Author's note. Adapted from the plaintiff's reply brief on a motion to determine that South Dakota law governs the insurance bad-faith claim in Brower v. Great-West Life & Annuity Ins. Co., 4:25-cv-04040-RAL (D.S.D., filed Aug. 15, 2025). The case is a federal diversity action; the policy is a group dental-association policy that was handed to a young dentist take-it-or-leave-it; the policy contains a clause selecting Illinois law. South Dakota allows uncapped compensatory and punitive damages for insurance bad faith. Illinois caps the recovery at attorney fees plus an amount never to exceed $60,000. Every authority and argument discussed below comes from the reply brief itself.
The setup most multistate insurance cases create
The fact pattern is familiar. The insured lives in the forum state. The claim was made in the forum state. The harm landed in the forum state. Under common-law conflicts principles, forum law would govern the bad-faith tort. The insurer's only counter is the choice-of-law clause in the policy, which selects a different state's law — typically a state whose bad-faith remedies are far weaker than the forum's.
A telling structural feature of this kind of motion: the defense almost never argues that the chosen state has more significant contacts with the case than the forum state. The defense's contacts argument is at most that the chosen state has enough contacts to satisfy the constitutional minimum for choice-of-law enforcement. That tacit concession matters. It means the analysis collapses to two questions, in this order. Does the clause reach the tort. And if it does, may a court refuse to apply it. Both questions have answers in the insured's favor.
Step one: the ambiguity attack
Most insurance choice-of-law clauses share a recurring structural defect. The clause in Brower is representative: "this policy and any dispute … arising in connection therewith are subject to, governed by and shall be construed in accordance with" the chosen state's law. Three verb phrases — subject to, governed by, and shall be construed in accordance with — applied to two nouns: the policy itself, and disputes arising out of it.
The construction makes sense for some pairings and not for others. A policy is "construed in accordance with" a state's law. A dispute is "governed by" a state's law. But it is senseless to say a dispute is "construed" according to a state's law. The drafter has stuck two nouns together and applied three verb phrases to both — a construction that, as written, requires a court to say something meaningless about the dispute side of the pairing.
The reading rule that resolves the senselessness is settled. Ambiguities in an insurance policy are construed against the insurer. Cornelius v. National Casualty, 2012 SD 29, ¶ 6. Construed against the insurer, the clause has only one sensible reading: it applies to disputes only to the extent they require policy interpretation. A breach-of-contract dispute over the meaning of a coverage term is "construed in accordance with" the chosen state's law because the policy itself is. A bad-faith tort claim that does not require any policy interpretation falls outside the clause.
The defense response that loses is the response the defense usually makes: "The clause is unambiguous." Without an explanation for how the three-verb construction makes sense, that response is asking the court to silently delete "shall be construed in accordance with" from the clause, leaving "this policy and any dispute … are subject to and governed by" the chosen state's law. Courts do not rewrite insurance policies in the insurer's favor. No court has authority to redraft the clause into the form the insurer wishes it had taken. A defense that cites no authority for that approach is asking for a result the law does not provide.
Step one is the cleanest path to victory because it ends the motion without reaching public policy or conflicts. If the court reads the clause for what it says — ambiguous on its face, construed against the insurer — the bad-faith tort claim is outside its reach and the forum's law applies. That is where the brief asks the court to stop.
Step two: the public-policy override
Step two assumes the court reads the clause to cover the tort. Even on that reading, the clause is unenforceable as to the bad-faith claim because applying it would override the forum state's fundamental policy on bad-faith remedies.
The remedy gap is the core fact
Civil suits are about remedies. The remedies offered by South Dakota and Illinois for insurance bad faith are qualitatively different. South Dakota allows uncapped compensatory damages and uncapped punitive damages. Illinois caps the recovery at attorney fees plus an amount that never exceeds $60,000. The South Dakota framework is built to make victims of bad faith whole and to punish and deter the insurer's conduct. The Illinois framework, on the bad-faith claim itself, does neither at any meaningful scale.
The defense rarely engages this fact. A defense response that argues at length about contacts, choice-of-law cases, and "closely related" doctrine while saying nothing about the practical effects of the remedy gap is treating the remedy gap as if it were not a legal question. It is the legal question. The Restatement makes "fundamental" policy turn on substantive importance, and substantive importance turns on real-world consequences for the people affected by the rule.
