August v. HBA Life Ins. Co.

• Citation: 734 F.2d 168
• Decision Date: 10 May 1984
• Docket Number: No. 82-1532,82-1532
• Parties: Scott Richard AUGUST and Sharon Irene August, Appellants, and William C. Parkinson, Jr., Trustee, Plaintiff, v. HBA LIFE INSURANCE COMPANY, Appellee. In re Scott Richard AUGUST and Sharon Irene August, Debtors.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 168

734 F.2d 168

Scott Richard AUGUST and Sharon Irene August, Appellants, and William C. Parkinson, Jr., Trustee, Plaintiff, v. HBA LIFE INSURANCE COMPANY, Appellee.

In re Scott Richard AUGUST and Sharon Irene August, Debtors.

No. 82-1532.

United States Court of Appeals, Fourth Circuit.

Argued Feb. 10, 1983.

Decided May 10, 1984.

Robert H. Brumley, III, Aylett, Va., for appellants.

John M. Gray, Fairfax, Va. (Fred W. Palmore, III and J. Maurice Miller, Jr., Richmond, Va., on brief), for appellee.

Before WIDENER and HALL, Circuit Judges, and FAIRCHILD, ^* Senior Circuit Judge.

FAIRCHILD, Senior Circuit Judge.

On July 31, 1981, Scott and Sharon August petitioned the United States Bankruptcy Court for relief under Chapter 13 of Title 11 of the United States Code. The Augusts' plan proposed as its principal funding money due the Augusts under a default judgment a Virginia state court had rendered against HBA. HBA, an Arizona insurance company not authorized to do business in Virginia, had no representative in Virginia and had not appeared in the state court action. It had been served with process under Virginia's long arm statute, Sec. 8.01-328.1, Code of Virginia.

On November 26, 1981, the Augusts filed with the Bankruptcy Court a complaint for turnover of property, praying that the court order HBA to pay the sum due under the default judgment.

Dismissing the Augusts' complaint, the Bankruptcy Court ruled that HBA lacked sufficient contacts with Virginia to satisfy due process requirements for the assertion of jurisdiction over it and that the state court default judgment is void. August v. HBA Life Insurance Co. (In re August), 17 B.R. 628 (Bkrtcy.E.D.Va.1982). The District Court affirmed. The Augusts appeal.

The sole question argued by the parties is whether the state court could exercise in personam jurisdiction over HBA.

On August 10, 1977, in Arizona, Scott August, then an Arizona resident, obtained a hospitalization-surgical care insurance policy from HBA. August's wife and children were also insured.

The policy called for a monthly premium of $55.00 and was renewable monthly for life subject to the company's right to adjust premium rates. The policy provided, in part:

Each monthly term shall begin and end at 12:01 A.M. Standard Time at the residence of the Insured.... On each premium due date, the Company has the right to change the premium for this policy. However, a change in premium shall not be made unless the changed premium rates apply to all policies of the same rating class, policy duration and policy form as this policy issued to persons residing in the state of the Policyowner's then residence.

In September, 1977, the Augusts moved to, and became residents of Virginia. Between September, 1977, and February 15, 1978, August paid regular monthly premiums. He paid four of the premiums by checks drawn on the Augusts' account at the Bank of Virginia in Grafton, Virginia. HBA negotiated the four checks drawn on the Virginia bank. No change was made in the premium.

On December 17, 1977, the Augusts made a claim under the policy for medical expenses Mrs. August incurred at a hospital in Virginia. HBA denied the claim. The letter of denial stated that the policy provided benefits for illness which began after 30 days after the effective date and that the condition causing Mrs. August's hospitalization originated prior to the policy's being in force 30 days.

The letter also said that Mrs. August had an extensive history which the application did not reveal and therefore HBA enclosed an elimination endorsement which would apply to her coverage. The rider provided that:

in addition to the exceptions, reductions and limitation contained in the policy ... no payment shall be made under the policy for loss ... which results directly or indirectly from.... Any disease of the organs peculiar to females, [s]uffered by Sharon August.

HBA requested that Mr. August sign the rider to "eliminate any confusion on any future claims presented under the policy."

I. THE VIRGINIA LONG ARM STATUTE

The district court correctly observed that

An inquiry into the validity of an assertion of in personam jurisdiction over a non-resident defendant is two-fold. Jurisdiction is proper only if (1) a state statute provides authority for the assertion of jurisdiction, and (2) the assertion of jurisdiction under the particular facts does not offend the due process clause of the Fourteenth Amendment to the United States Constitution.

