A Choice-of-law by Any Other Name Is Still the Same
By Don R. Sampen, published, Chicago Daily Law Bulletin, April 18, 2023
The U.S. District Court for the Northern District of Illinois recently held that an automobile policy’s conformity-to-statute provision served as a choice-of-law clause pointing to Illinois law, and as such, the clause functioned to enforce Illinois public policy over the public policy of another state.
The case is Progressive Northern Insurance Co. v. Cosmutto, No. 21 CV 5026, 2023 U.S. Dist. Lexis 43480 (March 15). The insurer, Progressive, was represented by Heyl Royster Voelker & Allen P.C. of Edwardsville and Chicago. Bodell Bove LLC of Oak Brook represented the insured, Beau Cosmutto.
While on vacation in Hawaii, Cosmutto, an Illinois resident, was involved in a motorcycle accident and suffered personal injuries. The liability coverage limits for the at-fault driver totaled $270,000, and the limits were paid to Cosmutto pursuant to a settlement.
Progressive’s motorcycle liability policy issued to Cosmutto had an uninsured-underinsured limit of $100,000. The policy, however, defined an underinsured motor vehicle as one “to which a bodily injury liability bond or policy applies … but the sum of all applicable limits … is less than the coverage limit for [UIM] coverage….”
Since the sum of the at-fault driver’s coverage exceeded Progressive’s UIM limit of $100,000, Progressive took the position that the at-fault driver was not “underinsured” and Cosmutto’s UIM coverage would not apply.
Cosmutto nonetheless argued that since the accident took place in Hawaii, the court should apply Hawaii law, which presumably gave more liberal treatment to UIM coverage. He relied on case law interpretation of Hawaii law holding that it would apply where out-of-state auto insurance policies deprived policyholders of benefits that would be available under Hawaii law.
He further argued that, while the Progressive policy contained a section titled “Terms of Policy Conformed to Statutes,” it did not contain a choice-of-law provision. That section stated in part that, in the event of an inconsistency, policy provisions would be construed to conform to the statutes of the insured’s residence.
The last sentence of the section went on to add: “Any disputes as to the coverages provided or the provisions of this policy shall be governed by the laws of the state listed on your application as your residence.”
Illinois was listed on Cosmutto’s application. Progressive therefore took the position that Illinois law governed and that the UIM provision’s definition of an underinsured vehicle was consistent with Illinois law.Progressive brought this declaratory action to determine its UIM obligations under the policy and subsequently filed a motion for summary judgment.
In an opinion by Magistrate Judge Heather K. McShain, the court agreed with Progressive and granted the motion. She initially addressed Cosmutto’s argument that the conformity-to-statute provision did not serve as a choice-of-law clause because it was not labeled as such, it did not name a specific state, and its only purpose was to avoid inconsistencies between policy provisions and state statutory law.
McShain disagreed. She noted that while parts of that provision used standard conformity-to-statute language, the last sentence had the distinct purpose to designate the jurisdiction whose laws would govern any disputes between the parties. It did so, moreover, without ambiguity. Construing the policy as a whole, the language could not be ignored. She also noted the cases Cosmutto relied on regarding the labeling and identifying the chosen state, involved different policy language and nothing similar to the last sentence of the Progressive provision.
Regarding Cosmutto’s next argument that the conformity clause sought to exclude or limit coverage and should be read narrowly, McShain said it had no such purpose but rather was intended to avoid insistencies with statutes and identify the controlling law.
Cosmutto further contended that the Progressive UIM limit reduction provision violated Hawaii’s fundamental public policy. McShain wrote, however, that he relied solely on case authority where Hawaii was the forum state.This case, on the other hand, was filed in Illinois, and under Illinois choice-of-law rules. A choice-of-law clause is to be respected so long as it is not contrary to Illinois’ fundamental public policy, not some other state’s. The Progressive provision, moreover, was fully consistent with Illinois public policy and statutes.
The court therefore granted Progressive’s summary judgment motion.
- A policy’s choice-of-law provision need not be labeled as such and need not identify a specific state by name, so long as the policy language clearly designates which state law is to apply.
- Illinois’ choice-of-law rules look to Illinois’ fundamental public policy, not that of some other state, to determine the validity of the law chosen to be applied.