NICOLET INC v. SUPERIOR COURT (1986)

INTRODUCTION AND SUMMARY

By these timely (Code Civ.Proc., § 437c, subd. (l )) ¹ petitions for writs of mandate which we consolidate for decision, Nicolet, Inc. and GAF Corporation (hereafter Nicolet and GAF) seek reversal of certain choice of law rulings made by the San Francisco Superior Court.   These rulings, made upon real parties' motions for summary adjudication of issues (Beech Aircraft Corp. v. Superior Court (1976) 61 Cal.App.3d 501, 514–517, 132 Cal.Rptr. 541) are properly subject to pre-trial review.  (Ibid.;  Hurtado v. Superior Court (1974) 11 Cal.3d 574, 579, 114 Cal.Rptr. 106, 522 P.2d 666.)

Petitioners are plaintiffs below ² in three of the law suits coordinated (§ 404 and Cal.Rules of Court, rule 1520 et seq.) in San Francisco Superior Court as Judicial Counsel Coordination Proceeding No. 1072.   Characterized by one authority as “one of the largest trials in the State's history” (Maher, Asbestos Extravaganza (1985) 5 State Bar J. 61) the proceeding generally pits some five plaintiff asbestos manufacturers against 50 insurance companies.   At issue are insurance coverage questions, including the so-called trigger-of-coverage issue, which may arise when an asbestos producer has had a number of insurers over the years and now faces claims by workers with diseases arising from exposure to asbestos.  “Were the claimants ‘injured’ while the producer was insured in one period by carrier A, in another period by carrier B, or in yet another period by carrier C?”  (Ibid.)  Asked to respond to such claims, the insurers have regularly declined coverage, whereupon the producer has sued all.   The questions common to such suits are:  What event triggered coverage and which company was providing insurance when the event triggering coverage occurred?

No asbestos victims are parties to these coordinated proceedings.   The petitioner manufacturers have generally alleged bad faith in the insurers' refusal to defend and indemnify claims, and seek punitive as well as compensatory damages for such bad faith.

In the underlying proceeding, real parties INA and Kemp brought motions for summary adjudication of issues as follows.

As to the Nicolet/INA and GAF/INA actions, it was claimed that Pennsylvania law applies to the question of the availability of punitive damages, and that that state's law will not permit recovery of such damages against INA.   As to the GAF/Kemp action, real party claimed that British law governs, and that it likewise precludes recovery of punitive damages.

The respondent court agreed with the INA and Kemp contentions and ruled accordingly, whereupon these petitions followed.

We initially note the standard of review, as proper to this proceeding:

“Since the validity of a summary judgment is to be determined solely by the sufficiency of the affidavits (McComsey v. Leaf, 36 Cal.App.2d 132 [97 P.2d 242];  Dudum v. City of San Mateo, 167 Cal.App.2d 593 [334 P.2d 968] ), this court will consider no facts other than those which were before the lower court;  ‘[w]e are limited to the facts shown by the affidavits (Kimber v. Jones, supra, 122 Cal.App.2d 914 [265 P.2d 922] ), and are to determine only whether the facts so shown give rise to a triable issue (Coyne v. Krempels, supra, 36 Cal.2d 257 [223 P.2d 244].)’  (Italics added.)  (Dudum v. City of San Mateo, 167 Cal.App.2d 593, 598 [334 P.2d 968].)   Thus any new matter urged upon us cannot be examined;  this applies ․ to any additional facts ‘which might be adduced at a trial’ or [plaintiff] claims [it] can prove․”  (Green v. Green (1963) 215 Cal.App.2d 37, 46, 30 Cal.Rptr. 23;  see also Dixon v. Ford Motor Co. (1975) 53 Cal.App.3d 499, 507, 125 Cal.Rptr. 872, 877;  Wiler v. Firestone Tire & Rubber Co. (1979) 95 Cal.App.3d 621, 627, 157 Cal.Rptr. 248, 250–51;  G. & D. Holland Construction Co. v. City of Marysville (1970) 12 Cal.App.3d 989, 997, 91 Cal.Rptr. 227.)

The record before us is a voluminous one.   Likewise many of the briefs of the parties fail utterly to comply with California Rules of Court rule 15 regarding length and citations to the record, and we are deluged with facts and argument never presented to the trial court.   We choose nevertheless to address the merits of the petition, given the complexity of the lower court proceedings and the large number of persons who will be affected by its outcome.  (Chambers v. Superior Court (1981) 121 Cal.App.3d 893, 896–897, 175 Cal.Rptr. 575.)   Other reasons favoring our proceeding to decision without further delay appear.   Thus, respondent court's order bars a substantial portion of petitioners' cases from being heard on the merits during the coordination proceeding (Nazaroff v. Superior Court (1978) 80 Cal.App.3d 553, 557–558, 145 Cal.Rptr. 657);  many cases and parties are affected;  rights of non-parties are involved, and the question is one of importance to the bench and bar if for no other reason than because of the financial magnitude of the law suit.  (Daly v. Superior Court (1977) 19 Cal.3d 132, 140, 137 Cal.Rptr. 14, 560 P.2d 1193.)

