US Rubber Corporation v. Mt. Hawley Insurance Company

Background

US Rubber Corporation sued Mt. Hawley Insurance Company for breach of a property insurance policy and related claims. On August 12, 2022, US Rubber notified Mt. Hawley of wind damage to its property in Texas and sought payment under the policy. After investigating, Mt. Hawley informed US Rubber that it had issued a payment of $1,588.72, which it believed represented the claim’s actual cash value minus the $25,000 deductible.

The policy stated that New York law would govern matters arising under the policy, including its interpretation, performance, and enforcement. It also required litigation brought by a named insured against Mt. Hawley to be initiated in New York. The case was transferred from the Southern District of Texas to the Southern District of New York under that forum-selection clause.

Motion and Choice of Law

Mt. Hawley moved for partial summary judgment, which is a request for judgment without a trial because the evidence shows no genuine dispute over a material fact. It argued that New York law governed US Rubber’s claims arising under Texas law. US Rubber did not dispute that its Texas bad-faith and attorney’s-fee claims were not available under New York law if New York law applied. Instead, US Rubber argued that the choice-of-law provision was invalid and that applying New York law would conflict with Texas substantive law and the Full Faith and Credit Clause of the U.S. Constitution.

The court rejected those arguments. Because it was deciding a diversity case in New York, the court applied New York’s choice-of-law rules. It held that New York General Obligations Law § 5-1401 permitted the parties to choose New York law for a commercial contract with insurance limits exceeding $250,000. The court also held that enforcing the parties’ choice was not arbitrary or fundamentally unfair under the Full Faith and Credit Clause. The court therefore applied New York law to US Rubber’s claims arising under or related to the policy.

Bad-Faith and Attorney’s-Fee Claims

The court held that New York law does not recognize a tort claim for bad-faith denial of insurance coverage and generally does not allow attorney’s fees in insurance actions except in circumstances the court found inapplicable here. Because US Rubber conceded that its Texas-based bad-faith and attorney’s-fee claims could not survive if New York law applied, the court dismissed those claims as not cognizable under New York law.

Disposition

Judge Analisa Torres granted Mt. Hawley’s motion for partial summary judgment. The court dismissed, with prejudice, US Rubber’s claims under Texas Insurance Code Chapters 541 and 542 and its request for attorney’s fees under the Texas Insurance Code and the Texas Civil Practice and Remedies Code. The order does not state a disposition of US Rubber’s breach-of-contract claim.