Travelers Indem. Co. v. Lake

• Citation: 594 A.2d 38
• Parties: The TRAVELERS INDEMNITY COMPANY, Defendant Below, Appellant, v. Ben E. LAKE and Bonnie J. Lake, Plaintiffs Below, Appellees. . Submitted:
• Decision Date: 23 October 1990
• Court: United States State Supreme Court of Delaware

Page 38

594 A.2d 38

The TRAVELERS INDEMNITY COMPANY, Defendant Below, Appellant, v. Ben E. LAKE and Bonnie J. Lake, Plaintiffs Below, Appellees.

Supreme Court of Delaware.

Submitted: Oct. 23, 1990.

Decided: July 2, 1991.

On appeal from the Superior Court. AFFIRMED.

James W. Semple (argued), and Bettina L. Tweardy of Morris, James, Hitchens & Williams, Wilmington, for appellant.

Michael Weiss (argued), of Kimmel, Weiss & Carter, P.A., Wilmington, for appellees.

Christopher J. Curtin, amicus curiae, Delaware Trial Lawyers Ass'n, Wilmington, for appellees.

Before CHRISTIE, C.J., HORSEY, MOORE and WALSH, JJ., and HARTNETT, Vice Chancellor, constituting the Court en Banc.

MOORE, Justice.

In this case we reexamine the lex loci delicti rule of Friday v. Smoot, Del.Supr., 211 A.2d 594 (1965). The appellee, Ben E. Lake, sued his uninsured motorist carrier, The Travelers Indemnity Company ("Travelers"), in the Delaware Superior Court as the result of an accident in Quebec, Canada between Lake and an unidentified motorist. Quebec law establishes a legal limit on tort recoveries, which is considerably below the limits of Lake's coverage from Travelers. The insurance policy obligates Travelers to pay damages to Lake which he is "legally entitled to recover" from an uninsured motorist. The Superior Court ruled that Lake's suit was a contract action, and applied Delaware law. We affirm on different grounds. Thus, the limits of Lake's insurance policy, not the tort limits of Quebec, apply. We overrule Friday v. Smoot and adopt the prevailing "most significant relationship" test of the RESTATEMENT (SECOND) OF CONFLICTS § 145(1).

I.

The essential facts are not in dispute. Ben E. Lake was injured in a traffic accident while driving his employer's vehicle in Quebec, Canada. A tailgate from an unidentified truck, driving in an opposite lane, struck Lake's tractor-trailer. Lake lost control of his truck, struck a concrete barrier, and sustained serious injury. The other driver did not stop after the accident. Apparently, there were no eyewitnesses and despite his best efforts, Lake could not locate the other motorist.

At the time of the accident, Lake had an insurance policy with Travelers covering one of his own automobiles not involved in the crash. The policy provides uninsured motorist coverage of $300,000 per occurrence.

Lake sued Travelers in Superior Court for the uninsured motorist benefits of his policy. The parties agreed to arbitrate their dispute, but reserved the right to apply to the court to resolve certain legal issues. Travelers filed a motion in limine for a ruling confining its liability under Lake's policy to the limits Quebec law sets for bodily injury. The parties agreed that Lake could recover only $29,400 if the court applied Quebec law, whereas he could recover up to $300,000 if Delaware law applies.

Travelers argued that Quebec law determined what Lake was "legally entitled to recover" under the terms of his policy. Relying on Friday, Travelers reasoned that if Lake had sued the unidentified driver for negligence in Delaware, the court would have applied the lex loci delicti choice of law theory thereby confining his recovery to Quebec's $29,400 limit.

The Superior Court rejected Travelers' claim and refused to apply Quebec law. See Lake v. Travelers Indemnity Co., Del.Super., C.A. No. 87C-NO-6-1-CV, 1989 WL 135647 Bifferato, J., Letter op. (Oct. 31, 1989). The court ruled that a suit challenging insurance coverage is an "action in contract." Letter op. at 2 (emphasis in original). Instead of the lex loci rule, the court applied the RESTATEMENT (SECOND) OF CONFLICTS "most significant relationship" theory which governs conflict of law problems in contract cases. Id. The court ultimately ruled that Delaware had the "most significant relationship" to the insurance policy and decided that Lake was thus "legally entitled" to recover under Delaware law. Id.

A.

We start with our standard and scope of review. It is well settled that a suit contesting the construction of an insurance policy is a contract action involving questions of law. See Aetna Casualty & Surety Co. v. Kenner, Del.Supr., 570 A.2d 1172, 1174 (1990); Rohner v. Niemann, Del.Supr., 380 A.2d 549, 552 (1977). This Court reviews all questions of law de novo. See Fiduciary Trust Co. N.Y. v. Fiduciary Trust Co. N.Y., Del.Supr., 445 A.2d 927, 930 (1982). Moreover, when construing an insurance policy we follow the basic principle that all ambiguities are resolved in favor of the insured. Steigler v. Ins. Co. N.A., Del.Supr., 384 A.2d 398, 400-01 (1978).

