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Under a limited renvoi exception, Maryland courts should apply Maryland substantive law to contracts entered into in foreign states' jurisdictions in spite of the doctrine of lex loci contractus when 1) Maryland has the most significant relationship, or, at least, a substantial relationship with respect to the contract issue presented; and 2) the state where the contract was entered into would not apply its own substantive law, but instead would apply Maryland substantive law to the issue before the court.
American Motorists Insurance Company ("American Motorists") was an insurer for ARTRA Group, Inc. ("ARTRA"). ARTRA requested that American Motorists defend and indemnify ARTRA in an action brought against it for hazardous waste contamination. American Motorists alleged that it was not required to defend the action against ARTRA because the policy contained a provision that limited actions in pollution to those that were sudden and accidental. American Motorists alleged that Maryland substantive law would govern the action.
Was American Motorists’ allegation that Maryland substantive law should govern the action meritorious?
Although there was not a choice-of-law provision in the contract, the Court held that Maryland law should govern the contract because the Court was to apply the law of Illinois to determine the forum and Illinois law would have applied Maryland substantive law based on the most significant relationship choice-of-law rule. The Court held that the actions against defendant were not sudden and accidental. Therefore, plaintiff did not have a duty to defend. The Court reversed the appellate court and affirmed summary judgment for plaintiff.