Opinion ID: 160878
Heading Depth: 3
Heading Rank: 2

Heading: Settled Public Policy of Kansas

Text: Next, we must identify the settled public policy of Kansas applicable to this case. Plaintiffs claim the “well settled and strong Kansas public policy” at issue is protecting the insured’s interests in light of his relinquishment of the right to conduct his own defense and settlement negotiations, encouraging settlements, and protecting Kansas courts from unnecessary litigation. We agree the Kansas Supreme Court has declared the public policy objectives in this type of case to be these three considerations. See Bollinger, 449 P.2d at 508; see also Glenn, 799 P.2d at 93. 5 However, we also believe the supreme court has made clear Kansas public policy is not the bad faith or negligence standards themselves; rather, the standards are merely the method of accomplishing the public policy objectives. See Bollinger, 449 P.2d at 508 (“Public policy dictates that the insured’s interests be adequately protected, and we believe this may be best accomplished by holding that both due care and good faith are required of the insurer in reaching the decision not to settle.”). 5 To the extent the Kansas Supreme Court distinguishes between “settled” and non-settled public policy, we assume without deciding these considerations reflect the “settled” public policy of Kansas. Cf. Riddle v. Wal-Mart Stores, Inc., 998 P.2d 114, 119 (Kan. Ct. App. 2000) (“Before courts are justified in declaring the existence of public policy, ‘it should be so thoroughly established as a state of public mind so united and so definite and fixed that its existence is not subject to any substantial doubt.’”) (quoting Palmer v. Brown, 752 P.2d 685, 687-88 (Kan. 1988)). -9- C. Evaluation of Conflict of Laws Against Kansas’s Settled Public Policy We turn to an evaluation whether New York’s refusal to hold an insurer liable for ordinary negligence under this cause of action violates the settled public policy of Kansas as described above. At oral argument, plaintiffs’ counsel stated there was no Kansas case directly on point, and we have found none. Thus, we utilize general principles applicable to, and an analysis of Kansas Supreme Court case law dealing with, the Kansas public policy exception for our evaluation of this issue. In general, application of the public policy exception should be extremely limited so as to prevent it from consuming the rule. See Alexander v. Beech Aircraft Corp., 952 F.2d 1215, 1223-24 (10th Cir. 1991) (addressing the Kansas public policy exception and emphasizing it has a “narrow scope of application”). “Since every law is an expression of the public policy of the state, some higher threshold is needed to prevent the forum’s law from being applied in every case.” Tucker v. R.A. Hanson Co., 956 F.2d 215, 218 (10th Cir. 1992). As plaintiffs acknowledge, a mere difference in the law of each state is not sufficient to justify the application of the exception. See Alexander , 952 F.2d at 1223-24; cf. Safeco , 941 P.2d at 1368-69, 1372-73. -10- The Kansas Supreme Court has invoked Kansas’s public policy exception when application of the other state’s law would thwart or defeat the public policy objectives underlying the Kansas law at issue. See St. Paul Surplus Lines Ins. Co. v. International Playtex, Inc. , 777 P.2d 1259, 1269 (Kan. 1989); Barbour , 168 P. at 880. In St. Paul , several liability insurance companies brought a declaratory judgment action to resolve whether they were obligated to indemnify their insured for an adverse punitive damages award in a products liability case. See St. Paul , 777 P.2d at 1261. The punitive damages award was rendered against Playtex, the insured, for the death of a Kansas citizen who had used its product. See id. at 1261, 1269. Delaware, Playtex’s state of incorporation, allows insurance for punitive damages, while Kansas does not. See id. at 1267, 1269. The Kansas Supreme Court declared the objective behind the Kansas law “is to prevent wrongful acts against citizens of the State of Kansas” through deterrence by making “the culprit feel the pecuniary punch, not his guiltless guarantor.” St. Paul , 777 P.2d at 1269 (quotation marks omitted). Accordingly, the supreme court affirmed the trial court’s use of the public policy exception to defeat the application of Delaware law, because refusal to apply the Kansas law “would thwart the purposes for which the policy was adopted.” Id. at 1269, 1270. -11- In Barbour , an oral contract was allegedly made in Idaho, which, according to the plaintiff, was not prohibited by the Idaho statute of frauds and would be enforceable in that state. See Barbour , 168 P.2d at 880. However, an oral contract was unenforceable under Kansas’s statute of frauds. See id. The Kansas Supreme Court noted the objective of the Kansas statute is to prevent frauds and perjuries, and applying Idaho law would “open the door to all manner of frauds and encourage the baldest sort of perjury.” Id. In other words, applying the Idaho statute would defeat the Kansas public policy objective underlying the Kansas statute. Accordingly, the supreme court invoked the public policy exception, applied the Kansas statute, and refused to enforce the alleged oral contract. See id. On the other hand, the Kansas Supreme Court did not apply the