We wish, however, to emphasize that in reviewing the rulings of the court below we have disregarded factual assertions (and arguments relying on those factual assertions) which were not presented to the trial court.

We turn now to the crucial issue—common to all of the consolidated petitions—of choice of law and the governmental interest analysis which underlies it in California decisional law.   First adopted in Reich v. Purcell (1967) 67 Cal.2d 551, 63 Cal.Rptr. 31, 432 P.2d 727, the analysis has been most recently applied and explained in Hurtado v. Superior Court, supra, 11 Cal.3d 574, 114 Cal.Rptr. 106, 522 P.2d 666, Bernhard v. Harrah's Club (1976) 16 Cal.3d 313, 128 Cal.Rptr. 215, 546 P.2d 719, and in Offshore Rental Co. v. Continental Oil Co. (1978) 22 Cal.3d 157, 148 Cal.Rptr. 867, 583 P.2d 721 (hereafter sometimes Offshore ).

According to that analysis, given the choice of law alternatives set out in the consolidated petitions, we first turn to California law, and to that of Pennsylvania or England, in order to determine whether they differ on the question of punitive damages.   As we shall assume, infra, they do, and thus present a conflict.   Nevertheless, “ ‘[a]lthough the two potentially concerned states have different laws, there is still no problem in choosing the applicable rule of law where only one of the states has an interest in having its law applied․  “When one of two states related to a case has a legitimate interest in the application of its law and policy and the other has none, there is no real problem;  clearly the law of the interested state should be applied.”  (Currie, Selected Essays on Conflicts of Laws (1963) p. 189.)  [Fn. omitted.]’  (Hurtado v. Superior Court, supra, 11 Cal.3d at p. 580 [114 Cal.Rptr. 106, 522 P.2d 666].)”  (See Offshore Rental Co. v. Continental Oil Co., supra, 22 Cal.3d at p. 163, 148 Cal.Rptr. 867, 583 P.2d 721.)

“We must therefore examine the governmental policies underlying the ․ laws, ‘preparatory to assessing whether either or both states have an interest in applying their policy to the case.’  (Kay, Comments on Reich v. Purcell (1968) 15 UCLA L.Rev. 584, 585.)   Only if each of the states involved has a ‘legitimate but conflicting interest in applying its own law’ will we be confronted with a ‘true’ conflicts case.  (Bernhard v. Harrah's Club, supra, 16 Cal.3d 313, 319 [128 Cal.Rptr. 215, 546 P.2d 719].)”  (Offshore, supra, 22 Cal.3d at p. 163, 148 Cal.Rptr. 867, 583 P.2d 721.)

According to high authority, when a true conflict is discovered, the forum state, before simply applying its own law should reexamine its policy to determine if a more restrained interpretation is more appropriate.  “ ‘[T]o assert a conflict between the interests of the forum and the foreign state is a serious matter;  the mere fact that a suggested broad conception of a local interest will create conflict with that of a foreign state is a sound reason why the conception should be reexamined, with a view to a more moderate and restrained interpretation both of the policy and of the circumstances in which it must be applied to effectuate the forum's legitimate purpose․  An analysis of this kind ․ was brilliantly performed by Justice Traynor in Bernkrant v. Fowler (1961) 55 Cal.2d 588 [12 Cal.Rptr. 266, 360 P.2d 906].’  (Currie, The Disinterested Third State (1963) 28 Law & Contemp. Prob., pp. 754, 757;  see also Sedler in Symposium, Conflict of Laws Round Table, supra, 49 Texas L.Rev. 211, at pp. 224–225.)   This process of reexamination requires identification of a ‘real interest as opposed to a hypothetical interest’ on the part of the forum (Sedler, Value of Principled Preferences, 49 Texas L.Rev. 224) and can be approached under principles of ‘comparative impairment.’  (Baxter, Choice of Law and the Federal System, supra, 16 Stan.L.Rev. 1–22;  Horowitz, The Law of Choice of Law in California—A Restatement, supra, 21 UCLA L.Rev. 719, 748–758.)”  (Bernhard v. Harrah's Club, supra, 16 Cal.3d at p. 320, 128 Cal.Rptr. 215, 546 P.2d 719.)

And, as our high court has explained in Offshore, supra, “ ‘Once [a] preliminary analysis has identified a true conflict of the governmental interests involved as applied to the parties under the particular circumstances of the case, the “comparative impairment” approach to the resolution of such conflict seeks to determine which state's interest would be more impaired if its policy were subordinated to the policy of the other state.   This analysis proceeds on the principle that true conflicts should be resolved by applying the law of the state whose interest would be the more impaired if its law were not applied.’  (Citation.)

“As Professor Horowitz has explained, this analysis does not involve the court in ‘weighing’ the conflicting governmental interests ‘in the sense of determining which conflicting law manifest[s] the “better” or the “worthier” social policy of the specific issue.   An attempted balancing of conflicting state policies in that sense ․ is difficult to justify in the context of a federal system in which, within constitutional limits, states are empowered to mold their policies as they wish.’  (Fn. omitted.)  (Horowitz, The Law of Choice of Law in California—A Restatement (1974) 21 UCLA L.Rev. 719, 753.)

