Amica Mutual Insurance v. Fogel

PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_______________

No. 10-3611
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AMICA MUTUAL INSURANCE COMPANY

v.

EDWARD FOGEL, Individually and as Guardians
Ad Litem of Marcy Fogel and Carrie Fogel,
and as Administrators of the Estate of Melissa Fogel;
MAUREEN FOGEL, Individually and as Guardians
Ad Litem of Marcy Fogel and Carrie Fogel,
and as Administrators of the Estate of Melissa Fogel,

Appellants

_______________

On Appeal from the United States District Court
For the Middle District of Pennsylvania
(D.C. Civil Action No. 1-09-cv-00674)
District Judge: Honorable John E. Jones, III
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Argued March 8, 2011
_______________
 Before: SCIRICA, AMBRO, and
VANASKIE, Circuit Judges

(Opinion filed: September 8, 2011)

Jay N. Abramowitch, Esquire
Kenneth Millman, Esquire (Argued)
Leisawitz, Heller, Abromiwitch & Phillips
2755 Century Boulevard
Wyomissing, PA 19610-0000

Counsel for Appellants

William O. Krekstein, Esquire
Nelson, Levine, de Luca & Horst
518 Township Line Road, Suite 300
Blue Bell, PA 19422-0000

Daniel J. Pomeroy, Esquire (Argued)
Karen E. Heller, Esquire
Mortenson & Pomeroy
150 Morris Avenue
Springfield, NJ 07081-0000

Counsel for Appellee

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OPINION OF THE COURT
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2
AMBRO, Circuit Judge

The principal issue in this case is whether New Jersey
or Pennsylvania law applies to an automobile insurance
dispute between Amica Mutual Insurance Company
(“Amica”) and Edward and Maureen Fogel, individually and
as guardians ad litem of Marcy Fogel and Carrie Fogel, and
as administrators of the estate of Melissa Fogel (collectively,
the “Fogels”). Amica issued the policy to the Fogels when
they were residents of New Jersey. During its term, the
Fogels moved to Pennsylvania, and made Amica aware of
their permanent relocation, before they were involved in a
fatal traffic accident in Pennsylvania that triggered the policy
claim to Amica. The District Court granted declaratory relief
to Amica at the summary judgment stage, believing that New
Jersey law applied to the contract. We conclude that
Pennsylvania’s choice-of-law rules do not apply; instead, we
look to New Jersey’s choice-of-law rules, and they point to
Pennsylvania law as governing this dispute. We remand so
that summary judgment may be entered for the Fogels on the
choice-of-law issue. However, we affirm the District Court’s
grant of summary judgment to Amica on the Fogels’
counterclaim alleging that it engaged in a bad faith denial of
insurance coverage.

I. FACTS AND PROCEDURAL HISTORY

A. Facts

Amica insured the Fogels under an automobile
insurance policy (the “policy” or “contract”) effective from
December 1, 2007 through December 1, 2008. The Fogels
lived in Howell, New Jersey when the policy was issued. It
provided underinsured motorist coverage in the amount of

3
$300,000 for each accident. The Fogels moved to Pottsville,
Pennsylvania in August 2008.

The same month of their move, Mr. Fogel called
Amica to advise his insurer that he had moved from New
Jersey to Pennsylvania with the intent to remain there
permanently. An Amica representative informed Mr. Fogel
that his policy would need to be rewritten in Pennsylvania. A
few days later, Mr. Fogel spoke with an Amica senior account
representative and asked that his policy be converted to, or
reissued as, a Pennsylvania policy, due to his family’s
relocation to Pennsylvania. The Amica representative told
Mr. Fogel that Amica would not issue a Pennsylvania policy
until he obtained a Pennsylvania driver’s license and
registered his two vehicles in Pennsylvania, and that until that
time his New Jersey policy would remain in effect. She also
obtained Mr. Fogel’s new home address in Pennsylvania.
Amica began billing the Fogels for their insurance premiums
at their residence in Pennsylvania in September 2008. Mr.
Fogel did not obtain a Pennsylvania driver’s license or
register his vehicles in Pennsylvania until early 2009.

In October 2008, Mr. Fogel and three children in the
Fogel family were in a serious automobile accident in
Pennsylvania. Their vehicle was struck head-on by a motorist
who was allegedly intoxicated—one of the Fogel daughters
died as a result of the accident and Mr. Fogel and the other
two Fogel daughters were seriously injured. The driver of the
vehicle that struck the Fogels had liability insurance with a
limit of $100,000, which has been paid to the Fogels in
settlement of their claims against him. At the time of the
accident, the Fogels’ policy with Amica had not been
rewritten or reissued as a Pennsylvania policy.

4
 After the accident, Amica established a New Jersey
personal injury protection (“PIP”) file for each of the four
injured Fogel family members. It then processed their
medical expenses pursuant to New Jersey PIP coverage,
which, under New Jersey law, had limits of $250,000 per
person per accident.