1.

Lake's insurance policy stated in pertinent part:

We (Travelers) will pay damages that the insured (Lake) is legally entitled to recover from the owner or operator of an uninsured highway vehicle because of bodily injury or property damage sustained by the insured and caused by accident.

(Emphasis added). Lake does not contend that his insurance policy is ambiguous, ¹ and Travelers does not argue that it is relieved of all liability to Lake. The parties only dispute the meaning of the contractual language "legally entitled to recover."

Lake contends that Delaware law determines what he was "legally entitled to recover." He agrees with the trial court that cases arising out of insurance policies are contract actions, and justify application of the "most significant relationship" test. Moreover, Lake claims that applying the lex loci delicti analysis would violate public policy. He argues that the General Assembly enacted 18 Del.C. § 3902 to "fully compensate" Delaware drivers carrying uninsured motorist coverage. Lake basically claims that he is entitled to what he paid for: full protection against uninsured tortfeasors.

Travelers agrees that the interpretation of Lake's insurance policy is a matter of contract law. Travelers argues, however, that contract law is merely an analytical starting point. It claims that Lake was only entitled to recover the same amount under his insurance policy as he would have obtained against the unidentified tortfeasor. Travelers thus concludes that the trial court should have applied the lex loci delicti tort law conflicts principle and limited Lake's recovery to amounts specified under Quebec law.

We agree that the trial court prematurely ended its analysis of the choice of law issue when it ruled that the dispute between Travelers and Lake was a contract action. The court should have addressed the novel legal question of whether the tort-based lex loci delicti theory governed the limits of Travelers' liability instead of automatically applying the contract-based "most significant relationship" test. We, however, cannot resolve the conflict of law issue and give meaning to Lake's insurance policy without first discussing the Delaware conflict of law rules and examining the policy behind the uninsured motorist statute.

2.

The present state of our law in this area is unsettled. Delaware courts apply the modern "most significant relationship" test to resolve conflicts issues arising out of the interpretation and validity of contracts. See, e.g., Oliver B. Cannon & Son, Inc. v. Dorr-Oliver, Inc., Del.Supr., 394 A.2d 1160, 1166 (1978); Nat'l Union Fire Ins. Co. v. RLC Corp., Del.Super., 449 A.2d 257, 261, appeal denied, Del.Supr., 454 A.2d 765 (1982); RESTATEMENT (SECOND) OF CONFLICTS § 188 (1971). However, we also apply the lex loci delicti doctrine in most tort cases. See Friday, 211 A.2d at 595; Short Line, Inc. v. Perez, Del.Supr., 238 A.2d 341, 343 (1968); Skillman v. Conner, Del.Super., 193 A. 563, 565 (1937).

Delaware courts usually classify lawsuits contesting insurance coverage as actions in contract. This Court ruled in Allstate Ins. Co. v. Spinelli, Del.Supr., 443 A.2d 1286 (1982), that a suit seeking an award under an uninsured motorist insurance policy "is more nearly akin to a contract claim than a tort action." Id. at 1289-90. Allstate argued in Spinelli that the statute of limitations governing tort actions barred the plaintiff's suit to collect damages pursuant to his uninsured motorist policy. Id. at 1289. The Court rejected Allstate's claim and held that the longer statute of limitations governing contract actions controlled. Id. at 1290.

Spinelli also recognized a corollary principle. The Court agreed with the trial court's interpretation of the dissent in Nationwide Ins. Co. v. Rothermel, Del.Supr., 385 A.2d 691, 694 (1978) (Duffy, J., dissenting), that a plaintiff's personal injuries in an action against his insurance company was not the " 'basis of the cause of action but merely the basis for measuring the damages sustained.' " Spinelli, 443 A.2d at 1290 (quoting Spinelli, Del. Ch., C.A. No. 6140, Marvel, C., slip op. (Oct. 8, 1980)). Thus, under Spinelli, contract law principles do not entirely control suits to recover uninsured motorist awards. Instead, Spinelli suggests that a court should use tort law to assess the plaintiff's underlying damages.

3.

Any analysis of Spinelli also involves consideration of the relevant statutory scheme. A brief review of the law indicates that our initial interpretation of Spinelli parallels the general purposes of the uninsured motorist statute.

The Delaware insurance statutes require insurance carriers to provide underinsured/uninsured motorist protection to all Delaware drivers in an amount up to $300,000. 18 Del.C. § 3902. Section 3902 provides in part:

(a) No policy insuring against liability arising out of the ownership, maintenance or use of any motor vehicle shall be delivered or issued for delivery in this State with respect to any such vehicle registered or principally garaged in this State unless coverage is provided therein or supplemental thereto for the protection of persons insured thereunder who are legally entitled to recover damages from owners or operators of uninsured or hit-and-run vehicles for bodily injury, sickness, disease, including death, or personal...