MARCH 2017 BAD FAITH CASES: IN INSURANCE CHOICE OF LAW ANALYSIS, LOCATION OF INSURED IS MOST IMPORTANT FACTOR (Western District)
This insurance bad faith case involved: (1) a physical loss in West Virginia; (2) an Illinois insurer; (3) an insured with its principal place of business in Pennsylvania and place of incorporation in Delaware; and (4) an insurance policy with a New Jersey choice of law provision. The issue before the Court was which state’s bad faith law to apply. The insured had pleaded statutory and common law bad faith under West Virginia law, as well as a New Jersey bad faith claim. The West Virginia law conflicted with Pennsylvania bad faith law.
In conducting its choice of law analysis, the Court looked to the Third Circuit’s decision in Hammersmith v. TIG Ins. Co., 480 F.3d 220 (3d Cir. 2007), on how to apply Pennsylvania choice of law principles in the insurance context. Pennsylvania law has a flexible approach combining the Restatement (Second) of Conflicts of Laws, and a government interest analysis. Courts look at factors in Restatement sections 188 and 193 (which focuses on the location of the risk). However, this court concluded that the law has evolved to the point where the dominant factor in determining which state’s law applies in insurance actions is the insured’s location. This is because the public policy goal is to protect the insured’s interests.
Applying these principles, the Court rejected application of West Virginia and New Jersey law, and gave the insured’s leave to amend their complaint to plead bad faith claims under Pennsylvania law.
Dates of Decision: January 26, 2017 (Report and Recommendation), February 27, 2017 (adopted by District Court).
