This one’s for all the “choice of law” junkies out there, particularly those fans of “the rule of dépeçage.” Judge Thomas Zilly recently issued the decision in this case, which arose out of an injury to a construction worker while working for Oregon subcontractor Wood Mechanix at an Oregon development. The worker sued Polygon Northwest, which was the owner of the land being developed. I can’t tell if the decision’s going to be published — it’s a well-written and informative decision and should be published, if you ask me – but you can see it by clicking here.
Because Polygon was an additional insured under a policy National Fire and Marine Insurance Company sold to Wood, Polygon asked National to defend it in the lawsuit. National claimed Polygon wasn’t an additional insured and refused to defend. Polygon, a Washington corporation, ultimately sued National in Washington, wanting to enjoy the benefits Washington law offers to policyholders. Namely, the Insurance Fair Conduct Act (“IFCA”), the Consumer Protection Act (“CPA”), and coverage by estoppel.
National, of course, wanted no part of Washington law. It filed a motion for partial summary judgment, arguing that Oregon law applied and therefore the IFCA, CPA, and coverage by estoppel claims had to be dismissed.
Judge Zilly agreed, doing a very nice job of analyzing the choice of law issue. And in throwing in a discussion of the rule of dépeçage, which requires you to perform a conflict of law analysis on each individual cause of action. This could result in the court applying one state’s law to one cause, and another state’s law to a separate cause. Fun choice of law fact of the day for you: dépeçage comes from a French word meaning to dismember or carve up.
Judge Zilly found a conflict between Oregon and Washington law on Polygon’s IFCA, CPA, and coverage by estoppel claims and also that Oregon had the “most significant relationship” with the issues in those claims, and therefore concluded that Oregon law applied, requiring the dismissal of those claims. In doing so, he recognized the drastic difference between Washington and Oregon law. Among the differences, in Oregon you can’t bring a claim for an insurer’s bad faith refusal to defend, you can’t get coverage by estoppel in that situation, and you don’t have the potential punitive damages you can get under IFCA. In short, policyholders would much rather sue in Washington, while insurers love being sued in Oregon. Well, not really, but they certainly prefer Oregon over Washington.
Judge Zilly noted that the Washington courts adopted coverage by estoppel for policy reasons because it creates a strong incentive for the insurer to act in good faith. “In Oregon,” he continued, “the courts have taken the opposite approach.” I’m not sure if this was intended to be a rebuke of the Oregon way of doing things, but it certainly seems to be true. The current condition of Oregon insurance law may even incentivize insurers to act in bad faith — if they’re not going to be penalized for it, what would you expect them to do?
So now that Judge Zilly has granted National’s motion, Polygon is left with its negligence and breach of contract claims. Maybe it will have better luck with those, but it certainly isn’t looking at the type of damages it was looking at before losing its IFCA, CPA and coverage by estoppel claims. Victory to the insurer, at least for the moment.
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