                                                                                                                           Opinions of the United
1995 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


9-8-1995

NL Industries v Comm Union
Precedential or Non-Precedential:

Docket 94-5470




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                 UNITED STATES COURT OF APPEALS
                     FOR THE THIRD CIRCUIT



                            NO.    94-5470


                       NL INDUSTRIES, INC.

                                  v.

                COMMERCIAL UNION INSURANCE COMPANY
                                Defendant/Third-Party Plaintiff

                                   v.

               CERTAIN UNDERWRITERS AT LLOYD'S;
             INSURANCE COMPANY OF NORTH AMERICA;
       NORTHBROOK EXCESS AND SURPLUS INSURANCE COMPANY
                                   Third-Party Defendants

            Commercial Union Insurance Companies,
                                   Appellant

       On Appeal from the United States District Court
               for the District of New Jersey
                 (D.C. Civ. No. 90-cv-02124)

                     Argued:      March 7, 1995

      Before:   BECKER, SCIRICA and WOOD,0 Circuit Judges.

                   (Filed    September 8, 1995)

                                   STEVEN R. BROCK, ESQUIRE (ARGUED)
                                   Rivkin, Radler & Kremer
                                   EAB Plaza, West Tower
                                   Uniondale, NY   11556-0111

                                   Counsel for Appellant, Commercial
                                   Union Insurance Companies




0
Honorable Harlington Wood, Jr., United States Circuit Judge for
         the Seventh Circuit, sitting by designation.


                                   1
                                  SAMUEL   A.    HAUBOLD,    ESQUIRE
(ARGUED)
                                  Kirkland & Ellis
                                  200 East Randolph Drive
                                  Chicago, IL   60601

                                  Counsel for Appellee,
                                  NL Industries, Inc.


                                  TERRY    M.   COSGROVE,    ESQUIRE
(ARGUED)
                                  Peterson & Ross
                                  200 East Randolph, Suite 7300
                                  Chicago, IL   60601-6969

                                  Counsel for Appellee, Certain
                                  Underwriters at Lloyd's of London


                                  PAUL R. KOEPFF, ESQUIRE (ARGUED)
                                  O'Melveny & Myers
                                  153 East 53rd Street
                                  Citicorp Center
                                  New York, NY   10022

                                  Counsel for Appellee, Insurance
                                  Company of North America



                         OPINION OF THE COURT


BECKER, Circuit Judge.


           This appeal by defendant/third party plaintiff Commer-

cial Union Insurance Company ("CU") arises out of a suit brought

by plaintiff/appellee NL Industries ("NL") seeking a declaration

that it is entitled to product liability insurance coverage for a

large number of lawsuits alleging lead paint exposure.      Jurisdic-

tion is based on diversity of citizenship.      CU appeals from the

grant of summary judgment against it in order to contest: (1) the



                                  2
district court's choice of New Jersey law and its apparently

consequent summary judgment requiring CU to fund NL's defense in

the underlying tort actions; (2) the court's refusal to apportion

the defense costs incurred in the underlying litigation between

covered and non-covered claims; and (3) its denial of CU's claim

for     contribution    against     third   party   defendants/appellees

Insurance Company of North America ("INA"), Northbrook Insurance

Company, and certain underwriters at Lloyd's of London, (the

"London Insurers").

            We hold that the district court erred in applying New

Jersey substantive law.          Under New Jersey choice of law rules,

which are applicable since the case was litigated in the District

Court for the District of New Jersey, see Klaxon Co. v. Stentor

Electric Manufacturing Co., 313 U.S. 487, 61 S.Ct. 1020 (1941),

the law of the place of contracting applies unless some other

state    has   a     "dominant     significant   relationship"   to   the

transaction.       The policy was negotiated and signed in New York,

and thus the parties reasonably expected, as the district court

recognized, that New York law would govern the interpretation of

the contract. Moreover, at all relevant times, the parties each

had their principal places of business in New York, the premiums

were paid in New York, and New York taxes were paid on the

policies.

            In contrast, it is patent that New Jersey has none of

the contacts with or interests in the litigation that could give

rise to the requisite relationship.          Significantly, none of the

underlying tort claims involved New Jersey plaintiffs.           Because


                                      3
the lead paint coverage actions had been joined with certain

environmental coverage actions (seeking coverage for claims that

NL was responsible for environmental harms at sites in New Jersey

and elsewhere), the district court relied upon Gilbert Spruance

Co. v. Pennsylvania Mfrs. Ass'n Ins. Co., 629 A.2d 885 (N.J.

1993), as a basis for applying New Jersey law.                     But since that

case has no application to tort-related cases, we conclude that

the court was incorrect in applying it here.                     And while it is

arguable that the states where the lead paint claims arose had a

relationship to the transaction, we do not believe that they have

the "dominant and significant relationship" necessary to displace

the law of New York, which is the law of the place of contract-

ing, of performance, and of the tort.

           Because the district court's application of New Jersey

instead   of   New    York     law    to    the   coverage    issues   was   legally

erroneous, we must reverse the grant of summary judgment.                         In

view of this result, we do not reach the substantive questions of

CU's duty to defend, its right to allocation, or the availability

of a contribution claim against INA, for on remand these must be

reconsidered pursuant to New York law.

I.   Facts and Procedural History

           This      is    one   of       two    separate    declaratory     judgment

actions   brought         by   NL,    a    New    Jersey    corporation    with   its

principal place of business in New York, against CU for insurance

coverage under contracts negotiated and performed in New York.

NL first sought a declaration that CU was obligated to defend it

in product liability lawsuits in Massachusetts, New York, and


                                            4
Louisiana arising out of NL's manufacture of lead paint pigment.

NL later added claims for coverage for four additional lead paint

suits.   The various plaintiffs in the underlying lawsuits alleged

personal injuries as the result of lead paint exposure.                          NL did

not, however, seek a declaration of CU's obligation to indemnify

it with respect to the first three lead paint actions in this

lawsuit; instead, NL included that issue in a separate lawsuit,

the so-called "environmental action."                  See NL Industries, Inc. v.

Commercial Union Ins. Co., No. 90-2125 (D.N.J.).                      In that action,

NL also seeks a declaration that CU is obligated to defend and

indemnify NL in connection with approximately 385 environmental

claims arising from numerous sites throughout the United States.

            The   lead        paint   cases    underlying      this    coverage     suit

arise from the use of lead paint or paint containing lead pigment

manufactured by NL.             The underlying complaints allege that NL

knew since the early 1900's of the dangers posed by lead paints,

and   charge   that      NL    "affirmatively     misrepresented           the   safety,

suitability       and     qualities       of     lead       paint     through      [its]

advertisements and promotional activities." (JA 21 at 1890-92;

1824-26; 1737-38; 1702-04.)             They contain allegations of negli-

gence,   fraud,     civil       conspiracy,     and    other   intentional        torts.

The plaintiffs also allege that NL organized the Lead Industries

Association ("the LIA") to respond to the negative information

being    revealed       about    lead   paint,        and   that    NL's    high-level

executives played an active role in the LIA, which led an effort

to discredit adverse medical evidence about the hazards of lead

paint in order to ward off any additional government regulation.


