Lead Opinion
The opinion of the Court was delivered by
The world is composed of territorial states having separate and differing systems of law. Events and transactions occur, and issues arise, that may have a significant relationship to more than one state, making necessary a special body of rules and methods for their ordering and resolution.
[.Restatement (Second) of Conflict of Laws § 1 (1971).]
The choice-of-law issue before the Court requires us to decide which of the two involved states, New York or New Jersey, has the most significant relationship to the underlying occurrence, an automobile accident in New York involving only New Jersey residents. The narrow question presented is whether to invoke New Jersey’s common law rule that shields an automobile owner from vicarious liability in the absence of an agency or employment relationship, or Section 388 New York Vehicle and Traffic Law, which imposes vicarious liability on automobile owners for the negligence of permissive users.
I
The facts of this case are virtually undisputed. On July 18, 1993, plaintiffs Xiao Kang Su and Kuide Chen rented a car in Lawrenceville, New Jersey from defendant Freedom River, Inc. of Philadelphia, doing business as Budget Rent-A-Car (Freedom River). Plaintiffs rented the car for a family trip to Cornell University in Ithaca, New York, to attend an academic seminar, after which they intended to go on, perhaps as far as Wisconsin, for further sightseeing. Su and his wife Li Fu, their child Daniel Su, and Chen and his wife defendant Hong Fu, and their child Michelle Chen, wanted to travel in one car. Although Su and Chen each owned a vehicle, neither car was large enough to comfortably accommodate six people on a long drive.
The rental contract identified Su and Chen as the individuals who would be driving the vehicle; however, the Freedom River agent assured the men that their wives were also permitted to drive the car. Chen, in particular, was concerned and sought the agent’s assurance that the wives could drive because his friend Su was a poor driver who had been involved in three previous accidents. The rental agent assured Su and Chen that there was “no problem” and that the wives could drive. The agent offered Su and Chen extra property damage insurance, which they declined. The contract called for the car to be returned to Law-renceville on July 27,1993.
On July 19, 1993, having concluded an overnight visit to Cornell and while in transit to the Midwest, the group was involved in a one-car accident while passing through Hamburg, New York. Chen’s wife, Hong Fu, was driving. According to the accident
The plaintiffs received personal injury protection through their personal insurance policies, but the amount available was insufficient to provide for all the injured claimants, particularly for Li Fu, the most seriously injured of the passengers. As a result of the accident, Li Fu suffered a severe traumatic brain injury. Li Fu was comatose upon her hospital admission and remained in a coma until August 1993. She continued to receive inpatient medical care through April 1994. She was unable to walk and suffered from impaired memory and cognitive functioning. For instance, despite having worked for ten years as a cardiologist in China, Li Fu could not recall the college she had gone to or the details of her medical training.
Following her discharge from the hospital in April 1994, Li Fu continued a course of outpatient treatment including occupational therapy three to five times a week, treatment with Ritalin to arouse cognitive function, and multiple nerve blocks to correct “a severely spastic gait.” A progress report dated June 12, 1995, indicated that Li Fu continued to make slow progress but that “it is unlikely that the patient will ever become independent.” Li Fu continues to require constant assistance with daily living and, although she is now able to ambulate with the aid of a cane, for the most part, she remains wheelchair bound.
Freedom River, a Delaware corporation with its principal place of business in Philadelphia, is a sub-franchisee of Freedom River, Inc., a Delaware corporation with its principal place of business in Lisle, Illinois. Freedom River maintains offices in both Philadelphia, Pennsylvania, and Lawrenceville, New Jersey. The rental vehicle was registered in Pennsylvania. The driver, defendant Hong Fu, and all five passenger-plaintiffs are residents of New Jersey.
In July 1994, all the injured passengers filed a complaint for damages against the driver, Hong Fu, and the owner, Freedom River. In May 1997, all five plaintiffs’ claims were arbitrated pursuant to Rule 4:21A-1, at which time Chen was awarded $15,000, Chen’s daughter Michelle was awarded $7500, Su was awarded $100,000, Su’s son Daniel was awarded $25,000 and Su’s wife Li Fu was awarded $3,750,000. The arbitrators, as part of their award, found that Section 388 of the New York Vehicle and Traffic Law (Section 388) was the appropriate choice of law, and held Freedom River vicariously liable for the negligence of the driver, Hong Fu.
Because the award to Li Fu exceeded the individual $100,000 limit of the $100,000/$300,000 split limit coverage afforded Hong Fu through her personal policy with the Market Transition Facility (MTF), defendant Hong Fu moved for a trial de novo pursuant to Rule 4:21A-6(b)(l). Eventually, all plaintiffs except Li Fu agreed to settle with Hong Fu and their agreements were reduced to judgment. Thus, only Li Fu’s claim and Su’s derivative claim for loss of consortium remain outstanding. MTF, on behalf of its insured, Hong Fu, has offered its individual policy limit of $100,-000 in settlement of Li Fu’s claim. That offer has not been accepted. In August 1997, the trial court entered an order
In April 1997, Freedom River moved for summary judgment on the basis of New Jersey common law, which holds that the owner of a motor vehicle is not liable for the negligence of the vehicle’s operator unless the operator is acting as the owner’s agent or employee. Plaintiffs opposed the motion, contending that the matter was controlled by Section 388 of the New York Vehicle and Traffic Law. Section 388 imposes vicarious liability on a vehicle’s owner for the negligence of the vehicle’s operator:
Every owner of a vehicle used or operated in this state shall be liable and responsible for death or injuries to person or property resulting from negligence in the use or operation of such vehicle, in the business of such owner or otherwise, by any person using or operating the same with the permission, expressed or implied, of such owner.
