Conflict of laws analysis in group life, health & disability insurance contract cases

Shuman, Gary

1.

INTRODUCTION

When legal transactions cut across state lines, questions often arise regarding which state's substantive laws apply to these transactions. Consequently, when litigation results, it often becomes necessary for the court with jurisdiction to determine which rule of law applies to the case. In other words, the court confronts the independent issue of conflict of laws.1

The application of conflict issues can be a difficult process.2 Not only do jurisdictions differ in their approach, but even within some jurisdictions there is a split regarding which conflict principle to use, or how it should be interpreted.3 However, this decision is crucial because the choice itself may well determine the outcome of the case.

Conflict of laws is especially significant with respect to group life and health insurance because insurance companies, and the policies they sell, are regulated by the various states. Furthermore, no single, uniform body of laws applies throughout the country.4 Therefore, substantial differences can exist regarding the principles that control the construction of these insurance contracts.5 Group insurance, unlike individual insurance, covers multiple lives and typically involves several jurisdictions. Thus, it is not surprising that more difficulty can arise when construing a group contract than other forms of personal insurance. Faced with this complexity, how do the courts (whether state or federal) determine if the coverage in question is a group policy? And given such determination, which state's substantive law applies when group coverage issues are litigated? Responding to these issues is the thrust of this article.

II.

GROUP INSURANCE COVERAGE

A. Introduction

The typical group policy is made available through an employer as an employee benefit. Usually, it consists of either life insurance alone or life insurance in combination with accident, disability and health benefits or a pension/ retirement provision.6 The policyholder, most often an employer or group of employers, applies for and receives the policy covering the employees. Accordingly, the contract exists between the policyholder and the insurer for the benefit of the insureds and their beneficiaries.7 Group insurance may then be defined as the coverage of a number of individual persons by one comprehensive policy. The persons insured may vary from time to time as the composition of the group is altered, but the fundamental feature of the "group entity" never varies.8

The employer provides a buffer between the insurer and the employees. The employer negotiates terms for the group, so as to lessen any arbitrary provisions in the master policy; provides information concerning coverage to its employees, and resolves any disputes with the insurer. In addition, the employer is responsible to notify the insurer about which persons are covered at any given time, and also sees to the payment of premiums, whether upon a contributory or noncontributory basis.9

The employees ordinarily apply for coverage by individual applications or enrollment cards. "Seldom is a medical examination required in employer group insurance."10 By accepting employed individuals, the insurance company automatically eliminates those who are unfit or incapable of working, and secures at least an average cross-section of the general population.11

B. Master Policy/Certificates of Coverage

The participants in the group, who are usually employees, receive certificates of insurance.12 An important distinction should be made between the group policy or "master policy" itself and the certificate of insurance issued to each group member under the policy. These certificates are not policies; they are only evidence (or certification) of coverage under a master insurance policy held by the employer.13 The certificates issued to the insureds are not intended to be part of the contract. They serve only to outline or summarize the group policy. 14

In general, the law of the state applicable to the master policy governs disputes between the insurer and the master policyholder.15 The primary contract is evidenced by the master policy issued to the employer.16 More troubling is which state's law applies as between the master policy and the individual insureds. The general rule is that contractual rights are determined under the law of the state where the group policy was issued and delivered (usually that of the main office of the master policyholder), and not the state where the certificate was delivered.17

The leading case concerning these two choice-of-law issues is Boseman v. Connecticut General Life Insurance Co.18 This case established the principle that the law of the state where the group policy was issued controls the rights between the employer and the insurer, and between the insurer and the individual insureds.19 This rule demonstrates that the contract is the group policy, not the certificate.20

The facts surrounding Boseman were fairly clear. Boseman was insured under a group life and disability master policy held by his employer, Gulf Oil Corporation. The policy contained a requirement that the insured provide written notice of disability to the insurer during the insured's employment or within sixty days after employment ceased, as a condition to receiving permanent total disability benefits. This requirement was valid under Pennsylvania law but void under Texas law. Since Boseman did not provide the required notice, he could recover benefits only if Texas law were applied.

Gulf Oil had made a written policy application, delivered to the insurer in Pennsylvania, requesting that the policy be issued in Pennsylvania and that it be governed by that state's law. That application was processed. The insurer then issued and delivered to Gulf the certificate of insurance for Boseman, which was delivered to Boseman in Texas, where he was employed.

The United States Supreme Court had little difficulty finding that Pennsylvania law would control as between the employer and the insurer, since it was plain that the parties shared the intent to use Pennsylvania law, and that the policy declared that Pennsylvania law would control.21 However, in the dispute between the insurer and the insured employee, it was necessary to determine what law would govern as between these two parties. The Court concluded that Pennsylvania law must govern, rejecting Boseman's contention that the law of the state in which the certificate was delivered should control.

