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Auto Insurance Policies and Choice of Law

What happens when you’re involved in an accident in North Carolina but you live in another state, which is where your auto insurance policy was entered into? The “general rule” stated by the North Carolina Supreme Court in Fortune Ins. Co. v. Owens (2000) “is that an automobile insurance contract should be interpreted and the rights and liabilities of the parties thereto determined in accordance with the laws of the state where the contract was entered even if the liability of the insured arose out of an accident in north carolina.” The Court went on to state that ""[w]ith insurance contracts the principle of lex loci contractus mandates that the substantive law of the state where the last act to make a binding contract occurred, usually delivery of the policy, controls the interpretation of the contract."

However, the Court recognized an exception to this “general rule.” G.S. 58-3-1 states that “[a]ll contracts of insurance on property, lives, or interests in this State shall be deemed to be made therein.” The Court interpreted this statute to mean that North Carolina substantive law applies to the interpretation of an insurance policy, even when that policy was entered into in another state, so long as “a close connection exists between [North Carolina] and the interests insured by [the] insurance policy.” The Court cautioned that “the mere presence of the insured interests in this State at the time of an accident does not constitute a sufficient connection to warrant application of North Carolina law.”

North Carolina courts have repeatedly held that if the accident occurring in North Carolina is the only connection with North Carolina, this is not a sufficiently close connection to trigger the exception to the general rule. For example, in Fortune, the insurance contract was entered into in Florida, the parties to the contract were Florida residents, the insured vehicle that the defendant was driving was registered in Florida, and the defendant had a Florida driver’s license. The only connection between the insurance policy and North Carolina was the fact that the accident occurred in North Carolina and the defendant provided the investigating officer with a temporary North Carolina address. The Court held that “[a]ll of the significant connections occurred in Florida” and therefore, the insurance “policy must be construed in accordance with Florida law.”

More recently, in an unpublished North Carolina Court of Appeals case, Haugh v. Nationwide Mutual Fire Ins. Co. (2014), a plaintiff who lived in South Carolina but worked in Charlotte, North Carolina for over 30 years was involved in an accident caused by the negligence of another driver. The insurance policy was written to conform with South Carolina law and was delivered to the plaintiff at her South Carolina address. The plaintiff’s vehicles were also registered in South Carolina. The court held that there did not exist a close enough connection with North Carolina to make the exception to the general rule applicable.

So what then makes a connection close enough to trigger the exception to the general rule? In the 1993 case Collins & Aikman Corp. v. Hartford Acc. & Indem. Co., the North Carolina Supreme Court held that G.S. 58-3-1 did apply. In Collins, the insurance contract was formed in either California or Connecticut and the insurance application came from California. Collins & Aikman was headquartered in New York City and had thirty-four plants in seven states and two Canadian provinces. The policy covered a fleet of company vehicles, the vast majority (97 vehicles) of which were registered in North Carolina and Collins & Aikman had a manufacturing plant in North Carolina. Although the defendant argued that the application of North Carolina law would violate the due process clause of the Constitution, the Court held that “North Carolina has a close connection with the interests insured in this case,” not merely a “casual connection.” Therefore, G.S. 58-3-1 was triggered and North Carolina law applied.

In a subsequent case, Martin v. Continental Ins. Co. (1996), the North Carolina Court of Appeals also held that G.S. 58-3-1 applied. Martin involved another fleet insurance policy issued by Continental Insurance Co. to the plaintiff’s employer. In Martin, the plaintiff was involved in an accident while driving a car owned by her employer. The plaintiff sued the other driver but the amount awarded was greater than the limits of the other driver’s policy. She was able recover additionally under her own personal auto insurance policy but she exhausted the limits of this as well. To recover the remaining amount awarded, she looked to her employer’s insurance policy. The policy was entered into and delivered to the employer in Kansas. The employer was a wholly owned subsidiary of a Delaware corporation with its principal place of business in California. However, more than one-sixth of the vehicles (1,479 out of 8,282) insured under the policy “were registered, located, and used for business purposes within the State of North Carolina at the time the... contract of insurance was issued.” The court cited Collins, stating that

Collins compels the conclusion that Continental's policy is governed by North Carolina law. In Collins, 97 vehicles were held to constitute a close connection. Here, defendant Continental insured 1,479 vehicles registered in North Carolina. Put in defendant Continental's percentage terminology, the number of North Carolina registered vehicles insured by Continental was over fifteen times the number insured by the Collins defendant.

The court further reasoned that

In contrast to ... the 97 insured vehicles involved in Collins, the instant defendant insured at least 1,479 vehicles which were registered and used in North Carolina. Our comparison of absolute numbers, rather than percentages, offers a true insight into the connections between the insured interests under the instant policy and the forum state North Carolina. Our application of Collins to these facts in no way offends due process.

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