Virginia's Long Arm Statute provides in part:

Sec. 8.01-328.1 A. A court may exercise personal jurisdiction over a person, who acts directly or by an agent, as to a cause of action arising from the person's:

1. Transacting any business in this Commonwealth;

* * *

7. Contracting to insure any person, property, or risk located within this Commonwealth at the time of contracting....

Unless HBA's receipt of premiums after the Augusts took up residence in Virginia can be deemed the making of a contract to insure, paragraph 7 above would be inapplicable if strictly construed. Even if paragraph 7 were strictly construed, there would remain the question whether paragraph 1 would apply to the facts of this case.

Virginia has described its long-arm statute, Va.Code Sec. 8.01-328.1, as asserting in personam jurisdiction to the full extent permitted by due process. Danville Plywood Corp. v. Plain & Fancy Kitchens, Inc., 218 Va. 533, 238 S.E.2d 800, 802 (1977); John J. Kolbe, Inc. v. Chromodern Chair Co., 211 Va. 736, 740, 180 S.E.2d 664, 667 (1971); Carmichael v. Snyder, 209 Va. 451, 456, 164 S.E.2d 703, 707 (1968). See Brown v. American Broadcasting Co., 704 F.2d 1296, 1301 (4th Cir.1983); Peanut Corp. of America v. Hollywood Brands, Inc., 696 F.2d 311, 313 (4th Cir.1982); Ajax Realty Corp. v. J.F. Zook, Inc., 493 F.2d 818, 822 (4th Cir.1972), cert. denied sub nom. Durell Products, Inc. v. Ajax Realty Corp., 411 U.S. 966, 93 S.Ct. 2148, 36 L.Ed.2d 687 (1973).

Accordingly, we conclude that paragraph 7 is not to be strictly construed and treated as the exclusive provision for long-arm jurisdiction whenever a cause of action on an insurance contract is involved.

HBA appears to take issue with the proposition that the Virginia long arm statute reaches every situation where assertion of jurisdiction does not deprive the foreign insurer of due process. It argues that other provisions of Virginia statutes demonstrate Virginia legislative intent that jurisdiction is not to be exercised over unlicensed foreign insurance companies issuing insurance contracts to non-residents of Virginia. Section 38.1-64 lists various acts by a foreign insurer which shall constitute its appointment of the clerk of the State Corporation Commission as its agent for the service of process. The first acts listed are "the issuance or delivery of contracts of insurance to residents of this State." Subsequent listings of other acts, including collection of premiums and solicitation of applications, refer to "such contracts." Because the phrases "the issuance or delivery" and "to residents of this State" in the first listing do not modify "contracts," the later references to "such contracts" do not incorporate those phrases as limitations upon the subsequently listed acts. Furthermore, Sec. 38.1-67 specifically disclaims any limiting effect on "the right to serve ... process ... upon any insurance company" which might be read into Sec. 38.1-64.

Section 38.1-339 prohibits, in an insurance contract "delivered or issued for delivery in this State," a provision depriving Virginia courts of jurisdiction of actions against the insurer.

Section 38.1-98.1 authorizes an injunction against doing of any insurance business in Virginia by an unlicensed foreign insurance company. For the purposes of that section the transacting of insurance business consists of the same acts listed in Sec. 38.1-64. It is provided that the section shall not apply to "transactions in this State involving a policy lawfully solicited, written and delivered outside of this State covering only subjects of insurance not resident, located, or to be performed in this State at the time of issuance of such policy."

The purposes of these statutes are different from that of the long arm statute. We are not persuaded that the provisions of these statutes require the conclusion that paragraph 7 of the long arm statute, strictly construed, is exclusive notwithstanding the doctrine that the long arm statute was intended to support jurisdiction wherever the requirements of due process are not offended.

Accordingly, the critical issue is whether due process requirements were met.

II. COMPLIANCE WITH DUE PROCESS

The fundamental principle is that "in order to subject a defendant to a judgment in personam, if he be not present within the territory of the forum, he have certain minimum contacts with it such that the maintenance of the suit does not offend 'traditional notions of fair play and substantial justice.' " International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945). In addition "it is essential in each case that there be some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum state, thus invoking the benefits and protection of its laws...." Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 1239, 2 L.Ed.2d 1283 (1958). Apparently the requirement of purposefulness is met where a defendant "delivers its products into the stream of commerce with the expectation that they will be purchased by consumers in the forum State." World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 298, 100 S.Ct. 559, 567, 62 L.Ed.2d 490 (1980).

HBA's contacts with Virginia are as follows: The owner of its policy, issued to him in Arizona when an Arizona resident, came to reside in Virginia. The members of his family covered by the policy came with him. The events insured against are...