                                          5
Documentary evidence submitted by CU supports these allegations

of fraud and other intentional torts.                      Many of the meetings

organizing these activities allegedly occurred in New York.

              The district court found that New York was the place of

contracting for all of the policies issued to NL by CU.                        NL had

used a New York-based insurance broker to negotiate these con-

tracts.       The   contracts    were     countersigned        in    CU's    New   York

office. During the time that the relevant CU policies were in

effect, NL maintained its national headquarters and principal

place    of   business   in    New     York.      Both   NL    and   CU's    original

objectively reasonable expectations were that New York law would

control any disputes involving these contracts. See 7/11/91 Op.

at 10.0       CU coded these policies as New York contracts, and

premium taxes on the policies were paid in New York.

              The CU policies at issue were effective from February

1, 1966 to January 1, 1978.               Some policies covered the period

from February 1, 1966 to February 1, 1970 and provided coverage

for   bodily    injury   only.         Other    policies    were     effective     from

February 1, 1970 to January 1, 1978 and covered both bodily

injury    and   property      damage    claims.      The      insuring      agreements

typically state:
          The company will pay on               behalf of the insured all sums
          which the insured shall              become legally obligated to pay
          as damages because of
                         Coverage              A bodily injury or
                         Coverage              B property damage

0
In adopting the district court's finding about the parties'
expectations, we do not consider the affidavits submitted by CU
in the litigation of these four new suits, for the district court
properly noted that "[t]he time for the presentation of such
evidence has long passed." 5/26/94 Op. at 11.

                                          6
              to which this insurance applies, caused by an
              occurrence, and the company shall have the right and
              duty to defend any suit against the insured seeking
              damages on account of such bodily injury or property
              damage, even if any of the allegations of the suit are
              groundless, false or fraudulent. . . .

The policies typically define "occurrence" as follows:

              an   accident,   including    injurious   exposure   to
              conditions, which results, during the policy period, in
              bodily injury or property damage neither expected nor
              intended from the standpoint of the Insured.


The policies provided by INA similarly specify that INA has the

right and duty to defend bodily injury or property damage suits

caused by an "occurrence," defined as an event that was "neither

expected nor intended from the standpoint of the Insured."

              In     both    cases    involving     the   CU   coverage,      the

allegations of intentional conduct would appear to put coverage

at   issue.         In   contrast,   the   London   policies   in   effect   from

November 19, 1949 to May 1, 1970 provide for (even broader)

coverage of property damage in the following terms:
          COVERAGE. From and against all loss, costs, damages,
          attorney fees and expenses of whatever kind and nature
          which the Assured may sustain or incur by reason of or
          in consequence of:

              (a)    Any and all liability imposed by law against the
                     Assured for damage to or destruction of property
                     of others . . . sustained or alleged to have been
                     sustained, arising from any cause whatsoever . . .
                     .


              Despite the fact that NL was also covered by other

primary insurers during the relevant period, NL named only CU as

a defendant in this action.            Accordingly, CU filed a third-party

complaint against those others -- the London Insurers, INA, and



                                           7
Northbrook Insurance Company -- seeking a declaration that any

obligation owed NL with respect to the underlying actions was

subject to and limited by the obligations of the third-party

defendants.

              NL   moved   for    partial     summary    judgment     against    CU

seeking   a    declaration       that   New   Jersey    law   would   govern    the

interpretation of its contracts with CU and that CU was obligated

to fund NL's defense in the three original lead paint actions.

In a July 11, 1991 opinion, the district court purported to

address the choice of law issue for both the lead paint and

environmental      coverage      actions.        (The   environmental    coverage

dispute, NL Industries, Inc. v. Commercial Union Ins. Co., No.

90-2125, was also pending in the District Court for the District

of New Jersey.)        The court apparently was under the impression

that it had to interpret a given insurance policy uniformly as to

both the environmental and the lead paint coverage claims.                      The

court decided that New Jersey law was applicable and, applying

it, granted NL's motion for defense costs of the three original

lead paint claims.

              The case was then referred to a magistrate judge for a

hearing on the amount of defense costs.                 On March 20, 1992, CU

and NL entered into a stipulation and settlement agreement with

respect to the payment of NL's defense costs incurred prior to

March 1, 1992, in the three original lead paint actions.                        The

settlement agreement was intended by the parties to be a final,

binding   resolution       of   that    issue.     Coverage    for    these   three

actions, dealt with in the settlement agreement, is therefore not


                                          8
at issue here. After the settlement agreement was finalized, NL

moved to amend its complaint to add the four new lead paint

lawsuits, which form the basis for this appeal.

            These new lead paint actions arose in Pennsylvania and

Louisiana after the settlement of the coverage issues for the

original three lead paint actions.0          NL then moved for summary

judgment against CU alleging a duty to defend with respect to the

four new actions.    CU followed with a motion for summary judgment

against INA and the London Insurers on its claim for contribution

for a portion of the more than $4 million CU paid to NL to

reimburse NL's defense costs in the three original actions.                  CU

also sought allocation of defense costs among CU, INA, the London

Insurers, and NL.

            In   opinions   and   orders    dated    August   6,    1993   and

September   9,   1993,   the   magistrate    judge    granted      NL   summary

judgment on the duty to defend the four new claims and denied

CU's motion for contribution and allocation.0           CU filed a motion

to vacate the judgment pursuant to Fed. R. Civ.P. 59(e), which

the Magistrate recommended be granted, deeming his opinions to be



0
 The additional suits were:      City of Philadelphia v. Lead
Industries Ass'n, No. 90-7064 (E.D. Pa.); Hurt v. Philadelphia
Housing Authority, No. 91-4746 (E.D. Pa.); Swartzbauer v. Lead
Industries Ass'n, No. 91-CV-3948 (E.D. Pa.); Orleans Parish
School Board v. Apex Sales Co., No. 91-6014 (La. Dist. Ct.).
0
 The parties had originally consented to the jurisdiction of the
magistrate judge to determine damages and all further proceedings
after the district court's 7/11/91 opinion. After the magistrate
judge entered final judgment on the four new claims on November
15, 1993, CU contested the magistrate's jurisdiction, leading to
its Rule 59(e) motion.

                                    9
reports and recommendations to the district court pursuant to 28

U.S.C. §636(b).

              On May 26, 1994, the district court filed an opinion

adopting      the     magistrate   judge's   findings,    granting     summary

judgment in favor of NL on the issue of CU's duty to defend the

four new actions, and denying CU's motion for contribution and/or

allocation.         The district court adhered to its previous determi-

nation that New Jersey law governed the interpretation of the

contracts, relying in part on the law of the case doctrine (based

on its disposition in the 7/11/91 opinion) and on concerns that

applying different states' laws to the various claims would be

unmanageable. The court denied CU's motion for contribution from

INA and the London Insurers on the basis that it was premature.