“Rather, the resolution of true conflict cases may be described as ‘essentially a process of allocating respective spheres of lawmaking influence.’  (Baxter, Choice of Law and the Federal System (1963) 16 Stan.L.Rev. 1, 11–12.”  (Offshore Rental Co. v. Continental Oil Co., supra, 22 Cal.3d 157, at pp. 164–165, 148 Cal.Rptr. 867, 583 P.2d 721.) ³

 We are directed by our high court's decision in Offshore, supra, and related authority to consider several factors in determining the proper allocation of legal spheres of influence when attempting to resolve a true conflict of laws.   These are, first, that wherever possible, we are to determine whether the policy underlying state law was more strongly held in the past than now.  (Offshore, supra, 22 Cal.3d 157, at p. 165, 148 Cal.Rptr. 867, 583 P.2d 721.)   Next, we are to consider whether “ ‘one of the competing laws is archaic and isolated in the context of the laws of the federal union, [and if it is] it may not unreasonably have to yield to the more prevelant and progressive law, other factors of choice being roughly equal.’   (Freund, Chief Justice Stone and The Conflict of Laws (1946) 59 Harv.L.Rev. 1210, 1216)” (Offshore, supra, at p. 165, 148 Cal.Rptr. 867, 583 P.2d 721, italics omitted.)   We are also to consider whether the law is infrequently enforced or interpreted even within its own state.  (Id., at p. 166, 148 Cal.Rptr. 867, 583 P.2d 721.)   Finally, deference must be paid to the “ ‘maximum attainment of underlying purpose by all governmental entities.   This necessitates identifying the focal point of concern of the contending lawmaking groups and ascertaining the comparative pertinence of that concern to the immediate case.’  (Italics added.)  (Baxter, Choice of Law, supra, 16 Stan.L.Rev. 1, 12.)   The policy underlying a statute may be less ‘comparatively pertinent’ if the original object of the statute is no longer of pressing importance:  a statute which was once intended to remedy a matter of grave public concern may since have fallen in significance to the periphery of the state's laws.   As Professor Currie observed in another context, ‘If the truth were known, it would probably be that [those few states which have retained the archaic law of abatement have done so] simply because of the proverbial inertia of legal institutions, and that no real policy is involved.’  (Fn. omitted.)  (Currie, Selected Essays on The Conflict of Laws, supra, p. 143.)

“Moreover, the policy underlying a statute may also be less ‘comparatively pertinent’ if the same policy may easily be satisfied by some means other than enforcement of the statute itself.   Insurance, for example, may satisfy the underlying purpose of a statute originally intended to provide compensation to tort victims.   The fact that parties may reasonably be expected to plan their transactions with insurance in mind may therefore constitute a relevant element in the resolution of a true conflict.”  (Offshore, supra, 22 Cal.3d at p. 166, 148 Cal.Rptr. 867, 583 P.2d 721.)

Also common to each petition before us is the question whether the choice of California law violates the due process clause of the Fourteenth Amendment and the Full Faith and Credit Clause of Article 4, section 1, of the United States Constitution.

The United States Supreme Court has most recently addressed this issue in Phillips Petroleum Co. v. Irl Shutts, et al., (1985) 472 U.S. 797, 105 S.Ct. 2965, 86 L.Ed.2d 628, hereafter Phillips Petroleum, and in Allstate Ins. Co. v. Hague (1981) 449 U.S. 302, 101 S.Ct. 633, 66 L.Ed.2d 521, hereafter sometimes cited as Allstate.   The plurality in Allstate, and the majority in Phillips Petroleum observed “ ‘that for a State's substantive law to be selected in a constitutionally permissible manner, that State must have a significant contact or significant aggregation of contacts, creating state interests, such that choice of its law is neither arbitrary nor fundamentally unfair.’ ”  (Allstate, supra, at pp. 312, 313, 101 S.Ct. at p. 640;  Phillips Petroleum, supra, 105 S.Ct. 2965, at pp. 2978–2979.)

In Allstate, the wife of a Wisconsin decedent filed suit in the Minnesota court which applied Minnesota's rule permitting stacking of separate uninsured motorists policies.   Wisconsin courts did not allow such a procedure.   The decedent had lived in Wisconsin, obtained his insurance policies there and was killed there.   He was, however, employed in Minnesota and after his death his widow had moved to Minnesota for reasons unrelated to the litigation.   The Allstate court allowed Minnesota to apply its own law, stressing the importance of examining the “contacts of the State, whose law was applied, with the parties and with the occurrence or transaction giving rise to the litigation.”  (449 U.S. at 308, 101 S.Ct. at 638.)

In an instructive discussion, the Allstate plurality contrasted its result with that reached in Home Ins. Co. v. Dick (1930) 281 U.S. 397, 50 S.Ct. 338, 74 L.Ed. 926, and John Hancock Ins. Co. v. Yates (1936) 299 U.S. 178, 57 S.Ct. 129, 81 L.Ed. 106.

