Court applies reasonable choice of law agreed to by parties
Pursuant to the holding in Auto-Owners Ins. Co. v. Websolv Computing, Inc., No. 07-3286 (7th Cir. 9-1-09), a blast fax case in which the court applied Iowa law, if you can persuade your opponent to agree to a choice of law that favors your position and that is reasonable, the court must apply it. The appellate briefs are here, here, and here.
Although the parties there agreed that Iowa law applied, the district court applied Illinois law, thereby finding coverage under the advertising injury provision pursuant to Valley Forge Ins. Co. v. Swiderski Elecs, Inc., 860 N.E.2d 307 (Ill. 2006), believing that it had to apply the forum state's law.
The appellate court reversed, holding that courts are to honor reasonable choice of law stipulations in contract cases, whether they are made formally or informally. The court also noted that in a diversity case the court applies not the substantive law of the forum but the forum's choice of law rules to determine which state's substantive law applies.
The court noted that Illinois, the forum, applies the "most significant contacts" test to choice of law disputes. Thus, the court considered the domicile of the insured, the place of delivery of the policy, the place of performance and, most important, the location of the insured risk. Since all factors favored Iowa law, the court applied it.
However, because no Iowa court has spoken on the issue, the court ruled as it believed the Iowa supreme court would which, unsurprisingly, was to deny coverage based on the court's reasoning in American States Ins. Co. v. Capital Assocs. of Jackson County, Inc., 392 F.3d 939 (7th Cir. 2004). There, the court found that "privacy" can refer to one's interest in secrecy or seclusion. Since the privacy covered under the advertising injury provision requires "publication," which can refer only to the interest in secrecy, and because corporations do not enjoy a right to seclusion, there was no coverage as the underlying blast fax suit involved a violation only of the interest in seclusion.
American States is better reasoned than Valley Forge. Further, decisions such as Valley Forge result in insurers adding yet another policy endorsement, to exclude coverage for blast faxes, which lengthens policies and helps no one.
