UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

CHRISTINE M. YOST; ROBERT B.
YOST,
Plaintiffs-Appellants,
                                                                   No. 98-1790
v.

TRAVELERS INSURANCE COMPANY,
Defendant-Appellee.

Appeal from the United States District Court
for the Northern District of West Virginia, at Wheeling.
Frederick P. Stamp, Jr., Chief District Judge.
(CA-97-113-5)

Argued: March 4, 1999

Decided: June 21, 1999

Before WIDENER, LUTTIG, and MICHAEL, Circuit Judges.

_________________________________________________________________

Affirmed by unpublished per curiam opinion.

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COUNSEL

ARGUED: Scott Steven Blass, BORDAS, BORDAS & JIVIDEN,
Wheeling, West Virginia, for Appellants. Avrum Levicoff, BROWN
& LEVICOFF, P.C., Pittsburgh, Pennsylvania, for Appellee. ON
BRIEF: James B. Stoneking, BORDAS, BORDAS & JIVIDEN,
Wheeling, West Virginia, for Appellants. Joseph E. Starkey, Jr.,
BROWN & LEVICOFF, P.C., Pittsburgh, Pennsylvania, for Appel-
lee.

_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).

_________________________________________________________________

OPINION

PER CURIAM:

Christine Yost and Robert Yost, her husband, appeal an order of
the district court granting summary judgment to defendant Travelers
Insurance Company (Travelers). The Yosts' suit alleged that Travel-
ers had violated a provision of the West Virginia Unfair Trade Prac-
tices Act (WVUTPA), W. Va. Code § 33-11-4(9), in the manner in
which it had investigated, litigated, and eventually settled a claim the
Yosts had asserted against a person insured by Travelers. The district
court held that Pennsylvania, rather than West Virginia, law governed
the dispute. Because Pennsylvania law does not permit third parties
to sue liability insurers for bad-faith conduct in handling claims
against their insureds,1 the Yosts' action was therefore untenable. We
affirm the judgment of the district court.

I.

A.

Christine Yost was injured in an automobile accident on June 23,
1995, on an interstate highway near Morgantown, West Virginia. Her
car was struck by a vehicle operated by Dean Allen Miller. Miller was
drunk at the time of the accident; he fled the scene, but was quickly
apprehended. A scant six weeks later, Miller pled guilty to second-
offense driving under the influence of alcohol.

The car Miller was driving (1) was owned by a resident of Pennsyl-
vania, Richard Van Norman, (2) was titled and regularly garaged in
that state, and (3) was insured by Travelers through a Pennsylvania
_________________________________________________________________
1 Johnson v. Beane, 541 Pa. 449, 664 A.2d 96, 99 n.3 (1995) (dicta);
Strutz v. State Farm Mut. Ins. Co., 415 Pa. Super. 371, 609 A.2d 569,
571 (1992).

                    2
agent under a policy specifically drafted and endorsed to conform to
Pennsylvania law. Soon after the wreck, both the Yosts and Van Nor-
man contacted Travelers to notify it of the accident and Christine
Yost's claim for damages.

Travelers assigned the claim to an adjuster located at its Pittsburgh,
Pennsylvania, personal lines claims office. According to the Yosts,
Travelers set out to thwart the claim in bad faith. For example, Trav-
elers suggested that the liability policy limit was $15,000, notwith-
standing that the policy pledged to meet any state's statutory
minimum, which in the case of West Virginia is $20,000. Travelers
refused to provide the Yosts with a copy of the policy, and the com-
pany further refused to tender the modest policy limits notwithstand-
ing that Miller's plea of guilty to drunk driving made liability all but
certain.

On January 10, 1996, the Yosts filed suit against Miller in West
Virginia state court. The suit did not bring about a quick resolution
of the claim. Instead, according to the Yosts, their suit prompted even
more foot-dragging and bad faith by Travelers. Travelers retained
local counsel, who filed an answer asserting not only that Miller was
without fault and that Mrs. Yost had been contributorily negligent, but
also that recovery was barred by such unlikely defenses as assumption
of the risk, the statute of limitations, waiver, estoppel, laches, lack of
subject-matter jurisdiction, and lack of personal jurisdiction.2 Appar-
ently someone on Travelers' side decided the answer went too far
because an amended answer was later filed deleting the statute of lim-
itations defense and admitting as fact that Miller had indeed been
drunk at the time of the accident. The Yosts were not deterred, and
eventually Travelers agreed to pay the $20,000 policy limit to them.
The Yosts agreed to release Miller, but not Travelers, from any fur-
ther liability.