In Home Ins. Co. v. Dick, the court held that the application of Texas law to void the limitation of actions clause in an insurance policy violated due process.   The policy had been issued in Mexico to a Mexican citizen covering a Mexican risk;  the insurer was also Mexican.   Subsequently, however, the policy was assigned to Mr. Dick who was then domiciled in Mexico and “physically present and acting in Mexico,” (281 U.S. at 408, 50 S.Ct. at 341), even though he remained nominally a permanent resident in Texas.   Dick brought suit in Texas against a New York reinsurer.   As the court concluded in rejecting the choice of Texas law, “Neither the Mexican insurer nor the New York reinsurer had any connection to Texas.”  (Allstate Ins. Co. v. Hague, supra, 449 U.S. 302, 310, 101 S.Ct. 633, 638, emphasis added.)

Similarly, in John Hancock Ins. Co. v. Yates, the insurer, a Massachusetts corporation, had issued a contract of insurance on the life of a New York resident.   The insured died in New York and his spouse moved to Georgia, bringing suit on the policy there.   The original contract of insurance had been applied for and issued in New York at a time when the insured and his spouse resided there.   The Supreme Court held the application of Georgia law to be unconstitutional.   As stated by Allstate, “[The] Yates [case] held that a post occurrance change of residence to the forum State—standing alone—was insufficient to justify application of forum law” (Allstate Insurance Co. v. Hague, supra, 449 U.S. 302, at p. 311, 101 S.Ct. at p. 639), while Dick “concluded that nominal residence—standing alone—was inadequate.”   (Ibid.)

The Allstate court went on to compare Dick and Yates to Alaska Packers Assn. v. Comm'n (1935) 294 U.S. 532, 55 S.Ct. 518, 79 L.Ed. 1044, in which it had upheld California's application of its Workmens' Compensation Act “where the most significant contact of the worker with California was his execution of an employment contract in California.”  (Allstate, supra, 449 U.S. 302, at p. 311, 101 S.Ct. 633, at p. 639.)   The worker was a Mexican nonresident alien hired in California for seasonal work in Alaska;  the employer, doing business in California, agreed to transport the worker to Alaska and to return him to California at the end of the canning season.   The employee had contracted to be bound by Alaska workmen's compensation, and he was injured in Alaska;  however, he sought his award under the California Workmen's Compensation Act.   Sufficient contacts with California justified application of the law of that state.

In Phillips Petroleum, supra, 105 S.Ct. 2965, a class action suit for interest on delayed royalty payments was brought in Kansas by royalty owners possessing rights to leases from which an oil company produced gas.   Despite the fact that approximately 97 percent of the 28,000 class members and 99 percent of the leases had no apparent connection with Kansas, that state's court applied Kansas law to every claim.   The Supreme Court remanded for further proceedings, holding that “Kansas must have a ‘significant contact or aggregation of contacts' to the claims asserted by each member of the plaintiff class, contacts ‘creating state interests' in order to ensure that the choice of Kansas law is not arbitrary or unfair.  (Allstate, supra, 449 U.S. at 312–313 [101 S.Ct. at 640].)”  “Given Kansas' lack of ‘interest’ in claims unrelated to that State, and the substantive conflict with jurisdictions such as Texas, we conclude that application of Kansas law to every claim in this case is sufficiently arbitrary and unfair as to exceed constitutional limits.”  (Phillips Petroleum, supra, 105 S.Ct. at p. 2980, fn. omitted).

Also evident in the Court's decision in Phillips Petroleum, supra, is an emphasis upon the expectation of the parties.   There was, the Court said, “no indication that when the leases involving land and royalty owners outside ․ Kansas were executed, the parties had any idea ․ Kansas law would control” (Phillips Petroleum, supra, 105 S.Ct. at p. 2980.)   And while nothing in the Due Process or Full Faith and Credit clauses required Kansas to substitute for its own law as applied to its own citizens the conflicting statutes of another state, Kansas “ ‘may not abrogate the rights of parties beyond its borders having no relation to anything done or to be done within them.’   (Home Ins. Co. v. Dick, supra, 281 U.S., at 410 [50 S.Ct., at 342] )” (105 S.Ct. at p. 2981.)

As with the choice of law analysis itself, the foregoing principles concerning due process and full faith and credit must be applied to the facts of the individual cases before us, to which we now turn.

By its first amended complaint, Nicolet “seeks declaratory and injunctive relief and damages against its insurers for their continuing refusal to acknowledge and honor their contractual obligations to provide Nicolet with insurance coverage.”   According to that complaint, the following facts warrant imposition of punitive damages.

INA provided primary comprehensive liability and/or product liability coverage and excess comprehensive and/or product liability coverage to Nicolet pursuant to one or more policies which were in effect from 1950 through 1970.⁴  Nicolet also purchased a claim service from ESIS in July of 1976.   Under the terms of the contract, ESIS agreed to act as the agent and fiduciary of Nicolet.   The contract with ESIS remained in effect from 1976 through March 27, 1980.   Some 19,000 plaintiffs have sued Nicolet for bodily injury or death resulting from exposure to asbestos or asbestos products manufactured, sold or distributed by Nicolet or its predecessors, and of these over 7,800 are before the courts of the State of California.⁵  The policies issued to Nicolet contained standard language drafted in concert by the entire insurance industry, which expressly rejected the “manifestation” approach to coverage.   Yet, according to the complaint, despite this express rejection of the manifestation approach, INA denied coverage to Nicolet in the asbestos cases on the very basis of that same approach, thus in bad faith refusing to honor its policies.   Moreover, in doing so, INA acted for the conscious and continuing purpose of denying Nicolet the benefits to which it was entitled, thus breaching its obligations to act in good faith and to deal fairly with Nicolet.

