Progressive Gulf Ins. Co. v. Faehnrich , 2014 NV 19 ( 2014 )

130 Nev., Advance Opinion II
IN THE SUPREME COURT OF THE STATE OF NEVADA
PROGRESSIVE GULF INSURANCE No. 57324
COMPANY, AN OHIO CORPORATION,
Appellant,
vs.
RANDALL K. FAEHNRICH, FILED
INDIVIDUALLY AND AS NATURAL
MAR 2 7 2014
PARENT AND/OR LEGAL GUARDIAN
OF RANDY FAEHNRICH AND Tec, K.
r
CLE 0 S LI
CHRISTIAN FAEHNRICH, MINORS; BY
C IE
AND TONI A. FAEHNRICH,
INDIVIDUALLY AND AS NATURAL
PARENT AND/OR LEGAL GUARDIAN
OF RANDY FAEHNRICH AND
CHRISTIAN FAEHNRICH, MINORS,
Respondents.
Certified question under NRAP 5 concerning the enforceability
of a household exclusion clause in an automobile liability insurance policy
issued out of state but applied to Nevada residents injured in Nevada.
United States Court of Appeals for the Ninth Circuit; Robert R. Beezer,
Andrew Jay Kleinfeld, and Susan Graber, Circuit Judges.
Question answered.
Prince & Keating and Dennis M. Prince and Douglas J. Duesman, Las
Vegas,
for Appellant.
Benson Bertoldo Baker & Carter, Chtd., and Brett A. Carter, Las Vegas,
for Respondents.
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BEFORE THE COURT EN BANC.
OPINION
By the Court, PICKERING, J.:
The United States Court of Appeals for the Ninth Circuit has
certified the following question to this court: "Does Nevada's public policy
preclude giving effect to a choice-of-law provision in an insurance contract
that was negotiated, executed, and delivered while the parties resided
outside of Nevada, when that effect would deny any recovery under NRS
485.3091 to Nevada residents who were injured in Nevada?"
I.
The certified question grows out of a dispute over the validity
of a household exclusion in an automobile liability insurance policy. The
policy was negotiated, delivered, and renewed several times in Mississippi,
where Randall and Toni Faehnrich lived with their two children. The
policy was entitled "Mississippi Motor Vehicle Policy." The Faehnriches'
insurance application listed Mississippi as their state of residence. This
made Mississippi the state whose statutory law the policy incorporated:
TERMS OF POLICY CONFORMED TO
STATUTES
If any provision of this policy fails to conform with
the legal requirements of the state listed on your
application as your residence [Mississippi], the
provision shall be deemed amended to conform
with such legal requirements. All other provisions
shall be given full force and effect. Any disputes
as to the coverages provided or the provisions of
this policy shall be governed by the law of the state
listed on your application as your residence.
(Emphasis added.) The parties and the Ninth Circuit refer to the
italicized language as the policy's choice-of-law provision.
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Eventually, the couple divorced and Toni moved to Nevada.
She drove here in a Jeep that she and Randall co-owned. 1 The couple's
minor children, both boys, then flew out to join their mother in Las Vegas.
The next day, while driving the Jeep with the children as passengers, Toni
was involved in a single-car accident; the car rolled, and the boys suffered
serious injuries. At the time, the Jeep still carried Mississippi registration
and license plates, and Toni had a Mississippi driver's license.
The insurance policy, issued by Progressive Gulf Insurance
Co., generally provides bodily injury liability coverage up to $100,000 per
person and $300,000 per accident. But it includes a household exclusion
that, on its face, eliminates coverage for the boys' claims against Toni.
The exclusion states that the policy's liability coverage "does not apply
to. . . bodily injury to you or a relative." "Relative" is defined as
a person residing in the same household as you,
and related to you by blood, marriage, or
adoption . . . . Your unmarried dependent children
temporarily away from home will be considered
residents if they intend to continue to reside in
your household.
When the policy was issued, Progressive offered, but the Faehnriches
declined, "All Uninsured/Underinsured Bodily Injury. . . Coverage."
Randall presented a claim to Progressive for his sons' injuries.
Citing the household exclusion, the insurer denied coverage. Progressive
then brought a declaratory judgment action in Nevada federal district
court, followed by a motion for summary judgment, seeking, among other
1 The Ninth Circuit describes the Jeep as an "insured vehicle." We
accept that designation. See In re Fontainebleau Las Vegas Holdings,
L.L.C., 127 Nev. , 267 P.3d 786, 794-95 (2011).
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things, an order declaring the household exclusion valid and applicable.
