Opinion ID: 76984
Heading Depth: 2
Heading Rank: 2

Heading: Who Bears Liability

Text: 53 We now turn to the main issue in this case: which of the three insurers bears primary responsibility for Plaintiff McGow's UM losses. This issue turns on which state's law applies to the dispute— Georgia's or Michigan's. 6 The district court applied Georgia law. On appeal, Allstate and Auto Club argue that Michigan, and not Georgia, law applies in this case because all three policies in issue were delivered in Michigan. 54 We first summarize the applicable choice-of-law rules. We then explain why the district court applied Georgia law but should have applied Michigan law.
55 As described above, this case turns on whether Georgia or Michigan law governs the insurers' relative responsibilities. In determining which law applies, a federal district court sitting in diversity must apply the choice of law rules of the forum state. Trumpet Vine Investments, N.V. v. Union Capital Partners I, Inc., 92 F.3d 1110, 1115 (11th Cir.1996). Thus, we apply Georgia's choice-of-law rules. 56 Georgia adheres to the traditional choice-of-law rules for contract— lex loci contractus. Convergys Corp. v. Keener, 276 Ga. 808, 812, 582 S.E.2d 84, 87 (2003). Under the rule of lex loci contractus, the validity, nature, construction, and interpretation of a contract are governed by the substantive law of the state where the contract was made, except that where the contract is made in one state and is to be performed in another state, the substantive law of the state where the contract is to be performed will apply. Fed. Ins. Co. v. Nat'l Distrib. Co., 203 Ga.App. 763, 765, 417 S.E.2d 671, 673 (1992). Under Georgia law, an insurance contract is constructively made at the place where the contract is delivered. Id. at 766, 417 S.E.2d at 674-75 (quotation marks and citation omitted). Notwithstanding these general rules, Georgia will not apply the law of another state if the other state's law contravenes Georgia's public policy. See id. at 765, 417 S.E.2d at 674; Terry v. Mays, 161 Ga.App. 328, 329, 291 S.E.2d 44, 45 (1982).
57 Applying Georgia's above choice-of-law rules, the district court acknowledged that Plaintiff McGow is a Michigan resident and that the insurance policies were delivered in Michigan. As a result, the district court acknowledged that, under Georgia's choice-of-law rules, Michigan law ordinarily would govern the interpretation of the policies. 58 The district court then concluded, however, that Michigan law would allow All-state [and Auto Club] to avoid completely any responsibility to provide uninsured motorist coverage to Plaintiff, even though Plaintiff paid premiums to Allstate [and Auto Club] for uninsured motorist coverage and expected that Allstate [and Auto Club] would provide such coverage. The district court concluded that this result under Michigan law would contravene Georgia's public policy because: (1) Georgia has a strong interest in ensuring that injured policyholders receive UM coverage for accidents involving uninsured motorists; and (2) Georgia courts have concluded that the best way to protect this interest is to require insurance companies that actually receive premiums from an insured to bear the primary, initial responsibility for providing UM coverage to the insured. Nat'l Gen. Ins. Co. v. United Servs. Auto. Ass'n, 224 Ga.App. 821, 824, 482 S.E.2d 727, 729 (1997) ([I]t is the carrier that receives a premium from the injured insured that bears initial responsibility for compensating him up to its policy limits, and [t]his is true even where there is an `other insurance' clause in the policy issued by the premium recipient.); Continental Ins. Co. v. Southern Guar. Ins. Co., 193 Ga.App. 395, 396, 388 S.E.2d 16, 17 (1989) (Where receipt of a premium from the injured insured is shown to exist, it is controlling to the exclusion of consideration of any other factors which might be otherwise present.). 59 Consequently, the district court concluded that application of Michigan law in this case would contravene that public policy of Georgia. The district court then noted that Georgia will not apply the law of another state if the other state's law contravenes Georgia's public policy. See Fed. Ins., 203 Ga.App. at 765, 417 S.E.2d at 674; Terry, 161 Ga.App. at 329, 291 S.E.2d at 45. Accordingly, the district court applied Georgia instead of Michigan law and determined that Allstate and Auto Club bear initial UM responsibility for McGow's compensation, irrespective of the language of the policies, because they both received premiums from McGow, while St. Paul did not. As noted earlier, St. Paul's policy covered the Expedition's passengers, such as McGow, but that insurance was obtained and paid for by Cosworth. 60 The district court's decision to apply Georgia law thus turned on its conclusion that, under Michigan law, Auto Club and Allstate would avoid any liability to McGow, even though McGow paid premiums to Auto Club (for his automobile) and Allstate (for his motorcycle) with the expectation that they would provide UM coverage for his damages. As explained below, the district court, however, erred both in its interpretation of Michigan's insurance law and in its analysis of Georgia's public-policy law.