[N.Y.Vehicle and Traffic Law § 388(1) (McKinney 1996).]
The trial court initially granted Freedom River’s motion, concluding that all of the significant relationships in this case were with New Jersey and that it was a “happenstance” that the accident occurred in New York. After hearing additional oral arguments on plaintiffs’ motion for reconsideration, the trial court reversed its initial ruling, vacated the summary judgment granted in favor of Freedom River, and ordered that the matter proceed in accordance with New York law. The trial court then certified its judgment as final pursuant to Rule 4:42-2, allowing Freedom River to appeal as of right.
The Appellate Division reversed and held that New Jersey law applied. 309 N.J.Super. 435, 442-43,
II
The issue before the Court is whether to apply New Jersey’s common-law vicarious liability rule or Section 388 of the New York Vehicle and Traffic Law. Because New Jersey is the forum state, the issue must be determined in accordance with this State’s choice-of-law rules. Gantes v. Kason Corp., 145 N.J. 478,
A
The first prong of the governmental-interest analysis requires a determination that an actual conflict exists between the laws of New York and New Jersey. Gantes, supra, 145 N.J. at 484,
New York, in contrast, has by statute abrogated the common law in its enactment of Section 388 of the Vehicle and Traffic Law, which imposes liability on an automobile owner for injuries resulting from a permissive driver’s negligent use or operation of that owner’s car. Under that rule, Freedom River’s liability would be co-extensive with that of the driver, Hong Fu.
The second prong of the governmental-interest analysis requires the Court to determine which state has the most significant relationship to the occurrence and the parties with respect to the issue of vicarious liability. Veazey, supra, 103 N.J. at 248,
1.
New York has a well-articulated, two-fold policy underlying Section 388. First, the statute was designed to “ensure access by injured persons to a financially responsible insured person against whom to recover for injuries.” Morris v. Snappy Car Rental, Inc.,
In enacting Section 388 New York also intended to regulate the conduct of automobile owners by “discouraging] owners from lending their vehicles to incompetent or irresponsible drivers.”
The policy supporting New Jersey’s common-law vicarious liability law was described in Haggerty, supra, 279 N.J.Super. at 611-12,
New Jersey’s common law rule regarding owner liability is not designed to protect the injured party ... or to protect the driver. It is designed to shield an owner from liability in cases in which the owner has not been negligent and in which the culpable driver is not related to the owner in a way that will justify the imposition of vicarious liability under traditional principles of the law of agency or master servant. That shield is consistent with the principle that tort liability in the context of automobile-related personal injuries is based on fault.
New Jersey’s rule serves neither a deterrent nor a compensatory purpose. Rather, it simply adheres to the well-established, common-law principle that liability for automobile negligence should be allocated solely on the basis of fault.
Plaintiffs suggest that New York’s law, because it exists by affirmative legislation, demonstrates a stronger policy than does New Jersey’s law, which continues only by legislative default. That New Jersey’s common-law vicarious liability law exists without implementing legislation does not, in itself, dilute the impor
Where, however, the purpose of a longstanding common-law rule appears to be at odds with the aim of more recent affirmative acts by the legislature governing the same field of law, it may be reasonable to conclude that the historical rule has lost some of its vitality as a statement of public policy. In the field of automobile negligence law, this State’s method of allocating liability has shifted in recent years from a purely fault-based system, whereby compensation for injuries is obtained through tort remedies and/or third party insurance, toward a system of first-party coverage. Specifically, the no-fault insurance law has partially removed the fault system from New Jersey’s automobile negligence law by requiring every automobile insurance policy issued in this state to provide “for the payment of [medical] benefits without regard to negligence, liability or fault of any kind,” N.J.S.A 39:6A-4, to the named insured, family members, and other persons injured as a result of an automobile accident. See also Newcomb Hosp. v. Fountain, 141 N.J.Super. 291, 294,
In addition, N.J.S.A. 39:6B-1, the mandatory insurance law, requires this State’s individual automobile owners to carry insurance coverage consistent with requirements imposed by the Commissioner of Insurance that includes the obligation to provide coverage for liability arising out of the permissive use of their vehicles. That requirement obviously reflects a legislative purpose to ameliorate the effect of New Jersey’s common-law rule against vicarious liability by requiring car owners to pay the cost of liability coverage for permissive users to assure that compensation is available for their injured victims. Insofar as N.J.S.A 39:6B-1 aims to effectuate the overriding legislative policy of assuring financial protection for the innocent victims of motor
2.
With each state’s domestic policies in mind, we must next consider “whether those concerns will be furthered by applying that law to the multi-state situation.” Pfizer, Inc. v. Employers Ins. of Wausau, 154 N.J. 187, 198,
(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,
(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.
[Restatement, supra, § 6; see ateo Gilbert Spruance v. Pennsylvania Manufacturers’Ass’n, 134 N.J. 96, 103,629 A.2d 885 (1993).]