The   court    also     declined   to   allocate    defense    costs   between

negligence and intentional tort claims on the grounds that there

was no "substantial issue" as to coverage, and, consequently,

that all claims were potentially covered.            This appeal followed.

              Since choice of law analysis involves a purely legal

question, we exercise plenary review.              Armotek Industries, Inc.

v. Employers Ins. of Wausau, 952 F.2d 756, 760 n.5, 762 n. 8 (3d

Cir. 1991).          Moreover, the district court's grant of summary

judgment is also subject to plenary review.                   Public Interest

Research of N.J. v. Powell Duffryn Terminals, Inc., 913 F.2d 64,

71 (3d Cir. 1990), cert. denied, 498 U.S. 1109 (1991).

II.   New Jersey Choice of Law Principles
              A.    General Considerations




                                        10
            At the outset, we must carefully distinguish between

the environmental coverage disputes, which are not at issue in

this appeal, and the (new) lead paint coverage actions, which

are.      We must also keep conceptually separate the underlying

merits     actions      (certainly       not   at     issue     here)    from       their

corresponding coverage litigation.               This distinction is not only

important for limiting our decision to what is properly at issue

in this appeal; it also reflects a crucial distinction in New

Jersey's choice of law jurisprudence.

            In many areas of the law, New Jersey "has eschewed

slavish devotion to rigid principles."                       See Diamond Shamrock

Chems. Co. v. Aetna Casualty & Sur. Co., 609 A.2d 440, 465 (N.J.

App. Div. 1992), certif. denied, 634 A.2d 528 (1993); Bell v.

Merchants & Businessmen's Mut. Ins. Co., 575 A.2d 878, 880 (N.J.

App. Div.), certif. denied, 585 A.2d 395 (1990); State v. Curry,

532 A.2d 721 (N.J. 1987); Veazey v. Doremus, 510 A.2d 1187 (N.J.

1986).     Choice of law is no exception.                  Although the law of the

place of contracting has historically governed the choice of law

in insurance contract interpretation cases, see, e.g., Buzzone v.
Hartford Ac. and Indem. Co., 129 A.2d 561 (1957), in keeping with

the general trend the New Jersey courts have moved away from the

mechanical application of this rule in favor of a more flexible

approach    focused      on     determining      which       state   has      the   most

meaningful connections with and interests in the transaction and

the    parties.   See    State    Farm    Mut.      Auto    Ins.   Co.   v.    Simmons'
Estate,    417    A.2d    488    (N.J.    1980);      Gilbert      Spruance     Co.    v.

Pennsylvania Mfrs. Ass'n Ins. Co., 629 A.2d 885, 888 (N.J. 1993)


                                          11
(reaffirming and applying Simmons); Colonial Penn Ins. Co. v.

Gibson, 552 A.2d 644, 646-47 (N.J. App. Div. 1989) (applying the

law of the place of contract unless the Restatement Conflict of

Laws (Second) § 6 factors "compel a contrary result").

              Nonetheless, the factors that formerly controlled the

choice of law analysis remain important considerations in the

modern, more flexible approach embraced by the New Jersey courts.

Thus, under New Jersey choice of law rules, the law of the place

of contracting should ordinarily be applied unless some other

state   has    the   "dominant   relationship"   with   the   parties   and

issues.
              [T]he law of the place of the contract will govern the
              determination of the rights and liabilities of the
              parties under the insurance policy. This rule is to be
              applied   unless    the   dominant   and   significant
              relationship of another state to the parties and the
              underlying issue dictates that this basic rule should
              yield.


State Farm Mut. Auto. Ins. Co. v. Estate of Simmons, 417 A.2d
488, 493 (N.J. 1980).       The presumption in favor of the place of

contracting serves two objectives: (1) protecting the "reasonable

expectations of the parties as to their insured risks," and (2)

advancing "certainty, predictability and uniformity." Id. at 496;

see also Gilbert Spruance, 629 A.2d at 888 (reaffirming general

approach and motivating policies); Gibson, 552 A.2d at 646-47.0

0
For these purposes, the place of contracting is the place where
the parties executed and delivered the insurance policy. See,
e.g., Nelson v. Insurance Co. of North America, 264 F. Supp. 501,
503 (D.N.J. 1967); Empire Mut. Ins. Co. v. Melburg, 336 A.2d 483,
484 (N.J. 1975); Melick v. Stanley, 416 A.2d 415, 417 (N.J. App.
Div. 1980).   If a company from another state uses an insurance
broker to negotiate and purchase its insurance policies, then the


                                    12
           Factors       and     contacts       set       forth    in    the   Restatement

Conflict of Laws (Second) §§ 6 and 188 determine whether or not

the place of contracting should in fact govern.                                See Gilbert

Spruance, 629 A.2d at 888; Simmons, 417 A.2d at 491-92.                                   The

Restatement lists the following factors and contacts for a court

to consider in determining whether the law of a state other than

that of contracting has the requisite "dominant relationship."
          (a) the needs of the interstate and interna-
          tional systems,
          (b) the relevant policies of the forum,
          (c) the relevant policies of other interested
          states and the relative interests of those
          states in the determination of the particular
          issue,
          (d) the protection of justified expectations,
          (e)   the  basic   policies  underlying   the
          particular field of law,
          (f) certainty, predictability and uniformity
          of result, and
          (g) ease in the determination and application
          of the law to be applied.


Restatement Conflict of Laws (Second) § 6(2) (1988).

           For        contract    actions       in    particular,         §    188   of   the

Restatement contains the general rule that the law of the state

with the most significant relationship to the transaction and the

parties should apply.             See Gilbert Spruance, 629 A.2d at 888;
Simmons,   417    A.2d     at    491-92.        Section          188    also   provides   an

enumeration      of    contacts    --   such         as    the    domicile,     residence,

nationality, place of incorporation and place of business of the

parties, and the places of contracting and performance -- to



place of contracting is the place where the broker negotiated the
policies. See Diamond Shamrock Chems. Co., 609 A.2d at 465.


                                           13
guide the identification of the state with the most significant

relationship.      Id.

               One additional Restatement section is implicated here -

-§ 193 of the Restatement.          That section explains that, in the

context of casualty insurance contracts, the application of the

contacts articulated in § 188 and the concerns of § 6 should

focus on determining which state "the parties understood . . . to

be the principal location of the insured risk during the term of

the policy unless with respect to the particular issue, some

other state has a more significant relationship . . . to the

transaction and the parties. . . ."                 Gilbert Spruance, 629 A.2d

at 889 (citation omitted, final ellipsis in original).                        This

focus on the parties' understanding of the principal location of

the risk serves to protect both the parties' expectations as to

which law would apply and the interests of the state where the

risk is principally located in determining the extent of coverage

under    the    insurance    contract.        See   Restatement    of    Conflicts

(Second) § 193 cmt. c; Gilbert Spruance, 629 A.2d at 889.


