August 5 2008
DA 07-0096
IN THE SUPREME COURT OF THE STATE OF MONTANA
2008 MT 275
MARY J. MODROO, individually and as Personal
Representative of the Estate of Mamie J. Hardy,
deceased, ESTATE OF MAMIE J. HARDY, and
CASSIUS H. HARDY,
Plaintiffs and Appellants,
v.
NATIONWIDE MUTUAL FIRE INSURANCE COMPANY,
NATIONWIDE AGRIBUSINESS INSURANCE COMPANY,
FARMLAND MUTUAL INSURANCE COMPANY, and
MAX LEMAIRE,
Defendants and Appellees.
APPEAL FROM: District Court of the Fourth Judicial District,
In and For the County of Missoula, Cause No. DV 03-620
Honorable John W. Larson, Presiding Judge
COUNSEL OF RECORD:
For Appellants:
James L. Jones, Kyle A. Gray; Holland & Hart LLP; Billings, Montana
(for Mary J. Modroo & Estate of Mamie J. Hardy)
David R. Paoli, Heather M. Latino, John A. Kützman; Paoli, Latino
& Kutzman, P.C.; Missoula, Montana (for Cassius H. Hardy)
For Appellees:
Gary L. Graham, David C. Berkoff; Garlington, Lohn & Robinson, PLLP;
Missoula, Montana (for Nationwide Mutual Fire Insurance Company)
Submitted on Briefs: January 16, 2008
Decided: August 5, 2008
Filed:
__________________________________________
Clerk
Justice W. William Leaphart delivered the Opinion of the Court.
¶1 Mary J. Modroo, the Estate of Mamie J. Hardy (collectively, Modroo), and
Cassius H. Hardy appeal from the District Court’s rulings on several motions for
summary judgment and motions to dismiss. We reverse and remand.
¶2 We restate the issues as follows:
¶3 Did the District Court err when it concluded that Mamie was not an “insured”
under the Farmowners policy?
¶4 Did the District Court err when it determined that Hardy lacked standing to pursue
his negligence claims against Nationwide?
¶5 Did the District Court err when it determined that Modroo was not entitled to
medical payments coverage under the Farmowners policy?
¶6 Did the District Court err when it applied Ohio law to deny the stacking of
coverages and to allow offsets under the personal auto policy?
¶7 Did the District Court err when it applied the forum non conveniens doctrine to
dismiss Modroo’s negligence claim in favor of Ohio proceedings?
BACKGROUND
¶8 On February 15, 2003, Mamie Hardy (Mamie) suffered fatal injuries in a single-
vehicle accident in Mineral County, Montana. Max Lemaire was driving the vehicle, and
Mamie was a passenger in the vehicle. Mamie died the next day at St. Patrick’s Hospital
in Missoula. At the time of the accident, Mamie, an Ohio resident, attended the
University of Montana.
2
¶9 The District Court appointed Mamie’s mother, Mary Modroo, an Ohio resident, as
the Personal Representative of Mamie’s estate in Missoula. Following the appointment,
Modroo received Lemaire’s policy limits of $50,000 from Allstate Insurance Company,
without releasing Lemaire from liability. Modroo then filed a lawsuit in the District
Court against Lemaire and against Modroo’s underinsured-motorist (UIM) coverage
carriers: Nationwide Mutual Fire Insurance Company, Nationwide Agribusiness
Insurance Company, and Farmland Mutual Insurance Company (collectively,
Nationwide). Nationwide then filed two declaratory actions against Modroo in the
Geauga County Court of Common Pleas in Ohio. The Ohio court stayed those actions
pending the disposition of the current Montana litigation.
¶10 Modroo’s second amended complaint included a survival action, a wrongful death
claim, a negligent infliction of emotional distress claim, a breach of contract claim, a
claim for violations of the Unfair Claims Settlement Practices Act, and a negligence
claim against Nationwide concerning the production and assembly of its policies and
endorsements. Mamie’s father, Cassius H. Hardy (Hardy), filed a motion to intervene in
the litigation. The District Court granted Hardy’s motion, but denied Hardy the right to
participate in the wrongful death and survivorship claims.
¶11 Modroo’s complaint asserted UIM coverage from Nationwide under two different
policies: a commercial package policy (Farmowners policy) and a personal auto policy.
Among other items, the Farmowners policy covered farm equipment, personal property,
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dwellings, and vehicles. The policy’s Business Auto Coverage Form Declarations listed
the Named Insured as:
CASSIUS H & MARY J HARDY &
HARRY MODROO
DBA MODROO FARM
15571 HEMLOCK RD
CHAGRIN FALLS OH 44022
On the same page as the Named Insured block, the policy contained the language,
“FORM OF BUSINESS: PARTNERSHIP.” The Farmowners auto policy contained a
schedule of “covered autos” and provided those vehicles with liability coverage, medical
payments coverage, UIM coverage, uninsured motorist (UM) coverage, and
comprehensive and collision physical damage coverage.
¶12 The Farmowners policy’s UIM endorsement provided that Nationwide would pay
compensatory damages that “the ‘insured’ is legally entitled to recover . . . from the
owner or operator” of an underinsured motor vehicle. The policy provided a limit of
$1,000,000 of UIM coverage per accident. An anti-stacking provision limited the UIM
coverage to $1,000,000 “[r]egardless of the number of covered ‘autos’, ‘insureds’, [or]
premiums paid . . . .” The Farmowners UIM endorsement also provided that the UIM
limits would be offset by any amounts paid “by or on behalf of anyone who is legally
responsible.” The Farmowners auto policy contained no choice of law provision.
¶13 The UIM endorsement stated, “THIS ENDORSEMENT CHANGES THE
POLICY.” The UIM endorsement contained a Named Insured block that identified
“CASSIUS H & MARY J HARDY &” as the Named Insured. The UIM endorsement
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also provided a definition for “insureds” that varied depending on the designation of the
Named Insured.
¶14 Modroo also claimed UIM coverage under a personal auto policy issued by
Nationwide. The personal auto policy listed Mary Modroo as the Named Insured and
provided that Nationwide would pay compensatory damages that “you or a relative are
legally entitled to recover from the owner or driver” of an underinsured motor vehicle
“under the tort law of the state where the motor vehicle accident occurred . . . .” The
personal auto policy limited the amounts recoverable under UIM coverage to $300,000
per person, and the policy stated that the “per person policy limit shall be enforceable
regardless of the number of . . . vehicles or premiums shown in the Declarations or policy
. . . .” At the time of the accident, Modroo insured two vehicles under the personal auto
policy. The personal auto policy also provided that any amounts available under UIM
coverage would be offset by any amounts “available for payment by or on behalf of any
liable parties . . . .” The personal auto policy stated that Ohio’s contract law governed the
insurance contract’s interpretation.
¶15 In a series of rulings on partial summary judgment motions, the District Court
concluded that Modroo was entitled to UIM coverage under the personal auto policy;
however, after conducting a conflicts-of-law analysis, the District Court applied Ohio law
and determined that the personal auto policy allowed offsets and precluded the stacking
of UIM coverage.
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¶16 The District Court granted partial summary judgment to Nationwide and ruled that
no UIM coverage was available to Modroo under the Farmowners policy. The court
determined that the Farmowners policy designated the Named Insured as a partnership,
and thus, no coverage extended to Mamie under the Farmowners policy. The District
Court reasoned that no coverage existed because Mamie was injured in Lemaire’s
vehicle, which was not a covered auto under the Farmowners policy. The District Court
conducted no conflicts-of-law analysis of the Farmowners policy, except to note that the
policy contained no choice-of-law provisions. The District Court determined that the
Farmowners policy contained no ambiguity regarding whom the policy insured or what
constituted a covered auto. In light of its determination that coverage was clearly
excluded under the Farmowners policy, the District Court dismissed Modroo’s and
Hardy’s claims for bad faith and breach of contract.
¶17 The District Court also granted Nationwide’s summary judgment motion on
Hardy’s negligence claims. The court concluded that Hardy lacked standing to pursue a
negligence claim because Hardy possessed no ownership interest in Modroo Farm and
possessed no insurable interest in Mamie’s life. The District Court also denied Modroo’s
summary judgment motion for medical payments coverage under the Farmowners policy
based on its conclusion that the partnership constituted the only Named Insured.