For purposes of an issue arising out of tort law, those factors may be grouped into five categories of interests: (1) the interests of interstate comity; (2) the interests of the parties; (3) the interests underlying the field of tort law; (4) the interests of judicial administration; and (5) the competing interests of the states. See Restatement, supra, § 145 comment b; cf. Pfizer, supra, 154 N.J. at 197-98,
(1) The interests of interstate comity require courts to consider whether application of a competing state’s law would frustrate the policies of other interested states. Restatement, supra, § 145(1) comment b. “If a strong state policy or interest will be neither fostered by applying that state’s law, nor frustrated by the failure to apply it, it is highly unlikely that that state has
(2) The interests underlying the field of tort law require courts to consider the degree to which deterrence and compensation, the fundamental goals of tort law, would be furthered by the application of a state’s local law. Restatement, supra, § 145 comment c. When the tort rule primarily serves a deterrent purpose, the state where the harmful conduct took place will likely have the dominant interest with respect to that rule. Ibid. When the tort rule is designed primarily to compensate a victim for his or her injuries, the state where the injury occurred, which is often where the plaintiff resides, may have the greater interest in the matter. Ibid. Because every tort rule, to some extent, is designed both to deter and to compensate, it is necessary to evaluate on a case-by-case basis the relative weight of those underlying purposes with respect to a specific rule. Ibid.
Rules such as New Jersey’s that deny liability are entitled to equal consideration in choice-of-law determinations as are rules imposing liability, although discerning the underlying purpose of a liability-denying rule often is difficult. Ibid. At a minimum, when a defendant has justifiably relied on the shelter afforded by New Jersey law, this state does have “a substantial interest in shielding car owners from such unforeseeable liability.” Aboud, supra, 29 F.Supp.2d at 182.
(3) The interests of parties “require courts to focus on their justified expectations and their needs for predictability of result.” Pfizer, supra, 154 N.J. at 199,
(4) The interests of judicial administration require the courts to consider the relative ease in determination and application of the choice of law regarding a specific issue, a factor that in turn furthers the values of uniformity and predictability of result. See Restatement, supra, § 145 comment b. Those considerations, however, are of lesser importance and must yield to a strong state interest implicated by the remaining factors. Ibid.
courts to consider whether application of a competing state’s law under the circumstances of the case “will advance the policies that the law was intended to promote.” The “law” can be either the decisional or statutory law of a state. Thus, the initial focus should be on “what [policies] the legislature or court intended to protect by having that law apply to wholly domestic concerns, and then, whether those concerns will be furthered by applying that law to the multi-state situation.” This is another way of saying that “[i]f a state’s contacts [with the transaction] are not related to the policies underlying its law, then that state does not possess an interest in having its law apply. Consequently, the qualitative, not the quantitative, nature of a state’s contacts ultimately determines whether its law should apply.”
[Pfizer, supra, 154 N.J. at 198,712 A.2d 634 (citations omitted) (brackets in original).]
Section 145(2) of the Restatement specifies the contacts that are most significant to that analysis: the place where the injury occurred; the place where the conduct causing the injury occurred; the domicile, residence, nationality, place of incorporation and place of business of the parties; and the place where the relationship, if any, between the parties is centered. Those contacts are “considered, however, only to the extent that they are relevant to the purposes of the particular laws in conflict.” White, supra, 398 F.Supp. at 134.
New York’s sole contact with this controversy is as the place of the accident. That New York has numerically fewer contacts with the transaction than does New Jersey is not dispositive, because it is the qualitative, not the quantitative, nature of that state’s contacts that ultimately determines whether its law should apply. Pfizer, supra, 154 N.J. at 198,
In personal injury cases, “the place where the injury occurred is a contact that, as to most issues, plays an important role in the selection of the state of the applicable law.” Restatement, supra, § 145 comment e. When both conduct and injury occur in a single jurisdiction, with only “rare exceptions, the local
“[ I]f a state’s contacts [with the transaction] are not related to the policies underlying its law, then that state does not possess an interest in having its law apply.” Pfizer, supra, 154 N.J. at 198,
In Haggerty, supra, the Appellate Division held that the Dollar car rental agency was liable under Section 388 to a New Jersey resident injured after being struck in Elizabeth, New Jersey, by a Dollar-owned automobile that had been rented by a Florida resident at Newark Airport. Haggerty, supra, 279 N.J.Super. at 609,
Specifically, the court in Haggerty found it fair to hold Dollar liable because New York residents are required to purchase insurance to cover permissive use of their vehicles, and are therefore on notice regarding their potential exposure to vicarious liability. Ibid.; see also Fried v. Seippel, 80 N.Y.2d 32, 587
Section 174 of the Restatement provides specific guidance on whether another state’s vicarious liability law should apply. That section requires a court to determine whether there is a reasonable relationship between the defendant and the state whose local law is to be applied. Restatement, supra, § 174 comment a. Generally, a reasonable relationship between the state where the conduct and injury occurred and a person sought to be held vicariously liable may be found where that person instructed or authorized the tortfeasor to enter the state, or even if it was reasonably foreseeable that the tortfeasor would enter the state. Id. § 174 comment c; cf. Bedwell & Sons v. Geppert Bros., 280 N.J.Super. 391, 396,
