F I L E D
                                                                      United States Court of Appeals
                                                                              Tenth Circuit
                        UNITED STATES COURT OF APPEALS
                                                                             MAR 21 2001
                                  TENTH CIRCUIT
                             __________________________                  PATRICK FISHER
                                                                                  Clerk

 MARIE MYRTHA MIRVILLE; PETERSON
 MIRVILLE, next friend and guardian of
 ECLAMENE MESCA, a minor,

           Plaintiffs-Appellants,
                                                               No. 00-3050
 v.                                                             (D. Kan.)
                                                         (D.Ct. No. 97-CV-4211)
 JOSEPH A. MIRVILLE,

           Defendant,

 ----------------------

 ALLSTATE INDEMNITY COMPANY,

           Garnishee-Appellee.
                         _____________________________

                              ORDER AND JUDGMENT *


Before BRORBY, ANDERSON, and EBEL, Circuit Judges.



       Plaintiffs Marie Myrtha Mirville and Eclamene Mesca brought this non-

wage garnishment action alleging garnishee Allstate Indemnity Company


       *
          This order and judgment is not binding precedent except under the doctrines of
law of the case, res judicata and collateral estoppel. The court generally disfavors the
citation of orders and judgments; nevertheless, an order and judgment may be cited under
the terms and conditions of 10th Cir. R. 36.3.
(“Allstate”) refused in bad faith and negligently to settle their personal injury

claims against Allstate’s insured. Utilizing Kansas’s choice of law rules, the

district court held New York, rather than Kansas, law provided the standard

regarding an insurer’s duty to defend and settle claims against its insured.        See

Mirville v. Allstate Indem. Co.    , 

, 1108 (D. Kan. 1999)

(granting summary judgment in part for Allstate). Plaintiffs appeal this holding

and the application of New York law in the subsequent bench trial, after which

the district court entered a final order in favor of Allstate.   See Mirville v.

Allstate Indem. Co. , 

(D. Kan. 2000). We exercise

jurisdiction under 28 U.S.C. § 1291 and affirm.



I. Background

The facts necessary to resolve this appeal are undisputed:

               This case arises from an automobile accident which occurred
       near Topeka, Kansas, on July 9, 1996. Joseph Mirville was driving a
       car on Interstate 70 which was struck from behind after he stopped
       in a lane of traffic. The two passengers in the Joseph Mirville car,
       plaintiffs Marie Mirville and Eclamene Mesca,[   1
                                                          ] were both injured
       in the accident. Joseph Mirville was a resident [and citizen] of New
       York prior to, and at the time of, this accident. Joseph Mirville was
       insured by the garnishee in this case, Allstate Indemnity Company ....
       The insurance contract was entered into in New York.



       1
           Marie Mirville is Mr. Mirville’s wife and Eclamene Mesca is his niece.


                                              -2-
              The plaintiffs filed separate suits in the Shawnee County
       District Court against Joseph Mirville for damages resulting from the
       accident. Joseph Mirville settled the suits by consenting to
       judgments in the amount of $2,500,000 in favor of Marie Mirville
       and $320,000 in favor of Eclamene Mesca. Joseph Mirville also
       agreed to assign his right to sue Allstate for negligently handling his
       claim and for acting in bad faith in not settling the claims within his
       policy limits. In return, the plaintiffs agreed not to execute on the
       judgments against [Joseph Mirville] personally. The plaintiffs then
       initiated non-wage garnishment actions against Allstate.

Mirville , 71 F. Supp. 2d at 1105. Those actions were removed to the district

court on the basis of diversity jurisdiction and consolidated.       See 

1107. Allstate is an Illinois corporation.



II. Procedural History

       In its summary judgment motion, Allstate raised the issue whether New

York or Kansas law provided the standard regarding an insurer’s duty to defend

and settle the personal injury claims brought by plaintiffs against Mr. Mirville.