The Fogels, however, believed that they were entitled
to more. In December 2008, their counsel wrote a letter to
Amica requesting payment up to the limits of the “stacked”
underinsured motorist (“UIM”) benefits available under their
policy as a result of the accident. Under Pennsylvania law,
insureds whose policies cover more than one vehicle may
“stack” UIM benefits to cover losses that result from a
collision with an at-fault underinsured driver—that is, the
insured may add together the policy limits for each of the
covered vehicles even though the collision involved only one
of the covered vehicles. Stacking is available in Pennsylvania
unless the insured expressly waives that right in writing, but it
is not permitted in New Jersey. Moreover, insurers in
Pennsylvania may not offset UIM benefits by amounts
insureds receive from other insurance sources, whereas such
offsets are permitted in New Jersey.

Amica’s position in response was “that ‘stacking’ [of
UIM benefits on the Fogels’ two automobiles] is prohibited
under the New Jersey policy.” Counsel for the Fogels again
wrote to Amica stating that, under Pennsylvania law, the
Fogels are entitled to stacked UIM benefits of up to $600,000
(as their policy covered two cars with limits of $300,000
each). After receiving that letter, Amica’s claims adjuster
confirmed that the Fogels had been residing in Pennsylvania
since August 2008. He also confirmed that Mr. Fogel

5
communicated with Amica before the accident regarding his
relocation to Pennsylvania.

B. Procedural History

In January 2009, Amica filed an action in the Superior
Court of New Jersey seeking a declaration that its obligations
under the policy are only those that it owes under New Jersey
law (not Pennsylvania law). The Fogels successfully
petitioned for removal to the District Court for the District of
New Jersey. On the District Court’s own motion, the action
was transferred to the Middle District of Pennsylvania
pursuant to 28 U.S.C. § 1404(a), which provides that “[f]or
the convenience of parties and witnesses, in the interest of
justice, a district court may transfer any civil action to any
other district or division where it might have been brought.”

Amica filed an amended complaint in July 2009
seeking a declaration that it owed no further UIM benefits to
the Fogels. In the alternative, if the District Court applied
Pennsylvania law, Amica sought return of payments it had
made for New Jersey PIP benefits in excess of the amount it
would have provided under Pennsylvania law ($5,000 per
person).

After discovery, the Fogels filed an amended answer
and Amica moved for summary judgment on the choice-of-
law issue. The Fogels filed a cross-motion for summary
judgment on the same issue and made a counterclaim alleging
bad faith by Amica’s claims adjuster under 42 Pa. C.S.A.
§ 8317. Amica also moved for summary judgment on the
Fogels’ bad faith claim.

6
 The motions and counterclaims were submitted to a
Magistrate Judge, who prepared a Report and
Recommendation (“R&R”) for the District Court. The R&R
applied Pennsylvania’s choice-of-law rules and concluded
that New Jersey law applies to the automobile insurance
policy. Thus, the R&R suggested that Amica’s motion for
summary judgment be granted and the Fogels’ cross-motion
for summary judgment be denied. It also recommended that
summary judgment be granted in favor of Amica on the
Fogels’ counterclaim for bad faith.

The District Court adopted the Magistrate’s R&R,
granted Amica’s motion for summary judgment, and denied
the Fogels’ cross-motion for summary judgment. See District
Court Memorandum of July 29, 2010 (“Dist. Ct. Memo”). 1
The Fogels appealed.

1
The District Court dismissed all of the Fogels’ objections to
the R&R. The only objection it addressed in its opinion was
the Fogels’ argument that it was not possible to meet Amica’s
requirement that an insured who moves to a new state obtain
a driver’s license and registration in the new state before
Amica will issue a new insurance policy in that state. This
requirement was impossible to meet, the Fogels argued,
because Pennsylvania requires proof of insurance prior to
registering a vehicle in the Commonwealth. The District
Court concluded that this sequencing problem did not make it
impossible for the Fogels to follow Amica’s procedures
because the Pennsylvania vehicle registration office and
insurers may “‘swap’ information simultaneously to meet
both Amica’s and the Commonwealth’s procedure.” Dist. Ct.
Memo at 6-7.

7
 We have jurisdiction under 28 U.S.C. § 1291. We
review an order granting summary judgment de novo.
Gardner v. State Farm Fire and Cas. Co., 544 F.3d 553, 557-
58 (3d Cir. 2009). We also exercise plenary review over a
district court’s determination of which state’s substantive law
governs in a civil action based on diversity of citizenship.
Berg Chilling Sys., Inc. v. Hull Corp., 435 F.3d 455, 462 (3d
Cir. 2006) (citing Garcia v. Plaza Oldsmobile Ltd., 421 F.3d
216, 219 (3d Cir. 2005)).

