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7. The “most significant relationship test” – What is the issue?
If the choice of law isn’t decided by a contract provision or by statute, courts apply the
“most significant relationship” test. Hughes Wood Products, Inc. v. Wagner, 18 S.W.3d 202,
205 (Tex. 2000); Restatement (Second) of Conflict of Laws §§ 6, 145, 188 (1971).
When deciding which state has the most significant relationship, it is important to focus
on precisely what the issue is. The substantive issues determine which factors a court considers
in determining the most significant relationship. See, e.g., W.R. Grace & Co. v. Cont’l Cas. Co.,
896 F.2d 865, 873 (5th Cir. 1990).
In applying this test, it is wrong simply to decide which state has the most significant
relationship to the case. Instead, “the Restatement requires the court to consider which state’s
law has the most significant relationship to the particular substantive issue to be resolved.”
Hughes, 18 S.W.3d at 205 (emphasis in original).
It is the quality, not quantity, of the contacts that counts. The supreme court has
explained the process to be used, as follows:
In applying § 6 to this case, we must first identify the state contacts that should be
considered. Once these contacts are established, the question of which state’s law
will apply is one of law. … Moreover, the number of contacts with a particular
state is not determinative. Some contacts are more important than others because
they implicate state policies underlying the particular substantive issue.
Consequently, selection of the applicable law depends on the qualitative nature of
the particular contacts.
Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 421 (Tex. 1984).
Because a court must consider the contacts and policies as they relate to particular
substantive issues, it is possible that the law of one state will apply to some issues, while the law
of another state applies to others. See Scottsdale Ins. Co. v. Natl. Emerg. Serv., Inc., 175 S.W.3d
284, 292 (Tex. App.–Houston [1st Dist.] 2004, pet. denied) (“Texas law may apply to some
claims, but not other claims.”); SnyderGen. Corp. v. Great Am. Ins. Co., 928 F. Supp. 674, 678
(N.D.Tex.1996).
If the issue is construing the insurance contract, one state may have more significant
contacts with that issue. If the issue is the insurer’s claims-handling, another state may have
more significant contacts.
Several provisions of the Restatement (Second) of Conflict of Laws may come into play in
insurance cases when determining which state has the most significant relationship. Section 6
has general principles; section 145 has the principles for torts; and section 188 has principles for
contracts. In addition, section 192 applies to life insurance, and section 193 relates to fire,
surety, and casualty insurance. Courts discuss the general principles in section 6, but the other
sections usually decide the outcome.
Section 6 provides: