Parties Choose the Law to Apply
Websolv Computing Incorporated (Websolv) purchased a commercial general liability policy from Auto Owners Insurance Company (Auto Owners). The facts of the underlying case stated that Guy Bibbs (Bibbs) sued Websolv for sending a fax to his dental office, unsolicited, which violated the Telephone Consumer Protection Act (TCPA). Auto Owners filed a declaratory judgment action asking the court to find that it had no duty to defend Websolv. Both parties stipulated that Iowa law should govern the dispute, however the district court relied on Illinois law and held that under Illinois law, Auto Owners was responsible for defending the claim. Auto Owners appealed on the basis that Illinois law did not govern the dispute.
On de novo review, the court found that the court incorrectly applied Illinois law. Generally, the court will uphold a contract that includes a reasonable choice of law provision. In this case, both parties stipulated in the insurance contract and in open court that Iowa law should govern the case, therefore the court should not have applied Illinois law. The law of the forum state is not automatically applied in federal diversity jurisdiction cases.
Rather, the court applies choice of law rules of the forum state and then determines which state’s substantive law applies. In insurance-coverage cases, Illinois considers a variety of factors to determine which state’s substantive law should apply, including the domicile of the insured, the place of delivery of the policy, and the place of performance. Illinois places the most importance on the location of the insured risk. In this case, all significant contacts (location of the insured, place of performance, domicile of insured, location of insured risk) were in Iowa, not Illinois. The district court’s ruling was reversed based upon a misapplication of the choice of law provision. The Seventh Circuit found that Iowa law governs, not Illinois law.
