Callon Petroleum Co. v. National Indemnity Co. et. al.
(United States District Court, Eastern District of New York, August 24, 2009)
Plaintiff commenced this reinsurance action against National based upon a judgment it obtained against insurer Frontier in Louisiana for $2.7 million. The reinsurance agreement, which was negotiated and executed in New York, required National to reinsure Frontier’s liabilities and payments for all amounts of “Ultimate Net Loss.” Pending before the Court was plaintiff’s motion to amend the complaint to include a statutory claim for punitive damages based upon National’s bad faith failure to make a timely payment under Louisiana law. In deciding whether to allow plaintiff to amend the complaint, the court first addressed the choice of law issue and then focused its analysis on determining the futility of the claims under New York law and whether the claims could survive a motion to dismiss.
The district court held that New York's choice of law rules would apply and that New York’s “center of gravity” or “grouping of contracts” analysis in choice of law situations applied to breach of contract cases. Based on this analysis, which weighs a spectrum of factors, including the place of contracting, negotiation and performance; the location of the subject matter of the contract; and the domicile of the contracting parties, the court held New York law was applicable to the Reinsurance Agreement. Accordingly, the court further held that, as New York law does not allow recovery for punitive damages in ordinary breach of contract claims, plaintiff’s claim for punitive damages under these circumstances would be futile, thus, denying plaintiff’s motion to amend the complaint to add this cause of action.
For a copy of the decision, click here
By Paul C. Steck and Thomas F. Segalla