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State Farm Mutual Automobile Insurance Co. v. Estate of Darrell Jerome Simmons

Decided: July 25, 1980.


On certification to the Superior Court, Appellate Division, whose opinion is reported at 169 N.J. Super. 133 (1979).

For affirmance -- Justices Sullivan, Clifford, Handler and Pollock. For reversal -- Justice Pashman. The opinion of the court was delivered by Handler, J. Pashman, J., dissenting.


This is an appeal from a declaratory judgment that an automobile liability insurance policy, issued in Alabama by an Alabama insurance carrier to an Alabama domiciliary who was then serving in the armed forces and stationed temporarily in New Jersey, did not cover five of the insured's fellow servicemen who were killed in New Jersey while riding in the insured's automobile. The case requires this Court to decide whether the law of Alabama or that of New Jersey should resolve the questions necessary to determine coverage. This entails a reconsideration of the choice-of-law principles articulated in Buzzone v. Hartford Accident & Indemnity Co., 23 N.J. 447 (1957).


The essential facts are not in dispute. David Allen Hays, a domiciliary of Montgomery, Alabama, had in September 1974 enlisted in the United States Marine Corps and had been assigned in February 1975 to the Earle Naval Ammunition Depot ("Earle") in Colts Neck, New Jersey. Hays, who was single, maintained his Alabama home with his mother and spent leaves at home in Alabama. He intended to return to Alabama after his military service. In the Spring of 1974, while still in high school, Hays had purchased a 1964 Chevrolet Impala in Alabama and had obtained in Alabama an automobile liability policy with State Farm Mutual Insurance Company ("State Farm" or "insuror"). He paid the insurance premium in full, although his mother "signed for it." He apparently renewed the policy by mail in April 1975. When he first came to Earle, he did not bring his car with him to New Jersey. Later, however, he went

to Alabama on a four-day pass and returned to the base with his car, which he kept in the parking lot of his barrack.

On May 20, 1975, at about 11:00 a.m., Darrell Simmons, a fellow Marine whom Hays knew fairly well, asked Hays if he could borrow Hays' car to drive to a nearby bank to cash his paycheck. Although he had never loaned his car previously to Simmons, Hays agreed. Simmons told Hays that he would be using the car "just long enough to get his check cashed and he'd be right back," to which Hays responded that he planned to use the car later when he completed his duty. Simmons understood that he was to come "straight back . . . and give [Hays] the keys back." Simmons, however, had not returned with the automobile by noon, at which time Hays had to begin a four-hour "phone watch" duty. Simmons failed to return the automobile or its keys during Hays' four-hour watch, so when Hays completed his watch at 4:00 p.m., he went to each parking lot on the base looking for his car and inquired unsuccessfully as to whether anyone had seen Simmons. Hays eventually returned to his quarters where he slept until about the time for his next scheduled watch. That evening from midnight until 4:00 a.m., Hays again had duty, this time, "fire watch." While patrolling on duty, Hays discovered his car was parked "across from headquarters in front of the Powder Keg," a nightclub which catered to enlisted men. He observed the club's patrons, including Simmons, exiting the nightclub and, although leaving his post was a court martial offense, Hays walked toward his parked car. Simmons and five other Marines, among them the four named decedents, however, reached the car before Hays did. Simmons, in fact, was already in the driver's seat when Hays approached the vehicle.

Hays no less than three times directed Simmons to return the car keys to him; Simmons, refused, telling Hays "he wasn't going to give them back." Ralph Robinson, one of the Marines, also asked Simmons to return the car keys to Hays and Simmons again refused. When Hays explained that he had promised to drive Robinson to visit Robinson's wife the next morning, Simmons continued to refuse to surrender possession of the car and

replied that he, not Hays, would drive Robinson. Another Marine in the group threatened Hays, warning him that if Hays were not standing in the open next to the car, "he'd whip [Hays]." Hays did not consider this an idle threat and "was not going to test [the marine]." At this time several women were also in the parking lot and the Marines unmistakably expressed a group wish to "see [those] girls . . . over in Red Bank." Hays, armed only with a nightstick, considered the number of and intoxicated condition of the Marines and decided that he could neither overpower them singlehandedly nor prevent them from taking his vehicle. The women then departed and the Marines followed them in Hays' car. Hays returned to his post. Hays was "pretty much upset"; he apparently believed that his car had been wrongfully withheld from him since he had then decided to report the theft of the car if it were not returned in the morning.