Of course, when the underlying conduct and injury do not occur in the state whose law would impose vicarious liability, some other “connection” must be found to establish “a reasonable relationship between the defendant and the state whose local law is to be applied.” Restatement, supra, § 174 comment a. In eases involving accidents outside New York, an owner’s status as a New York resident or the vehicle’s New York registration have frequently been cited as establishing an adequate tie to hold an owner vicariously liable under New York law. See McKinney v. S & S Trucking, Inc., 885 F.Supp. 105 (D.N.J.1995) (holding New York law applied to permit recovery by New Jersey plaintiff injured in New Jersey accident after being struck by New York-registered rental vehicle that was owned by corporation with primary business situs in New York); White, supra, 398 F.Supp. 130 (holding New York law applied to permit recovery by Pennsylvania plaintiffs injured in New Jersey accident, after being struck by New York-registered vehicle that was operated by Michigan resident and owned by corporation with primary business situs in New York); Haggerty, supra, 279 N.J.Super. 607,
This case does not involve the extraterritorial application of Section 388. Rather, this matter concerns a wholly domestic application of the statute, which on its face regulates accidents arising from the negligent use and operation of a vehicle within the State of New York. In the context of a New York accident, New York courts have unwaveringly applied Section 388, notwithstanding the absence of any additional “contacts” with the transaction. In Kell v. Henderson,
The law is well established that in the State of New York the owner of a motor vehicle used on New York State highways with permission is liable for damages to a person injured as the result of any negligence by the operator. [Section 388] provides substantially that every owner of a vehicle used or operated in this State shall be liable and responsible for death or injuries to the person or property resulting from negligence in the use or operation of such vehicle in the business of such owner or otherwise by any person using or operating the same with the permission, express or implied, of such owner. This section of the law is not limited to New York State residents, and, consequently, out of state owners and operators who elect to use the highways of our state subject themselves to this statute. The law makes no distinction between residents and non-residents, people in transit or otherwise. The law does not provide for any exceptions. It does not permit defendants in the type of case before the court to plead the defense of a foreign guest statute, which is in direct conflict with one of our statutes governing travel upon our highways in which we have a keen interest.
[Id. at 650-51 (citations omitted).]
In Bray v. Cox, supra, a New York appellate court expressly held that New York has strong governmental interests in applying Section 388 to an accident within its borders even when none of the parties is a New York resident:
Foremost among New York’s identifiable interests is supervision over the conduct of drivers using its highways. The civil remedy of damages for the negligent infliction of personal injuries is a sanction used by this state to induce careful driving. Another recognized and accepted interest is in assuring that New York vendors who furnish medical and hospital care to injured parties are compensated. A proper inquiry into governmental interests requires consideration of the fact that in this case and indeed in most similar cases there is the likelihood of the existence of New York vendors. Finally, New York has a public fiscal interest in assuring that indigent non-resident accident victims do not become public charges and that if they do, New York State can recoup its welfare expense from the victim’s recovery. In summary, New York’s identifiable interests are highway safety, economic protection of New York vendors, and State public fiscal interests.
[Bray, supra,333 N.Y.S.2d at 785-86 (citations omitted).]
Similarly, in Himes, supra, the court held that Section 388 applied and that Pennsylvania’s vicarious liability law could not be interposed as a defense where the plaintiff, a Pennsylvania resident, was seriously injured in an accident in the State of New York while she was traveling to her house in Pennsylvania. Himes, supra,
At least one New York court explicitly has held that because an accident in New York arising from negligent permissive use is the very underlying conduct Section 388 is designed to regulate, the statute does not implicate a choice-of-law question for accidents occurring in New York; instead those circumstances simply create a substantive cause of action against an owner by any person injured by the permissive use of that owner’s automobile. Rye v. Kolter,
The foregoing authorities suggest that New York has a strong interest in applying Section 388 to an accident within its borders. Nevertheless, New York’s interests in deterrence and compensation must be compared and weighed against any governmental interest that New Jersey has in applying its vicarious liability law based on New Jersey’s contacts with the litigation and the parties.
New Jersey’s contacts with this matter are several. New Jersey is the forum state, the domicile of the injured plaintiffs, the domicile of the defendant-driver, the place where Freedom River transacts its business, and the place where the underlying rental transaction was executed. Because a choice-of-law analysis does not involve a mere counting of heads, that New Jersey has numerically greater contacts with the transaction than does New York is not a sufficient basis to invoke New Jersey law. Each of this State’s contacts must be considered in turn to assess the relation of those contacts, if any, to New Jersey’s governmental interests.