B.

On July 10, 1997, the Yosts filed this WVUTPA suit against Trav-
elers in the Circuit Court of Marshall County, West Virginia. Travel-
_________________________________________________________________

2 Miller is a resident of the county in which the action was brought.

                     3
ers removed the case to district court on account of diversity of
citizenship, and on August 29, 1997, it moved to dismiss under Fed.
R. Civ. P. 12(b)(6) for failure to state a claim upon which relief could
be granted. Because Travelers submitted materials extraneous to the
pleadings in support of its motion, the district court construed it as a
motion for summary judgment under Fed. R. Civ. P. 56, and on May
18, 1998, the court granted summary judgment for Travelers. In a
memorandum opinion the court explained that, while the allegations
of the complaint sounded in tort, the place of the wrong was Pennsyl-
vania because "[t]he insurance contract at issue was created in Penn-
sylvania, the insurance agent and insurance adjuster are both located
in Pennsylvania[,] and the location where the alleged bad faith acts
or unfair practices of the insurer occurred is also Pennsylvania."
Applying Pennsylvania law, the district court granted summary judg-
ment for Travelers because Pennsylvania does not recognize a "cause
of action by an injured third party against the insurer of the tortfeasor
for bad faith" or unfair claims handling. Yost v. Travelers Insurance
Co., No. 5:97CV113 (N.D. W.Va., May 18, 1998). The Yosts appeal.

II.

Because the propriety of a summary judgment presents a pure
question of law, our review is de novo. Brogan v. Holland, 105 F.3d
158, 161 (4th Cir. 1997).

A.

There are three cardinal rules to the law of conflicts. First, the
forum's law concerning conflicts of law applies. 3 This first rule has
generally been of little significance because most American forums
traditionally have followed cardinal rules two and three: tort cases are
governed by the law of the place of the wrong (lex loci delicti), and
contract cases are governed by the law of the place of contracting (lex
loci contractus). West Virginia continues to adhere to these funda-
mental rules in most instances. See Blais v. Allied Exterminating Co.,
198 W.Va. 674, 482 S.E.2d 659, 662 (1996) (lex loci delicti is "the
_________________________________________________________________
3 A corollary relevant here is that the forum state's law applies in diver-
sity cases in the federal district courts. Klaxon Co. v. Stentor Elec. Mfg.
Co., 313 U.S. 487, 491 (1941).

                     4
cornerstone" of conflicts-of-law doctrine); Johnson v. Neal, 187
W.Va. 239, 418 S.E.2d 349 (1992) (lex loci contractus applies absent
"compelling reason" to deviate from it).

These simple conflicts rules are, in most cases, readily applied.
Still, there have always been harder cases. For example, the place of
contracting need not be in the same jurisdiction as the place of perfor-
mance or the location of an insured risk. In tort cases, the wrong may
happen in one state and the injury in another. Consequently, courts
have often rejected the rigidity of lex loci in favor of more flexible,
but less straightforward, approaches.

These more difficult cases confront us with ever-increasing fre-
quency. For one thing, the world is shrinking; both an order for goods
and a libel can now circle the globe in seconds. For another, and more
to the point here, legislatures and courts have frequently grafted a
body of public policy duties onto contracts, particularly insurance
contracts. Though sometimes deemed a tort or sometimes a breach of
contract, the transgression of such a duty does not comfortably fit
either label. Finally, the substance of these quasi-tort, extra-
contractual duties varies widely among jurisdictions, making the
choice-of-law issue often the dispositive one.

B.

The drafters of the second Restatement of Conflict of Laws tackled
the challenges posed by the hardest cases. They fashioned a broad,
multi-factor test for tort claims:4

          § 145. The General Principle

           (1) The rights and liabilities of the parties with respect to
          an issue in tort are determined by the local law of the state
          which, with respect to that issue, has the most significant
          relationship to the occurrence and the parties under the prin-
          ciples stated in § 6.
_________________________________________________________________
4 Violation of W.Va. Code § 33-11-4(9) is considered a tort. Poling v.
Motorists Mutual Ins. Co., 192 W.Va. 46, 450 S.E.2d 635, 638 (1994).

                    5
           (2) Contacts to be taken into account in applying the prin-
          ciples of § 6 to determine the law applicable to an issue
          include:

          (a) the place where the injury occurred,

          (b) the place where the conduct causing the
          injury occurred,

          (c) the domicil, residence, nationality, place of
          incorporation and place of business of the parties,
          and

          (d) the place where the relationship, if any,
          between the parties is centered.

