Alexander Para, a truck driver and Texas resident, was injured in a work-related motor vehicle accident in May 2020. He sought Personal Injury Protection (PIP) benefits under a commercial auto policy issued by Progressive Michigan Insurance Company to his employer, a Michigan-based trucking company. The policy was issued in Michigan for vehicles garaged in Michigan and explicitly stated that Michigan law governed any claims for PIP benefits. After Para submitted a claim, Progressive sent multiple letters indicating that the investigation was complete and that benefits would be denied due to Para's failure to cooperate and provide requested information. Progressive later filed a declaratory judgment action in Michigan, which was dismissed in January 2023 for failure to prosecute. Para subsequently filed this lawsuit in Texas in May 2024, alleging breach of contract, breach of the duty of good faith, and violations of Texas unfair claims practices laws. The district court granted summary judgment for Progressive, first ruling that Para's claims were barred by res judicata due to a prior pro se lawsuit, and second, ruling that even if res judicata did not apply, the claims were time-barred under Michigan law.
The Fifth Circuit reviewed the district court's grant of summary judgment de novo. The court first addressed Para's argument that the doctrine of res judicata barred his claims. However, because the Fifth Circuit had recently vacated the dismissal of the breach of contract claim in Para's prior pro se lawsuit, the court agreed with both parties that res judicata no longer applied. The court then turned to the choice of law issue. Para argued that Article 21.42 of the Texas Insurance Code mandated the application of Texas law. The court explained that this statute applies only when an insurance contract is made in the course of the insurer's Texas business. The record showed that the policy was issued by two Michigan companies for vehicles garaged in Michigan, meaning the contract was not created in the course of Progressive's Texas business. Consequently, the statutory directive did not apply. Under Texas choice-of-law principles, the court enforced the parties' contractual choice of Michigan law because Michigan had a substantial relationship to the parties and the transaction. Finally, the court addressed the statute of limitations. Under Michigan law, a PIP lawsuit must be brought within one year of the accident, but the limitations period is tolled until the insurer formally denies the claim. The court held that Progressive's subsequent declaratory judgment action unequivocally signaled that Para needed to pursue further relief in court. Since Para did not file his lawsuit until May 2024, well over a year after the dismissal of the declaratory judgment action in January 2023, his claim was time-barred.
This decision reinforces the enforceability of choice-of-law clauses in insurance contracts where the transaction has a substantial relationship to the chosen state, even when the plaintiff resides in a different state. It clarifies that an insurer's filing of a declaratory judgment action can serve as a formal denial of benefits, triggering the start of the statute of limitations period. Insurers may rely on such filings to toll limitations periods, and plaintiffs must be aware that filing a lawsuit more than one year after such a filing may result in their claims being time-barred.
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