See 

As the district court noted, both New York and Kansas

recognize a cause of action against an insurer for an alleged bad faith failure to

settle a claim against its insured within policy limits.    See 

see also

Pavia v. State Farm Mut. Auto. Ins. Co.      , 

, 26-27 (N.Y. 1993);

Bollinger v. Nuss , 

, 507-08 (Kan. 1969).       2
                                                                 However, Kansas law


       2
         It is important to note this cause of action is one by the insured against the
insurer arising out of their contractual relationship. See 

;

                                              -3-
provides for ordinary negligence as an alternative basis of liability in such an

action, while New York law does not.        Compare Bollinger , 449 P.2d at 507-08,

with 

.



       The district court applied Kansas’s choice of law rules to resolve this

conflict of laws. See 

. The court noted New

York law would govern under Kansas’s lex loci contractus rule (the law of the

state where the contract is made controls), unless application of New York law

would violate the settled public policy of Kansas (the “public policy exception”).

See 

After reviewing Kansas Supreme Court case law and the facts in

this case, the district court concluded Kansas’s public policy exception did not

apply. See 

Accordingly, based on its decision that New York law

governed the substantive issues in this case, the district court granted summary

judgment for Allstate as to plaintiffs’ negligence claims. See 

Glenn v. Fleming, 

, 90 (Kan. 1990). The theory is an insured should not be
responsible for any judgment in excess of the insurance policy limits if the insurer acted
in bad faith in refusing a settlement offer within those limits. See 

; 

. Although this claim can be brought by a third party as
a garnishment action under an assignment of rights and covenant not to execute, this does
not expand the cause of action beyond the relationship between the insured and the
insurer. See 

; 

. Accordingly, the
place of residency and citizenship of plaintiffs as third parties are immaterial to this case.


                                             -4-
       At the subsequent bench trial on plaintiffs’ bad faith claims, the district

court held:

       Although Allstate may have acted negligently, which was not an
       issue before the court and will not be decided, the plaintiffs have
       failed to show that Allstate acted in bad faith as that cause of action
       is defined under New York law. Therefore, judgment will be entered
       in favor of Allstate.

.


       On appeal, plaintiffs claim the district court erred in not applying Kansas’s

public policy exception to the lex loci contractus rule. 3 In other words, plaintiffs

argue Kansas, not New York, law should apply to this case.



III. Standard of Review

       We review the grant of summary judgment de novo utilizing the standard

described in Rule 56(c) of the Federal Rules of Civil Procedure. See Adler v.



       3
          In the district court, the parties agreed this is a contract interpretation case
invoking the lex loci contractus rule, which is how we will evaluate the issue on appeal.
See 

. Plaintiffs raise, for the first time on appeal, an
alternative argument that the duty to defend and settle is a contract performance issue.
They claim Kansas applies the place of performance rule, as opposed to lex loci
contractus, to such issues. However, they have “not attempted to articulate a reason for
us to depart from the general rule that ‘a federal appellate court does not consider an issue
not passed upon below.’” Walker v. Mather (In re Walker), 

, 896 (10th Cir.
1992) (quoting Singleton v. Wulff, 

, 120 (1976)). Therefore, we decline to
consider their alternative argument. See 

Stores, Inc., 

, 670 (10th Cir. 1998). Summary judgment is

appropriate if there is no genuine issue of material fact and the moving party is

entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c). When there is

no genuine issue of material fact, we must determine whether the district court

correctly applied the substantive law. See Applied Genetics Int’l, Inc. v. First

Affiliated Sec., Inc., 

, 1241 (10th Cir. 1990).



IV. Discussion

      In a diversity of citizenship case, the district court must apply forum state

law including its choice of law rules. See Klaxon Co. v. Stentor Elec. Mfg. Co.,

, 496 (1941). In Kansas, an action alleging an insurer breached the

duty to settle arises under contract law. See 

. Kansas

follows the lex loci contractus rule when there is a conflict of laws dealing with

the interpretation of an insurance contract, which means “the law of the state

where the insurance contract is made controls.” Safeco Ins. Co. v. Allen, 

, 1372 (Kan. 1997); see supra note 3. As an exception to the lex loci

contractus rule, Kansas will not apply another state’s law if it violates the settled

public policy of Kansas. See id.; Barbour v. Campbell, 

, 880 (Kan.

