Federal Ins. Co. v. National Distributing Co., Inc.

• Decision Date: 10 March 1992
• Docket Number: A91A1710,Nos. A91A1709,s. A91A1709
• Citation: 417 S.E.2d 671,203 Ga.App. 763
• Parties: FEDERAL INSURANCE COMPANY v. NATIONAL DISTRIBUTING COMPANY, INC. NATIONAL DISTRIBUTING COMPANY, INC. v. FEDERAL INSURANCE CO.
• Court: Georgia Court of Appeals

Page 671

417 S.E.2d 671

203 Ga.App. 763

FEDERAL INSURANCE COMPANY v. NATIONAL DISTRIBUTING COMPANY, INC.

NATIONAL DISTRIBUTING COMPANY, INC. v. FEDERAL INSURANCE CO.

Nos. A91A1709, A91A1710.

Court of Appeals of Georgia.

March 10, 1992.

Reconsideration Denied April 3, 1992.

Certiorari Denied July 16, 1992.

Lord, Bissell & Brook, David M. Leonard, Atlanta, for appellant.

Freeman & Hawkins, Edward M. Newsom, Albert H. Parnell, Barry S. Noeltner, Atlanta, for appellee.

BEASLEY, Judge.

National Distributing Company sued its commercial umbrella liability insurer, Federal Insurance Company, for refusing to indemnify it against a punitive damage claim, asserted against National in litigation in Florida arising from the commission of a tort in Florida. In Case No. A91A1709, Federal appeals the trial court's grant of National's motion for partial summary judgment and its denial of Federal's motion for summary judgment. In Case No. A91A1710, National cross-appeals the trial court's failure to enter judgment in stated monetary amounts for various damage claims asserted by National against Federal.

The facts

National, a wholesale distributor of alcoholic beverages, is a Georgia corporation with its principal place of business in Atlanta. Federal is a New Jersey corporation transacting business in Georgia through an Atlanta office. National's one-year policy with Federal became effective on April 1, 1983. Oberdorfer, an independent insurance agency with its office in Atlanta, solicited and negotiated the policy with Federal through telephone conversations, with all parties physically present in Atlanta. The policy was delivered to National in Atlanta, National sent a check for the premium payment to Oberdorfer in Atlanta, and Oberdorfer forwarded the premium payment to Federal in Atlanta.

The insurance policy names National as the insured, Federal as the umbrella insurer, and Fireman's Fund as the primary or underlying insurance carrier. An endorsement names 36 additional "named Insureds" located in Georgia, Florida, North Carolina, Virginia, California, and Colorado. Most of the additional named insureds are distributing companies. Seven of the named insureds are located in Florida.

In 1984, William Cason, a Florida resident, was employed by National as a salesman in the area of Pensacola, Florida. He solicited orders from bars, lounges, restaurants, and package stores in the Pensacola area and transmitted these orders to National's central computer center in Jacksonville. In turn, the orders were conveyed to National's warehouse in Pensacola, which shipped the liquor and invoices to the Florida buyers.

On March 20, 1984, Cason caused an automobile accident near Destin, Florida, in which Helen Hurst and others were injured. At the time of the accident Hurst was a college student residing in Georgia, and she is still a Georgia resident. She brought suit in Florida against National, Cason, and Gordon Davis, who was Cason's sales manager. The Hurst suit, and others arising from this automobile accident, were defended by Fireman's Fund.

Hurst sought punitive damages against National on grounds that it was vicariously liable for Cason's aggravated conduct and that it was directly liable for its own aggravated conduct in hiring and/or retaining Cason. However, "Florida public policy prohibits liability insurance coverage for punitive damages assessed against a person because of his own wrongful conduct. [Cits.] The Florida policy of allowing punitive damages to punish and deter those guilty of aggravated misconduct would be frustrated if such damages were covered by liability insurance." U.S. Concrete Pipe Co. v. Bould, 437 So.2d 1061, 1064 (3) (Fla.1983). For this reason, Federal notified National that it would not be liable for any direct punitive damages awarded Hurst in the Florida litigation, although there might be coverage for imposition of punitive damages based on vicarious liability. Federal suggested that National obtain independent counsel in the Hurst case, which National did.

On the advice of independent counsel, National settled Hurst's direct punitive damage claim for $1 million on April 23, 1987. At that time, National's primary liability insurance had been exhausted. Under the settlement agreement, National was to pay Hurst the sum of $200,000 upon execution of the agreement and thereafter the sum of $50,000 quarterly, plus interest on the unpaid balance at 7.5 percent per annum, for four consecutive years until payment of the principal sum of $1,000,000. She later settled her remaining damage claims against National and its employees for $3 million, which was paid by Federal. Payments under the settlement agreement have been made to Hurst in Georgia.

