Progressive Gulf Insurance Com v. Christian Faehnrich ( 2010 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
PROGRESSIVE GULF INSURANCE 
COMPANY, an Ohio corporation,
Plaintiff-Appellant,
No. 09-16487
v.
D.C. No.
RANDALL K. FAEHNRICH, CV-05-1067-BES
individually and as natural parent
and/or legal guardian of RANDY  ORDER
CERTIFYING A
FAEHNRICH and CHRISTIAN
QUESTION TO
FAEHNRICH, minors; TONI A.
THE SUPREME
FAEHNRICH, individually and as
COURT OF
natural parent and/or legal
NEVADA
guardian of RANDY FAEHNRICH and
CHRISTIAN FAEHNRICH, minors,
Defendants-Appellees.

Filed December 7, 2010
Before: Robert R. Beezer, Andrew J. Kleinfeld, and
Susan P. Graber, Circuit Judges.
Order;
Dissent by Judge Kleinfeld
COUNSEL
Dennis M. Prince, Prince & Keating LLP, Las Vegas,
Nevada, for the plaintiff-appellant.
Brett A. Carter, Benson Bertoldo Baker & Carter, Chtd., Las
Vegas, Nevada, for the defendants-appellees.
19559
19560 PROGRESSIVE GULF INSURANCE v. FAEHNRICH
ORDER
Pursuant to Rule 5 of the Nevada Rules of Appellate Proce-
dure, we respectfully certify to the Supreme Court of Nevada
the question of law set forth in Section III of this order. That
question will determine an issue pending before this court. No
precedent in the decisions of the Supreme Court of Nevada
controls that issue.
I. Background
The parties stipulated to the relevant facts. Progressive Gulf
Insurance Company issued an automobile insurance policy to
Randall and Toni Faehnrich, who had two minor children. At
the time of contracting, the Faehnrichs resided in Mississippi.
The policy contained a Mississippi choice-of-law provision
and set coverage limits for bodily injury of $100,000 per per-
son and $300,000 per occurrence. The policy expressly did
not cover family members’ bodily injuries.
The Faehnrichs divorced, and Toni Faehnrich moved from
Mississippi to Nevada with the two children. Shortly thereaf-
ter, while the policy remained in effect, Toni had a one-car
accident in the insured vehicle. The accident occurred in Las
Vegas, Nevada. The two minor children, who were riding in
the car at the time of the accident, sustained bodily injuries.
Randall Faehnrich, as the children’s natural father and legal
guardian, presented a claim to the insurer. The insurer denied
coverage because of the family-member exclusion. Thereafter
the insurer brought this diversity action seeking, among other
things, an order declaring that the family-member exclusion
is valid and enforceable in Nevada.
The parties moved for summary judgment. The insurer
argued that the exclusion is enforceable because the Nevada
courts must apply Mississippi law pursuant to the contract’s
choice-of-law provision. The Faehnrichs argued that Nevada
PROGRESSIVE GULF INSURANCE v. FAEHNRICH 19561
public policy requires that they receive the statutory minimum
coverage provided in Nevada Revised Statutes section
485.3091. The parties stipulated that, “if Mississippi law is
applicable, there is no coverage under the terms and condi-
tions of the Progressive policy.” On the other hand, they
agreed that, if Nevada law applies, the coverage limits would
be $15,000 per person and $30,000 per occurrence as pro-
vided in the statute, the insurer would owe the full $30,000,
and the insurer would owe a duty to defend and indemnify
Toni up to those statutory limits. The insurer waived “any
other coverage defenses that exist now or may previously
have existed.”
The district court granted judgment to the Faehnrichs, hold-
ing that Nevada public policy precludes application of the
family-member exclusion to bar all recovery. The insurer
appeals.
II. Discussion
In our judgment, this case presents an important, open
question of Nevada law. We review de novo a district court’s
decision concerning the appropriate choice of law, Abogados
v. AT&T, Inc., 223 F.3d 932, 934 (9th Cir. 2000), and we
apply Nevada’s choice-of-law rules as we think the Supreme
Court of Nevada would apply them, id.; Takahashi v. Loomis
Armored Car Serv., 625 F.2d 314, 316 (9th Cir. 1980).