¶18 After the District Court’s several rulings, Modroo’s only remaining claims against
Nationwide consisted of the bad-faith claim relating to the personal auto policy and the
negligence claim relating to the production and assembly of Nationwide’s policies and
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endorsements. The District Court bifurcated Modroo’s claims against Lemaire and,
under the doctrine of forum non conveniens, dismissed Modroo’s negligence claim
against Nationwide in favor of the stayed proceedings in Ohio. To obtain a final
judgment, Modroo moved to dismiss the unfair claims settlement practices claim relating
to Nationwide’s initial denial of coverage under the personal auto policy. Modroo and
Hardy now appeal from the District Court’s rulings.
STANDARD OF REVIEW
¶19 We review de novo a district court’s grant or denial of summary judgment,
applying the same criteria as the district courts. Wendell v. State Farm Mut. Auto. Ins.
Co., 1999 MT 17, ¶ 9, 293 Mont. 140, ¶ 9, 974 P.2d 623, ¶ 9. Summary judgment is
appropriate “if the pleadings, depositions, answers to interrogatories, and admissions on
file,” together with any affidavits demonstrate that no genuine issue exists as to any
material fact and that the party moving for summary judgment is entitled to judgment as a
matter of law. M. R. Civ. P. 56(c). We view the evidence in the light most favorable to
the party opposing summary judgment, and we draw all reasonable inferences in favor of
the party opposing summary judgment. Oliver v. Stimson Lumber Co., 1999 MT 328,
¶ 22, 297 Mont. 336, ¶ 22, 993 P.2d 11, ¶ 22.
DISCUSSION
¶20 I Did the District Court err when it concluded that Mamie was not an
“insured” under the Farmowners policy?
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¶21 In its initial ruling, the District Court determined that Mamie was not an “insured”
under the Farmowners policy because the partnership, Modroo Farm, constituted the
Named Insured. The District Court concluded that, because the Named Insured was
designated as a partnership, the Farmowners policy limited “insureds” to individuals who
occupied a covered auto. The District Court based many of its subsequent rulings on this
determination.
¶22 Modroo challenges the District Court’s conclusion and asserts that Mary Modroo
and Hardy are individual Named Insureds under the plain language of the UIM
endorsement. Modroo alternatively argues that the District Court erred when it ignored
numerous ambiguities within the Farmowners policy. Modroo maintains that the
ambiguities require that the policy be construed against Nationwide and in favor of
Modroo and Hardy. Modroo and Hardy contend that if Mary Modroo and Hardy are
individually Named Insureds, then Mamie also is an insured as a “family member.”
Nationwide responds that the District Court correctly determined that no ambiguity
existed regarding the identity of the Named Insured as the partnership and that it correctly
ruled that Mamie was not insured under the policy.
¶23 The District Court conducted no conflict-of-law analysis when it interpreted the
Farmowners policy. Our review of Ohio law regarding contract interpretation reveals no
conflict with Montana law, and thus, we apply contract interpretation principles under
Montana law. The interpretation of an insurance contract presents a question of law.
Wendell, ¶ 10. We examine insurance contracts as a whole, with no special deference to
8
specific clauses. Mitchell v. State Farm Ins. Co., 2003 MT 102, ¶ 26, 315 Mont. 281, ¶
26, 68 P.3d 703, ¶ 26. We accord the usual meaning to the terms and the words in an
insurance contract, and we construe them using common sense. Mitchell, ¶ 26. An
insurance contract is ambiguous if i t is “reasonably subject to two different
interpretations.” Mitchell, ¶ 26. We determine whether an ambiguity exists from the
viewpoint of a consumer with average intelligence, but untrained in the law or the
insurance business. Mitchell, ¶ 26. We construe ambiguities in an insurance contract
against the insurer and in favor of extending coverage. Mitchell, ¶ 26.
¶24 The first page of the UIM endorsement states, “THIS ENDORSEMENT
CHANGES THE POLICY.” The endorsement provides that, with respect to UIM
coverage, the Coverage Form provisions apply “unless modified” by the UIM
endorsement. Like the Business Auto Coverage F o r m Declarations, the UIM
endorsement contains a block entitled “Named Insured.” The UIM endorsement lists the
Named Insured as “CASSIUS H & MARY J HARDY &[.]” The UIM endorsement
further states that “[i]f no entry appears above, information required to complete this
endorsement will be shown in the Declarations as applicable to this endorsement.”
¶25 The second page of the UIM endorsement provides a definition for “insureds” that
varies depending on the designation of the Named Insured. If the Declarations designate
the Named Insured as an individual, then “insured” includes the Named Insured and the
Named Insured’s family members. If the Named Insured is designated as a partnership,
then “insured” includes only those occupying a covered auto. No UIM coverage extends
9
to anyone occupying an auto that is not a covered auto if the Named Insured is designated
as a partnership. UIM coverage, however, does not hinge on whether a Named Insured
and the Named Insured’s “family members” are occupying a covered auto if the Named
Insured is designated as an individual.
¶26 Modroo asserts that no reason exists to look to the Declarations to determine how
the Named Insured is designated because the UIM endorsement’s Named Insured block
contains an entry: “CASSIUS H & MARY J HARDY &[.]” According to Modroo, a
reasonable interpretation is that the UIM Named Insureds are Hardy, Mary Modroo, “‘&’
someone or something else.” Looking to prior UIM endorsements, Modroo suggests the
“someone else” is Harry Modroo, Mary Modroo’s uncle and a partner in Modroo Farm.
Prior UIM endorsements listed “CASSIUS H & MARY J HARDY & HARRY
MODROO” as Named Insureds. Modroo points out that the UIM endorsement’s Named
Insured block never included the partnership. Modroo further asserts that the Named
Insured block contained in the Business Auto Coverage Form Declarations is ambiguous
and that a form of business description does not constitute a designation of a Named
Insured.
¶27 Nationwide responds that the language in the UIM endorsement’s Named Insured
block is irrelevant because the endorsement’s “Who is an Insured” section unequivocally
directs a reader to the “Declarations” to determine whether the Named Insured is
designated as an individual or as a business entity. According to Nationwide, the
Declarations identify the Named Insured as a partnership. Thus, Nationwide asserts that
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the “Who is an Insured” section excludes UIM coverage for persons not occupying a
“covered auto” at the time they are injured. According to Nationwide, no UIM coverage
is available because Mamie did not suffer her injuries in a “covered auto.” Nationwide
asserts that the Business Auto Coverage Form Declarations listing the Named Insured as
“CASSIUS H & MARY J HARDY & HARRY MODROO DBA MODROO FARM”
and the designation “FORM OF BUSINESS: PARTNERSHIP” refute Modroo’s claims
of ambiguity.
¶28 Nationwide presents a reasonable interpretation of the policy; Nationwide’s
interpretation, however, is not the only reasonable interpretation. Modroo’s contention
that the UIM coverage applied to Mary Modroo and Hardy as individuals finds support
from the disparity between the UIM Named Insured block and the Business Auto
Coverage Form block, in addition to the customary listing of only three individuals in the
UIM endorsement’s Named Insured block.
¶29 Further, even if we accepted Nationwide’s argument that the UIM endorsement’s
Named Insured block is irrelevant and looked only to the Business Auto Coverage Form
Declarations to ascertain the Named Insured’s designation, a reasonable interpretation
still grants Mary Modroo and Hardy coverage as individuals. The UIM endorsement
directs one to the Declarations to determine the manner in which the Named Insured is
designated. Common sense dictates that any such designation would be included in the
Named Insured block, not, as Nationwide contends, in a form-of-business section. The
Named Insured block does not designate the Named Insured as a partnership. The
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Named Insured block does, however, include the names of three individuals – Hardy,
Mary Modroo, and Harry Modroo – who are doing business together as Modroo Farm. A
reasonable reading of the Named Insured block is that the Named Insureds include
Hardy, Mary Modroo, and Harry Modroo, as individuals, and Modroo Farm, as some
form of entity.