          B.    Environmental             Coverage        Cases         and    the
Inappositeness                           of Gilbert      Spruance       to Product
Liability Cases


               Until fairly recently, New Jersey choice of law princi-

ples did not treat environmental coverage actions differently

from    other    insurance   coverage     disputes.       Courts    applied    the

analysis described above in environmental coverage cases as well

as other insurance disputes to select a single state's law to



                                         14
apply to all the related claims, irrespective of where the claims

arose.     As the appellate division explained:
            [W]hen comprehensive nationwide coverage is purchased,
            it is surely the expectation of both insured and
            insurer that what the insured has bought and insurer
            has sold is a single protection from liability
            irrespective of the particular state law under which
            that liability is determined . . . . [T]he notion that
            the insured's rights under a single policy vary from
            state to state depending on the state in which the
            claim invoking the coverage arose contradicts not only
            the reasonable expectation of the parties but also the
            common understanding of the commercial community.


See Westinghouse Electric Corp. v. Liberty Mutual Insurance Co.,

559 A.2d 435, 442 (N.J. App. Div. 1989).

            In     Westinghouse,           the    plaintiff      insured      had   sought

coverage from 144 insurers for thousands of toxic tort claims and

numerous    site-remediation          (environmental)            claims    arising     from

eighty-one sites in twenty-three states.                     Id. at 436.        The trial

court    severed    and   dismissed          all    claims    for      coverage     arising

outside of New Jersey on forum non conveniens grounds.                                 The

Appellate Division reversed, explaining that the plaintiff was

"entitled to a single, consistent and final resolution of the
choice of law question in a single comprehensive action which

will bind it and all its insurers." Id. at 442.                               Although it

specifically     declined       to    reach       the   choice    of    law   issue, the

Westinghouse court reasoned that the combined adjudication of

these multitudinous claims would be "manageable if the law of

only one state is required to be restated."                      Id. at 443.

            Concerned      by        the     possibility      that        resolution     of

coverage issues under one state's laws might deny coverage to



                                             15
claims involving sites in another state whose laws applied to the

underlying action -- thus frustrating the vindication of the site

state's environmental policies by rendering many of the judgments

uncollectible      --     the    New    Jersey     Supreme        Court   developed       a

specialized       analysis       for     environmental            coverage     actions.

Although      Simmons,     417    A.2d     488     (N.J.       1980),     remains     the

definitive case on the proper choice of law analysis for product

liability       insurance        controversies,          see      Diamond      Shamrock

Chemicals, 609 A.2d at 465, a different analysis now governs

environmental insurance controversies.                 In Gilbert Spruance, the

New    Jersey     Supreme       Court    applied       the      site-specific        rule

enunciated in Johnson Matthey Inc. v. Pennsylvania Manufacturers

Ass'n Insurance Co., 593 A.2d 367 (N.J. App. Div. 1991), for

cases involving policies that did not contemplate a New Jersey

risk and waste that, while predictably "coming to rest" in New

Jersey, was generated out of state.                   See Gilbert Spruance Co.,

629 A.2d at 892.

              Gilbert     Spruance      involved      the    interpretation          of   a

pollution exclusion clause contained in a comprehensive general

liability policy issued by a Pennsylvania carrier to a defendant

incorporated      in     Pennsylvania.          The   insurance       contracts      were

negotiated and countersigned in Pennsylvania, and the premiums

were   paid     there.      Although      the    waste      was    generated    by    the

defendant in Philadelphia, the location of the company's paint

manufacturing      business,       the    New      Jersey      Supreme       Court    was

convinced that the parties could "reasonably foresee that a New

Jersey waste site would receive the insured's waste products,"


                                          16
thus rendering the application of New Jersey law equitable.                             See

629 A.2d at 886.        The state's "compelling interest" in assuring

the financing of a clean up of the New Jersey waste site played a

very substantial role in the court's conclusion that New Jersey

had the "dominant significant relationship" necessary to overcome

the substantial contacts with Pennsylvania.                       See id. at 894.

            Gilbert     Spruance         thus        altered        the     balance      of

Restatement § 6 factors in environmental coverage cases.                          See 629

A.2d at 894. While it rejected a categorical approach selecting

the state of either generation or disposal in favor of a "more

extended analysis pursuant to § 6(2)," the Gilbert Spruance court

explained    that    "when     applying        the    principles          enunciated     in

Restatement section 6 to a case in which out-of state generated

waste foreseeably comes to rest in New Jersey, New Jersey has the

dominant significant relationship."                   See 629 A.2d at 894; see

also National Starch & Chem. v. Great American Ins. Cos., 743 F.

Supp. 318 (D.N.J. 1990) (earlier case finding that the location

of   the   waste    sites    is     of   "paramount         concern",      although     not

irrebuttable).        Gilbert        Spruance        thus    establishes        that,    in

environmental      cases,     the    location        of     the    site    carries      very

substantial weight in the "significant relationship" analysis,

typically    adequate    to    overcome        the    contacts      of    the   place     of

contracting.0

0
One might argue that Gilbert Spruance establishes the rule that
the law of the state where toxic waste comes to rest will apply,
if it was reasonably foreseeable that the waste would end up
there, obviating the need for the § 6 analysis.     At most, the
court left the question open. See 629 A.2d at 894 ("[W]e express
no view on the proposition stated in J. Josephson, Inc, [626 A.3d


                                          17
           NL   contends       that     Gilbert          Spruance      reduces      the

importance of the place of contracting in all New Jersey choice

of law analyses, even outside of environmental claims.                       Although

the appellate division       had left open the possibility that the

site-specific   approach     it       adopted      could       apply    outside     the

environmental   coverage     context         it    was     considering,       Johnson

Matthey, 593 A.2d at 373, the policies driving the adoption of

the   site-specific   rule     are     inapposite         in    product     liability

coverage   actions.    In    particular,          the    adoption      of   the   site-

specific   approach   rested    heavily       on    the    compelling       (for §   6

purposes) interest that a waste-site state has in "determining

the availability of funds for the cleanup of hazardous substances

located within its boundaries."           Leksi Inc. v. Federal Ins. Co.,

736 F.Supp. 1331, 1335 (D.N.J. 1990).                   But the state's interest

in determining coverage for product liability actions is more

amorphous and therefore less compelling than its interests in

environmental cleanup.




81 (N.J. Law Div. 1993),] that when another state is the
foreseeable location of the waste-site, the court must engage in
a section 6 analysis to determine if that state has the most
significant relationship with the parties, the transaction, and
the outcome of the controversy . . . ."). In passing on the case
before it, however, the Gilbert Spruance court incorporated the
interests of the waste site state into the customary § 6
analysis.   Id. at 894. The court also endorsed the approach of
allowing resolution of issues "by the courts of the states whose
interests are immediately affected during the course of
litigation which can be effectively managed.".       See Gilbert
Spruance, 629 A.2d at 895 (emphasis added). We believe that the
New Jersey Supreme Court's inclusion of the manageability caveat
further signals its intent to preserve a balancing analysis
rather than to discard it in favor of an inflexible rule.