The switch in INA's interpretation of the policy language occurred in 1977.   In various memoranda, INA's asbestos coordinator estimated that INA's potential liability in asbestos cases could reach 20 billion dollars, and an INA officer is quoted as noting “we are going to try and influence case law by picking and trying the ideal case, jurisdiction etc. ․ Odds are against us but its worth a try.”   INA brought suit in 1977 against Nicolet in the State of Ohio, and it is further charged that INA witnesses offered false testimony and that the company consciously concealed relevant evidence and so misrepresented material facts for the purpose of deceiving the courts.

It is further claimed that Nicolet was coerced and deceived by INA into signing, in 1978, an interim agreement in which INA was required to pay 25 percent of the cost of all defense and indemnification in the asbestos cases until a decision was entered in the Ohio action.   Further, a second interim agreement is alleged to have been made in July of 1981, in which INA agreed to reimburse Nicolet for prior amounts paid for defense and indemnification in the asbestos cases, all of which it has failed and refused to do.

The foregoing allegations are the core of Nicolet's claims for punitive damages in causes of action for bad faith, fraud, fraudulent breach of fiduciary duties, and intentional interference with contractual relations.

On the motion for summary judgment, the following facts were undisputed.   INA is organized under the laws of Pennsylvania and has its corporate headquarters in Philadelphia.   It has been located there since 1872.   Corporate headquarters has responsibility for formulating INA official policy, and for the interpretation and scope of coverage provided by individual policies.   Nicolet, while organized and existing under the laws of Delaware, has its corporate headquarters in Pennsylvania.   Its primary manufacturing facility is located in Ambler, Pennsylvania, with another manufacturing facility being located in Norristown.   Nicolet has used a Pennsylvania insurance broker since 1939.   Premium payments for the purchase or renewal of each policy at issue in the Nicolet-INA action were delivered by Nicolet to its brokers located in Pennsylvania;  the brokers in turn delivered or caused to be delivered Nicolet's payments to INA's offices in Pennsylvania.   INA's conversion to a manifestation theory of coverage was made at INA's corporate headquarters in Philadelphia, Pennsylvania.   While Nicolet has been sued nationwide by asbestos plaintiffs, thousands of such cases were instituted in California.   No evidence was presented below that any asbestos victims suffered harm as a result of the alleged switch in coverage.

INA has been authorized to transact insurance business in California since 1936, and Certificates of Authority issued to the company by the California Department of Insurance are conditioned upon INA fully complying with the laws of California.   The policies issued by INA specify that the place of performance is the United States or the world.   For the years 1972–1975, INA wrote substantial premiums in California, although the numbers of its premium writings in Pennsylvania exceeded those written in California.

Applying the governmental interest analysis to the foregoing, we must first determine whether in fact Pennsylvania law conflicts with California law.   Upon a careful reading of the Pennsylvania Supreme Court's decision in D'Ambrosio v. PA. Nat. Mut. Cas. Ins. Co. (1981) 494 Pa. 501, 431 A.2d 966, we will assume, arguendo, that that state probably would not allow the punitive damage claims herein.⁶

Rejecting California's policy of allowing punitive damages for bad faith insurance practices, the court observed “There is no evidence to suggest, and we have no reason to believe, that the system of sanctions established under the Unfair Insurance Practices Act must be supplemented by a judicially created cause of action․  Surely it is for the Legislature to announce and implement the Commonwealth's public policy governing the regulation of insurance carriers.   In our view, it is equally for the Legislature to determine whether sanctions beyond those created under the Act are required to deter conduct which is less than scrupulous.”  (D'Ambrosio v. Pa. Nat. Mut. Cas. Ins. Co., supra, 494 Pa. 501, 431 A.2d 966, at p. 970.)

In California, on the contrary, our high court has made it plain that punitive damages are available where an insurance company has been guilty of bad faith.   We quote from its decision in Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 819–821, 169 Cal.Rptr. 691, 620 P.2d 141, fn. omitted, “Civil Code section 3294 provides:  ‘In an action for the breach of an obligation not arising from contract, where the defendant has been guilty of oppression, fraud, or malice, express or implied, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant.’  ․

“In the present context, the principal purpose of section 3294 is to deter acts deemed socially unacceptable and, consequently, to discourage the perpetuation of objectionable corporate policies.  (Citation.)  Traditional arguments challenging the validity of exemplary damages lose force when a punitive award is based on this justification.   The special relationship between the insurer and the insured illustrates the public policy considerations that may support exemplary damages in cases such as this.

