* This order and judgment is not binding precedent, except under the doctrines of

law of the case, res judicata, and collateral estoppel. This court generally disfavors the citation of orders and judgments; nevertheless, an order and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.

** The Honorable Wiley Y. Daniel, United States District Judge for the District of Colorado, sitting by designation. 

## F I L E D United States Court of Appeals Tenth Circuit 

### OCT 20 1997 

### PATRICK FISHER Clerk UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

VITO DESARIO, as Guardian Ad Litem for Carly Mitchell,

Plaintiff - Appellant,

v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant - Appellee. No. 96-4070 (D. Ct. No. 95-CV-953) (D. Utah)

ORDER AND JUDGMENT *
Before TACHA and LUCERO, Circuit Judges, and DANIEL , ** District Judge.
Carly Mitchell brought this declaratory judgment ac tion in Utah state court, which the defendant removed to the United States Di strict Court for the District of Utah, to determine the extent of coverage provid ed by an automobile insurance policy. She and defendant State Farm Mutual Automo bile Insurance Company***A step-down clause is one that reduces the level of coverage provided in certain

situations. SeeCullum v. Farmers Ins. Exch. , 857 P.2d 922, 923 n.2 (Utah 1993). 2 both motioned for summary judgment. The District C ourt granted State Farm’s motion on the grounds that Wyoming law applies to t his suit and that under Wyoming law, State Farm already has met its obligat ions under the policy. Carly appeals, and we exercise jurisdiction pursuant to 2 8 U.S.C. § 1291. For the reasons set out below, we affirm. BACKGROUND On September 4, 1994, the plaintiff was a passengerin her mother’s automobile when the car collided with another vehic le in Salt Lake City, Utah. Carly suffered severe injuries in the accident. Sh e and her mother, Rosanna Mitchell, who has an insurance policy with State Fa rm, have incurred over $29,000 in medical expenses as a result. State Far m has paid those bills, and there is no dispute here regarding them. Through her guardian ad litem, however, the plainti ff sued her mother Rosanna for her personal injuries. They settled fo r the maximum insurance coverage available. State Farm tendered $25,000 un der Rosanna’s liability coverage policy but refused to pay more, citing a p artial family exclusion (or “step-down” clause *** ) contained in the policy. The policy normally pro vides for $100,000 of liability coverage. However, the step- down clause limits liability3

coverage to the minimum required by law when, as in this case, the insured is sued on a bodily injury claim by a member of her ow n household. Although the policy does not explicitly identify that legal mini mum, in Wyoming it is $25,000 (as it is in Utah). See W YO
. S TAT
. ANN
. § 31-9-405(b)(ii) (Michie 1997); U TAH C ODE ANN . § 31A-22-304(1)(a) (Michie 1994). Rosanna Mitche ll entered into the insurance contract with State Farm in Wyoming, and the policy was drafted by State Farm to conform with Wyoming law. Rosanna an d Carly are both Wyoming residents. Carly brought this suit to obtain a dec laratory judgment that the policy provides $100,000 in coverage in this case. Carly concedes that if Wyoming law applies, the step-down clause is valid and State Fa rm is entitled to summary judgment. She argues, however, that Utah law shoul d control. According to her, the step-down clause is invalid under Utah law and she should be entitled to the full $100,000 limit of the policy rather than the $ 25,000 limit specified in the family exclusion. DISCUSSION In a diversity case, if different states’ laws woul d produce different results, a federal court must look to the conflict of law ru les of the forum state to determine which state’s law will control. See Mountain Fuel Supply v. Reliance Ins. Co. , 933 F.2d 882, 887-88 (10th Cir. 1991) (citing Kla xon v. Stentor Elec. Mfg. Co. , 313 U.S. 487 491 (1941)). Thus, this court must apply Utah’s choice of4

law rules. To resolve a conflict of laws question in a contract dispute, the Utah courts use the “most significant relationship” testset out in the RESTATEMENT (S ECOND ) OF C ONFLICT OF L AWS , § 188. American Nat’l Fire Ins. Co. v. Farmers Ins. Exch. , 927 P.2d 186, 190 (Utah 1996). Under this test, the court applies the law of the state that has the most significant relationship to the contract. Mountain Fuel , 933 F.2d at 888; RESTATEMENT (S ECOND ) OF C ONFLICT OF L AWS § 188(1) (1971). The District Court found that Wyomi ng, and not Utah, has the most significant relationship to the insurance cont ract at issue here. We agree with the District Court. Under the most significant relationship test, the f ollowing factors should be considered in determining what law applies to the c ontract:

