Allstate Ins. Co. (Stolarz), Matter of

• Decision Date: 04 May 1993
• Citation: 613 N.E.2d 936,81 N.Y.2d 219,597 N.Y.S.2d 904
• Parties: , 613 N.E.2d 936 In the Matter of the Arbitration Between ALLSTATE INSURANCE COMPANY, Petitioner, and Kathleen STOLARZ et al., Respondents; New Jersey Manufacturers Insurance Company, Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 904

597 N.Y.S.2d 904

81 N.Y.2d 219, 613 N.E.2d 936

In the Matter of the Arbitration Between ALLSTATE INSURANCE

COMPANY, Petitioner,

and

Kathleen STOLARZ et al., Respondents;

New Jersey Manufacturers Insurance Company, Appellant.

56

Court of Appeals of New York.

May 4, 1993.

Downing & Mehrtens, P.C., New York City (Thomas E. Mehrtens, Alison D. Metzler and John M. Downing, of counsel), for appellant.

Michael R. Scolnick, P.C., Pomona (Michael R. Scolnick and Valerie Crown-Goldstein, of counsel), for respondents.

OPINION OF THE COURT

KAYE, Chief Judge.

In this automobile insurance dispute, both Supreme Court and the Appellate Division concluded that there was a conflict between New York and New Jersey law, and that New York law should control. We conclude there is no such conflict, and in any event New Jersey law applies. Accordingly, we reverse.

I.

On February 18, 1989, Kathleen Stolarz and her husband were injured in a two-car accident on Route 6 in Woodbury, New York. The Stolarz vehicle was a company car leased by her employer, Blue Cross/Blue Shield of New Jersey, and registered in New Jersey. New Jersey Manufacturers Insurance Company (NJM) insured the vehicle under a policy issued to Blue Cross and written to conform to New Jersey law. Stolarz regularly garaged the vehicle at her home in Monroe, New York, a few miles north of the New Jersey border.

The carrier insuring the other vehicle paid the Stolarzes $20,000, the liability limits of its insured's policy. When Allstate Insurance Company, the insurer of the Stolarzes' personal cars, disputed the amount payable under that policy's underinsurance coverage, the Stolarzes served a demand for arbitration and Allstate, in turn, brought a special proceeding in Supreme Court to stay arbitration. NJM, which also disputed the amount payable under its policy's uninsured/underinsured coverage, joined in the proceeding and sought declaratory relief fixing the rights and obligations of the parties. Allstate, having settled with the Stolarzes, is not before us on this appeal.

The NJM policy contains a single limit of uninsurance/underinsurance in the amount of $35,000. In accordance with a New Jersey statute, ¹ the policy also provided: "Any amount payable under this [Uninsured and Underinsured Motorists] insurance shall be reduced by all sums paid by or for anyone who is legally responsible." NJM argued that, in accordance with the policy terms and New Jersey law, it was entitled to offset $20,000 (the amount collected by the Stolarzes from the other driver's insurance carrier) from the $35,000 policy limit. The Stolarzes, however, claimed that under New York case law (see, Matter of United Community Ins. Co. v. Mucatel, 127 Misc.2d 1045, 487 N.Y.S.2d 959, affd. without opn., 119 A.D.2d 1017, 501 N.Y.S.2d 761, affd. for reasons stated at Special Term, 69 N.Y.2d 777, 513 N.Y.S.2d 114, 505 N.E.2d 624), offset clauses in underinsurance coverage are void, and they demanded $35,000 without reduction.

Relying on Mucatel, Supreme Court determined that there was a conflict between New York and New Jersey law, and under a choice of law analysis concluded that New York law should govern. Accordingly, the court declared that NJM could not take an offset against the policy's stated limit. On NJM's appeal, the Appellate Division agreed with Supreme Court's reasoning and affirmed, 178 A.D.2d 899, 577 N.Y.S.2d 936. We reverse.

II.

The first step in any case presenting a potential choice of law issue is to determine whether there is an actual conflict between the laws of the jurisdictions involved. Scrutiny of the alleged conflicting laws in this case reveals that there is no conflict here.

In Mucatel, Supreme Court held that policies containing underinsurance offset provisions are "misleading and ambiguous" because the stated limit of the policy would never be paid in full, the concept of underinsurance presuming that there is at least some insurance (127 Misc.2d. at 1046, 487 N.Y.S.2d 959). This Court affirmed on Supreme Court's reasoning.

The policy in this case contains a single, combined $35,000 limit of uninsurance/underinsurance. Thus the insured, in an accident with a negligent driver, is guaranteed a recovery of $35,000, assuming injuries equal to or greater than that amount. If the other driver is uninsured, the full $35,000 is paid by NJM. To the extent the other driver has insurance, NJM pays the difference up to the "limit" of $35,000.

Mucatel involved strictly an underinsurance clause, whereas here the policy is written with a single limit of un/underinsurance. The distinction is critical. Mucatel's rationale--that the policy's stated limit would never be paid in full-- does not apply here because there are circumstances where the stated limit would be fully paid. Accordingly, the provision at issue does not present a similar deception to that identified in Mucatel.

