Established by a seminal U.S. Supreme Court case, Erie R.R. v.
Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938). Holds that
federal courts cannot make common law of their own and must therefore apply the
common law of the state in which they sit. Hence, a federal court in California
must follow California state court decisions, a federal court in New York must
follow New York state court decisions, and so forth. For insurance coverage
matters, this means that federal courts must apply state court decisions
interpreting insurance policy language and cannot develop contrary
interpretations of their own.