At 4:00 a.m., Hays finished his watch, returned to his barrack, and went to sleep. Within an hour, however, he was awakened by the corporal of the guard who informed him that his car had been wrecked. At 3:40 that morning, on Sycamore Avenue in Tinton Falls, New Jersey, Hays' car with Darrell Simmons driving crashed into a tree. All five occupants -- Simmons, Robinson, Michael Davis, Henry Michael, and Darrell Richardson -- were killed in the accident.

Claims under the State Farm insurance policy were made on behalf of the decedents. State Farm subsequently sought a declaratory judgment in New Jersey that, under the circumstances surrounding the use of the car at the time of the fatal crash, the policy issued to Hays did not extend coverage to Simmons and his four passengers. Hays was the only person to testify at trial. Applying the substantive law of Alabama, the trial judge found for State Farm on the issue of coverage. An appeal was taken by several of the defendant-claimants and the Appellate Division, also applying Alabama law, affirmed the holding of the trial court. 169 N.J. Super. 133, 140 (App.Div. 1979). The appellate court further noted, however, that even if New Jersey law were to be applied, the result as to coverage

would be the same. Id. at 138. This Court granted appellants' petition for certification. 81 N.J. 348 (1979).


The Appellate Division agreed with the trial court that the substantive law of Alabama governed the dispute and that, under Alabama law, Simmons had neither express nor implied consent from Hays to use the car at the time of the accident. 169 N.J. Super. at 138. Our analysis thus begins with the threshold determination of the choice of law to be applied in resolving the controversy presented in this case.

The leading case in New Jersey dealing with choice-of-law principles in insurance policy controversies is Buzzone v. Hartford Accident & Indemnity Co., 23 N.J. 447 (1957). Plaintiffs in that case had been in an automobile accident in New Jersey and sought to collect an unsatisfied judgment obtained in New Jersey from the driver's insuror, a Connecticut insurance corporation. Id. at 450. The driver, a New York resident, had obtained the Connecticut policy in New York by giving a false name and presenting a phony New York driver's license bearing that name; his actual New York license in his true name had previously been revoked. Ibid. The policy contained a standard conforming clause which provided that the insurance contract would be deemed to be in compliance with the motor vehicle financial responsibility law of any state with respect to any liability arising from the operation of the vehicle in that state. Id. at 450-451.

The Court in Buzzone commenced its analysis by stating the basic principle that, in the interpretation of a contract, the law of the place where the contractual obligation was made ordinarily governs, as distinguished from tort cases, in which the law of the place of the wrong usually controls the determination of the rights and liabilities of the parties. Id. at 452. The Court characterized the case before it as involving the determination of obligations under a contract and thus ruled that, in light of all of the circumstances, the basic rule governing the choice of law in contract actions should be followed. Ibid. Applying that

rule, the Court concluded that the law of New York should be applied and that under New York law the insurance company was entitled to plead the defense of fraud to avoid coverage. Id. at 457.

Petitioner in the instant case contends that this Court's analysis in Buzzone with respect to the appropriate principles governing conflicts of law is outmoded in light of current developments. Modern approaches follow the "most significant relationship" standard of the Restatement (Second) of Conflict of Laws § 188 (1971) (hereinafter Restatement) and the "governmental interest" test utilized in several recent New Jersey tort cases. It is argued that under these approaches the law of New Jersey should be applied in this case and that, under our law, Simmons would have been covered as an insured under the insurance policy at the time of the fatal accident.

We disagree that the appropriate choice-of-law standard dictates the application of New Jersey law under the circumstances of this appeal and hold that the courts below correctly followed the law of Alabama to determine insurance coverage.

