Opinion · Ohio Supreme Court
Ohayon v. Safeco Insurance
91 Ohio St. 3d 474
- Type
- Opinion
- Court
- Ohio Supreme Court
- Jurisdiction
- Ohio
- Date
- 2001-05-30
- Topic
- general
noting that Ohio uses the factors from Section 188 of the Restatement of Conflict of Laws where there is not an express choice-of-law provision | noting that “subject to very limited exceptions, the law of the state chosen by the parties to a contract will govern their contractual rights and duties” | upholding Ohio Appellate Court's remand for application of Ohio law to parties' dispute when trial court incorrectly applied Pennsylvania law | applying Ohio law as the place of contracting, rather than Pennsylvania law as the place of injury | noting that Ohio has “expressly adopted Section 188” | referring to the Restatement’s test as a needed “predictable methodology * * * to choose the applicable law if neither the parties nor the statutory scheme make that choice for them.” | applying Ohio’s conflict of laws rules in an insurance contract dispute | discussing Restatement (Second) of Conflicts §§ 187–88 (Am. L. Inst. 1971) | although insured was injured in Pennsylvania, Ohio law governs uninsured motorists policy delivered in that state to policyholders whose “vehicles [are] principally garaged in Ohio” | "The principal location of the insured risk described in Section 193 neatly corresponds with one of Section 188’s enumerated factors — the location of the subject matter of the contract.” | “this court has long held that an insurance policy is a contract between the insurer and the insured.” | “[T]he Restatement and courts emphasize different factors when resolving choice-of- law issues in these contextually distinct legal fields.” | “The Restatement’s contractual choice-of-law rules will protect the justified expectations of the parties who bargain for those terms.” | “The resolution of these stacking and setoff [of uninsured motorist benefits] issues is a coverage issue, separate and independent from the measure of damages assessed to the tortfeasor.” | “[w]e must classify the [plaintiffs’] cause of action before we answer the choice-of-law question raised in their complaint because different choice-of-law rules apply depending on whether the cause of action sounds in contract or in torf’ | “an action by an insured against his or her insurance carrier for payment of UIM benefits is a cause of action sounding in contract, rather than tort, even though it is tortious conduct that triggers applicable contractual provisions” | “Questions involving the nature and extent of the parties’ rights and duties under an insurance contract’s underinsured motorist provisions shall be determined by the law of the state selected by applying the rules of Sections 187 and 188 of the [Restatement (Second | in the absence of an effective choice of law provision, the rights and duties under a contract are determined by the law of the state that, with respect to that issue, has "the most significant relationship to the transaction and the parties.’’ | for purposes of choice of law analysis, “an action by an insured against his or her insurance carrier for payment of .,. benefits is a cause of action sounding in contract, rather than tort, even though it is tortious conduct that triggers applicable contractual provisions.” | discussing Ohio choice-of-law rules in contract cases
Citator
- Cited by
- 82 opinions
[This decision has been published in Ohio Official Reports at91 Ohio St.3d 474
.]
OHAYON ET AL., APPELLANTS, v. SAFECO INSURANCE COMPANY OF ILLINOIS,
APPELLEE.
[Cite as Ohayon v. Safeco Ins. Co. of Illinois, 2001-Ohio-100
.]
Insurance—Motor vehicles—Action by insured against insurance carrier for
payment of underinsured motorist benefits is a cause of action sounding
in contract, rather than tort, even though tortious conduct triggers
applicable contractual provisions—1 Restatement of the Law 2d, Conflict
of Law (1997), Section 205, applied.
(No. 00-262—Submitted November 29, 2000—Decided May 30, 2001.)
APPEAL from the Court of Appeals for Summit County, No. 19617.
__________________
SYLLABUS OF THE COURT
1. An action by an insured against his or her insurance carrier for payment of
underinsured motorist benefits is a cause of action sounding in contract,
rather than tort, even though it is tortious conduct that triggers applicable
contractual provisions. (Landis v. Grange Mut. Ins. Co. [1998], 82 Ohio St.3d 339, 341
,695 N.E.2d 1140, 1141
, followed.)
2. Questions involving the nature and extent of the parties’ rights and duties under
an insurance contract’s underinsured motorist provisions shall be
determined by the law of the state selected by applying the rules in Sections
187 and 188 of the Restatement of the Law 2d, Conflict of Laws (1971). (1
Restatement of the Law 2d, Conflict of Laws [1971], Section 205, applied.)
__________________
SUPREME COURT OF OHIO
COOK, J.
{¶ 1} In their sole proposition of law, appellants ask this court to hold that
when an insured under an automobile insurance policy issued in Ohio is injured in
an automobile accident in another state, coverage under the uninsured/underinsured
motorist provisions of the policy is determined by the law of the state in which the
injury occurred. For the following reasons, we decline to adopt this proposition
and instead affirm the judgment of the court of appeals.
I. Background
{¶ 2} In 1996, Safeco Insurance Company of Illinois (“Safeco”) issued an
automobile insurance policy to Summit County residents Jacob and Brenda
Ohayon. The policy covered three vehicles and provided underinsured (“UIM”)
motorist coverage limited to $100,000 per person and $300,000 per occurrence.
The policy contained a setoff provision providing that “the limit of liability [for
UIM coverage] shall be reduced by all sums paid because of bodily injury by or
on behalf of persons or organizations who may be legally responsible.” (Boldface
sic.) The policy also contained an antistacking clause providing that “[i]n no event
shall the limit of liability for two or more vehicles or two or more policies be added
together, combined, or stacked to determine the limit of insurance coverage
available to injured persons.”
{¶ 3} In 1996, Jacob and Brenda’s son Jonathon—who lived at the
Ohayons’ Ohio residence—visited Pennsylvania, where he was struck by an
automobile. Jonathon sustained serious leg injuries and eventually settled his claim
against the tortfeasor for the $100,000 limit of the tortfeasor’s liability coverage.
{¶ 4} Jacob, Brenda, and Jonathon Ohayon filed a complaint against Safeco
in the Summit County Court of Common Pleas, seeking a declaratory judgment that
they were entitled to recover benefits under the UIM provisions of their Safeco
policy. The Ohayons sought a declaration (1) that Pennsylvania tort law applied to
Jonathon’s UIM claims; (2) that Pennsylvania law entitled Jonathon to stack the
2
January Term, 2001
coverage amounts for each vehicle insured under the Safeco policy, up to $300,000
plus interest and costs; (3) that Pennsylvania law precluded Safeco from setting off
the amount already paid by the tortfeasor’s insurer in settlement; (4) that due to the
loss of their son’s consortium, Jonathon’s parents could each collect the per-person
limit of the UIM coverage provided in the policy, stacking the policy limits to a
combined total of $600,000; and (5) that they were entitled to attorney fees and
prejudgment interest.
{¶ 5} Safeco conceded that Jacob and Brenda Ohayon were named insureds
under the Safeco policy in effect on the date of the accident and admitted that
Jonathon Ohayon, if a resident of the Ohayon household, was also an insured.
Safeco denied, however, that the plaintiffs could recover the UIM benefits that they
sought under the applicable policy provisions.
{¶ 6} Following discovery, the Ohayons moved for partial summary
judgment on the coverage issues. In this motion, the Ohayons reiterated their
claims that under Ohio’s choice-of-law analysis, Pennsylvania law controlled, that
therefore Safeco was precluded from setting off the funds that Jonathon had already
received in settlement, and that Pennsylvania law permitted the Ohayons to stack
their claims. In its response, Safeco contended that R.C. 3937.18 applied and
entitled it to judgment as a matter of law.
{¶ 7} The common pleas court held that the Ohayons’ claims “are largely
based upon tort law and thus tort law governs,” and agreed with the Ohayons that
Pennsylvania law applied. The court thus concluded that, in spite of the
antistacking provision in the Safeco policy, Pennsylvania’s Motor Vehicle
Financial Responsibility Law, 75 Pa.Cons.Stat. 1738, permitted the Ohayons to
stack the stated limits of UIM coverage. The trial court also concluded that
Pennsylvania law precluded Safeco from setting off the amount already paid by the
tortfeasor’s insurer in settlement. Safeco appealed the trial court’s order to the
Summit County Court of Appeals.
3
SUPREME COURT OF OHIO
{¶ 8} The court of appeals unanimously reversed the lower court’s decision,
concluding that the trial court erred when it applied Pennsylvania law instead of
Ohio law to determine the UIM coverage issues under the insurance contract.
Though the court of appeals determined that Ohio’s UIM law was the proper law
to apply, it concluded that a material fact remained in dispute regarding which
version of Ohio’s UIM statute should apply. Accordingly, the court of appeals
remanded the cause. The Ohayons appealed, and the cause is before this court upon
the allowance of a discretionary appeal.
II. Choice of Law
{¶ 9} Because the Ohayons seek a declaration that Pennsylvania law should
apply to resolve the coverage issues in this action, and because the incident
underlying their cause of action occurred in Pennsylvania, resort to Ohio’s choice-
of-law rules is necessary. Our state’s choice-of-law rules “do not themselves
determine the rights and liabilities of the parties, but rather guide decision as to
which local law rule will be applied to determine these rights and duties.” 1
Restatement of the Law 2d, Conflict of Laws (1971) 3, Section 2, Comment a(3).
