On Appeal from the United States District Court For the Middle District of Pennsylvania (D.C. Civil Action No. 1-09-cv-00674) District Judge: Honorable John E. Jones, III
The opinion of the court was delivered by: Ambro, Circuit Judge
Before: SCIRICA, AMBRO, and VANASKIE, Circuit Judges
The principal issue in this case is whether New Jersey or Pennsylvania law applies to an automobile insurance dispute between Amica Mutual Insurance Company ("Amica") and Edward and Maureen Fogel, individually and as guardians ad litem of Marcy Fogel and Carrie Fogel, and as administrators of the estate of Melissa Fogel (collectively, the "Fogels"). Amica issued the policy to the Fogels when they were residents of New Jersey. During its term, the Fogels moved to Pennsylvania, and made Amica aware of their permanent relocation, before they were involved in a fatal traffic accident in Pennsylvania that triggered the policy claim to Amica. The District Court granted declaratory relief to Amica at the summary judgment stage, believing that New Jersey law applied to the contract. We conclude that Pennsylvania's choice-of-law rules do not apply; instead, we look to New Jersey's choice-of-law rules, and they point to Pennsylvania law as governing this dispute. We remand so that summary judgment may be entered for the Fogels on the choice-of-law issue. However, we affirm the District Court's grant of summary judgment to Amica on the Fogels' counterclaim alleging that it engaged in a bad faith denial of insurance coverage.
I. FACTS AND PROCEDURAL HISTORY
Amica insured the Fogels under an automobile insurance policy (the "policy" or "contract") effective from December 1, 2007 through December 1, 2008. The Fogels lived in Howell, New Jersey when the policy was issued. It provided underinsured motorist coverage in the amount of $300,000 for each accident. The Fogels moved to Pottsville, Pennsylvania in August 2008.
The same month of their move, Mr. Fogel called Amica to advise his insurer that he had moved from New Jersey to Pennsylvania with the intent to remain there permanently. An Amica representative informed Mr. Fogel that his policy would need to be rewritten in Pennsylvania. A few days later, Mr. Fogel spoke with an Amica senior account representative and asked that his policy be converted to, or reissued as, a Pennsylvania policy, due to his family's relocation to Pennsylvania. The Amica representative told Mr. Fogel that Amica would not issue a Pennsylvania policy until he obtained a Pennsylvania driver's license and registered his two vehicles in Pennsylvania, and that until that time his New Jersey policy would remain in effect. She also obtained Mr. Fogel's new home address in Pennsylvania. Amica began billing the Fogels for their insurance premiums at their residence in Pennsylvania in September 2008. Mr. Fogel did not obtain a Pennsylvania driver's license or register his vehicles in Pennsylvania until early 2009.
In October 2008, Mr. Fogel and three children in the Fogel family were in a serious automobile accident in Pennsylvania. Their vehicle was struck head-on by a motorist who was allegedly intoxicated--one of the Fogel daughters died as a result of the accident and Mr. Fogel and the other two Fogel daughters were seriously injured. The driver of the vehicle that struck the Fogels had liability insurance with a limit of $100,000, which has been paid to the Fogels in settlement of their claims against him. At the time of the accident, the Fogels' policy with Amica had not been rewritten or reissued as a Pennsylvania policy.
After the accident, Amica established a New Jersey personal injury protection ("PIP") file for each of the four injured Fogel family members. It then processed their medical expenses pursuant to New Jersey PIP coverage, which, under New Jersey law, had limits of $250,000 per person per accident.
The Fogels, however, believed that they were entitled to more. In December 2008, their counsel wrote a letter to Amica requesting payment up to the limits of the "stacked" underinsured motorist ("UIM") benefits available under their policy as a result of the accident. Under Pennsylvania law, insureds whose policies cover more than one vehicle may "stack" UIM benefits to cover losses that result from a collision with an at-fault underinsured driver--that is, the insured may add together the policy limits for each of the covered vehicles even though the collision involved only one of the covered vehicles. Stacking is available in Pennsylvania unless the insured expressly waives that right in writing, but it is not permitted in New Jersey. Moreover, insurers in Pennsylvania may not offset UIM benefits by amounts insureds receive from other insurance sources, whereas such offsets are permitted in New Jersey.
