In an insurance bad case, must the court apply the law of a foreign state where the policy provides that “any dispute concerning or relating to this insurance” will be decided according to that state’s law?
This case grows out of a chlorine leak at a plan owned and operated by Respondent, Axial, in Marshall County, West Virginia. Respondent alleges that the leak caused physical damage to the plant--damage covered by a series of commercial property insurance policies issued by Petitioners. Petitioners deny that coverage exists under the policies.
Petitioners filed a declaratory judgment claim in Delaware. Respondents, in turn, filed claims directly against Petitioners in West Virginia, including claims for breach of contract and bad faith. Petitioners filed a motion to stay proceedings in West Virginia. While that motion was still pending, the Supreme Court entered an administrative order referring the case to the business court. In the meantime, the trial court denied Petitioners’ motion for a stay. The trial court also ruled, sua sponte, that the bad faith claim was governed by West Virginia law and entered an order bifurcating that claim. Petitioners seek review of the trial court’s ruling via a writ of prohibition.
Petitioners argue that Georgia law governs the policy and therefore, “by extension, the breadth of the policy’s choice-of-law provision.” Alternatively, the bad faith claims should be governed by Georgia law because “they arose out of the contract.” Having found that Georgia law applied to the breach of contract claim, the trial court erred by refusing to apply Georgia law to the related bad faith claim.
Respondent agrees that the trial court exceeded its authority by reaching the choice-of-law issue. Consequently, that part of the trial court’s ruling should be vacated. However, the issue of whether the bad faith claim should be governed by Georgia law or West Virginia law is, at this point, premature. The issue should be taken up by the business court, which can issue a ruling on a fully developed record.
This case is set for a Rule 20 argument. The choice-of-law issue is intriguing. West Virginia treats a bad faith claim as a tort for conflict purposes. If the Supreme Court follows that rule, then there are questions that will have to be thoughtfully considered. If bad faith is a tort, does it matter that the claim “arose out of the contract”? Does it matter that the property itself is in West Virginia and that the loss occurred in West Virginia? Will the Court draw a distinction between the common law claim (i.e., the implied covenant) and the statutory claim (i.e., the claim arising under the UTPA)?
Unfortunately, we may not get answers to any of these questions. It is difficult to know for certain why the Court set the case on the Rule 20 docket. Respondent has argued that the trial court never should have reached the choice-of-law issue because the record was not fully developed. Might the Court be interested explaining under what circumstances a choice-of-law issue is ripe for decision? And what about the business court? Respondent says all of this should be decided by the business court. Might the Court be interested in explaining when the business court acquires jurisdiction over a case that’s been assigned to it?
The simple answer is that we don’t know what issue has drawn the Court’s eye. But, clearly, the Court believes that a new syllabus will be forthcoming. For that reason, we’ll be watching this case carefully.