Restatement (Second) of Conflict of Laws § 145 (1971).

Section 6, in turn, provides:

          § 6. Choice-of-Law Principles

           (1) A court, subject to constitutional restrictions, will fol-
          low a statutory directive of its own state on choice of law.

           (2) When there is no such directive, the factors relevant
          to the choice of the applicable rule of law include

          (a) the needs of the interstate and international
          systems,

          (b) the relevant policies of the forum,

          (c) the relevant policies of other interested states
          and the relative interests of those states in the
          determination of the particular issue,

          (d) the protection of justified expectations,

                     6
           (e) the basic policies underlying the particular
           field of law,

           (f) certainty, predictability and uniformity of
           result, and

           (g) ease in the determination and application of
           the law to be applied.

Id. § 6.

The Supreme Court of Appeals of West Virginia has criticized
those jurisdictions that have adapted the Restatement approach for all
conflicts-of-law questions, observing that those jurisdictions have
unnecessarily created litigable issues over commonplace situations
that the lex loci rules can handle predictably and with ease. Paul v.
National Life, 177 W.Va. 427, 352 S.E.2d 550, 553-556 (1986). Nev-
ertheless, the court has embraced the "fuzzy" Restatement test as the
best means to address "particularly thorny" conflicts problems. Oakes
v. Oxygen Therapy Services, 178 W.Va. 543, 363 S.E.2d 130, 131
(1987). We will therefore apply that test here.

III.

Section 145 of the Restatement sets forth four sorts of "contacts"
to be taken into account, while § 6 lists seven "factors" relevant to the
choice of law. We will examine the § 145 "contacts" first.

           - The place where the injury occurred (§ 145(2)(a)) --
           the Yosts are residents of Ohio, and the worry, annoy-
           ance, and economic hardship of the delay in receiving
           compensation would have been suffered there.

           - The place where the conduct causing the injury
           occurred (§ 145(2)(b)) -- Travelers adjusted the claim
           from its Pittsburgh, Pennsylvania, office. Though it
           retained local (West Virginia) counsel to defend the
           Yosts' suit against Miller, Travelers directed his actions
           from Pittsburgh.

                     7
          - The domicil, residence, nationality, place of incorpo-
          ration and place of business of the parties (§ 145(2)(c))
          -- the Yosts are residents of Ohio. Travelers is a Con-
          necticut corporation and is headquartered there; it does
          business nationwide.

          - The place where the relationship, if any, between the
          parties is centered (§ 145(2)(d)) -- the accident and the
          lawsuit are the only intrastate elements of the relation-
          ship between the Yosts and Travelers. Both occurred in
          West Virginia.

Those are the relevant "contacts." In and of themselves, they are a
mixed bag that points nowhere in particular. For perspective, we must
view them in light of the broad § 6 factors and West Virginia case
law.

The first factor -- the needs of the interstate system (§ 6(2)(a)) --
is a reminder of the interstate nature of commerce and many other
activities and of the need for harmonious relations between states. No
state should be overly eager to apply its own law to a dispute in which
some other state is more interested, even if the forum state is con-
vinced of the superiority of its own law. The final two factors
(§ 6(2)(f), (g)) simply give us goals -- predictability and ease of
application -- that may well elude us given the fact-bound nature of
the inquiry and the generality of the Restatement criteria.

The meat of the Restatement test is factors two through five
(§ 6(2)(b)-(e)). We will start with the last of these: the basic policies
of the area of law. The purpose of laws like WVUTPA is to ensure
fair play by insurance companies. More importantly for today's issue,
the character of such laws is protectionist. In other words, West Vir-
ginia's law is designed as it is in order to protect the citizens of West
Virginia. See Poling v. Motorists Mutual Ins. Co., 192 W.Va. 46, 450
S.E.2d 635, 637 (1994) (theorizing that the WVUTPA tort remedy
could ultimately reduce premiums by prompting quick settlements of,
and discouraging wasteful litigation over, meritorious claims).