{¶ 10} The Restatement’s choice-of-law rules depend on the “classification
of a given factual situation under the appropriate legal categories and specific rules
of law.” Id. at 18, Section 7, Comment b. We must classify the Ohayons’ cause of
action before we answer the choice-of-law question raised in their complaint
because different choice-of-law rules apply depending on whether the cause of
action sounds in contract or in tort. Compare Schulke Radio Prod., Ltd. v.
Midwestern Broadcasting Co. (1983), 6 Ohio St.3d 436
, 6 OBR 480,453 N.E.2d 683
(contract), with Morgan v. Biro Mfg. Co., Inc. (1984),15 Ohio St.3d 339
, 15 OBR 463,474 N.E.2d 286
(tort).
{¶ 11} We apply different choice-of-law principles to actions sounding in
contract than to actions sounding in tort for several reasons. For one, the parties to
a contract are largely free to negotiate the law to be applied to disputes arising
4
January Term, 2001
thereunder. See 1 Restatement of Conflicts at 15, Section 6, Comment g; see, also,
id.
at Section 187. In the absence of such a choice, the Restatement’s contractual
choice-of-law rules seek to protect the justified expectations of the contracting
parties. See id. at 576, Section 188, Comment b.
{¶ 12} Unlike a contracting party, on the other hand, a negligent tortfeasor
acts without a conscious regard for the legal consequences of his or her conduct—
let alone the particular law to be applied to that conduct—and the parties contesting
liability and/or the appropriate measure of damages for the conduct thus “have no
justified expectations to protect.” Restatement at 15, Section 6, Comment g.
Accordingly, the Restatement and courts emphasize different factors when
resolving choice-of-law issues in these contextually distinct legal fields.
III. Choosing the Applicable Law in Causes of Action Sounding in Contract
{¶ 13} In Schulke, supra,
this court adopted Section 187 of the Restatement of Conflicts. Schulke,6 Ohio St.3d at 438-439
, 6 OBR at 482,453 N.E.2d at 686
. Section 187 provides that, subject to very limited exceptions, the law of the state chosen by the parties to a contract will govern their contractual rights and duties. The very next section of the Restatement, Section 188, enumerates factors that courts should consider in the absence of such a choice, and soon after Schulke this court expressly adopted Section 188 in Gries Sports Ent., Inc. v. Modell (1984),15 Ohio St.3d 284
, 15 OBR 417,473 N.E.2d 807
, syllabus.
{¶ 14} In Gries, minority shareholders in Cleveland Browns, Inc., a
Delaware corporation, filed an action in Ohio seeking specific performance of a
voting agreement that they had executed over fifteen years earlier with Arthur
Modell, the majority shareholder. The parties to the voting agreement had not
chosen a particular forum’s law to be applied to any controversies arising
thereunder. If Delaware law applied to the minority shareholders’ cause of action,
the voting agreement would have statutorily lapsed by the time the minority
shareholders brought their action and thus could not have been specifically
5
SUPREME COURT OF OHIO
performed. Accordingly, this court had to determine which forum’s law applied
before assessing the merits of the minority shareholders’ complaint.
{¶ 15} To resolve the choice-of-law issue, the Gries court examined the
factors in Section 188 of the Restatement. Section 188 provides that, in the absence
of an effective choice of law by the parties, their rights and duties under the contract
are determined by the law of the state that, with respect to that issue, has “the most
significant relationship to the transaction and the parties.” Restatement at 575,
Section 188(1). To assist in making this determination, Section 188(2)(a) through
(d) more specifically provides that courts should consider the place of contracting,
the place of negotiation, the place of performance, the location of the subject matter,
and the domicile, residence, nationality, place of incorporation, and place of
business of the parties.
{¶ 16} Applying the foregoing principles to the voting agreement executed
by the shareholders in Gries, this court determined:
“[T]he place of contracting was Ohio, the place of negotiation was Ohio,
the place of performance was Ohio, the location of the subject matter of [the]
contract was Ohio, the place of incorporation was Delaware, and the place of
business of the parties was Ohio. The conclusion is inescapable that Ohio ‘bears
the most significant relationship to the contract.’ ” Gries, 15 Ohio St.3d at 287
, 15 OBR at 420,473 N.E.2d at 810
, quoting Schulke,6 Ohio St.3d at 438
, 6 OBR at 482,453 N.E.2d at 685-686
.
{¶ 17} Accordingly, this court reversed the court of appeals’ decision to
apply Delaware law.
IV. The Application of Gries and Section 188 to Insurance Coverage Disputes:
Nationwide Mut. Ins. Co. v. Ferrin
{¶ 18} Just over a year after Gries, this court applied Section 188 to resolve
a choice-of-law issue that arose in a dispute over insurance coverage. Nationwide
Mut. Ins. Co. v. Ferrin (1986), 21 Ohio St.3d 43, 44-45
, 21 OBR 328, 330, 487
6
January Term, 2001 N.E.2d 568
, 569 (citing Gries and Section 188 as “controlling law”). The application of Ohio’s contractual choice-of-law analysis to such a dispute was not a surprising development, considering that this court has long held that an insurance policy is a contract between the insurer and the insured. Ohio Farmers Ins. Co. v. Cochran (1922),104 Ohio St. 427
,135 N.E. 537
, syllabus.
{¶ 19} In Ferrin, an employee of a trucking company headquartered in
Florida drove a tractor and attached trailer from Florida on his way to Michigan on
company business. One weekend during this trip, the driver separated the trailer
from the tractor in Dayton, Ohio, and drove the tractor to his parents’ residence in
Orient for a personal visit. On his way to his parents’ home, the driver had an
accident. His employer’s insurer filed a complaint in Ohio seeking a declaration
that the driver was not covered by the insurance policy that it had issued to the
driver’s employer. The employer’s insurance policy covered employees using
covered vehicles “with [the employer’s] permission,” but an employee handbook
indicated that the driver should not have been operating the company tractor for his
personal use.
{¶ 20} Because the applicable insurance policy was issued to the driver’s
Florida employer, but the insurer’s complaint was filed here in Ohio, it was
necessary for the trial court to determine which state’s law would apply to resolve
the controversy about coverage. The trial court determined that Florida law applied
and that under Florida law the driver was indeed covered by the policy issued to his
employer. Both the court of appeals and this court agreed. Applying the factors
enumerated in Section 188 of the Restatement, this court noted in Ferrin that the
insurance contract had been issued to the driver’s Florida employer at the
employer’s Florida address. Id. at 45, 21 OBR at 330, 487 N.E.2d at 570
. Thus Florida law controlled the question of whether the policy covered the employee during his personal trip to see his parents.Id.
7
SUPREME COURT OF OHIO
{¶ 21} After summarizing Ohio choice-of-law precedent in contract cases,
the Ferrin court proceeded to apply Florida law to the merits of the case. The
Ferrin court observed that, at the time, Florida courts apparently adhered to the
“initial permission rule.” Id. at 45
, 21 OBR at 330,487 N.E.2d at 570
. Under that rule, once an owner gave express or implied consent to another to operate the owner’s automobile, the owner became liable for its negligent operation no matter where the driver went.Id.,
citing Boggs v. Butler (1937),129 Fla. 324, 326
,176 So. 174, 176
. Florida courts had applied the Boggs rule both with respect to the vehicle owner’s liability and with respect to the scope of the owner’s insurance coverage. Ferrin at 46, 21 OBR at 331,487 N.E.2d at 571
. For these reasons, this court affirmed the lower courts’ decision in favor of coverage.Id.
{¶ 22} In Ferrin, the application of Florida law ultimately resulted in an
outcome favorable to the driver-insured. If, however, the insurance policy had been
issued in a state that did not adhere to the “initial permission rule,” and if a
consideration of Section 188’s factors had resulted in applying that state’s law, the
final outcome of the insurer’s declaratory judgment action may have been different.
We note this possibility simply to underscore the fact that Section 188’s choice-of-
law methodology does not, in and of itself, favor either insureds or insurers in
disputes over insurance coverage. As noted above, the choice-of-law rules
contained in Section 188 do not themselves determine the actual rights and
liabilities of the parties to a contract; they simply decide which forum’s local law
should apply in determining those rights and liabilities. See Restatement at 3,
Section 2, Comment a(3). The factors enumerated in Section 188 are keyed to the
justifiable expectations of the parties to the contract, not to the ultimate benefit of
one party over another. See id. at 15, Section 6, Comment g.
{¶ 23} Section 188’s choice-of-law methodology focuses on the place of
contracting, the place of negotiation, the place of performance, the location of the
subject matter, and the domicile of the contracting parties. In insurance cases, this
8
January Term, 2001
focus will often correspond with the Restatement’s view that the rights created by
an insurance contract should be determined “by the local law of the state which the
parties understood was to be the principal location of the insured risk during the
term of the policy, unless with respect to the particular issue, some other state has a
more significant relationship * * * to the transaction and the parties.” (Emphasis
added.) Restatement at 610, Section 193. “[I]n the case of an automobile liability
policy, the parties will usually know beforehand where the automobile will be
garaged at least during most of the period in question.” Id. at 611, Comment b.