(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 contr act, and (e) the domicil, residence, nationality, place of i ncorporation and place of business of the parties. RESTATEMENT (S ECOND ) OF C ONFLICT OF L AWS § 188(2). Given that the contract was negotiated in Wyoming, the Mitchells are reside nts of Wyoming, and the car itself (the subject matter of the contract) was reg istered and garaged in Wyoming, a balancing of the Restatement factors weighs heavi ly in favor of the application of Wyoming law. Furthermore, § 193 emphasizes the “principal location of the insured risk” as “the most important contact to be considered in the choice of the5

applicable law” for casualty insurance contracts. RESTATEMENT (S ECOND ) OF C ONFLICT OF L AWS § 193 and Cmt. b; see also American Nat’l , 927 P.2d at 190 (discussing § 193). In this case, the principal loc ation of the automobile was Wyoming. Carly emphasizes that the accident occurr ed in Utah and that she received treatment for her injuries there. In ligh t of the significant contacts with Wyoming, however, these facts are insufficient just ification for applying Utah law. Were there any doubt, the Utah Supreme Court’s rece nt decision in American National makes the choice clear. American National involved insureds who resided in Idaho, an automobile registered in I daho, an insurance policy issued in Idaho -- and an accident that occurred in Utah. American Nat’l , 927 P.2d at 187. Applying the most significant relatio nship test, the Utah Supreme Court found that Idaho law applied to the case. Id

. at 188-89. The court reasoned that the insurance contract “clearly has a signific ant relationship with Idaho, having been negotiated and executed there and invol ving an Idaho resident and an automobile which is registered and garaged in that state.” Id. The court noted National’s claim that the contract had a substantia l relationship to Utah because that is where the accident occurred, but it swiftly rejected that argument in light of the contract’s overwhelming ties to Idaho. “Und er the most significant relationship test, the location of the accident is not sufficient to outweigh6

numerous other contacts, particularly when reliance upon the law of the forum state would seriously alter the original bargain an d disrupt the expectations of the parties.” Id. at 190-91. Thus, we agree with the District Court that Utah’s conflict-of-law rules direct that Wyoming law shoul d control. It may not even be necessary to go through the conf lict-of-law analysis to resolve this dispute. As State Farm points out, th e Utah insurance statutes do not, by their own terms, apply to a policy issued in Wyo ming to a Wyoming resident. In arguing that the family step-down clause is inva lid, Carly relies on sections 31A-21-106, 31A-22-303, and 31A-22-309 of the Utah state code. These statutes are located in Chapters 21 and 22, Title 31, of the Utah code, which apply only to insurance policies, applications and certificates t hat are:

(a) delivered or issued for delivery in this state [Utah]; (b) on property ordinarily located in this state; (c) on persons residing in this state when the poli cy issued; and (d) on business operations in this state. U TAH C ODE ANN . § 31A-21-101(a) (Michie 1994). None of these cri teria apply to Rosanna Mitchell’s State Farm insurance policy. He r policy was delivered to her at her Wyoming address and was issued under Wyoming law. The insured property was not ordinarily located in Utah, but rather in Wyoming. Rosanna Mitchell did not reside in Utah when the policy was issued, nor has she ever claimed to reside in Utah. She was a resident of Wyoming at the time the policy was issued, at the time of the accident, and at the time this lawsuit was filed.7

