Court Opinion

ID: 2714063
Source: CourtListenerOpinion
Date Created: 2014-08-06 15:19:33.509146+00
Date Added: 2024-06-11T13:22:32.765726
License: Public Domain

130 Nev., Advance Opinion II
                        IN THE SUPREME COURT OF THE STATE OF NEVADA

                 PROGRESSIVE GULF INSURANCE                            No. 57324
                 COMPANY, AN OHIO CORPORATION,
                 Appellant,
                 vs.
                 RANDALL K. FAEHNRICH,                                         FILED
                 INDIVIDUALLY AND AS NATURAL
                                                                                MAR 2 7 2014
                 PARENT AND/OR LEGAL GUARDIAN
                 OF RANDY FAEHNRICH AND                                        Tec, K.
                                                                               r
                                                                           CLE 0 S LI

                 CHRISTIAN FAEHNRICH, MINORS;                             BY
                                                                               C IE
                 AND TONI A. FAEHNRICH,
                 INDIVIDUALLY AND AS NATURAL
                 PARENT AND/OR LEGAL GUARDIAN
                 OF RANDY FAEHNRICH AND
                 CHRISTIAN FAEHNRICH, MINORS,
                 Respondents.

                             Certified question under NRAP 5 concerning the enforceability
                 of a household exclusion clause in an automobile liability insurance policy
                 issued out of state but applied to Nevada residents injured in Nevada.
                 United States Court of Appeals for the Ninth Circuit; Robert R. Beezer,
                 Andrew Jay Kleinfeld, and Susan Graber, Circuit Judges.
                             Question answered.

                 Prince & Keating and Dennis M. Prince and Douglas J. Duesman, Las
                 Vegas,
                 for Appellant.

                 Benson Bertoldo Baker & Carter, Chtd., and Brett A. Carter, Las Vegas,
                 for Respondents.

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                BEFORE THE COURT EN BANC.

                                                  OPINION
                By the Court, PICKERING, J.:
                            The United States Court of Appeals for the Ninth Circuit has
                certified the following question to this court: "Does Nevada's public policy
                preclude giving effect to a choice-of-law provision in an insurance contract
                that was negotiated, executed, and delivered while the parties resided
                outside of Nevada, when that effect would deny any recovery under NRS
                485.3091 to Nevada residents who were injured in Nevada?"
                                                       I.
                            The certified question grows out of a dispute over the validity
                of a household exclusion in an automobile liability insurance policy. The
                policy was negotiated, delivered, and renewed several times in Mississippi,
                where Randall and Toni Faehnrich lived with their two children. The
                policy was entitled "Mississippi Motor Vehicle Policy." The Faehnriches'
                insurance application listed Mississippi as their state of residence. This
                made Mississippi the state whose statutory law the policy incorporated:
                            TERMS OF POLICY CONFORMED TO
                            STATUTES
                            If any provision of this policy fails to conform with
                            the legal requirements of the state listed on your
                            application as your residence [Mississippi], the
                            provision shall be deemed amended to conform
                            with such legal requirements. All other provisions
                            shall be given full force and effect. Any disputes
                            as to the coverages provided or the provisions of
                            this policy shall be governed by the law of the state
                            listed on your application as your residence.
                (Emphasis added.) The parties and the Ninth Circuit refer to the
                italicized language as the policy's choice-of-law provision.
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                                 Eventually, the couple divorced and Toni moved to Nevada.
                   She drove here in a Jeep that she and Randall co-owned. 1 The couple's
                   minor children, both boys, then flew out to join their mother in Las Vegas.
                   The next day, while driving the Jeep with the children as passengers, Toni
                   was involved in a single-car accident; the car rolled, and the boys suffered
                   serious injuries. At the time, the Jeep still carried Mississippi registration
                   and license plates, and Toni had a Mississippi driver's license.
                                 The insurance policy, issued by Progressive Gulf Insurance
                   Co., generally provides bodily injury liability coverage up to $100,000 per
                   person and $300,000 per accident. But it includes a household exclusion
                   that, on its face, eliminates coverage for the boys' claims against Toni.
                   The exclusion states that the policy's liability coverage "does not apply
                   to. . . bodily injury to you or a relative." "Relative" is defined as
                                 a person residing in the same household as you,
                                 and related to you by blood, marriage, or
                                 adoption . . . . Your unmarried dependent children
                                 temporarily away from home will be considered
                                 residents if they intend to continue to reside in
                                 your household.
                   When the policy was issued, Progressive offered, but the Faehnriches
                   declined, "All Uninsured/Underinsured Bodily Injury. . . Coverage."
                                 Randall presented a claim to Progressive for his sons' injuries.
                   Citing the household exclusion, the insurer denied coverage. Progressive
                   then brought a declaratory judgment action in Nevada federal district
                   court, followed by a motion for summary judgment, seeking, among other

                         1 The Ninth Circuit describes the Jeep as an "insured vehicle." We
                   accept that designation. See In re Fontainebleau Las Vegas Holdings,
                   L.L.C., 127 Nev. , 267 P.3d 786, 794-95 (2011).

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                things, an order declaring the household exclusion valid and applicable.
                Stressing that "[t]he family member [or household] exclusion does not
                [afford] the minimum [$15,000/$30,000 bodily injury] coverage required by
                the Nevada Insurance Code," see NRS 485.185; NRS 485.3091, the district
                court denied summary judgment. It held that the "exclusion violates
                Nevada public policy [and] is unenforceable; and, in accordance with
                Nevada choice of law rules, Mississippi law [validating such exclusions]
                cannot apply."
                               Progressive appealed. Because the order denying summary
                judgment did not resolve the case, the Ninth Circuit dismissed the first
                appeal for lack of a final, appealable judgment. There followed a
                stipulation designed to convert the summary judgment denial into a final
                judgment. In the stipulation, the parties "agreed that if Mississippi law is
                applicable, there is no coverage under the terms and conditions of the
                Progressive policy." They further agreed that, "[i]n the event that Nevada
                law is applicable, Progressive would owe a duty to. . . indemnify [Toni]
                Faehnrich consistent with the terms and conditions of its policy up to the
                applicable limits of $15,000.00 per person and $30,000.00 per occurrence,"
                and that this would entitle the two children to $15,000 apiece for their
                bodily injuries. In the stipulation "Progressive waives any other coverage
                defenses," and both sides agree that "there are no other issues to
                adjudicate."
                               A second Ninth Circuit appeal followed. After briefing and
                argument, a divided panel concluded that this case turns on an unsettled
                question of Nevada public policy and certified that question to this court.

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                                                      A.
                            Rule 5 of the Nevada Rules of Appellate Procedure gives this
                court discretionary authority to accept and answer certified questions of
                Nevada law that "may be determinative of the cause then pending in the
                certifying court." See Volvo Cars of N. Am., Inc. v. Ricci,     122 Nev. 746,
                749-51, 137 P.3d 1161, 1163-64 (2006). As the answering court, our role
                "is limited to answering the questions of law posed to [us;] the certifying
                court retains the duty to determine the facts and to apply the law provided
                by the answering court to those facts."      In re Fontainebleau Las Vegas
                Holdings, L.L.C., 127 Nev. „ 267 P.3d 786, 794-95 (2011). We
                accept "the facts as stated in the certification order and its attachment[s]."
                Id. at , 267 P.3d at 795.
                            These rules, combined with the parties' stipulation, prompt us
                to narrow the question posed by the Ninth Circuit,          See Chapman v.
                Deutsche Bank Nat'l Trust Co., 129 Nev. „ 302 P.3d 1103, 1105-06
                (2013) (this court may, in its discretion, rephrase a certified question).
                Rephrased, the question we consider is: Does Nevada public policy
                preclude giving effect to a household exclusion clause in an automobile
                liability insurance policy delivered in Mississippi to Mississippi residents
                and choosing Mississippi law as controlling, where Mississippi law permits
                household exclusions but the effect of the exclusion is to deny Nevada
                residents who were injured in Nevada recovery of the minimum coverages
                specified in NRS 485.3091?
                                                      B.
                            Nevada tends to follow the Restatement (Second) of Conflict of
                Laws (1971) in determining choice-of-law questions involving contracts,
                generally, see Ferdie Sievers & Lake Tahoe Land Co. v. Diversified
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                    Mortgage Investors, 95 Nev. 811, 815, 603 P.2d 270, 273 (1979) (citing and
                    applying Restatement (Second) of Conflict of Laws § 187 to a contractual
                    choice-of-law clause), and insurance contracts, in particular. See Sotirakis
                    v. USAA, 106 Nev. 123, 125-26, 787 P.2d 788, 790-91 (1990) (citing and
                    applying Restatement (Second) of Conflict of Laws §§ 188 and 193 to an
                    insurance choice-of-law question where the policy did not include a choice-
                    of-law clause); see also Williams v. USAA,      109 Nev. 333, 335, 849 P.2d
265, 266-67 (1993) (to like effect); Daniels v. Nat'l Home Life Assurance
                    Co., 103 Nev. 674, 677-78, 747 P.2d 897, 899-900 (1987) (effectively
                    adopting, although not citing, Restatement (Second) of Conflict of Laws §
                    192 & id. cmt. e, denying effect "to a choice of law provision in a life
                    insurance contract designating a state whose local law gives the insured
                    less protection than he would receive under the otherwise applicable law,"
                    that being the insured's domicile when he or she applied for the policy).
                    So long as "the parties acted in good faith and not to evade the law of the
                    real situs of the contract," Nevada's choice-of-law principles permit parties
                    "within broad limits to choose the law that will determine the validity and
                    effect of their contract." Ferdie Sievers, 95 Nev. at 815, 603 P.2d at 273.
                    "The situs fixed by the agreement, however, must have a substantial
                    relation with the transaction, and the agreement must not be contrary to
                    the public policy of the forum," id., or other interested state.
                                As the Ninth Circuit declared, the parties to this appeal chose
                    Mississippi law in good faith and not in an attempt to evade the law of the
                    real situs of the contract. This makes Daniels, 103 Nev. at 677-78, 747

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                P.2d at 899-900, inapplicable. 2 The question, then, is whether the policy's
                choice of Mississippi law, which validates the household exclusion, 3
                offends a fundamental Nevada policy in the circumstances of this case.
                This depends not just on Nevada public policy but also on Mississippi
                public policy and whether Nevada or Mississippi has a materially greater
                interest in the matter. "Application of the chosen law will be refused only
                (1) to protect a fundamental policy of the state which, under the rule of §
                188 [choice-of-law in contract cases without choice-of-law clauses], would
                be the state of the otherwise applicable law, provided (2) that this state
                has a materially greater interest than the state of the chosen law in the
                determination of the particular issue." Restatement (Second) of Conflict of
                Laws § 187 cmt. g. "An important consideration is [where and to what
                extent] the significant contacts are grouped. For the forum will be more
                inclined to defer to the policy of a state which is closely related to the
                contract and the parties than to the policy of a state where few contacts
                are grouped." Id.

                      2 1n Daniels, the insurer sold "group life insurance" to military
                veterans pursuant to a master policy that recited it was "delivered" in
                Missouri, whose law the policy chose. 103 Nev. at 677-78, 747 P.2d at 899-
                900. We determined the policy was not true group insurance but
                "'franchise insurance,' which is to be treated as an individual policy." Id. at
                678, 747 P.2d at 899. Since the policy was applied for and delivered to a
                Nevada domiciliary in Nevada, Nevada law applied notwithstanding the
                master policy's recitation that it was issued and delivered in Missouri. Id.
                at 678, 747 P.2d at 900.

                      3 We accept the parties' stipulated representation that Mississippi
                law validates household exclusions even as to minimum statutory
                coverages. See Thompson v. Miss. Farm Bureau Mitt. Ins. Co., 602 So. 2d
855, 856 (Miss. 1992).