The principal location of the insured risk described in Section 193 neatly
corresponds with one of Section 188’s enumerated factors—the location of the
subject matter of the contract.
V. The Application of Section 188, Gries, and Ferrin to Choice-of-Law Issues
Arising in Disputes Over UIM Coverage
{¶ 24} After Ferrin, application of the Restatement’s contractual choice-of-
law provisions to liability insurance cases is no longer a subject of dispute in Ohio.
See Babcock & Wilcox Co. v. Arkwright-Boston Mfg. Mut. Ins. Co. (N.D.Ohio
1992), 867 F.Supp. 573, 577
(deciding, in a diversity action regarding liability coverage, that “the determinative Ohio choice of law rules” are set forth in Ferrin and Gries). Similarly, resort to the Restatement’s contractual choice-of-law provisions in declaratory judgment actions seeking UIM coverage should no longer be a subject of dispute. This court has determined that an action by an insured against his or her insurance carrier for payment of UIM benefits is a cause of action sounding in contract, rather than tort, even though it is tortious conduct that triggers applicable contractual provisions. Landis v. Grange Mut. Ins. Co. (1998),82 Ohio St.3d 339, 341
,695 N.E.2d 1140, 1141
; see, also, Miller v. Progressive Cas. Ins. Co. (1994),69 Ohio St.3d 619, 624
,635 N.E.2d 317, 321
(“We recognize that an
action by an insured against an insurance carrier for payment of uninsured or
underinsured motorist benefits is a cause of action sounding in contract”); Kurent
9
SUPREME COURT OF OHIO
v. Farmers Ins. of Columbus, Inc. (1991), 62 Ohio St.3d 242, 245
,581 N.E.2d 533, 536
(“The Kurents’ claim for uninsured motorist coverage is determined by their contractual relationship with Farmers”); Motorists Mut. Ins. Co. v. Tomanski (1971),27 Ohio St.2d 222, 223
,56 O.O.2d 133, 134
,271 N.E.2d 924, 925
(“The
right to recover under an uninsured motorist insurance policy is on the contract, not
in tort”).
{¶ 25} The Sixth Circuit Court of Appeals, in diversity actions concerning
claims for UIM coverage, has likewise concluded that Ohio’s choice-of-law rules
derive from Gries, Ferrin, and Section 188. Natl. Union Fire Ins. Co. v. Watts
(C.A.6, 1992), 963 F.2d 148, 150
; see, also, Miller v. State Farm Mut. Auto. Ins. Co. (C.A.6, 1996),87 F.3d 822, 824-825
.
{¶ 26} There are several reasons to apply the same choice-of-law principles
to disputes over UIM coverage that we have already applied to disputes over
liability insurance coverage and other contractual disputes. For one, although our
state requires insurers to offer UIM coverage, R.C. 3937.18(A)(1), and although a
minimum level of coverage will arise by operation of law in the absence of such an
offer, Abate v. Pioneer Mut. Cas. Co. (1970), 22 Ohio St.2d 161
,51 O.O.2d 229
,258 N.E.2d 429
, R.C. 3937.18 does not impose upper limits on the amount of UIM
coverage that may be negotiated between the parties to an insurance agreement.
The limits of UIM coverage under a particular policy are subject to negotiation and
modification by the contracting parties just as other terms of the contract are.
Insureds can receive higher limits when they agree to pay higher premiums. The
Restatement’s contractual choice-of-law rules will protect the justified expectations
of the parties who bargain for those terms. See Restatement at 15, Section 6,
Comment g.
{¶ 27} Finally, R.C. 3937.18, unlike some Ohio statutes that apply to
contractual relationships, imposes no choice of law on the parties if a dispute arises
concerning the existence or extent of coverage. Compare R.C. 3937.18 with
10
January Term, 2001
1302.43(C)(2) (imposing the “law of the state where the goods are situated” to
determine whether a fraudulent transfer or voidable preference has occurred).
Courts need a predictable methodology, such as the one embodied in Restatement
Section 188, to choose the applicable law if neither the parties nor the statutory
scheme make that choice for them.
VI. Application of the Foregoing Principles to the Case at Bar
{¶ 28} When addressing the parties’ competing motions for summary
judgment in this case, the trial court erroneously applied the Restatement’s tort
choice-of-law methodology. In doing so, the trial court relied not on the authority
discussed above, but rather on an unreported case from the Erie County Court of
Appeals, Mayse v. Watson (Sept. 27, 1985), Erie App. No. E-85-8, unreported, 1985 WL 7613
. In Mayse, which was decided before this court had even applied Section
188 of the Restatement to the insurance context in Ferrin, the plaintiffs had an
accident in Florida with an uninsured motorist. At the time, Florida’s no-fault laws
limited a plaintiff’s potential recovery for pain, suffering, mental anguish, and
inconvenience. For this reason, in their complaint against their insurer, the Mayses
sought a declaration that Florida law did not control the parties’ rights and duties
under the insurance contract.
{¶ 29} The trial court awarded damages to the Mayses, ordered their insurer
to proceed to arbitration, and determined that Florida’s no-fault laws should
apply—effectively limiting the Mayses’ potential recovery. The Erie County Court
of Appeals reversed, applying a tort choice-of-law analysis to conclude that Ohio
law should control. In reaching this conclusion, the Mayse panel reasoned that the
crucial issue in the case concerned the measure of damages recoverable from the
tortfeasor: “[I]f tort law controls the factors which establish how the injury
occurred and who was at fault, then tort law should also control the measure of
damages which are recoverable.” (Emphasis added.)
11
SUPREME COURT OF OHIO
{¶ 30} Relying on this language from Mayse, the trial court in this case
applied a tort choice-of-law analysis to determine which state’s law applies. The
trial court thus applied the Restatement’s presumption that the law of the place of
injury controls unless another jurisdiction has a more significant relationship. See
Morgan v. Biro Mfg., 15 Ohio St.3d at 341-342, 15 OBR at 465, 474 N.E.2d at 289
,
citing 1 Restatement of Conflicts at 430, Section 146. Because Jonathon was
injured in Pennsylvania, the trial court determined that Pennsylvania law should
control.
{¶ 31} The trial court’s choice-of-law analysis, however, was flawed. If the
Ohayons had filed a civil action for damages against the Pennsylvania tortfeasor in
an Ohio court, the measure of damages—if any—recoverable from the tortfeasor
would have been the essential issue before the court, and our state’s tort choice-of-
law analysis, as expressed in Mayse, would indeed determine which local law to
apply. See id.
{¶ 32} In the case at bar, however, the measure of damages recoverable
from the Pennsylvania tortfeasor is not the critical issue. Jonathon Ohayon has
already settled with the Pennsylvania tortfeasor for the $100,000 limit of the
tortfeasor’s liability insurance. Instead of seeking damages from the tortfeasor for
liability in tort, the Ohayons now seek a declaration that they may stack the stated
per-person limits of UIM coverage contained in their insurance contract with
Safeco, and that Safeco is not entitled to set off the amounts Jonathon has already
received in settlement. The resolution of these stacking and setoff issues is a
coverage issue, separate and independent from the measure of damages assessed to
the tortfeasor. The resolution of these coverage issues depends on (1) the applicable
UIM provisions of the insurance contract executed by the parties, contained in Part
C of that contract; and (2) the enforceability of those contractual provisions under
state law. These are issues to be resolved under the law of contracts, to which the
12
January Term, 2001
court of appeals correctly applied the Restatement’s contract choice-of-law
analysis.
{¶ 33} The Sixth Circuit Court of Appeals agrees that Mayse’s tort choice-
of-law analysis does not apply in a suit for UIM benefits. Miller v. State Farm Mut.
Auto. Ins. Co., 87 F.3d at 826
. In Miller, the executor of a Pennsylvania insured exhausted the limits of the Ohio tortfeasor’s insurance policy, then instituted a declaratory judgment action against her decedent’s insurer to recover UIM benefits. The Sixth Circuit, while noting that Mayse’s tort choice-of-law analysis would indeed apply if the measure of damages due the executor had been at issue, upheld the district court’s application of Ohio’s contract choice-of-law analysis.Id. at 826
. As the Sixth Circuit unanimously determined, “The question before us * * * does not concern the measure of damages from the underlying accident; rather, it concerns the limits on the amount of coverage which State Farm must provide under the policy it issued to [the decedent].”Id.
The Miller court concluded, “[W]e view the instant case as one that sounds in contract and not in tort. * * * [T]he true heart of the matter—i.e., whether to apply the ‘per person’ or ‘per accident’ limit stated in the policy—involves the interpretation of an insurance contract executed in Pennsylvania by a Pennsylvania resident, with a company licensed to do business in Pennsylvania.”Id. at 826-827
, citing Ferrin,21 Ohio St.3d 43
, 21 OBR 328,487 N.E.2d 568
.