Finally, Rosanna Mitchell has not claimed that eith er she or the insured automobile is involved in business operations in Ut ah. Thus, the Utah statutes on which Carly relies do not apply to this insurance p olicy. The only Utah statute relevant to Rosanna Mitchell’ s contract is § 41-12a301, which sets out the requirements for non-reside nt owners of vehicles that have been present in Utah for less than 90 days. T his statute requires that such owners “shall maintain the type and amount of owner ’s or operator’s security required in his place of residence in effect continuously throughout the period the motor vehicle remains in Utah.” U TAH C ODE ANN . § 41-12a-301(2)(b)(I) (Michie 1994) (emphasis added). Thus, Utah’s only directiv e with respect to Rosanna Mitchell’s automobile insurance policy is that it b e adequate under the law of Wyoming, her place of residence. It is undisputed that her policy was adequate under Wyoming law. While conceding that the Utah statute incorporates the standards of Wyoming law in this case, plaintiff argues that Uta h public policy prohibits the “unfair result” that would be reached under Wyoming law and urges us to find the step-down clause void on public policy grounds. A court may apply the law of the forum state if it finds that applying another s tate’s law would violate the “strong public policy” of the forum state. See Bullington v. Mize , 478 P.2d 500, 504-05 (Utah 1970). Courts, including those of Uta h, construe the public policy8

exception very narrowly. The doctrine is reserved for situations in which the foreign law “would violate some fundamental princip le of justice, some prevalent conception of good morals, some deep-rooted traditi on of the common weal [of the forum state].” Loucks v. Standard Oil , 120 N.E. 198, 202 (N.Y. Ct. App. 1918), quoted inBullington , 478 P.2d at 504. A mere difference in the laws o f the two states will not justify refusing to apply t he foreign law. See Alexander v. Beech Aircraft Corp. , 952 F.2d 1215, 1223 (10th Cir. 1991). We find th at the application of Wyoming law in this case does not of fend any strong public policy of Utah. Carly argues the Utah Supreme Court would hold fami ly exclusion clauses written after 1986 per se invalid. In 1987, a thre e-way split in the Utah Supreme Court resulted in a narrow majority of the court ap parently agreeing, in dicta only, that clauses reducing liability coverage when a fam ily member of the insured sues are void in policies written after 1986. See State Farm Mut. Auto. Ins. Co. v. Mastbaum , 748 P.2d 1042, 1044 (Utah 1987) (holding family e xclusion clause at issue, which was written before 1986, valid as to c overage in excess of statutory minimum); id. at 1044-45 (Zimmerman, J. concurring) (stating suc h clauses written after 1986 are invalid); id. at 1045-49 (Durham, J., dissenting) (stating that all such clauses are invalid). However, as St ate Farm points out, the Utah Supreme Court more recently declared that step-down clauses reducing liability9

coverage for permissive users (i.e., an insured use r of the automobile other than the policyholder or a member of the policyholder’s family) are notvoid so long as they do not reduce coverage below the statutory min imum; this ruling arguably casts doubt on the dicta in Mastbaum . See Cullum v. Farmers Ins. Exch. , 857 P.2d 922, 923-24 (Utah 1993). Given the somewhat c onfused status of step-down clauses in Utah law, we cannot say that Utah has a “strong public policy” against them, such that its courts would refuse to enforce such a clause. Carly Mitchell also asserts that Utah public policy prevents the enforcement of the step-down clause because it contains an inco rporation-by-reference, that is, it incorporates the statutory minimum level of cove rage without specifying what that level is. Utah prohibits such incorporations- by-reference in Utah insurance contracts. See U TAH C ODE ANN . § 31A-21-106(1) (Michie 1994); Cullum v. Farmers Ins. Exch. , 857 P.2d 922, 924-27 (Utah 1993). This argument is without merit. In American National , the Utah Supreme Court enforced an incorporationby-reference clause in an out-of-state insurance po licy. Thus, it is not against the public policy of Utah to enforce an incorporation-b y-reference clause in an outof-state contract when the clause is valid under th e other state’s law. Plaintiff’s public policy arguments are particularl y unpersuasive in light of the fact that the Utah legislature has expressly li mited the requirements and protections of the Utah insurance statutes to polic ies issued to Utah residents. Cf.10

Bullington , 478 P.2d at 504 (rejecting public policy argumentthat Utah courts should extend protection of Utah’s trust deed statu te to trust deed on Texas land, noting legislature’s express intent that statute ap ply only to deeds on Utah property). CONCLUSION Because we determine that the law of Wyoming applie s to this action, State Farm is entitled to summary judgment. Thus, we aff irm the holding of the District Court. ENTERED FOR THE COURT,

Deanell Reece Tacha Circuit Judge