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The Third Circuit faced an insured’s appeal from the Middle District of Pennsylvania.  The district court had granted summary judgment to the carrier on a bad faith claim and choice of law dispute, applying New Jersey law to the insured’s policy.

In 2007, the insured purchased a policy from the carrier in New Jersey, but moved to Pennsylvania in early 2008.  The insured apprised the carrier of its relocation and was told to get a Pennsylvania license and register its two cars in Pennsylvania before obtaining a rewritten policy. Before doing so, the insured was involved in a fatal traffic accident in Pennsylvania, caused by an underinsured motorist, that triggered the policy claim.

In 2009, the carrier sought declaratory relief in the Superior Court of New Jersey, believing that New Jersey law applied to the insured’s policy.  Under New Jersey law, an insured may not “stack” benefits on multiple vehicles, while in Pennsylvania an insured is permitted to “stack” benefits. The insured removed to the District of New Jersey, which sua sponte transferred the case to the Middle District of Pennsylvania.

The choice of law and bad faith claims were submitted to a Magistrate, who applied Pennsylvania’s choice of law rules and concluded that New Jersey law applied to the policy.  It also recommended denial of summary judgment on the bad faith claim.  The Middle District of Pennsylvania adopted the R&R and the insured appealed.

The Third Circuit first addressed the choice of law issue, applying the choice of law rules of New Jersey.  Then, it applied New Jersey law, which instructs courts to use the “most significant relationship” standard in choice of law disputes.  This standard seeks to examine each state’s contacts, such as place of contracting, location of subject matter of the contract, domicile and residence, “according to relative importance.”

The court recognized that, with respect to the “stacking” issue, a conflict of laws existed between Pennsylvania and New Jersey.  Because an actual conflict existed, the Third Circuit looked to precedential case law detailing the Simmons approach.  The court focused on New Jersey Manufacturer’s Insurance Company v. MacVicar, which factually resembled the instant dispute.

That case also decided between applying New Jersey and Pennsylvania law in a dispute over an insured’s entitlement to the “stacking” of underinsured motorist benefits.  Though MacVicar was never removed to federal court, the trial court found for the carrier on the choice of law issue during the summary judgment phase.  In that case, the New Jersey Appellate Court later reversed the grant of summary judgment, applying Simmons and the “most significant relationship” test.

The standard led that court to conclude that the “justified expectations of the parties shifted” when the insured moved to Pennsylvania.  Because the “location of the insured risk” moved with the insured party, Pennsylvania had the most “natural interest” in the application of its law.  Moreover, the MacVicar court held that Pennsylvania had the most significant governmental interest in the controversy, given the firm public policy of affording residents the benefit of “stacked” underinsured motorist policies.

The Third Circuit’s decision echoes this rationale; it ruled that the carrier no longer had a justified expectation that New Jersey remained the principal location of the insured risk. The court reversed the Middle District’s grant of summary judgment to the carrier on the choice of law issue and applied Pennsylvania law.  The case was remanded so that the insured could receive the benefit of “stacked” underinsured benefits.

Lastly, the court addressed the insured’s bad faith claim, which alleged that the carrier failed to adequately investigate its claim and improperly denied them “stacked” benefits under their policy.  The court upheld the Middle District’s grant of summary judgment to the carrier, finding that the carrier’s adjuster was reasonable to believe that New Jersey law would apply at the beginning of the dispute.

Date of Decision: September 8, 2011

Amica Mutual Insurance Company v. Fogel, 656 F.3d 167 (3d Cir. 2011) (Ambro, J.)