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                               In Sotirakis, we weighed analogous contacts and concerns.
                   Sotirakis, a California resident covered by a California insurance policy,
                   was injured in an accident in Nevada. 106 Nev. at 124, 787 P.2d at 789.
                   As here, the insurer denied coverage based on a household exclusion
                   clause. Had the policy been delivered in Nevada, to a Nevada resident
                   owning a car principally garaged in Nevada, then-existing case law would
                   have invalidated the household exclusion to the extent it "eliminate [d] the
                   statutorily mandated [$15,000/$30,000] minimum liability coverage"
                   specified in NRS 485.3091. Farmers Ins. Exch. v. Warney, 103 Nev. 216,
                   217, 737 P.2d 501, 501 (1987); see Estate of Neal v. Farmers Ins. Exch., 93
Nev. 348, 351, 566 P.2d 81, 83 (1977) (invalidating a household exclusion
                   clause under the since-repealed NRS 698.320, requiring bodily injury
                   insurance in specified minimum amounts). Based on this case law,
                   Sotirakis asked us to invalidate her policy's household exclusion, even
                   though, "[u]nder California statutes and case law, [household] exclusion
                   clauses are permissible." Sotirakis, 106 Nev. at 124, 787 P.2d at 789.
                               We rejected Sotirakis's invitation to look to Nevada law,
                   applied California law, and upheld the household exclusion. In doing so,
                   we emphasized that "the policy was issued in California to a California
                   resident who paid premiums in California. Moreover, the driver was also
                   a resident of California." Id. at 126, 787 P.2d at 790. As "the principal
                   location of the risk" was California and "the cost of the policy. ... was
                   determined in California[,] ... the insureds presumably assumed that
                   their premium was based on California, rather than another state's,
                   rates." Id. at 126, 787 P.2d at 791. See Restatement (Second) of Conflict
                   of Laws § 193 ("The validity of a contract of ... casualty insurance and the
                   rights created thereby are determined by the local law of the state which

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                the parties understood was to be the principal location of the insured risk
                during the term of the policy, unless with respect to the particular issue,
                some other state has a more significant relationship . . . to the transaction
                and the parties .. . ."). The "only contact" Nevada had with Sotirakis "was
                the mere fact that it was the state in which [she] happened to have an
                accident. If this were enough to apply a state's law, then laws would be
                applied according to the fortuity of where the accident occurred rather
                than by the provisions of the insured's policy." Sotirakis, 106 Nev. at 126,
787 P.2d at 791 (citing Boardman v. USAA, 470 So. 2d 1024, 1032 (Miss.
                1985)).
                            Sotirakis represents the majority rule. 1 Irvin E. Schermer &
                William J. Schermer, Automobile Liability Insurance § 6.9 (4th ed. 2013)
                ("Where the insured vehicle covered by a policy containing a household
                exclusion is involved in an accident in a foreign state, a majority of the
                courts have applied the rule of the state in which the policy was issued to
                enforce the exclusion, provided the exclusion was valid in the issuing
                state."). But the Faehnriches argue Sotirakis should not apply because
                upholding the household exclusion in this case will leave the children with
                "no recovery from any other source." As support, they cite NRS 485.3091
                and Williams, 109 Nev. at 336, 849 P.2d at 267.
                            Decided three years after        Sotirakis, Williams      applied
                California law to deny an insured injured in a Nevada accident
                underinsured motorist (UIM) coverage mandated by application of Nevada
                but not California law. Id. The facts were similar to Sotirakis except that,
                in Williams, the insured was a member of the United States Air Force on
                four-week assignment to Nevada when the accident occurred, and he had
                already recovered $300,000 under the negligent parties' and his own

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                policies. Id. at 333-34, 849 P.2d at 265-66. Even though Williams had
                been in Nevada longer than Sotirakis, we concluded that "Williams' most
                significant contact with Nevada is that he was in a car accident in this
                state," a contact we dismissed as a 'fortuity,' quoting Sotirakis, 106 Nev.
                at 126, 787 P.2d at 791. Williams, 109 Nev. at 335, 849 P.2d at 267. And
                so, we rejected Williams' argument that "the application of California law
                violates the Nevada public policy that affords insureds an expansive
                recovery under UIM coverage" as improperly "equat[ing] a routine
                dissimilarity between two states' laws with a violation of a fundamental
                public policy." Id. at 336, 849 P.2d at 267. We continued, though, as
                follows: "Indeed, in scenarios similar to Williams', we applied Nevada
                public policy only where other states' laws would preclude all recovery for
                the injured insured." Id. (emphasis added to that in original) (citing
                Daniels, 103 Nev. 674, 747 P.2d 897).
                            The Faehnriches argue that the converse to the language just
                quoted is true as well: If other states' laws preclude all recovery, they
                necessarily violate Nevada public policy. And because the family-member
                exclusion included in their Mississippi-based insurance policy would
                preclude the Faehnrich children from recovering anything, including the
                statutory minimums enumerated in NRS 485.3091, they reason that the
                policy is unenforceable for public policy reasons. But this reading of
                Williams cannot be squared with the holding in Sotirakis. The cases that
                invalidated household exclusion clauses in Nevada-based policies did so
                only as to the minimum coverages specified in NRS 485.185 and NRS
                485.3091. Warney, 103 Nev. at 217, 737 P.2d at 501; see Estate of Neal, 93
Nev. at 351, 566 P.2d at 82 (decided under prior statute). While Sotirakis
                mentions in passing that the accident was caused by the combined

