Because the insurance industry is subject to different laws in different jurisdictions, it is possible for the same claim under the same policy language to be covered in one state, and not covered in another. Thus, insurers who write policies in different states identify which states are more favorable for certain types of claims or for certain policy language. So when they are placed on notice of a policyholder’s claim from a jurisdiction that is not friendly to insurers in general, or to their policy language in particular, they may look to other possible jurisdictions in which to engage their policyholder in a coverage battle, hoping to defeat coverage by applying more favorable law, in a more favorable forum. This is the scenario ripe for insurance company forum shopping. Some insurers have become very aggressive when denying claims. They disregard the usual procedure of notifying their insured of a claim denial, and instead, simply file a lawsuit asking a court to agree with their conclusion that the policy provides no insurance coverage for the policyholder’s claim. Of course they file their suit in a forum they choose precisely because they expect a favorable ruling in that jurisdiction. For a policyholder with operations (or even just sales) in several states, the insurer will select from any of several states with some connection to the policyholder. The insurer will choose a state with law that supports its denial of coverage. The “choice of law” rules (which also differ among the states) may dictate that a state other than the one chosen by the insurer is the proper state’s law to apply. The battle over which state’s law should apply is fact-sensitive and often uncertain. In many states which apply the Restatement (Second) of Conflicts of Laws, the choice of law question seeks to identify the “principle location of the insured risk,” (§193) or relies on a balancing of interests, looking to the place of contracting, the place of negotiation, the place of performance, the location of the subject matter and the places of business of the parties. (§188). These considerations rarely point to an obvious result. In the end, the court often displays a bias toward applying its own state’s law—which was the reason the insurer chose it in the first place. What can you do to avoid the potential of your insurer filing a coverage action in an unfavorable (from your standpoint) forum? Mostly, you need to take a good look at your insurance policy whenever you contemplate making a claim. If there is any question in your mind about whether your policy provides coverage for the claim, you should talk to a Policyholder lawyer about it, even before you hear back from your insurance company. When a policyholder is faced with the prospect of making a claim to an insurer, involving any uncertainty of coverage, there are several questions a policyholder needs to consider.
- Is there any connection to a forum with unfavorable law for this claim?
- Do the “choice of law” rules clearly favor the application of only one state’s law?
- Does the policyholder have claims for damages against the insurer, besides simply a determination of coverage?
- Is coverage for the claim worth the expense of a coverage battle?