                                        18
             There is also less predictability concerning the situs

of product liability claims, and a manageability problem in light

of the potentially far larger number of product liability claims

(relative to environmental sites in any given insurance coverage

action.)         Thus,    because       the     benefits      of   the   site-specific

approach     are      reduced    while    the      problems    associated    with   its

implementation are magnified outside the environmental coverage

context, we believe that the New Jersey Supreme Court would not

extend     the     site-specific        approach      to     the   product   liability

coverage area.0

             There is precedent for our differential treatment of

the choice of law question in the product liability coverage

situation relative to the environmental coverage situation.                          In

Diamond Shamrock Chemicals Co. v. Aetna Casualty & Surety Co.,

609   A.2d       at   465,      which    preceded      but    foreshadowed     Gilbert

Spruance, the Appellate Division addressed a case involving both

Agent Orange product liability claims and environmental claims

stemming from the defendant's manufacture of dioxin.                          For the

Agent Orange toxic tort claims, the court relied on the fact that
0
In applying the new standard to environmental choice of law
questions, the New Jersey courts will have to conduct separate
choice of law analyses for environmental coverage claims and for
mass tort coverage claims even when they arise in a single case.
There is nothing anomalous about this result, since § 145 of the
Restatement Conflicts of Laws explains that, even within a single
action, the choice of law analysis applies to particular issues,
not to the case monolithically.     Moreover, in repudiating the
uniform contract approach, see Gilbert Spruance, 629 A.2d at 892,
the New Jersey Supreme Court has demonstrated a willingness to
countenance the application of different state laws even to a
single issue of coverage. This may of course be quite difficult
and time-consuming, and result in serious management problems for
the courts applying this rule.


                                              19
the New York was the place of contracting to apply New York law

to all of the Agent Orange coverage actions irrespective of where

the claims arose.

           Diamond Shamrock, incorporated and located in Ohio, had

used a New York broker to purchase the policies.                   The court found

that the facts that Agent Orange was manufactured in Newark, New

Jersey, that it was sold to the government in New Jersey, that

some of the claimants were New Jersey veterans, that some of the

underlying suits were filed in New Jersey, and that the coverage

action was pending in New Jersey did not establish the dominant

relationship necessary to override the preference for New York as

the place of contracting.

           However,   in    determining     which      law    to    apply   in   the

dioxin environmental coverage actions, the Diamond Shamrock court

correctly anticipated the New Jersey Supreme Court by using the

site-specific    analysis    enunciated     by   the    Appellate        Division's

opinion in Gilbert Spruance.           The court determined that the law

of New Jersey, the state where toxic wastes predictably came to

rest (dioxin was manufactured in Newark), should apply to the

environmental coverage claims involving New Jersey sites.                        See
609 A.2d at 455.      While this case predated Gilbert Spruance, it

presaged the principles announced in that decision, and therefore

effectively demonstrates how a court confronting environmental

coverage claims and other coverage claims in the same suit must

perform distinct choice of law analyses for each.

           In    summary,    fundamental     choice      of        law   principles

require   that   courts     consider    different      issues       separately;    a


                                       20
single analysis does not typically resolve the choice of law

question for all claims in a suit.           After Gilbert Spruance, New

Jersey's choice of law rules require not only that environmental

coverage claims be considered separately from other claims (such

as for product liability), but also that they be considered in

the    site-specific    framework,      which   is    distinct    from     the

customary, modified contacts analysis still applicable in other

coverage contexts.



             C. The District Court's Approach

             After   re-examining     the   choice   of    law   issue,    the

district court essentially adopted its July 11, 1991 choice of

law decision in disposing of these four new lead paint coverage

claims.      The 1991 decision purported to analyze the question for

both   the    environmental    coverage     action   and   the   lead     paint

coverage action, (as the combined caption and conflated discus-

sion of the two actions suggest).           The district court apparently

believed that a single choice had to be made for both.              Although

it acknowledged that the lead paint cases were the subject of an

action    separate   from     the   environmental    coverage    action,     it

stated:
             [P]laintiff seeks a declaratory judgment of defendant's
             liability for those three particular [lead paint]
             claims in the "environmental action" as well.     Thus,
             the court must apply the same substantive law in both
             the "lead paint" and "environmental" actions, or else
             the parties rights and obligations under the policy as
             it applies to the "lead paint" claims would be
             interpreted according to two states' substantive laws.


7/11/91 Op. at 8 n.3.


                                      21
            The court also relied on the uniform contract approach

articulated      in    Westinghouse       Electric     Corp.    v.    Liberty    Mutual

Insurance Co., 559 A.2d 435 (N.J. App. Div. 1989), to support its

choice of New Jersey law for all the environmental and product

liability claims notwithstanding the fact that only some of the

waste sites and none of the lead paint actions were located in

New Jersey. (7/11/91 Op. at 10).                In reaffirming its 1991 choice

of law decision, the district court applied the law of the case

doctrine and rejected CU's argument that an intervening change in

the   law   wrought       by    Gilbert      Spruance      required     a     different

resolution.      The court also cited its concerns about the manage-

ability of the site-specific choice of law approach in refusing

to apply Gilbert Spruance.0

            In   its     initial     (1991)     decision,      the    district       court

acknowledged the presumption in contract actions in favor of the

law of the place of contracting (here, New York). (7/11/91 Op. at

5).    Nevertheless,           the   court    relied    on     the    "strong    public

interest in insuring that environmental contamination within the

state will be remedied," id. at 8, to find the "significant

relationship"         necessary      to   select     New     Jersey    law     instead.

Indeed, the court conceded that the other considerations in the

contractual      "significant        relationship"         inquiry,    such     as    the


0
Although the district court was aware of the site-specific test
announced by Gilbert Spruance after its original choice of law
decision in 1991, it declined to apply the test because its
application in the environmental case would result in the choice
of 34 different state laws, a result it regarded as so
unmanageable that the New Jersey Supreme Court could not have
intended it.


                                           22
reasonable expectations of the parties and the need for certainty

and legal uniformity, actually favored the choice of New York law

as the place of contract and would have resulted in that choice

were   it   not   for   the   significant   relationship   supposedly

established by the presence of some New Jersey waste sites.      See

7/11/91 Op. at 10.