1917) ([W]here the contract contravenes the settled public policy of the state

whose tribunal is invoked to enforce the contract, an action on that contract will


                                          -6-
not be entertained.).



      In this case, we must determine whether the application of New York law

violates the settled public policy of Kansas. To resolve this issue, we must

identify: (1) the conflict of laws between New York and Kansas, and (2) the

settled public policy of Kansas applicable to this type of case.



A. Conflict of Laws Between New York and Kansas

      As the district court noted, both New York and Kansas recognize a bad

faith cause of action against an insurer for failure to settle a claim against its

insured within the policy limits. See supra Part II. Both states define “bad faith”

as a failure by the insurer to take the insured’s interests into equal consideration

with its own. See 

(“[I]n order to establish a prima facie

case of bad faith, the plaintiff must establish that the insurer’s conduct constituted

a ‘gross disregard’ of the insured’s interests – that is, a deliberate or reckless

failure to place on equal footing the interests of its insured with its own interests

when considering a settlement offer”); 

(“[W]e are

inclined to the view that the insurer may properly give consideration to its own

interests, but it must also give at least equal consideration to the interests of the

insured ... ‘and if it fails so to do it acts in bad faith.’” (quoting American Fid. &


                                           -7-
Cas. Co. v. G.A. Nichols Co., 

, 832 (10th Cir. 1949)). 4



       However, New York does not permit ordinary negligence to be a basis for

liability, while Kansas does. Compare 

(“[E]stablished

precedent clearly bars a ‘bad faith’ prosecution for conduct amounting to ordinary

negligence.”), with 

(“[L]iability may be imposed

against the insurer on either theory. In other words, the insurer, in defending and

settling claims against its insured, owes to the insured the duty not only to act in

good faith but also to act without negligence.”). Thus, New York’s refusal to

include ordinary negligence as a basis for an insurer’s liability under this cause of

action represents the conflict of laws in this case.



       4
         To the extent plaintiffs argue the bad faith standards of New York and Kansas
differ, we disagree. Although the Kansas Supreme Court has not explicitly said so, we
believe its explanation of what does not constitute bad faith mirrors New York’s
“deliberate or reckless” requirement with regards to the insurer’s alleged failure to take
the insured’s interests into equal consideration with its own:

       Where the insurance company acts honestly and in good faith upon
       adequate information, it should not be held liable because it failed to
       prophesy the result. Something more than mere error of judgment is
       necessary to constitute bad faith. The company cannot be required to
       predict with exactitude the results of a trial; nor does the company act in
       bad faith where it honestly believes, and has cause to believe, that any
       probable liability will be less than policy limits.

(citations omitted).


                                             -8-
B. Settled Public Policy of Kansas

      Next, we must identify the settled public policy of Kansas applicable to this

case. Plaintiffs claim the “well settled and strong Kansas public policy” at issue

is protecting the insured’s interests in light of his relinquishment of the right to

conduct his own defense and settlement negotiations, encouraging settlements,

and protecting Kansas courts from unnecessary litigation. We agree the Kansas

Supreme Court has declared the public policy objectives in this type of case to be

these three considerations. See 

; see also 

. 5 However, we also believe the supreme court has made clear Kansas

public policy is not the bad faith or negligence standards themselves; rather, the

standards are merely the method of accomplishing the public policy objectives.

See 

(“Public policy dictates that the insured’s interests

be adequately protected, and we believe this may be best accomplished by holding

that both due care and good faith are required of the insurer in reaching the

decision not to settle.”).



      5
          To the extent the Kansas Supreme Court distinguishes between “settled” and
non-settled public policy, we assume without deciding these considerations reflect the
“settled” public policy of Kansas. Cf. Riddle v. Wal-Mart Stores, Inc., 

, 119
(Kan. Ct. App. 2000) (“Before courts are justified in declaring the existence of public
policy, ‘it should be so thoroughly established as a state of public mind so united and so
definite and fixed that its existence is not subject to any substantial doubt.’”) (quoting
Palmer v. Brown, 

, 687-88 (Kan. 1988)).