Why the remedy gap counts as "fundamental"
The forum state's supreme court has labeled insurance "fundamentally unlike ordinary commercial or business dealings where mere profit is the stake, so prone is the failure of insurance protection to result in irretrievable disaster." Kent v. Lyon, 1996 SD 131. The court has made the policy stakes specific in the bad-faith context: the availability of punitive damages "reflects an attempt to restore balance in the contractual relationship," because "the relationship of insurer and insured is inherently unbalanced" and "[t]he insurer's obligations are rooted in their status as purveyors of a vital service labeled quasi-public in nature." Trouten v. Heritage Mutual, 2001 SD 106. The state's tort remedy for bad faith is not a stray legislative artifact; it is a piece of machinery the court has built and described, on the record, as a counterweight to a structural imbalance the insurer creates.
The court has tied the remedy specifically to claim-handling: punitive damages for bad faith are "an incident of the special relationship between the insurer and the insured and discouragement of objectionable corporate policies." Zochert v. Protective Life, 2018 SD 84. The point matters because insurance is most important at the claim-handling stage. Until a claim is made, an insurance contract is a piece of paper that buys peace of mind. When the claim is made — when the roof needs repair, when the business needs to come back online, when the medical care needs to happen — the insurance is doing its real work. A rule that recognizes the public importance of insurance generally but withdraws the recognition at the moment of claim-handling makes no sense. The insurer's consistent response to that point is not to engage with it.
The state's statutes back up the policy. SDCL 21-3-1 entitles tort victims to full compensation. SDCL 21-3-2 authorizes punitive damages. SDCL 58-33-46.1 entitles a person injured by an insurer's unfair-trade-practice violation to full compensation for the violation. Applying the choice-of-law clause to the bad-faith claim would override every one of these statutes for an entire category of plaintiffs. The state's legislature has already weighed the question of full compensation versus a remedy cap and answered. Enforcing a private contract clause to undo that answer is what the public-policy doctrine exists to prevent.
The defense's lead cases are unreasoned ipse dixit
The defense usually leans on a body of district-court decisions that have applied choice-of-law clauses to bad-faith claims with little or no analysis. The leading exhibit in Brower is Great-West Life & Annuity Ins. Co. v. Harrington, 2017 U.S. Dist. LEXIS 221463 (C.D. Cal. 2017). The court wrote: "The mere fact that the damages Defendant can pursue in Illinois are less than those he could pursue in California does not contravene a fundamental policy of California." That sentence is the entire analysis. The court did not identify the differences between the damages available under the two states' laws. The court did not explain how the adjective "mere" applies to that difference. The court did not engage the practical implications, did not weigh them, did not describe what fact set would be enough to make a remedy gap fundamental.
Persuasive authority is only as good as its reasoning. A court is bound to follow precedent that controls; it is bound to none of the persuasive authority cited in a brief. Persuasive authority moves a court because it provides reasoning the court can adopt. Authority that consists of a conclusion stated as a premise — ipse dixit, without reasoning — does not persuade reasoning human beings. A mass of unreasoned opinions on the same question carries some weight by sheer volume, but the volume should not be confused for persuasion. Harrington's lack of analysis is typical of the cases that apply choice-of-law clauses to bad-faith claims, which is the deeper reason a defense brief leaning on those cases tends not to engage the substance of the remedy gap. The cases the defense relies on did not engage it either.
A subordinate point matters in some forums. Harrington's rationale rested partly on a California-specific premise: that under California law, public policy is not affected by judge-made law. Even if that premise is right under California law, it fails in any forum where judge-made law is part of public policy. In South Dakota, "[t]he primary sources for declarations of … public policy in areas such as the one presently under consideration are the constitution, statutory law and judicial decisions." Meierhenry, 277 N.W.2d 298 (S.D. 1979). And in any forum where the relevant policy is partly statutory, Harrington's California-specific premise has nothing to do with the question — the choice-of-law clause would still override the forum state's statutes, and a private contract cannot do that.
The Restatement supports the override
The Restatement (Second) of Conflict of Laws § 192 states the rule in explicit terms. Comment e — addressing the situation in which the insured had a fully informed choice of the chosen state's law — provides that "application of the law of the chosen state must not be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state." The comment is direct about the substantive stakes in life insurance: "Since life insurance is a matter of intense public concern and since the major purpose of legislation in this area is to protect the individual insured and his beneficiaries, it might well be repugnant to a fundamental policy of the state of the otherwise applicable law to give the insured less protection than this state would accord him under its own local law."
The defense often quotes a different comment to § 192 — comment h, which discusses the interest in uniformity of meaning across a group policy. Comment e is the answer. The interest in uniformity of meaning yields to the substantive public policy of the state with the materially greater interest. The Restatement says that explicitly; the defense brief typically does not engage with it.
Disposing of the "closely related" and group-policy moves
Two secondary defense arguments recur often enough to warrant treatment.