Because we have doubts about how the Supreme Court of
Nevada would apply those rules here, we seek its guidance.
Nevada uses a multi-factor test to determine whether to
enforce a choice-of-law provision in a contract. Ferdie Sie-
vers & Lake Tahoe Land Co. v. Diversified Mortg. Investors,
603 P.2d 270, 273 (Nev. 1979). The parties must have acted
in good faith, without an intent to evade the law of the state
where the contract was formed; the situs of the chosen law
must have a substantial relationship to the contract; and the
terms of the contract may not contravene Nevada public pol-
19562 PROGRESSIVE GULF INSURANCE v. FAEHNRICH
icy. Id. So long as the parties satisfy these factors, the con-
tract’s choice-of-law provision must be given effect. Id.We hold that the parties have satisfied all of the factors but
the last, as to which we are in doubt. There is no evidence that
the parties acted in bad faith or that they attempted to evade
the laws of Mississippi. Mississippi had a substantial relation-
ship to the contract because the Faehnrichs resided there when
the policy was issued and for some time afterward. The one
question that remains is whether the policy’s family-member
exclusion, which would deny any recovery to the Faehnrichs
if we apply Mississippi law, contravenes Nevada’s public pol-
icy.
At least one case, Sotirakis v. United Service Automobile
Ass’n, 787 P.2d 788 (Nev. 1990) (per curiam), suggests that
the exclusion may apply without offending Nevada public
policy. In that case, two California residents with a California
insurance policy had an accident while traveling in Las
Vegas. Id. at 789. The policy contained a family-member
exclusion, which California allowed. Id. The Supreme Court
of Nevada affirmed the application of California law, holding
that the family-member exclusion did not violate Nevada’s
public policy. Id. at 792.
By contrast, at least one other Supreme Court of Nevada
case, Williams v. United Services Automobile Ass’n, 849 P.2d
265 (Nev. 1993) (per curiam), suggests that Nevada public
policy would disallow reliance on the exclusion here. In Wil-
liams, another California resident suffered injuries from a car
accident in Nevada. Id. at 265-66. As in Sotirakis, the Court
had to decide which law to apply. Id. at 266. The Court
looked back at its prior cases and interpreted them to mean
that Nevada public policy bars the application of another
state’s law only if it would “preclude all recovery for the
injured insured.” Id. at 267. Because the plaintiff had recov-
ered $300,000 already, the Court held that California law
could be applied to bar additional relief. Id. As noted, in this
PROGRESSIVE GULF INSURANCE v. FAEHNRICH 19563
case, application of Mississippi law would “preclude all
recovery for the injured insured.” Id.We are not persuaded that Sotirakis controls this case.
Sotirakis approved the application of California law to a con-
tract that covered California residents who happened to have
an accident while driving through Nevada. The singular con-
nection between the injured passenger and Nevada was the
location of the accident. 787 P.2d at 791. The court declined
to rely on such a “fortuitous” circumstance, worrying that
“[i]f 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 poli-
cy.” Id.That concern does not apply here. In this case, the injured
parties were Nevada residents, which, under Nevada case law,
creates a more substantial relationship to the insurance con-
tract. In Daniels v. National Home Life Assurance Co., 747
P.2d 897, 899 (Nev. 1987) (per curiam), for example, the
Supreme Court of Nevada emphasized Nevada’s “overriding
concerns of protecting its citizens and [e]nsuring that they are
afforded fair and equitable treatment by insurers.” Those
overriding concerns, together with the absence of the fortu-
itous circumstance that drove the court’s decision in Sotirakis,
lead us to conclude that we cannot ignore the passage in Wil-
liams that clearly suggests that Nevada law might apply here.
On the other hand, we recognize that Williams cited
Sotirakis with approval (at least with respect to the factors
that bear on the analysis), and the key sentence in Williams
may be dictum. Accordingly, we respectfully certify the fol-
lowing question to the Supreme Court of Nevada.