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                negligence of Sotirakis's husband and the driver of the other car, 106 Nev.
                at 124, 787 P.2d at 789, the opinion says nothing about other insurance
                being available. If the availability of other insurance obviated the need to
                apply Nevada's household exclusion case law, surely the opinion would
                have said so. And as for Daniels, on which Williams relies, Nevada's
                statutory requirements for life insurance policy cancellations applied
                because the policy was "'delivered in this state' within the meaning of NRS
                687B.010(2)." Daniels, 103 Nev. at 678, 747 P.2d at 900 (quoting NRS
                687B.010(2)), discussed supra note 2. We thus reject as obiter dictum the
                suggestion in Williams that Nevada public policy requires coverage
                whenever applying foreign law would deny all recovery to an insured.
                            The more relevant distinction between Sotirakis and this case
                is the residence of Toni and the two children, which the Ninth Circuit's
                certification order declared to be Nevada, a finding binding on us.
                Fontainebleau, 127 Nev. at , 267 P.3d at 794. Although the parties
                make some general arguments about public policy and residency, they do
                not tie it to the statutes of either Mississippi or Nevada beyond a general
                citation to NRS 485.3091. But the Legislature expresses the relevant
                public policy in the motor vehicle and insurance statutes it passes.     See
                Nat'l Cnty. Mat. Fire Ins. Co. v. Johnson, 879 S.W.2d 1, 5 (Tex. 1993)
                (Cornyn, J., concurring and dissenting); cf. Daniels, 103 Nev. at 678, 747
P.2d at 900 ("If the statute under consideration is clear on its face, we
                cannot go beyond it in determining legislative intent."). We therefore look
                to Nevada statutes to determine Nevada public policy.
                            NRS 485.3091(1) is codified under the heading "proof of
                financial responsibility." It states that an "owner's policy of liability
                insurance" must provide bodily injury coverage of at least $15,000 per

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                   person and $30,000 per accident. This statute complements Nevada's
                   compulsory insurance law, NRS 485.185, which provides that "[e]very
                   owner of a motor vehicle which is registered or required to be registered in
                   this State shall continuously provide, while the motor vehicle is present or
                   registered in this State," insurance providing bodily injury coverage of at
                   least $15,000/$30,000. NRS 482.385(3) specifies when a motor vehicle is
                   "required• to be registered in this State" and, so, becomes subject to
                   Nevada's compulsory insurance law. As written at the time relevant to
                   this dispute, NRS 482.385(3) provided:
                               When a person, formerly a nonresident, becomes a
                               resident of this State, he shall:
                                     (a) Within 30 days after becoming a
                               resident; or
                                     (b) At the time he obtains his driver's
                               license,
                               whichever occurs earlier, apply for the registration
                               of any vehicle which he owns and which is
                               operated in this State.
                               Here, we know from the Ninth Circuit certification order that
                   Toni and the boys were Nevada residents on June 8, when the accident
                   occurred. But we do not know when Toni, who still carried a Mississippi
                   driver's license, became a Nevada resident and so, whether the Jeep, still
                   carrying Mississippi plates and registration, was "required to be registered
                   in this State" under NRS 485.185 and NRS 482.385(3). The Ninth Circuit
                   order does not say and the documents appended to it address the date
                   Toni and the boys became Nevada residents only in pleadings. In this
                   regard, the Faehnriches admit in part and deny in part Progressive's
                   allegation that Toni "is and was, at all times relevant to these proceedings,
                   a resident and/or domicile [sic] of Mississippi:" they also affirmatively