II. ANALYSIS

A. Choice-of-Law Framework

In an action based on diversity of citizenship, a federal
court generally applies the choice-of-law rules of the
jurisdiction in which it sits. Klaxon Co. v. Stentor Elec. Mfg.
Co., 313 U.S. 487, 496 (1941); Hammersmith v. TIG Ins. Co.,
480 F.3d 220, 226 (3d Cir. 2007) (applying Klaxon); Garcia,
421 F.3d at 219 (same). However, Van Dusen v. Barrack
established that when a civil action is transferred from one
district court to another pursuant to § 1404(a) on motion of
the defendant, the transferee forum must apply the law of the
initial forum. 376 U.S. 612, 639 (1964) (“[W]here the
defendants seek transfer [under § 1404(a)], the transferee
district court must be obligated to apply the state law that
would have been applied if there had been no change of
venue.”). The Supreme Court extended the Van Dusen rule to
transfers initiated by the plaintiff in Ferens v. John Deere
Co., 494 U.S. 516 (1990). Thus, after transfer by either party,
when “[f]aced with a choice-of-law question, federal courts in
the district to which the case has been transferred under
§ 404(a) must apply the law of the transferor state.” Lafferty

8
v. St. Riel, 495 F.3d 72, 76-77 (citing Van Dusen, 376 U.S. at
639, and Ferens, 494 U.S. at 527-28).

Ferens also makes plain that the Van Dusen rule
applies to sua sponte transfers, such as occurred here. “[T]he
transferor law should apply regardless of who makes the
§ 1404(a) motion,” in part because a contrary rule “would
leave unclear which law should apply when both a defendant
and a plaintiff move for a transfer of venue or when the court
transfers venue on its own motion.” Ferens, 494 U.S. at 530-
31 (emphasis added). We agree with the Ninth Circuit Court
of Appeals that “[t]he language and reasoning in Ferens leave
no doubt that the [Van Dusen] rule equally is applicable
where a district court transfers an action sua sponte.”
Muldoon v. Tropitone Furniture Co., 1 F.3d 964, 966 (9th
Cir. 1993); see also In re Helicopter Crash Near Weaverville,
California 8/5/08, 714 F.Supp.2d. 1098, 1102 (D.Or. 2010)
(construing Ferens as “finding that whether the transferor
court grants a [§] 1404(a) transfer sua sponte, at the
defendant’s request, or at the plaintiff’s urging, ‘the transferee
court must follow the choice of law rules of the transferor
court.’”). Thus, we hold that Ferens compels application of
the Van Dusen rule to sua sponte transfers pursuant to
§ 1404(a).

This civil action was brought in New Jersey state
court. It was then removed to the District of New Jersey.
That Court sua sponte transferred the case to the Middle
District of Pennsylvania under § 1404(a). Likely because
neither party referred to Van Dusen or Ferens, the District
Court in the Middle District of Pennsylvania did not apply the
choice-of-law rules of the transferor forum (New Jersey).
Instead, it applied Pennsylvania’s choice-of-law rules rather
than New Jersey’s. We proceed by applying New Jersey’s

9
choice-of-law rules to determine whether Pennsylvania or
New Jersey substantive law controls the merits of the dispute
before us.

B. New Jersey Choice-of-Law Approach

In State Farm Mutual Automobile Insurance Company
v. Estate of Simmons, 84 N.J. 28, 36-37, 417 A.2d 488 (N.J.
1980) (“Simmons”)), the New Jersey Supreme Court “rejected
the mechanical and inflexible lex loci contractus [law of the
place where the contract is made] rule in resolving conflict-
of-law issues in liability-insurance contracts,” as it later
explained in Gilbert Spruance Company v. Pennsylvania
Manufacturers’ Ass’n Insurance Co., 134 N.J. 96, 629 A.2d
885, 888 (N.J. 1993) (“Gilbert”). Since Simmons, “[New
Jersey] courts have adopted a more flexible approach that
focuses on the state that has the most significant connections
with the parties and the transaction.” Gilbert, 629 A.2d at
888 (citation omitted). Gilbert explained that approach,
known as the “most significant relationship” test in the
Restatement (Second) of Conflict of Laws (1971)
(“Restatement”), as follows:

[In Simmons, w]e held that because the law of
the place of contract “generally comport[s] with
the reasonable expectations of the parties
concerning the principal situs of the insured
risk,” . . . that forum’s law should be applied
“unless the dominant and significant
relationship of another state to the parties and
the underlying issue dictates that this basic rule
should yield.” . . . In making that
determination, courts should rely on the factors

10
 and contacts set forth in Restatement sections 6
and 188.

Id. (citing Simmons, 417 A.2d at 492-93).

Simmons emphasized the importance of considering
the parties’ expectations regarding the principal location of
the insured risk as the rationale for looking to the place of
contracting. However, it also recognized that “this choice-of-
law rule should not be given controlling or dispositive effect.”
Simmons, 417 A.2d at 493. That is, “[i]t should not be
applied without a full comparison of the significant
relationship of each state with the parties and the transaction.”
Id. Moreover, “[t]hat assessment should encompass an
evaluation of important state contacts as well as a
consideration of the state policies affected by, and
governmental interest in, the outcome of the controversy.”
Id.