{¶ 34} Like the cause of action in Miller, the Ohayons’ declaratory
judgment action against Safeco here concerns the nature and extent of the rights
and duties created by the UIM provisions of their contract of insurance. Questions
involving the nature and extent of the parties’ rights and duties under an insurance
contract’s underinsured motorist provisions shall be determined by the law of the
state selected by applying the rules of Sections 187 and 188 of the Restatement. Id.
at 660, Section 205.
13
SUPREME COURT OF OHIO
{¶ 35} For the foregoing reasons, the court of appeals correctly applied
Section 188 of the Restatement to resolve the choice-of-law issue. The insurance
contract was executed and delivered in Ohio by Ohio residents and an Ohio-
licensed insurance agent. The policy insured vehicles principally garaged in Ohio.
Under Section 188’s contractual choice-of-law analysis, Ohio law should apply to
determine the parties’ rights and duties under that contract, including those rights
and duties created by the contract terms providing UIM coverage.
VII. The Ohayons’ Alternative Arguments
A. Csulik v. Nationwide Mut. Ins. Co.
{¶ 36} The Ohayons contend that the foregoing choice-of-law analysis is
not necessary and that the decision of the court of appeals should be reversed on
the authority of this court’s recent decision in Csulik v. Nationwide Mut. Ins. Co.
(2000), 88 Ohio St.3d 17
,723 N.E.2d 90
. We disagree.
{¶ 37} As a threshold matter, we note that only three justices of this court
joined the lead opinion in Csulik. See id.,
88 Ohio St.3d at 20-22,723 N.E.2d at 93-94
(Douglas, J., concurring separately with the judgment of the majority “but only on a very limited basis”; Lundberg Stratton, J., dissenting, joined by Moyer, C.J., and Cook, J.). Moreover, the case at bar differs substantively from Csulik. In Csulik, the insurer agreed to pay “compensatory damages, including derivative claims, which are due by law to you or a relative.” (Emphasis added.) Id. at 17,723 N.E.2d at 91
. The justices joining the lead opinion in Csulik deemed the phrase
“due by law” ambiguous and interpreted that phrase in favor of the insured under
Ohio’s law for resolving contractual ambiguities. The Ohayons contend that “the
same ambiguous provision exists in the policy in the present case,” but this
assertion is incorrect.
{¶ 38} The Safeco policy, in an amendatory endorsement specifically
written for policies issued in Ohio, provides that the insurer “will pay damages
which an insured is legally entitled to recover from the owner or operator of an
14
January Term, 2001
uninsured motor vehicle or underinsured motor vehicle because of bodily injury.”
(Emphasis added; boldface sic.) This provision differs on its face from the one
addressed in Csulik and is not ambiguous.
{¶ 39} As this court has already noted, “the phrase ‘legally entitled to
recover’ means the insured must be able to prove the elements of his or her claim”
against the tortfeasor. Kurent v. Farmers Ins. of Columbus, 62 Ohio St.3d at 245
,581 N.E.2d at 536
; see, also, State Farm Auto. Ins. Co. v. Webb (1990),54 Ohio St.3d 61, 62
,562 N.E.2d 132, 133
(noting that the very same phrase appears in R.C. 3937.18[A]). Here, Jonathon’s ability to prove the elements of his claim and recover damages from the Pennsylvania tortfeasor is not at issue—he has already received $100,000 in settlement with the tortfeasor’s insurer. As the Sixth Circuit explained in Miller, “there is no question that Miller is ‘legally entitled to recover’ underinsured motorist benefits under the policy * * *. Miller has already exhausted the tortfeasor’s insurance.”Id.,
87 F.3d at 825
. Instead, the issue in the Ohayons’ declaratory judgment action is the amount of coverage, if any, that Safeco must provide under the contract it executed with the Ohayons—an issue itself dependent on the enforceability and application of the policy’s stacking and setoff provisions. These are issues sounding in contract law, and Csulik did not displace this court’s traditional contract choice-of-law principles. See Csulik, 88 Ohio St.3d at 20-21,723 N.E.2d at 93
(Douglas, J., concurring separately in judgment). For these
reasons, the Ohayons’ reliance on Csulik is misplaced.
B. Kurent v. Farmers Ins. of Columbus
{¶ 40} The Ohayons also contend in their brief that in Kurent, 62 Ohio St.3d 242
,581 N.E.2d 533
, “this Court established the basic principle, using a tort
conflict-of-law analysis, that there is a strong presumption in favor of applying the
law of the state where the injury occurred in determining uninsured/underinsured
motorist claims.” Though the Ohayons are correct that this court applied a tort
15
SUPREME COURT OF OHIO
choice-of-law analysis in Kurent, we did so for reasons not applicable to the case
at bar. Accord Miller, 87 F.3d 822
(distinguishing Kurent).
{¶ 41} In Kurent, a Michigan driver injured Ohio residents in Michigan. At
the time, Michigan law denied noneconomic damages to plaintiffs unless such
damages surpassed a certain threshold. The Ohio plaintiffs, who could not meet
that threshold, sued their insurer in Ohio for uninsured motorist benefits,
contending that Ohio law should control the determination of coverage. This court
held:
“[W]hen an Ohio resident is injured in an automobile accident in a no-fault
insurance state, by a resident of that state who is insured under that state’s no-fault
insurance laws, the Ohio resident’s legal right to recover from the tortfeasor-
motorist must be determined with reference to the no-fault state’s laws. Where the
no-fault state does not recognize a claim against the tortfeasor-motorist, the Ohio
insured is not entitled to collect uninsured motorist benefits from his own insurer.”
Id.
at syllabus.
{¶ 42} The Ohayons misinterpret Kurent’s holding as a statement that a tort
choice-of-law analysis will always control UM and UIM claims. But the Ohayons
overlook the fact that in Kurent, this court applied Michigan tort law to the
underlying accident, explicitly recognized that “[t]he Kurents’ claim for uninsured
motorist coverage is determined by their contractual relationship with Farmers,”
and interpreted the terms of that contract “[a]ccording to Ohio law.” (Emphasis
added.) Id.
at 246 and 245,581 N.E.2d at 536
. As the Sixth Circuit explained in Miller, the substantive tort question of whether the insured was “legally entitled to recover” benefits at all from the tortfeasor was the central issue in Kurent—a question that Michigan’s no-fault laws answered in the negative.Id.,
87 F.3d at 825
. Accord Hooker v. Nationwide Mut. Ins. Co. (June 19, 1997), Cuyahoga App. No. 71472, unreported,1997 WL 337623
. Here, the substantive tort question
regarding the damages Jonathon is entitled to recover from the tortfeasor is not
16
January Term, 2001
before us. Instead, the Ohayons seek a declaration regarding the stacking and setoff
provisions of their insurance agreement with Safeco—contract issues to which a
contract choice-of-law analysis applies.
C. An Alleged Choice-of-Law Provision
{¶ 43} Finally, the Ohayons contend that resort to Section 188 is
unnecessary because the Safeco policy already contains a choice-of-law provision.
To support this contention, the Ohayons point to the following policy language:
“OUT OF STATE COVERAGE
“If an auto accident to which this policy applies occurs in any state or
province other than the one in which your covered auto is principally garaged, we
will interpret your policy for that accident as follows:
“A. If the state or province has:
“1. A financial responsibility or similar law specifying limits of liability for
bodily injury or property damage higher than the limit shown in the Declarations,
your policy will provide the higher specified limit.
“2. A compulsory insurance or similar law requiring a nonresident to
maintain insurance whenever the nonresident uses a vehicle in that state or
province, your policy will provide at least the required minimum amounts and types
of coverage.” (Boldface sic.)
{¶ 44} This provision of the Safeco policy assures the policyholder that he
or she may drive an insured vehicle into states that may require higher levels of
liability insurance without violating those states’ financial responsibility laws. It
appears in a section of the Safeco policy titled “PART A—LIABILITY
COVERAGE.” Without this provision, an insured would be required to check the
financial responsibility statutes of every jurisdiction into which he or she happened
to drive in order to ensure that his or her policy included sufficient liability
insurance to comply with each jurisdiction’s laws.
17
SUPREME COURT OF OHIO
{¶ 45} This provision, however, does not represent an express choice of law
to be applied by courts in an action for UIM benefits under those independent
provisions of the Safeco policy that appear in Part C. We do not invoke
Restatement Section 187 to apply the law of the state chosen by the parties unless
we are satisfied that the parties have actually made an express choice of law
regarding the issue before the court. See Restatement at 561-562, Section 187,
Comment a (“the rule of this Section is inapplicable unless it can be established
that the parties have chosen the state of the applicable law. It does not suffice to
demonstrate that the parties, if they had thought about the matter, would have
wished to have the law of a particular state applied”). We do not agree with the
Ohayons that the policy’s provision for minimum out-of-state liability coverage
dispenses with the need for a choice-of-law analysis regarding UIM coverage.
