As a preliminary matter to an Application to determine whether an Insurer was obligated to share in the costs of defending an Insured under a liability policy, the Insurer sought a ruling as to the proper law to be applied to the policy. The Court ruled that the proper law of the contract was New York.

Commercial Union Assurance Co. of Canada v. National Union Fire Insurance Co. of Pittsburgh, [2006] M.J. No. 258, Manitoba Court of Queen’s Bench

In March 1992, a turbine manufactured by Whirlpool Canada’s predecessor exploded, causing extensive damage to Manitoba Hydro. At the time of the explosion, Commercial Union Assurance Co. of Canada (“Commercial”) provided primary liability insurance coverage for Whirlpool with a policy limit of $2,000,000. National Union Fire Insurance Co. of Pittsburgh (“National”) provided umbrella liability coverage with a policy limit of $25,000,000. In November 1998, Manitoba Hydro filed a claim in the Manitoba Court of Queen’s Bench seeking damages against Whirlpool in the amount of approximately $31,000,000.

Both the Commercial and the National policy contained clauses whereby the Insurer agreed to defend any claim against the Insured where the damages sought in the claim were for a loss insured under the policies. Both National and Commercial denied a duty to defend the Manitoba Hydro action.

The Application before the Court considered which law was to be applied to the National policy.

The Court noted that in Canada “proper law” issues were resolved by considering the contract as a whole in light of all the circumstances and applying the law with which the contract had the closest and most substantial connection. The Court found that the contract had the closest and most real connection with the United States rather than any Canadian province. The Court noted that the domicile and residence of the contracting parties was in the United States, the contract was made in the United States, the premium would be paid in the United States, any losses would presumably be paid from National’s Head Office in the United States, and other aspects of the policy would be performed in the United States, including the giving of notice of occurrence audits, maintenance of underlying insurance, etc.

The Court then considered whether the proper law was the law of New York or the law of Michigan. While there were numerous factors in favour of either state, the Court found that the circumstance which tipped the scales in favour of New York was that the decision to underwrite the risk was taken there. The Court concluded that the proper law of the contract was New York.

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