Specifically, the Court found that the certificate did not form a part of the insurance contract. The certificate constituted only evidence of Boseman's insurance under the group policy, which would exist unchanged even without delivery of the certificate to him. Accordingly, the delivery of the certificate had no impact on the question of which law should govern. The Court treated the entire question as dependent upon the insurance contract between the employer and the insurer. The policy was sought by the employer to enable the employer to make insurance available to its employees, but employees did not participate in the policy negotiation.

Similarly, in Miller v. Home Insurance Co.,22 a master group accident insurance policy was delivered to Miller's employer in Missouri, where the employer was headquartered. The policy stated that any provision "in conflict with the statutes of the state in which this Policy is delivered is hereby amended to conform to the minimum requirements of such statutes."23 Miller, a resident of Alabama, was mailed his certificate of insurance in Alabama. The certificate clearly provided that it was not a contract of insurance.

Miller died by suicide and a jury found that he was sane at the time. The policy covered loss from accidental bodily injury, but Alabama law excluded suicides whether the insured was sane or insane. In Missouri, coverage for suicide was excluded only if the insured was sane. A Missouri statute covering policies issued to citizens of Missouri precluded the defense of suicide unless the insured contemplated suicide at the time application was made for the policy.24

Miller's widow sued for the policy benefits. The insurer argued that the law of Alabama should apply, excluding suicides as noted above. However, the court found that Missouri law applied under a "majority rule" specifying that the law of the state where the master policy was delivered controls. 21 It noted that the application of Missouri law was consistent with the reasonable expectations of the contracting parties since the policy itself referenced the state where the policy was delivered.26 The widow, however, recovered no proceeds because suicide while sane was not an accident under Missouri law. Therefore, although the act of suicide could not preclude otherwise valid coverage, the actor's mental state at the time could fall outside the accidental coverage.

Finally, in Pound v. Insurance Co. of North America '27 the widowed beneficiary sued to recover death benefits after her husband, an IBM employee, died of a heart attack while changing a flat tire. The husband was insured under a group accident insurance policy issued to IBM. The master policy was delivered to IBM in New York, and the husband's certificate of insurance was delivered to him in New Mexico, where he worked, lived and died. The policy covered loss from accidental bodily injury but not from sickness or disease. Under New York law, the death was not covered because death from a heart attack, under existing circumstances, would be considered a sickness or disease rather than an accident.

The federal court applied the New Mexico conflicts rule to resolve the dispute. New Mexico law provided that when interpreting a contract, the court should examine the law of the place where the contract was consummated, i.e., the place where the last act necessary for contract formation was accomplished. Applying this rule to the master policy, the court determined that the last such act was the issuance of the master policy to IBM in New York.

The court then addressed the beneficiary's contention that the rule should be applied not to the formation of the master policy but to a contract between the insured husband and the insurer, which was consummated by delivery of the insurance certificate to the insured in New Mexico. It determined that there was no such "second" contract of insurance.28 To the contrary, the court read the master policy to indicate that the certificate of insurance was unnecessary to effect insurance coverage; it was issued only when required by state law.

All of these courts acknowledged the primary purpose of the particular conflict resolution: applying the law of the state where the master policy was issued, rather than the law of the state where the individual certificates were delivered, ensured that the contract was uniformly applied in every jurisdiction. Thus, the policy provided uniform protection and avoided the inequities and confusion that might result from applications of diverse state laws.29

The question whether the certificate is part of the contract becomes significant when there is a discrepancy between the certificate and the group policy. This might occur when the certificate omits any reference to some provision of the policy or differs in some material respect from the master policy. It might occur as well when the more detailed provisions of the contract are material. In these situations, some courts have responded that the law applicable to the certificate of insurance (and not that applicable to the master policy) governs matters between the insurer and the insured certificate holder.30 Because of the variance between the master policy and the certificate, the certificate is not merely evidence of the existence of the terms and provisions of the master policy. Instead, the certificate itself creates rights or liabilities and is governed by its own set of laws.31 Thus, it is necessary to identify the law applicable to the certificate of insurance. More likely than not, these situations are controlled by the law of the place where the certificate was delivered to the insured certificate holder.

This principle is illustrated in Thieme v. Union Labor Life Insurance Co.32 In that case, a master group life insurance policy was executed by the insurer at its office in the District of Columbia and delivered to the International Photo Engravers' Union in Missouri. The policy insured the life of every member of the Union in good standing at the time of death. Thieme became a member in good standing of his local union in Illinois, as well as a member of the International Union. In 1953, the insurer issued to Thieme a certificate of insurance that was delivered to him in Illinois. However, Thieme was often delinquent in paying his membership dues, and his membership was suspended for delinquent payments on July 6, 1954. He died on July 15, 1954. Under Illinois law, Thieme would have been covered at the time of his death because the Illinois Insurance Act, if applicable, provided for contract coverage until at least thirtyone days after termination of membership.33

The court thus found it necessary to determine whether the laws of Missouri, Illinois, or the District of Columbia governed. It decided that Illinois law applied. The certificate formed a part of the contract of insurance (rather than merely providing information regarding the existence and terms of the contract formed by the master policy) because the certificate varied in substance from the terms of the master policy. Specifically, the amount of insurance set forth in the master policy differed as between $ 1,000.00 and $1,500.00 in the certificate; the effective date of the master policy differed from that contained in the certificate, and the insurer failed to issue a certificate setting forth the protection to which the insured was entitled, as prescribed by the master policy. On that basis, and upon the application of Illinois law, the court found that coverage continued for thirty-one days after membership termination. Although the statute was amended after the master policy had issued, its terms were applicable because the master policy was renewed annually, with each renewal incorporating the statutory provisions earlier enacted.

