Alton Brown; Linda F. Brown, Plaintiffs/appellants, v. Home Insurance Company, Defendant/appellee, 176 F.3d 1102 (8th Cir. 1999)

Alton Brown and his wife Linda F. Brown sued Home Insurance Company (Home) to recover under the uninsured motorist provisions of two insurance policies issued by it. The district court¹  granted summary judgment to Home, and the Browns appeal. They argue that the court erred in its choice of law analysis and in granting summary judgment on the merits of their claims for breach of contract, bad faith and vexatious refusal to pay, and loss of consortium. We affirm the judgment.

Alton Brown, a resident of Tennessee, was injured in October 1993 when the tractor trailer he was driving through Missouri collided with another vehicle driven by an uninsured resident of Missouri, Christopher Lang. Brown suffered a fractured wrist and other injuries to his eye, hand, and chest, and he is apparently not able to return to his chosen occupation of truck driving. At the time of the accident, he was employed by Adair Transportation (Adair) which had leased the tractor trailer and Brown's services to Chemical Leaman Corporation (Chemical). Chemical carried liability insurance with Home.

Brown was the sole driver assigned to the truck which he drove regularly on interstate trips. When he was home in Tennessee he parked the rig at his house or at Chemical's Memphis depot. The trailer was licensed and registered in Tennessee, but the tractor was licensed and registered in Texas.

Brown filed a workers' compensation claim against Adair and its compensation carrier, CIGNA Property & Casualty Company, and he ultimately received $63,362.66 in a settlement. He also filed a claim for uninsured motorist benefits with Home to recover under two policies that Chemical had purchased to cover its fleet of trucks. Both policies recognize that the covered vehicles are likely to travel through various states. Policy TKF167115 (policy 115) is referred to by the Browns as the "allstates policy," and it references the uninsured motorist laws of several states. The Browns refer to the other policy, TKF167116 (policy 116), as the "Texas policy." It is similar to policy 115, but also has several forms labeled "Texas Standard Automobile Endorsement" that include language apparently required by Texas law. Both policies provide that uninsured motorist coverage will not apply to benefit directly or indirectly an insurer under any workers' compensation law. Policy 115 also says it will offset all amounts paid or payable as workers' compensation benefits, and policy 116 says it will pay amounts not paid by workers' compensation up to the policy limits. It is undisputed that both policies were in effect on the day of the accident and that the vehicle Brown was driving was covered under Chemical's liability insurance because of the lease between Chemical and Adair.

Home denied coverage under both policies, and the Browns filed this suit in the Eastern District of Missouri. They alleged in count one of their second amended complaint that Home had breached its contractual obligation to pay uninsured motorist benefits. In count two they requested damages for bad faith and vexatious refusal to pay. In count three Linda Brown pled loss of spousal consortium. Home filed a motion to dismiss, and the district court requested additional briefing on the choice of law issues. On June 8, 1998, the magistrate judge issued an order denying Home's motion to dismiss and concluding that Tennessee law governed under Missouri choice of law rules. Home's subsequent motion for summary judgment was granted on August 6, 1998 on the grounds that there was no genuine issue of material fact concerning the coverage of the policies. The court emphasized that Brown had received workers' compensation benefits in excess of the maximum benefits available under either policy and that the provisions limiting the uninsured motorist coverage were enforceable under Tennessee law. The court then dismissed as moot the claim for vexatious refusal to pay and the request for punitive damages, and it denied Linda Brown's claim for loss of consortium as derivative of her husband's failed claims.

The Browns appeal from the judgment. They argue the court erred in applying Tennessee law because Texas had the most significant contacts with the case and because the relevant Tennessee law violates the public policy of Missouri. They also argue that summary judgment was improperly granted because Home had failed to show the uninsured motorist coverage would benefit the workers' compensation carrier, because the language in policy 116 is ambiguous, because not all of the Browns' losses were covered by the workers' compensation settlement, and because there are disputed fact questions regarding whether Chemical had properly rejected uninsured motorist coverage under both policies.²  Home defends the court's analysis, and it also contends that policy 116 does not apply to the Browns' claims and that addenda to both policies amounted to valid rejections of uninsured motorist coverage.

We review a district court's grant of summary judgment de novo and under the same standard. JN Exploration & Prod. v. Western Gas Resources, Inc., 153 F.3d 906, 909 (8th Cir. 1998). Summary judgment is appropriate if, when the facts are viewed in the light most favorable to the nonmoving party, there is no genuine dispute of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a); id. The district court's interpretation of Missouri law is entitled to no deference. Leavitt v. Jane L., 518 U.S. 137, 145, 116 S. Ct. 2068, 135 L. Ed. 2d 443 (1996); First Colony Life Ins. Co. v. Berube, 130 F.3d 827, 829 (8th Cir. 1997). De novo review is applied to the construction and interpretation of contracts, Sligo, Inc. v. Nevois, 84 F.3d 1014, 1019 (8th Cir. 1996), and to choice of law issues. Northwest Airlines v. Astraea Aviation Servs., 111 F.3d 1386, 1392 (8th Cir. 1997).