Stressing that "[t]he family member [or household] exclusion does not
[afford] the minimum [$15,000/$30,000 bodily injury] coverage required by
the Nevada Insurance Code," see NRS 485.185; NRS 485.3091, the district
court denied summary judgment. It held that the "exclusion violates
Nevada public policy [and] is unenforceable; and, in accordance with
Nevada choice of law rules, Mississippi law [validating such exclusions]
cannot apply."
Progressive appealed. Because the order denying summary
judgment did not resolve the case, the Ninth Circuit dismissed the first
appeal for lack of a final, appealable judgment. There followed a
stipulation designed to convert the summary judgment denial into a final
judgment. In the stipulation, the parties "agreed that if Mississippi law is
applicable, there is no coverage under the terms and conditions of the
Progressive policy." They further agreed that, "[i]n the event that Nevada
law is applicable, Progressive would owe a duty to. . . indemnify [Toni]
Faehnrich consistent with the terms and conditions of its policy up to the
applicable limits of $15,000.00 per person and $30,000.00 per occurrence,"
and that this would entitle the two children to $15,000 apiece for their
bodily injuries. In the stipulation "Progressive waives any other coverage
defenses," and both sides agree that "there are no other issues to
adjudicate."
A second Ninth Circuit appeal followed. After briefing and
argument, a divided panel concluded that this case turns on an unsettled
question of Nevada public policy and certified that question to this court.
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A.
Rule 5 of the Nevada Rules of Appellate Procedure gives this
court discretionary authority to accept and answer certified questions of
Nevada law that "may be determinative of the cause then pending in the
certifying court." See Volvo Cars of N. Am., Inc. v. Ricci, 122 Nev. 746,
749-51, 137 P.3d 1161, 1163-64 (2006). As the answering court, our role
"is limited to answering the questions of law posed to [us;] the certifying
court retains the duty to determine the facts and to apply the law provided
by the answering court to those facts." In re Fontainebleau Las Vegas
Holdings, L.L.C., 127 Nev. „ 267 P.3d 786, 794-95 (2011). We
accept "the facts as stated in the certification order and its attachment[s]."
Id. at , 267 P.3d at 795.
These rules, combined with the parties' stipulation, prompt us
to narrow the question posed by the Ninth Circuit, See Chapman v.
Deutsche Bank Nat'l Trust Co., 129 Nev. „ 302 P.3d 1103, 1105-06
(2013) (this court may, in its discretion, rephrase a certified question).
Rephrased, the question we consider is: Does Nevada public policy
preclude giving effect to a household exclusion clause in an automobile
liability insurance policy delivered in Mississippi to Mississippi residents
and choosing Mississippi law as controlling, where Mississippi law permits
household exclusions but the effect of the exclusion is to deny Nevada
residents who were injured in Nevada recovery of the minimum coverages
specified in NRS 485.3091?
B.
Nevada tends to follow the Restatement (Second) of Conflict of
Laws (1971) in determining choice-of-law questions involving contracts,
generally, see Ferdie Sievers & Lake Tahoe Land Co. v. Diversified
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Mortgage Investors, 95 Nev. 811, 815, 603 P.2d 270, 273 (1979) (citing and
applying Restatement (Second) of Conflict of Laws § 187 to a contractual
choice-of-law clause), and insurance contracts, in particular. See Sotirakis
v. USAA, 106 Nev. 123, 125-26, 787 P.2d 788, 790-91 (1990) (citing and
applying Restatement (Second) of Conflict of Laws §§ 188 and 193 to an
insurance choice-of-law question where the policy did not include a choice-
of-law clause); see also Williams v. USAA, 109 Nev. 333, 335, 849 P.2d
265, 266-67 (1993) (to like effect); Daniels v. Nat'l Home Life Assurance
Co., 103 Nev. 674, 677-78, 747 P.2d 897, 899-900 (1987) (effectively
adopting, although not citing, Restatement (Second) of Conflict of Laws §
192 & id. cmt. e, denying effect "to a choice of law provision in a life
insurance contract designating a state whose local law gives the insured
less protection than he would receive under the otherwise applicable law,"
that being the insured's domicile when he or she applied for the policy).
So long as "the parties acted in good faith and not to evade the law of the
real situs of the contract," Nevada's choice-of-law principles permit parties
"within broad limits to choose the law that will determine the validity and
effect of their contract." Ferdie Sievers, 95 Nev. at 815, 603 P.2d at 273.
"The situs fixed by the agreement, however, must have a substantial
relation with the transaction, and the agreement must not be contrary to
the public policy of the forum," id., or other interested state.