Amica's position in response was "that 'stacking' [of UIM benefits on the Fogels' two automobiles] is prohibited under the New Jersey policy." Counsel for the Fogels again wrote to Amica stating that, under Pennsylvania law, the Fogels are entitled to stacked UIM benefits of up to $600,000 (as their policy covered two cars with limits of $300,000 each). After receiving that letter, Amica's claims adjuster confirmed that the Fogels had been residing in Pennsylvania since August 2008. He also confirmed that Mr. Fogel communicated with Amica before the accident regarding his relocation to Pennsylvania.
In January 2009, Amica filed an action in the Superior Court of New Jersey seeking a declaration that its obligations under the policy are only those that it owes under New Jersey law (not Pennsylvania law). The Fogels successfully petitioned for removal to the District Court for the District of New Jersey. On the District Court's own motion, the action was transferred to the Middle District of Pennsylvania pursuant to 28 U.S.C. § 1404(a), which provides that "[f]or the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought."
Amica filed an amended complaint in July 2009 seeking a declaration that it owed no further UIM benefits to the Fogels. In the alternative, if the District Court applied Pennsylvania law, Amica sought return of payments it had made for New Jersey PIP benefits in excess of the amount it would have provided under Pennsylvania law ($5,000 per person).
After discovery, the Fogels filed an amended answer and Amica moved for summary judgment on the choice-of- law issue. The Fogels filed a cross-motion for summary judgment on the same issue and made a counterclaim alleging bad faith by Amica's claims adjuster under 42 Pa. C.S.A. § 8317. Amica also moved for summary judgment on the Fogels' bad faith claim.
The motions and counterclaims were submitted to a Magistrate Judge, who prepared a Report and Recommendation ("R&R") for the District Court. The R&R applied Pennsylvania's choice-of-law rules and concluded that New Jersey law applies to the automobile insurance policy. Thus, the R&R suggested that Amica's motion for summary judgment be granted and the Fogels' cross-motion for summary judgment be denied. It also recommended that summary judgment be granted in favor of Amica on the Fogels' counterclaim for bad faith.
The District Court adopted the Magistrate's R&R, granted Amica's motion for summary judgment, and denied the Fogels' cross-motion for summary judgment. See District Court Memorandum of July 29, 2010 ("Dist. Ct. Memo").*fn1 The Fogels appealed.
We have jurisdiction under 28 U.S.C. § 1291. We review an order granting summary judgment de novo. Gardner v. State Farm Fire and Cas. Co., 544 F.3d 553, 557- 58 (3d Cir. 2009). We also exercise plenary review over a district court's determination of which state's substantive law governs in a civil action based on diversity of citizenship. Berg Chilling Sys., Inc. v. Hull Corp., 435 F.3d 455, 462 (3d Cir. 2006) (citing Garcia v. Plaza Oldsmobile Ltd., 421 F.3d 216, 219 (3d Cir. 2005)).
A. Choice-of-Law Framework
In an action based on diversity of citizenship, a federal court generally applies the choice-of-law rules of the jurisdiction in which it sits. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941); Hammersmith v. TIG Ins. Co., 480 F.3d 220, 226 (3d Cir. 2007) (applying Klaxon); Garcia, 421 F.3d at 219 (same). However, Van Dusen v. Barrack established that when a civil action is transferred from one district court to another pursuant to § 1404(a) on motion of the defendant, the transferee forum must apply the law of the initial forum. 376 U.S. 612, 639 (1964) ("[W]here the defendants seek transfer [under § 1404(a)], the transferee district court must be obligated to apply the state law that would have been applied if there had been no change of venue."). The Supreme Court extended the Van Dusen rule to transfers initiated by the plaintiff in Ferens v. John Deere Co., 494 U.S. 516 (1990). Thus, after transfer by either party, when "[f]aced with a choice-of-law ...