This Court has not previously considered a combined un/underinsurance limit, but any question as to the validity of such provisions should have been laid to rest when the New York Superintendent of Insurance recently promulgated regulations approving single limits and specifically requiring reduction in coverage for amounts recovered from underinsured drivers (11 NYCRR 60-2.1[c]. Indeed, the regulations were adopted to "eliminate ambiguity [and] minimize confusion" (11 NYCRR 60-2.0[c].

The dissent's contention that the regulations should not be given "retroactive effect" and that the Stolarzes' "contractual" rights "vested" at the time of the accident misses the point. We look to the regulations not for their binding effect but for guidance in deciding a legal question that must be answered today: whether offset provisions relating to combined un/underinsurance limits are misleading. The Superintendent of Insurance has determined that such clauses are not misleading, and this is persuasive authority (see, by analogy, Matter of Kransdorf v. Board of Educ., 81 N.Y.2d 871, 873, 597 N.Y.S.2d 631, 613 N.E.2d 537). ²

Similarly, the dissent's argument that the existence of a single limit is immaterial because the offset applies only to the underinsurance component--and that offsets against underinsurance are invariably void under Mucatel--misapprehends the holding of that case. There is nothing inherently objectionable about offsets against the limits of an insurance policy (see, e.g., Matter of Valente v. Prudential Prop. & Cas. Ins. Co., 77 N.Y.2d 894, 895-896, 568 N.Y.S.2d 901, 571 N.E.2d 71); indeed they are common. In Mucatel we concluded that the policy was misleading because the insurer would not "ever pay the amount indicated on the policy declaration" (127 Misc.2d, at 1046, 487 N.Y.S.2d 959), and where that is the case Mucatel of course controls. But that situation is not present here. The dissent's attempt to extend Mucatel and make it applicable by artificially splitting the limit of a single clause into separate components is baseless.

Thus, there is no conflict between New York and New Jersey law, and under the law of either jurisdiction, the policy should be construed as written.

III.

Because the dissent and both lower courts conclude that there is a conflict, we next address the choice of law issue to demonstrate that, even in that event, New Jersey law governs.

The historical approaches to choice of law in both tort and contract were rigid and mechanical. In tort cases, courts invariably applied lex loci delicti--the law of the place of the tort--to all substantive issues (see, e.g., Poplar v. Bourjois, Inc., 298 N.Y. 62, 66, 80 N.E.2d 334; Restatement of Conflict of Laws §§ 377-390), while contract cases generally invoked the law of the place where the contract was made or was to be performed (see, e.g., Swift & Co. v. Bankers Trust Co., 280 N.Y. 135, 141, 19 N.E.2d 992; Union Natl. Bank v. Chapman, 169 N.Y. 538, 543, 62 N.E. 672). These inflexible rules proved unsatisfactory because the location of the controlling event was sometimes fortuitous, did not reflect the parties' intentions, or was insignificant as against the location of other events. Moreover, the traditional approaches failed to accord any significance to the policies underlying the conflicting laws (see, Cooney v. Osgood Mach., 81 N.Y.2d 66, 72, 595 N.Y.S.2d 919, 612 N.E.2d 277).

Auten v. Auten, 308 N.Y. 155, 124 N.E.2d 99, a contract case, and Babcock v. Jackson, 12 N.Y.2d 473, 240 N.Y.S.2d 743, 191 N.E.2d 279, a tort action, heralded the modern, more flexible approaches to choice of law. As our jurisprudence has evolved, the preferred analytical tool in tort cases is to apply "interest analysis," where the policies underlying the competing laws are considered (see, Cooney, 81 N.Y.2d, at 72, 595 N.Y.S.2d 919, 612 N.E.2d 277; Schultz v. Boy Scouts, 65 N.Y.2d 189, 196-197, 491 N.Y.S.2d 90, 480 N.E.2d 679). Indeed, in a typical tort case--a car accident, for example--strong governmental interests may underlie the choice of law issue. The place where the accident occurred, for example, has an overriding interest in regulating conduct within its borders (Babcock, 12 N.Y.2d, at 483, 240 N.Y.S.2d 743, 191 N.E.2d 279). Similarly, rules distributing the loss after the accident happens may implicate significant governmental interests (see, e.g., Cooney [contribution]; Schultz [charitable immunity].

By contrast, contract cases often involve only the private economic interests of the parties, and analysis of the public policy underlying the conflicting contract laws may be inappropriate to resolution of the dispute. It may even be difficult to identify the competing "policies" at stake, because the laws may differ only slightly, and evolve through the incremental process of common-law adjudication as a response to the facts presented.

The "center of gravity" or "grouping of contacts" choice of law theory applied in contract cases (see, e.g., Auten v. Auten, 308 N.Y., at 160-161, 124 N.E.2d 99) en...