¶30 Nationwide argues that, even if the Farmowners policy granted UIM coverage to
the individual partners, the policy did not “designate” the partners as “individuals,” and
thus, Mamie still would not be entitled to coverage as a “family member.” According to
Nationwide, the FORM OF BUSINESS section would have designated “Individuals” if
the Named Insured was intended to be an individual.
¶31 Nationwide burdens the words “designate” and “individuals” with more weight
than they were intended to carry. The Farmowners policy provides no definition for
either the word “designate” or the word “individual”; thus, we accord them their usual
meaning, and we construe them using common sense. Mitchell, ¶ 26. The usual meaning
of the verb “designate” means “1. To indicate or specify; point out. 2. To give a name or
title to; characterize. 3. To select and set aside for a duty, an office, or a purpose.”
American Heritage Dictionary of the English Language 492 (4th ed. Houghton Mifflin
Co. 2000). The usual meaning of “individual” is “[a] single human considered apart from
a society or community . . . . A person.” American Heritage Dictionary of the English
Language at 893. If Nationwide intended to insure only Modroo Farm, it could have
listed the Named Insured as simply, “Modroo Farm” or “Modroo Farm, a partnership
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entity only.” No reason existed for Nationwide to include the individuals Hardy, Mary
Modroo, and Harry Modroo in the Named Insured block unless Nationwide intended the
UIM coverage to apply to them as individuals. By specifically naming the individual
partners as separate persons in the Named Insured block, a reasonable interpretation of
the policy is that Nationwide designated Mary Modroo and Hardy as individuals for the
purposes of defining coverage.
¶32 Viewing the Farmowners policy from the perspective of a consumer of average
intelligence, but untrained in the law or the insurance business, we conclude that the
policy is subject to more than one reasonable interpretation and is ambiguous. Mitchell,
¶ 26. We construe ambiguities in an insurance contract against the insurer and in favor of
extending coverage. Mitchell, ¶ 26. Thus, we construe the Farmowners policy as
designating Mary Modroo and Hardy as individual Named Insureds, and we conclude
that the Farmowners UIM coverage extends to Mamie as Hardy’s and Mary Modroo’s
“family member.”
¶33 II Did the District Court err when it determined that Hardy lacked
standing to pursue his negligence claims against Nationwide?
¶34 Hardy asserts that the District Court erred when it determined that Hardy
possessed no insurable interest in Mamie’s life and thus lacked standing to pursue
negligence claims against Nationwide. The District Court ruled that Hardy lacked
standing based on Hardy’s admission that he had relinquished his interest in Modroo
Farm prior to Mamie’s accident and Hardy’s inability to demonstrate an insurable interest
13
in Mamie’s life. Also underlying the District Court’s ruling was its determination that
Hardy was not a Named Insured under the Farmowners policy. Our conclusion under
Issue I, that Hardy was an individual Named Insured, makes resolution of this issue
unnecessary.
¶35 III Did the District Court err when it determined that Modroo was not
entitled to medical payments coverage under the Farmowners policy?
¶36 Modroo argues that the District Court ignored ambiguities in the Farmowners
policy’s medical payments endorsement and erroneously denied Modroo medical
payment benefits.
¶37 The interpretation of an insurance contract presents a question of law, which we
review for correctness. Wendell, ¶ 10. The medical payments endorsement defines
“Insured” as “1. You while ‘occupying’ or while a pedestrian, when struck by any ‘auto.’
2. If you are an individual, any ‘family member’ . . . . 3. Anyone else ‘occupying’ a
covered ‘auto’ . . . .” The policy states that “you” refers to the Named Insured. The
District Court concluded that Mamie was not entitled to individual medical payment
coverage because “no ambiguity arises from the use of the term ‘you’ in the Auto
Medical Payments Coverage Endorsement, as the policy clearly identifies the named
insured as a partnership.” Based on our conclusion under Issue I, that the Named Insured
included the individual partners and designated them as individuals, we conclude that the
District Court erred when it determined that Modroo was not entitled to medical payment
benefits.
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¶38 IV Did the District Court err when it applied Ohio law to deny the
stacking of coverages and to allow offsets under the personal auto policy?
¶39 The District Court conducted a conflicts-of-law analysis and determined that Ohio
law governed Modroo’s entitlement to damages under the personal auto policy’s UIM
coverage. Modroo has not appealed the District Court’s determination that Ohio law
constitutes the applicable law, but argues that the District Court misapplied Ohio law.
According to Modroo, when a choice-of-law provision is ambiguous, Ohio law directs
courts to apply the laws of the state that most favors the insured. Modroo argues that the
personal auto policy contains several choice-of-law provisions and that most of the
provisions invoke the laws of the place of the accident. Modroo claims that these
multiple provisions result in a choice-of-law ambiguity; accordingly, Modroo asserts that
under Ohio law, the District Court should have applied Montana law and allowed
stacking and prohibited offsets. Alternatively, Modroo argues that the District Court
erred in enforcing language from the personal auto policy that contravenes Montana’s
public policy regarding offsets and stacking.
A. Did the District Court misapply Ohio law to allow offsets and preclude stacking?
¶40 Ohio and Montana share similar principles of contract interpretation. The
interpretation of an unambiguous insurance contract presents a question of law.
Nationwide Mut. Fire Ins. v. Guman Bros. Farm, 652 N.E.2d 684, 686 (Ohio 1995).
Provisions in an insurance contract that are “reasonably susceptible of more than one
15
interpretation” are “construed strictly against the insurer and liberally in favor of the
insured.” King v. Nationwide Ins. Co., 519 N.E.2d 1380, 1383 (Ohio 1988).
¶41 The personal auto policy listed Mary Modroo as the Named Insured and provided
that Nationwide would pay compensatory damages that “you or a relative are legally
entitled to recover from the owner or driver” of an underinsured motor vehicle “under the
tort law of the state where the motor vehicle accident occurred . . . .” The personal auto
policy also provides that the “contract law of the State of Ohio governs the interpretation
of this contract.” Modroo asserts that Ohio law holds that policies containing ambiguous
choice-of-law language “i.e., some language saying Ohio law applies, some suggesting
otherwise . . . must be construed to apply whatever law is most favorable to the insured.”
Modroo relies on Csulik v. Nationwide Mut. Ins. Co., 723 N.E.2d 90 (Ohio 2000)
(plurality) to support its proposition.
¶42 In Csulik, the Ohio Supreme Court held that language requiring Nationwide to pay
compensatory damages, “which are due by law to you or a relative from the owner or
driver of an uninsured motor vehicle” was ambiguous because the phrase “due by law”
was subject to more than one interpretation. Csulik, 723 N.E.2d at 91-92 (plurality). The
insureds argued that Pennsylvania law, the law of the state where the accident occurred,
should govern UIM recovery; Nationwide argued that the law of Ohio applied. Csulik,
723 N.E.2d at 91 (plurality).
¶43 The court determined that the “due by law” language was ambiguous because it
was unclear “whether Nationwide must pay what is due by the law of the state where the
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accident occurred or due by Ohio law.” Csulik, 723 N.E.2d at 91 (plurality). Csulik’s
policy required an insured to sue for UIM coverage within the time limits provided by the
state in which the accident occurred, and the court reasoned that this language could lead
one to “logically conclude” that the laws of the accident state also determined the rights
of the insured under the policy. Csulik, 723 N.E.2d at 92 (plurality). Based on its
practice of strictly construing ambiguities “against the insurer and liberally in favor of the
insured[,]” the court declined to conduct a choice-of-law analysis and held that
Pennsylvania law, which more favored the insured, applied to the insurance contract.
Csulik, 723 N.E.2d at 92-93 (plurality).
¶44 Modroo asserts that the personal auto policy’s multiple choice-of-law provisions
result in an ambiguity. Under Csulik, Modroo argues that Montana law should apply to
determine Modroo’s rights because Montana law prohibits offsets and allows stacking of
coverage; thus, Montana law favors Modroo. We disagree.
