Business Air Center v. Puritan Ins. Co., Civ. No. 81-2103.
| Decision Date | 11 September 1984 |
| Docket Number | Civ. No. 81-2103. |
| Citation | 593 F. Supp. 1048 |
| Court | U.S. District Court — Western District of Louisiana |
| Parties | BUSINESS AIR CENTER, INC., and Ken Hill v. PURITAN INSURANCE COMPANY and Southern Marine & Aviation Underwriters. |
Drew Ranier, Baggett, McCall & Ranier, Lake Charles, La., Tom H. Davis, Byrd, Davis & Eisenberg, Austin, Tex., for plaintiffs.
Esmond Phelps, II and James E. Churchill, Jr., New Orleans, La., for defendants.
This matter comes before the court on the motion of defendants Puritan Insurance Company ("Puritan") and its aviation manager, Southern Marine & Aviation Underwriters, Inc. ("Southern Marine") for summary judgment. Plaintiff Business Air Center ("Business Air"), an Arizona corporation, instituted this diversity action against Puritan, a Connecticut corporation, and Southern Marine, a Louisiana corporation, to recover damages suffered from the loss of a Merlin III aircraft. The plane was insured by Policy No. H-4-5863 issued by Puritan to Business Air and Air Sal. Exclusion 11 of the insurance policy disavows liability "for loss or damage due to conversion, embezzlement or secretion by any person in possession of the aircraft under a bailment, lease, conditional sale, purchase agreement, mortgage or other encumbrance" (emphasis added). Business Air leased the plane to Richard Schoor (Air Sal) late in May 1981, and shortly thereafter the plane crashed in Cameron Parish, Louisiana, killing Schoor, the pilot, and Millige Jones, the second Pilot. Puritan denied Business Air's loss claim and declares that it is entitled to summary judgment because the following alleged facts show that Schoor converted the plane within the meaning of Exclusion 11:
Memorandum in Support of Motion for Summary Judgment at 5.
Business Air contends that Exclusion 11 refers to conversion in the criminal sense rather than as a tort, that there is no evidence that Schoor committed the crime of conversion, and that summary judgment is therefore inappropriate.
Both Louisiana and Arizona have a legitimate interest in the outcome of this diversity suit,1 making our threshold question which state's law should determine the meaning of the conversion exclusion. As a federal court sitting in diversity we are bound to follow the choice-of-law rules of the forum state, Louisiana. Klaxson Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). On its face Article Ten of the Louisiana Civil Code adopts the rule of lex loci, also known as the "situs" rule, making the governing law that of the state in which the contract was executed.2 The state of execution, with respect to an insurance contract, is the state in which the policy was delivered and the first premium collected. Theye Y Ajuria v. Pan American Life Ins. Co., 245 La. 755, 161 So.2d 70, cert. denied, 377 U.S. 997, 84 S.Ct. 1922, 12 L.Ed.2d 1046 (1964). At this point in the litigation it is unclear whether the policy was delivered in Louisiana,3 but a close analysis of the applicable choice-of-law principles developed by the courts convinces us that Louisiana law nevertheless governs its application.
Despite the apparent clarity of Article Ten, Louisiana's choice-of-law rule for contract cases, as well as its interpretation by federal courts, has been in a state a flux for over twenty years. During the mid-1960's United States Circuit Judge Albert Tate, then sitting on the Louisiana Court of Appeals, Third Circuit, developed a line of three cases retreating from the lex loci rule and looking to the state having the "most significant contracts" with the action; two were contract cases. See Universal C.I.T. Credit Corp. v. Hulett, 151 So.2d 705 (La.App., 3rd Cir.1963) (Judge Tate) (contract case); Doty v. Central Mutual Insurance Co., 186 So.2d 328 (La. App., 3rd Cir.1966) (Tate, J., concurring) (contract case); Blanchard v. Blanchard, 180 So.2d 564 (La.App., 3rd Cir.1965) (Tate, J., concurring) (tort case).4 And United States District Judge Ben Dawkins, Jr. emphasized significant contacts in a 1968 insurance-contract case, holding that "we believe the Louisiana Supreme Court would be influenced by Judge Tate's enlightened expression in Hulett, Doty, and Blanchard, supra." Lester v. Aetna Life Ins. Co., 295 F.Supp. 1208, 1213 (W.D.La.1968), aff'd, 433 F.2d 884 (5th Cir.), cert. denied, 402 U.S. 909, 91 S.Ct. 1382, 28 L.Ed.2d 650 (1971).
