claim against defendant's physician who had examined plaintiff and provided the basis for the termination. The Court of Appeals held that, in an action on the insurance contract, plaintiff could recover no more than the policy limit. Plaintiff could not recover additional compensatory damages or punitive damages under section 40-d because plaintiff had not shown a pattern of conduct on the part of defendant; plaintiff had alleged only one incident.
Halpin therefore suggests that a New York court could entertain plaintiff Smith's action only under section 40-d. Smith has recovered under his policy. In this action he claims a right to recover for further damages incurred as a result of his benefits interruption. However, Smith might recover under 40-d if he can show a pattern of bad business practice on the part of Fireman's Fund. Smith has alleged two patterns. Smith alleges that Fireman's Fund repeatedly had him examined in an effort to establish grounds for terminating his benefits. Smith also suggests that Dr. Blaker often gives questionable diagnoses.
Thus, if New York or California law applies, plaintiff can survive this motion for summary judgment. If Pennsylvania law applies, defendant will prevail on this motion.
As a transferee court under 28 U.S.C. § 1404(a) this court must apply the law that the transferor court in the Northern District of California would have applied. Van Dusen v. Barrack, 376 U.S. 612, 639, 84 S. Ct. 805, 820, 11 L. Ed. 2d 945 (1964). The district court in California would apply California choice-of-law rules to determine the law applicable to this case. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S. Ct. 1020, 85 L. Ed. 1477 (1941). Accordingly, this court must apply those California rules.
California determines the law applicable to a case by an analysis of the governmental interests at stake. Offshore Rental Co. v. Continental Oil Co., 22 Cal.3d 157, 583 P.2d 721, 148 Cal.Rptr. 867 (1978); Reich v. Purcell, 67 Cal.2d 551, 432 P.2d 727, 63 Cal.Rptr. 31 (1967); see also Fleury v. Harper & Row Publishers, Inc., 698 F.2d 1022 (9th Cir.1983). One can imagine two competing governmental interests in the determination of insurers' liability for bad faith termination of benefits. The state where an insured resides while receiving benefits has an interest in encouraging the continuity of the benefits' payment. New York, then, has an interest in deterring wrongful termination of its residents' benefits through the threat of a private right of action for broad compensatory damages and punitive damages.
The state which required the underlying Workers' Compensation scheme also has an interest which cuts the other way. If every mistaken benefit termination creates the risk of a private action for bad faith termination, insurers will terminate people less often. This will result in insurers paying benefits to some individuals not entitled to them. Further, insurers will have to defend all suits, meritorious or not. These combined effects will increase the cost of insurance in the state. This may be part of the reason why Pennsylvania has chosen to entrust the policing of insurers' behavior solely to the official regulatory process, precluding all private claims.
California has an interest in regulating the conduct of its residents' insurers. But that interest is attenuated when the contingencies covered and the persons to be protected are both out-of-state. It seems a fair inference that a California court would conclude that California's interest should be subordinated to the respective interests of Pennsylvania and New York. As between the New York and Pennsylvania rules, neither one seems patently anachronistic. See Offshore Rental Co., 22 Cal.3d at 165-166, 583 P.2d at 726, 148 Cal.Rptr. at 872. Further, neither one yields a manifestly higher "attainment of underlying purpose by all governmental entities." See Offshore Rental Co., 22 Cal.3d at 166-167, 583 P.2d at 726, 148 Cal.Rptr. at 873.
Of the two available choices, New York's law more nearly resembles California's than does Pennsylvania's. Given the difficulty of basing a choice on other criteria, a California court would probably opt for the New York rule for this reason. Therefore, this court will apply New York law.
As discussed above, defendant has not shown beyond any factual doubt that plaintiff cannot establish the elements of a private action under N.Y.Ins.Law § 40-d (McKinney Supp.1982). At this stage, this court cannot determine with certainty that plaintiff will not flesh out his sketchy allegations into a showing of proscribed business practices on the part of Fireman's Fund. Therefore, defendant's motion for summary judgment is, in the accompanying Order, denied.
For reasons stated in the accompanying Memorandum, defendant Fireman's Fund Insurance Company's motion for summary judgment is DENIED.
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