III.

GROUP INSURANCE "LOOK-A-LiKEs"

There are three types of insurance that often are considered to be group coverage although in reality, they are not. The courts have held that these products are actually individual policies that should not be governed by principles of group insurance law.

A. Credit Insurance

Credit insurance products are a specialized subset of ordinary life and disability coverages. Credit life insurance is simply term life insurance that pays off the loan obligation if the insured borrower or co-borrower dies.34 Credit disability insurance provides the same type of benefits as ordinary disability income policies. However, it provides a monthly benefit equal to the loan's monthly payment if the primary borrower becomes disabled.35

Most credit insurance is sold under group policies.36 The contractual relationship is generally between the insurance company and the lender. The lender is issued a group policy in which the group is defined as those consumers obtaining loans from the lender. When a borrower is insured, he or she is enrolled in the group and receives a certificate of insurance.37 Most courts find that this type of coverage shares many characteristics of its ordinary insurance counterparts, and treat policies as individual.38

B. Franchise Insurance

Franchise insurance arises when the governing entity of an association grants a franchise to an insurer to solicit association members by accepting the insurer's master policy and placing a qualified stamp of approval upon the insurance plan.39 The insurer deals directly with its policyholders, and applications are considered individually based on each applicant's insurability.40 Each insured holds independent rights against the insurer which are enforced as if there were no other contracts existing between the insurer and the organization or its other members.41 Thus, franchise insurance is not group insurance. It is treated like individual insurance, and bears the same legal consequences as any individually written policy. The law of the jurisdiction where the insured resides will usually control.42

C. Fraternal Benefit Associations

Benefit certificates issued by Fraternal Benefit Associations and Societies to their members are specifically categorized by statute. Fraternal organizations are not similar to insurance companies. They do not operate for profit; instead, they transact their affairs for the mutual benefit of their members and their beneficiaries.43 They may provide for the payment of benefits by assessing their members and issuing certificates of membership, or benefit certificates, including an assurance of payment of such benefits.44 Thus, the members are both insurers and insureds.

For conflicts purposes, these certificates have long been viewed as different from those issued by stock or mutual insurance companies. The rights of fraternal members, including any rights under the certificate, are determined by the law of the jurisdiction under which the association or society is organized or incorporated.45 The rights of the members are not fixed by the certificate alone, but also incorporate the organization's constitution and by-laws.46 This same rule applies when deciding insurance disputes involving benefits. If, however, the society has entered into a master insurance policy contract with a separate insurer to cover the insurance contemplated by its membership certificates, and certificates of insurance are actually issued to the members under this policy, the rule may not apply.47

IV.

CHOICE OF LAW RULES

A. Place of Contracting

Either explicitly or implicitly, the choice-of-law principles earlier described have followed the lex loci contractus rule. This is the traditional approach that requires a court to resolve conflict issues by applying the law of the "place of contracting."48 Many courts originally adhered to the doctrine that the place of making the contract determines what law shall govern the validity, effect, and construction of the insurance policy.49

However, the lex ioci contractus rule has suffered challenge for its rigidity and inflexibility. Opponents argue that it sacrifices reason for predictability and simplicity."50 Some jurisdictions therefore have begun to recede from this mechanical approach in determining choice of law questions regarding group life and health insurance policies. Instead of allowing the place of issuance or delivery of a policy or a certificate to prevail, they examine the totality of the particular circumstances to determine which state's law would best be applied to the issue at hand.

These approaches are multi-factored and are referred to analogously as center of gravity, grouping of contacts, or most significant relationship tests. They examine such factors as the quality and quantity of each state's contacts with the transaction, or the extent of each state's interest in the issue or the parties. These rules are examined below.

