St. Paul Mercury Insurance Co. v. Northern States Power Co., 2009 WL 2596074 (Minn. Ct. App. Aug. 25, 2009), illustrates that legal standards can prove to be mutable and protean in application, perhaps calling into question Judge Posner’s epigrammatic observation that “a standard that takes account of all relevant considerations will produce fewer arbitrary differences in outcome.” Irizarry v. Board of Educ. of Chicago, 251 F.3d 604, 611 (7th Cir. 2001). Ostensibly applying a significant contacts choice of law standard, the Minnesota court held in a 2-1 decision that Minnesota’s loss allocation rule applied to an environmental remediation claim that concerned the operations of a Wisconsin manufacturer at four sites in Wisconsin.
The insured, Northern States Power Company (NSP-WI), is a Wisconsin corporation. NSP-WI is a subsidiary of Northern States Power Company, a Minnesota corporation (NSP-MN). NSP-WI sought coverage from St. Paul for environmental remediation costs associated with four manufactured-gas plants in Wisconsin.
The extent of St. Paul’s insurance coverage was dependent on whether Minnesota or Wisconsin law governed the allocation of the loss. Wisconsin applies the “all sums” allocation method, which imposes liability on an insurer for the entire loss even if some portion of the loss falls outside of the scope of coverage. Conversely, Minnesota law applies the pro rata method, which allocates to each insurer a share of the total damages proportionate to the number of years it was on the risk relative to the total number of years coverage triggered.
The court recited that Minnesota’s choice-of-law analysis requires consideration of five factors: “(1) predictability of results; (2) maintenance of interstate and international order; (3) simplification of the judicial task; (4) advancement of the forum’s governmental interest; and (5) application of the federal rule of law.” 2009 WL2596074, at *4.
First, the Court found material “the substantial involvement by NSP-MN in the acquisition and negotiation of the insurance contracts at issue,” which “undermined NSP-WI’s claim of unfair surprise that its contracts would be construed under Minnesota law.” Id. Second, the court observed that “the Minnesota Supreme Court recognized Minnesota’s pro rata allocation method was the superior allocation method in part due to its simplicity,” so that the application of Minnesota law would simplify the judicial task. 2009 WL2596074, at *5. Finally, the court similarly concluded that the “pro rata time-on-the risk method is the most logical, fair, and efficient way to allocate damages in environmental cases where the property damage is long-term, continual, and indivisible.” 2009 WL2596074, at *6.
The dissenting judge determined that the application of Minnesota law subverted the maintenance of interstate order. He astringently observed that, “if Minnesota utilities and their customers were told that North Dakota law governed insurance coverage for a toxic spill in Minnesota written by insurance companies from around the world, Minnesotans would find the displacement of our laws and rules unsettling.” 2009 WL2596074, at *9.
Likewise, he noted that though Minnesota had an interest in providing an impartial forum, “the regulation of the utilities in environmental clean-up tasks are state specific,” so that Minnesota did “not have a strong interest in how neighboring states allocate risk among insurers for such liability – as long as we are neither applying a law that has an anti-insurer animus or would defeat responsible rules of coverage.” Id. Finally, he took issue with the notion that the Minnesota allocation rule was superior to the Wisconsin rule: “To tell the state of Wisconsin and its supreme court that in 2009 they got it wrong and we Minnesotans got it right on a contemporary issue would engender resentment that detracts from the respect that each state should accord the laws and court decisions of the other.” 2009 WL2596074, at *10.