Though Simmons stopped short of adopting the
Restatement expressly, Gilbert and a series of later New
Jersey Appellate Division cases made clear that “the
governmental interest test [dealt with below] and the ‘most
significant relationship’ standard of the Restatement” provide
the applicable choice-of-law framework in New Jersey courts.
N.J. Mfrs. Ins. Co. v. MacVicar, 307 N.J. Super. 507, 512,
704 A.2d 1343, 1346 (N.J. Super. App. Div. 1998)
(describing Gilbert as “emphasizing again that[,] with respect
to insurance contracts, the law of the place understood by the
parties to be the principal location of the risk controls unless
some other state has a more significant relationship”). See
also Canal Ins. v. F.W. Clukey Trucking, 295 N.J. Super. 131,
684 A.2d 953 (N.J. Super. App. Div. 1996); Hertz Claim
Mgmt. v. Marchetta, 281 N.J. Super. 190, 656 A.2d 1298

11
(N.J. Super. App. Div. 1995); Chalef v. Ryerson, 277 N.J.
Super. 22, 648 A.2d 1139 (N.J. Super. App. Div. 1994);
Pittston Co. v. Allianz Ins. Co., 795 F. Supp. 678, 683 (D.N.J.
1992) (collecting cases and explaining that “New Jersey
Appellate Division decisions have made clear that the
Restatement’s “most significant relationship” test is the law
of New Jersey”).

Under the Restatement approach, “the general rule in
contract actions is that the law of the state with the most
significant relationship to the parties and the transaction
under the principles stated in Restatement section 6 governs.”
Gilbert, 629 A.2d at 888 (citing Restatement § 188). In
determining which state has the most significant relationship,
§ 188 instructs courts to evaluate each state’s contacts,
“according to their relative importance,” such as the place of
contracting and performance, the location of the subject
matter of the contract, and the domicile, residence,
nationality, place of incorporation and place of business of
the parties. Restatement § 188(2). Section 6 of the
Restatement instructs courts to consider the following factors:
“(a) the needs of the interstate and international systems,
(b) the relevant polices of the forum, (c) the relevant policies
of other interested states and the relative interests of those
states in the determination of the particular issue, (d) the
protection of justified expectations, (e) the basic policies
underlying the particular field of law, (f) certainty,
predictability and uniformity of result, and (g) ease in the
determination and application of the law to be applied.”
Restatement § 6; see also Gilbert, 629 A.2d at 888; Simmons,
417 A.2d at 491.

Section 193 of the Restatement “provides guidance in
applying section 188’s ‘relevant contacts’ to the special case

12
of casualty-insurance contracts.” Gilbert, 629 A.2d at 888.
As the more specific Restatement provision, § 193 is the
starting point “in determining the choice-of-law rule to
govern casualty-insurance contracts.” Id. at 893. It provides
that “the law of the state that ‘the parties understood was to
be the principal location of the insured risk [governs unless]
some other state has a more significant relationship under the
principles stated in § 6.” Id. at 889 (alteration in original)
(citing Restatement §193). Comment b to Restatement § 193
explains that the location of the insured risk under the
contract should generally be given “greater weight than any
other single contact,” as Simmons and Gilbert also instruct.
However, the importance of the principal location of the
insured risk diminishes when the insured object is a moveable
chattel, such as a motor vehicle. In those cases, “the
significance of the state of the risk’s principal location
diminishes with the length of time that it can be anticipated
the chattel will be in other states during the term of the
insurance.” Restatement §193 cmt. b. Furthermore, on
“occasions when following the issuance of the policy the
principal location of the risk is shifted to some other state,”
the “other state will have a natural interest in the insurance of
the risk and it may be that its local law should be applied to
determine at least some issues arising under the policy.” Id.
cmt. d.

C. Application of New Jersey Choice-of-Law Rules
to this Dispute

The first step in our analysis is to determine whether
an actual conflict exists between the laws of New Jersey and
Pennsylvania. As the Magistrate Judge’s R&R noted, the
laws of these states conflict as follows in this case:

13
 Pennsylvania law permits insureds to “stack”
underinsured motorist benefits, whereas New
Jersey does not. Additionally, . . .
Pennsylvania law does not permit insurers to
offset UIM benefits against amounts received
from other insurance sources, whereas New
Jersey does. There is thus no question that the
differences in each state’s laws with respect to
automobile insurance—specifically, with
respect to how much coverage is legally
available to insureds for underinsured motorist
benefits—give rise to a true conflict . . . .

R&R at 18. We agree, as did the District Court, with the
Magistrate Judge’s conclusion that an actual conflict exists.

In this context, we follow the approach from Simmons,
Gilbert, and subsequent New Jersey cases that apply the
Restatement standards discussed above. Although the Fogels
did not ask us to apply New Jersey choice-of-law rules to this
dispute, they argue that we should follow the reasoning of
MacVicar, a New Jersey Appellate Division case that is
strikingly similar to the case before us. The District Court
declined to follow MacVicar, as it applied Pennsylvania’s
choice-of-law rules rather than New Jersey’s. However, once
we recognize that New Jersey’s choice-of-law rules apply, it
is clear that MacVicar is the most closely analogous case to
the current dispute and we are bound by it as the law of the
transferor forum.

MacVicar decided “whether the law of New Jersey or
Pennsylvania govern[ed] the determination of defendant-
insureds’ entitlement to stacking of the underinsured motorist
benefits afforded by the automobile policy issued to them by

14
[the] plaintiff [insurer,] New Jersey Manufacturers Insurance
Company (NJM).” MacVicar, 704 A.2d at 1344. “The issue
is simply one of choice of law . . . .” Id. at 1346.