Next we should consider West Virginia's particular policy
(§ 6(2)(b)) and that of other interested states (§ 6(2)(c)). As does West

                     8
Virginia, both Pennsylvania and Ohio prohibit bad-faith conduct by
insurers. See 42 Pa. Cons. Stat. § 8371; Ohio Rev. Code § 3909.19 et
seq. The states differ as to who may have access to the courts to
enforce these prohibitions. Pennsylvania limits such actions to the
first-party insured, see supra n.1; in Ohio, only the state's Superinten-
dent of Insurance may sue. Strack v. Westfield Companies, 33 Ohio
App.3d 336, 515 N.E.2d 1005 (1986). Thus, each state has weighed
the interests of consumers and insurers and has struck a different bal-
ance.

This careful legislative balancing makes the last Restatement factor
-- "the protection of justified expectations" (§ 6(2)(d)) -- all the
more important, and it weighs heavily in favor of Pennsylvania law.
Travelers is involved in this case solely on account of a contract with
a Pennsylvania resident insuring Pennsylvania property, and surely
both parties to that contract would be justified in believing that Penn-
sylvania law would govern Travelers' conduct. On the other hand,
there is no evidence or suggestion that Mrs. Yost drove into West Vir-
ginia with the expectation that she could sue a third-party insurer
should some calamity befall her.

On balance, then, we conclude, as did the district court, that Penn-
sylvania has the "most significant relationship" to the "occurrence" --
Travelers' alleged bad-faith conduct -- at issue here.5
_________________________________________________________________
5 We note that at least one district court in our circuit has stated
expressly that lex loci contractus applies to suits under WVUTPA, and
another appears to have implicitly assumed as much. Pen Coal Co. v.
William H. McGee & Co., Inc., 903 F. Supp. 980, 983 (S.D. W.Va.
1995); Nowsco Well Service, Ltd. v. Home Insurance Co., 799 F. Supp.
602, 605-608 (S.D. W.Va. 1991).

We have no reason to doubt the correctness of the result in either Pen
Coal and Nowsco, and we expect that, given the importance the West
Virginia court has placed on the "justified expectations" of the parties to
a contract, the Restatement test and lex loci contractus will generally
point to the same forum. Nevertheless, because the West Virginia court
does apply the Restatement's tort test to"thorny" tort cases, and viola-
tions of the WVUTPA sound in tort, it is conceivable that a plaintiff with
more substantial ties to West Virginia than the Yosts could establish that
West Virginia had the "most significant relationship" to his claim, not-
withstanding an out-of-state insurer and insured.

                     9
Our conclusion that Pennsylvania law governs is buttressed by
West Virginia case law applying the Restatement test. Oakes is the
best example. There, the plaintiff, Oakes, was a West Virginia resi-
dent, but he had been employed in Maryland under a contract gov-
erned by Maryland law. He was injured on the job and received
medical treatment for his injury in West Virginia. He applied for and
began receiving Maryland workers' compensation benefits. His
employer fired him after ninety days had passed and he was still
unable to work, as it was permitted to do under the employment con-
tract. The employer informed Oakes of this decision at a hospital in
Martinsburg, West Virginia. Oakes sued in West Virginia, asserting
that the discharge was in retaliation for his receipt of workers' com-
pensation and that such retaliatory discharge violates West Virginia
law.

Oakes' argument was simple: retaliatory discharge is a tort, he was
discharged in West Virginia, and lex loci delicti applied. The
Supreme Court of Appeals disagreed. It noted that lex loci delicti "has
generally been applied to clear-cut cases of physical injury," while
Oakes' case involved "an alleged tort whose very existence depends
of the brea[d]th and legality of a Maryland employment contract." Id.,
363 S.E.2d at 131. The court then consulted the Restatement factors
and determined that Maryland law should apply. The court noted that
the "protection of justified expectations" was particularly important to
its holding, and that the only West Virginia connection to the actual
dispute was an inconsequential happenstance, that is, Oakes' presence
in West Virginia when he was fired. Id. at 132.

Here too we have an alleged tort, and here too the tort could not
exist absent a contract governed by another state's law. Finally, in this
case the connection with West Virginia was not only inconsequential,
but also literally accidental. The applicability of West Virginia law
does not turn on such a "fortuity." Lee v. Saliga, 179 W.Va. 762, 373
S.E.2d 345, 352 (1988).

IV.

There is one last issue. West Virginia adheres to the general view
that, notwithstanding the applicability of another state's law, the
forum state may decline to enforce laws it deems repugnant to its own

                     10
strong public policy. Nadler v. Liberty Mutual Fire Ins. Co., 188
W.Va. 329, 424 S.E.2d 256, 262-265 (1992). This exception is neces-
sarily a narrow one, to be invoked only in extraordinary circumstances.6

         We adhere to the general principle that a court should not
         refuse to apply foreign law, in otherwise proper circum-
         stances, on public policy grounds unless the foreign law "is
         contrary to pure morals or abstract justice, or unless enforce-
         ment would be of evil example and harmful to its own peo-
         ple."

