The jurisdiction of a court refers to its power to hear a controversy and to enforce its decision. Jurisdiction, however, is not determinative of the law that will be applied. A court of one state may have to apply the law, either statutory or common, of another state. The manner in which this could come about involves the conflict of laws�one of the most complex branches of the law.

The conflict of laws concept can be better understood if it is renamed "choice of laws." The latter is a more appropriate term because the issue is which law is to be applied when the laws of two or more jurisdictions seem relevant but are not in agreement.

The question of which law will govern the validity and interpretation of a life insurance contract is extremely important, since states have different attitudes toward various company practices and policy provisions and thus different laws on these issues. Broadly speaking, the matter is resolved on the basis of the contacts that a life insurance contract has with various territorial sovereigns that might be deemed to have an interest in determining the rights and duties of the parties to�and beneficiaries of�the contract. These contacts might arise out of the state�s relationship to the home office, a branch office, the insured, or the beneficiary, to mention only the major possibilities. Theoretically, if a state has any relationship to�or contact with�an insurance contract, it has some (though perhaps only slight) claim to a voice in the determination of the rights and duties thereunder. In a typical case, there will be at least two states concerned with the policy�the state in which the home office is located and the state in which the insured is domiciled. But there can easily be more, so regardless of where the case may be heard, rules must be developed to determine which state has the paramount interest in interpreting and enforcing the contract.

The traditional rule followed by the majority of jurisdictions is that unless the parties agree otherwise, questions concerning the validity and interpretation of a life insurance contract will be resolved by the law of the state in which the contract was made and in which the last act necessary to bring the contract into existence took place. This is sometimes called the place-of-making rule. Since, under the usual circumstances, the contract becomes effective at the moment it is delivered by the agent to the insured and the first premium is collected, the place of making is typically the state in which the insured reside because that is where delivery was made. On the other hand, if the first premium is paid with the application and a conditional receipt is issued contingent on approval at the company�s home office, the act that brings the policy contract into existence occurs at the home office of the company, producing a different result.

The traditional rule is that matters relating to performance of the contract are controlled by the law of state where the contract is to be performed. However, this rule seems inappropriate for insurance contracts and has not been adopted.

Disturbed by the fortuitous nature of the place-of-making rule and convinced that all policyowners should be protected by the laws of their states, some states have enacted statutes and some courts have adopted rules to the effect that all policies shall be governed by the laws of the state in which the insured is domiciled, regardless of where the contract came into existence. Other courts�feeling that the control of a state over a company incorporated under its laws assures equality of treatment of all policyowners, wherever they live�follow the rule that the laws of the insurer�s state of incorporation will be applied in determining the validity and interpretation of a life insurance contract. In all these cases, the choice of the governing law is determined by the conflict-of-law rule of the state in which the case is being adjudicated.

A life insurance policy may contain a provision that its validity and interpretation will be governed by the law of a designated state, which may be neither the insured�s state of domicile nor the state in which the home office is located. It appears that, while the insured or beneficiary can enforce this provision if the laws of the designated state are more favorable to him or her than the laws that would apply under the conflict-of-law rule, the insurance company is not permitted to invoke the provision.

In more recent years there has been a tendency for the courts to follow a different doctrine, known as the "center of gravity," or "grouping of contracts" theory, to resolve conflicts of law problems, whether the matter in dispute involves the validity, interpretation, or performance of a contract. Under this theory, the courts, instead of regarding the parties� intention, place of making, or performance as conclusive, give emphasis to the law of the state that has the most significant contracts with the matter in dispute. The merit of this approach is that it gives the state with the most interest in the dispute paramount control over the legal issues. The principal disadvantage is the possibility that it will afford less certainty and predictability than the more rigid rules traditionally applied.

It should be noted that when the courts of one state apply the laws of another state, they apply their interpretation of what the law is in the other state. This may differ from the interpretation adopted by the courts of the other state.

In creating the federal judiciary the Judiciary Act of 1789 provided that when trying cases based on diversity of citizenship, federal courts would be bound by the applicable laws of the state in which they were sitting (assuming no conflict of laws). In the famous case of Swift v. Tyson, decided by the United States Supreme Court in 1842, it was held that the word "laws" used in the act referred to statutory law and not to case law. Thus the federal courts were free to apply their own version of the common law in settling disputes not involving a federal or state statute. This ruling turned out to be highly significant for insurance companies, inasmuch as federal precedents were more favorable to the companies in many respects than the common law of the various states. This happy state of affairs was ended in 1938, when the United States Supreme Court in Erie Railroad Company v. Tompkins overruled its earlier doctrine and held that the federal courts were obliged to apply the common law, as well as the statutory law, of the state in which the case is being heard. Three years later, the Supreme Court held that the federal courts would also have to follow the conflict-of-law rules of the state in which they sit. Thus for purposes of diversity jurisdiction, a federal court is in effect only another court of the state.