The critical facts of MacVicar mirror closely those of
our case. Like the Fogels, the MacVicars lived in New Jersey
when the disputed automobile insurance policy was issued for
their family cars, all of which were garaged in New Jersey at
the time. Id. at 1344. Also like the Fogels, the MacVicars
moved to Pennsylvania during the term of their policy. Id. 2
In perhaps the most important resemblance between
MacVicar and our case, the insurer received notice from the
MacVicar family of their relocation to Pennsylvania by
telephone before the accident that triggered possible
application of the policy. Subsequent telephone
communication between Mrs. MacVicar and the insurer,
NJM, occurred regarding the process of converting the
family’s New Jersey automobile insurance policy to a
Pennsylvania policy. Id. Similarly, after Mr. Fogel’s initial
call to Amica providing notice of his family’s relocation and
being told of the need to have the policy rewritten in
Pennsylvania, he subsequently spoke with an Amica senior
account representative regarding how to complete that
process.

2
The MacVicar family moved to Pennsylvania approximately
six months into the term of their policy with NJM, while the
Fogels moved to Pennsylvania approximately eight months
into the term of their policy with Amica. The length of time
remaining on the policy was not a consideration in MacVicar,
nor do we consider it a critical fact here.

15
 Again tracking closely to the facts of the case before
us, the MacVicars’ New Jersey policy was still in force when
the family was involved in a tragic accident that killed one
family member (Mr. MacVicar), seriously and permanently
injured another (Mrs. MacVicar), and less seriously injured
the third passenger (their daughter). Id. at 1345. As the
Fogels’ lawyer did, the MacVicars’ “lawyer asserted that the
family was entitled to stacked UIM coverage.” Id. In
response “NJM asserted that since the New Jersey policy was
in effect, New Jersey’s anti-stacking law applied,” id., as
Amica now asserts.

The procedural history in MacVicar unfolded in much
the same manner as here, except that the case was never
removed to federal court from New Jersey state court. The
insurer, NJM, brought an action seeking a declaration that
New Jersey law applied to the policy and that stacking was
impermissible. Id. “On motion and cross-motion for
summary judgment, the trial court agreed with NJM’s
position,” and entered summary judgment for the insurer
based on the choice-of-law issue. Id.

The New Jersey Appellate Division reversed the trial
court’s grant of summary judgment for NJM, and determined
that Pennsylvania law applied. It concluded that “the choice
of Pennsylvania law is dictated by the well-settled principles
underlying [New Jersey’s] conflicts of law jurisprudence in
respect of insurance contracts.” Id. at 1346. It explained the
New Jersey Supreme Court’s approach in Simmons and
Gilbert, and went on to apply the Restatement to the facts
before it, using § 193 as its starting point per Gilbert, 629
A.2d at 893. Our analysis, set forth below, tracks closely to
that of MacVicar in its application of New Jersey’s settled

16
choice-of-law principles in the context of insurance contract
disputes.

Principal Location of the Insured Risk

MacVicar began its analysis under the Restatement by
examining the parties’ justified expectations regarding the
principal location of the insured risk. “Applying the test of
§ 193 of the Restatement,” the Court stated, “we think it plain
that the parties understood that[,] as of the date of the
MacVicars’ move to Pennsylvania, a date and an event of
which NJM indisputably had notice prior to the accident,
Pennsylvania would be the principal location of the risk.” Id.
at 1347. The reasons cited for this conclusion are virtually
identical to the reasons that the Fogels now argue Amica must
have understood Pennsylvania to be the principal location of
the insured risk once the Fogels made the insurer aware of
their relocation: “The insureds all resided [in Pennsylvania].
The covered vehicles were all garaged there. The insureds
would be doing all their local driving there. [The insurer],
moreover, . . . clearly acknowledged its understanding that the
locus of the risk had been transferred to Pennsylvania . . . .”
Id.

For the same reasons expressed in MacVicar, we
believe the justified expectations of the parties shifted when
Amica was put on notice that the Fogel family had
permanently relocated to Pennsylvania. Because the Fogels
had notified Amica of their move in August 2008, well before
the accident, garaged and were primarily driving their cars in
Pennsylvania, and were being billed by Amica in
Pennsylvania, we find it difficult to believe that any party

17
could have believed the primary location of the insured risk
was still New Jersey by the time the accident occurred. 3

While Amica argues correctly that it advised the
Fogels of steps they needed to take before it would rewrite
their policy under Pennsylvania law, the key focus of our
inquiry under Restatement § 193 is not whether the Fogels
undertook these steps before the accident, but whether the
parties understood that the principal location of the insured
risk was Pennsylvania. In other words, the issue is not
whether the policy was actually rewritten as a Pennsylvania
policy before the accident—all parties acknowledge that it
was not (and if it had been, there would be no dispute)—
rather, the issue that the Restatement and New Jersey law
instruct courts to consider is what the parties believed
regarding where the insured risk would be located. We
conclude that there was simply no justified expectation after

3
The only discernible difference at this stage of the analysis
between MacVicar and this case is that more time had passed
between the Fogels’ communication with Amica and the
MacVicars’ communication with NJM when the accident in
question occurred. It is inconceivable to us that the insurer’s
“understanding that the locus of the risk had been transferred
to Pennsylvania,” id., would be diminished by the passage of
time, nor do we find highly probative the Fogels’ inaction in
registering their vehicles in Pennsylvania during that time.
Indeed, because Amica had begun billing the Fogels on their
policy in Pennsylvania before the accident (and the Fogels
returned payment accordingly), if anything the passage of
time under these circumstances would solidify the
understanding that Pennsylvania had become the location of
the insured risk for the foreseeable future.

