ATTORNEYS FOR APPELLANT: ATTORNEYS FOR APPELLEE:
BARRY D. SHERMAN RANDALL J. NYE
KRISTEN D. HILL MELANIE M. DUNAJESKI
Sherman & Allegretti Beckman, Kelly & Smith
Hammond, Indiana Hammond, Indiana
KARL L. MULVANEY
Bingham, Summers, Welsh & Spilman
EMILY SCHAFFERT and NATHAN ) SCHAFFERT, By Their Next Friend, ) DEENA SCHAFFERT, ) ) Appellants-Plaintiffs, ) ) vs. ) No. 45A03-9701-CV-30 ) JACKSON NATIONAL LIFE INSURANCE ) COMPANY, ) ) Appellee-Defendant. )
Deena Schaffert on behalf of her children (collectively "Schafferts"), appeals the trial court's grant of summary judgment in favor of Jackson National Life Insurance Co. ("Jackson National"), claiming that the trial court erred by choosing to apply Illinois' substantive law.
Schaffert completed the application and mailed it, along with the first premium check, to
Patterson at her Illinois office. Patterson, upon receiving the application, countersigned it
and mailed Dr. Schaffert an interim receipt. This interim receipt did not contain a choice of
On August 13, 1993, Timothy Hall, the paramedical examiner assigned to examine Dr. Schaffert, spoke with Dr. Schaffert to set up an examination and was informed by Dr. Schaffert that he would not be available until after August 30th. Sadly, Dr. Schaffert was killed in an automobile accident on August 29, 1993, before he was able to undergo the examination. On September 7, 1993, Jackson National, unaware that Dr. Schaffert had died, made a note in Dr. Schaffert's file that if the results of the examintion were not received by September 21st, the file would be closed. Five days later, on September 12th, Jackson National, having learned of his death, denied Dr. Schaffert's application and refunded his premium.
The Schafferts filed suit against Jackson National on May 4, 1994, in Indiana, to recover the life insurance proceeds that Jackson National refused to pay. One year later, on May 5, 1995, the Schaffert's filed a motion for summary judgment, arguing that Indiana's law was the appropriate choice of law and that under Indiana law, a valid life insurance contract had been formed. Jackson National responded with a cross-motion for summary judgment on June 12, 1995, arguing that Illinois law was the appropriate choice of law and that under Illinois law no life insurance contract had been formed. On June 13, 1996, the trial court held a hearing on the parties' motions and on July 26, 1996, entered its order. In its order,
the trial court granted Jackson National's cross-motion for summary judgment, concluding
that under the "most intimate contacts" test and the "last act" test, Illinois law was the
appropriate choice of law. The trial court then stated that under Illinois law the physical was
a condition precedent which had not been met by Dr. Schaffert and, therefore, there was no
insurance policy in effect. The Schafferts appeal this order.
II. Whether the trial court should have declined to apply Illinois law because it
violated Indiana's public policy.
sent the application from his Indiana office. In contrast, Jackson National, focusing on the
domicil of Dr. Schaffert, his family, and Patterson's place of business, argues that the trial
court correctly ruled that Illinois law was the appropriate choice of law. In the present case,
the choice of law is dispositive to the parties' claims. Under Illinois law, the medical
examination Dr. Schaffert was required to undergo is considered a condition precedent which
must be met before the life insurance policy takes effect. Garde v. American Family Life Ins.
Co., 498 N.E.2d 292, 295 (Ill. App. Ct. 1986). Because Dr. Schaffert failed to undergo the
examination, under Illinois law, the life insurance policy did not take effect and the
Schafferts are not entitled to any death benefits. Id. Unlike Illinois law, under Indiana law
the Schafferts would be entitled to recover benefits based on the life insurance policy. Kaiser
v. National Farmers Union Life Ins. Co., 167 Ind.App. 619, 339 N.E.2d 599, 601 (1976).
Indiana law interprets conditional receipts, like the one Dr. Schaffert received, "as creating
a temporary or interim contract for insurance subject to a condition subsequent--rejection of
the application by the company. Where rejection does not occur, in the case of life
insurance, prior to the death of the applicant, the company is liable for the stated amount of
proceeds." Id. Dr. Schaffert died before he had been notified that his application had been
rejected and, therefore, under Indiana law the Schafferts may recover death benefits under
the life insurance policy.
When faced with a choice of law question, the decision is made by the courts of the state in which the suit is pending. Hubbard Mfg. Co., Inc. v. Greerson, 515 N.E.2d 1071, 1073 (Ind. 1987). Indiana's choice of law rule for contract actions is the "most intimate
contacts" test.See footnote 1 Eby v. York-Division, Borg-Warner, 455 N.E.2d 623, 626 (Ind. Ct. App. 1983); Suyemasa v. Myers, 420 N.E.2d 1334, 1344 (Ind. Ct. App. 1981); Dohm & Nelke v. Wilson Foods Corp., 531 N.E.2d 512, 513 (Ind. Ct. App. 1988). "As formulated by our supreme court, the rule has been succinctly stated as follows: 'The court will consider all acts of the parties touching the transaction in relation to the several states involved and will apply as the law governing the transaction the law of that state with which the facts are in most intimate contact.'" Eby, 455 N.E.2d at 626 (quoting W.H. Barber Co. v. Hughes, 223 Ind. 570, 63 N.E.2d 417, 423 (1945)). Quoting the Restatement (Second) of Conflict of Laws § 188, the Eby court listed the factors to be considered in this test as: (1) the place of contracting, (2) the place of negotiation, (3) the place of performance, (4) the location of the subject matter of the contract, and (5) the domicil, residence, nationality, place of incorporation and place of business of the parties. Id. This test and these factors apply to actions based upon insurance contracts. See Travelers Ins. Companies v. Rogers, 579 N.E.2d 1328 (Ind. Ct. App. 1991).