New Jersey’s status as the forum state is irrelevant to the choice of law. O’Connor v. Busch Gardens, 255 N.J.Super. 545, 549,
That the underlying rental transaction, including the execution of the rental contract, occurred in New Jersey also appears to have minimal significance to the issue of vicarious liability. The event giving rise to vicarious liability was not the rental transaction, but the automobile accident, which occurred in New York. Moreover, the contract itself is unrelated to the issue of vicarious liability, as it did not specify a forum state to govern any disputes in the event of an accident. Cf. Black v. Walker, 295 N.J.Super. 244,
Injured plaintiff Li Fu is a resident of New Jersey. Compensation being one of the underlying purposes of the tort field, New Jersey’s compensation interest is implicated whenever the plaintiff is a New Jersey domiciliary. See Schum v. Bailey,
New Jersey’s interest in compensation is not related to the issue of Freedom River’s vicarious liability, however, because New Jersey’s vicarious liability law has no compensatory purpose. Rather, this state would disallow the sought-after recovery. See Haggerty, supra, 279 N.J.Super. at 612,
New Jersey is also the residence of the defendant-owner, Freedom River. That contact is directly related to New Jersey’s policy of shielding automobile owners from vicarious liability. Plaintiffs argue, however, that New Jersey has a diminished interest in shielding Freedom River from liability by virtue of its status as a non-domiciliary resident corporation. Specifically, Freedom River is a Delaware corporation with its principal place of business in Pennsylvania. See generally American Employers’ Ins. Co. v. Elf Atochem North America, Inc., 157 N.J. 580, 590-94,
In Haggerty, supra, 279 N.J.Super. at 612,
In addition, plaintiffs contend that New Jersey’s governmental interest is highly attenuated where, as here, the accident occurred in a foreign jurisdiction. In other contexts, this State’s courts have readily deferred to the local law of the foreign jurisdiction in which the underlying misconduct and injury occurred. See Moye v. Palma, 263 N.J.Super. 287, 294-95,
Ill
We hold, on balance, that considering the interests of interstate comity, the interests of the parties, the policies of deterrence and compensation, the interest in predictability and uniformity of result, and the competing interests of the states, the relevant factors point toward application of New York law to determine the issue of vicarious liability.
With respect to interstate comity, New Jersey’s governmental interests in this matter are the uniform application of its vicarious liability law to New Jersey automobile owners and, relatedly, the protection of those owners’ justified expectations in conforming their conduct to this State’s laws. We do not find that those “wholly domestic concerns,” Pfizer, supra, 154 N.J. at 198,
In contrast, both New York’s goal of promoting highway safety and its intent to provide compensation for innocent victims injured
Concerning the interests of the parties, New Jersey’s interest in protecting Freedom River’s justified expectations also does not favor the application of New Jersey law. We recognize that New Jersey has a substantial interest in protecting the justified expectations of its resident car owners by shielding them from unforeseeable liability. That interest may be diminished, but is not eliminated, when the automobile owner is a non-domiciliary resident corporation doing business in several states. However, to the extent that Freedom River relied on the minimum policy limits and this state’s common-law vicarious liability rule to limit its potential tort exposure for events occurring out of state, we find that reliance to have been unreasonable. First, neither under New Jersey nor New York law are the minimum policy limits established by the mandatory insurance laws coextensive with a policyholder’s exposure to liability under common-law or statutory causes of action in tort. Beyond this, however reasonable may be a rental agency’s reliance on New Jersey’s vicarious liability laws for purposes of an accident in this State, any blanket reliance on this State’s law as a defense to conduct occurring in a foreign jurisdiction could not be justified. If, for instance, a New Yorker had been injured in this same accident, Section 388 unquestionably would have applied. See Shafarman v. Ryder Truck Rental, 100 F.R.D. 454 (S.D.N.Y.1984). Thus, given the not unlikely possibility that a car rented from a New Jersey agency for the purpose of traveling to New York might be involved in an accident there, New Jersey car rental agencies reasonably should anticipate potential exposure to liability under New York’s motor vehicle laws.
Concerning the interests in judicial administration, the predictability and uniformity of result and the ease in determination and application of the choice of law, we note that those interests might be furthered by adopting a mechanical rule that New Jersey has the paramount interest in applying its law to any controversy involving parties who are all residents of this State. However, in a choice-of-law determination involving the field of tort, the interests in predictability and uniformity are of minimal importance and must yield to the more critical concerns that focus on the governmental policies of the two states.
In considering the extent to which each state’s laws further the goals of deterrence and compensation, that factor points to the application of New York’s vicarious liability law. Because New York’s law has both a deterrent and a compensation objective, those underlying governmental interests outweigh the interests of New Jersey, whose law seeks neither to compensate victims nor to deter irresponsible behavior.
Finally, focusing on the competing interests of the states, we find that New York’s underlying goals of compensation and deterrence bear a closer relationship to an accident in that state than does New Jersey’s goal of shielding its residents from liability without fault. New York has demonstrated an unwavering policy that “innocent plaintiffs should have a financially responsible source from which to recover ... [and] that automobile ownership
In this factual setting, we reject the characterization of the parties’ contacts with New York as “fortuitous.” In a broad sense, the occurrence of any automobile accident, and therefore its precise location, is always “fortuitous” in that accidents by their very nature are unexpected and unpredictable. The place of an accident, however, may be considered fortuitous only when the driver did not intend or could not reasonably have anticipated being in that jurisdiction at the time of the accident. See Kell, supra,
We also reject the lower courts’ characterization of Section 388 as a “loss-allocating” rule with no deterrent purpose. Although vicarious liability rules, broadly defined, serve a loss-allocating function, there is no question that from its inception Section 388 also was intended to regulate irresponsible car lending practices, and it is that underlying governmental purpose that guides our inquiry. That the rule regulates highway safety indirectly, by providing an incentive for responsible business practices, rather than directly by stating a “rale of the road” is irrelevant to the strength of New York’s policy.