Id., 424 S.E.2d at 265 (quoting 16 Am. Jur. 2d Conflict of Laws § 18).

There are sufficient similarities between Nadler and this case to
assure us that the public policy exception does not apply here. In
Nadler a family of Ohio residents, the Schoettkers, was involved in
a two-vehicle traffic accident in West Virginia. Two of them were
killed and five injured. The driver of the other vehicle was at fault,
and his liability insurance paid the Schoettkers $325,000, the single-
accident limit of the policy. Believing that this amount was insuffi-
cient, the Schoettkers made a claim against the underinsured motorist
coverage of their own policy, which had been issued to them in Ohio.
The limit of this underinsured motorist coverage was $300,000.
Under Ohio law recovery from the underinsured's liability insurance
may be set off dollar-for-dollar against this coverage. 424 S.E.2d at
260 (citing Ohio Rev. Code § 3937.18(A)(2)). Under West Virginia
law the issuer of underinsured motorist coverage must pay the entire
difference, up to the limit of the policy, between the recovery from
the tortfeasor and the insured's actual loss. State Automobile Mutual
Insurance Co. v. Youler, 183 W.Va. 556, 396 S.E.2d 737, 745 (1990).

There was no doubt in Nadler that Ohio law would ordinarily gov-
ern, because the dispute was over the meaning of a contract entered
into in Ohio and was between the parties to that contract. Nonethe-
_________________________________________________________________
6 For two examples, see Mills v. Quality Supplier Trucking, Inc., 203
W.Va. 621, 510 S.E.2d 280, 283 (1998) (common law contributory neg-
ligence rule's absolute bar to recovery will not be enforced in West Vir-
ginia forum); and Paul, 352 S.E.2d at 556 (so-called "automobile guest
statutes" contravene the "strong public policy" of West Virginia).

                    11
less, the Schoettkers filed a declaratory judgment action in district
court in West Virginia and sought to have West Virginia law applied
under the public policy exception. The district court ruled for the
insurer; on appeal, we certified the question to the West Virginia
Supreme Court of Appeals.

The state court agreed that the public policy exception did not dis-
place Ohio law, and its reasoning compels the same conclusion here.
The court first recognized that foreign law does not offend the
forum's public policy merely because it is less favorable to the
wronged party than the forum's law would be. Nadler, 424 S.E.2d at
263. Next the court looked to the substantive law at issue to define
the relevant West Virginia public policy:

           Our substantive law governing uninsured and underin-
          sured motorist coverage in motor vehicle insurance policies
          is intended to apply only to insurance transactions which
          occur in West Virginia or which affect the rights or respon-
          sibilities of West Virginia citizens. For this reason, the pub-
          lic policy of full compensation underlying our uninsured/
          underinsured motorist law is implicated only when the par-
          ties and the transaction have a substantial relationship with
          this state. The importance of the public policy is directly
          proportional to the significance of the relationship. The
          more marginal the contact West Virginia has with the par-
          ties and the insurance contract, the less reason there is to
          consider the public policy behind our uninsured/
          underinsured motorist law as a factor bearing on the choice
          of law determination.

Id. at 264. The court thus concluded that the Restatement's "most sig-
nificant relationship" test adequately addressed public policy concerns
in the context of automobile insurance coverage. Id. at 264-265. In
closing, the court reiterated that "[t]he only contacts with this state
were the fact that the accident occurred here and was caused by a
West Virginia resident." Id. at 265. Nevertheless, because the Schoett-
kers were Ohio residents, application of Ohio law"will not have an
adverse impact on the citizens of this state." Id.

                    12
From the standpoint of the public policy exception to application
of foreign law in a West Virginia forum, this case is indistinguishable
from, and is therefore controlled by, Nadler.7

For the foregoing reasons, the judgment of the district court is
affirmed.8

AFFIRMED
_________________________________________________________________
7 The court reached a similar result in yet another case involving an
out-of-state automobile insurance policy in Johnson v. Neal, 418 S.E.2d
at 352 (Virginia law permitting anti-stacking clauses for uninsured
motorist coverage did not violate strong public policy of West Virginia).
8 The Yosts' motion to certify a question to the Supreme Court of
Appeals of West Virginia is denied.

                    13
