A recent insurance contract case came down to the step of determining which state law applied.1 While it is a liability contract case, the issue is the same and a very important one that is not often discussed. Property insurance adjusters often overlook what state law applies when interpreting insurance contracts and generally use the state law where the loss happens. While this is often the case, different state laws may apply in more complex commercial and surplus written policies.

The issue of the example case involved whether Georgia or California law applied. The first step is to determine where the litigation may occur. Each state where the litigation occurs applies its own choice of law test to then determine which state law applies. In the example case, the lawsuit was in a Georgia federal court and this is the analysis by the judge:

A federal court sitting in diversity applies state law using the choice-of-law rules of the forum state….Thus, we look to Georgia’s choice-of-law requirements to determine which state’s law will apply. Frank Briscoe Co. v. Ga. Sprinkler Co., 713 F.2d 1500, 1503 (11th Cir. 1983)(“A federal court faced with [a] [choice-of-law] issue must look for its resolution [in] the [choice-of-law] rules of the forum state.”).

Since 1847, Georgia has used the lex loci contractus rule to govern contracts….The rule provides that contracts, like insurance policies, “are to be governed as to their nature, validity[,] and interpretation by the law of the place where they are made.” …And under Georgia law, an insurance contract is made, not where it was executed, but where it was delivered—where the last act essential to the completion of the contract was done….

East Perimeter and Ventron argue that California law applies because a wholesale insurance broker delivered the policies to East Perimeter’s retail insurance broker, M.G. Skinner & Associates, in California. Yes, knowing “where” an insurance policy was delivered is critical in adhering to lex loci contractus so that a court can apply the appropriate state law. But, the Georgia Supreme Court has made it clear that lex loci contractus only permits Georgia courts to consider a foreign state’s law when it involves its statutes or judicial decisions on those statutes….Where a foreign state has adopted the English common law and there is no statute from that state to govern a contractual dispute, the outcome of the dispute can then only be determined by that state’s common law…. And when a foreign state’s common law is in play, Georgia courts and federal courts in Georgia will apply “the common law as expounded by the courts of Georgia[,]” not the common law of that foreign state.

In other words, if—as East Perimeter and Ventron argue—the insurance policies were delivered in California, Georgia’s lex loci contractus choice-of-law rule would only require that the district court look to pertinent California statutes and California case law construing them. Lex loci contractus, however, clearly does not allow Georgia’s own courts or Georgia-based federal courts to apply common law developed by judges in other states…When the Georgia Supreme Court adopted lex loci contractus as its choice-of-law rule, “the prevailing view at the time … was that there is one common law that can be properly discerned by wise judges, not multiple common laws by which judges make law for their various jurisdictions.”…

The parties argue about whether the district court could have just presumed that the common law of England existed in California since it was neither embraced by nor was one of the original thirteen colonies. These arguments center around what is commonly referred to as the “presumption of identity” rule—Georgia’s preference for its own common law over that of a foreign state’s. But here, we don’t need to presume anything. We have a California statute that explicitly says that it has adopted English common law. Thus, the controlling question is whether the common law prevails in another state, not whether that state was one of the original thirteen colonies.

With that in mind, let’s ask ourselves that controlling question: Is the common law in force in California? It is. California adopted English common law by statute when it entered the Union. Cal. Civ. Code. § 22.2; Edwin W. Young, The Adoption of the Common Law in California, 4 Am. J. Legal Hist., 355 (1960). And, because California’s notice-prejudice rule relies on California’s decisional (common) law as opposed to statutory law, the Georgia Supreme Court has clearly held that we cannot use it to decide this insurance dispute…

….the Georgia Supreme Court’s position is clear. If the law to be applied to a contract dispute by a Georgia court or a federal court in Georgia is judicially-created, then “the common law as expounded by the courts of Georgia” must govern…In making decisions for contractual disputes, these courts simply cannot look to the common law as it is developed by judges in foreign states. The only time deference must be given to a foreign state’s law is when that law comes from a statute or judicial decisions interpreting that statute….And since there is no California statute that directly governs the outcome of this insurance-coverage dispute, the district court correctly applied Georgia, not California, law…

This probably sounds very confusing. It is a very complex area of the law known as Conflicts of Law. The point is that state laws vary and can be outcome determinative in some situations. To determine the outcome of the how a court would interpret an insurance policy, one must first determine what state law applies. To do this in advance, one must also guess and analyze where the litigation may take place.

Hope you will have a few minutes to go over this issue on my Tuesday @2 with Chip. Here is the link.

Thought For The Day

There is a Providence that protects idiots, drunkards, children and the United States of America.
—Otto von Bismarck
1 Mt. Hawley Ins. Co. v. East Perimeter Pointe Apartments, — Fed.Appx. —, 2021 WL 2170426 (11th Cir. May 27, 2021).