New Jersey’s interests, as previously noted, are not as squarely implicated because, although New Jersey’s common law plainly shields automobile owners from liability for permissive use of their vehicles in this State, New Jersey does not have a governmental interest in affording that same protection to its residents for tortious conduct out of state. In addition, whether New Jersey’s common-law rale comprehensively reflects this State’s governmental policy concerning the responsibilities of automobile ownership is unclear. The coexistence of the traditional vicarious liability rale and the more recent legislation requiring auto owners to purchase insurance that provides coverage for permissive users suggests a somewhat ambiguous and inconsistent state policy on the issue of liability without fault. Thus, the application of New York law would certainly not frustrate, and may even be partially congruent with, this State’s policy regarding a vehicle owner’s responsibility for injuries caused by the negligence of a permissive user of the vehicle.
Although our dissenting colleague asserts that our disposition is inconsistent with decisions in other choice-of-law cases involving automobile accidents, post at 154-55,
For a forum state to favor the application of its own law is not uncommon, and that tendency understandably is enhanced when the parties are all residents of that state. Nevertheless, when the interest of the forum in the determination of an issue is minimal and “a foreign state has a real interest in having its law apply to rights and liabilities of parties to an event which occurred within its borders, this Court has recognized that sound principles of comity often require the application of the foreign state’s law to a suit brought in the courts of this State.” Mellk, supra, 49 N.J. at 229,
IV
The judgment of the Appellate Division is reversed and the matter is remanded for further proceedings consistent with this opinion.
Dissenting Opinion
dissenting
This appeal concerns a choice between the law of New York and that of New Jersey. In a well-reasoned opinion, the Appellate Division held “that New Jersey’s contacts with this matter, both in quality and in quantity, outweigh New York’s and that, in consequence, the matter is governed by New Jersey’s common law.” 309 N.J.Super. 443, 442-43,
Under the law of New York, plaintiffs may recover against Freedom River; under the law of New Jersey, they may not. Finding that New York has a more significant interest than New Jersey in the determination of Freedom River’s liability to plaintiffs, the majority reverses. I respectfully dissent. New Jersey’s interest so far exceeds New York’s that the majority opinion can be understood only as an attempt to reach Freedom River’s insurance policy, a consideration that until now has not been dispositive with respect to a choice of law.
I.
On July 18,1993, Xiao Kang Su and Kuide Chen rented a car in Lawrenceville, New Jersey, from defendant Freedom River. Su and Chen planned to drive the car to a seminar at Cornell University in Ithaca, New York, continue to Wisconsin, and then return the car to Freedom River in New Jersey on July 27. Freedom River authorized them to drive outside of New Jersey, but did not specifically authorize them to drive to New York or any other state. Accompanying Su and Chen on the trip were their families, including Su’s wife, Li Fu, and son, Daniel Su; and Chen’s wife, defendant Hong Fu, and daughter, Michelle Chen. All six are New Jersey residents. Although the rental contract
As part of its standard rental agreement, Freedom River provided the lessees with a “Basic Automobile Liability Insurance Policy,” which protects authorized drivers of the rental car against liability for causing bodily injury, death or property damage to third-parties. The policy limit is the minimum coverage mandated by the law of the state where the rental takes place, in this case New Jersey. See N.J.S.A. 45:21-2, -3 (requiring commercial automobile lessor to maintain split-liability coverage of at least $10,000/$20,000 for bodily injury and $5000 for property damage). Plaintiffs and their joint lessees could have purchased extra insurance from Freedom River. Optional policies included a “Personal Accident Insurance” policy, which would have provided the authorized drivers and their passengers for bodily injury suffered in an accident, and an additional liability policy that would have increased the limits on coverage for bodily injury or property damage caused to others. A Freedom River agent informed the lessees that their own personal automobile insurance would cover an accident involving the rental car. The lessees declined the optional coverage.
On July 19,1993, Hong Fu was driving through Hamburg, New York, during a rainstorm. She lost control of the vehicle while trying to find the windshield-wiper switch. The car slid off the road, crossed two lanes of traffic, rolled over and landed in an embankment. It was a one-car accident. Li Fu suffered severe injuries and was hospitalized in New York for thirty days. She then was transferred to JFK Medical Center in New Jersey, where she received extensive medical treatment until April 1994.
All five passengers received personal injury protection (PIP) from their personal insurance policies. Their insurance companies paid for all of the passengers’ medical bills, except for those of Li Fu. The cost of Li Fu’s medical treatment has exceeded her
In July 1994, all five passengers filed a complaint for personal injury damages against Hong Fu, the driver, and Freedom River, the owner of the car. Freedom River, a Delaware corporation with its principal place of business in Philadelphia, is a sub-franchisee of Freedom River, Inc., a Delaware corporation with its principal place of business in Illinois. Freedom River maintains offices in Philadelphia and Lawrenceville. It does not conduct business in New York.
In May 1997, the passengers’ claims were arbitrated pursuant to Rule 4:21A-1. The arbitrators awarded $15,000 to Kuide Chen, $7500 to Michelle Chen, $100,000 to Xiao Kang Su, $25,000 to Daniel Su, and $3,750,000 to Li Fu. The arbitrators also found Freedom River vicariously liable for Hong Fu’s negligence pursuant to New York law, which provides:
Every owner of a vehicle used or operated in this state shall be liable and responsible for death or injuries to person or property resulting from negligence in the use or operation of such vehicle, in the business of such owner or otherwise, by any person using or operating the same with the permission, expressed or implied, of such owner.
