Fallon v. Superior Chaircraft Corp.

Citation884 F.2d 229
Decision Date26 September 1989
Docket NumberNo. 89-4326,89-4326
PartiesWiley FALLON, Plaintiff, v. SUPERIOR CHAIRCRAFT CORPORATION, Defendant-Third Party Plaintiff-Appellant, v. The RELIANCE INSURANCE CO., Third Party Defendant-Appellee. Summary Calendar.
CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)

David F. Butterfield, Mayer, Smith & Roberts, Shreveport, La., for defendant-third party plaintiff-appellant.

James B. Gardner, Lunn, Irion, Johnson, Salley & Carlisle, Shreveport, La., for third party defendant-appellee.

Appeal from the United States District Court for the Western District of Louisiana.

Before WILLIAMS, JOLLY and DUHE, Circuit Judges.


AFFIRMED on the basis of the district court's opinion, which is attached as Appendix A.


In the United States District Court for

the Western District of Louisiana

Shreveport Division




Civ. A. No. 86-3376.


Wiley Fallon, a citizen of Louisiana, has brought this action seeking damages for injuries allegedly sustained when he sat on a chair manufactured by Superior Chaircraft (hereinafter, "Superior"). The chair, similar to a post-mounted drafting stool with a flat, upholstered plywood seat, allegedly split from the front to the rear, dropping plaintiff on the floor. Superior has filed a third party demand against Lineager, Reliance Insurance Company, AFIA Worldwide Insurance and CIGNA. Superior contends that it did not manufacture the chair, but rather that it was designed, manufactured, boxed and shipped to them by Lineager and that Reliance, AFIA and/or CIGNA are the liability insurers of Lineager. Lineager is a foreign corporation domiciled in Milan, Italy--Lineager's alleged insurers are also foreign entities. Presently before the court are motions for summary judgment filed by the third party defendants and a counter-motion for summary judgment filed by Superior. The motion for summary judgment filed on behalf of CIGNA is unopposed.


The documentation submitted in support of the motions for summary judgment, though scanty, establishes many undisputed facts. Specifically, on August 14, 1985, plaintiff ordered a chair from Wordtec of Louisiana, Inc. (hereinafter "Wordtec"), an office supply company in Bossier City, Louisiana. Wordtec ordered the chair from S.P. Richards Company, a supplier in Dallas, who had obtained the chair from Superior. Superior acquired the chair from Lineager. The chair was shipped from Italy to Superior's principal place of business in Belton, Texas. All dealings between Superior and Lineager or its representative have been outside of the State of Louisiana.

On March 6, 1984, Reliance issued a liability policy to Societa Lineager S.R.L. (hereinafter, "Lineager"). The policy was issued in Milan by Reliance's Bordogna Branch to Lineager, also situated in Milan. The policy was to be effective from midnight on March 6, 1984 through midnight on December 31, 1985. The "description of activity implemented by the insured" included "construction of chairs and armchairs for offices, their components and other furniture." The premiums were to be paid in liras.

According to the affidavit of Mario Pietro Salaris, a claims manager, premiums were to be paid, in part, in advance on a fixed basis and part at a later date calculated on the basis of certain risk factors. Under the policy, information regarding risk factors was to be forwarded by Lineager at the end of each insurance period within the sixtieth day of the year. According to Mr. Salaris, Lineager failed to forward this information and, therefore, payment of the premium, which resulted in coverage ceasing sixty days after December 31, 1984. Because the loss at issue in this case is alleged to have occurred on November 8, 1985, and no premium had been paid as of that time, Reliance argues that the policy was not in effect.

Reliance's position is based on Article 17 of the policy and Article 1901 of the Italian Civil Code. Superior refutes this conclusion by arguing that Louisiana law is applicable. More specifically, Superior maintains that coverage remains in effect unless a notice of cancellation is sent by the insurer to the insured, as required by La.Rev.Stat.Ann. Sec. 22:636.4 (West Supp.1988). The court is, therefore, called upon to resolve a conflict of laws dispute.