                                            -9-
C. Evaluation of Conflict of Laws Against Kansas’s Settled Public Policy

       We turn to an evaluation whether New York’s refusal to hold an insurer

liable for ordinary negligence under this cause of action violates the settled public

policy of Kansas as described above. At oral argument, plaintiffs’ counsel stated

there was no Kansas case directly on point, and we have found none. Thus, we

utilize general principles applicable to, and an analysis of Kansas Supreme Court

case law dealing with, the Kansas public policy exception for our evaluation of

this issue.



       In general, application of the public policy exception should be extremely

limited so as to prevent it from consuming the rule. See Alexander v. Beech

Aircraft Corp., 

, 1223-24 (10th Cir. 1991) (addressing the Kansas

public policy exception and emphasizing it has a “narrow scope of application”).

“Since every law is an expression of the public policy of the state, some higher

threshold is needed to prevent the forum’s law from being applied in every case.”

Tucker v. R.A. Hanson Co., 

, 218 (10th Cir. 1992). As plaintiffs

acknowledge, a mere difference in the law of each state is not sufficient to justify

the application of the exception.   See Alexander , 952 F.2d at 1223-24; cf. Safeco ,

941 P.2d at 1368-69, 1372-73.




                                          -10-
        The Kansas Supreme Court has invoked Kansas’s public policy exception

when application of the other state’s law would thwart or defeat the public policy

objectives underlying the Kansas law at issue.     See St. Paul Surplus Lines Ins.

Co. v. International Playtex, Inc.   , 

, 1269 (Kan. 1989);   Barbour ,

168 P. at 880. In St. Paul , several liability insurance companies brought a

declaratory judgment action to resolve whether they were obligated to indemnify

their insured for an adverse punitive damages award in a products liability case.

See St. Paul , 777 P.2d at 1261. The punitive damages award was rendered

against Playtex, the insured, for the death of a Kansas citizen who had used its

product. See 

1269. Delaware, Playtex’s state of incorporation,

allows insurance for punitive damages, while Kansas does not.       See 

1269. The Kansas Supreme Court declared the objective behind the Kansas law

“is to prevent wrongful acts against citizens of the State of Kansas” through

deterrence by making “the culprit feel the pecuniary punch, not his guiltless

guarantor.” St. Paul , 777 P.2d at 1269 (quotation marks omitted). Accordingly,

the supreme court affirmed the trial court’s use of the public policy exception to

defeat the application of Delaware law, because refusal to apply the Kansas law

“would thwart the purposes for which the policy was adopted.”        

1270.




                                           -11-
       In Barbour , an oral contract was allegedly made in Idaho, which, according

to the plaintiff, was not prohibited by the Idaho statute of frauds and would be

enforceable in that state.   See Barbour , 168 P.2d at 880. However, an oral

contract was unenforceable under Kansas’s statute of frauds.           See 

Supreme Court noted the objective of the Kansas statute is to prevent frauds and

perjuries, and applying Idaho law would “open the door to all manner of frauds

and encourage the baldest sort of perjury.”          

words, applying the

Idaho statute would defeat the Kansas public policy objective underlying the

Kansas statute. Accordingly, the supreme court invoked the public policy

exception, applied the Kansas statute, and refused to enforce the alleged oral

contract. See 

other hand, the Kansas Supreme Court did not apply the public

policy exception when an automobile liability insurance policy provision was

consistent with the Kansas public policy objective behind a Kansas statute.             See

Safeco , 941 P.2d at 1373. In Safeco , the insured was a Missouri resident, the

insurance policy was issued in Missouri, and the car accident occurred in Kansas.

See 

The issue was whether the insurer was entitled to subrogation

for payments it made to its insured for his medical expenses.         See 

The insurer was not entitled to subrogation if the policy’s medical expenses


                                              -12-
coverage and Missouri law applied, but was if the supreme court determined

Kansas’s statutorily mandated personal injury protection benefits eliminated the

policy’s coverage.    See 

The supreme court concluded: “The

medical payment provision of the Missouri policy does not violate Kansas public

policy but, to the contrary, is consistent with the stated policy of [the Kansas

Automobile Injury Reparations Act] by promptly compensating its insured for

personal injuries.”   