“As one commentary has noted, ‘The insurers' obligations are ․ rooted in their status as purveyors of a vital service labeled quasi-public in nature.   Suppliers of services affected with a public interest must take the public's interest seriously, where necessary placing it before their interest in maximizing gains and limiting disbursement ․ [A]s a supplier of a public service rather than a manufactured product, the obligations of insurers go beyond meeting reasonable expectations of coverage.   The obligations of good faith and fair dealing encompass qualities of decency and humanity inherent in the responsibilities of a fiduciary.   Insurers hold themselves out as fiduciaries, and with the public's trust must go private responsibility consonant with that trust.’  (Citation.)  Furthermore, the relationship of insurer and insured is inherently unbalanced;  the adhesive nature of insurance contracts places the insurer in a superior bargaining position.   The availability of punitive damages is thus compatible with recognition of insurers' underlying public obligations and reflects an attempt to restore balance in the contractual relationship.  (Citations.)”

 If, then, as we assume, the Pennsylvania high court would reject the punitive damage claim, we perceive the conflict to be a “true” one, and the issue is obviously one of major importance, so as to compel the conclusion that each state has a strong interest in applying its law.   We will assume as well—arguendo—that INA correctly argues that allegations concerning its relationship with ESIS are not relevant to the choice of law question here presented.   And we will assume, finally, that certificates reflective of INA's promise to “abide by” California's law simply mean that INA is bound by this state's laws, including its choice of law analysis.

California's interest in applying its punitive damage laws to a case like that at bench is strong, and largely undisputed by INA—which instead argues the primacy of Pennsylvania's contrary interests.   As our Supreme Court has repeatedly made clear, the purpose of such damages is to deter future conduct by punishing past misdeeds.

While it is a nationwide company, INA has done extensive business in California since 1936, and has substantial contacts with this state.   And California's larger interest in invoking its bad faith law in a case such as this one is rooted in its concern that all California citizens who pay premiums to companies doing business in this state, and with whom they occupy a fiduciary relationship, will not be victimized by conduct which, arguendo, is outrageous particularly in its potential impact on seriously stricken citizens of this state afflicted with the lethal disease asbestosis.⁷

Ranged against California's right and obligations to enact and enforce laws promotive of public protection and the sanctity of contract, is Pennsylvania's concern for the possibility of limitless money damage awards as well as—it may be—for the financial protection of its resident insurance companies in the out of state conduct of their business.   The financial health of such companies of course enhances the general welfare of Pennsylvania.   We are aware, too, that important elements of the conduct prompting consideration and punitive damages, such as INA's decision to adopt the manifestation approach and its decision to sue Nicolet in Ohio, were made at its corporate headquarters in Pennsylvania, where it has been incorporated since 1792, nor, indeed, has California any close affinity with Nicolet, which is a Pennsylvania company whose primary manufacturing plant is located in that state, and which paid all of its premiums there.

Confronted with this “true” conflict, we are reminded of Professor Currie's original solution, that the forum apply its own law, for application of the more complicated analysis subsequently advocated by Currie ⁸ and others leads us to the same result.   Applying the comparative impairment factors outlined by our high court in Offshore, supra, 22 Cal.3d 157, 166, 148 Cal.Rptr. 867, 583 P.2d 721, we observe that both the California and Pennsylvania high courts have quite recently spoken on the subject of punitive damages (cf. Offshore, supra;  D'Ambrosio, supra ), and reached opposite results.   Still, as the court in White v. Erie Indemnity Company, supra, 29 Pa.D. & C.3d 453 observed, the Pennsylvania high court has not confronted a factual context in which the application of penalties under that state's Unfair Insurance Practices Act would clearly constitute a meaningless attempt to deter conduct attempting to avoid billions of dollars in liability.   In short, we venture to join with the court in White v. Erie, supra, in questioning the viability of the D'Ambrosio doctrine under widely different facts from the conservative ones there at issue.

Continuing with the comparative analysis, we of course cannot say that Pennsylvania's seeming rejection of punitive damages is “archaic” and “isolated.”   Neither California nor Pennsylvania, as the parties have pointed out, is alone in its current position on the subject.   Nor can we say that the refusal by Pennsylvania to impose punitive damages is unrelated to the purpose of protecting companies incorporated or doing business in that state.

We believe, however, that requiring California to adopt Pennsylvania's rule against punitive damages would create in this state an archaic result in the context of the modern realities of INA's role as a multi-state corporation.   (Cf. Pacific Diamond Co. v. Superior Court (1978) 85 Cal.App.3d 871, 876–877, fn. 1, 149 Cal.Rptr. 813.)   To adopt the Pennsylvania rule, as INA would have us do, would require that California assist that state in sheltering against the world a corporation whose blatant misconduct, if proved, might wreak immense damage outside the confines of its home state.