B. Center of Gravity/Grouping of Contacts

Recently, courts have rapidly accepted and recognized that the specific forum has a significant interest in applying its own law, particularly as concerns its own residents.51 Courts describe this approach as more sophisticated, modem, and less rigid than the "place of contracting" rule.52Therefore, if significant events have occurred in the state, using this approach can ignore earlier doctrines.53 This approach also gives controlling effect to the law of the jurisdiction which has the greatest concern with the specific issue raised in the litigation.54

As described, this approach has been termed "grouping of contacts," "center of gravity," or by some other phrase indicating that many factors will be considered. If these factors collectively generate significantly more contact with the forum state than with another jurisdiction, the forum state will apply its own law.55 If, however, the contractual contacts with another state establish a more significant relationship between the contract and the other state, the local law of the other state will govern.56

This rule is illustrated by the determination in Krauss v. Manhattan Life Insurance Co. of New York.57 The employee Krauss died while covered by a group life insurance policy, and the beneficiary (his widow) filed suit in New York federal court to recover benefits. The master policy had been issued and delivered to a trust fund with its principal place of business in New York. The policy provided coverage to the trust members' employees, and the fund had members in virtually every state. Krauss was a part-time officer of member Lettercraft, Inc., an Illinois corporation based in Illinois. Krauss and his beneficiaries also were Illinois domiciliaries. The insurer was a New York corporation licensed to do business in every state, with its principal offices in New York.

Lettercraft paid the premiums for $ 100,000 of coverage. According to the master policy, however, Krauss was eligible only for $25,000 or $40,000 of coverage, because he was a part-time employee, The master policy contained an incontestability clause, providing that the validity of coverage thereunder was incontestable after two years from issue. That period of time had expired before Krauss died. Under Illinois law the clause would not preclude the insurer's challenge to Krauss' eligibility, but such a challenge would be precluded under New York law .58 Using a three-step process, the Court of Appeals for the Second Circuit held that Illinois law must be applied. First, the court isolated which of the laws were in conflict. Second, the court identified the purposes of the conflicting state laws to determine whether a genuine conflict actually existed. Third, the court examined the contacts of the interested jurisdictions to ascertain which had a closer connection to the facts of the case and thus had the superior interest in seeing its law applied.

The court ultimately found that allowing the defense was not intended to protect Illinois insurance companies (in which event Illinois would have no interest in the application of its law because no Illinois insurer was involved). Instead, the defense was intended to protect Illinois residents holding group insurance certificates against a rate increase that would occur if insurance companies had to investigate each insured's eligibility before the two-year period expired. Therefore, Illinois' interest would be advanced by applying its law.

The court next evaluated the grouping of contacts between the competing states to determine which state occupied the center of gravity. The only New York contacts were the issuance and delivery of the master policy. In contrast, Lettercraft was an Illinois-based corporation, and all of its employees (including Krauss) worked in Illinois. Both Krauss and his beneficiary were Illinois domiciliaries, and Krauss' certificate of insurance was delivered in Illinois. Further, the insurer was licensed to do business in Illinois. The court thus found that Illinois' jurisdictional contacts were superior to those of New York.

The court finally addressed the beneficiary's contention that New York law should apply because claims against the insurer are usually governed by the law that governs the master policy. Since the master policy was delivered in New York, the traditional rule would dictate application of New York law. Despite the increased uniformity resulting from application of this rule, as compared to the interest analysis and center-of-gravity approach, the court was constrained by policy to follow New York's existing choice of law rationale:

Uniformity and predictability were undeniably compromised when the classical territorial approach to choice-of-law problems was abandoned .... The compromise was performed, however, to obtain a less rigid, more rational system... it is not our role to question the policy choices of states whose law we apply. Moreover, this outcome retains substantial uniformity regarding Lettercraft, all of whose employees are in Illinois."

The Kentucky court likewise applied a grouping of contacts theory in Breeding v. Massachusetts Indemnity & Life Insurance Co.,60 which involved a "blanket" health insurance policy. The court there followed the multiple-factors approach. The master policy was delivered to Budget Rent-a-Car, judicially described as a "national corporation," in Delaware.61 Breeding purchased insurance from Huber's Inc., a franchise of Budget, when he rented an automobile from Huber's in Kentucky. The rental agreement form provided the option of purchasing accidental death insurance, and Breeding elected to do so by marking the appropriate box in the agreement. The master policy had provided that the insurance would not cover loss caused directly or indirectly by intoxicants or narcotics, but Breeding was unaware of this provision. No copy of the policy and no certificate setting forth the terms of the insurance were furnished to him.

The next day, Breeding died from accidental drowning while intoxicated. At the time, he was still in possession of the rented automobile. Under Delaware law, Breeding's beneficiary would be entitled to no recovery despite the fact that Breeding had not been furnished with information regarding terms of the insurance.62 Under Kentucky law, however, recovery would lie because of the absolute duty to provide an insurance certificate.63 Applying the grouping of contacts doctrine, the court resolved the issue under Kentucky substantive law. It observed that Kentucky's greater interest was "patently obvious." Kentucky had the most significant relationship to the transaction and the parties since the insurance was purchased in Kentucky by a Kentucky resident from a Kentucky corporation, the claim was initiated by a Kentucky resident, and the claim arose from an accidental death in Kentucky.64 Delaware, on the other hand, had no significant relationship to either the transaction or the parties. The court noted:

The [insurer] merely delivered the master insurance policy to the Delaware corporation office of Budget Rent-A-Car of America, a nationwide corporation having franchises among the fifty states. This one act of delivery, the only contact involving Delaware, does not establish a significant relationship, but merely one that is tenuous at best.65

C. Most Significant Relationship Test

This modem approach to resolving conflict issues involves determining which state has the most significant relationship to the matter. In this regard, relevant contacts include:

(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 domicile, residence, nationality, place of incorporation and place of business of the parties. These contacts are to be evaluated according to their relative importance with respect to the particular issue.66

This method permits the court to accommodate the variety and complexity of modem disputes by examining the diverse interests and expectations of the parties involved. If only one state is interested in the application of its law because it is the only state whose policy would be furthered, then that state has the "most significant relationship."67 The significant relationship test does not follow a rigid rule; it weighs certain factors differently upon each analysis.