[N.Y.Veh. & Traf. Law § 388(1) (McKinney 1996) (Section 388).]
The award to Li Fu, however, exceeded the individual limit of the $100,000/$300,000 split-limit coverage afforded Hong Fu by her personal insurance policy with the Market Transition Facility (MTF). Hong Fu therefore moved for a trial de novo pursuant to Rule 4:21A-6(b)(l). Michelle Chen, Xiao Kang Su and Daniel Su settled their claims against Hong Fu for the amount awarded by the arbitrator. Kuide Chen settled his claim for $12,500. Only Li Fu’s personal injury claim and Xiao Kang Su’s derivative claim for loss of consortium remain outstanding. MTF, on behalf of its insured Hong Fu, has offered its individual policy limit of $100,000 to plaintiffs as settlement. Plaintiffs have rejected this offer. In
In April 1997, Freedom River moved for summary judgment, arguing that New Jersey law, not New York law, governed its liability as owner of the rental car. Under New Jersey law, the owner of a motor vehicle is not liable for the negligence arising out of the permissive operation of the vehicle, unless the operator was the owner’s agent or employee. Doran v. Thomsen, 76 N.J.L. 754, 756-57, 71 A. 296 (E. & A.1908). Although an owner may be directly liable for negligently permitting an operator to use the vehicle, id. at 760, 71 A. 296, plaintiffs do not contend that Freedom River was negligent in permitting Hong Fu to drive the car.
Initially, the Law Division concluded that all significant relationships were with New Jersey, and the accident’s occurrence in New York was a mere “happenstance.” The court then reversed itself and held that New York law applied. The Appellate Division reversed. 309 N.J.Super. 435,
II.
A.
As the forum state, New Jersey’s choice-of-law rules apply to determine whether New York or New Jersey law governs this controversy. Gantes v. Kason Corp., 145 N.J. 478, 484,
New Jersey’s governmental-interest test is substantially similar to the most-significant-relationship test adopted by the American Law Institute in Restatement (Second) of Conflict of Laws (the “Restatement”) (1971). Thus, New Jersey now adheres to the method of analysis set forth in Restatement sections 6 (Section 6) and 145 (Section 145). See, e.g., State Farm, supra, 84 N.J. at 34,
(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 this particular issue,
(d) the protection of justified expectations,
(e) the basic policies underlying the particular field of law,
(f) certainty, predictability, and uniformity of result, and
(g) ease in determination and application of the law to be applied.
Section 145 focuses the test primarily on the competing policies of:
(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.
The next step is to “identify the governmental policies underlying the law of each state and how those policies are affected by each state’s contacts to the litigation and to the parties. If a state’s contacts are not related to the policies underlying its law, then that state does not possess an interest in having its law apply.” Veazey, supra, 103 N.J. at 248,
B.
According to the majority, Section 388 is intended (1) to “ensure access by injured persons to a financially responsible insured person against whom to recover for injuries,” ante at 119,
New York’s interest in compensating domiciliaries of another state, such as New Jersey, is so minimal as to be virtually nonexistent. See Schum v. Bailey, 578 F.2d 493, 496 (3d Cir.1978) (finding that although New York has strong interest in compensation of own domiciliary, it has no interest in compensating non-domiciliary); Smith v. Bell Sports, Inc., 934 F.Supp. 70, 77 (W.D.N.Y.1996) (stating that New York’s interest in seeing that “non-domiciliary is compensated for any harm caused by the allegedly wrongful conduct is minimal at best”); Marinelli v. K-Mart Corp., 318 N.J.Super. 554, 566,
Recourse to Section 388 is unnecessary to ameliorate the hardship that an injured person experiences by not having access to a “financially responsible insured person against whom to recover for injuries.” Supra at 119,
Finally, application of Section 388 is not necessary to ensure that “New York vendors who furnish medical and hospital care to injured parties are compensated.” Ante at 119,
Based on the facts of this case, New York is likewise not interested in the application of Section 388 to deter negligent driving on its roads. Contrary to the majority’s characterization, New York courts consistently have described Section 388 as a rule that allocates loss, not one that regulates conduct. See Padula v. Lilarn Properties Corp.,
Any interest New York has in deterrence is diminished in this case because its contact as the situs of the accident was fortuitous. The occupants of the vehicle were passing through New York on their way from New Jersey to the Midwest. This single-car accident could have occurred in any of the states through which the plaintiffs intended to drive. See Veazey, supra, 103 N.J. at 250,
Lastly, New Jersey law is as much a deterrent as is that of New York. Even under New Jersey law, an owner of a vehicle is
The majority relies on two other considerations to support the application of New York law. First, the majority finds that “there is a reasonable relationship between the defendant and the state whose local law is to be applied.” Ante at 127,
Second, the Court asserts that “[i]n the context of a New York accident, New York courts have unwaveringly applied Section 388, notwithstanding the absence of any additional ‘contacts’ with the transaction.” Ante at 128,
Despite New York courts’ apparent preference for applying Section 388, the New York Court of Appeals has demonstrated that New York’s interest, as the place where the accident occurred, should yield to New Jersey’s interest, as the place where the parties reside and as the center of their relationship. See Schultz, supra,
Although New York’s interest in applying its vicarious liability statute is minimal, New Jersey’s multiple interests are substantial. First, New Jersey has the greater interest in allocating the loss between its residents according to its own law. New Jersey, not New York, will bear the consequences of the loss allocation. The Restatement recognizes the qualitative importance of this contact:
[ T]he fact that the domicil and the place of business of all parties are grouped in a single state is an important factor to be considered in determining the state of the applicable law. The state where these contacts are grouped is particularly likely to*151 be the state of the applicable law if either the defendant’s conduct or the plaintiff’s injury occurred there. This state may also be the state of the applicable law when conduct and injury occurred in a place that is fortuitous and bears little relation to the occurrence and the parties.