As the Ninth Circuit declared, the parties to this appeal chose
Mississippi law in good faith and not in an attempt to evade the law of the
real situs of the contract. This makes Daniels, 103 Nev. at 677-78, 747
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P.2d at 899-900, inapplicable. 2 The question, then, is whether the policy's
choice of Mississippi law, which validates the household exclusion, 3
offends a fundamental Nevada policy in the circumstances of this case.
This depends not just on Nevada public policy but also on Mississippi
public policy and whether Nevada or Mississippi has a materially greater
interest in the matter. "Application of the chosen law will be refused only
(1) to protect a fundamental policy of the state which, under the rule of §
188 [choice-of-law in contract cases without choice-of-law clauses], would
be the state of the otherwise applicable law, provided (2) that this state
has a materially greater interest than the state of the chosen law in the
determination of the particular issue." Restatement (Second) of Conflict of
Laws § 187 cmt. g. "An important consideration is [where and to what
extent] the significant contacts are grouped. For the forum will be more
inclined to defer to the policy of a state which is closely related to the
contract and the parties than to the policy of a state where few contacts
are grouped." Id.
2 1n Daniels, the insurer sold "group life insurance" to military
veterans pursuant to a master policy that recited it was "delivered" in
Missouri, whose law the policy chose. 103 Nev. at 677-78, 747 P.2d at 899-
900. We determined the policy was not true group insurance but
"'franchise insurance,' which is to be treated as an individual policy." Id. at
678, 747 P.2d at 899. Since the policy was applied for and delivered to a
Nevada domiciliary in Nevada, Nevada law applied notwithstanding the
master policy's recitation that it was issued and delivered in Missouri. Id.
at 678, 747 P.2d at 900.
3 We accept the parties' stipulated representation that Mississippi
law validates household exclusions even as to minimum statutory
coverages. See Thompson v. Miss. Farm Bureau Mitt. Ins. Co., 602 So. 2d
855, 856 (Miss. 1992).
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In Sotirakis, we weighed analogous contacts and concerns.
Sotirakis, a California resident covered by a California insurance policy,
was injured in an accident in Nevada. 106 Nev. at 124, 787 P.2d at 789.
As here, the insurer denied coverage based on a household exclusion
clause. Had the policy been delivered in Nevada, to a Nevada resident
owning a car principally garaged in Nevada, then-existing case law would
have invalidated the household exclusion to the extent it "eliminate [d] the
statutorily mandated [$15,000/$30,000] minimum liability coverage"
specified in NRS 485.3091. Farmers Ins. Exch. v. Warney, 103 Nev. 216,
217, 737 P.2d 501, 501 (1987); see Estate of Neal v. Farmers Ins. Exch., 93
Nev. 348, 351, 566 P.2d 81, 83 (1977) (invalidating a household exclusion
clause under the since-repealed NRS 698.320, requiring bodily injury
insurance in specified minimum amounts). Based on this case law,
Sotirakis asked us to invalidate her policy's household exclusion, even
though, "[u]nder California statutes and case law, [household] exclusion
clauses are permissible." Sotirakis, 106 Nev. at 124, 787 P.2d at 789.
We rejected Sotirakis's invitation to look to Nevada law,
applied California law, and upheld the household exclusion. In doing so,
we emphasized that "the policy was issued in California to a California
resident who paid premiums in California. Moreover, the driver was also
a resident of California." Id. at 126, 787 P.2d at 790. As "the principal
location of the risk" was California and "the cost of the policy. ... was
determined in California[,] ... the insureds presumably assumed that
their premium was based on California, rather than another state's,
rates." Id. at 126, 787 P.2d at 791. See Restatement (Second) of Conflict
of Laws § 193 ("The validity of a contract of ... casualty insurance and the
rights created thereby are determined by the local law of the state which
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the parties understood was to be the principal location of the insured risk
during the term of the policy, unless with respect to the particular issue,
some other state has a more significant relationship . . . to the transaction
and the parties .. . ."). The "only contact" Nevada had with Sotirakis "was
the mere fact that it was the state in which [she] 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." Sotirakis, 106 Nev. at 126,
787 P.2d at 791 (citing Boardman v. USAA, 470 So. 2d 1024, 1032 (Miss.
1985)).
Sotirakis represents the majority rule. 1 Irvin E. Schermer &
William J. Schermer, Automobile Liability Insurance § 6.9 (4th ed. 2013)
("Where the insured vehicle covered by a policy containing a household
exclusion is involved in an accident in a foreign state, a majority of the
courts have applied the rule of the state in which the policy was issued to
enforce the exclusion, provided the exclusion was valid in the issuing
state."). But the Faehnriches argue Sotirakis should not apply because
upholding the household exclusion in this case will leave the children with
"no recovery from any other source." As support, they cite NRS 485.3091
and Williams, 109 Nev. at 336, 849 P.2d at 267.