In Man.- v. Continental American Life Insurance Co., 68 the plaintiff was insured under a group health insurance policy held by an Illinois trustee. The policy covered the employees of a Washington business and their dependents. The insurer had denied a claim, reasoning that the enrollment card submitted by the plaintiff's husband, an employee, misrepresented the plaintiff's medical history. The insurer argued that since Illinois law applied, it could rely on the material misrepresentation to support its defense. The plaintiff, on the other hand, argued the applicability of Washington law. Under this law, the insurer could not rely on the enrollment card. The lawsuit was filed in Oregon, which applied the law of the forum having the most significant contacts with the dispute.

With regard to the underlying dispute, the parties agreed that the insurer had not provided the plaintiff with a copy of the enrollment card when it issued the certificate of insurance, and that the enrollment card was part of the insurance application. Under Washington law, an insurer could not rely on statements made by an insured in an application for group health and accident insurance unless the application was attached to the policy when it issued." Illinois had no such rule.70

In resolving the conflict issue under the applicable test, the Oregon court observed that the insurance was offered to and accepted by the employer in Washington, also the place of policy performance. The insurer delivered the certificate in Washington, where all premium payments were paid and claims processed. Illinois' only contact with the dispute was its situs as the location of the trust holding the group master policy. The trustee's sole obligation was to act as the policy holder. It performed no administrative duties.

When evaluating the contacts, the court examined those that demonstrated the state's substantive interest in resolving the dispute. Here, Illinois had no interest in whether its law applied to the dispute because it was only the physical situs of the group master policy. The court thus held that Washington had the most significant contacts with the dispute.71 The insurer's argument favoring Illinois law to ensure a consistent level of protection based on uniform policy determinations was unsuccessful.

D. Interest Analysis (Governmental Interest)

Finally, it should be noted that some courts adopt an "interest analysis" approach, making judgments about competing laws and their underlying policies based upon a comparative assessment of their weight or worth. The operative principle states that every rule of law, whether embodied in a statute or the common law, was designed to achieve one or more purposes. A court should duly regard these purposes in determining whether to apply its own rule or the rule of another state in resolving a particular issue.72

These courts examine a multitude of factors such as the domicile of the parties, the place of contract and the place of the loss." This test purports to weigh all relevant factors, determine which state has the greatest interest in the controversy, and apply the law of that state.74 If the purposes of a local statute or common law rule would be furthered by applying that state's law to out-of-state facts, the application should be made.75 Courts adopting this "interest analysis" or "governmental interest" typically justify their determinations by viewing certain interests as better or more significant than other competing interests!'

V.

ADVANTAGES OF LEX LOCI

As noted, a number of courts have more recently adopted one or more of these flexible conflicts approaches. However, the lex loci rule is not yet outdated. Supporters of lex loci argue that inflexibility is necessary to ensure contract stability. This inflexibility provides security to all parties, not merely the insurer, by precluding unilateral modification of contract terms simply because one party moves to another state. It also prevents judges from selecting law purely on a personal basis to "serve justice" or favor the "hometown" party.77 The rule is also simple and easy to apply, unlike the more flexible rules that are necessarily vague and imprecise.

Supporters of the more modem approaches argue that today's society often involves multi-jurisdictional transactions, demanding a more realistic standard that will examine the interests and expectations of all parties, not just those identified with the place of contract. However, the reality of a migratory and transitory society actually supports continued application of the lex loci doctrine. Parties have a right to know the terms of an agreement with some confidence in the outcome of their disputes. To allow a court to modify the interpretation of contract terms simply because a lawsuit is filed in one state as opposed to another substantially restricts the power to enter into stable contracts. There can be no doubt that the parties to insurance contracts bargained and paid for the provisions in the contract, including those that apply the statutory law of the contract situs. The modern approaches fail to provide adequate security to the contracting parties because the process cannot predict the outcome. First, the court must isolate which of the laws conflict. Second, it must identify the purposes of the conflicting state laws to determine whether a genuine conflict exists. Third, it must examine the contacts of the interested jurisdictions to ascertain which has a closer connection to the facts of the case and thus the superior interest in seeing its laws applied. The many variables described provide too much in the way of judicial discretion. These variables are particularly important in group insurance coverage.