61 As outlined above, each of the UM policies at issue here is a primary, as opposed to a true excess, coverage policy that covers McGow for damages caused by an uninsured motorist. However, the St. Paul and Allstate policies each contain an other insurance clause, which makes their primary UM coverage become excess (i.e., a second layer of primary coverage to be reached only after other primary insurance is exhausted) where UM coverage is provided under another policy. On the other hand, the Auto Club policy contains a pro-rata other-insurance clause and even provides an exclusion from UM coverage where the injury is sustained while the insured, McGow, is occupying a motor vehicle that provides the same or similar coverage. The net result is competing other-insurance clauses through which all three insurers seek to reduce or eliminate their primary coverage for the insured's UM loss in the event of concurrent coverage. 62 In a situation of competing other-insurance clauses, the Michigan Supreme Court had to decide whether to view all `other insurance' clauses as irreconcilable and prorate[] liability among all insurers, or to adopt the majority rule that endeavors to reconcile the competing clauses if possible. St. Paul Fire & Marine Ins. Co. v. American Home Assurance Co., 444 Mich. 560, 562, 514 N.W.2d 113, 114 (1994). 7 The Michigan Supreme Court adopted the majority rule. See id. at 576-77, 514 N.W.2d at 120. Thus, Michigan law generally attempts to reconcile and give effect to the other insurance and escape clauses in insurance policies. See id. at 577-78, 514 N.W.2d at 121. 63 In so doing, Michigan law recognizes three general categories of other insurance clauses: (1) a pro-rata clause, which purports to limit the insurer's liability to a proportionate percentage of all insurance covering the event; (2) an escape or no-liability clause, which provides that there shall be no liability if the risk is covered by other insurance; and (3) an excess clause, which limits the insurer's liability to the amount of loss in excess of the coverage provided by the other insurance. Id. at 565, 514 N.W.2d at 115 (citing Federal Kemper Ins. Co. v. Health Ins. Administration Co., 424 Mich. 537, 542, 383 N.W.2d 590 (1986)); see also Pioneer State Mutual Ins. Co. v. TIG Ins. Co., 229 Mich. App. 406, 581 N.W.2d 802, 805 (1998) (discussing same three types of other-insurance clauses). Michigan courts have also recognized that [a] variety of combinations of the clauses may occur (e.g., pro rata versus excess, pro rata versus escape, excess versus excess) and the courts have developed different rules for resolving these conflicts. Pioneer State, 229 Mich. App. at 411-12, 581 N.W.2d at 805. Michigan's rules attempt to reconcile the competing provisions by discerning the parties' intent through an analysis of the clauses. Id. at 412, 581 N.W.2d at 805 (quotation marks and citation omitted). 64 Further, applying Michigan law to each policy here yields these results. First, the Auto Club policy contains a pro rata other-insurance clause, providing that it is liable for an insured's damages in the same proportion that the applicable limit of liability of [its] coverage bears to the sum of all applicable limits of liability that cover the loss. Under Michigan law, an insurer, such as Auto Club, whose policy is primary and includes a pro-rata other-insurance clause, ordinarily would bear primary, initial liability. See St. Paul, 444 Mich. at 573-78, 514 N.W.2d at 119-21. Where multiple pro-rata policies provide coverage, the pro-rata insurers share initial primary liability proportionate to their policy limits. See id. 65 However, under Michigan law, a different result ensues if one primary insurer has a pro-rata other-insurance clause but the other primary insurer has an excess other-insurance clause. Under Michigan law, the insurer with a pro-rata other-insurance clause in its policy would be required to compensate an insured's loss up to its policy limits before a primary insurer whose policy includes an excess other-insurance clause would be required to pay at all. St. Paul, 444 Mich. at 573-76, 514 N.W.2d at 119-20. Thus, without its escape clause, Auto Club (with its pro-rata other-insurance clause) would be required to pay McGow damages up to its policy limits before St. Paul and Allstate (with their excess other-insurance clauses) would have to pay under their policies. 