¶45 The personal auto policy provides that Nationwide will pay compensatory
damages that “you or a relative are legally entitled to recover from the owner or driver”
of an underinsured motor vehicle “under the tort law of the state where the motor vehicle
accident occurred . . . .” This policy language unambiguously invokes Montana tort law.
The personal auto policy also provides that the “contract law of the State of Ohio governs
the interpretation of this contract.” This policy language unambiguously designates that
Ohio law governs the interpretation of the insurance contract. The presence of two
choice-of-law provisions, however, does not necessarily create an ambiguity. Contrary to
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Modroo’s assertion, Csulik does not hold that a policy is ambiguous because different
state’s laws apply to different provisions. In fact, the Ohio Supreme Court specifically
discussed Nationwide’s ability to designate different state’s laws to the policy provisions,
and the court implied that Nationwide could have “clarified the ‘due by law’ language”
by following this practice. Csulik, 723 N.E.2d at 92 (plurality). In short, the provisions
in the personal auto policy are not ambiguous because they are not “susceptible of more
than one interpretation . . . .” King, 519 N.E.2d at 1383. Thus, under the personal auto
policy, Montana tort law determines Modroo’s entitlement to compensatory damages,
and Ohio contract law governs the interpretation of the insurance contract.
¶46 The personal auto policy limits the amounts recoverable under UIM coverage to
$300,000 per person, and the policy contains anti-stacking language, which states that the
“per person policy limit shall be enforceable regardless of the number of . . . vehicles or
premiums shown in the Declarations or policy . . . .” At the time of the accident, Modroo
insured two vehicles under the personal auto policy with Nationwide. The personal auto
policy also provides that any amounts available under UIM coverage will be offset by
any amounts “available for payment by or on behalf of any liable parties . . . .”
¶47 The issue presented by Modroo does not concern the amount of damages from
Mamie’s accident; rather, it concerns the amount of coverage that Nationwide must
provide under the personal auto policy. The amount of coverage available under a UIM
provision is defined under principles of contract law, not tort law. State Farm v. Estate of
Braun, 243 Mont. 125, 128, 793 P.2d 253, 255 (1990). Whether Modroo may recover
18
under multiple UIM coverages thus presents a question of contract law, and Ohio law
applies to determine the amount of coverage that Modroo may recover under the personal
auto policy. Ohio law allows an insurance contract to “include terms and conditions that
preclude any and all stacking” of UIM coverages. Ohio Rev. Code Ann. § 3937.18(F).
Ohio law also states that UIM policy limits “shall be reduced by those amounts available
for payment under . . . insurance policies covering persons liable to the insured.” Ohio
Rev. Code Ann. § 3937.18(C). Based on these statutory provisions, we conclude that the
District Court did not misapply Ohio law when it denied the stacking of coverages and
allowed offsets under the personal auto policy.
B. Did the District Court err in allowing offsets and precluding stacking under the
personal auto policy, in violation of Montana public policy?
¶48 Modroo asserts that Montana courts refuse to enforce an insurance policy’s
language that violates Montana public policy, regardless of the state in which the policy
was issued. Modroo maintains that the personal auto policy violates Montana public
policy because it allows offsets and precludes stacking of coverages.
¶49 In Youngblood v. American States Ins. Co., we held that we will enforce an
unambiguous contract term unless the term violates Montana public policy or is against
good morals. 262 Mont. 391, 395, 866 P.2d 203, 205 (1993). In Youngblood, we refused
to enforce an insurance contract’s clear choice-of-law provision that allowed subrogation
of medical payments under Oregon law. 262 Mont. at 400, 866 P.2d at 208. We held
that subrogating medical payment benefits in Montana is void as against public policy,
19
and we concluded that, “[b]ecause such subrogation violates Montana’s public policy,
that term of the insurance contract” is unenforceable. Youngblood, 262 Mont. at 400, 866
P.2d at 208.
¶50 In Casarotto v. Lombardi, we recognized that, when faced with a choice-of-law
conflict in contract disputes, we follow the “most significant relationship” approach
contained in the Restatement (Second) of Conflict of Laws to determine the applicable
state law. 268 Mont. 369, 373-74, 886 P.2d 931, 934 (1994), rev’d on other grounds,
Doctor’s Assocs. Inc. v. Casarotto, 517 U.S. 681, 116 S. Ct. 1652 (1996). In Casarotto,
we expanded on the Youngblood rule, and we applied the Restatement (Second) of
Conflict of Laws § 187 and § 188 (1971) to determine the effectiveness of a choice-of-
law provision that potentially violated Montana public policy. 268 Mont. at 374-75, 886
P.2d at 934-35. We again applied the Restatement to determine the validity of a choice-
of-law provision that potentially violated Montana policy in Keystone, Inc. v. Triad
Systems Corp., 1998 MT 326, ¶¶ 10-14, 292 Mont. 229, ¶¶ 10-14, 971 P.2d 1240, ¶¶ 10-
14.
¶51 In Swanson v. Hartford Ins. Co. of Midwest, we refused to enforce an insurance
policy’s choice-of-law provision that designated Colorado law as governing the insurer’s
rights to subrogation. 2002 MT 81, ¶ 33, 309 Mont. 269, ¶ 33, 46 P.3d 584, ¶ 33. We
determined that application of Colorado law would allow the insurer to subrogate before
the insured had been “made whole.” We concluded that the provision violated Montana’s
“made whole” doctrine, and thus, was void as against Montana public policy. Swanson, ¶
20
32. For reasons unstated in the opinion, we applied the original Youngblood rule without
addressing the Restatement factors. Though Youngblood and Swanson both addressed
subrogation provisions, and Casarotto and Keystone, Inc. both addressed arbitration
provisions, we did not limit the respective holdings to those particular types of
provisions.
¶52 In this case, the District Court applied the Restatement (Second) of Conflict of
Laws and conducted a conflicts-of-law analysis to the personal auto policy. The District
Court determined that Montana did not have a materially greater interest in the case and
that Ohio law governed Modroo’s entitlement to UIM coverage. The District Court’s
approach approximated that set forth in Casarotto and Keystone, Inc. As discussed in ¶
39, Modroo has not appealed the District Court’s determination that Ohio law applied to
the personal auto policy. Relying on Swanson, however, Modroo contends that the
personal auto policy’s language violates Montana public policy, and thus is
unenforceable.
¶53 Montana does not recognize a public-policy exception to the “most significant
relationship” analysis because the purpose of the analysis is to resolve conflicts between
different states’ competing policies; thus, such an exception would be “redundant.”
Phillips v. General Motors Corp., 2000 MT 55, ¶ 75, 298 Mont. 438, ¶ 75, 995 P.2d
1002, ¶ 75. Nevertheless, though Modroo’s argument more appropriately would be
raised as a challenge to the District Court’s choice-of-law determination, we can see how
our analysis in Swanson could create confusion regarding the analysis we apply to
21
determine whether Montana public policy will invalidate a choice-of-law provision.
Thus, we will review whether application of the personal auto policy’s choice-of-law
provision is effective under Montana law. We reiterate that the Restatement (Second) of
Conflict of Laws governs whether to give effect to parties’ contractual choice-of-law
provisions. Keystone, Inc., ¶ 10.
¶54 Under the Restatement, we will apply the “law of the state chosen by the parties to
govern their contractual rights” unless
application of the law of the chosen state would be contrary to a
fundamental policy of a state which has a materially greater interest than
the chosen state in the determination of the particular issue and which,
under the rule of § 188, would be the state of the applicable law in the
absence of an effective choice of law by the parties.
Restatement (Second) of Conflict of Laws § 187(2)(b). Stated differently, we will not
apply the law of the state chosen by the parties if three factors are met: (1) if, but for the
choice-of-law provision, Montana law would apply under § 188 of the Restatement; (2) if
Montana has a materially greater interest in the particular issue than the state chosen by
the parties; and (3) if applying the state law chosen by the parties would contravene a
fundamental policy of Montana.
¶55 Section 188 of the Restatement governs situations in which the contracting parties
fail to select an effective choice of law:
(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 [Choice-of-Law Principles].