            In sum, the choice of law analysis for the lead paint

claim coverage dispute is separate and distinct under New Jersey

law from that for the environmental claims, and yet the district

court appears to have combined the claims for this purpose in

both the original 1991 opinion and its May 26, 1994 opinion.     See

7/11/91 Op. at 7-8 and 5/26/94 Op. at 10.0    This was error.
0
While the court seemed to accept the magistrate's conclusion
that the law of the case doctrine obviated any need for the court
to reconsider the original choice of law decision for the four
new lead paint actions, see 4/26/94 Op. at 6, it conceded that
Gilbert Spruance's rejection of the uniform contract approach
"might require the court to re-examine its choice of law deci-
sion." Id. at 9. The court did re-examine its 1991 decision, see
Id. at 9, but abided by it both because of manageability concerns
and because of the court's conviction that New Jersey, where a
number of the environmental claims arose, had the "dominant
significant relationship" to the transaction.     Notwithstanding
the fact that Gilbert Spruance pertained solely to environmental
coverage actions, we agree that it precluded application of the
law of the case doctrine here.    Although federal courts always
retain the discretion to reconsider issues already decided in the
same proceeding, see Deisler v. McCormack Aggregates Co., 54 F.3d
1074, 1086 n.20 (3d Cir. 1995); Charles A. Wright, Arthur R.
Miller & Edward H. Cooper, Federal Practice and Procedure:
Jurisdiction, §4478 at 789-90, courts will reconsider an issue
when there has been an intervening change in the controlling law,
when new evidence has become available, or when there is a need
to correct a clear error or prevent manifest injustice. Wright,
Miller & Kane, § 4478 at 790.     We believe reconsideration was
warranted here for two reasons.     First, the district court's
failure to perform a separate choice of law analysis for the
environmental coverage action and for the lead paint coverage
action constituted a clear error. Second, to the extent that the


                                  23
III.   Discussion

           CU argues that the district court compounded this error

by considering the (social) policies implicated by the underlying

actions,   rather    than   limiting    its   focus    to   the   policies   of

insurance law.      We must address this contention before proceeding

to the appropriate choice of law framework applicable to the lead

paint coverage actions.

           In coverage cases, New Jersey courts have elected to

analyze not only the policies involved in interpreting insurance

law but also those policies underlying their environmental and

tort laws.     See Diamond Shamrock Chemicals, 609 A.2d at 455

("Since New Jersey has a paramount interest in the remediation of

such waste sites, and in the fair compensation of its victims,

this State's urgent concern for the health and safety of its

citizens 'extends to assuring that casualty insurance companies

fairly   recognize    the   legal   liabilities   of    their     insureds.'")

(citing Johnson Matthey Inc. v. Pennsylvania Mfrs. Ass'n Ins.

Co., 593 A.2d 367, 370 (App. Div. 1991)).               Therefore, a court

would not err by considering the interests implicated by the

underlying litigation in deciding the choice of law issue in an

insurance coverage action (to the extent that the underlying

litigation affects the interests of one of the states whose law

arguably   applies).        These   underlying    policy      interests      are



court conflated the environmental coverage action with this lead
paint coverage action, the change announced by Gilbert Spruance -
- creating a unique analysis for environmental coverage cases --
constituted an intervening change in the controlling law.


                                       24
especially important in environmental coverage cases. See supra

at 18.

            But the analysis of the various states' policies and

interests   implicated       in    the   environmental      coverage    litigation

does not track the analysis of the interests implicated by the

tort   cases      underlying      this   coverage    dispute.         Cf.    Diamond

Shamrock, 609 A.2d at 455, 465 (applying New Jersey law to dioxin

environmental suits and New York law to Agent Orange claims).

Unlike some of the underlying environmental claims which must be

decided    under    New   Jersey     law,     Pennsylvania    or    Louisiana    law

governed    the    four   new     (underlying)     lead   paint     actions.    See

Appellant's Br. at 17.             Thus, although New Jersey may have an

interest in applying its laws to coverage disputes involving

actions whose underlying merits were adjudicated under New Jersey

law (in order to assure that the state's tort policies are not

frustrated by a lack of insurance coverage), that interest is

simply inapposite to these new lead paint actions arising in

Pennsylvania and Louisiana.              There is no indication, moreover,

that the district court applied New Jersey law to the coverage

dispute in an effort to protect New Jersey's tort (as opposed to

environmental) policies.

            While CU's contention that the court should not have

considered the policies implicated in the underlying litigation

has no merit, the district court did, as we have stated, err by

considering       policies   implicated       in   the    related    but    separate

environmental actions rather than those involved in the lead

paint actions.        See 5/26/94 Op. at 10 (reaffirming July 1991


                                         25
decision and explaining, "[t]hat decision was based in part on

the    number      of    environmental     claims     in    the    companion        action

arising in New Jersey, and admittedly on the need for uniformity

in the interpretation of the insurance contracts at issue in both

suits.").          Even before Westinghouse was overruled by Gilbert

Spruance, the uniform contract approach should have been applied

separately to aggregate the environmental claims, which turned on

the interpretation of one clause in the insurance contract, and

to    the    product      liability     claims,   which     involved      a    different

clause      of    the    policy   and   deserved,     under       the   principles      of

Restatement § 145, a separate choice of law analysis.

                 The    court   found   that    New   Jersey      had   "the    dominant

relationship to the parties and the underlying insurance transac-

tion" even though New Jersey's only connection to the case is its

incorporation of the defendant.                To so find in spite of the facts

that the harms occurred in Pennsylvania and Louisiana and that

the insurance contracts were negotiated and executed in New York

-- so that the parties must have reasonably expected, as even the

district court recognized, New York law to apply -- manifests the

court's conflation of the relevant interests in this case with

those       relevant      in    the   environmental        action.       As    we     have

discussed, even if the environmental coverage claims and the lead

paint coverage claims were brought in a single action, § 145

required the court to conduct a separate choice of law analysis

for each of the two types of claims.

                 The choice of law for this non-environmental insurance

coverage action is still governed by State Farm Mut. Auto Ins.


                                           26
Co. v. Estate of Simmons, 417 A.2d 488 (N.J. 1980), and thus,

unless a "dominant and significant relationship" mandates the

application of another state's law, the law of the place of

contract will apply. Given that the contract was negotiated,

executed and performed in New York, the district court correctly

concluded that New York was the place of contracting.                        We now

examine the contacts and interests relevant under Restatement §§

6 and 188 to determine whether New Jersey had a "dominant and

significant relationship" to the lead paint coverage action.                      See

Gilbert Spruance, 629 A.2d at 888; Simmons, 417 A.2d at 491-92.0

           Section 188 lists as the contacts to be considered in

applying the interests analysis:             (1) the place of contracting,

(2) the place of negotiation of the contract, (3) the place of

performance,    (4)   the   location     of    the    subject      matter    of   the

contract, and (5) the domicile, residence, nationality, place of

incorporation, and place of business of the parties.                  Restatement

Conflicts (Second) § 188(2).          These contacts overwhelmingly favor

New York in this case.          As we stated earlier, NL retained a New

York insurance broker to negotiate the policies; the policies

were signed in New York by representatives from each parties' New

York office; CU coded the NL policies and premiums as New York

policies and premium taxes on these policies were paid in New

York;   NL's    headquarters     as   well     as     its    principal      business

operations     were   located    in   New     York;    and    CU   executed       this



0
None of the parties argued that either                       Pennsylvania's         or
Louisiana's law should apply to this action.


                                       27
transaction out of its New York office.                      Only NL's place of

incorporation favored New Jersey law.

             Even though the subject-matter-of-the-contract factor

(liability    for      property     damage      and   bodily     injury)    does   not

necessarily favor New York law, it certainly does not favor New

Jersey law.       Because these contacts so clearly favor the applica-

tion   of   New    York    law,    it    should   apply    unless    the    interests

described    by    §   6   of     the    Restatement,      see   supra     at   11-12,

establish     a   dominant        and   significant       relationship      with   New

Jersey.     We take these factors up seriatim.

