Many policyholders’ insurance policies are provided by out-of-state insurance carriers. This can lead to issues when a dispute arises regarding which state’s laws apply to a given action. Generally, the parties are free to include a choice of law clause (a provision that provides for the governing jurisdiction), and this type of clause is typically valid. However, if the parties do not include a choice of law provision, courts vary from jurisdiction to jurisdiction as to which laws will govern.

In Missouri, an argument can be made that courts follow the Restatement (Second) of Conflict of Laws in determining which laws will apply in a breach of contract action.1 Under this view, Missouri courts will apply the law chosen by the parties if there is a logical basis for such law. When the parties to an insurance contract do not make an effective choice-of-law, Missouri courts sometimes apply the “most significant relationship” test. Court have discretion to weigh certain factors in determining which state’s laws will apply. According to Section 188 of the Restatement (Second) of Conflict of Laws, there are five potentially significant factors in making the “most significant relationship” determination:

  1. the place of contracting;
  2. the place of negotiation of the contract;
  3. the place of performance;
  4. the location of the subject matter of the contract; and
  5. the domicile or place of business for the parties.

Of these factors, Missouri courts give the greatest deference to the principal location of the insured risk.2

Interestingly, there is conflicting case law that supports the lex loci contractus rule, i.e., the law of the place of contracting governs. This rule was applied by the Missouri Supreme Court in Miller v. Home Insurance Company.3 Miller questioned the use of a Missouri statue limiting suicide as a defense to payment on a group life insurance contract. The Miller court expressly refused to use the “most significant relationship approach” and found that the lex loci contractus rule applied. Federal courts sitting in Missouri have continually relied on Miller for its position that Missouri follows the doctrine of lex loci contractus in suits on contracts.4

The choice of law issue is very important in insurance disputes. Laws governing appraisal and policy interpretation can vary from jurisdiction to jurisdiction. Often, courts within the same state, such as Missouri, may differ on which approach applies, depending on the particular circumstances of the case. As such, it is important to review your policy and to understand which state’s laws will apply if a dispute arises. By including a choice of law clause, the parties decrease the odds of being surprised down the road.

1 See Emerson Elec. Co. v. Crawford & Co., 963 S.W.2d 268, 273–74 (Mo.App. E.D.1997).
2 See Atlas Intermodal Trucking Service, Inc. v. United Fire & Cas. Co., 973 S.W.2d 174, 178 (Mo. App. E.D. 1998).
3 Miller v. Home Ins. Co., 605 S.W.2d 778 (Mo. 1980).
4 Perkins v. Philadelphia Life Ins. Co., 586 F.Supp. 296, 300 (W.D. Mo. 1984).