 If Pennsylvania as the forum state elects not to punish the corporation for its decisions in Pennsylvania that is of course Pennsylvania's sovereign right;  if it should decline to attempt to deter similar conduct within its borders in the future the choice is again undeniably its own when it sits as the forum.   But where, as here, the “offending” corporation has done business in California, and continues to do so, and where California's concern is legitimately with the manner in which such business is conducted, the reach of Pennsylvania's protection must be curtailed.   In sum, the interest of California in providing assurance to all of its citizens that rejection of any insurance claim will not be made in bad faith with impunity is paramount, and justifies invocation of its own law in cases brought in this state.⁹

For similar reasons, we do not believe that application of California's punitive damage law violates either the full faith and credit clause or the due process clause of the Fourteenth Amendment.   INA itself observes that it headquartered itself in Pennsylvania almost two hundred years ago.   Certainly that choice was not made in expectation that it could thereby shelter its corporate decisions from California's punitive damage laws.   INA has subsequently elected to do business nationwide;  its insurance policies as shown below contemplate that its insureds will face claims nationwide;  it can hardly claim prejudice at finding itself subject to the laws—including the punitive damage laws—of states other than Pennsylvania.   Finally, for reasons already stated, we do not believe that the manner in which Pennsylvania's chooses to regulate conduct which impacts its citizens should override California's concerns in controlling the conduct of a corporation doing business within its borders.

As relevant to these proceedings, the allegations in GAF's third amended complaint which support a claim for punitive damages, are similar to the facts alleged by Nicolet in the Nicolet/INA action.   From 1969 through 1977, INA followed a coverage approach to asbestos claims under which GAF received indemnity and defense.   In 1977, motivated by its desire to substantially decrease its own extraordinarily high exposure, INA switched to the “manifestation” interpretation of its policies.¹⁰  INA tried to induce GAF to enter into written agreements limiting coverage of INA's primary insurance for prior years, and, following GAF's refusal to accede, refused to defend GAF in all asbestos lawsuits—refusing, in addition, to state reasons for its actions, and declining to respond to inquiries from GAF respecting asbestos lawsuits.   Only after the GAF/INA action was commenced, in September of 1979, did INA offer to prospectively defend and indemnify GAF under a somewhat threadbare reservation of rights.

The undisputed facts presented on the motion below were similar to those presented in the Nicolet/INA action.   They show additionally that the policies issued to GAF and its predecessor Ruberoid were issued in New York and delivered there to GAF's and Ruberoid's brokers.   GAF had been sued in some 25,000 asbestos cases, of which 7,000 were instituted in California.   GAF is a Delaware corporation, but engaged in business at various California locations.   Prior to its 1967 merger with GAF, Ruberoid manufactured products containing asbestos and maintained facilities in California.   At least two of the policies at issue are “following form” policies—incorporating other policies essentially by reference and in doing so, incorporating a “service of suit” clause which provides, inter alia, that “all matters arising hereunder shall be determined in accordance with the law and practice” of any court of competent jurisdiction within the United States.

While we agree, arguendo, that the foregoing is not a choice of law clause, for the same reasons we have recited under our analysis of the Nicolet/INA petition, we think that California law is the proper one to apply to the punitive damage issue between GAF and INA.

As to the GAF/Kemp dispute, we note initially that “Kemp & Companies” are certain underwriters at Lloyd's, London (an “incorporated association of underwriters located in Great Britain”) and other British insurance companies, all of which—it is uncontradicted—have their principal places of business in England.   GAF alleges that Kemp & Companies breached an implied duty of good faith and fair dealing by refusing to defend it under excess liability policies in asbestos-related personal injury litigation during the period January 1978 to September 1979.

The relevant policies contain a “service of suit” clause virtually identical to that at issue in GAF/INA, and GAF has provided evidence in the summary judgment proceeding that at least one underwriting member of Lloyd's viewed the clause generally as a consent to the law of the forum.   And while no evidence was presented below concerning where the alleged bad faith decisions were made,¹¹ GAF has alleged, and Kemp did not dispute, that California's Unfair Practices Act (Insurance Code section 790 et seq.) specifically applies to, among others “Lloyd's Insurers.”  (Ins.Code, § 790.01.)   No evidence was presented below concerning the precise volume of Kemp & Companies business in California although it appears inferentially that Kemp has done significant business within the state during the period at issue.

It is evident, and we will assume, that English courts would not allow GAF's punitive damage claims—so that a true conflict of law exists.   Accordingly, and even assuming—as we do—that the “service of suit” clause does not mandate application of California law to the GAF-Kemp action, for reasons recited at length in this opinion, we believe that California's is the governing law on the subject of punitive damages.

Therefore, let a peremptory writ of mandate issue commanding respondent superior court to set aside those portions of its orders filed February 5 and March 4, 1985 in Judicial Council Coordination Proceeding No. 1072, In re:  Asbestos Coverage Cases, which determine that Pennsylvania law and English law govern the Nicolet/INA, GAF/INA, and GAF/Kemp included actions on the question of punitive damages for bad faith conduct, and to instead enter orders holding that California law is applicable to the issue of such damages.

Trial has already commenced in the underlying coordinated proceeding.   We thus direct that this opinion is final forthwith as to this court.   (Cal.Rules of Court, rule 24(c).)   The stays previously imposed shall remain in effect until the finality of this opinion.

FOOTNOTES

1.   Unless otherwise expressly noted all further statutory references are to the Code of Civil Procedure.

2.   There are three petitions filed with this court which we label for clarity as follows:  A030897—hereafter, Nicolet/INA;  A030933—hereafter GAF/Kemp;  and A030934—hereafter GAF/INA.We will also use these same references when referring to various portions of the proceedings below even though in the underlying lawsuits, coordinated as Judicial Counsel Coordination Proceedings No. 1072, there are other defendants.   Those other defendants did not bring motions subject to these petitions.