Applying the factors set forth in Eby, we first look to the place of contracting. In this
case, this factor does not aid our inquiry because it is precisely the issue which we must first
determine the applicable law in order to decide. To determine whether a contract was legally
formed, we must apply either the law of Indiana or Illinois. Because we must apply the
substantive law of one of the two states to decide where the place of contracting is, and we
need to know the place of contracting to decide which state's substantive law to apply, we
are caught in a "catch-22." This first factor is therefore inapplicable. The facts do reveal that
the place of negotiation, the second factor, was Indiana. All of the face-to-face discussions
occurred in Indiana and Patterson's proposals were mailed to Dr. Schaffert's Indiana office.
The third factor, place of performance, is not really applicable because of the nature of life
insurance contracts; there was no act the contract required to be performed. The location of
the subject matter of the contract, the fourth factor, also does not aid our analysis. The
subject matter of the life insurance contract was Dr. Schaffert's life, which had no fixed
location, but instead followed Dr. Schaffert wherever he went. The final, and most
important, factor is the domicil or place of business of the parties. Dr. Schaffert and his
beneficiaries were domiciled in Illinois. In addition, Patterson's place of business was in
Illinois while Jackson National's place of business was Michigan.
Based on these factors, the Schafferts argue that we should focus on Indiana because it was where the negotiations took place, where the application was completed, and from where the premium was sent. The Schafferts claim that these events make Indiana the place of contracting and based on this contact, the appropriate choice of law. "Standing alone, the
place of contracting is a relatively insignificant contact." Restatement (Second) of
Conflict of Laws § 188 cmt. e (1977). The place of contracting alone is relatively
insignificant because it is usually one of several contacts in a state and is rarely the sole
connection a state will have to the contract. Id. In the present case, the fact that the
negotiations for the insurance policy and the completion of the application occurred in
Indiana are merely fortuitous and relatively insignificant. Dr. Schaffert could just as easily
have directed Patterson to send the proposals to his Illinois home and completed the
application in Illinois.
Jackson National, in contrast, argues that we should focus upon the domicil of Dr. Schaffert and his family and on the place of business of Patterson. Dr. Schaffert and his family were domiciled in Illinois, the same state as Patterson's place of business.
The validity of a life insurance contract issued to the insured upon his application and the rights created thereby are determined, in the absence of an effective choice of law by the insured in his application, by the local law of the state where the insured was domiciled at the time the policy was applied for, unless, with respect to the particular issue, some other state has a more significant relationship under the principles of § 6 to the transaction and the parties, in which event the local law of the other state will be applied.
Id. at § 192. The reason for this rule is that the state in which the insured is domiciled will usually have the dominant interest, as evidenced by its laws related to insurance contracts, in the insured and his beneficiaries. Id. at § 192 cmt. c. "Likewise, a major purpose of life insurance legislation is to protect the individual insured and his beneficiaries, and the courts have sought to assist in the achievement of this purpose by means of their choice-of-law rules. They have done so by requiring that, at least as a general rule, the insured should
receive the protection accorded him by the local law of his domicil." Id. We agree that, in
this instance, the interests of Dr. Schaffert's domicil at the time of the completion of the
application are paramount. When weighed against the relatively insignificant contact of the
place of negotiation, the contact of Dr. Schaffert's domicil is the most intimate. We hold that
the trial court correctly ruled that under the "most intimate contacts" test, Illinois law should
The Schafferts also argue that even if we find Illinois law to be the appropriate choice of law, the trial court was not required to apply it because it offended Indiana's public policy. Jackson National acknowledges that under Indiana law, in certain circumstances, Indiana courts may decline to apply the law of sister states, but argues that the trial court could not decline to apply Illinois law in this instance because Indiana public policy has not been offended. The Schafferts are correct that Indiana courts need not apply the law of a sister state if that law violates Indiana's public policy. Maroon v. State Dept. of Mental Health, 411 N.E.2d 404, 410 (Ind. Ct. App. 1980). This ability to decline to apply sister states' laws is not unlimited, however. "In reaching this conclusion we approve the modern and generally accepted doctrine that to justify our courts in refusing to enforce a right of action accruing under the laws of another state as against the policy of this state the prosecution of such action must appear to be against good morals or natural justice, or prejudicial to the general interests of the citizens of this state." Wabash R. Co. v. Hassett, 170 Ind. 370, 83 N.E. 705, 709 (1908). In Maroon, relied upon by the Schafferts, the court declined to use this doctrine and stated that "[w]e leave the doctrine to its traditional application in cases dealing with,
inter alia, gaming contracts, lotteries, and marriages within the prohibited limits of
consanguinity." Maroon, 411 N.E.2d at 412.
The Schafferts argue that because Indiana law would allow the recovery of death benefits, Illinois' denial of recovery violates Indiana's public policy. In essence they argue it is unfair to deny recovery under Illinois law when Indiana would permit it. Their argument must fail. As Justice Cardozo wrote in Loucks v. Standard Oil Co. of New York (1918) 224 N.Y. 99, 120 N.E. 198, 201 (quoted with approval in Maroon):
Our own scheme of legislation may be different. We may even have no legislation on the subject. That is not enough to show that public policy forbids us to enforce the foreign right....We are not so provincial as to say that every solution of a problem is wrong because we deal with it otherwise at home.
Schafferts do not argue that Illinois law is immoral or against natural justice. Their
contention that we should decline to apply Illinois law merely because the result would be
different under Indiana law would extend the doctrine far beyond the limits recognized in
Maroon and Hassett. The trial court properly refused the invitation to decline to apply
Illinois law. The grant of summary judgment was proper.
HOFFMAN, J. and SULLIVAN, J. concur.
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