"The bad-faith claim is closely related to the policy."
Conceded — the bad-faith tort grows out of the policy relationship. And irrelevant. The forum state has not adopted a rule that choice-of-law clauses always reach tort claims closely related to the contract. The defense's silence on a forum-state authority for that rule is itself the answer. (Compare the rule another forum has adopted for general contracts: Northwest Airlines v. Astraea Aviation, 111 F.3d 1386 (8th Cir. 1997), applying Minnesota law and holding that closely related tort claims fall within the ambit of the contract's choice-of-law provision.) Even if the forum state adopted such a rule for contracts in general, the rule would not necessarily extend to insurance. Insurance is a special context — recognized as such in the case law on ambiguity construction, in the case law on punitive damages, and in the Restatement. A rule for ordinary commercial contracts does not automatically migrate to insurance.
"It is a group policy, so uniformity supports the clause."
Group policies do support a uniformity rationale — for matters of policy interpretation. Every member of the group should get the same coverage terms; predictability and equal treatment depend on it. That rationale has nothing to say about remedies for bad faith. Whether forum-state residents can recover full bad-faith remedies has no impact on the meaning of policy terms for residents elsewhere. Nor does it affect the insurer's bad-faith conduct in other states; the insurer is keenly aware of state-by-state bad-faith law and adjusts its claim-handling accordingly. The "uniformity" the choice-of-law clause promises in this context is uniformity of under-compensation for bad faith — a uniformity the forum's public policy is designed to disrupt.
The take-it-or-leave-it nature of the typical group insurance policy cuts further against the consent rationale that underlies comment h. Comment e contemplates an insured who has made a "full, informed choice" of the chosen state's law. A young professional handed a boilerplate group policy by a trade association, with no negotiation and no realistic way to evaluate the choice-of-law clause's downstream consequences for a possible bad-faith claim, has not made that kind of choice. The Restatement's strongest argument for enforcing the clause is at its weakest on these facts.
The defense's "controlling" cases often are not.
A separate pattern in defense briefing on this question deserves attention: defense citations are often pulled from cases in which the court did not actually decide the question. Two examples from Brower:
- Delka v. Continental Casualty Co., 748 N.W.2d 140 (S.D. 2008). The defense quoted Delka for the proposition that the South Dakota Supreme Court applied Pennsylvania law to a bad-faith claim under a group policy issued in Pennsylvania. The defense omitted the predicate fact: the parties had agreed that Pennsylvania law governed. The court did not decide enforceability of the choice-of-law clause; it applied a stipulation. The case has nothing to say about a contested clause-enforcement question.
- Dobles v. Black Hills Corp., 768 F. Supp. 3d 991 (D.S.D. 2025). The defense quoted the case for the proposition that "Colorado law (specified to govern the Consultant Agreement) governs all the claims, including the tort claims." The defense omitted the first part of the sentence — the part stating that the parties had agreed Colorado law governed all claims. As in Delka, the court did not analyze the enforceability of the choice-of-law clause. It applied a stipulation.
The general lesson is procedural: when the defense strings citations and quotations together without quoting the courts' reasoning, check whether the cited courts actually decided the issue. The reading often takes thirty seconds and produces a clean reply point.
California law is in play even when the forum is somewhere else
A characteristic defense move is to minimize California decisions on the ground that California is not the forum state. In a state whose insurance bad-faith doctrine was borrowed from California, that move misses the point twice — first because borrowed law keeps the relationship visible, and second because the underlying decisions in California are typically the ones that did the doctrinal work the forum state later adopted.
South Dakota borrowed its bad-faith law largely from California. The South Dakota Supreme Court has said so in plain language: "The strict contract approach was somewhat eroded over thirty years ago when, in Comunale v. Traders & General Insurance, 50 Cal.2d 654 (1958), the California Supreme Court recognized that breach of an implied covenant of good faith and fair dealing in insurance contracts would constitute a separate and distinct tort. This tort concept, in the context of bad faith insurance settlement, has been recognized in most states." Garrett v. Bankwest, 459 N.W.2d 833 (S.D. 1990). The borrowing is consistent across the doctrinal moves: Smith v. Weber, 70 S.D. 232 (1944) (citing Jones v. Kelly, 208 Cal. 251 (1929) for the independent tort doctrine); Kunkel v. United Security, 84 S.D. 116 (1969) (citing Brown v. Guarantee Ins., 155 Cal.App.2d 679 (1957) for the duty of equal consideration in third-party contexts); Trouten v. Heritage Mutual, 2001 SD 106 (commending the analysis of Egan v. Mutual of Omaha, 24 Cal. 3d 809 (1979)).