Decided three years after Sotirakis, Williams applied
California law to deny an insured injured in a Nevada accident
underinsured motorist (UIM) coverage mandated by application of Nevada
but not California law. Id. The facts were similar to Sotirakis except that,
in Williams, the insured was a member of the United States Air Force on
four-week assignment to Nevada when the accident occurred, and he had
already recovered $300,000 under the negligent parties' and his own
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policies. Id. at 333-34, 849 P.2d at 265-66. Even though Williams had
been in Nevada longer than Sotirakis, we concluded that "Williams' most
significant contact with Nevada is that he was in a car accident in this
state," a contact we dismissed as a 'fortuity,' quoting Sotirakis, 106 Nev.
at 126, 787 P.2d at 791. Williams, 109 Nev. at 335, 849 P.2d at 267. And
so, we rejected Williams' argument that "the application of California law
violates the Nevada public policy that affords insureds an expansive
recovery under UIM coverage" as improperly "equat[ing] a routine
dissimilarity between two states' laws with a violation of a fundamental
public policy." Id. at 336, 849 P.2d at 267. We continued, though, as
follows: "Indeed, in scenarios similar to Williams', we applied Nevada
public policy only where other states' laws would preclude all recovery for
the injured insured." Id. (emphasis added to that in original) (citing
Daniels, 103 Nev. 674, 747 P.2d 897).
The Faehnriches argue that the converse to the language just
quoted is true as well: If other states' laws preclude all recovery, they
necessarily violate Nevada public policy. And because the family-member
exclusion included in their Mississippi-based insurance policy would
preclude the Faehnrich children from recovering anything, including the
statutory minimums enumerated in NRS 485.3091, they reason that the
policy is unenforceable for public policy reasons. But this reading of
Williams cannot be squared with the holding in Sotirakis. The cases that
invalidated household exclusion clauses in Nevada-based policies did so
only as to the minimum coverages specified in NRS 485.185 and NRS
485.3091. Warney, 103 Nev. at 217, 737 P.2d at 501; see Estate of Neal, 93
Nev. at 351, 566 P.2d at 82 (decided under prior statute). While Sotirakis
mentions in passing that the accident was caused by the combined
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negligence of Sotirakis's husband and the driver of the other car, 106 Nev.
at 124, 787 P.2d at 789, the opinion says nothing about other insurance
being available. If the availability of other insurance obviated the need to
apply Nevada's household exclusion case law, surely the opinion would
have said so. And as for Daniels, on which Williams relies, Nevada's
statutory requirements for life insurance policy cancellations applied
because the policy was "'delivered in this state' within the meaning of NRS
687B.010(2)." Daniels, 103 Nev. at 678, 747 P.2d at 900 (quoting NRS
687B.010(2)), discussed supra note 2. We thus reject as obiter dictum the
suggestion in Williams that Nevada public policy requires coverage
whenever applying foreign law would deny all recovery to an insured.
The more relevant distinction between Sotirakis and this case
is the residence of Toni and the two children, which the Ninth Circuit's
certification order declared to be Nevada, a finding binding on us.
Fontainebleau, 127 Nev. at , 267 P.3d at 794. Although the parties
make some general arguments about public policy and residency, they do
not tie it to the statutes of either Mississippi or Nevada beyond a general
citation to NRS 485.3091. But the Legislature expresses the relevant
public policy in the motor vehicle and insurance statutes it passes. See
Nat'l Cnty. Mat. Fire Ins. Co. v. Johnson, 879 S.W.2d 1, 5 (Tex. 1993)
(Cornyn, J., concurring and dissenting); cf. Daniels, 103 Nev. at 678, 747
P.2d at 900 ("If the statute under consideration is clear on its face, we
cannot go beyond it in determining legislative intent."). We therefore look
to Nevada statutes to determine Nevada public policy.
NRS 485.3091(1) is codified under the heading "proof of
financial responsibility." It states that an "owner's policy of liability
insurance" must provide bodily injury coverage of at least $15,000 per
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person and $30,000 per accident. This statute complements Nevada's
compulsory insurance law, NRS 485.185, which provides that "[e]very
owner of a motor vehicle which is registered or required to be registered in
this State shall continuously provide, while the motor vehicle is present or
registered in this State," insurance providing bodily injury coverage of at
least $15,000/$30,000. NRS 482.385(3) specifies when a motor vehicle is
"required• to be registered in this State" and, so, becomes subject to
Nevada's compulsory insurance law. As written at the time relevant to
this dispute, NRS 482.385(3) provided:
When a person, formerly a nonresident, becomes a
resident of this State, he shall:
(a) Within 30 days after becoming a
resident; or
(b) At the time he obtains his driver's
license,
whichever occurs earlier, apply for the registration
of any vehicle which he owns and which is
operated in this State.