The Restatement conflict-of-law standard in contract actions has been denominated the "most significant relationship" test. Restatement, supra, § 188. The Restatement identifies seven general considerations germane to a court's conflict-of-law analysis, viz.: (1) the needs of the interstate and international system, (2) the relevant policies of the forum, (3) the relevant policies of other affected states and the relevant interests of those states in the determination of the particular issue, (4) the protection of justified expectations, (5) the basic policies underlying the particular field of law, (6) certainty, predictability, and uniformity of result, and (7) ease in the determination and application of the law to be applied. Restatement, supra, § 6.

The significant relationship test focuses upon that state which has the most meaningful connections with the transaction and the parties in issue. It calls for an "evaluat[ion] according to their relative importance" of several relevant "contacts," such as the domicile of the parties and the places of contracting and

performance. Restatement, supra, § 188. These important contacts become relevant in the assessment of those basic considerations which determine ultimately the choice of law -- the policies and interests of affected states, the special concerns which underlay the particular field of law, the protection of reasonable expectations, the needs for uniformity and consistency, and the ease in the selection and application of the appropriate law. Restatement, supra, § 6, § 188.

With specific reference to casualty insurance policies, including those providing collision insurance, the Restatement propounds the following general principle:

The validity of a contract of fire, surety or casualty insurance and the rights created thereby are determined by the local law of the state which 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 under the principles stated in § 6 to the transaction and parties, in which event the local law of the other state will be applied. [ Restatement, supra, § 193.]

While not expressed in the terms of the Restatement, our decision in Buzzone is not inconsistent with this approach and the result there can be perceived as resting upon some of the factors considered important in the Restatement. The Court in Buzzone in effect considered the significant relationships of each state to the transaction and the parties, e.g., the domicile of the parties, the place of contracting, its anticipated place of performance, and location of the subject matter. It weighed these contacts in the broader context of the reasonable expectations of the contracting parties concerning the principal location of the insured risk and the governmental interests and legislative policies of each affected state. It also recognized the need for reasonable certainty and consistency in choice-of-law principles and the importance of discouraging forum-shopping. Thus, although the Court in Buzzone initiated its analysis by recognizing the law of the place of contracting as the choice-of-law rule in a contract case, the Court gave appropriate emphasis to the significant relationships of the respective states to the parties and the underlying transaction.

Cases in this jurisdiction subsequent to Buzzone have not mechanically or inflexibly applied the lex loci contractus rule. See, e.g., Public Service Coordinated Transport v. Marlo Trucking Co., Inc., 108 N.J. Super. 232, 236 (App.Div.1970) (when insurance contract was made in New York and driver, attorney, and company's principal place of business are all in New York, New York law governs even though accident occurred in New Jersey). Rather, our courts have generally acknowledged, in the selection of state law, the relevance of respective state interests in the particular resolution of the controversy measured by several factors including the connection of the parties to the respective states, the nature of pertinent events that have transpired within each state, and the character of each state's policy preferences relevant to the particular litigation. For example, in Kievit v. Loyal Protective Life Ins. Co., 34 N.J. 475, 492-493 (1961), a suit upon an insurance contract involving competing state interests, the Court found that New Jersey had a greater concern in the controversy and the suit's outcome than did Massachusetts, although the result in that particular case would not be different regardless of which law were to be applied.

This Court has invoked a "governmental interest" test in a series of tort cases presenting conflict-of-law problems. E.g., Pfau v. Trent Aluminum Co., 55 N.J. 511, 521 (1970), (automobile accident in Iowa involving a Connecticut passenger and a New Jersey driver of vehicle registered in New Jersey; Iowa has insufficient interest in having its strict guest-host law applied); Mellk v. Sarahson, 49 N.J. 226, 229 (1967) (suit for personal injury arose from Ohio automobile accident in which parties were New Jersey residents; New Jersey guest-host law applied, permitting the suit, rather than Ohio's law barring such actions; application of Ohio law would not further that state's interest when parties are no longer in Ohio); see generally Comment, "The Application in New Jersey of Government Interest Analysis Approach to Choice-of-Law Problems of Tort Liability," 3 Rut.-Cam.L.J. 165 (1971). While simple conflict-of-law rules in the tort area, such as the automatic application

of the lex loci delicti rule, have the appeal of convenience and certainty, it has been recognized that such rules do not always achieve a sound and just result. See Pfau v. Trent Aluminum Co., supra, 55 N.J. at 515, 526.

