Motor vehicles, by the nature of their mobility, freely move among the states. Accidents can occur in an insured’s home state or another state. The laws of the states can differ on how they interpret the terms of an insurance policy. Which law should be applied is the subject of rules for conflict-of-laws or choice-of-laws decisions.
The inclusion of a choice-of-law endorsement in an insurance policy is helpful to the insurance company and the insured. The endorsement can show that the matter was considered by the parties to the insurance policy and that it was their intention that the laws of a certain state govern the terms of it. The use of a choice-of-law endorsement does not guarantee that a court will enforce it. If the insurance policy endorsement conflicts with a state public policy, a court may choose to determine which law should be applied without considering the endorsement.
If there is no choice-of-law endorsement, courts will determine which law to apply by considering the conflict-of-law rules of the state in which the court is sitting. Some states will apply the laws of the state in which the insurance policy was made. Other states will evaluate the relationship of each state to be claim before it. Some factors that are used are the place of contracting, the place of the negotiation, the place of performance, the location of the subject matter, the place of incorporation of the insurance company and the insured, and the residence or domicile of the parties to the court action.
A choice-of-law rule to apply the law of the state with the most significant contacts to a lawsuit could lead to a decision that the law of the state in which the court is sitting. For instance, an action for benefits under an accidental death policy issued by a car rental franchisee to a renter was governed by state A, not state B. The renter was a resident of state A. The franchisee was a state A corporation. The claim arose from an accident in state A. The only contact with state B was the delivery of the master insurance policy to the corporate office of the car rental company, which was a national corporation.