22
Section 6(1) of the Restatement provides that a court, “subject to constitutional
restrictions, will follow a statutory directive of its own state on choice of law.” Montana
law provides that a “contract is to be interpreted according to the law and usage of the
place where it is to be performed . . . .” Section 28-3-102, MCA.
¶56 In Mitchell v. State Farm Ins. Co., we considered a case similar to Modroo’s. In
that case, Mitchell was insured under his parents’ California insurance policies and
suffered injuries in Montana while a passenger in a vehicle. Mitchell sued his parents’
insurance company and claimed that he was entitled to UIM coverage for five vehicles
that his parents owned and insured in California. The District Court determined that
California law, rather than Montana law, applied and that Mitchell was not entitled to
UIM coverage. Mitchell, ¶ 11. In reversing the District Court, we determined that
Montana was an anticipated place of performance because the policy provided that
“coverages you choose apply (1) in the United States of America . . . .” Mitchell, ¶ 19.
We further reasoned that a contract’s place of performance is the place “where an insured
is entitled to receive benefits, has incurred accident related expenses, or is entitled to
judgment.” Mitchell, ¶ 20. We ultimately concluded that Montana was the place of
performance, and thus, under § 28-3-102, MCA, Montana law applied to determine
whether Mitchell was entitled to stack UIM coverage. Mitchell, ¶ 23. We determined
that Montana was the place of performance because
Mitchell was working and living in Montana at the time of the accident; the
underinsured tort-feasor’s vehicle was insured in Montana; Mitchell’s
medical expenses were incurred in Montana; Mitchell settled with the [car-
owner’s] insurers for the policy limit giving rise to the underinsured
23
motorist claim in Montana; and judgment concerning the accident will be
rendered and paid in Montana.
Mitchell, ¶ 22.
¶57 In this case, Modroo’s policy provided that Nationwide would pay damages that
“you or a relative are legally entitled to recover from the owner or driver of an uninsured
motor vehicle under the tort law of the state where the motor vehicle accident occurred . .
. .” Based on our reasoning in Mitchell, we conclude that Montana constitutes an
anticipated place of performance. Moreover, at the time of the accident, Mamie attended
the University of Montana in Missoula; she lived and worked in Montana; she paid taxes
in Montana; Mamie’s medical expenses were incurred in Montana; Modroo settled with
Lemaire’s insurer for the policy limit, which gave rise to the underinsured motorist claim
in Montana; and any judgment concerning the underlying accident will be rendered and
paid in Montana. Mitchell, ¶ 22. We conclude that, under Mitchell and § 28-3-102,
MCA, Montana constitutes the place of performance for the personal auto policy. Thus,
setting aside the parties’ contractual choice-of-law provision, Montana law would apply
under § 188 of the Restatement.
¶58 Under Montana law, the law of the place of performance governs a contract’s
interpretation unless the terms of the insurance contract provide otherwise. Mitchell, ¶
20. When insurance policies contain no choice-of-law provisions, we need not consider
whether Montana possesses a materially greater interest in the contract issue than another
state. Restatement (Second) of Conflict of Laws § 188. In Mitchell, the insurance policies
did not include a choice-of-law provision. Thus, once we determined that Montana
24
constituted the place of performance, we next considered whether Mitchell was entitled
to recover UIM damages under Montana law, without analyzing whether Montana had a
materially greater interest than California. Mitchell, ¶¶ 22-24; accord Wamsley v. Nodak
Mut. Ins. Co., 2008 MT 56, ¶¶ 42-44, 341 Mont. 467, ¶¶ 42-44, 178 P.3d 102, ¶¶ 42-44.
In this case, however, in light of the parties’ choice-of-law provision specifying that Ohio
law governs the interpretation of the personal auto policy, we must determine whether
Montana has a materially greater interest in the issue than Ohio. If we determine that
Montana has a materially greater interest, we then analyze whether applying Ohio law
would violate Montana public policy. Restatement (Second) of Conflict of Laws §§ 187-
188.
¶59 To determine whether Montana has a materially greater interest in an issue than
the parties’ chosen state, we have focused on the contacts enumerated in § 188(2) of the
Restatement: “(a) the place of contracting, (b) the place of negotiation of the contract, (c)
the place of performance, (d) the location of the subject matter of the contract, and (e) the
domicil, residence, nationality, place of incorporation and place of business of the
parties.” Keystone, Inc., ¶ 10. We evaluate these contacts according to the relative
importance they bear on the particular issue. Restatement (Second) of Conflict of Laws
§ 188(2).
¶60 Modroo purchased her personal auto policy in Ohio from the Skala Insurance
Agency, which sold Nationwide insurance. Ohio thus constitutes the place of
contracting. Further, Modroo is an Ohio resident and Nationwide is headquartered in
25
Ohio. The comments to the Restatement clarify that these contacts bear little significance
when considered separately, but gain importance based on their relationship to the
contract issue involved and the other contacts. Restatement (Second) of Conflict of Laws
§ 188 cmt. e. The location of the subject matter bears no significance to the present case
because the subject matter of the insurance contract does not constitute a specific
physical thing or a localized risk. Restatement (Second) of Conflict of Laws § 188 cmt. e.
¶61 The comments to the Restatement indicate that the place of the contract’s
negotiation and the place of performance bear greater significance to determine the
applicable law. Restatement (Second) of Conflict of Laws § 188 cmt. e. The Restatement
accords weight to the place of negotiation because such a state “has an obvious interest in
the conduct of the negotiations” and the subsequent agreement. Restatement (Second) of
Conflict of Laws § 188 cmt. e. If any negotiations occurred regarding Modroo’s personal
auto policy, they would have taken place in Ohio. Unlike most contracts, however, an
insurance policy’s terms are not the result of negotiation and bargaining by the parties;
insurance policies occupy the same status as “take-it-or-leave-it” adhesion contracts.
McAlear v. Saint Paul Insurance Companies, 158 Mont. 452, 458-59, 493 P.2d 331, 335
(1972). Thus, due to the parties’ unequal bargaining status, we accord this contact little
weight.
¶62 As discussed in ¶ 57, Montana constitutes the place of performance for Modroo’s
personal auto policy. The Restatement accords weight to the place of performance
because such a state “has an obvious interest in the nature of the performance and in the
26
party who is to perform.” Restatement (Second) of Conflict of Laws § 188 cmt. e. The
comments offer the caveat, however, that the place of performance bears little weight in
choice-of-law determinations when the place of performance is uncertain or unknown at
the time of contracting. Restatement (Second) of Conflict of Laws § 188 cmt. e. In the
present case, Montana constituted an anticipated place of performance because
Nationwide agreed to pay UIM damages “under the tort law of the state where the motor
vehicle accident occurred . . . .” Montana did not become the place of performance,
however, until Mamie’s accident occurred and the underlying claims arose. Thus, we
accord this contact little weight because Montana’s status as the place of performance
was uncertain or unknown at the time of contracting. Restatement (Second) of Conflict of
Laws § 188 cmt. e.
¶63 Analyzing the contacts from the Restatement (Second) of Conflict of Laws § 188,
we conclude that, although Montana has an interest in the particular issue based on its
status as the place of performance, Montana does not possess a materially greater interest
that would warrant applying Montana law over the parties’ express choice-of-law
provision selecting Ohio as the governing law for contract interpretation. In light of this
conclusion, we do not reach the question whether applying Ohio law would contravene a
fundamental public policy of Montana.
¶64 The dissent cautions that we “should be wary of a reflexive and rote application”
of the § 188(2) factors when analyzing the “materially greater interest” factor, and the
dissent suggests that we should abandon the Restatement analysis set forth in Casarotto
27
and Keystone, Inc. The dissent cites to a Ninth Circuit opinion for the proposition that
Montana courts conflate the Restatement analysis so that “whichever state has a
materially greater interest under § 188 is also the state whose law would apply absent an
effective choice of law provision.” Ticknor v. Choice Hotels Intl., Inc., 265 F.3d 931,
937 (9th Cir. 2001). Though both Keystone, Inc. and Casarotto lacked analysis regarding
which state’s law would apply absent the parties’ express choice, neither case set forth
the rule applied by the Ninth Circuit. On the contrary, both Keystone, Inc. and Casarotto
expressed the three-factor inquiry from the Restatement (Second) of Conflict of Laws
§ 187(2)(b) as the rule Montana courts apply to determine whether the parties’ chosen
state’s law will apply. Keystone, Inc., ¶ 10; Casarotto, 268 Mont. at 374-75, 886 P.2d at
934-35. As this case illustrates, we do not conflate the Restatement factors as suggested
in Ticknor.