Accordingly, we conclude that the proper approach in resolving conflict-of-law issues in liability insurance contract controversies is that which may be synthesized from this post- Buzzone evolution of the law in both the contract field as well as in the somewhat related tort field, particularly in the area of automobile accident litigation. This calls for recognition of the rule that the law of the place of the contract ordinarily governs the choice of law because this rule will generally comport with the reasonable expectations of the parties concerning the principal situs of the insured risk during the term of the policy and will furnish needed certainty and consistency in the selection of the applicable law. See Buzzone v. Hartford Accident & Indemnity Co., supra, 23 N.J. at 458, Mayer v. Roche, 77 N.J.L. 681, 683 (E. & A. 1909); A. Ehrenzweig, A Treatise on the Conflict of Laws § 174 at 460-461 (1962); R. Leflar, American Conflicts of Law § 86 at 173 (3 ed. 1977); Restatement, supra, § 193. At the same time, this choice-of-law rule should not be given controlling or dispositive effect. It should not be applied without a full comparison of the significant relationship of each state with the parties and the transaction. That assessment should encompass an evaluation of important state contacts as well as a consideration of the state policies affected by, and governmental interest in, the outcome of the controversy.

While this approach is necessarily broad and flexible, we find it to be appropriate in this case. It best serves and accommodates the diverse, important considerations which must be duly weighed in settling conflicts of law in litigation such as this. We thus hold that, in an action involving the interpretation of an automobile liability insurance contract, the law of the place of the contract will govern the determination of the rights and liabilities of the parties under the insurance policy. This rule is to be applied unless the dominant and significant relationship of another state to the parties and the underlying issue dictates that this basic rule should yield.


Applying this approach to the present controversy, we commence with a recognition that provisionally the law of the State of Alabama where the insurance contract was originally obtained should govern the determination of the rights and liabilities of the parties under that contract. As we have noted, that rule presumptively comports with the reasonable expectations of the contracting parties as to the primary location of the insurance risk and satisfies the needs for certainty, predictability, and uniformity. The selection of Alabama law should therefore be dispositive unless an evaluation of significant state relationships, an evaluation which includes state policies and governmental interests, would require a different result. After such an evaluation, we conclude that there are no sufficiently cogent countervailing considerations which dictate that Alabama insurance law not be followed to settle the claims in this litigation.

We turn first to an assessment of the contacts which are important in defining the relationship of each state to the subject matter of this controversy. As noted, Hays was single and a domiciliary of Alabama. When he purchased the car, he was still a high school student and had not yet joined the armed forces. The vehicle was purchased and registered in Alabama and had remained so registered. Hays had obtained the insurance policy in Alabama from a local insurance agent known to Hays and his family and who was probably familiar with their Alabama roots. The policy was issued by an insurance company authorized to do business in the State of Alabama and which undoubtedly conducted its business in conformity with Alabama insurance law. Hays' mother had "signed" the policy presumably at the request of the insurance company and in conformity with either Alabama insurance laws and regulations or customs and practices. The premium rates were in all likelihood predicated upon Alabama's statistical experience. When the accident occurred, Hays had been in New Jersey for only four or four and one-half months; his automobile had been in this State for only several weeks. At the time of the accident, Hays' presence in New Jersey was temporary and he had planned to return to

Alabama. In fact, he ultimately did so return. With respect to the accident victims, the record does not indicate the nature and extent of their contacts with New Jersey.

Thus, aside from the facts that the accident occurred in New Jersey, that Hays at the time was temporarily in New Jersey, and that his vehicle had been in this State for a relatively short period of time, no other material facts emerge which disclose a significant relationship of New Jersey to the parties or the underlying insurance transaction. Consequently, our evaluation of the important state contacts in this case demonstrates that the State of Alabama had at the time of the accident the most significant relationship to the parties and the transaction which is the subject matter of the litigation.

In addition to these significant contacts with Alabama, relevant state policy and state governmental interests are other important considerations to be weighed in determining the appropriate choice of law. Restatement, supra, § 6(b), (c), and (e). Hence, an examination of the respective states' concerns relative to liability insurance coverage applicable to ...

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