VIII. Conclusion
{¶ 46} Our holding today does not determine the respective rights and
liabilities of the parties in this case. Rather, we decide only that the trial court must
employ Ohio law to make this determination. And as the court of appeals noted, in
order for the trial court to resolve this case, it must also determine which version of
R.C. 3937.18 (and related authority from this court) would apply to these facts. The
parties have not briefed this issue here, and we express no opinion as to its
resolution.1
1. The author of the dissent states, “Having determined that this case presents issues in contract,
and since appellants concede that ‘under contract law analysis, Ohio law prevails,’ our inquiry
should end here. The only remaining issue is whether Ohio law in effect at the time of contracting
upheld or prohibited setoff and antistacking provisions in a UM/UIM policy, * * * and this issue
should be remanded to the trial court for determination.”
This is precisely the disposition adopted by the majority herein. By affirming the court of
appeals’ judgment, which reversed the trial court’s decision granting summary judgment in favor of
Safeco, we likewise adopt the court of appeals’ disposition remanding the cause to the trial court for
further proceedings. As noted supra, these proceedings will address the very issue correctly
identified by the dissent as “[t]he only remaining issue”—the application of Ohio law to the stacking
and setoff questions contained in the Ohayons’ declaratory judgment action. Given that the dissent
agrees that “our inquiry should end” precisely where the majority’s does, and given that the dissent
18
January Term, 2001
{¶ 47} For the foregoing reasons, the judgment of the court of appeals is
affirmed.
Judgment affirmed.
MOYER, C.J., PFEIFER and LUNDBERG STRATTON, JJ., concur.
DOUGLAS, RESNICK and F.E. SWEENEY, JJ., dissent.
__________________
ALICE ROBIE RESNICK, J., dissenting.
{¶ 48} Plaintiff-appellant Jonathon Ohayon is the son of plaintiffs-
appellants Jacob and Brenda Ohayon. On August 6, 1996, Jonathon, a minor at the
time, was seriously injured when he was struck by an underinsured motorist while
standing on a sidewalk at a shopping center in Sharon, Pennsylvania. It is
undisputed that Jonathon’s claim against the tortfeasor, Mary Welch, an Ohio
resident, was settled for $100,000, which was the full per-person liability limits of
Welch’s insurance coverage.
{¶ 49} At the time of the accident, the Ohayons were insured under an Ohio
Personal Automobile Policy issued by defendant-appellee, Safeco Insurance
Company of Illinois (“Safeco”). The policy covered three vehicles and provided
also agrees that the appellants have conceded that Ohio law would apply “under contract law
analysis,” the dissent’s criticism of the majority’s analysis as “myopic and mechanical” is puzzling.
Equally puzzling is the fact that, after deciding that “our inquiry should end” with a
determination that the lower court should apply Ohio law on remand, the dissent then embarks on a
lengthy analysis of what it concedes is a rare exception to the contract choice-of-law analysis in the
Restatement of the Law 2d, Conflict of Laws. At the conclusion of this analysis, the dissent declares
that, in fact, Pennsylvania law should apply. This conclusion directly contradicts the dissent’s prior
statement that “our inquiry should end” (as it already does) with the appellants’ concession that
Ohio law prevails.
The dissent also decides that the majority’s stated reasons for rejecting the Ohayons’
reliance on Csulik, 88 Ohio St.3d 17
,723 N.E.2d 90
, “make no sense other than to artificially limit
its holding.” This is a flawed contention, given that both the majority and the dissent find the
Ohayons’ reliance on Csulik “misplaced” on the very same basis—that the contractual language at
issue here, unlike the contractual language at issue in Csulik, is simply not ambiguous. Compare
the majority’s statement, “this provision differs on its face from the one addressed in Csulik and is
not ambiguous” with the dissent’s statement, “the Safeco policy in this case contains no such
ambiguity.”
19
SUPREME COURT OF OHIO
the Ohayon family uninsured/underinsured motorist (“UM/UIM”) coverage in the
amount of $100,000 per person and $300,000 per occurrence. Appellants applied
for UIM coverage, but Safeco denied their claims on the basis of the policy’s setoff
and antistacking provisions.
{¶ 50} There are three issues that ultimately need to be resolved in this case:
(1) whether a tort or a contract choice-of-law analysis is to be followed in
determining choice-of-law questions involving coverage under a UM/UIM
insurance policy; (2) whether the selected choice-of-law analysis favors the
application of Ohio or Pennsylvania substantive law; and (3) whether the law of the
chosen state enforces setoff and antistacking clauses in a UM/UIM policy.
{¶ 51} The trial court addressed all three issues and held that, under a tort
choice-of-law analysis, Pennsylvania law applied to invalidate the setoff and
antistacking clauses in the Safeco policy. The court of appeals addressed only the
first two issues, holding that, under a contract choice-of-law analysis, Ohio law
applies to determine whether the setoff and antistacking provisions are enforceable.
As to the third issue, the court of appeals remanded the cause to the trial court for
a determination of whether, at the time of contracting, Ohio law treated these
provisions as valid.
{¶ 52} On appeal to this court, however, appellants identify “[t]he essential
issue in this action [as] whether the governing law is to be determined by tort
conflict-of-law analysis, or by contract conflict-of-law analysis,” while conceding
that “under contract law analysis, Ohio law prevails.” Thus, only the first issue is
properly before this court.
{¶ 53} Accordingly, the court should characterize or classify the conflicts
question in this case, and no more. In order to determine which choice-of-law rules
apply in this case, we need only to assign the present factual situation to its
appropriate legal category and the body of law that governs it. 1 Restatement of
the Law 2d, Conflict of Laws (1971) 18, Section 7, Comment b. In other words,
20
January Term, 2001
the only issue before this court is “whether the problem presented to [the trial court]
for solution relates to torts, contracts, property, or some other field.” 16 American
Jurisprudence 2d (1998) 12, Conflict of Laws, Section 3.
{¶ 54} This issue can be, and should be, resolved quite simply. Since a
contract of insurance is just that, a contract, this court did not hesitate in applying a
contract choice-of-law analysis to a question involving liability insurance coverage
in Nationwide Mut. Ins. Co. v. Ferrin (1986), 21 Ohio St.3d 43
, 21 OBR 328,487 N.E.2d 568
. This court has not yet specifically applied a contract choice-of-law analysis to a coverage question arising under a UM/UIM provision in an automobile insurance policy. However, this should also be accomplished with little difficulty, since “[t]he right to recover under an uninsured motorist insurance policy is on the contract, not in tort.” Motorists Mut. Ins. Co. v. Tomanski (1971),27 Ohio St.2d 222, 223
,56 O.O.2d 133, 134
,271 N.E.2d 924, 925
. See, also, Landis v. Grange Mut. Ins. Co. (1998),82 Ohio St.3d 339, 341
,695 N.E.2d 1140, 1141
; Kraly v. Vannewkirk (1994),69 Ohio St.3d 627, 632
,635 N.E.2d 323, 327
; Miller v. Progressive Cas. Ins. Co. (1994),69 Ohio St.3d 619, 624
,635 N.E.2d 317, 321
.
Thus, a contract choice-of-law analysis applies to determine which state’s law will
govern an issue of insurance coverage.
{¶ 55} Appellants’ reliance on Kurent v. Farmers Ins. of Columbus, Inc.
(1991), 62 Ohio St.3d 242
,581 N.E.2d 533
, and Mayse v. Watson (Sept. 27, 1985), Erie App. No. E-85-8, unreported,1985 WL 7613
, is misplaced. In both cases, an
Ohio insured was injured in an automobile accident that occurred in a state with no-
fault insurance laws. Both courts employed a tort choice-of-law analysis to
determine which state’s law would apply to the underlying issue of whether the
insured has a right to recover noneconomic damages. In so doing, both courts
characterized this issue as sounding in tort because it involves the insured’s right to
recover against the tortfeasor. Thus, contrary to appellants’ assertions, Kurent and
Mayse do not stand for the proposition that tort principles govern the respective
21
SUPREME COURT OF OHIO
rights and liabilities of the parties to a UM/UIM claim. Instead, they stand for the
proposition that tort principles govern the respective rights and liabilities of the
parties to the accident.
{¶ 56} In contrast, the underlying issues in this case—whether setoff and
antistacking provisions in a UM/UIM policy are valid and enforceable—have
nothing to do with the insured’s right to recover against the tortfeasor. Instead,
these issues relate solely to the respective rights and liabilities of the parties to the
insurance contract. Thus, a contract choice-of-law analysis applies.
{¶ 57} Appellants’ alternative reliance on Csulik v. Nationwide Ins. Co.
(2000), 88 Ohio St.3d 17
,723 N.E.2d 90
, is also misplaced. In Csulik, we found that the substantive law of Pennsylvania, where the accident occurred, rather than the law of Ohio, where the accident victims’ insurance contract was executed, applied to determine the validity of a UM/UIM setoff provision. In so doing, however, we declined to “employ a choice-of-law analysis to determine whether Pennsylvania or Ohio law applies in this case.” Id. at 20,723 N.E.2d at 92
. Instead,
we employed the law governing ambiguous contract language to make this
determination because several provisions in the Nationwide policy had actually
specified that the laws of the accident state will govern the time limit for filing a
legal action to recover UM/UIM benefits.