Under the lex loci approach, the following principles control: (1) neither the claimant nor any other covered employee was a party to the insurance contract or had any voice in the negotiation or consummation of the contract; (2) the terms of the policy were settled by the insurance company and the employer; (3) eligible employees were provided an opportunity to be covered by the insurance when they authorized the employer to make payroll deductions; (4) the insurance policy did not of itself insure the claimant or any other named person; it merely made available specified insurance to certain employees; (5) the insurer looked only to the employer for payment of premiums; (6) the employer, for the benefit of its covered employees, assumed the burden of paying the premiums to the insurer; and (7) by applying to the employer for coverage, an employee accepted the provisions of the policy. Thus, enforcing the law of that jurisdiction in which the primary or master group contract was entered offers not only a uniform result but also a fair and equitable result to all parties involved.

VI.

CONCLUSION

Courts often apply foreign law to resolve disputes arising out of the interpretation of foreign insurance contracts. However, in choosing between competing laws from different jurisdictions, the modern approaches all require that courts examine the policies behind those laws and the facts of the particular case, necessarily creating an unpredictability to the resolution of insurance contract disputes. The choice-of-law decision must be made without regard to the effect it will have on the outcome of a lawsuit. If each state is free to select whatever conflicts law it desires, the outcome will differ depending upon which forum is "shopped." Such a situation is unacceptable. The "traditional" lex loci doctrine may be the only just solution to these "modern" contract problems.

1WILLIAM F. MEYER, LiFE AND HEALTH INSURANCE LAW 24: 1, at 709 (1972) [hereinafter MEYER]; RESTATEMENT (SECOND) OF CoNFLicTs OF LAWS 1, 2 (1971).

2No discussion of this topic can begin without citing Dean Prosser, who said:

The realm of the conflict of laws is a dismal swamp, filled with quaking quagmires, and inhabited by learned but eccentric professors who theorize about mysterious matters in a strange and incomprehensible jargon. The ordinary court, or lawyer, is quite lost when engulfed and entangled in it.

William L. Prosser, Interstate Publication 51 MICH. L. REV. 959,971 (1953).

3Lester v. Aetna Life Ins. Co., 433 F.2d 884 (5th Cir. 1970). Sometimes it is not entirely clear what principles have developed or how developed principles should be applied in a new fact situation. When this occurs, the court must closely evaluate the specific facts, law and equities involved and decide what law the supreme court of the forum state would apply. Id. at 887-88.

4Ruhlin v. New York Life Ins., Co., 304 U.S. 202, 205 (1938). BERTRAm HARTNETT & IRVING 1. LESNICK, THE LAW OF LIFE AND HEALTH INSURANCE 15.02, at 15-13 (1998) [hereinafter HARNETT & LESNICK]. This can be especially important in state courts. There, the foram state generally determines the necessity and method of notice that it intends to rely on the law of another state or country, and the manner in which this foreign law is to be proved. See RESTATEMENT (SECOND) OF CONFLICT OF LAWS 136 (1971). Many states have adopted statutory requirements regarding such notice and proof following the Uniform Interstate and International Procedure Act 4.01-02 [U.L.A. 394 (1986)]. If these requirements are not satisfied, the forum court may apply the substantive law of the forum state by presuming the laws are the same. See Johnson v. Nationwide Life Ins. Co., 388 So. 2d 464 (La. Ct. App. 1980). Federal courts may take judicial notice of the laws of the various states. Lumbermen's Mut. Cas. Co. v. Norris Grain Co., 343 F.2d 670, 685 (8th Cir. 1965). However, a party may still be required to raise the choice of law issue when there is one, or risk application of the law of the forum state. See International Admin., Inc. v. Life Ins. Co. of N. Am., 753 F.2d 1373 (7th Cit. 1985); Rutherford v. John Hancock Mut. Life Ins. Co., 562 F.2d 290 (4th Cir. 1977).

5COUCH ON INSURANCE 3D 24: 1, at 24-4 (1996) [hereinafter COUCH]. For example, "accidental bodily injury" suffered "directly and independently of all other causes" (a common definition used in accident insurance), is interpreted very differently, depending on the state law. A pre-existing disease, such as diabetes mellitus, can seriously aggravate or complicate an insured's condition resulting from an accident. Does this sickness condition exclude the loss from coverage because the insured's injuries were enhanced? It varies by state law. In Florida, it is a question of fact for the jury to decide whether the injury was caused by an accident. Buck v. Gulf Life Ins. Co., 548 So. 2d 715 (Fla. Dist, Ct. App. 1989). In Virginia, when a pre-existing disease cooperates with an accident and produces results which, but for the disease would not have occurred, there is no liability. Gay v. American Motorists Ins. Co., 714 F.2d 13 (4th Cir. 1983).

6Boseman v. Connecticut Gen. Life Ins. Co., 301 U.S. 196,204 (1937); Aetna Life Ins. Co. v. Messier, 173 F. Supp. 90, 96 (M.D. Pa. 1959); Martin v. Prier Brass Mfg. Co., 710 SW.2d 466, 469 (Mo. Ct. App. 1986); MEYER, supra note 1, 8:21, at 231.

