New York Life Ins. Co. v. Baum

• Decision Date: 14 February 1983
• Docket Number: No. 82-2086,82-2086
• Citation: 700 F.2d 928
• Parties: NEW YORK LIFE INSURANCE COMPANY, Plaintiff-Appellee, v. Noel B. BAUM and Media Sales and Marketing, Inc., Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 928

700 F.2d 928

NEW YORK LIFE INSURANCE COMPANY, Plaintiff-Appellee, v. Noel B. BAUM and Media Sales and Marketing, Inc. Defendants-Appellants.

No. 82-2086.

United States Court of Appeals Fifth Circuit.

Feb. 14, 1983.

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 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 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 S.W.2d 424 (Tex.1967); Frey v. Estate of Sargent, 533 S.W.2d 142 (Tex.Civ.App.1976); Harris, supra.

Baum, 617 F.2d at 1204.

"Where the contract was made in one state but was to be performed in that and partly in another state, the court has ordinarily determined the validity of the contract by the law of the place where the contract was made." Grace v. Orkin Exterminating Co., 255 S.W.2d 279, 294 (Tex.Civ.App.--Beaumont 1953, writ ref'd n.r.e.); Ramirez v. Autobuses Blancos Flecha Roja, S.A. De C.V., 486 F.2d 493, 496 (5th Cir.1973).

However, Texas courts have also held that incidental performance in one state would not preclude the application of the law of the state where the bulk of performance occurred, and in which the contract itself was made. Chicago R.I. & P.R. Co. v. Thompson, 100 Tex. 185, 97 S.W. 459, 460 (1906). In Grace v. Orkin Exterminating Co., supra, the court further expanded this rule to encompass those situations in which performance in a foreign jurisdiction was more than merely incidental to the main performance. 255 S.W.2d at 296. The rule seems settled today that "[w]here most of the performance of the agreement occurs in Texas, the agreement will be covered by the laws of Texas." Smith v. Bidwell, 619 S.W.2d 445, 449 (Tex.Civ.App.--Corpus Christi 1981, writ ref'd n.r.e.).

Analysis of Texas cases involving insurance contracts yields a number of rules upon which courts may rely in determining the place of the making of the contract and its performance. In Seiders v. Merchants' Life Ass'n of the United States, 93 Tex. 194, 54 S.W. 753 (1900), the Supreme Court of Texas held that where an insurance contract provided that the principal and premiums be paid in an insurance company's home office in Missouri, even though the contract was actually made in Texas, Missouri law controlled construction of the contract in the absence of any special circumstances:

Conceding that the contract of insurance was made in Texas, it is made payable at the home office, in the state of Missouri, and all premiums are likewise made payable there. It does not provide for any act to be done elsewhere by the company. A tender of the money at the home office would have been valid. Unless there be something in the circumstances which indicate that the parties contracted with reference to the laws of Texas, the legal effect of the contract must be determined according to the laws of the state of Missouri.

54 S.W. at 754. ¹

In Fidelity Mutual Life Ass'n v. Harris, 94 Tex. 25, 57 S.W. 635 (1900), the court emphasized the applicability of contract offer and acceptance principles to the determination of the place of the making and performance of a life insurance contract:

The test is generally held to be the acquiescence or final agreement of minds by which the contract is concluded, and the place where that occurs is the place where the contract, for most purposes, is held to have been made. With reference to contracts of insurance, where applications or proposals are taken in one state by an agent having no authority to conclude the contract or bind the company, and are forwarded to the domicile of the company, and there accepted, and the policy issued, the contract is ordinarily to be treated as having been made at such domicile, and to be performed there. Whart.Confl.Laws, Sec. 465; Bliss, Inc. Sec. 362; May, Ins. Sec. 66, and cases cited. This is true, however, only because the act of the company in signifying its acceptance of the proposal completes the contract; and when, as sometimes happens, other things are to be done before the parties are to be bound, the contract is held to have been made when and where such other things transpired. It is often stipulated in policies that they are not to take effect until the first premium has been paid, and the policy has been countersigned by the agent of the company in the place where the applicant resides; and it is held that the contract is to be considered as made where these acts are done.

57 S.W. at 638. The court then distinguished acts of delivering the policy to...