The Louisiana Supreme Court nevertheless rejected use of the significant-contacts approach in tort cases, Johnson v. St. Paul Mercury Ins. Co., 256 La. 289, 236 So.2d 216 (1970), and the United States Fifth Circuit Court of Appeals held that Johnson denounces the doctrine so emphatically as to discard it in toto. Lester v. Aetna Life Ins. Co., supra, 433 F.2d at 888-89 & n. 13.5 But despite having extended Johnson to contract cases in its first breath, the Fifth Circuit denuded Article Ten, in its second, by recognizing an exception to the rule of Klaxson, supra.
Specifically, the Fifth Circuit held in Lester, supra, that the federal courts can bypass the choice-of-law rule of the forum state in cases of "false conflict," where only one state has any legitimate interest in the case. 433 F.2d at 889-90. And it reaffirmed the validity of that exception in Challoner v. Day and Zimmerman, Inc., 512 F.2d 77 (5th Cir.), rev'd per curiam, Day and Zimmerman, Inc. v. Challoner, 423 U.S. 3, 96 S.Ct. 167, 46 L.Ed.2d 3 (1975). The United States Supreme Court repudiated Lester and Challoner, however, holding that the rule of Klaxson is inviolable. Day and Zimmerman, Inc. v. Challoner, supra, at 4, 96 S.Ct. at 168. Of course, by merely proscribing exceptions to that rule, Day and Zimmerman left state courts free to adopt the false-conflicts doctrine or any other as an exception to their own local choice-of-law statutes. Id., at 5, 96 S.Ct. at 168 (Blackman, J., concurring); Lee v. Hunt, 631 F.2d 1171, 1175 n. 5 (5th Cir.1980). Thus Day and Zimmerman tacitly approved the decision of the Louisiana Supreme Court in Jagers v. Royal Indemnity Co., 276 So.2d 309 (La.1973) (pre-Day and Zimmerman), overruling Johnson in favor of a more sophisticated approach to conflicts of law.
At first blush Jagers, supra, appears to adopt the Fifth Circuit's reasoning in Lester and Challoner, holding that the lex loci rule applies exclusively to cases embodying "true" conflict. But shortly after Jagers the Fifth Circuit heeded Jagers's cryptic reference to the Second Restatement of Conflict of Law,6 holding that Jagers surpasses the false-conflicts doctrine and adopts the Restatement's enlightened "interest analysis" as Louisiana law. Brinkley & West, Inc. v. Foremost Ins. Co., 499 F.2d 928, 932 (1974). Although Jagers is strictly a tort case, most subsequent decisions by Louisiana courts7 and by federal courts sitting here8 have applied the interest analysis to contract cases. We conclude that Louisiana has adopted the Restatement's interest analysis as its current method of resolving choice-of-law problems in contract actions.
Having settled on the applicable choice-of-law rule, we now apply it to our case. Section 6(2) of the Restatement lists seven factors that the courts use in determining which of the competing states' interests is paramount.9 Applying the three relevant factors — (2)(b) "the relevant policies of the forum," (2)(c) "the relevant policies of other interested states, and (2)(g) "ease in the determination ... of the law to be applied" — we find that Louisiana has a greater interest in this case than does Arizona. Arizona has a manifest interest in enforcing insurer obligations that affect the right of its citizens to collect the policy limits for which they have paid premiums. Louisiana has a somewhat stronger interest in enforcing policy exclusions that affect the liabilities of its insurance underwriters; Louisiana's interest in this case encompasses the entire scope and all the ramifications of the original liability claim, including the indemnification claim of the insurer to its underwriter. Our greater ease in determining Louisiana law than Arizona law tips the interest analysis decidedly in favor of Louisiana; as a court sitting in Louisiana we are obviously much more familiar with Louisiana law.10 Louisiana law accordingly must govern the interpretation of the conversion exclusion.
As we noted p. 1, infra, Exclusion 11 denies hull coverage for "loss or damage due to conversion, embezzlement, or secretion by any person in possession of the aircraft under a bailment, lease, conditional sale, purchase agreement, mortgage or other encumbrances" (emphasis added). At common-law the term "conversion" can refer either to a tort or to a crime, but the policy makes no attempt to specify which it means. Criminal conversion implies "some kind of willful purpose and wrongful intent in the...
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Cell-O-Mar, Inc. v. Gros
...affirmed, 429 So.2d 106 (La.1983); Arcement v. Norman Industries, Inc., 652 F.2d 395 (5th Cir.1981); Business Air Center, Inc. v. Puritan Insurance Company, 593 F.Supp. 1048 (W.D.La.1984). The pertinent policy provision herein provides "[t]his policy does not apply ... to injury to or destr......