{¶ 58} Despite appellants’ assertions to the contrary, the Safeco policy in
this case contains no such ambiguity. Nothing in the Safeco policy suggests that
any issue of UM/UIM coverage is to be determined under the substantive law of
the accident state. Thus, unlike the parties in Csulik, the parties in this case are
bound not by the law for construing ambiguous policy language but by those
contract choice-of-law principles that apply in the absence of a choice-of-law
provision.
{¶ 59} Having determined that this case presents issues in contract, and
since appellants concede that “under contract law analysis, Ohio law prevails,” our
22
January Term, 2001
inquiry should end here. The only remaining issue is whether Ohio law in effect at
the time of contracting upheld or prohibited setoff and antistacking provisions in a
UM/UIM policy, Ross v. Farmers Ins. Group of Cos. (1998), 82 Ohio St.3d 281
,695 N.E.2d 732
, and this issue should be remanded to the trial court for
determination.
{¶ 60} Nevertheless, the majority has chosen to go beyond the process of
characterization to determine whether the Restatement’s contract choice-of-law
principles actually favor the application of Ohio law over that of Pennsylvania in
the present factual situation. In so doing, the majority relies exclusively on the
factors listed in Restatement of Conflicts Section 188(2). Thus, the majority
concludes that Ohio law should apply to determine the underlying issues in this
case because “[t]he insurance contract was executed and delivered in Ohio by Ohio
residents and an Ohio-licensed insurance agent [and] insured vehicles principally
garaged in Ohio.”
{¶ 61} The majority’s myopic and mechanical approach fails to consider
other relevant contacts and state interests that, given their appropriate weight, favor
the application of Pennsylvania law in this case. For these and the following
reasons, and because the majority has chosen to vitiate rather than distinguish our
decision in Csulik, I must respectfully dissent.2
2. In addressing appellants’ alternative argument, the majority appears more concerned with
devaluing our decision in Csulik than with legitimately distinguishing it from the matter before us.
The majority notes, “[a]s a threshold matter,” that “only three justices of this court joined the lead
opinion in Csulik.” However, as relevant here, the viability of our decision in Csulik is not
diminished by the fact that one of the four justices comprising the majority concurred “only on a
very limited basis.” Id.,
88 Ohio St.3d at 20,723 N.E.2d at 93
(Douglas, J., concurring). Justice
Douglas’s obvious concern in Csulik was that certain portions of the lead opinion may have given
the impression that the Nationwide policy was ambiguous merely because it failed to include a
particular choice-of-law clause. However, all four members of the majority in Csulik agreed that
the policy was in fact ambiguous with respect to choice of law and, therefore, should be construed
most strongly against the insurer. Thus, Csulik stands solidly for the proposition that when an
insurance policy is ambiguous as to choice of law, as opposed to merely lacking a choice-of-law
directive, the insurer will be bound by the rules for construing ambiguous policy language rather
23
SUPREME COURT OF OHIO
{¶ 62} In determining choice-of-law questions involving contracts, this
court has abandoned the outmoded traditional lex loci rules in favor of the more
factor-driven “significant relationship” approach set forth at Sections 187 and 188
of the Restatement of Conflicts. Ferrin, 21 Ohio St.3d 43
, 21 OBR 328,487 N.E.2d 568
; Gries Sports Ent., Inc. v. Modell (1984),15 Ohio St.3d 284
, 15 OBR 417,473 N.E.2d 807
; Schulke Radio Prod., Ltd. v. Midwestern Broadcasting Co. (1983),6 Ohio St.3d 436
, 6 OBR 480,453 N.E.2d 683
.
{¶ 63} Section 188 provides:
“(1) The rights and duties of the parties with respect to an issue in contract
are determined by the local law of the state which, with respect to that issue, has
the most significant relationship to the transaction and the parties under the
principles stated in § 6.
“(2) In the absence of an effective choice of law by the parties (see § 187),
the contacts to be taken into account in applying the principles of § 6 to determine
the law applicable to an issue include:
“(a) the place of contracting,
“(b) the place of negotiation of the contract,
“(c) the place of performance,
than by those choice-of-law principles that govern in the absence of an effective choice-of-law
provision. Simply put, an insurer may not escape its own contractual ambiguity by resorting to
choice-of-law rules.
The majority’s remaining stated reasons for rejecting appellants’ reliance on Csulik make
no sense other than to artificially limit its holding. As in this case, the plaintiffs in Csulik brought
their declaratory judgment action after they had been paid the limits of the tortfeasor’s insurance.
Thus, as here, the Csuliks’ ability to prove the elements of their claim and recover damages
against the tortfeasor was not at issue. Instead, just as in this case, the issue in the Csuliks’
declaratory judgment action was the amount of coverage, if any, that the insurer must provide
under the contract it executed with the insureds. Moreover, it can hardly be said that “Csulik did
not displace this court’s traditional contract choice-of-law principles,” considering that it
substituted the rules for resolving contractual ambiguity for those principles. Perhaps what the
majority means is that Csulik did not displace choice-of-law principles beyond the context of an
ambiguous insurance contract. But in any event, it is inconceivable that the majority would
actually find Csulik to be distinguishable from this case on the basis that the very circumstances
presented in Csulik are now repeated in this case.
24
January Term, 2001
“(d) the location of the subject matter of the contract, and
“(e) the domicile, residence, nationality, place of incorporation and place of
business of the parties.
“These contacts are to be evaluated according to their relative importance
with respect to the particular issue.
“(3) If the place of negotiating the contract and the place of performance are
in the same state, the local law of this state will usually be applied, except as
otherwise provided in §§ 189-199 and 203.” Id. at 575.
{¶ 64} In many, and perhaps even in a majority of cases involving contracts,
the evaluating court would be justified in relying exclusively on the contacts listed
in Section 188(2) to choose the applicable rule of law. Oftentimes, the presence of
one or more of these contacts will reveal the state with the most significant
relationship to the transaction and the parties. In these cases, it is unnecessary to
give independent significance to the general principles that underlie all fields of
choice-of-law rules because those principles are already given expression through
the relevant contacts listed in Section 188(2).
{¶ 65} But this is not true in all cases, and Section 188(2) was never
intended to be the exclusive determinant in all cases involving contracts. The
drafters of the Restatement of Conflicts recognized that “[c]ontracts is one of the
most complex and most confused areas of choice of law,” id. at 557, Contracts,
Introductory Note 1, and that “the difficulties and complexities involved have as
yet prevented the courts from formulating a precise rule, or series of rules, which
provide a satisfactory accommodation of the underlying factors in all of the
situations which may arise.” Id. at 13, Section 6, Comment c. Hence, the contacts
listed in Section 188(2) are intended to identify only those “states which are most
likely to be interested” in deciding a particular issue of contracts. (Emphasis
added.) Id. at 579, Section 188, Comment e.
25
SUPREME COURT OF OHIO
{¶ 66} As the majority correctly observes, “the Restatement’s contractual
choice-of-law rules seek to protect the justified expectations of the contracting
parties.” This is because “[p]rotection of the justified expectations of the parties is
the basic policy underlying the field of contracts.” Id. at 577, Section 188,
Comment b. But there are some relatively rare cases in which a local invalidating
rule applies despite the expectations of the contracting parties. In these cases, it
becomes necessary for the evaluating court to look beyond Section 188(2) and
consider other relevant contacts and state interests. Otherwise, Section 188(2)
would possess a false economy, for its continued application in these cases would
result in subordinating important substantive interests to an unrealistic notion of
“justified expectations.”
{¶ 67} The situation that is now before us is a prime example of this kind
of case. As explained in Comment b to Section 188:
“Protection of the justified expectations of the parties is a factor which
varies somewhat in importance from issue to issue. * * * Parties entering a contract
will expect at the very least, subject perhaps to rare exceptions, that the provisions
of the contract will be binding upon them. Their expectations should not be
disappointed by application of the local rule of a state which would strike down the
contract or a provision thereof unless the value of protecting the expectations of the
parties is substantially outweighed in the particular case by the interest of the state
with the invalidating rule in having this rule applied. The extent of the interest of
a state in having its rule applied should be determined in the light of the purpose
sought to be achieved by the rule and by the relation of the transaction and the
parties to that state (see Comment c).” (Emphasis added.) Id. at 577.
{¶ 68} Comment c explains:
“Whether an invalidating rule should be applied will depend, among other
things, upon whether the interest of the state in having its rule applied to strike
down the contract outweighs in the particular case the value of protecting the
26
January Term, 2001
justified expectations of the parties and upon whether some other state has a greater
interest in the application of its own rule.” Id. at 578.
{¶ 69} Thus, even if the place of negotiation and the place of performance
are in the same state, the local law of this state will not be applied “when the
principles stated in § 6 require application of some other law. As stated in
Comment c, the extent of a state’s interest in having its contract rule applied will
depend upon the purpose sought to be achieved by that rule.” (Emphasis added.)
Id. at 583, Section 188, Comment f.
{¶ 70} In addition, Section 205, Comment c states:
“The situation is essentially the same in those relatively rare situations
which involve the applicability of a local law rule which requires that the contract
give rise to certain rights and duties or which provides that the parties may not limit
the extent of their obligations by a certain provision. Application of such a rule
may defeat the expectations of the parties. On the other hand, the rule is likely to
represent a strongly-felt policy which the forum would be hesitant to override if the
state with the rule involved was the state with the dominant interest in the issue to
be decided.” (Emphasis added.) Id. at 662.
