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Insurance Policies Conflict over Stacking Policy

insurance-policy-conflictRecent Ruling on Uninsured/Underinsured Motorist Coverage Grapples with which State Law Prevails Regarding Stacking of Policies

There was a recent 10th Circuit Court of Appeals decision arising from a car accident in Colorado. The case, Kipling v. State Farm Mutual Automobile Ins. Co., is focused on a “conflict of laws” issue. Conflict of laws is a legal term used to explain when different states have laws regarding the same subject matter that are in opposition to each other. Normally, if a car accident occurs in Colorado and you have Colorado car insurance this is not an issue—Colorado law prevails. However, in a case where there are ties to different states, a court must then decide which state’s law prevails.

The Case

In Kipling, the plaintiff, Kathryn Kipling, sued State Farm for breach of contract because it failed to pay her benefits under multiple insurance policies issued in the state of Minnesota. Ms. Kipling and her husband resided in Colorado when they were in an auto accident. Mr. Kipling was killed and Mrs. Kipling injured. The vehicle they were in was owned by Mr. Kipling’s employer, Quicksilver, which was incorporated in Minnesota. The driver of the vehicle who caused the accident had inadequate liability insurance to cover the Kiplings’ damages. Therefore, Ms. Kipling sought from State Farm underinsured motorist (UIM) benefits from four different State Farm policies issued in Minnesota to Quicksilver.

The four policies insured four vehicles for Quicksilver employees. The coverage provided that “insured” meant any person occupying the car; therefore, under the Minnesota policies the Kiplings would not be eligible as they were not occupying those other vehicles. Thus, State Farm denied benefits to the Kiplings. Ms. Kipling filed in federal district court in Colorado for breach of contract arguing that Colorado law applied. Colorado law permits “stacking” of insurance policies, which is when an insured can take their UIM coverage limits from all cars they have insured, and thus, increase the benefits received. Minnesota law does not allow for stacking of insurance policies.

The Issue: Tort vs. Contract

Now, because this is a diversity action, that means the parties are from different states, the court will apply the laws of the state where the case is heard (the forum state). So, in this case that’s Colorado. Therefore, the court looked at the Restatement (Second) of Conflict of Laws (1971), which Colorado follows to decide which state’s substantive law should be used in a conflict case. The lower court when deciding which state law to use regarding the issue of stacking UIM benefits applied tort conflict-of-law principles, as opposed to contract conflict-of-law principles. A tort is a wrongful act that creates an injury to another. A contract is an agreement between two or more parties.   State Farm argued that contract conflict-of-law principles should have been applied instead of tort principles.

Given that these areas of law (tort and contract) are different, the consideration of which state’s substantive law applies may differ if you choose to apply tort conflict-of-laws principles over contract conflict-of-laws principles. The Restatement provides a breakdown between tort actions and contract actions. Conflict-of-laws tort actions are often concerned with where the injury occurred, as opposed to contract actions which are concerned with where the transaction (contracting/negotiating) occurred.

The Decision

The Court of Appeals looked at how the Restatement specifically addresses ‘Contracts of Fire, Surety or Casualty Insurance” in § 193 cmt. a. Given that this case involves a breach of contract claim, the Court held that Colorado would apply contract conflict-of-laws principles, and thus, reversed the district court decision which applied tort conflict-of-laws principles to decide which state law applied. Therefore, the lower court (the district court) must now decide which state law applies using contract conflict-of-laws principles, instead of tort.

So, while the Court of Appeals decision brings no immediate resolution for Mrs. Kipling, it does clearly show that while this case arose from a tort (an auto accident), the issue is State Farm denying benefits under the insurance contracts, and thus, is a contract case.


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