, in engaging in insurance in England without a license.
I do not believe this is a justification for not applying New York law to ASRIC's claims.
Because of my conclusion that New York law should govern, I need not reach an additional argument supporting ASRIC's position. ASRIC contends that enforcement of the British rule denying ASRIC the benefit of its contracts with Elkhorn by reason of Elkhorn's failure to secure licensing in the United Kingdom is contrary to the public policy of New York. There is substantial justification for ASRIC's argument. If the United Kingdom seeks to prevent unlicensed entities from writing insurance in the U.K., it makes little sense and arguably offends fundamental fairness to grant these unlicensed entities windfall profits by denying their insureds the right to enforce their contracts of insurance. This punishes the insureds and rewards the insurer for the wrongdoing of the insurer. It is not surprising that this rule was legislatively overturned.
For the reasons above, I conclude that New York law is appropriately applied to ASRIC's claims in the Amended Complaint. Accordingly, DR and National Distillers' motion for summary judgment based on the application of English law to these claims is denied.
Dated: New York, N.Y.
November 11, 1993
Pierre N. Leval, U.S.D.J.