III. The Question Certified
Does Nevada’s public policy preclude giving effect to a
choice-of-law provision in an insurance contract that was
19564 PROGRESSIVE GULF INSURANCE v. FAEHNRICH
negotiated, executed, and delivered while the parties resided
outside of Nevada, when that effect would deny any recovery
under Nevada Revised Statutes section 485.3091 to Nevada
residents who were injured in Nevada?
IV. Conclusion
This appeal presents an open question of Nevada state law
that will determine the outcome of this case. We respectfully
request that the Supreme Court of Nevada accept and decide
the question certified. We recognize that the Court may, in its
discretion, reword the certified question. We agree to abide by
the Court’s decision as specified by Rule 5(h) of the Nevada
Rules of Appellate Procedure, which states that “[t]he written
opinion of the Supreme Court stating the law governing the
questions certified . . . shall be res judicata as to the parties.”
The clerk of this court shall forward a copy of this order,
under official seal, to the Supreme Court of Nevada, along
with copies of all briefs and excerpts of record that have been
filed with this court. The parties shall notify the clerk of this
court within 14 days of any decision by the Court to accept
or decline certification. If the Court accepts certification, the
parties shall then notify the clerk of this court within 14 days
of the issuance of that court’s opinion.
IT IS SO ORDERED.
____________________________
SUSAN P. GRABER
Circuit Judge, U.S. Court of
Appeals for the Ninth Circuit
PROGRESSIVE GULF INSURANCE v. FAEHNRICH 19565
KLEINFELD, Circuit Judge:
I respectfully dissent from the order certifying this case to
the Nevada Supreme Court. I do not think we need to burden
the parties and the Nevada Supreme Court with an additional
round of litigation, because this case is controlled by Sotirakis
v. United Service Automobile Association.1
The policy was issued to Mr. and Mrs. Faehnrich when
they both lived in Mississippi. Progressive mailed the policy
to the Faehnrichs’ address in Mississippi. The premiums
charged were Mississippi-based, and the policy covered cars
garaged in Mississippi. The policy provides that Mississippi
law controls.
The only connection with Nevada is that after purchasing
the policy in Mississippi, the Faehnrichs divorced and Mrs.
Faehnrich moved to Nevada. Their children flew out to
Nevada the day before Mrs. Faehnrich had her one-car acci-
dent. Under Sotirakis, that does not furnish a basis for apply-
ing Nevada law.
In Sotirakis, the Nevada Supreme Court held that Califor-
nia law applied to a California insurance contract containing
a family exclusion clause between California parties.2 There,
Sotirakis, a California resident covered by a California insur-
ance policy, got into a car accident in Nevada. Her insurance
policy contained a family exclusion clause, valid in insurance
contracts under California law, but invalid in insurance con-
tracts under Nevada law.3 Applying Nevada’s choice-of-law
test, the Nevada Supreme Court found that all four factors
weighed in favor of applying California law: “the policy was
issued in California to a California resident who paid premi-
ums in California . . . based on California, rather than another
1
787 P.2d 788 (Nev. 1990).
2
787 P.2d 788, 792 (Nev. 1990).
3
Id. at 789.
19566 PROGRESSIVE GULF INSURANCE v. FAEHNRICH
state’s, rates,” and the parties “bargained for an insurance pol-
icy which contains a family exclusion clause.”4
Sotirakis is easily reconciled with the one sentence of dicta
in Williams v. United Services Automobile Association5 and
the holding in Daniels v. National Home Life Assurance6
which provide the sole support for the argument that Nevada
law applies.
In Daniels, William Daniels, a Nevada resident, applied for
and received life insurance from a Pennsylvania company.7
The policy contained a choice-of-law provision stating that
Missouri law governed. The insurer argued that the policy
was a group policy and the master policy had been delivered
to a Missouri company in Missouri. Daniels failed to pay his
third quarterly premium. The insurance company canceled the
insurance policy, but failed to notify Daniels of the cancella-
tion. Notice was not required under Missouri law. A few
months after his policy was canceled, Daniels was killed in
Las Vegas, Nevada, and his wife brought suit after being
denied the benefits of Daniels’s life insurance policy due to
cancellation for nonpayment.