8 66 But this case has yet another wrinkle that affects the layering of coverage. In addition to its pro-rata other-insurance clause, the Auto Club policy contains an escape clause in its exclusions section. Specifically, the Auto Club policy contains an exclusion for bodily injury sustained by the insured while occupying a motor vehicle which provides the same or similar coverage for the insured. Unlike other-insurance clauses, which instruct how to apportion the dollars when two or more policies apply to the same covered act, such an exclusion under Michigan law provides for no coverage under the specified circumstances, and there is nothing to `apportion' between the [] carriers. American States Ins. Co. v. Kesten, 221 Mich.App. 330, 333, n. 2, 561 N.W.2d 486, 488 n. 2 (1907). Thus, because McGow (the insured) sustained the injuries while occupying a motor vehicle (the Expedition) that has the same or similar coverage (the St. Paul UM coverage), the Auto Club policy's escape clause is triggered and, under Michigan law, the Auto Club policy provides no coverage, primary or otherwise, to McGow for his injuries. 9 67 In contrast to Auto Club, the Allstate and St. Paul policies both contain excess other-insurance clauses and no escape clause. Thus, the Allstate and St. Paul policies provide primary UM coverage with competing excess other-insurance clauses. We first examine how both excess other-insurance clauses are triggered as to McGow's damages and then how Michigan law reconciles and enforces competing excess other-insurance clauses. 68 As outlined above, the Allstate policy's other-insurance clause provides that [i]f the insured person [McGow] was in . . . a vehicle you [McGow] do not own, which is insured for this coverage under another policy, this coverage will be excess. Thus, Allstate's excess other-insurance clause was triggered because McGow was in a vehicle that he did not own (the Expedition) and that is insured for UM coverage under another policy (the St. Paul policy). 69 Similarly, the St. Paul policy's other-insurance clause provides, in relevant part: This agreement provides primary insurance for covered autos the named insured owns and excess insurance for those the named insured doesn't own. Thus, St. Paul's excess other-insurance clause was triggered because the Expedition was a covered auto the named insured (Cosworth) did not own. Accordingly, St. Paul and Allstate have competing excess other-insurance clauses. 70 The Michigan courts have expressly addressed how to reconcile competing excess other-insurance clauses. While Michigan law attempts to enforce excess other-insurance clauses, forming a second coverage layer behind primary pro-rata coverage, it nevertheless recognizes that excess other-insurance clauses in primary auto policies do not alter the basic nature of the policies as primary automobile policies. See Bosco v. Bauermeister, 456 Mich. 279, 291-92, 571 N.W.2d 509, 514 (1997) (distinguishing between true excess policies, which provide only for excess coverage, and primary policies that become excess only under other insurance clauses, and concluding that the latter's basic nature as a primary policy does not change). Thus, under Michigan law, where no other primary insurance is available, primary policies with excess other-insurance provisions will bear primary liability on a pro-rata basis, apportioned on the basis of the policy limits. See Pioneer State, 229 Mich.App. at 414-16, 581 N.W.2d at 806-07 (noting that an arguable literal interpretation that would deny any insurance coverage in the face of competing `excess' clauses would be absurd, and, where there were two `mutually repugnant' `excess' clauses, apportioning coverage on the basis of the policy limits). 71 Because in this case there is no other primary insurance due to Auto Club's escape clause, Allstate and St. Paul continue to bear primary liability, notwithstanding their excess other-insurance clauses, apportioned according to their coverage limits. See id. In sum, under Michigan law, Auto Club has no liability for McGow's damages under its policy and St. Paul and Allstate bear primary liability, apportioned according to their coverage limits. 10