A fundamental issue on appeal is whether the district court erred in selecting Tennessee law as the rule of decision. In this diversity case, the federal court in Missouri was bound to apply the forum's choice of law principles. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S. Ct. 1020, 85 L. Ed. 1477 (1941); Whirlpool Corp. v. Ritter, 929 F.2d 1318, 1320 (8th Cir. 1991). Under Missouri law there is not an actual conflict of law unless the interests of two or more states cannot be reconciled. State ex rel. Broglin v. Nangle, 510 S.W.2d 699, 703 (Mo.1974) (en banc).

Both Texas and Tennessee had real interests in this case. The Browns resided at the time of the accident and continue to reside in Tennessee. The trailer is registered in that state, and the tractor and trailer were principally garaged there.³  In addition, policy 115 includes a Tennessee uninsured motorist coverage endorsement form among its references to several states' uninsured motorist laws, and the Browns received Home's letters denying coverage at their Tennessee address. Texas, on the other hand, is where the tractor was registered, and policy 116 makes several references to Texas and includes several standard forms labeled "Texas Standard Automobile Endorsement." Texas has an interest in the construction of insurance policy provisions required under Texas law and in regulating the insurance provided for a truck registered in its state. Tennessee has an interest in insurance contracts providing coverage for its residents, in regulating the amount of insurance required for trucks principally garaged in its state, and in the regulation of a trailer principally garaged and registered in its state.⁴ 

The law of the two states is in conflict on the enforceability of uninsured motorist provisions which reduce coverage when workers compensation benefits are available or when coverage would benefit a workers' compensation insurer. Texas law invalidates clauses limiting uninsured motorist coverage based on the applicability of other insurance. American Liberty Insurance Company v. Ranzau, 481 S.W.2d 793 (Tex.1972). Clauses providing that coverage shall not apply directly or indirectly to benefit a workers' compensation insurer are also invalidated in Texas. Employers Cas. Co. v. Dyess, 957 S.W.2d 884, 890-91 (Tex.App.1997). Under Tennessee law clauses reducing damages payable under uninsured motorist coverage by the amount paid or payable under any workers' compensation law are clearly valid unless they operate to deny payments to an insured of less than the minimum set by statute. Terry v. Aetna Cas. & Surety Co., 510 S.W.2d 509 (Tenn.1974). This is so regardless of whether the workers' compensation benefits were actually received by the injured party. Dwight v. Tennessee Farmers Mut. Ins. Co., 701 S.W.2d 621, 622 (Tenn.Ct.App.1985). The fact that in Tennessee a subrogation lien will not attach when workers' compensation benefits have been offset from insurance coverage, Hudson v. Hudson Mun. Contractors, Inc., 898 S.W.2d 187, 189-90 (Tenn.1995), may also suggest that clauses reducing coverage directly or indirectly benefitting a workers' compensation insurer are valid there.

Missouri has adopted sections 188 and 193 of the Restatement (Second) Conflict of Laws to use in resolving true conflicts of law regarding insurance contracts, See, e.g., Atlas Intermodal Trucking Serv. Inc. v. United Fire & Cas. Co., 973 S.W.2d 174, 177 (Mo.Ct.App.1998). Section 193 provides that:

The validity of a contract [and the] casualty insurance and rights created thereby are determined by the local law of the state where 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.

Restatement (Second) Conflict of Laws § 193 (1971) [hereinafter Restatement ]. This means that the single most important factor in the choice of law analysis is the principal location of the insured risk if it can be determined. Id.; see also Hartzler v. American Family Mut. Ins. Co., 881 S.W.2d 653, 655 (Mo.Ct.App.1994). The location of the insured risk in an auto insurance contract is generally the state where the vehicle is expected to be during the major portion of the insurance period; for auto liability that is where the vehicle is principally garaged. Restatement § 193 cmt. b; see also Hartzler, 881 S.W.2d. at 655. The insurance contracts at issue in this case covered multiple vehicles expected to travel through various states. Courts often treat multiple risk policies as if they involved separate policies for each state, with each insuring an individual risk. See Crown Ctr. Redev. Corp. v. Occidental Fire & Cas. Co., 716 S.W.2d 348, 358 (Mo.Ct.App.1986); see also Restatement § 193 cmt. f. Even under this approach it is not always possible to find a location for the insured risk. Comment (a) to section 193 notes that "there may be no principal location of the insured risk in the case of contracts for the insurance of things, such as ... trucks ... that are constantly on the move from state to state. In such a case, the location of the risk can play little role in the determination of the applicable law." Restatement § 193 cmt. a.