Here, we know from the Ninth Circuit certification order that
Toni and the boys were Nevada residents on June 8, when the accident
occurred. But we do not know when Toni, who still carried a Mississippi
driver's license, became a Nevada resident and so, whether the Jeep, still
carrying Mississippi plates and registration, was "required to be registered
in this State" under NRS 485.185 and NRS 482.385(3). The Ninth Circuit
order does not say and the documents appended to it address the date
Toni and the boys became Nevada residents only in pleadings. In this
regard, the Faehnriches admit in part and deny in part Progressive's
allegation that Toni "is and was, at all times relevant to these proceedings,
a resident and/or domicile [sic] of Mississippi:" they also affirmatively
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allege that, "on June 7," the day before the accident, "Defendant Toni
Faehnrich moved from Mississippi to Nevada with her two minor
children."4 We thus cannot conclusively say that Nevada statutory law
applies to this policy. See also Progressive Max Ins. Co. v. Toca, No. 2:05-
CV-0845-KJD-PAL, 2007 WL 2891980, at *34 (D. Nev. Sept. 28, 2007)
(declining to apply Nevada substantive law to a Mississippi policy issued
to a Mississippi resident who moved to Nevada shortly before the
accident).
More fundamentally, it appears from our research that
Nevada law respecting household exclusions changed in 1990, when NRS
687B.147 took effect. This statute specifically authorizes household
exclusions in Nevada motor vehicle insurance policies, as follows:
A policy of motor vehicle insurance covering a
private passenger car may be delivered or issued
for delivery in this state if it contains an exclusion,
reduction or other limitation of coverage for the
liability of any named insured for bodily injury to:
1. Another named insured; or
2. Any member of the household of a
named insured,
4The Faehnriches submitted a "Respondents' Appendix" to this court
when they filed their answering brief. They argue that the policy's "Out-
of-State Coverage" clause overrides the policy's choice-of-law clause and
makes Nevada law applicable. But the page of the policy where this
clause appears, included in the appendix filed with this court, is not
included in the excerpts of record and other materials forwarded to this
court by the Ninth Circuit with its certification order. Also, no argument
concerning this clause was made in the briefs filed in the Ninth Circuit.
Under Fontainebleau, 127 Nev. at , 267 P.3d at 794-95, we cannot, and
therefore do not, address the "Out-of-State Coverage" clause.
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unless the named insured rejects the exclusion,
reduction or other liniitation of coverage after full
disclosure of the limitation by the insurer on a
form approved by the Commissioner. The form
must be written in a manner which is easily
understood, printed in at least 12-point type and
contain the statement "I understand that this
policy excludes, reduces and limits coverage for
bodily injury to members of my family and other
named insureds . ."
This statute is not cited by the parties to this case; nor was it addressed in
Sotirakis, Warney, or Neal, whose operative facts predate its enactment.
But it changes Nevada from a state that invalidates household exclusions
to a state that, by statute, expressly permits them. See generally
Schermer & Schermer, supra, § 6:8 n.14 (cataloguing the states that
permit household exclusions by statute, including Nevada).
The Faehnriches' policy was neither issued for delivery nor
delivered in Nevada, so NRS 687B.147 does not technically control. See
MRS 687B.010(2) (NRS Chapter 687B excludes "[p]olicies or contracts not
issued for delivery... . nor delivered in this state"). But if by statute
Nevada now permits household exclusions in "polic lies] of motor vehicle
insurance covering. .. private passenger cads]," NRS 687B.147, assuming
the required disclosures and rejections are made, Nevada should honor the
parties' choice of Mississippi law with respect to policies issued for
delivery and delivered in Mississippi like the Faehnriches' was.
Mississippi is the state with the strongest ties to the transaction, and
Nevada's public policy does not appear so strong as to justify application of
its law to an insurance policy applied for, delivered and renewed in
Mississippi by Mississippi residents.
For these reasons, we answer the certified question in the
negative and conclude that giving effect to the choice-of-law provision in
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the parties' automobile insurance policy does not violate Nevada's public
policy.
Pickering
We concur
Gibbons Hardesty
P c24.A06..gr ,
Parraguirre J.
t.
46
Douglas
J. J.
Cherry
? Saitta
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