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                 allege that, "on June 7," the day before the accident, "Defendant Toni
                 Faehnrich moved from Mississippi to Nevada with her two minor
                 children."4 We thus cannot conclusively say that Nevada statutory law
                 applies to this policy. See also Progressive Max Ins. Co. v. Toca, No. 2:05-
                 CV-0845-KJD-PAL, 2007 WL 2891980, at *34 (D. Nev. Sept. 28, 2007)
                 (declining to apply Nevada substantive law to a Mississippi policy issued
                 to a Mississippi resident who moved to Nevada shortly before the
                 accident).
                              More fundamentally, it appears from our research that
                 Nevada law respecting household exclusions changed in 1990, when NRS
                 687B.147 took effect. This statute specifically authorizes household
                 exclusions in Nevada motor vehicle insurance policies, as follows:
                              A policy of motor vehicle insurance covering a
                              private passenger car may be delivered or issued
                              for delivery in this state if it contains an exclusion,
                              reduction or other limitation of coverage for the
                              liability of any named insured for bodily injury to:
                                    1.   Another named insured; or
                                  2. Any member of the household of a
                              named insured,

                       4The Faehnriches submitted a "Respondents' Appendix" to this court
                 when they filed their answering brief. They argue that the policy's "Out-
                 of-State Coverage" clause overrides the policy's choice-of-law clause and
                 makes Nevada law applicable. But the page of the policy where this
                 clause appears, included in the appendix filed with this court, is not
                 included in the excerpts of record and other materials forwarded to this
                 court by the Ninth Circuit with its certification order. Also, no argument
                 concerning this clause was made in the briefs filed in the Ninth Circuit.
                 Under Fontainebleau, 127 Nev. at , 267 P.3d at 794-95, we cannot, and
                 therefore do not, address the "Out-of-State Coverage" clause.

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                               unless the named insured rejects the exclusion,
                               reduction or other liniitation of coverage after full
                               disclosure of the limitation by the insurer on a
                               form approved by the Commissioner. The form
                               must be written in a manner which is easily
                               understood, printed in at least 12-point type and
                               contain the statement "I understand that this
                               policy excludes, reduces and limits coverage for
                               bodily injury to members of my family and other
                               named insureds . ."
                   This statute is not cited by the parties to this case; nor was it addressed in
                   Sotirakis, Warney, or Neal, whose operative facts predate its enactment.
                   But it changes Nevada from a state that invalidates household exclusions
                   to a state that, by statute, expressly permits them.            See generally
                   Schermer & Schermer, supra, § 6:8 n.14 (cataloguing the states that
                   permit household exclusions by statute, including Nevada).
                               The Faehnriches' policy was neither issued for delivery nor
                   delivered in Nevada, so NRS 687B.147 does not technically control. See
                   MRS 687B.010(2) (NRS Chapter 687B excludes "[p]olicies or contracts not
                   issued for delivery... . nor delivered in this state"). But if by statute
                   Nevada now permits household exclusions in "polic lies] of motor vehicle
                   insurance covering. .. private passenger cads]," NRS 687B.147, assuming
                   the required disclosures and rejections are made, Nevada should honor the
                   parties' choice of Mississippi law with respect to policies issued for
                   delivery and delivered in Mississippi like the Faehnriches' was.
                   Mississippi is the state with the strongest ties to the transaction, and
                   Nevada's public policy does not appear so strong as to justify application of
                   its law to an insurance policy applied for, delivered and renewed in
                   Mississippi by Mississippi residents.
                               For these reasons, we answer the certified question in the
                   negative and conclude that giving effect to the choice-of-law provision in
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                          the parties' automobile insurance policy does not violate Nevada's public
                          policy.

                                                                   Pickering

                          We concur

                          Gibbons                                  Hardesty

                      P   c24.A06..gr ,
                           Parraguirre J.

                                    t.
                                                                     46
                                                                   Douglas

                                                    J.                                       J.
                          Cherry
                                         ?                         Saitta

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