7Romano v. New England Mut. Life Ins. Co., 362 S.E.2d 334,338 (W.Va. 1987); Martin v. Prier Brass Mfg. Co., 710 SW.2d 466, 469 (Mo. Ct. App. 1986); Paul v. Insurance Co. of N. Am., 675 S.W.2d 481, 483 (Tenn. Ct. App. 1984).

8Romano, 362 S.E.2d at 338; Martin, 710 S.W.2d at 469.

9Boseman v. Connecticut Gen. Life Ins. Co., 301 U.S. 196, 203 (1937); RESTATEMENT (SECOND) OF CONFLICT OF LAWS 192, cmt. h (1971).

10 I John ALAN APPLEMAN & JEAN APPLEMAN. Insurance Law and Practice Ch. 2, (sec)44, at 118(1981).

11Id.

`Martin, 710 S.W.2d at 469,

"Boseman, 301 U.S. at 203; MEYER, supra note 1, 20:2 at 609.

"Boseman, 301 U.S. at 203; Pound v. Insurance Co. of N. Am., 439 F.2d 1059, 1063 (1 Oth Cir. 1971); Lindstrom v. Aetna Life Ins. Co., 203 N.W.2d 623, 628 (Iowa, 1973). While group insureds are not policyholders and usually do not enjoy privity of contract with the insurer, it is recognized that they are beneficiaries of the insurance contract and may sue directly to enforce its provisions. Romano v. New England Mut. Life Ins. Co., 362 S.E.2d 334, 338 (W.Va. 1987).

"Miller v. Home Ins. Co., 605 S.W.2d 778,780 (Mo. 1980) (en banc).

"Boseman, 301 U.S. at 203.

"Monson v. Life Ins. Co. of N. Am., 558 F. Supp. 1354,1356 (D. Nev. 1983); Delivery of a certificate is not equivalent to delivery of the policy for group insurance contracts. Aetna Life Ins. Co. v. Sievert, 361 So. 2d 747, 748 (Fla. Dist. Ct. App. 1978). Similarly, brochures and booklets are not considered "policies." State Farm Mut. Auto Ins. Co. v. Davella, 450 So. 2d 1202, 1204 (Fla. Dist. Ct. App. 1994); Albury v. Equitable Life Assur. Soc. of U.S., 409 So. 2d 235, 236 (Fla. Dist. Ct. App. 1982).

18301 U.S. 196 (1937). The principle set forth in Boseman is no longer controlling in federal courts in diversity of citizenship cases, see Erie R. Co. v. Tompkins, 304 U.S. 64 (1938) and Klaxon v. Stentor Elec. Mfg. Co., 313 U.S. 487 (1941), but it still constitutes an outstanding general principle, and it may be characterized as the current law in many jurisdictions. HARNETT & LESNICK, supra note 4, 15.04 (3) at 15-97.

19Boseman, 301 U.S. at 202, 206,

20M. at 203.

21Id. at 202.

22605 S.W.2d 778 (Mo. 1980) (en bane).

23Id. at 780 n.6.

24Id. at 778 n. 1.

25Id. at 780.

261d. See also Perkins v. Philadelphia Life Ins. Co., 586 F. Supp. 296, 300 (W.D. Mo. 1984). 27439 F.2d 1059 (10th Cir. 1971).

28Id. at 1063

29Boseman v. Connecticut Gen. Life Ins. Co., 301 U.S. 196@ 206 (1937)-, Pound v. Insurance Co. of N. Am., 439 F.2d 1059,1063 (10th Cir. 1970); Miller v. Home Ins. Co., 605 S.W.2d 778, 780 (Mo. 1980) ten banc); RESTATEMENT (SECOND) OF CONFLICT OF LAWS 192 cmt. h (1971).

30John Hancock Mut. Life Ins. Co. v. Durman, 108 F.2d 220, 222 (9th Cir. 1940)@ Cross v. Mutual Benefit Life Ins. Co.. 219 Cal. Rptr. 305, 309 (Ct. App. 1983). Common discrepancies between the master policy and the certificate concern amounts and beneficiaries as well as policy conditions regarding coverage. MEYER, supra note 1, 20:2, at 609.

31Life Ins. Co. of N. Am. v. Lee, 519 F.2d 475, 478 (6th Cir. 1975).

32 138 N.E.2d 857 (Ill. App. Ct. 1956).

33Id. at 860.

34GARY FAGG, AN INTRODUCTION To CREDiT LEE AND DiSABiiLrry INSURANCE at 2 (1990).

35Id.

36Frasher v. Life Investors Ins. Co., 796 P.2d 1069, 1072 (Kan. Ct. App. 1990).

37Id. at 1071.

38Id. at 1073.

39Erickson v. Sentry Life Ins. Co., 719 P.2d 160, 161 n. I (Wash. Ct. App. 1986).

