California Court of Appeals Finds California Law Applies in Lawsuit Against Car Insurance Company Despite Fact that Collision Occurred in Arkansas

Recently, the California Court of Appeal addressed the issue of forum, or the place of jurisdiction where a lawsuit involving an underlying car accident would be held.  In this opinionthe issue was whether the lawsuit should be heard in Arkansas, the location of the accident,  or California, where the insured individuals resided and where they had purchased their car insurance policy. The appellate court applied the “governmental interest” analysis to determine the choice of law issue, ultimately holding that California was the forum state.

Errol T. Howertown and Diane McCracken (“the insureds”) were involved in a motor vehicle collision while traveling in Arkansas.  Timothy McFarland, an uninsured motorist, struck a deer and then struck their vehicle.  The insureds allegedly suffered injuries due to the collision.

At the time of the collision, the insureds were driving a vehicle under an automobile liability insurance policy issued and maintained by State Farm Automobile Insurance.  The policy had been issued to them in their home state of California, and it contained uninsured motor vehicle coverage. The insureds made a claim for UM vehicle coverage under the policy, in connection with their collision in Arkansas.

First, State Farm filed a declaratory relief complaint against the insureds in Butte County Superior Court, seeking a declaration that California law applied to their UM claim.  They also alleged that the insureds failed to comply with section 11580.2 subdivision (i), stating that a cause of action under a policy does not accrue unless, within two years from the date of the accident, the insured individual brings a lawsuit against the motorist, then reaches an agreement or initiates arbitration regarding the amount due under the policy.  

After the insureds brought a negligence action against Mr. McFarland, and a breach of contract cause of action against State Farm, based on failure to pay benefits, State Farm moved for summary judgment.  The insureds argued that Arkansas law applied, because the state had the greatest interest in the matter.  The trial court found that California law applied instead, and the UM claim was barred because the insureds did not comply with section 115802 subdivision (i).

The appellate court stated that its role is to independently review the record, determining whether a triable issue of material fact exists.  The insureds contended that Arkansas law must apply to State Farm’s declaratory relief action.  The court applied the “governmental interest” analysis to determine the choice of applicable law. First, the analysis asks whether the law of each potentially affected jurisdiction is the same or different with regard to the issue.  Next, if there is a difference, what is the jurisdiction’s interest in applying its own law to determine whether a conflict exists. Third, if there is a conflict, which state’s interest in less impaired if its policy were to be subordinated, and then that state’s law would be deemed applicable for the purposes of the pending litigation.

Here, the laws in the two jurisdictions differed. California law bars the insureds’ claim because, under section 11580.2, they did not meet a statutory condition before the accrual of their UM cause of action.  The insureds failed to either file a lawsuit against Mr. McFarland, reach an agreement with State Farm regarding the amount under the policy, or make a demand for formal arbitration within two years of the accident.

Section 11580.2 makes clear that there is a prerequisite for accruing a UM cause of action against the insurance company.  If the statutory mandates are not complied with, the insured forfeits a UM claim against the insurer.  In this case, if California law applies, then the insured cannot maintain their UM claim against State Farm.

In contrast, Arkansas statutes governing UM coverage do not mandate a condition precedent to accruing a UM cause of action.  While there was a difference in the relevant laws of each jurisdiction, the appellate court stated that there is not necessarily a conflict of laws. Turning to the purpose of section 11580.2, the court stated that it protects the insurance company’s right of subrogation. It requires the insured to take action within the statute of limitations, which serves the policy purpose of preventing stale claims.

The appeals court stated that California is the forum state, and there is no conflict in determining whether California’s or Arkansas’s interests apply. But if there were a conflict, California’s interests would be impaired if its law did not apply.  Since this case involves a contract of casualty insurance, the court stated that it must consider the principal location of insured risk during the policy term.

The appellate court held that California law applied to the action, and that the insureds’ UM claim was barred by section 11580.2 subdivision (i). The court stated that California has a significant interest in resolving the issues in the matter. It is the place where State Farm contracted to do business, and also issued and delivered the insureds’ policy.  It is also where the insureds’ vehicle was principally located. The policy itself stated that the location of the insureds’ car is garaged affected the premium, and that a change to this location must be communicated to State Farm.

In conclusion, the appellate court stated that California had a significant interest in determining the issues arising under the policy issued in the state, by a business selling uninsured motorist insurance to California residents for a vehicle principally located in California. Because the policy was not issued or delivered in Arkansas, that state’s uninsured motorist statute did not apply to the policy.  The trial court did not err in holding that California law applied to the action, and the insureds’ UM claim against State Farm was barred under section 11580.2 subdivision (i).

At Sharifi Law, our car accident attorneys are skilled at negotiating and litigating disputes following a motor vehicle collision. We help injured individuals throughout Southern California in personal injury claims for compensation. Contact our office today for a free consultation at 866-422-7222 or complete our online form.

More Blog Posts:

California Court of Appeals Allows Cross-Defendant to Recover Costs in Car Accident Lawsuit, Remands to Determine Reasonable and Necessary Costs, Southern California Injury Lawyer Blog, February 22, 2016

California Appeals Court Holds Substantial Evidence to Support Contrary Finding Does not Compel Conclusion of Insufficient Evidence Supporting the Judgment, Southern California Injury Lawyer Blog, December 11, 2015

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