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PARKER v. STATE FARM INS. CO.

July 12, 1982

Judith and James PARKER
v.
STATE FARM INSURANCE COMPANY



The opinion of the court was delivered by: BECHTLE

MEMORANDUM AND ORDER

Presently before the Court is defendant's motion for partial summary judgment in a civil action brought to compel arbitration of plaintiffs' claims for uninsured motorist benefits allegedly due under two automobile liability insurance policies issued by the defendant. At the heart of defendant's motion is a question of choice-of-law: whether the policies are governed by Pennsylvania or Maryland law. Because the Court has concluded that Pennsylvania law applies, and that the issues raised by State Farm must accordingly be answered in plaintiffs' favor, State Farm's motion will be denied.

 The facts needed to decide this motion are not in dispute. On September 11, 1979, in Chester, Pennsylvania, plaintiff Judith Parker was involved in a motor vehicle accident in which the vehicle she was operating collided with that of an uninsured motorist. Plaintiff allegedly suffered serious injuries. At the time of the accident, Judith Parker's vehicle was insured by Allstate Insurance Company ("Allstate"). Plaintiff Judith Parker made a claim for uninsured motorist benefits due under the Allstate policy, and Allstate settled for the policy limit of $ 15,000.00.

 Plaintiff also made claim, however, for uninsured motorist benefits under each of two insurance policies issued by defendant State Farm to plaintiff's husband, James Parker, who is also a plaintiff in this action. In addition, Judith Parker made a demand under the policies for arbitration of her claim. State Farm refused both the claims and the demand for arbitration, and this action followed. *fn1"

 The two insurance policies at issue here were apparently issued to plaintiff James Parker at some time prior to his marriage on October 7, 1978, to plaintiff Judith Parker. Each policy provided for uninsured motorist benefits of up to $ 20,000.00. Each policy also contained a clause stating that in the event of any dispute between the insured and the insurer over the insured's entitlement to uninsured motorist benefits or the amount of such benefits, the dispute would be resolved by arbitration. The policies were issued in Maryland, and set forth plaintiff James Parker's address as Box 11, Earlville, Maryland. State Farm admits that both policies were still in full force and effect at the time of the September 11, 1979 accident. By that time, however, James Parker and Judith Parker were married and living in Chester, Pennsylvania.

 In its motion for partial summary judgment, State Farm sets forth basically two contentions, both of which are based upon the premise that the interpretation of the two policies in question should be governed by Maryland law. First, State Farm argues that the mandatory arbitration clause is rendered void and unenforceable by governing statute. Md.Ann.Code art. 48A, § 541(c). Secondly, State Farm contends that plaintiffs are not permitted to recover benefits for a single accident under more than one policy, except to the extent that the limit of liability of one policy is higher than that of another policy-in other words, State Farm argues that "stacking" is not permitted. Yarmuth v. GEICO, 286 Md. 256, 407 A.2d 315 (1979). Thus, State Farm argues that plaintiffs can only recover $ 5,000.00, representing the difference between the liability limit under either State Farm policy and the liability limit of the Allstate policy.

 Plaintiffs do not dispute State Farm's reading of Maryland law. Plaintiffs do, however, attack State Farm's reliance upon Maryland law in the first place, and contend that, on the contrary, Pennsylvania law applies. Thus, plaintiffs maintain that the mandatory arbitration clauses are valid and enforceable, see National Grange Mutual Insurance Co. v. Kuhn, 428 Pa. 179, 236 A.2d 758 (1968), and that "stacking" or cumulating the uninsured motorist coverages provided for in the various policies is permitted. State Farm Mutual Auto Insurance Co. v. Williams, 481 Pa. 130, 392 A.2d 281 (1978); Marchese v. Aetna Casualty and Surety Co., 284 Pa.Super. 579, 426 A.2d 646 (1981).

 There is no dispute that the law of Maryland and Pennsylvania stands as set forth above. Thus, the essential question whose answer will determine the outcome of the case is whether the two State Farm policies are governed by the law of Maryland or the law of Pennsylvania.

 In resolving a question of choice-of-law, a federal court exercising diversity jurisdiction must apply the choice-of-law rules of the forum state. Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 61 S. Ct. 1020, 85 L. Ed. 1477 (1941). The most recent analysis of Pennsylvania choice-of-law rules as applied in contract actions is found in Melville v. American Home Assurance Co., 584 F.2d 1306 (3d Cir. 1978). In Melville, the Third Circuit concluded that Pennsylvania had discarded the traditional "vested rights" approach to choice-of-law analysis in contract actions, and had replaced it with a more flexible approach combining governmental interest analysis with the grouping-of-contacts approach adopted in the Restatement (Second) of Conflict of Laws. Under this approach, where there is a conflict between the applicable legal principles of two or more states whose law might arguably apply to a given situation, the Court faced with the need to choose must, as a first step, determine what governmental interests those states intended to further in adopting the respective legal principles. If only one state's interests would be advanced by the application of its law to the case at hand, then there is a "false" conflict, and the Court should apply the law of the only interested state. If, on the contrary, the interests of two or more states would be furthered by application of their respective laws, then there is a "true" conflict, and the Court must choose among the states whose interests would be served by the application of their laws. *fn2" In the event there is a "true" conflict, the Court must, as a second step, examine the contacts existing between the action and each of the interested states, and determine which state bears the most significant relationship to the action in respect to the particular question at hand. The issue is then resolved according to the law of that state. See Melville v. American Home Assurance Co., supra.

 The case now before us clearly presents an instance of a "true" conflict in respect to both the validity of mandatory arbitration clauses and the propriety of "stacking." In holding mandatory arbitration clauses to be valid and enforceable, Pennsylvania seeks to advance the state's interest in assisting its citizens in obtaining a speedy resolution of their claims by the method agreed to in the contract. Maryland, on the other hand, in declaring such clauses to be void and unenforceable, seeks to advance the interests of its citizens and persons doing business there in preserving their right to have a court decide their claims, even though they may once have been willing to waive that right by contract. In regard to "stacking," Pennsylvania's rule permitting "stacking" is plainly intended to allow its injured citizens to obtain the full benefit of all coverage paid for in premiums, while Maryland's rule prohibiting "stacking" is designed to protect insurers doing business within Maryland's borders from liability that may prohibitively increase the cost of doing business there. Thus, since plaintiffs are citizens of Pennsylvania and are persons whom the applicable Pennsylvania law seeks to protect, and since defendant does business in Maryland and is within the class of persons to be protected by its law, the Court is confronted with a "true" conflict.

 Having determined that a "true" conflict exists, the Court must determine which state bears the most significant relationship to the litigation in regard to the issues at hand, using the approach set forth in the Restatement (Second) of Conflict of Laws. Section 188 of the Restatement provides:

 
§§ 188. Law Governing in Absence of Effective Choice by the Parties
 
(1) The rights and duties of the parties with respect to an issue in contract are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the transaction and the parties under the principles stated in § 6.
 
(2) In the absence of an effective choice of law by the parties ..., the contacts to be taken into account in applying the principles of § 6 to determine ...

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