40Wood v. New York Life Ins. Co., 336 S.E.2d 806,810-11 (Ga. 1985); Employees Serv. Ass'n v. Grady, 52 Cal. Rptr. 831, 838 (Ct. App. 1966).

41Daniels v. National Life Assur. Co., 747 P.2d 897, 899 (Nev. 1987).

42Id.; Wood v. New York Life Ins. Co., 336 S.E.2d 806, 811 (Ga. 1985); Rodli v. American Barilass Ins. Co., 1997-88 CCH Life Cas. 758 (D.C. Mont. 1987).

43Sovereign Camp, W.O.W. v. Bolin, 305 U.S. 66, 75 (1938); Railway Mail Mut. Ben. Ass'n v. Henry, 182 SW.2d 798, 800 (Tex. 1944); HARTNE-rr & LESNICK, supra note 4, 15.04 (3) at 110.1; 19 APPLEMAN, supra note 10, 10141, at 272; State v. Shain, 114 S.W.2d 965, 967 (Mo. 1938).

44Int'l Bhd. of Boiler Makers v. Huval, 166 S.W.2d 107, 111 (Tex, 1942).

45 Order of United Commercial Travelers of Am. v. Wolfe, 331 U.S. 586, 599 (1947); Sovereign Camp, W.O.W. v. Bolin, 305 U.S. 66,75 (1938).

46Int'l Bhd. ofBoiler Makers, 166 S.W.2d at 109; State v. Shain, 114 S.W.2d 965,967 (Mo. 1938).

47Int'l Bhd. of Boiler Makers, 166 S.W.2d at 110- 11.

48 Lumbermen's Mut. Cas, Co. v. August, 530 So. 2d 293, 295 (Fla. 1988).

49HARTNETT & LESNICK, supra note 4, 15.03 [11 at 15-26.

50Krauss v. Manhattan Life Ins. Co. of New York, 643 F.2d 98, 102 (2d Cir. 1981); Nelson v. Aetna Life Ins. Co., 359 F. Supp. 271, 285 (W.D. Mo. 1973).

51Oakley v. National W. Life Ins. Co., 294 F. Supp. 504,508 (S.D.N.Y. 1968); Nelson v. Aetna Life Ins. Co., 359 F. Supp. 271, 296 (W.D. Mo. 1973); Melville v. American Home Assur. Co., 584 F.2d 1306, 1313-14 (3d Cir. 1978).

52Krauss v. Manhattan Life Ins. Co. of New York, 643 F.2d 98, 102 (2d Cir. 1981).

53Poffenbarger v. New York Life Ins. Co., 277 F. Supp. 726 (S.D. W.Va. 1967).

54 Melville v. American Home Assur. Co., 584 F.2d 1306,1311-13 (3d Cir. 1978); Breeding v. Massachusetts Indem. & Life Ins. Co., 633 SW.2d 717, 719 (Ky. 1982); Schlosser v. AllisChalmers Corp., 271 NW.2d 879, 885 (Wis. 1978).

55Lange v. Penn Mut. Life Ins. Co., 843 F.2d 1175, 1180 (9th Cir. 1988); Oakley, 294 F. Supp. at 506-08.

56Cunninghame v. Equitable Life Assur. Soc. of U.S., 652 F.2d 306,308 n.1 (2d Cir. 1981); Krauss, 643 F.2d at 101.

57 643 F.2d 98 (2d Cir. 1981).

58Id. at 100.

59Id. at 102.

60633 S.W.2d 717 (Ky. 1982).

61Id.

62Id. at 718-19.

63Id. at 718.

64Id. at 719.

65 Id.

66RESTATEMENT (SECOND) OF CONFLICT OF LAWS 188 (1971); see also Manz v. Continental Am. Life Ins. Co., 843 P.2d 480,482-83 (Or. Ct. App. 1992).

67Manz, 843 P.2d at 482-83.

68 843 P.2d 480 (Or. Ct. App. 1992)

69Id. at 482.

70Id.

71M. at 483.

'2CoucH, supra note 5, 24:20 at 24-32-34. 711d. at 24-32.

"'Id. at 24-33.

Volt v. Contal Ins. Co., 585 F. Supp. 796,798 (MD. Pa. 1984). Nd.

"Miller v. Home Ins. Co., 605 S.W.2d 778, 780 (Mo. 1980) (en banc).

GARY SCHUMAN*

Gary Schuman is Life and Health Insurance Claims Counsel at Aon Corporation, Chicago, Illinois. He holds a B.A. (cum laude)from Alfred University and a J.D. from the University of Notre Dame Law School. Mr. Schuman is a member of the Federation ofInsurance & Corporate Counsel (Vice-Chairman and Disability Case Editor for the Life, Health and Disability Section) and the Defense Research Institute (Regional Representative for the Life, Health and Disability Subcommittee). He has published and lectured on a variety of insurance and intellectual property topics.

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