18
August 2008 that the risk insured under the Fogels’ policy
would be located in New Jersey.

MacVicar elaborated on its analysis under § 193 of
the Restatement by noting that,

as a general proposition respecting the parties’
understanding of the location of the risk, we
think it clear that every automobile insurer is on
notice that because of the mobility both of
automobiles and their owners, the
circumstances of a particular loss may well
result in the applicability of the law of a state
other than that in which the policy was issued,
and that is hence a predicate of the risks they
underwrite.

704 A.2d at 1347.

MacVicar cited Parker v. State Farm Insurance Co.,
543 F. Supp. 806 (E.D.Pa. 1982), as “recognizing” this
proposition. Id. The plaintiff in Parker was a resident of
Chester, Pennsylvania who was involved in a motor vehicle
accident with an uninsured motorist. She obtained UIM
benefits under her own policy, and then also claimed UIM
benefits under her husband’s insurance policies with State
Farm. Parker, 543 F. Supp. at 807-08. Her husband had
been a Maryland resident when the State Farm policies were
issued and delivered to him, but he and the plaintiff
subsequently established residency in Pennsylvania before the
accident occurred. Id. at 808. Similar to the situation here,
the husband’s insurance provider denied the plaintiff’s
attempt to recover under his plans because “stacking” was
prohibited in Maryland.

19
 Parker acknowledged that the State Farm policies, “as
originally contemplated, have most of their relevant contacts
with the State of Maryland.” Id. at 810. As was the case for
the State of New Jersey in MacVicar and the case before us,
in Parker “Maryland is the place where the parties resided or
did business at the time of contracting, the place where the
contract was negotiated and formed, and—perhaps most
importantly—the state where the insured automobiles were
expected to be located at the time of the policies’ creation.”
Id.

However, Parker recognized that “a raw count of
contacts cannot decide the question. The importance of the
various contacts depends on the nature of the particular
contract and issues involved.” Id (citing Restatement § 188
cmt. b). Thus, based on weighing each state’s contacts with
the policy and their underlying interests, Parker concluded
that Pennsylvania law should apply. At the time of the
accident “Pennsylvania had become the state of James
Parker’s domicile and the state where the insured vehicles
were principally garaged.” Id. at 810-11. The Court also
noted, as MacVicar did, that in a § 193 analysis

the “location of the insured risk” is of less
importance in the context of [an] automobile
liability insurance policy than it would be in the
context of, for example, a policy of fire
insurance for a building. The mobility of the
insured risk makes it possible that an accident
covered by the policies will occur in a state
other than the state where the automobile is
principally garaged. Furthermore, in today’s
mobile society, it is also foreseeable that a
person covered by insurance may himself marry

20
 and move from state to state, as plaintiff James
Parker did here, and, thus, wholly change his
domicile and the place where the automobile is
garaged. Thus, the possibility that another
state’s law may be applied to determine
questions arising out of automobile liability
insurance policies made in Maryland cannot be
totally unforeseen by an insurer in State Farm’s
position.

Id. at 810-11. As Parker noted, comment d to § 193 explains
that on “occasions when following the issuance of the policy
the principal location of the risk is shifted to some other
state,” the “other state will have a natural interest in the
insurance of the risk and it may be that its local law should be
applied to determine at least some issues arising under the
policy.” Restatement § 193 cmt. d. In the case of automobile
insurance contracts specifically, the mobility of the insured
risk creates a foreseeable potential for the principal location
of the risk to shift during the term of a policy. In those
situations, “application of the local law of the [state to which
the insured risk has shifted] would hardly be unfair to the
insurance company,” as the mobility of the insured risk itself
provides reason to foresee “that there might be a shift to
another state of the principal location of the risk.” Id.

The District Court here found Parker unpersuasive,
essentially because it believed that Parker used a broad
concept of foreseeability to read the “principal location of the
insured risk” out of the § 193 analysis. It found Parker’s
diminished reliance on the principal location of the insured
risk problematic because the Restatement instructs that “[t]he
location of the insured risk will be given greater weight than
any other single contact in determining the state of the

21
applicable law . . . .” Restatement § 193 cmt. b; see also
R&R at 25-27. However, the District Court’s analysis fails to
take into account the reason why the principal location of the
insured risk is such a weighty factor. As the Restatement
comments state, courts focus on that factor because it
ordinarily comports with the parties’ expectations regarding
what law will apply to the insurance contract. See
Restatement § 193 cmt. c (A primary “rationale” is that “it
can often be assumed that the parties . . . would expect that
the local law of the state where the risk is to be principally
located would be applied to determine many of the issues
arising under the contract.”). The comments further explain
that in the case of movable items, such as motor vehicles, the
expectation that the location of the insured risk will remain
constant is diminished, even if it is not entirely eliminated.
See id. cmt. d; id. cmt. b (explaining that this factor “enjoys
greatest significance when an immovable” object, such as a
building, is the subject of the insurance policy). In sum, we
do not view Parker as a dramatic departure from the
Restatement approach, but simply as an application of the
rationale expressed in the Restatement comments.

