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District Court Used Conflict of Laws Analysis to Determine that the Laws of the State with the Most Significant Contacts with the Occurrence and Parties Applied
Kenney v. Independent Order of Foresters
The United States District Court for the Northern District of West Virginia dismissed a suit based on tort claims made under the West Virginia Unfair Trade Practices Act (“WVUTPA”) after a choice of law analysis. In Kenney v. Independent Order of Foresters, the District Court found that given the substantial relationship of the State of Virginia to the occurrence and the parties, Virginia laws governed the action, not West Virginia law. As Virginia does not recognize tort claims under its Unfair Insurance Practices Act, the Court dismissed the suit.
In 1984, the Independent Order of Foresters (“Foresters”) issued Ronald Kenney a life insurance plan in the amount of $80,000. In 1994, Mr. Kenney sought to increase the policy to $130,000, and he submitted an application to change the amount. In January 1995, a representative of Foresters presented Mr. Kenney with an acceptance of change in application document, which indicated that an additional $50,000 of coverage would go into effect; however, the representative from Foresters did not indicate to him that the acceptance of change may have been ineffective because it had not been timely received by Foresters.
At the time of the application, Mr. Kenney lived in Virginia. He subsequently moved to West Virginia in 2003, and Mr. Kenney passed away in 2011 while residing there. After Mr. Kenney died, his widow filed a claim for the proceeds of the policy. Foresters, however, offered her only $80,000. Even though Foresters agreed to pay the full face value of the policy ($130,000), Ms. Kenney filed this lawsuit, alleging bad faith conduct, improper denial of claim, breach of covenant of good faith and fair dealing, and violations of the WVUTPA.
Ms. Kenney initially filed in state court in West Virginia; however, Foresters removed the case to the U.S. District Court. Foresters then filed a Motion to Dismiss Based on Virginia law because Virginia law did not recognize Ms. Kenney’s claim.
The Court began with a choice of law analysis to determine whether Virginia or West Virginia law applied to the case. Because the Court is located in West Virginia and was sitting in a diversity matter, the Court applied West Virginia’s choice of law analysis. Writing for the Court, Judge Groh focused on the claims under WVUTPA. Claims under WVUTPA are quasi-contract and quasi-tort, which has caused a conflict in the way these claims are evaluated in the Fourth Circuit. Because there was disagreement among the courts as to whether claims under the WVUTPA were analyzed under a contract or tort choice of law analysis, the Court opted to conduct a tort choice of law analysis. The result under either tort or contract analysis would be the same in this instance.
Under a tort choice of law analysis, Restatement (Second) of Conflict of Laws, Section 145 provides guidance. Under Section 145, the Court first considered where the contacts between the parties occurred. The Court noted that the injury occurred in West Virginia, but the conduct causing the injury occurred in Toronto, Canada (where Forester’s is based). Furthermore, the diversity of the parties implicated three locations: Virginia; West Virginia; and Toronto, Canada. Finally, the relationship among the parties centered on Virginia as the insurance was applied for, negotiated, entered into, issued, and delivered there.
The Court then applied Section 145, subsection 6 and viewed the contacts in light of this subsection. The Court noted that both Virginia and West Virginia have regulations designed to prohibit bad-faith conduct by insurers. The Court also indicated that the justified expectations of the parties would be that Virginia law applied as there was a choice of law provision in the contract. Given the analysis under both Section 145’s general principles and subsection 6, the Court held that Virginia has the most significant relationship to the action and the parties; thus, Virginia law applies.
Accordingly, the Court assessed Forester’s motion to dismiss based on Virginia law. Virginia law does not recognize a bad faith claim for failure to honor a claim in tort law. As Ms. Kenney only alleged torts in her pleadings, she failed to state a claim upon which relief could be granted under Virginia law. Therefore, the Court granted Forester’s motion to dismiss.
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