             1. The Needs of the Interstate System

             The Restatement explains that this factor is intended

to "further harmonious relations between states and to facilitate

commercial intercourse."            Restatement Conflicts § 6 cmt. d.              The

consistency and predictability which emanate from a clear rule

foster commerce and harmonious interstate relations by reducing

the uncertainty associated with entering into commercial transac-

tions. Relative to the multifactored interest analysis, the lex

loci contractus rule typically better protects both the parties'

reasonable expectations and the consistency and predictability of

contractual adjudications.              See Simmons, 417 A.2d at 496.           As the

§ 188 analysis demonstrates, this factor clearly favors New York

law.   Moreover, the district court acknowledged that the parties

must have reasonably expected New York law to apply.                       Thus, both

generally and under the specific facts of this case, the needs of

the interstate system would be best served by the choice of New

York law.


                                           28
             2.    Relevant Policies of Other Interested States

             State       statutes    which     require      or     prohibit    particular

clauses in insurance agreements evidence a state's policy in the

insurance area.           See Belle v. Merchants & Businessmen's Mutual

Ins. Co., 575 A.2d 878, 881-82 (App. Div.), cert. denied, 585

A.2d 395 (N.J. 1990).          But states' interests in insurance policy

interpretation are not limited to those explicitly articulated in

these sorts of statutes.            As we have explained, New Jersey courts

seek   to    avoid   the     frustration       of    the    interests    and    policies

expressed in their substantive laws that could occur through

narrow      interpretations         of   the       coverage      available     under   the

applicable insurance contracts. See Diamond Shamrock Chem. v.

Aetna, 609 A.2d 440 (N.J. App. Div. 1992) ("Since New Jersey has

a paramount interest in the remediation of such waste sites, and

in the fair compensation of its victims, this State's urgent

concern for the health and safety of its citizens 'extends to

assuring that casualty insurance companies fairly recognize the

legal liabilities of their insureds.'") (citing Johnson Matthey

Inc. v. Pennsylvania Mfrs. Ass'n Ins. Co., 593 A.2d 367, 370

(N.J. App. Div. 1991)).             Thus, a state's interest in determining

the scope of liability in the underlying lead paint claims does

bear on the scope of coverage.

             The lead paint claims whose coverage is at issue here

will be decided under Pennsylvania and Louisiana law.                           New York

pursues a policy of deterring the sort of conspiratorial activity

alleged     to    have    occurred       in   New    York     by    assuring    that   the

penalties imposed through tort awards actually impact on the


                                              29
alleged perpetrators rather than on their insurance carriers.

See Technicon Electronics Corp. v. American Home Assur. Co., 533

N.Y.S.2d 91, 102 (App. Div. 1988), aff'd, 544 N.Y.S.2d 531 (1989)

(noting New York's policy of "assur[ing] that corporate polluters

bear the full burden of their own actions spoiling the environ-

ment" by giving pollution exclusion clauses broad effect).                           See

also National Starch & Chem. v. Great Am. Ins. Co., 743 F.Supp.

318, 319 n. 1 (D.N.J. 1990) (observing that relative to New

Jersey   law,    New   York    law     was    less      favorable   to    insureds    in

disputes involving the pollution exclusion clauses of insurance

contracts).       Although the parties did not brief the nature of

Louisiana's or Pennsylvania's tort policies, i.e., whether they

favor compensation and deterrence over fostering a hospitable

business environment, it is clear that New Jersey has no interest

in   interpreting      the    insurance       contracts     that    could   vindicate

those other states' policies.                In any event, it seems unlikely

that Pennsylvania's or Louisiana's interest standing alone could

overcome the very substantial contacts and interests of New York.

           3. Relevant Policies of the Forum

           For a state's policies to be relevant in a choice of

law analysis, the law embodying the policy must relate to a

contact. See Veazey v. Doremus, 510 A.2d 1187, 1189-90 (N.J.

1986) ("If a state's contacts are not related to the policies

underlying its law, then that state does not possess an interest

in having its law apply.").               The district court relied on the

number of environmental claims arising in New Jersey for its

conclusion      that   New    Jersey    had       the   dominant    and   significant


                                             30
relationship necessary for the application of New Jersey law in

this case.        5/26/94 Op. at 10. Two errors render this analysis

flawed.     First, this lead paint coverage case did not properly

implicate any of New Jersey's environmental policies.                        Second,

even if New Jersey's environmental policies were at all pertinent

in these lead paint cases, they bear no relation to New Jersey's

contacts.     New Jersey's only connection to this litigation is

that NL was incorporated and had some operations there.

            While these contacts might justify consideration of New

Jersey's policies in corporate governance or tax cases, they do

not justify considering New Jersey's tort policies or the related

insurance coverage policies.            The district court did recognize

New    Jersey's     interest    to    "see[]    that       harms    caused    by   its

corporations are properly redressed."                  See 5/26/94 Op. at 11.

Cf. Restatement Conflicts of Laws (Second) § 145 cmt. c ("If the

primary purpose of the tort rule involved is to deter or punish

misconduct, . . . the state where the conduct took place may be

the state of dominant interest . . . .").                    However, given that

the activities complained of here (the alleged conspiracy of NL

and the Lead Industries Association to conceal the dangers of

lead    paint)     primarily    occurred       in   New     York,     New    Jersey's

disciplinary interests are attenuated.               Moreover, expressions of

New    Jersey's    policies    seem   to   reflect     a    greater    emphasis     on

compensation, which would favor the law of the state where the

injury occurred, than on deterrence, which would favor the law of

the state where the conduct occurred. See Diamond Shamrock, 609
A.2d at 455 (emphasizing New Jersey's "paramount interest" in


                                        31
remediation and compensation); Leksi, 736 F.Supp. at 1334-36;

National Starch, 743 F.Supp. at 326.                  Thus, we find that New

Jersey's interests were either inapposite or quite small compared

to New York's.

             4.    Protection of Justified Expectations

             Like the first factor, this factor seeks to promote

commercial transactions.            By enforcing the parties' expectations,

courts interpreting contracts assure the consistency and predict-

ability necessary to a healthy business environment.                  Indeed, for

these very reasons, traditional contract principles direct that

the     parties'    objectively       reasonable    expectations      govern    the

choice of law decision.             See National Starch and Chem. Co. v.

Great Am. Ins. Cos., 743 F. Supp. 318, 324 (D.N.J. 1990) ("[T]he

reasonable expectations of the parties are controlling[, and]

State    Farm     [v.    Simmons]   must   be    applied   with   a   view   toward

fulfillment         of      the       parties'      objectively        reasonable

expectations.").0          We agree with the district court that the

parties' objectively reasonable expectations were that New York

law would govern the interpretation of these contracts.                        See

7/11/91 Op. at 10 ("Because all parties to the contract knew at

the time of the signing the general rule that the law of the
0
Although the National Starch court, failing to anticipate
Gilbert Spruance, applied the uniform contract approach to choose
the law of the place of contract over the laws of the states
where sites were located, its statement of the principle quoted
in the main text remains valid. The National Starch court cited
general contract cases from New Jersey to support the proposition
that reasonable expectations should govern contract issues,
including the choice of applicable law. See Meier v. New Jersey
Life Ins. Co., 503 A.2d 862, 869-70 (N.J. 1986) (using reasonable
expectations to determine scope and terms of policy surrender).