{¶ 71} This view also carries over to Section 193, which provides:
“The validity of a contract of fire, surety or casualty insurance and the rights
created thereby are determined by the local law of the state which the parties
understood was to be the principal location of the insured risk during the term of
the policy, unless with respect to the particular issue, some other state has a more
significant relationship under the principles stated in § 6 to the transaction and the
parties, in which event the local law of the other state will be applied.” (Emphasis
added.)
{¶ 72} In quoting Section 193, the majority carefully omits the foregoing
italicized language, but this language reveals that the factors upon which the
27
SUPREME COURT OF OHIO
majority relies will not necessarily determine every choice-of-law issue involving
insurance contracts. Indeed, Comment c to Section 193 provides:
“Whether there is such another state should be determined in the light of the
choice-of-law principles stated in § 6. For a general discussion of the application
of these principles to the contracts area and of the principle favoring application of
a law that would sustain the validity of the contract, see § 188, Comments b-d.
What is said in those Comments is applicable here.” (Emphasis added.) Id. at 612.
{¶ 73} More important, it is questionable whether the principal location of
the insured risk under Section 193, or the location of the subject matter of the
contract in Section 188(2)(d), enjoys any determinative significance in the case of
an ambulatory insurance policy. For the most part, these factors are important
where the insurance covers a static physical thing, an immovable object, or a
localized risk. See Section 188, at 580-581, Comment e; Section 193, at 611,
Comment b. However, in most cases “ ‘[i]nsurance companies * * * do not confine
their contractual activities and obligations within state boundaries. They sell to
customers who are promised protection in States far away from the place where the
contract is made.’ ” Clay v. Sun Ins. Office, Ltd. (1964), 377 U.S. 179, 182
,84 S.Ct. 1197, 1199
,12 L.Ed.2d 229, 232
, quoting Clay v. Sun Ins. Office, Ltd. (1960),363 U.S. 207, 221
,80 S.Ct. 1222, 1230
,4 L.Ed.2d 1170, 1181
(Black, J., dissenting). Thus, an insurance contract issued and delivered in Massachusetts, for example, can be held subject to Louisiana’s “legitimate interest in safeguarding the rights of persons injured there.” Watson v. Employers Liab. Assur. Corp., Ltd. (1954),348 U.S. 66, 73
,75 S.Ct. 166, 170
,99 L.Ed. 74
, 82. As the high court
explained:
“Some contracts made locally, affecting nothing but local affairs, may well
justify a denial to other states of power to alter those contracts. But, as this case
illustrates, a vast part of the business affairs of this Nation does not present such
simple local situations. Although this insurance contract was issued in
28
January Term, 2001
Massachusetts, it was to protect * * * against damages on account of personal
injuries that might be suffered * * * anywhere in the United States.” Id. at 71, 75 S.Ct. at 169
, 99 L.Ed. at 81.
{¶ 74} These principles apply with even greater force in cases involving
policies for automobile insurance. Interstate travel by automobile is simply too
foreseeable and too common a phenomenon to be ignored. Moreover, as evidenced
by the extensive regulation in this area, an automobile insurance contract is for the
benefit of the public as well as for the benefit of the named or additional insured.
Thus, when the issue presented involves the validity or enforceability of a provision
that purports to limit coverage, the interest of the state where damage occurred may,
along with other factors, play a more significant role in choice of law than the
parties’ presumed expectations or where the vehicle is principally garaged.
{¶ 75} This is especially true in cases involving exclusions or limitations on
UM/UIM coverage, as this kind of coverage is not only ambulatory in nature, but
portable as well. As explained by the Supreme Court of Connecticut:
“ ‘[Uninsured motorist] coverage is portable: The insured and family
members * * * are insured no matter where they are injured. They are insured when
injured in an owned vehicle named in the policy, in an owned vehicle not named in
the policy, in an unowned vehicle, on a motorcycle, on a bicycle, whether afoot or
on horseback or even on a pogo stick’; Bradley v. Mid-Century Ins. Co., 409 Mich. 1, 24, 38
,294 N.W.2d 141
[145, 152] (1980); or in a ‘rocking chair on [one’s] front porch.’ Motorists Mutual Ins. Co. v. Bittler,14 Ohio Misc. 23, 33
[43 O.O.2d 64, 69
],235 N.E.2d 745
[751] (1968).” Harvey v. Travelers Indemn. Co. (1982),188 Conn. 245, 250
,449 A.2d 157, 160
.
{¶ 76} Or, for that matter, while standing on a sidewalk at a shopping center
in Sharon, Pennsylvania.
{¶ 77} Accordingly, courts have relied upon factors not listed in Sections
188(2) and 193 in choosing the state whose local substantive law should determine
29
SUPREME COURT OF OHIO
the validity or enforceability of provisions that seek to limit or exclude liability or
UM/UIM coverage in an automobile insurance policy, including provisions that
prohibit stacking.
{¶ 78} In Hime v. State Farm Fire & Cas. Co. (Minn.1979), 284 N.W.2d 829
, the Minnesota Supreme Court was asked to determine whether Florida or Minnesota law should govern the enforceability of a household immunity clause in an automobile liability policy. The clause was valid in Florida but unenforceable in Minnesota. The contract was issued in Florida to a Florida resident on a vehicle principally garaged in Florida, and the court presumed that the insurance premiums were paid in Florida. Nevertheless, the court concluded that “Minnesota law should govern resolution of this controversy.”Id.,
284 N.W.2d at 834
.
{¶ 79} In reaching its conclusion, the court explained:
“[T]he unplanned nature of automobile accidents lessens the importance of
predictability of results in automobile insurance cases. Nevertheless, we note that
the insured’s protection has no geographical boundaries, at least not under the
policy before us, and it is foreseeable that the insured may meet his misfortune out
of the state of issuance. It was neither unusual nor unpredictable that the insured
in this case, a former Minnesota resident, returned to visit his former home and that
his vehicle was involved in an accident there. * * * The transaction was not planned
to have predictable results, and the insurer is not now justified in expecting Florida
law to govern absolutely in light of the extra-territorial effect and unique nature of
the automobile insurance contract.” Id.,
284 N.W.2d at 833
.
{¶ 80} The court also recognized that “[p]roviding recovery to those injured
and treated within our borders is a legitimate state interest,” and that the application
of Florida law to deny recovery in this case “offends our idea of fairness and defies
our concern for the welfare of visitors to this state.” Id.,
284 N.W.2d at 833-834
.
At the same time, the court noted that the sanctity of a contractual relationship
between insured and insurer “is already diminished by the relative absence of free
30
January Term, 2001
negotiation, perhaps approaching the nature of a contract of adhesion.” Id. at 834
.
See, also, Restatement Section 187, at 562, Comment b (“Common examples [of
adhesion contracts] are tickets of various kinds and insurance policies”).
{¶ 81} In Abramson v. Aetna Cas. & Sur. Co. (C.A.9, 1996), 76 F.3d 304
, the Ninth Circuit Court of Appeals was asked to determine whether New Jersey or Hawaii law should govern the validity and enforceability of an antistacking provision in a UIM policy. The provision was apparently valid in New Jersey but unenforceable in Hawaii. The insurance contract was executed in New Jersey and insured a New Jersey resident, but the insured was killed by an underinsured motorist while bicycling in Hawaii. The court concluded that “the district court correctly applied Hawaii law [and] that under such law anti-stacking provisions are invalid as to persons injured on Hawaii streets and highways, regardless of whether the insured owns and insures a vehicle licensed in Hawaii.”Id. at 306
. In so doing,
the Ninth Circuit agreed with the district court:
“New Jersey’s interests in the insurance contract did not control the choice-
of-law analysis because of the lack of any negotiation over the terms of the contract
and [because of] the parties’ expectations that the contract would cover the insured
as he travelled throughout the United States and Canada.” Id. at 305
.
{¶ 82} In Natl. Union Fire Ins. Co. v. Watts (C.A.6, 1992), 963 F.2d 148
,
the Sixth Circuit Court of Appeals was asked to determine whether, under Ohio
choice-of-law rules, the district court correctly held that Florida law, rather than
Indiana or Texas law, governed the insured’s right to recover UM benefits for
injuries resulting from being forced off a Florida road by an unidentified vehicle,
without physical contact. Indiana and Texas law would have denied coverage in
this situation, while Florida law favored coverage. The insurance contract was
issued through an Indiana broker to an Indiana corporation. At the time of the
accident, the insured, a truck driver, was transporting property pursuant to a hauling
contact with the Indiana corporation. The insured was a resident of Texas at the
31
SUPREME COURT OF OHIO
time of contracting with the Indiana corporation, a resident of Florida at the time of
the accident, and a resident of Ohio at the time suit was filed.