3.   One commentator finds Offshore, supra, to skip entirely Professor Currie's step of reexamination, and to find that both Offshore and Bernhard v. Harrah's Club wrongly grasp Baxter's comparative impairment analysis, overlaying it on a governmental interest analysis.   The former was meant, it is argued, to be used only with an over-arching standard provided by its presence as part of federal common—not state—law.  (Kay, The Use of Comparative Impairment to Resolve True Conflicts:  An Evaluation of the California Experience, (1980) 68 Cal.L.Rev. 577, 579–582.)Whatever the merits of that thesis, we are bound (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 452, 20 Cal.Rptr. 321, 369 P.2d 937) by the analysis set forth in Offshore, supra.We recognize that our Supreme Court has still more recently dealt with the election of one of conflicting substantive laws in Wong v. Tenneco, Inc. (1985) 39 Cal.3d 126, 216 Cal.Rptr. 412, 702 P.2d 570.   Since the majority declined to address the issues therein within the conflicts analysis framework, but instead found that analysis inapplicable labeling the question one of “comity,” we do not read the case as modifying the analysis applied in Offshore, supra, and its predecessors.

4.   The primary policies were in effect between 1950 and 1970 while the excess policies covered periods commencing in 1962.

5.   These figures are those presented below in Nicolet's separate statement of material facts.

6.   We are aware of the decision of the court in White v. Erie Indemnity Company (1983) 29 Pa.D. & C.3d 453, overruling the granting of a demurrer to a punitive damage claim, finding D'Ambrosio, supra, inapplicable as follows:“In D'Ambrosio, the court confronted a situation involving an insurance carrier's alleged bad faith in failing to adjust a claim made by its insured for damages sustained by a motor boat and outboard motor which were damaged as the result of a severe storm.  D'Ambrosio and the above cases involved direct actions by the insured against insurance companies wherein the parties were in an adversarial position from the beginning.   Our appellate courts did not and have not addressed the issues of whether similar results would obtain where an insurance company has assumed a fiduciary obligation involving the negotiation of claims made by third parties against its insured or of whether the Unfair Insurance Practices Act creates a cause of action in favor of a member of the protected class against an insurance company which violates the provisions of the Act.   It would be unconscionable to leave this plaintiff to face a judgment in excess of $400,000 where she purchased insurance coverage in good faith only to later find that her insurer breached its obligation to her and then exposed itself to no more than a $5,000 civil penalty under the Unfair Insurance Practices Act.”  (Emphasis added.)  (Id. at p. 457.)

7.   We recognize that punitive damages would run to the plaintiff manufacturers, not necessarily to the victims.   We also recognize that no showing was made below concerning the potential negative impact of INA's bad faith might have on the victims.

8.   Professor Currie, it may be recalled, would ask us to reconsider California's interest in a moderate and restrained fashion to be sure that it is a real one.

9.   Nothing in Keene Corp. v. Insurance Co. of North America (D.D.C.1984) 597 F.Supp. 934 changes our view.  Keene involved a choice of law question virtually identical to that here—whether the forum's law which allowed punitive damages—that of the District of Columbia—or Pennsylvania law should apply to causes of action arising from the same conduct allegedly committed by INA here.   Washington, D.C., applies an “interest analysis” approach to tort claims, an analysis similar but not identical to our governmental interest approach.   And Keene went on to rely on the Restatement (Second) of Conflict of Laws section 145 comments c–e, and In re Air Crash Disaster Near Chicago, Illinois, etc. (1981) 644 F.2d 594, U.S. cert. den. 454 U.S. 878, 102 S.Ct. 358, 70 L.Ed.2d 187, for the proposition that “[w]hen the primary purpose of a rule of law is to deter or punish conduct, the States with the most significant interests are those in which the conduct occurred and in which the principal place of business and place of incorporation of defendant are located,”  (Keene, supra, 597 F.Supp. at p. 938), and held Pennsylvania law applicable.   The court's analysis does not address the interests asserted by California here.   To the extent that it requires a mechanistic place-of-wrongful-decision analysis, we reject it.

10.   In the GAF cases alone this exposure could be as high as $20 billion.  (Insurance Company of North America v. Superior Court (1980) 108 Cal.App.3d 758, 761, 166 Cal.Rptr. 880.)

11.   However, the manner in which insurance is placed by the underwriters was described in Edinburgh Assur. Co. v. R.L. Burns Corp (C.D.Cal.1979) 479 F.Supp. 138, 144–145, reversed in part on another ground 669 F.2d 1259 (1982):  “[t]akes place on the floor of the underwriting room at Lloyd's and also in the offices of individual insurance companies in London․  The underwriter agent, or underwriter, sits at his box on the floor waiting for brokers to approach him with possible insurance risks․  [T]he broker moves around the insurance market, both at Lloyd's and among the insurance companies, until he has obtained underwriters' commitments subscribing to one hundred percent of the risk on the slip.”

NEWSOM, Associate Justice.

RACANELLI, P.J., and HOLMDAHL, J., concur.