It is undisputed that Brown drove the truck to pick up and drop off loads throughout the contiguous forty-eight states, Canada, and Mexico and that when he was at home in Tennessee he parked the truck in that state. These circumstances are of course not the same as when a family car is principally garaged in the state in which it is registered and where the premium is likely determined on that basis. See Hartzler, 881 S.W.2d at 655. Nonetheless, to the extent the insured risk here had a principal location, it was in the state where it was principally garaged, namely Tennessee.

This case does not turn only on the location of the insured risk, however, because consideration of the relevant contacts under § 188 and of the principles underlying § 6 of the Restatement also lead to application of Tennessee law.⁵  Tennessee was the state where the trailer was registered, the plaintiffs resided, and the truck and trailer were principally garaged. The only connection between the litigation involving policy 115 and the state of Texas was the fact that the tractor driven by Brown was registered in Texas. Although the accident occurred in Missouri, it had little policy interest in the litigation, and the fact that the contract was formed in Illinois is in itself insignificant. Restatement § 188 cmt. e. Moreover, none of the factors set out in § 6 would appear to counsel against the choice of Tennessee law. The court did not err in concluding that Tennessee law applied to the claims under policy 115.⁶ 

The Browns make an additional argument for the application of Texas law to the interpretation of policy 116, saying it is a "Texas policy" and includes provisions required by Texas law. The inclusion of provisions mandated by a specific state's law may show where the parties intended the insured risk to be located, see Hartzler, 881 S.W.2d at 655, and Missouri courts applying the Restatement's "most significant contacts" test consider whether such provisions were specifically required by the law of a certain state, for "it would be strange indeed if contract obligations imposed by law would change whenever a state line is crossed." South v. American Interinsurance Exch., 743 S.W.2d 421, 422 (Mo.Ct.App.1987) (quoting State Farm Mut. Auto. Ins. Co. v. MFA Mut. Ins. Co., 671 S.W.2d 276 (Mo.1984) (en banc)); see also Markway v. State Farm Mutual Auto. Ins. Co., 799 S.W.2d 146, 148-50 (Mo.Ct.App.1990). These Missouri cases holding that the controlling law was that of the state referenced in the contract all involved personal auto insurance, however. The insurance policy in each covered a personal auto which was registered, licensed, and at least sometimes garaged in the state whose law was mentioned in the policy. See Markway, 799 S.W.2d at 149; South, 743 S.W.2d. at 422; State Farm, 671 S.W.2d at 277 n. 2. The policies here deal with over the road trucks, and they are not so clearly focused on a particular state. Since both policies 115 and 116 have provisions specifying that uninsured motorist benefits will not be paid to benefit a workers' compensation insurer, it does not appear that this provision in 116 was included to comply only with Texas law. Another provision in policy 116 further undermines the contention that the parties believed Texas to be the principal location of the risk or that they intended Texas law to be applied. The general truckers coverage form provides that:

While covered auto is away from the state where it is licensed we will: (1) Increase the Limit of Insurance for Liability coverage to meet the limit or limits specified by a compulsory or financial responsibility law in the jurisdiction where the covered auto is being used. (2) Provide the minimum amounts and types of other coverages such as no-fault, required of out of state vehicles by the jurisdiction where the covered auto is being used.

We conclude that the inclusion of forms required by Texas law in policy 116 does not tip the balance such that the Texas contacts to the litigation regarding claims under this policy outweigh those of Tennessee. The court did not err in applying Tennessee law to issues under this policy as well.

Finally, the Browns argue that even if Tennessee law applies to the interpretation of the contracts under choice of law rules, that law should not be applied to enforce the uninsured motorist exclusions because Missouri has a public policy against permitting such exclusions. Langston v. Hayden, 886 S.W.2d 82, 86 (Mo.Ct.App.1994) ("If the law of a foreign state violates our public policy, as a general rule, it will not be enforced by our state courts."). Under Missouri law insurance provisions which allow workers' compensation benefits to be offset from recovery under uninsured motorist provisions have been found to violate Mo.Rev.Stat. § 379.203 (requiring uninsured motorist coverage). Cano v. Travelers Ins. Co., 656 S.W.2d 266, 270 (Mo.1983) (en banc); Douthet v. State Farm Mut. Auto. Ins., 546 S.W.2d 156, 159 (Mo.1977) (en banc.). More recently, however, such a provision has been found enforceable in Missouri when it is valid under the law of decision, even though Missouri law would void it. Markway, 799 S.W.2d at 150.

