The Impact of Conflict of Law on Insurance Claims

When determining whether insurance coverage exists for a claim, a crucial consideration is whether the claim involves an event or occurrence that took place in a state other than where the relevant policy was delivered.

This is often the case for large companies with national operations or markets. When this happens, it may be unclear whether the law that governs the coverage issue will be the law of the state where the claim arose or the state where the policy was delivered. This can be a recipe for trouble as the laws of the two states may be the exact opposite for a given coverage issue.

When such coverage issues surface, the claims landscape changes. Insurers may sue and ask a court to declare the parties’ rights under the given policy. Insurers may also take the opportunity to choose a forum where the law substantially favors the insurer’s position, even if a more appropriate or alternative forum is available. This decision can be costly for policyholders.