public policy exception when an automobile liability insurance policy provision was consistent with the Kansas public policy objective behind a Kansas statute. See Safeco , 941 P.2d at 1373. In Safeco , the insured was a Missouri resident, the insurance policy was issued in Missouri, and the car accident occurred in Kansas. See id. at 1366. The issue was whether the insurer was entitled to subrogation for payments it made to its insured for his medical expenses. See id. at 1367-68. The insurer was not entitled to subrogation if the policy’s medical expenses -12- coverage and Missouri law applied, but was if the supreme court determined Kansas’s statutorily mandated personal injury protection benefits eliminated the policy’s coverage. See id. at 1368-69. The supreme court concluded: “The medical payment provision of the Missouri policy does not violate Kansas public policy but, to the contrary, is consistent with the stated policy of [the Kansas Automobile Injury Reparations Act] by promptly compensating its insured for personal injuries.” Id. at 1373. The supreme court emphasized “the dispute is between the parties to the insurance policy,” and held they were bound to the terms of the policy and Missouri law in order to ensure that the insured received the benefit of his bargain. Id. We conclude New York’s bad faith standard is consistent with the Kansas public policy objectives underlying the cause of action in this case, and, unlike the situations in St. Paul and Barbour , does not thwart or defeat them. In light of the consistent objectives and the fact the insurance policy was made, entered, and issued in New York to a New York citizen, we believe the application of New York law does not violate Kansas’s settled public policy objectives as described above. We hold this case reflects nothing more than a mere difference in the law, which is not sufficient to justify the application of the Kansas public policy exception to its lex loci contractus rule. See Alexander , 952 F.2d at 1223-24; cf. -13- Safeco , 941 P.2d at 1368-69, 1372-73. Although plaintiffs argue the application of New York law is “repugnant” to Kansas’s public policy objectives, we believe, to the contrary, New York law is consistent with those objectives. This consistency is evidenced by: (1) both New York and Kansas provide a cause of action by the insured against an insurer for a bad faith failure to settle a claim within policy limits, and (2) the bad faith standards of each state mirror one another. See supra Parts II, IV.A and note 4. Additionally, New York’s bad faith standard and Kansas’s bad faith or negligence standard emanate from and seek to serve the same public policy objectives: protecting the insured’s interests in light of his relinquishment of control of the case to the insurer, encouraging settlements, and preventing unnecessary litigation merely because an insurance company decides to try all cases as a matter of policy. Compare Pavia , 626 N.E.2d at 27 (“At the root of the ‘bad faith’ doctrine is the fact that insurers typically exercise complete control over the settlement and defense of claims against their insureds.”), and Pinto v. Allstate Ins. Co. , 221 F.3d 394, 399 (2d Cir. 2000) (applying Pavia ) (“The availability of a bad faith cause of action encourages settlements that are in the insured’s best interests, and also discourages insurance companies from refusing to settle as a matter of policy.” (citation omitted)), with supra Part IV.B -14- (identifying Kansas’s settled public policy objectives in this type of case). Accordingly, although the standards may differ in that New York does not recognize negligence as a basis for liability, New York’s bad faith standard cannot be said to thwart or defeat Kansas’s settled public policy objectives. See Bollinger , 449 P.2d at 509 (“While the terms ‘negligence’ and ‘bad faith’ are not synonymous or interchangeable in a strict legal sense, they share common hues in the insurer’s spectrum of duty.”). Further, the only connection to Kansas in this case is that the car accident occurred there. See Safeco , 941 P.2d at 1366; supra Part I. Mr. Mirville is a New York resident and citizen, and Allstate is an Illinois corporation. See supra Part I. The cause of action is based on their contractual relationship, which was entered into in New York. See supra note 2 and Part I. As stated by the district court: The issue essentially boils down to whether applying the standard of care concerning the settlement of insurance claims established by the New York courts to a contract entered into in the state of New York, between a New York resident and his insurance company, would violate Kansas public policy. The court finds that it would not. Mirville , 71 F. Supp. 2d at 1108. We agree. See Safeco , 941 P.2d at 1373. 6 6 With respect to the portion of the district court’s opinion from which we quote, plaintiffs argue “[t]here is no basis in law or equity for the district court’s exclusion of non-residents from protection of the Kansas public policy at issue.” We do not read the -15- We hold the district court correctly concluded the Kansas public policy exception does not apply in this case. Accordingly, we affirm the district court’s application of New York’s bad faith standard to this case in both its summary judgment and final orders.