¶65 After pointing out Montana’s apparent “anomaly” of conflating the Restatement
factors, the dissent then provides its own Restatement analysis and conflates the
“materially greater interest” factor with the “violates fundamental public policy” factor,
concluding that “Montana’s interest is materially greater than Ohio’s, because anti-
stacking provisions are against public policy here as a matter of constitutional principle.”
(Emphasis added.) The District Court applied § 188(2) of the Restatement and Keystone,
Inc. to determine that Montana did not have a materially greater interest. Neither party
has proposed that we overrule our precedent. With no briefing on this issue, we decline
28
to use this case to announce a change in our conflicts-of-law principles and to overrule
Keystone, Inc. and Casarotto.
¶66 Moreover, the dissent’s assumption that applying Ohio law would violate Montana
public policy is questionable. Anti-stacking provisions violate Montana public policy if
they allow an insurer to charge separate premiums for multiple UIM coverages but limit
the amount an insured may recover to the limits available under a single UIM coverage.
Hardy v. Progressive Specialty Ins. Co., 2003 MT 85, ¶¶ 40-42, 315 Mont. 107, ¶¶ 40-42,
67 P.3d 892, ¶¶ 40-42. Such provisions violate Montana public policy because they
contravene the insured’s reasonable expectation that he or she has purchased UIM
coverage. Hardy, ¶ 45. Consistent with this underlying principle, the number of
premiums paid determines the number of coverages an insured is entitled to stack.
Chaffee v. U.S. Fid. and Guar. Co., 181 Mont. 1, 7, 591 P.2d 1102, 1105 (1979) (citation
omitted). In this case, Modroo’s personal auto policy lists two vehicles in the
declarations. The declarations indicate that, although Nationwide charged separate
premiums for each vehicle’s liability coverage, Nationwide charged only a single
premium for UM/UIM coverage. Modroo received UIM benefits for a single vehicle.
Thus, i t is unlikely that the personal auto policy’s language defeated Modroo’s
reasonable expectations and thereby violated Montana public policy.
¶67 V Did the District Court err when it applied the forum non conveniens
doctrine to dismiss Modroo’s negligence claim in favor of Ohio proceedings?
29
¶68 Modroo and Hardy assert that the District Court erroneously applied the forum
non conveniens doctrine to dismiss Modroo’s negligence claim. Modroo and Hardy
argue that this Court repeatedly has declined to adopt the doctrine and that the doctrine is
inapplicable to the present case.
¶69 Nationwide responds that the District Court properly dismissed the negligence
claim under the forum non conveniens doctrine because the insurance contract is an Ohio
contract, the agents who sold the policy reside in Ohio, and most of the allegedly
negligent acts occurred in Ohio. Further, Nationwide asserts that, with the exception of
FELA cases, the forum non conveniens doctrine has never been rejected in Montana and
the doctrine properly was applied in this case.
¶70 We have stated that § 25-2-201, MCA, codifies the doctrine of forum non
conveniens to allow a court to change venue from one Montana county to another
Montana county. Rule v. Burlington Northern and Santa Fe, 2005 MT 6, ¶ 19, 325
Mont. 329, ¶ 19, 106 P.3d 533, ¶ 19; Haug v. Burlington Northern R. Co., 236 Mont.
368, 374-75, 770 P.2d 517, 521 (1989). We have not, however, construed § 25-2-201,
MCA, to authorize a district court to dismiss a case because it can be tried more
conveniently in another state. State v. Dist. of Eighth Jud. Dist. Ct., 270 Mont. 146, 154,
891 P.2d 493, 499 (1995). This case does not require that we resolve the extent of the
forum non conveniens doctrine in Montana. In light of our conclusions under Issues I
and III, we must reverse and remand this case to the District Court. Thus, a primary
rationale underlying the District Court’s application of the forum non conveniens
30
doctrine no longer exists: the negligence claim no longer constitutes “the only remaining
claim.” As the District Court continues to provide a convenient forum for the claims
presented in this case, we reverse the District Court’s ruling that dismissed Modroo’s
claims in favor of the Ohio proceedings.
CONCLUSION
¶71 We conclude that the District Court erred when it determined that the Farmowners
policy designated the Named Insured as a partnership. Construing ambiguities against
Nationwide, we conclude that the policy designates Mary Modroo and Hardy as
individuals and that Mamie Hardy qualifies as an “insured” based on her relationship as a
“family member” of Mary Modroo and Hardy. The District Court’s opposite conclusion
formed the basis for its rulings denying coverage under the UIM endorsement and the
medical payments endorsement. Thus, we reverse the District Court’s September 13,
2004 order granting summary judgment to Nationwide and denying summary judgment
to Modroo and Hardy regarding coverage under the Farmowners policy, and we reverse
the District Court’s April 4, 2006 order denying summary judgment to Modroo on
medical payments coverage. We further conclude that the District Court continues to
provide a convenient forum for the claims presented in this case, and we reverse the
District Court’s ruling dismissing Modroo’s claims under the forum non conveniens
doctrine.
¶72 We conclude that the District Court properly applied Ohio law to the personal auto
policy to allow offsets and preclude stacking. Based on our analysis of the Restatement
31
(Second) of Conflict of Laws §§ 187 and 188, we conclude that Montana does not possess
a materially greater interest that would warrant applying Montana law over the parties’
express choice of law. Thus, we do not reach whether enforcement of the personal auto
policy’s provisions would violate Montana public policy.
¶73 We reverse and remand for further proceedings.
/S/ W. WILLIAM LEAPHART
We concur:
/S/ KARLA M. GRAY
/S/ JOHN WARNER
/S/ BRIAN MORRIS
/S/ JIM RICE
Justice Patricia O. Cotter dissents.
¶74 I respectfully dissent from the Court’s holding under Issue 4B. I can accept the
Court’s decision to apply the conflict of laws analysis from § 187(2)(b) of the
Restatement to determine if Montana law should apply to the insurance policy in this
case. (Opinion, ¶ 54.) However, I disagree with the conclusion that Montana’s interest
in the dispute before use is not “materially greater” than Ohio’s.
¶75 The Court correctly notes that the Nationwide insurance contract states that Ohio
law will apply. Thus, under § 187(2)(b) of the Restatement, Ohio law will apply unless
the following three factors are met: (1) if, but for the choice-of-law provision in the
32
contract, Montana law would apply under § 188 of the Restatement; (2) if Montana has a
materially greater interest in the particular issue than the state chosen by the parties; and
(3) if applying the state law chosen by the parties would contravene a fundamental policy
of Montana. (Opinion, ¶ 54.) The Court easily concludes that factor (1) is satisfied in
favor of Montana, and I agree with its analysis.
¶76 Under factor (2), however, the Court concludes that Montana does not have a
“materially greater interest” in this dispute, and thus concludes that Ohio law will apply.
I disagree with this conclusion and the Court’s analysis. The Court follows Keystone,
Inc., and begins its analysis under factor (2) by noting that the determination of whether
Montana has a materially greater interest than Ohio will depend on an analysis on the
contacts described in § 188(2) of the Restatement. (Opinion, ¶ 59.) If an analysis under
these contacts shows that Montana has a materially greater interest than Ohio’s, then
Montana law would presumably apply to override the contractual provision choosing
Ohio law. These contacts include the following: (a) the place of contracting; (b) the
place of negotiation of the contract; (c) the place of performance; (d) the location of the
subject matter of the contract; and (e) the domicil, residence, nationality, place of
incorporation and place of business of the parties. In its analysis, the Court concludes
that all of the factors are either neutral or of little weight; thus, Montana’s interest is not
materially greater than Ohio’s.
