700 F.2d 928 (5th Cir. 1983), 82-2086, New York Life Ins. Co. v. Baum

Docket Nº:82-2086.
Citation:700 F.2d 928
Party Name:NEW YORK LIFE INSURANCE COMPANY, Plaintiff-Appellee, v. Noel B. BAUM and Media Sales and Marketing, Inc., Defendants-Appellants.
Case Date:February 14, 1983
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit

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700 F.2d 928 (5th Cir. 1983)



Noel B. BAUM and Media Sales and Marketing, Inc.,


No. 82-2086.

United States Court of Appeals, Fifth Circuit

February 14, 1983

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Robin C. Gibbs, Debora Ratliff, Houston, Tex., for Baum.

John A. Bailey, Tara L. Wall, Houston, Tex., for Media Sales & Marketing, Inc.

Baker & Botts, Richard L. Josephson, Houston, Tex., for plaintiff-appellee.

Appeals from the United States District Court for the Southern District of Texas.

Before CLARK, Chief Judge, THORNBERRY and POLITZ, Circuit Judges.

THORNBERRY, Circuit Judge:

I. Introduction:

This is the second appeal following our remand to the district court in 617 F.2d 1201, 1205. On remand, the district court held that under the conflict of laws rules of Texas, Louisiana law applied. The court then concluded that under Louisiana law, neither Baum nor Media Texas had an insurable interest in the life of Cook, and that the life insurance policy was consequently void from the outset. After reexamining the record as a whole, we conclude that the

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district court erred as a matter of law in applying the law of Louisiana. Furthermore, we hold that Texas conflict of laws rules mandate that New York law be applied in this case, and that under New York law, Baum had an insurable interest in the life of Cook. We therefore vacate the judgment of the district court and render judgment for Baum.

II. Facts and Disposition Below:

We need not repeat here the facts of this case. See New York Life Insurance Co. v. Baum, 617 F.2d 1201, 1201-03 (5th Cir.1980). On remand, the district court issued two memoranda and orders in which it made several findings of fact. On May 15, 1981, the district court issued its first memorandum, holding that Louisiana substantive law controlled the insurance contract in the present action. The court based this conclusion on its determination that Texas law required that where a contract is made in one state, but is to be performed in more than one place, the law of the place of the making of the contract presumptively controls its substantive interpretation. The court then stated that

[p]erformance, in the case of a life insurance contract, entails both payment of premiums by the policy owner and the payment of proceeds by the insurer. The contract in this case, specifically named New York as the place for premium payment. However, as with all life insurance contracts, the place of the payment of proceeds was uncertain. In this case, Mr. Cook was killed in Texas and both a Louisiana resident, Mr. Baum, and a Texas corporation are seeking payment of the proceeds. Therefore, performance in this case was anticipated and took place in more than one jurisdiction and the Court must follow the initial presumption that the law of the state where the contract was made governs. This Court finds that since Louisiana is the place where the contract was made, Texas law presumes that the parties to the contract intended for Louisiana law to govern....

Following further proceedings, the court, on January 25, 1982, issued its second memorandum, and held that La.Rev.Stat.Ann. Sec. 22:613 A (West) controlled construction of the policy here. That statute requires that a third party taking out an insurance policy on the life of another and paying the premiums have an insurable interest in the continuation of the life of the insured. The court held that neither Baum nor Media Texas had an interest in the continuation of Cook's life. The court noted that since Media Texas was nothing more than a nonfunctioning corporate shell that was not even incorporated at the time the insurance policy took effect, it "could not have an expectation of substantial economic interest in the continuation of Mr. Cook's life." Regarding Baum, the court first admitted that Baum had "a superficially stronger argument [than did Media Texas] since he made a financial investment in the ill-fated business venture." However, since the enterprise was a financial failure, the court concluded that any hope of some future benefits was unwarranted optimism, and not sufficient to create an insurable interest. The court next noted the disproportionality of Baum's investment in the business venture to the face amount of the insurance policy (a $16,000 investment as compared to proceeds of $50,000 or $100,000). The court concluded in light of these factors that the "situation fostered an interest in Cook's death." Finally, the court stated that even if the policy was taken out with Cook's full knowledge and participation, Baum still did not qualify on these facts as a party with an insurable interest in the life of Cook. The court accordingly granted New York Life's motion for summary judgment, though it ordered it to reimburse Baum the insurance premiums he paid on the contract.

III. Analysis:

A. Conflict of Laws

We begin by outlining once again the conflict of law rules that control in this case. As a Court of Appeals sitting in diversity we must, of course, apply the

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choice of law rules of the forum state, in this case Texas. Klaxon v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941).

Under Texas law, in the absence of a contrary manifestation, an initial presumption is that the parties intend for the law of the jurisdiction where the contract is made to govern. Dailey v. Transitron Electronic Corp., 475 F.2d 12 (5th Cir.1973); Austin Building Co. v. National Union Fire Ins. Co., 432 S.W.2d 697 (Tex.1968); Fidelity Mut. Life Ass'n v. Harris, 94 Tex. 25, 57 S.W. 635 (1900). However, where the contract is made in one jurisdiction but to be performed in another the presumption arises that the parties contracted with reference to the place of performance. Ramirez v. Autobuses Blancos Flecha Roja, S.A. De C.V., 486 F.2d 493 (5th Cir.1973); Castilleja v. Camero, 414...

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