[Restatement, supra, § 145 comment e.]
Here, plaintiffs’ domicile and Freedom River’s place of business are grouped in New Jersey. Additionally, Freedom River’s conduct, the rental transaction, occurred in New Jersey. For the purpose of this action, the place of the injury is a mere fortuity that bears no other connection to the parties.
The Restatement further recognizes the importance of a state’s contact as the parties’ domicile when a court must decide whether to apply a law shielding one party from liability:
The local law of the state where the parties are domiciled, rather than the local law of the state of conduct and injury, may be applied to determine whether one party is immune from tort liability to the other____ [For example,] the circumstances under which a guest passenger has a right of action against the driver of an automobile for injuries suffered as a result of the latter’s negligence may be determined by the local law of their common domicil, if at least this is the state from which they departed on their trip and that to which they intended to return, rather than by the local law of the state where the injury occurred.
[Restatement, supra, § 145 comment d.]
Rules that regulate the host’s liability to his guest are similar to those that relate to an owner’s liability for the negligence of a permissive user. Both are loss-allocating rules. Here, plaintiffs and Freedom River share a common residence in New Jersey.
The Restatement’s preference for the application of the law of the state where the parties reside reflects that state’s “interest in enforcing the decision of its domieiliaries to accept the burdens as well as the benefits of [its] loss-distribution tort rules.” Schultz, supra, 491 N.Y.S.2d 90,
New Jersey’s common law rale regarding owner liability is ... designed to shield an owner from liability in cases in which the owner has not been negligent and in which the culpable driver is not related to the owner in a way that will justify the imposition of vicarious liability under traditional principles of the law of agency or master servant. That shield is consistent with the principle that tort liability in the context of automobile-related injuries is based on fault.
[Haggerty, supra, 279 N.J.Super. at 611-12,653 A.2d 1166 .]
The majority attempts to undercut New Jersey’s interest in applying its common-law rule on owner liability by stating that the rule “has lost some of its vitality as a statement of public policy.” Ante at 121,
Similarly, New Jersey has a significant interest, as the place where the rental transaction was executed, in protecting the parties’ justifiable expectations. Those expectations are based on New Jersey regulations that define the parameters of a lessor-lessee relationship established and centered in New Jersey. See, e.g., N.J.S.A. 45:21-3. “Courts often apply the law of ... the place where the parties center their relationship if the law defines the fair contours of their relationship, and if the law of the place of the conduct or injury is not mainly geared to deterrence or regulation of conduct, but to loss-allocation.” Singer, supra, 70 B.U. L.Rev. at 746.
Only the application of New Jersey law can vindicate the parties’ justifiable expectations. Freedom River’s own policy and the additional coverage it offered to the New Jersey lessees reasonably were based on an understanding that New Jersey law would govern Freedom River’s obligations to those lessees. Pre
To justify reaching Freedom River’s insurance policy, the majority argues that Freedom River anticipated its liability under New York law. In support of the argument, the majority states that, in addition to carrying insurance mandated by statute in New Jersey, Freedom River was insured under a policy with personal liability coverage of $500,000 for a single accident, and an excess policy of $2,000,000. Ante at 136,
New Jersey has a demonstrable interest in furthering the specific policies underlying its own rules on the liability of car owners. A more compassionate rule, such as New York’s, is an understandable alternative. That alternative, however, is not the only choice. New Jersey remains free to choose, as it has, a rule more favorable to owners. As the Restatement states: “A rule which exempts the actor from liability for harmful conduct is entitled to the same consideration in the choice-of-law process as is a rule which imposes liability.” Restatement, supra, § 145 comment c.
In addition to advancing New Jersey’s interests, the application of New Jersey law would advance the interest in maintaining certainty, predictability, and uniformity. See Restatement, supra, § 6(f). Those interests would be served only if the ability of a lessee to recover damages for personal injuries from a lessor did not change as the lessee travels across state lines. See Veazey, supra, 103 N.J. at 251,
Lastly, the application of New Jersey law would comport with our prior decisions in choice-of-law cases involving liability for automobile accidents. Those decisions have favored the interests of the state where the parties were domiciled and where the parties’ relationship was centered as qualitatively stronger than the interests of the state where the injury occurred.
In State Farm, supra, 84 N.J. at 28,
In Pfau v. Trent Aluminum Co., 55 N.J. 511,
For these reasons, I believe that New Jersey has the most significant relationship to these parties and the accident, and would apply New Jersey’s owner-liability rule in this case. I therefore dissent.
Justice GARIBALDI joins in this dissent.
For reversal and remandment — Chief Justice PORITZ and Justices HANDLER, O’HERN, STEIN, and COLEMAN — 5.
For affirmance — Justices POLLOCK and GARIBALDI — 2.