                                           32
state in which the contract was formed governed the contract, it

is reasonable to assume that the parties reasonably expected New

York law to apply.")

              Nevertheless, the district court did not accord this

consideration much weight in its analysis, principally because it

was   under     the      erroneous   impression         that    New    Jersey's     strong

interest in remediating environmental contamination within the

state    gave     New     Jersey,    where    many      of   the    waste       sites   were

located, a dominant interest in applying its laws to any and all

coverage      disputes.0        As   we   have     explained,         however,     Gilbert

Spruance only increased the importance of the interest of the

waste-site      state      in   environmental          coverage     disputes,      not   in

product liability suits. Consequently, the objectively reasonable

expectations        of    the   parties      should      have      been   accorded       the

considerable weight that they ordinarily receive, which favors

New York law in this case.
          5.   The Basic Policies Underlying the Relevant
               Fields of Law (Insurance and Tort Law)


              The     differing      degrees      of    interest      which      competing

states     have     in    vindicating     various        insurance        and    tort    law

policies also affect the choice of law.                         Insurance law policy

deals primarily with the proper standards and procedures for the

0
The 7/11/91 district court opinion predated Gilbert Spruance and
thus did not rely on it.     The district court's May 26, 1994
opinion disposing of the four new lead paint claims, see supra p.
8, does cite Gilbert Spruance in order to affirm its emphasis on
the location of the waste sites in the companion environmental
action, which was the basis for its decision to apply New Jersey
law to the lead paint claims.    As we have explained, this was
incorrect.


                                             33
fair interpretation of the insurance contract, accounting for the

interests of the insurer, the insured, and the public.                          Given the

overwhelming contacts of the insurance transaction to New York,

we are hard pressed to find an interest New Jersey (or any other

state) can assert in using its law to determine the balance of

relevant insurance policies.

             Tort law policies, on the other hand, influence the

standards     and   procedures       used     to    determine        liability,      fix

compensation, and deter tortious conduct.                     The sole interest New

Jersey could have in applying its tort law under the facts of the

lead paint cases (where the injury occurred elsewhere) would be

to discipline a company incorporated under its laws.                       As we have

noted,   however,    New    Jersey    seems        to    be   more    concerned     with

assuring adequate funds for compensation and remediation than it

does with imposing penalties.            See supra at 31-32.              Because NL's

principal place of business and, perhaps more importantly, the

locus of the alleged tortious conduct were not in New Jersey, see

supra at 4-5, New Jersey's interest in disciplining the company

is   weak.     It   is     New   York,      as     the    locus      of   the    alleged

conspiratorial acts and as NL's principal place of business,

which has the interest in fashioning the penalty imposed by the

tort system.

             To the extent that the harms occurred and the injured

parties resided in Pennsylvania and Louisiana, those states may

have an interest in assuring that the tortfeasor redresses the

property damage and personal injury.                     The relative strength of

such an interest depends on the balance of policies -- such as


                                         34
compensating     victims       or   deterring       culpable     conduct,   see

Restatement Conflicts (Second) § 145 cmt. c -- struck by the

relevant tort laws.      In any case, both Pennsylvania and Louisiana

have some interest in seeing that the harms occurring within

their borders are redressed.            But New Jersey does not have a

cognizable interest in applying its tort laws to these lead paint

coverage disputes.

            6.   Certainty, Predictability, and Uniformity of Result

            This factor closely tracks the concerns embodied in the

first (needs of the interstate system) and fourth (justified

expectations of the parties) factors in its concern about the

effects of more flexible, and thus less predictable, legal rules

on commercial activity.         As we have explained, New York as the

place of contracting and as the locus of the allegedly unlawful

activity    would    presumably     apply   its   law   to   this   case.   The

district court correctly recognized that these parties must have

reasonably expected New York law to apply, and it is likely that

repeat players in this market, whose business the resolution of

this case will affect, would also expect New York law to apply

under these circumstances.          While some might have entertained the

possibility that the insurance coverage action might be governed

by the law of the states where the harms ultimately occurred

(here, Pennsylvania and Louisiana), it is unlikely that anyone

expected that the law of a state whose connections and interests

are as tangential as New Jersey's are in this case would apply.

Indeed, to establish a standard where such comparatively minor

interests    could    govern   would   throw      settled    expectations   into


                                       35
disarray; parties would have no way of predicting which law would

apply to their contracts.            We therefore conclude that this factor

strongly favors the choice of New York law.



            7.     Ease of Determination and Application

            The       Restatement      explains      that        choice-of-law      rules

"should be simple and easy to apply."                    See Restatement Conflicts

(Second) § 6, cmt. j.               Presuming that the law of the place of

contracting       applies      to    non-environmental            insurance      coverage

disputes provides a simple and clear cut rule for courts to apply

ex post.       Such a rule also provides a stable and predictable

environment      for    contracting        parties    ex    ante.         This    factor,

therefore, also favors New York law, although the Restatement

does not weigh this consideration too heavily.                      Id.

            8.     Summary

            After performing this separate choice-of-law analysis

for   the   lead      paint   coverage      disputes,       we    conclude       that   the

interests implicated in this lead paint coverage action do not

relate to the contacts NL had with New Jersey.                            At best, New

Jersey   had     an    "interest     in    seeing    that    harms      caused     by   its

corporations are properly redressed."                    5/26/94 Op. at 11.             But

given that NL's principal place of business was in New York and

that New Jersey's laws do not apply to the underlying products

liability actions, this interest is especially attenuated here.

In    contrast,       the    connections     of     NL     and     of   the   insurance

transaction      to    New    York   are    both    significant         and   pertinent,

giving rise to the substantial interest New York has in seeing


                                            36
its   law     apply:      the     insurance     contract      was    negotiated       and

performed     in   New    York;    the   policies      were   coded    as     New    York

policies; New York taxes were paid on the policies; both parties

maintained their principal places of business there; and the

conspiratorial         acts   underlying       these   lead    paint        claims    are

alleged to have occurred there.                 Under Simmons, therefore, New

York law should apply.

IV. Conclusion

              We will therefore reverse the judgment of the district

court   and    remand     for   further    proceedings        in    which    the     court

should apply New York law to the four new lead paint actions.

Because the issues of CU's duty to defend and its rights to

contribution and allocation were improperly decided under New

Jersey law, the district court should make the New York law

determination in the first instance on remand.                      We do not reach

the other claims.0




0
Although CU's duty to indemnify NL for these lead paint claims
was separately adjudicated in the environmental action, which is
not before us, we believe that the foregoing analysis of Gilbert
Spruance may be pertinent to the indemnity issue as well.


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