{¶ 83} The majority cites this case for the proposition that “Ohio’s choice-
of-law rules derive from Gries, Ferrin, and Section 188,” citing Watts, 963 F.2d at 150
. However, on the very next page of its opinion, the court in Watts specifically rejected the insurer’s argument that Ohio’s contract choice-of-law analysis is limited to the factors listed in Restatement of Conflicts Section 188, and found that the district court properly considered the principles stated in Section 6 as well.Id. at 151
. Accordingly, the court found that Florida, as the situs of the truck driver’s
accident with the unknown vehicle, had the most significant relationship to the
insurance contract, reasoning as follows:
“In its detailed opinion, the district court concluded [that] the interest of
Florida, to provide compensation for its residents injured by hit-and-run drivers,
and the interest of the insured, to be compensated by the insurance policy, appear
to provide the most significant relationship to the contract. Further, Florida’s public
policy interest in the outcome seems to outweigh the less substantive relationships
of Texas and Indiana as places of business for the truck driver and corporation. In
addition, the court noted in its opinion that though the insurance coverage extended
to the corporation’s agents and employees anywhere in the United States, the policy
failed to provide that any particular state’s law must be applied. The district court
interpreted this omission to mean that the insurer intended its coverage to be
governed by the state in which the claimant was using his vehicle. We find this is
bolstered by the general Ohio choice of law rule that the law of the state where the
contract will be performed should govern. Gries [supra],
15 Ohio St.3d at [286, 15 OBR at 419],473 N.E.2d at 810
, quotingSchulke [supra],
6 Ohio St.3d [at] 438 [6 OBR at 481], 453 N.E.2d [at 685]. Thus, we conclude that Ohio choice of law rules mandate that the law of Florida governs the instant dispute.”Id.,
963 F.2d at 152
.
32
January Term, 2001
{¶ 84} In other cases presenting choice-of-law questions involving
insurance coverage, but where the interpretation or enforceability of a particular
contractual provision between insurer and insured is not directly at issue, the courts
have at least recognized the relevance of certain non-Section 188(2) contacts and
accompanying state interests. See Cox v. Nichols (Ind.App.1998), 690 N.E.2d 750, 752
(“The contract examination reveals [that] * * * the plaintiffs are residents of Michigan [and that] the place where Allstate and the plaintiffs’ relationship is centered is Michigan. However, the collision [in Indiana] is not insignificant, and the alleged tortfeasor, Nichols, is a resident of Indiana. The factors weigh in favor of employing Indiana law.”); First City Acceptance Corp. v. Gulf Ins. Co. (1997),245 A.D.2d 649, 650
,665 N.Y.S.2d 114, 115
(agreeing with the trial court that “New York law was the applicable law since First City not only instituted its action in New York but the accident occurred in New York,” while rejecting First City’s argument that Massachusetts should apply because it “purchased the policy in Massachusetts, the agent who sold the policy and First City maintain their principal places of business in that state, and the policy was also delivered there”); Nationwide Mut. Ins. Co. v. Perlman (1983),187 N.J.Super. 499, 504
,455 A.2d 527, 529-530
(Although insurance policy was issued in New York, the court applied the law of New Jersey, where the accident occurred, to determine the question of interspousal immunity, reasoning in part that “since an automobile is by self-definition mobile, an insurer might reasonably expect that it will be taken to another state, especially a neighboring one, * * * that does not provide interspousal immunity”); Fed. Ins. Co. v. Nationwide Mut. Ins. Co. (W.D.Va.1978),448 F.Supp. 723, 726
(law of Virginia, where accident occurred, chosen over law of Tennessee, where contract was made, in part because Virginia “has manifested a legitimate interest in safeguarding the rights of persons injured within her boundaries”); Clough v. Liberty Mut. Ins. Co. (E.D.Wis.1968),282 F.Supp. 553, 554
(Wisconsin rather than Indiana law held applicable to household exclusion
33
SUPREME COURT OF OHIO
clause, partially on the basis that while “Indiana might well desire that automobile
insurance contracts entered into between its residents and insurance companies
licensed to do business in that state will be honored, regardless of where an accident
occurs[,] * * * Wisconsin is likewise interested in preserving its policy of providing
compensation to the injured, irrespective of their residence”).
{¶ 85} The purpose of the foregoing is not to establish a choice-of-law rule
under which questions of insurance coverage are to be determined by the law of the
state that affords the most coverage. Nor is it my intent to persuade anyone that
any of the foregoing cases present situations that are precisely equivalent to the
situation presented by the record in the present case. Instead, the foregoing analysis
is meant only to illustrate that in cases involving the validity or enforceability of
automobile insurance provisions that seek to exclude or limit coverage, the forum
court must look to other contacts besides those listed in Section 188 of the
Restatement. These other contacts include the place of injury, the place of medical
treatment, the proximity of the insured’s residence to the accident state, and the
foreseeability of his or her presence there, while bearing in mind the adhesory,
ambulatory, and portable nature of automobile insurance contracts and coverage.
The court must also consider whether the interests of the state with the invalidating
rule in having its rule applied outweigh the insurer’s expectation that the contractual
provision at issue will be binding upon the parties. Thus, the court must focus some
of its attention on the purposes, policies, aims, and objectives that underlie the
invalidating state’s rule. Only then can a full determination be made as to which
state “has the most significant relationship to the transaction and the parties under
the principles stated in § 6.” Restatement Section 188(1).
{¶ 86} In determining whether Ohio or Pennsylvania has the most
significant relation in this case, the following facts are relevant. The Ohayons live
in Akron, Ohio, and have family in Pittsburgh, Pennsylvania. Jacob Ohayon
testified at deposition that he visits his Pittsburgh relatives “[t]hree [or] four times
34
January Term, 2001
a year, maybe five times a year.” This court can take judicial notice that eastern
Ohio, where Akron is located, borders western Pennsylvania, where both Pittsburgh
and Sharon are located. On the day of the accident, Jonathon was in Pennsylvania
for the purpose of meeting his relatives.
{¶ 87} Following the accident, Jonathon was taken to the Sharon Regional
Hospital and from there taken by helicopter to Allegheny General Hospital in
Pittsburgh. Jonathon remained at Allegheny General for over a month, where he
underwent numerous surgical and other procedures to repair the significant damage
to his right leg. Since then, Jonathon has received all of his medical care in
Pennsylvania, requiring frequent trips to Pennsylvania, and within ten months of
the accident had incurred in excess of $250,000 in medical bills.
{¶ 88} In “PART F—GENERAL PROVISIONS,” the instant Safeco
insurance policy provides that coverage will be afforded for accidents and losses
that occur in:
“1. The United States of America, its territories or possessions;
“2. Puerto Rico; or
“3. Canada.”
{¶ 89} Yet there is no specific or general provision in the policy or any of
the amendatory endorsements that purports to define or identify the substantive law
of Ohio as being determinative of any matter of coverage under “PART C—
UNINSURED/UNDERINSURED MOTORISTS COVERAGE.”
{¶ 90} In addition, Pennsylvania courts, as well as other courts applying
Pennsylvania law, have recognized Pennsylvania’s uncommonly strong interest in
protecting innocent victims of uninsured or underinsured motorists from insurers
who attempt to limit their recovery by setoff and antistacking provisions. Indeed,
these cases provide that any attempt by the insurer to circumscribe the availability
of coverage in derogation of Pennsylvania’s statutory scheme will be considered
void and contrary to public policy. In invalidating these kinds of provisions, the
35
SUPREME COURT OF OHIO
courts invariably observe that Pennsylvania has a firm public policy to afford the
maximum amount of protection to those innocent victims who suffer loss at the
hands of irresponsible drivers. See New Jersey Mfrs. Ins. Co. v. MacVicar (1998),
307 N.J.Super. 507, 513-515
,704 A.2d 1343, 1347
; N. River Ins. Co. v. Tabor (C.A.3, 1991),934 F.2d 461
; Erie Indemn. Co. v. McGaughey (1991),409 Pa.Super. 177
,597 A.2d 718
; Nationwide Mut. Ins. Co. v. Swisher (E.D.Pa.1989),731 F.Supp. 691
; State Farm Mut. Auto. Ins. Co. v. Williams (1978),481 Pa. 130
,392 A.2d 281
; Sands v. Granite Mut. Ins. Co. (1974),232 Pa.Super. 70, 80-82
,331 A.2d 711, 716-717
; Harleysville Mut. Cas. Co. v. Blumling (1968),429 Pa. 389
,241 A.2d 112
.
{¶ 91} With these considerations in mind, it is readily apparent that
Pennsylvania has the most significant relationship to the transaction and the parties
in this case, and that Pennsylvania’s strong interest in striking down setoff and
antistacking provision in UM/UIM insurance policies substantially outweighs the
value of protecting Safeco’s expectations that these provisions, which were not
negotiated for, would be binding upon the Ohayons. Accordingly, under a contract
choice-of-law analysis, Pennsylvania law should apply to determine the substantive
issues in this particular case and that the provisions in the Safeco policy that provide
for setoff and prohibit stacking are invalid and unenforceable under Pennsylvania
law.
{¶ 92} Therefore, I dissent.
DOUGLAS and F.E. SWEENEY, JJ., concur in the foregoing dissenting
opinion.
__________________
Nicholas Swyrydenko, for appellants.
James A. Sennett and Adam E. Carr, for appellee.
__________________
36