The owner and manager of Made-Up Glass Shop Inc., based out of Missouri, called me recently, explaining that his company had just been sued for allegedly defective windows. The windows were sold and installed into a new apartment complex in California. The general contractor hired numerous subcontractors from New Mexico to assist in the construction of the building and installation of the windows.

Before the project began, the glass manufacturer purchased a new Commercial General Liability (CGL) insurance policy with “United Heritage of Ohio.” It was cheaper than last year’s policy, but seemed like it provided the same type of coverages and protections. The manufacturer tendered the new case to its new insurance carrier. As is typical in commercial construction defect litigation, the insurance company “reserved its rights” to potentially disclaim coverage and not pay defense costs and indemnity dollars down the road.

As you know, if you’ve read my previous articles, the reservation of rights creates a conflict of interest between the insurance company and the insured. The carrier also claimed that the law of the state of New York applies to any insurance coverage case. In fact, the carrier was threatening a lawsuit in New York to determine its obligations to the manufacturer in defending the construction defect case. The owner of the manufacturer was confused. What gives? Why is New York in the picture?!?

State by State

In advising the company from Missouri, about a project located in California, with subcontractors hired from New Mexico, an insurance policy issued by an Ohio company, and an assertion that New York law applies to any coverage dispute, my questions were twofold: (1) What does your insurance contract say in terms of the governing law, and (2) in what state was the lawsuit filed (or will be filed)?

As you probably know, different states have different laws. Sure, the constitution of the United States and federal statutes apply to every state, but when it comes to fenestration litigation and insurance coverage disputes, there is a good chance state law will dictate the outcome of the case. More importantly, the choice of law may directly affect your insurance coverage protections. Insurance protections and obligations are interpreted and handled differently depending on the state law that applies to the case. How your insurance protections are applied is critical to make certain you have a working understanding of how you are protected project-to-project. Think about your cash flow challenges in fighting a construction defect case in California and an insurance coverage case in New York, all stemming from the same underlying facts.

First and foremost, the easiest way to determine which law applies to an insurance coverage dispute is to look at the contract between the fenestration company and the insurance carrier. In continuing with the example above, if the CGL policy contract between the manufacturer and the insurance company specifically states that “in the event of a coverage dispute, the law of the state of New York will apply,” then the law of the state of New York will apply. It’s really that simple. Parties generally are bound by contract terms they agree to. Read the language of your CGL policy with absolute precision. If you find yourself overwhelmed, ask your in-house counsel or another attorney of your choice who is well-versed in insurance coverage issues to read, analyze and summarize your coverage. Ask them to verify exactly what you are agreeing to, what you are paying for, and what you are obligated to do under the terms of the contract.

Often, insurance contracts don’t declare which state’s law will apply, and even if they do, contracts, or portions of contracts, may be deemed “unenforceable” by a court of law. For example, a court may consider a contract unconscionable, vague, ambiguous or against public policy. Let’s assume, for purposes of our analysis, the court in question threw out the New York law portion of the insurance contract, declaring it unconscionable. Now, regarding the underlying construction defect case, what law applies among Missouri, California, New Mexico, or Ohio? The answer depends on the choice-of-law analysis employed by the court. Let’s dive into the analysis a little deeper.

There are three choice-of-law theories employed by courts in the United States to determine which state’s laws apply to a cause of action: (1) the Traditional Approach, (2) the Significant Relationship Test and (3) the Governmental Interest Analysis Approach. New Mexico applies a version of the Traditional Approach. Missouri and Ohio apply versions of the Significant Relationship Test. California applies a version of the Governmental Interest Analysis Approach.

If the apartment complex chose to bring suit in the state of New Mexico, a court would likely apply the Traditional Approach, and the choice-of-law analysis would depend on the type of the cause of action (tort v. contract). If the claims against the manufacturer are tort or fraud claims, the law of the state where the place of the injury occurred, in this case, California, would most likely apply. However, if the claims against the manufacturer are contract claims, for example, for breach of warranty, the Traditional Approach dictates that the action is to be governed by the place where the contract was made. In analyzing a claim for breach of contract or a warranty dispute, a court employing the Traditional Approach would likely apply the law of either Missouri or California, depending on where the parties signed the contract.