¶77 While I understand the Court’s strict application of the § 188(2) factors to
determine whether Montana has a materially greater interest in this dispute has its genesis
33
in our decision Keystone, Inc., I think we should be wary of a reflexive and rote
application of those factors to determine which state has materially greater interest in the
dispute before us. In the first instance, I would bring to the Court’s attention that in
Keystone, Inc., we continued the practice of merging the “materially greater interest”
inquiry with a somewhat mechanical application of the § 188(2) factors without any
analysis or explanatory rationale—a practice which is inconsistent with the plain
language of the Restatement itself, which posits the “materially greater interest” inquiry
as separate and apart from the § 188(2) factors analysis. (See ¶ 54 of the Opinion for text
of § 187(2)(b)). In Ticknor v. Choice Hotels Intl, Inc., 265 F.3d 931 (9th Cir. 2001), the
Ninth Circuit noted this anomaly in our application of § 187(2)(b) of the Restatement
when it was called upon to apply Keystone, Inc. in analyzing a choice-of-law question
under Montana law. The Ninth Circuit noted: “Montana courts conflate the latter two
inquiries [under § 187(2)(b)] and find that whichever state has a materially greater
interest under § 188 is also the state whose law would apply absent an effective choice of
law provision.” Ticknor, 265 F.3d at 937. In my judgment, the fact that the Ninth Circuit
has recognized this anomaly in our application of § 187(2)(b) of the Restatement should
give us pause before we perpetuate this practice further.
¶78 I would further suggest that the Keystone, Inc. approach of merging these two
inquiries is out of step with the vast majority of jurisdictions which have analyzed the
“materially greater interest” question under § 187(2)(b). In Blalock v. Perfect
Subscription Co., 458 F. Supp. 123 (S.D. Ala. 1978), aff’d 599 F.2d 743 (5th Cir. 1979),
34
for instance, an Alabama federal district court applied § 187(2)(b) of the Restatement to
consider whether an express contractual provision to apply Pennsylvania law in an
employment agreement would be enforced in Alabama. In that case, the employment
agreement contained a covenant against competition which was permitted under
Pennsylvania law, but expressly forbidden by statute in Alabama. Blalock, 458 F. Supp.
at 126-27. The federal district court looked to § 187(2)(b) to resolve the question of
which state’s law should apply, and concluded that Alabama had a “materially greater
interest” in determining the issue than Pennsylvania, even in the face of an express
contractual provision to apply Pennsylvania law. Blalock, 458 F. Supp at 127; see also
Benchmark Med. Holdings, Inc. v. Rehab Solutions, LLC, 307 F. Supp. 2d 1249, 1260
(M.D. Ala. 2004).
¶79 In Barnes Group, Inc. v. C & C Prods., Inc., 716 F.2d 1023 (4th Cir. 1983), the
Fourth Circuit reached a similar conclusion under § 187(2)(b) in considering whether to
apply Ohio law to the interpretation of multi-state employment agreements which
expressly called for the application of Ohio law. In that case, an Ohio-based company
(Bowman, Inc.), which sold fungible parts used in the production and repair of vehicles
and machinery, contracted with salesmen in a variety of states, including Alabama,
Louisiana, Maryland, and South Carolina, to sell its products there. Barnes Group, Inc.,
716 F.2d at 1026-27. The contracts all had restrictive covenants, which were permitted
under Ohio law, forbidden in Alabama, but allowed under some circumstances in
Louisiana, Maryland, and South Carolina. Barnes Group, Inc., 716 F.2d at 1031-32.
35
Another company subsequently hired some of Bowman, Inc.’s salesmen, and Bowman,
Inc. sued the company in Ohio federal district court based on the restrictive covenants
contained in the agreements. Barnes Group, Inc., 716 F.2d at 1027. The Fourth Circuit
was called upon to decide which state’s law should apply to the dispute. The Fourth
Circuit applied § 187(2)(b) of the Restatement to resolve this question, noting that
A basic principle under contemporary choice-of-law doctrine is that
parties cannot by contract override public policy limitations on contractual
power applicable in a state with materially greater interests in the
transaction than the state whose law is contractually chosen. See
Restatement (Second) of Conflicts § 187(2)(b) (1971). While
contemporary doctrine recognizes a sphere of party autonomy within
which contractual choice-of-law provisions will be given effect, it also
limits the extent to which deft draftsmanship will be allowed to bypass
legislative judgments as to basic enforceability or validity. This is implicit
in the Restatement (Second) of Conflicts § 187(2)(b), which provides that a
contractual choice-of-law clause will not be given effect on matters such
as “capacity, formalities and substantial validity,” id. comment d, when
application of the law of the chosen state would be contrary to a
fundamental policy of a state which has a materially greater interest than
the chosen state in the determination of the particular issue and which . . .
would be the state of the applicable law in the absence of an effective
choice of law by the parties.
Barnes Group, Inc., 716 F.2d at 1029 (footnotes and other citations omitted).
¶80 In assessing the interests of the various states involved, the Fourth Circuit noted
that Maryland, Louisiana, South Carolina and Alabama all had “interests at two levels in
applying their own law on the enforceability of restrictive covenants: to protect
employee-residents from contractually abrogating their ability to earn a livelihood, and to
control the degree of free competition in the local economy.” Barnes Group, Inc., 716
F.2d at 1030. The Fourth Circuit concluded that the interests of these states “in
36
regulating business relationships with the states outweigh any generalized interest Ohio
might have in applying its own law to protect the interstate contracts of its
domiciliary . . . .” Barnes Group, Inc., 716 F.2d at 1030.
¶81 Another case I find instructive in this regard is DeSantis v. Wackenhut Corp., 793
S.W.2d 670 (Tex. 1990). There, the Texas Supreme Court considered whether to apply
Texas or Florida law to enforce a covenant not to compete between Wackenhut
Corporation (an entity which provides security services throughout the United States) and
its former employee, Edward DeSantis; Florida law permitted the enforcement of such
covenants, while Texas law did not. In that case, DeSantis resigned from Wackenhut
after working there for three years, and then formed a rival company called Risk
Deterrence, Inc. (RDI). DeSantis, 793 S.W.2d at 675. Wackenhut subsequently sued
DeSantis under the restrictive covenant, and DeSantis sought to have Texas law govern
the interpretation of the contract, in spite of the express provision to apply Florida law.
DeSantis, 793 S.W.2d at 676-77. The Texas Supreme Court applied § 187(2)(b) of the
Restatement test and concluded that Texas’ interest in the matter was materially greater
than Florida’s. In reaching this conclusion, the Texas Supreme Court reasoned as
follows:
Texas has a materially greater interest than does Florida in determining
whether the noncompetition agreement in this case is enforceable. At
stake here is whether a Texas resident can leave one Texas job to start a
competing Texas business. Thus, Texas is directly interested in DeSantis
as an employee in this state, in Wackenhut as a national employer doing
business in this state, in RDI as a new competitive business being formed
in the state, and in consumers of the services furnished in Texas by
Wackenhut and RDI and performed by DeSantis. Texas also shares with
37
Florida a general interest in protecting the justifiable expectations of
entities doing business in several states. Florida’s direct interest in the
enforcement of the noncompetition agreement in this case is limited to
protecting a national business headquartered in that state. Although it is
always problematic for one state to balance its own interests fairly against
those of another state, the circumstances of this case leave little doubt, if
any, that Texas has a materially greater interest than Florida in deciding
whether the noncompetition agreement in this case should be enforced.
DeSantis, 793 S.W.2d at 679; see also O’Brien v. Shearson Hayden Stone, Inc., 586 P.2d
830, 833-34 (Wash. 1978); Stickney v. Smith, 693 F.2d 563, 565 (5th Cir. 1982).