72 The district court applied Georgia law because it concluded that the result under Michigan law would be to allow insurers (Allstate and Auto Club) that accepted premiums from McGow to escape liability, and that this result would contravene Georgia's public policy. First, as established above, Allstate, along with St. Paul, bears primary liability under Michigan law, and only Auto Club escapes liability under its exclusion. Second, and more importantly, this result under Michigan law does not contravene Georgia's public policy. 73 We acknowledge that Georgia has a strong interest in ensuring that its drivers who have UM coverage are compensated for damages caused by uninsured drivers. The application of Michigan law will not deprive Plaintiff McGow of compensation for his injuries; it will simply affect which insurance company pays McGow. We recognize that Georgia courts have devised rules applicable to competing other-insurance clauses that they think will best provide UM coverage. Nonetheless, that choice is better described as a rule than as a public policy that is contravened by applying Michigan's different rules for reconciling competing insurance clauses. 74 Indeed, Georgia courts have repeatedly held that another state's law can be enforced to give effect to a provision of a UM policy even though the provision would not be enforceable under Georgia law. See, e.g., Dacosta v. Allstate Ins. Co., 188 Ga. App. 10, 372 S.E.2d 7, 8 (1988) (applying Tennessee law to allow Allstate to offset workers' compensation benefits received by the insured against the amount of uninsured-motorist benefits otherwise due, even though Georgia law did not provide for such offset); Nationwide Gen. Ins. Co. v. Parnham, 182 Ga.App. 823, 357 S.E.2d 139, 142 (1987) (discerning no prejudice to the public interest in Georgia in applying Texas law to enforce self-insurer-exclusion provision in Texas insurance policy, even assuming such an exclusion would be disfavored under Georgia law); Terry v. Mays, 161 Ga.App. 328, 329, 291 S.E.2d 44, 45 (1982) (applying South Carolina law to enforce exclusion of coverage for settlement without the consent of the insurer, even though such an exclusion has been held repugnant to the Georgia uninsured motorist statute). In so holding, the Georgia Court of Appeals has repeatedly stated the following with regard to the refusal to enforce a provision of an insurance policy as contrary to public policy: 75 Enforcement of a contract or a contract provision which is valid by the law governing the contract will not be denied on the ground of public policy, unless a strong case for such action is presented; mere dissimilarity of law is not sufficient for application of the public policy doctrine. A contract is not necessarily contrary to the public policy of a state merely because it could not validly have been made there, notwithstanding the making of such contracts in the place of the forum is expressly prohibited by statute. 76 Terry, 161 Ga.App. at 329, 291 S.E.2d at 45 (quotation marks and citation omitted). Under this standard, the application of Michigan law here would not contravene Georgia's public policy. 11 77 The district court concluded, and St. Paul argues, that Georgia has a strong interest in forcing insurers, such as Auto Club, who received premiums for providing UM coverage to the insured to provide such coverage. That argument ignores the fact that part of the bargained-for contract included an unambiguous escape clause regarding Auto Club's liability if the insured, McGow, was occupying a motor vehicle that had the same or similar coverage. At the time of the accident, McGow was not in his own vehicle but was a passenger in the Expedition insured by St. Paul. We find nothing in Georgia's public policy that is contravened when McGow is covered by the UM insurance on the vehicle in which he was a passenger. 78 Furthermore, St. Paul's argument might be more compelling with regard to insurers providing insurance pursuant to Georgia contracts. However, Allstate and Auto Club issued and delivered policies in Michigan with an expectation that Michigan law would be applied to enforce the terms of those contracts. Accordingly, to apply Georgia law instead would effectively require Allstate and Auto Club to provide insurance other than what they contracted for, not simply require them to provide the insurance for which they received premiums. Given that McGow was a passenger in a vehicle insured by St. Paul and that McGow is clearly covered under St. Paul's policy, Georgia has no compelling interest in requiring insurers in Auto Club's position to provide insurance beyond the terms of their policies, which are valid under the Michigan law governing them. The district court thus erred in applying Georgia law. 12