Coverage Analysis
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In general, California follows a "governmental interest" approach to conflicts of law issues.  Kasel v. Remington Arms Co., 24 Cal. App.3d 711, 730 (1972).  Offshore Rental Co., Inc. v. Continental Oil Co., 22 Cal.3d 157, 148 Cal. Rptr. 867, 583 P.2d 721 (1978).  Under this analysis, the policy interest of the respective states are evaluated.  If only one state has an interest in applying its laws, then that state's law will govern.  Id. at 724.  If both states have an interest, then the next question is which state's public policy will be most impaired by the application of the other state's law; this is known as the "comparative impairment" test.  Id. at 725-26; see also Bernhard v. Harrah's Club, 16 Cal.3d 313, 128 Cal. Rptr. 215, 546 P.2d 719 (1976) (court rejected the proposition that forum's law should always apply in case of "true" conflict).  Particular importance is given to the location of the subject matter of the contract, however.  California Cas. Ind. Exchange v. Pettis, 193 Cal. App.3d 1597, 1607 (1987).

In McDonnell Douglas Corp. v. Allstate Ins. Co., No. CV-93-6290 (C.D. Cal. October 27, 1994), a multi-site pollution case involving claims in Arizona and California, applying California's governmental's interest choice of laws test, Judge Lew ruled that the choice of law must be determined on a case by case basis looking to the location of each risk (i.e. the pollution).

California Civil Code Section 1646 states that "a contract is to be interpreted according to the law and usage of a place where it is to be performed; or, if it does not indicate a place of performance, according to the law and usage of the place where it is made."  

The California Court of Appeal ruled in Stonewall Surplus Lines Ins. Co. v. Johnson Controls, Inc., 14 Cal. App. 4th 637, 17 Cal. Rptr.2d 713 (1993) that the availability of coverage for punitive damages depends on the substantive law of the jurisdiction in which the damages are awarded.

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