Because this court's jurisdiction is based on diversity of citizenship, this court is Erie-bound to follow the conflict of laws principles of Louisiana. Klaxon Company v. Stentor Electric Manufacturing Company, Inc., 313 U.S. 487, 491, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). Louisiana has adopted a hybrid of Professor Brainerd Currie's governmental interest analysis theory and the Second Restatement's "most significant relationship" test. See generally, Jagers v. Royal Indemnity Company, 276 So.2d 309, 311 (La.1973); Sandefer Oil & Gas v. AIG Oil Rig of Texas, Inc., 846 F.2d 319, 322 (5th Cir.1988). Under this approach, the first inquiry is whether a false or true conflict exists. Id. If there is a false conflict, the court must apply the law of the jurisdiction with the sole interest. Id. If a true conflict is found, the court proceeds to apply the test set forth in the Second Restatement to determine the applicable law. Id. With respect to the inquiry regarding a true or false conflict, the United States Court of Appeals for the Fifth Circuit recently held:

Professor Currie's interest analysis examines the policies of each state's laws. If the state's relationship to the dispute is within the scope of the state's policy, then the state has a legitimate "interest" in the application of its law to resolve the dispute. In a conflict between two states, if each state has such an interest, then a true conflict exists; whereas if only one state has an interest, a false conflict exists. The unprovided-for case, under Currie's analysis, is where neither state has an interest.

Id. (footnote omitted).

The policy or purpose behind Louisiana's notice of cancellation provision 1 is to inform the insured that his policy is being cancelled and to afford him sufficient time to obtain other insurance protection. Broadway v. All-Star Insurance Corp., 285 So.2d 536, 539 (La.1973); accord, Norred v. Commercial Union Insurance Company, 526 So.2d 829, 833-34 (La.App. 2d Cir.), writ denied, 531 So.2d 483 (La.1988); Davis Industries v. West Preferred Casualty Company, 527 So.2d 347, 349 (La.App. 5th Cir.1988); see also, Gulf Coast Investment Corp. v. Secretary of Housing and Urban Development, 509 F.Supp. 1321, 1325 (E.D.La.1980) and American Fidelity and Casualty Company v. Knox, 164 F.Supp. 3, 6 (W.D.La.1958). Section 636.4, therefore, is designed to protect the insured from being exposed to liability without insurance coverage. The insured in this case is Lineager, an Italian entity. Lineager is neither domiciled nor has its principal place of business in Louisiana. Because the insured in the case at bar is not a resident of Louisiana, Louisiana has no interest whatsoever in applying its notice of cancellation provision.

In Sandefer, supra, the plaintiff was a Texas resident who had obtained insurance policies from defendants for various oil field risks. 846 F.2d at 320. The claims at issue arose out of subsurface blowouts in oil wells situated in Louisiana. The insurance companies were domiciled in New Hampshire, New York, Canada, Norway and Sweden. Id. at 321.

The claims submitted to the insurers were denied because of plaintiff's failure to give reasonably prompt notice of the losses as required by the policies. Plaintiff argued that Louisiana law was applicable pursuant to which an insurer could not escape liability because of the insurer's failure to give notice of loss as soon as practicable unless the insurer could demonstrate prejudice caused by the delay. Id. Under Texas law, the failure of the insured to give notice as soon as practicable is a valid defense under the policy irrespective of prejudice. Id. The district court granted summary judgment in favor of the insurers, holding that a false conflict existed, in that only Texas had an interest in the application of its law. The Fifth Circuit affirmed.

Like Superior, the plaintiff in Sandefer relied upon Champion v. Panel Era Manufacturing Company, 410 So.2d 1230 (La.App. 3d Cir.1982). In Champion, the issue was whether an insured's failure to give prompt notice of a suit voided coverage. The parties in Champion were a Texas insurer, a Texas insured and a Louisiana plaintiff suing under the Louisiana Direct Action Statute. In finding that Louisiana law was applicable, the court stated that the law at issue was designed "to prevent insurers from using the notice requirement to evade the fundamental protective purpose of the insurance contract and to assure payment of liability claims up to the policy limits for which they collected premiums." Id. at 1237.

The Fifth Circuit in Sandefer distinguished Champion:

Louisiana had a legitimate interest [in Champion ], because its resident, the insured plaintiff suing under the Direct Action Statute, was protected by the Louisiana policy.

In this case Louisiana law serves the same policy, but no Louisiana residents are involved. The injured party is the insured, Sandefer, a Texas resident. The losses for which coverage is sought occurred in Louisiana, but there is no evidence that any resident of Louisiana will be affected by denial of coverage.

846 F.2d at 323. It should first be noted that the statute at issue in Sandefer and Champion is a different statute involving different policies from that involved in the case at bar. Second, as in Sandefer, no Louisiana residents will be affected by denial of coverage. Indeed, no Louisiana resident has even filed an action seeking to recover proceeds from the Reliance policy. Plaintiff, the only Louisiana resident in this case, has sued only a Texas entity. The Texas entity,...

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