Moreover, even if we discounted the foreseeability of
motor vehicle owners relocating to other states during the
term of a policy, as the District Court did in rejecting
Parker’s reasoning, we would still reach the result we do
today. On both the facts of MacVicar and the case now
before us, NJM and Amica each had actual knowledge that
the principal location of the insured risk had already shifted
from New Jersey to Pennsylvania based on direct
communication of that fact by the insureds in each case.

Thus, as in MacVicar, “[w]e are . . . satisfied that no
state had a more significant relationship with this risk than

22
did Pennsylvania. New Jersey’s relationship as the place
where the policy was initially issued plainly became
tangential after the severance of all other ties and connections
[in New Jersey].” 704 A.2d at 1347.

Governmental Interest Analysis

Although we have concluded that Pennsylvania has the
most significant relationship with the Fogels’ policy, we need
to examine the “state policies affected by, and governmental
interest in, the outcome of the controversy.” Simmons, 84
N.J. at 37. Relying primarily on Parker and an earlier case in
our Court, Travelers Insurance Co. v. Davis, 490 F.2d 536
(3d Cir. 1974), MacVicar concluded that it was “clear that
application of a governmental interest analysis points
inexorably to Pennsylvania as well.” 704 A.2d at 1347. We
agree, and conclude that Pennsylvania’s underlying policy
interests predominate.

MacVicar explained that “Pennsylvania’s UIM
stacking law is obviously predicated on its firm public policy
of affording its residents the full advantage of all the
insurance they have purchased.” Id. Indeed, its
“commitment to that policy is . . . so strong that it prescribes
the exact verbiage that an insured must assent to in writing
before he will be deemed to have waived the benefit of that
law.” Id. (finding “no interest of New Jersey” that “could
possibly override that of Pennsylvania” in this regard).
Parker also attached great weight to Pennsylvania’s strong
underlying interest in its UIM stacking policy. Parker, 543 F.
Supp. at 811 (emphasizing importance of “Pennsylvania’s
strong interest in protecting its citizens’ rights to the full
benefit of insurance provisions agreed to and coverage paid
for”) (internal citation omitted).

23
 In Travelers we held as well that Pennsylvania law
applied in a choice-of-law dispute based on the
Commonwealth’s strong interest in its UIM stacking policy.
Travelers involved a Pennsylvania citizen who was killed in
Texas in an automobile accident with an uninsured motorist
that occurred in the course of his employment. His
employer’s automobile liability insurance policy had been
issued in Massachusetts. As here, the insurance company
sought a declaratory judgment that stacking was
impermissible based on an argument that Pennsylvania law
did not apply. The District Court dismissed the insurer’s
complaint. In affirming the dismissal, we noted that while
Massachusetts had some interest “because the contract was
made there,” “Pennsylvania’s interest is the greatest because
decedent and his executors are citizens of that state.
Pennsylvania is vitally concerned with the administration of
decedent’s estate and the well-being of the surviving
dependents.” Travelers, 490 F.2d at 543 (internal citation
omitted). Thus, we applied Pennsylvania law to determine
the parties’ rights and obligations under the policy.

* * * * *

For these reasons, we conclude that although New
Jersey has some interest in the Fogels’ policy—as the place of
contracting and the initial location of both parties— after the
Fogels notified Amica of their relocation to Pennsylvania,
there was no longer a justified expectation that New Jersey
remained the principal location of the insured risk. All parties
understood that the family’s cars, the insured risk, were to be
garaged and primarily driven in Pennsylvania following their
move. Moreover, following MacVicar, Parker, and
Travelers, we conclude that Pennsylvania’s strong underlying
policy interest outweighs that of New Jersey in this case.

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Hence we reverse the District Court’s grant of summary
judgment for Amica and remand so that summary judgment
may be entered for the Fogels on the choice-of-law issue.

IV. T HE F OGELS’ BAD F AITH C OUNTERCLAIM

The Fogels allege in their counterclaim that Amica
acted in bad faith, under 42 Pa.C.S.A. § 8371, by failing to
investigate adequately their claim and improperly denying
them stacking benefits under their policy. Amica moved for
summary judgment on this counterclaim, arguing that it had a
reasonable basis for all actions taken based on its belief that
New Jersey law applies. It also notes that it had paid nearly
$375,000 in claims to the Fogels under the policy as of the
date it moved for summary judgment.

In response, the Fogels argue that Amica’s claims
adjuster assigned to their case did not complete a thorough
investigation. They note that the adjuster was aware that the
Fogels had moved to Pennsylvania and that they had been
billed for their policy in Pennsylvania prior to the accident at
issue, but that he nonetheless failed to “consider the length of
time that the Fogels were residing in Pennsylvania prior to the
accident,” and also failed to determine “where the Fogels’
vehicles were being garaged” or “where their local driving
was taking place . . . .” Fogel Br. 29. Finally, they argue that
Amica’s advice to the Fogels regarding Pennsylvania’s
vehicle registration procedures was contrary to Pennsylvania
law and its own claims manual. The District Court
thoroughly examined the applicable law and rejected the
Fogels’ counterclaim alleging bad faith.