The Browns also challenge the district court's analysis of the merits of Home's motion for summary judgment under Tennessee law. The court held that the provisions in both policies stating that uninsured motorist coverage does "not apply directly or indirectly to benefit ... an insurer ... under any workers' compensation ... law" precluded coverage since Alton Brown had already received such benefits in an amount higher than the maximum payout under either policy.

Policy 115 provides uninsured motorist coverage "as per state statutory laws." It explicitly rejects uninsured motorist coverage where a rejection is allowed and selects the lowest permissible limit for this type of coverage in other states. The policy includes a Tennessee uninsured motorist coverage endorsement which establishes a limit of $60,000 in bodily injury coverage per accident.⁷  Both the Tennessee endorsement and the generally applicable uninsured motorist coverage endorsement contain unambiguous language indicating that the coverage will not apply to "the direct or indirect benefit of any insurer or self-insurer under any workers' compensation disability benefits or similar law" and that "any amount payable under this insurance shall be reduced by: all sums paid or payable under any workers' compensation disability benefits of similar law...." Under Tennessee law, setoff provisions requiring a reduction of uninsured motorist benefits by sums received as workers' compensation are valid and enforceable. Hutchison v. Tennessee Farmers Mut. Ins. Co., 652 S.W.2d 904, 906 (Tenn.Ct.App.1983) (citing Tenn.Code Ann. § 56-7-1205). Under such provisions, insurers are entitled to set off the full amount of worker's compensation benefits payable to the plaintiff from any amount due under a policy, provided the injured party is guaranteed a recovery at least equal to the minimum liability limits required by Tennessee law. Id.; Soren v. Ezelle, 737 F. Supp. 49, 50 (M.D. Tenn. 1990).

The Browns also claim Home breached its contractual duty to pay under policy 116.⁸  This policy is substantially similar to policy 115, but it contains a number of form sheets labeled as "Texas Standard Automobile Endorsement" which are apparently required by the state of Texas. The policy provides uninsured motorist coverage for "owned autos subject to a compulsory uninsured motorists law" with a payout limit of $55,000. Both the general truckers declaration form and a separate Texas endorsement form limit the uninsured motorist coverage by providing that it "shall not apply directly or indirectly to benefit ... any insurer or self-insurer under any workers' compensation, disability benefits or similar law...."⁹  The Texas endorsement form also contained an additional limits on insurance provision which states that:

In order to avoid insurance benefits payments in excess of actual damages sustained, subject only to the limits set out in the Schedule or in the Declarations and other applicable provisions of this coverage, we will pay all covered damages not paid or payable under any workers' compensation law, disability benefits law, any similar law, auto medical expense coverage or Personal Injury Protection coverage.

The Browns argue this second provision contradicts the first and makes the policy ambiguous. To support this position they argue the second provision does not limit potential payouts, but instead is an agreement to pay all additional claims not covered by workers' compensation. This is a strained reading, not controlled by the "ordinary and natural meaning" of the words used. See, e.g., State v. Williams, 690 S.W.2d 517, 529 (Tenn.1985). It also ignores the precatory language which indicates the provision is intended to limit payouts when there is already coverage. The subrogation lien created in favor of a payor of workers' compensation benefits under Tenn.Code Ann. § 50-6-112(c) does not attach when the workers' compensation benefits received have already been offset from the uninsured motorist coverage. Hudson v. Hudson Mun. Contractors, Inc., 898 S.W.2d 187, 189-90 (Tenn.1995). The purpose of this is to avoid a double reduction in the victim's damages, id., and the statutory right of subrogation may remain attached to any sums not offset. In this case, there would be no double reduction and thus nothing would prohibit the statutorily created subrogation lien for workers' compensation insurers such as CIGNA from attaching to uninsured motorist benefits paid out by Home. Any sum paid by Home would benefit CIGNA and violate the policy provision excluding coverage to benefit such an insurer. The court did not err in granting summary judgment on the claims for breach of contract.

Finally, since Home has no duty under either policy to pay Browns' claims, the court did not err in also dismissing counts two and three of the second amended complaint. In the absence of an underlying duty to pay the claims, there can be no bad faith and vexatious refusal to pay. Linda Brown's loss of consortium claim is derivative of her husband's claims and thus also fails. Tuggle v. Allright Parking Sys. Inc., 922 S.W.2d 105, 108 (Tenn.1996).

For the reasons discussed, Home Insurance Company is entitled to summary judgment. The judgment of the district court is therefore affirmed.