The supreme court emphasized “the dispute is

between the parties to the insurance policy,” and held they were bound to the

terms of the policy and Missouri law in order to ensure that the insured received

the benefit of his bargain.   

New York’s bad faith standard is consistent with the Kansas

public policy objectives underlying the cause of action in this case, and, unlike

the situations in St. Paul and Barbour , does not thwart or defeat them. In light of

the consistent objectives and the fact the insurance policy was made, entered, and

issued in New York to a New York citizen, we believe the application of New

York law does not violate Kansas’s settled public policy objectives as described

above. We hold this case reflects nothing more than a mere difference in the law,

which is not sufficient to justify the application of the Kansas public policy

exception to its lex loci contractus rule. See Alexander , 952 F.2d at 1223-24; cf.


                                         -13-
Safeco , 941 P.2d at 1368-69, 1372-73.



       Although plaintiffs argue the application of New York law is “repugnant”

to Kansas’s public policy objectives, we believe, to the contrary, New York law

is consistent with those objectives. This consistency is evidenced by: (1) both

New York and Kansas provide a cause of action by the insured against an insurer

for a bad faith failure to settle a claim within policy limits, and (2) the bad faith

standards of each state mirror one another.          See supra Parts II, IV.A and note 4.

Additionally, New York’s bad faith standard and Kansas’s bad faith or

negligence standard emanate from and seek to serve the same public policy

objectives: protecting the insured’s interests in light of his relinquishment of

control of the case to the insurer, encouraging settlements, and preventing

unnecessary litigation merely because an insurance company decides to try all

cases as a matter of policy.    Compare Pavia , 626 N.E.2d at 27 (“At the root of

the ‘bad faith’ doctrine is the fact that insurers typically exercise complete

control over the settlement and defense of claims against their insureds.”),        and

Pinto v. Allstate Ins. Co. , 

, 399 (2d Cir. 2000) (applying        Pavia )

(“The availability of a bad faith cause of action encourages settlements that are in

the insured’s best interests, and also discourages insurance companies from

refusing to settle as a matter of policy.” (citation omitted)),      

Part IV.B


                                              -14-
(identifying Kansas’s settled public policy objectives in this type of case).

Accordingly, although the standards may differ in that New York does not

recognize negligence as a basis for liability, New York’s bad faith standard

cannot be said to thwart or defeat Kansas’s settled public policy objectives.           See

Bollinger , 449 P.2d at 509 (“While the terms ‘negligence’ and ‘bad faith’ are not

synonymous or interchangeable in a strict legal sense, they share common hues in

the insurer’s spectrum of duty.”).



         Further, the only connection to Kansas in this case is that the car accident

occurred there.    See Safeco , 941 P.2d at 1366; supra Part I. Mr. Mirville is a

New York resident and citizen, and Allstate is an Illinois corporation.         See supra

Part I. The cause of action is based on their contractual relationship, which was

entered into in New York.      See supra note 2 and Part I. As stated by the district

court:

         The issue essentially boils down to whether applying the standard of
         care concerning the settlement of insurance claims established by the
         New York courts to a contract entered into in the state of New York,
         between a New York resident and his insurance company, would
         violate Kansas public policy. The court finds that it would not.

Mirville , 71 F. Supp. 2d at 1108. We agree.       See Safeco , 941 P.2d at 1373.   6




         6
          With respect to the portion of the district court’s opinion from which we quote,
plaintiffs argue “[t]here is no basis in law or equity for the district court’s exclusion of
non-residents from protection of the Kansas public policy at issue.” We do not read the

                                            -15-
       We hold the district court correctly concluded the Kansas public policy

exception does not apply in this case. Accordingly, we affirm the district court’s

application of New York’s bad faith standard to this case in both its summary

judgment and final orders.



V. Conclusion

       The judgment of the United States District Court for the District of Kansas

is AFFIRMED .



                                          Entered by the Court:

                                          WADE BRORBY
                                          United States Circuit Judge




district court’s choice of law ruling in this way, nor should our order and judgment be so
interpreted. Like the district court, we are simply making the point that the facts of this
case are more closely aligned to Safeco than St. Paul or Barbour, and our holding should
reflect this difference.

                                            -16-