25
 In the primary case construing bad faith under 42
Pa.C.S.A. § 8371, Terletsky v. Prudential Property &
Casualty Co., the Superior Court of Pennsylvania explained:

“Bad faith” on [the] part of [an] insurer is any
frivolous or unfounded refusal to pay proceeds
of a policy; it is not necessary that such refusal
be fraudulent. For purposes of an action against
an insurer for failure to pay a claim, such
conduct imports a dishonest purpose and means
a breach of a known duty (i.e., good faith and
fair dealing), through some motive of self-
interest or ill will; mere negligence or bad
judgment is not bad faith.

437 Pa. Super. 108, 125, 649 A.2d 680, 688 (Pa. Super Ct.
1984) (quoting BLACK’S LAW DICTIONARY 139 (6th ed.
1990)). Terletsky held that, “to recover under a claim of bad
faith,” the insured must show that the insurer “did not have a
reasonable basis for denying benefits under the policy and
that the insurer knew of or recklessly disregarded its lack of
reasonable basis in denying the claim.” Id. Thus, an insurer
may defeat a claim of bad faith by showing that it had a
reasonable basis for its actions. Horowitz v. Federal Kemper
Life Assurance Co., 57 F.3d 300, 307 (3d Cir. 1995). Our
Court has described “the essence of a bad faith claim” as “the
unreasonable and intentional (or reckless) denial of benefits.”
UPMC Health Sys. v. Metro. Life. Ins. Co., 391 F.3d 497, 506
(3d Cir. 2004).

Bad faith “must be proven by clear and convincing
evidence and not merely insinuated.” Terletsky, 649 A.2d at
688 (collecting cases). As the District Court noted, this
heightened standard requires the insured to provide evidence

26
“so clear, direct, weighty and convincing as to enable a clear
conviction, without hesitation, about whether or not the
defendants acted in bad faith.” Bostick v. ITT Hartford Grp.,
56 F.Supp.2d 580, 587 (E.D.Pa. 1999) (citations omitted). In
deciding a motion for summary judgment, a court “must view
the evidence presented in light of the [insured’s] substantive
burden at trial.” Northwestern Mut. Life Ins. Co. v. Babayan,
430 F.3d 121, 137 (3d Cir. 2005) (citations omitted).

Because the District Court believed that Amica was
correct in applying New Jersey law, it concluded that “it
would be anomalous to find that the Fogels could
nevertheless proceed on a claim of bad faith that is predicated
in large part [on] the insureds’ contention that Amica’s claims
adjuster engaged in bad faith in handling the claims . . . by
construing the Policy under New Jersey law.” R&R at 36.
Although we part with the District Court on its conclusion
that New Jersey law applied, we believe that if reasonable
judges could reach that conclusion, as the Magistrate Judge
and District Judge did in this case, the conduct alleged simply
does not amount to bad faith. See J.H. France Refractories
Co. v. Allstate Ins. Co., 626 A.2d 502, 510 (Pa. 1993) (noting
that “it would be harsh indeed to attribute bad faith to parties
which relied on the reasoning and approaches that other
courts have found convincing”); cf. Babayan, 430 F.3d at 137
n. 22 (“an insurer’s denial of a claim does not constitute bad
faith if it is based on a reasonable legal position in an
unsettled area of the law”) (citing Terletsky, 649 A.2d at 690).
Thus, we affirm the District Court’s grant of summary
judgment for Amica on the Fogels’ counterclaim alleging bad
faith.

27
V. CONCLUSION

By the language and logic of Ferens, the Van Dusen
rule applies to sua sponte transfers pursuant to § 1404(a). In
this case, the Middle District of Pennsylvania, the transferee
forum, should have applied the choice-of-law rules that the
District of New Jersey, the transferor, would have followed.
New Jersey choice-of-law rules, laid out in Simmons and
Gilbert and applied in the analogous case of MacVicar, leave
no doubt that Pennsylvania law applies to this dispute. Thus,
we reverse the District Court’s grant of summary judgment
for Amica on the choice-of-law issue and remand for
summary judgment in favor of the Fogels on that issue. 4 We
affirm, however, the District Court’s grant of summary
judgment for Amica on the Fogels’ counterclaim of bad faith
under 42 Pa.C.S.A. § 8371.

4
As noted above, the R&R points out (and indeed the parties
do not dispute) that, under Pennsylvania law, the Fogels are
entitled to stacked UIM benefits under the policy. R&R at
18. Moreover, no dispute exists that, under Pennsylvania law,
offsetting those benefits against amounts received from other
insurance sources is not permitted. Id. (“[T]he parties agree,
and the Court recognizes, that Pennsylvania law does not
permit insurers to offset UIM benefits against amounts
received from other insurance sources, whereas New Jersey
does.”). What remains is the determination of the amount of
relief afforded.

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