The Nevada Supreme Court refused to apply Missouri law
because the policy was not a group policy at all, just an indi-
vidual policy purchased by a Nevadan, in Nevada, delivered
in Nevada, from a Pennsylvania company.8 The purported
Missouri situs was more or less fraudulent. So, the policy was
subject to Nevada’s notice provision.9 Daniels does not hold
that public policy is violated when application of another
4
Id. at 790-91.
5
849 P.2d 265 (Nev. 1993).
6
747 P.2d 897 (Nev. 1987).
7
Id. at 898.
8
Id. at 899.
9
Nev. Rev. Stat. § 687B.320.
PROGRESSIVE GULF INSURANCE v. FAEHNRICH 19567
state’s law would preclude coverage to an out-of-state resi-
dent on an out-of-state policy, merely that an exclusion deny-
ing coverage for a Nevada resident under an insurance
contract delivered in Nevada would violate public policy.
Thus, Daniels does not control.
Nor does Williams. There, plaintiff-appellant Williams was
a member of the Air Force stationed in California but was
injured in a car accident during an assignment in Nevada.10 He
sued after he was denied coverage for damages pursuant to his
California underinsured motorist coverage, arguing that the
law of Nevada should apply because applying California law
would violate Nevada’s public policy.11 The Nevada Supreme
Court upheld the application of California law to his Califor-
nia insurance policy.12 Although Williams says in one sen-
tence of dicta that the Court had previously “applied Nevada
public policy only where other states’ laws would preclude all
recovery for the injured insured,”13 this comment could not
mean that where another state’s law would preclude recovery,
then its law could not apply. If it did mean that, then Sotirakis
(the Nevada Supreme Court’s decision relied on by Williams
as controlling authority) would have come out the other way.
Williams cited Sotirakis with approval,14 and did not purport
to overrule or limit it.
The Nevada Supreme Court explained in Ferdie Sievers
and Lake Tahoe Land Company, Inc. v. Diversified Mortgage
Investors, “[a] crucial function of choice-of-law rules is that
their application should further harmonious relations between
states and facilitate commercial intercourse between them. If
we disregard this important conflicts function here because a
10
849 P.2d 265, 265 (Nev. 1993).
11
Id. at 266.
12
Id. at 267.
13
Id.14
Id. at 266-67.
19568 PROGRESSIVE GULF INSURANCE v. FAEHNRICH
contract provision is not in accord with our statutes and thus
violative of a strong forum public policy, we would perhaps
rarely find another state’s laws controlling. Consequently, the
clear intentions of the parties would be defeated.”15
In this circumstance, I do not believe that Nevada would
impose its public policy regarding insurance contracts and the
family member exclusion on Mississippi any more than Mis-
sissippi could impose its public policy on Nevada. That one
of the parties had moved to Nevada shortly before the car
accident does not furnish a basis for imposing Nevada policy
on the contract, because the conduct leading to the contract
(as opposed to the accident) did not take place in Nevada. As
Sotirakis explained, in upholding the out-of-state choice-of-
law provision in the insurance contract at issue, “[t]he con-
tacts with the state where the accident occurred are fortuitous;
the only contact which Nevada had with the insureds was the
mere fact that it was the state in which the insureds 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.”16
Because I think the law is clear and the Nevada Supreme
Court has never held that Nevada public policy is violated by
application of an out-of-state family member exclusion clause
in an insurance policy issued out-of-state to out-of-state resi-
dents, I think it is unfortunate that we are imposing this very
considerable burden on the Supreme Court of Nevada, and
imposing considerable additional work, uncertainty, expense,
and delay on the litigants in this case.
15
603 P.2d 270, 274 (Nev. 1979).
16
Sotirakis, 787 P.2d at 791.