The connection runs deeper than a few citations. South Dakota and California share a legal-historical kinship: both states were admitted to the union late and were among the earliest jurisdictions to adopt the Field Code, putting them in a broader Western legal family. State v. Holter, 32 S.D. 43 (1913) ("The statutes of Oklahoma and California are both similar to ours and in both of those states the statute has been given the construction contended for by the appellant in this case."); see generally Mullen and Funk, The Migration of the Field Code (2017), SocArXiv, doi: 10.31235/osf.io/nfg92. A defense that minimizes California decisions on this question is minimizing the doctrinal source the forum's own supreme court drew on.
The practical takeaway is small but real. When the defense brief discounts California cases on the ground that California is "not South Dakota" — or substitute the forum state — point to the borrowing relationship and let the court see the same connection the state's supreme court has already drawn.
The fallback: certification
If the court finds the clause unambiguously reaches the bad-faith claim and is unwilling to refuse enforcement on its own assessment of public policy, the right next move is to ask the court to certify the public-policy question to the state's supreme court.
Certification is the right move for a structural reason. Choice-of-law clauses in insurance contracts are litigated almost exclusively in diversity cases, because most in-state insurers do not write the kind of multistate group business that triggers an out-of-state choice. Without certification, the state's highest court may simply never have the chance to address the question. The motion is not asking for an advisory opinion. It is asking the federal court to give the state's highest court the opportunity it would otherwise be denied.
The argument for certification is independent of the merits of the public-policy question. The state's supreme court should have the chance to decide the issue because the issue is important and because no other procedural vehicle is likely to bring it up. A federal court that decides the question without certification is making state public policy by default; certification puts the decision back in the state forum where it belongs.
The pattern in one paragraph
A defense brief on this kind of motion usually does three things. It insists the choice-of-law clause is unambiguous, without explaining how the three-verb construction makes sense. It strings citations and quotations together without quoting the courts' reasoning, often pulling support from cases in which the courts did not actually decide the contested question. And it argues at length about points the plaintiff already concedes — that the bad-faith claim relates to the policy, that group policies favor uniformity in meaning. The pattern is the defense's tell. It indicates which questions the defense cannot engage on substance: ambiguity, and the importance of the difference in remedies allowed. Those are the two questions that decide the motion. The rest is noise.
For the practitioner
Several practical points fall out of the framework.
- Lead with ambiguity. The cleanest path to a win is the contract-construction attack. The clause's three-verb structure is meaningless as applied to a dispute. Insurance ambiguities are construed against the insurer. The most reasonable reading limits the clause to policy-interpretation disputes. Step one ends the motion without reaching public policy.
- Build the public-policy track in parallel. The opening brief should do the heavy lifting on remedies and policy. Map the practical effects of the remedy gap. Tie the gap to the forum state's own pronouncements on insurance as a quasi-public service and on punitive damages as restoring balance in an inherently unbalanced relationship. List the statutes the chosen state's law would override. Make the record so that the public-policy holding is fact-supported, not a conclusion stated as a premise.
- Treat unreasoned ipse dixit as what it is. The defense's lead cases on this question are usually short on reasoning. Identify the missing analysis explicitly. Persuasive authority earns its weight through reasoning; without reasoning the citation is volume, not persuasion. Point that out and the court will see it.
- Read the defense's cases. A surprising number of defense citations come from cases in which the parties stipulated to the chosen state's law and the court never decided the enforceability question. Spend the half hour to confirm what the cited courts actually held. The reply writes itself.
- Concede what should be conceded. The bad-faith claim relates to the policy. Group policies favor uniformity in matters of interpretation. Conceding both removes the defense's filler arguments and forces the focus onto the two questions that matter — ambiguity, and the importance of the remedy gap.
- Use California law where the forum borrowed from California. When the defense minimizes California decisions, point to the borrowing record. The state's supreme court has often drawn on California's bad-faith doctrine. Minimizing those decisions amounts to minimizing the source.
- Ask for certification as the alternative ruling. If the court is unwilling to refuse enforcement on its own, ask for certification of the public-policy question to the state's supreme court. The argument for certification is independent of the merits and is the right disposition because the issue otherwise may never reach the state forum that should decide it.
The two-step is not novel. Ambiguity construed against the insurer is settled doctrine. Public-policy override is in the Restatement and, in most forums, in the case law. The work in any particular case is the assembly: identifying the structural defect in the clause, mapping the remedy gap onto the forum state's pronouncements about insurance, and refusing to let the defense substitute volume for reasoning. Done carefully, the two-step keeps the bad-faith tort in the forum state's law — which is, on these motions, the whole question.