If the apartment complex chose to bring suit in Missouri or Ohio, a court would likely apply the Significant Relationship Test, in which a number of principles are weighed to select the proper choice of law. These principals include: (1) The relevant policies of other interested states, (2) the protection of justified expectations, (3) the policies underlying that specific field of law and (4) predictability and uniformity. Would a Missouri company doing business in California “expect” the law of the state of New Mexico to apply to such a dispute? Most likely, no. Are Missouri and California “interested states,” which favor the law of their states to apply to such a dispute? Most likely, yes. Do we want people and companies that do us wrong in one state to escape liability by applying the law of another? No. Although the Significant Relationship Test can be difficult to predict, it is almost the most elemental and easiest to apply. The case law of that particular state will likely provide the answer to most choice-of-law questions when applying the Significant Relationship Test.

Who’s Accountable

Lastly, if the apartment complex chose to bring suit in the state of California, the court would likely apply a version of the Governmental Interest Analysis Approach. This approach is very similar to the Significant Relationship Test, as the court considers four factors: (1) the place where the injury occurred, (2) the place where the conduct causing the injury occurred, (3) the domicile, residence, nationality, place of incorporation or place of business of the parties, and (4) the place where the parties’ relationship is centered. Essentially, the court looks at each state’s law and determines what interests that state’s law is meant to protect. For example, if the state of Missouri has a significant policy interest in having its laws applied to contracts signed within its borders, but the state of California appears to prefer contracts signed within its borders be governed by the law of the state in which the contract is to be fulfilled, the court will apply the law of the state of Missouri because it has a more significant “governmental interest” in having its laws applied to the current lawsuit.

All three approaches utilized to determine the proper choice of law weigh the pros and cons of applying different state’s laws, and aim to arrive at a fair and just result based on the circumstances and facts of each case. If the contract between the manufacturer and its insurance company propounds that the law of a certain state will apply to any disputes between insurer and insured, the law of that state almost certainly applies. Courts tend to hold parties accountable for contracts they agree to, and sign. If the contract is silent as to the law that should apply to a dispute, a choice-of-law analysis must be applied based on the particular test employed by the state in which the lawsuit was brought.

Why is this so important? As with any conflict, the rules you must play by often direct the outcome. If one state’s law has a more favorable case law or statutory authority, you’re better off fighting the issues there. Stacking the deck in your favor before you’re embattled in a multi-year litigation case is simply smart strategy. My advice: (1) know what’s in your policy, (2) understand how your coverage works and (3) be aware of both (a) the protections guaranteed by your carrier, and (b) your obligations as an insured.

Providing you with an explanation as to how “choice of law” analysis works, in the event there is no choice-of-law provision in your insurance policy, one (or a combination) of the choice-of-law analysis will be necessary to determine what state law applies to any disagreements between you and your insurance company. In the event a state is identified in the insurance policy for choice-of-law purposes, it’s likely enforceable. As you might imagine, in the event an insurance company adds a choice-of-law clause identifying a specific state, it does so because that state’s laws are likely favorable to the insurance company. It’s critical you know whether the policy you have or are purchasing stacks the deck in the insurance company’s favor before you need protection from a lawsuit.

In the End

After reviewing the contract between the manufacturer’s choice and its insurance company, I quickly realized the document was silent regarding the application of any particular state’s law. So, I asked, “What state has the apartment complex chosen to bring suit?” The owner quickly glanced at the heading of the lawsuit, and fell silent. “Canada,” he quietly murmured. I replied, “Well, at least you have a bit better understanding of the analysis if you’re sued in the states. Now let’s turn to what happens when you are sued in a different country!” I’ll cover what you do then in another article …

Charles A. “Chip” Gentry is a founding member of Call & Gentry Law Group in Jefferson City, Mo. He can be reached at

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