¶82 The comments to the Restatement, upon which the Court has placed some weight
(Opinion, ¶¶ 60-62), do not commend the approach employed by the Court in this case,
but instead exhort reviewing courts to look primarily to their own legal principles when
determining whether one state has a materially greater interest than another. “The forum
will apply its own legal principles in determining whether a given policy is a fundamental
one within the meaning of the present rule and whether the other state has a materially
greater interest than the state of the chosen law in the determination of the particular
issue.” Restatement (Second) of Conflict of Laws § 187 cmt. g (emphasis added). Thus,
there is no reason to assume, as the Court does, that a mechanical application of the §
188(2) factors is contemplated by the Restatement itself, given that the choice-of-law
rules contained in the Restatement “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.” Restatement (Second) of Conflict of Laws § 2 cmt.
a(3). While the prime objective of the § 188(2) factors analysis is to ensure that the
justified expectations of the contracting parties are protected, the Restatement comments
38
also clearly contemplate that the various interests of the forum states are always to be
balanced against these justified expectations.
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 law 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.
Restatement (Second) of Conflict of Laws § 188 cmt. b (emphasis added).
¶83 In her dissent in Ohayon v. Safeco Ins. Co. of Ill., 747 N.E.2d 206 (Ohio 2001),
Justice Resnick of the Ohio Supreme Court referred to some of these sections from the
Restatement in making the argument that a rote application of the § 188(2) factors makes
little sense in the context of UIM coverage issues. Justice Resnick concluded that an
application of the Restatement’s choice-of-law principles in the context of UIM coverage
issues should lead reviewing courts to consider “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.” Ohayon, 747 N.E.2d at 226 (Resnick, J., dissenting). I believe this is
the approach that the comments to the Restatement actually commend, and the one that
should be followed in this case.
¶84 I would also argue that the Court’s analysis with respect to the “place of
performance” under the § 188(2) factors, is not necessarily supported by the comments
39
themselves. The Court begins its analysis under this factor by correctly concluding that
Montana is, in fact, the place of performance of Nationwide’s insurance contract.
(Opinion, ¶ 62.) This conclusion is consistent with our holding in Mitchell. The Court
then observes that this contact would normally be accorded significance because “such a
state ‘has an obvious interest in the nature of the performance and in the party who is to
perform.’ ” (Opinion, ¶ 62 (quoting Restatement (Second) of Conflict of Laws § 188 cmt.
e). The Court then cautions as follows: “[t]he comments [to the Restatement] offer the
caveat, however, that the place of performance bears little weight in choice-of-law
determinations when the place of performance is uncertain or unknown at the time of
contracting.” (Opinion, ¶ 62, citing Restatement (Second) of Conflict of Laws § 188 cmt.
e). Accordingly, the Court concludes that this factor is accorded little weight because
“Montana’s status as the place of performance was uncertain or unknown at the time of
contracting.” (Opinion, ¶ 62.) This leads the Court to then conclude that Montana’s
interest in this dispute is not materially greater than Ohio’s, and that Ohio law will apply.
¶85 I have two problems with Court’s analysis of this specific issue. First, based on
my reading of the comments, and not just one small snippet of them, I do not believe that
comments in the Restatement, without any other case citations, should constitute the be-
all and end-all of our analysis and discussion. The comments can certainly provide
courts with invaluable guidance when they are confronted with difficult questions for
which no clear precedent exists. However, the comments are not authoritative; instead of
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being the end of a discussion, they should be the beginning of one. More importantly, it
is my view that the comments encourage such a discussion.
¶86 With that said, I would also submit that the Court’s characterization of comment e
in ¶ 62 of the Opinion is not entirely accurate. The portion of the comments referred to
by the Court reads in full as follows:
On the other hand, the place of performance can bear little weight in
the choice of the applicable law when (1) at the time of contracting it is
either uncertain or unknown, or when (2) performance by a party is to be
divided more or less equally among two or more states with different local
law rules on the particular issue.
Restatement (Second) of Conflict of Laws § 188 cmt. e (emphasis added).
¶87 I believe use of the word “can,” as opposed to “will” or “must” in the comment is
significant. The word “can” simply connotes that prospect that the place of performance
could be afforded little weight in certain circumstances, but not that it necessarily will.
The language of the comment leaves open the question as to whether the place of
performance should be accorded weight, but does not definitively and authoritatively
provide an answer.
¶88 Accordingly, I believe that when we undertake an analysis of the “materially
greater interest” inquiry in a manner consistent with the comments, we will conclude that
while the place of performance factor can bear little weight, in this case i t bears
significant weight when considered in light of our “own legal principles” as the
comments to the Restatement commend. In Montana, UIM coverage is considered to be
portable and personal, and by definition “stackable”; thus under the legal principles set
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forth in the Montana Constitution, prohibitions on stacking violate Montana public
policy. Hardy v. Progressive Specialty Ins. Co., 2003 MT 85, ¶ 45, 315 Mont. 107, ¶ 45,
67 P.3d 892, ¶ 45. The primary reason for this is because anti-stacking provisions violate
the insured’s reasonable consumer expectations that she has actually purchased UIM
coverage which she can use. At the time of the accident, Mamie was a named insured,
attending the University of Montana, and protected under the laws of this state and the
Montana Constitution. Assuming that she was lawfully covered by the UIM policy,
Montana’s interest in protecting her reasonable consumer expectations if she was
required to invoke UIM coverage in Montana was significant.
¶89 On the other hand, Ohio’s interest in this matter is limited to the general need to
protect the justified expectations of Nationwide. Ohayon, 747 N.E.2d at 212. The
Restatement comments clearly recognize that this interest can yield. Thus, the question
of whether Montana or Ohio has a “materially greater interest” in this dispute should be
considered in the context of UIM coverage and in light of the policy questions invoked
when states like Montana seek to prohibit the enforcement of anti-stacking provisions in
UIM insurance contracts which are to be performed within its borders. This inquiry
invariably requires a balancing of the interests embodied in the forum state’s policy, and
the interests in protecting the justified expectations of the parties. As the comments to
the Restatement state, “[f]ulfillment of the parties’ expectations is not the only value in
contract law; regard must also be had for state interests and for state regulation. The
chosen law should not be applied without regard for the interests of the state which
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would be the state of the applicable law with respect to the particular issue involved in
the absence of an effective choice by the parties.” Restatement (Second) of Conflict of
Laws § 187 cmt. g (emphasis added). In this regard, I believe Justice Resnick correctly
summarized some of these interests as follows:
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 . . . .
Ohayon, 747 N.E.2d at 223 (Resnick, J., dissenting).
¶90 Here, it must be borne in mind that the UIM coverage provision designated place
of performance as anywhere within the area of coverage. The UIM coverage before us is
considered portable under Montana law. Moreover, as the Court notes at ¶ 62,
Nationwide even agreed that it would pay UIM damages according to “the tort law of the
state where the motor vehicle accident occurred . . . .” In short, while Nationwide may
not have expected the insurance contract to be interpreted according to Montana law, I
would argue that at a minimum its justified expectations in this regard were not very
strong. On the other hand, Mamie was living and working in Montana, paying taxes in
Montana, and protected under the laws and Constitution of this state. I believe that under
these circumstances Mamie deserved the protection of the laws of this State and that,
consequently, Montana’s interest is materially greater than Ohio’s, because anti-stacking
provisions are against public policy here as a matter of constitutional principle.
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Assuming that the policy permitted Mamie to reside in Montana and still retain coverage,
then Nationwide, with its national base of customers, should not automatically expect that
its self-interest should trump Montana’s important public policy.
¶91 Thus, I would hold that Montana has a materially greater interest than Ohio, and
proceed with further analysis of Modroo’s claims under Montana law. In my view, the
mechanical application of the § 188(2) factors to determine whether one state has a
“materially greater interest” overlooks the forest for the trees and is fundamentally at
odds with the approach commended by the Restatement. While there will undoubtedly be
areas where the laws and public policies of two states will not differ—and thus their
material interests will be identical—that is not the case with respect to the issue before
the Court now. By focusing only on the factors as if they were a part of a rote checklist,
and not considering the policy concerns and questions which the factors are designed to
explore, we misconstrue the meaning of the “materially greater interest” inquiry and
arrive at a situation where Montana’s interest can be trumped by foreign insurers at the
stroke of a pen. I do not believe that such an approach is consistent with the Restatement
and “our own legal principles.” Therefore, I dissent.
/S/ PATRICIA COTTER
Justice James C. Nelson joins in the Dissent of Justice Patricia O. Cotter.
/S/ JAMES C. NELSON
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