On February 9, 1990, National instituted this action against Federal, alleging that it had made demand on Federal to indemnify it for payment of the $1 million to Hurst, and its failure and refusal to do so constituted a breach of contract, wherefore National sought reimbursement for: sums paid to Hurst to date (which totalled $864,883 in principal and interest), sums to be paid her in the future, pre-judgment and post-judgment interest, statutory bad faith penalties, and attorney fees incurred in the Hurst action and in this action.

Federal filed a motion for summary judgment on grounds that Florida tort law applies to the present controversy and under Florida law a defendant is prohibited, as a matter of public policy, from obtaining reimbursement or indemnification for punitive damages resulting from the defendant's own wilful or wanton acts; alternatively, if Georgia law applies, the insuring of punitive damages is currently against Georgia public policy.

National filed a cross-motion for partial summary judgment on grounds that it is entitled to judgment as a matter of law on all issues arising out of this litigation except the issue of its entitlement to recovery of reasonable attorney fees in prosecuting this action.

The law

The traditional method of resolving choice-of-law issues is through a tripartite set of rules, which are lex loci contractus, lex loci delicti, and lex fori. Under the rule of lex loci contractus, the validity, nature, construction, and interpretation of a contract are governed by the substantive law of the state where the contract was made, except that where the contract is made in one state and is to be performed in another state, the substantive law of the state where the contract is performed will apply. General Elec. Credit Corp. v. Home Indem. Co., 168 Ga.App. 344, 349 (2), 309 S.E.2d 152 (1983). Under the rule of lex loci delicti, tort cases are governed by the substantive law of the state where the tort was committed. Ohio Southern Express Co. v. Beeler, 110 Ga.App. 867, 868 (1), 140 S.E.2d 235 (1965). Under the rule of lex fori, procedural or remedial questions are governed by the law of the forum, the state in which the action is brought. Menendez v. Perishable Distrib., 254 Ga. 300, 329 S.E.2d 149 (1985).

In lieu of the lex loci contractus rule, the Restatement (Second) of Conflicts, § 188 (1971) applies a multi-factor "center of gravity" or "grouping of contacts" test, which takes into consideration: the place of contracting; the place of negotiation; the place of performance; the location of the subject matter of the contract; and the domicile, residence, nationality, place of incorporation and place of business of the parties. In several jurisdictions, including Georgia and Florida, the Restatement approach has been rejected so far and the traditional method retained. General Tel. Co. of the Southeast v. Trimm, 252 Ga. 95, 311 S.E.2d 460 (1984); Sturiano v. Brooks, 523 So.2d 1126, 1128 (4, 5) (Fla.1988).

Even if an application of these rules renders the law of another state applicable, the forum, within constitutional limits, is not required to give the law of another state extra-territorial effect. That is only done as a matter of courtesy or comity, which will not be enforced if the law of the other state contravenes the public policy of the forum. See OCGA § 1-3-9; Commercial Credit Plan v. Parker, 152 Ga.App. 409, 263 S.E.2d 220 (1979).

Trial court's order

The trial court concluded that the insurer's liability to the insured is governed by Georgia law under the rule of lex loci contractus, since this is an action on an insurance contract and not a tort action, and under the rule of lex fori, since the question here is one of damages which is a matter of remedy or procedure. It also gratuitously found that under the multi-factor test of the Restatement, Georgia has the most significant contacts.

The trial court also held that Georgia would not follow Florida's public policy, contained in its case law, against the insurability of punitive damages. It further held that Georgia's Tort Reform Act of 1987 implicitly sanctions the insurability of punitive damages, and the application in this case of the Florida rule disallowing insurance coverage for punitive damages would violate the public policy of Georgia, as contained in its statutory law, allowing such coverage.

For these reasons, the trial court ruled that National has a right of indemnity from Federal for sums paid in settlement of Hurst's direct punitive-damage claim. On February 11, 1991, the trial court entered an order granting summary judgment on all issues to plaintiff and denying summary judgment on all issues to the defendant. National's final payment to Hurst under the settlement agreement was May 5, 1991.

The appeal

1. The starting point is that this is a suit concerning the contractual rights of a Georgia insured and the obligations of an insurer transacting business, including the contract, in Georgia. Under the rule of lex loci contractus, these issues, including the question of whether insurance coverage for punitive damages violates public policy, are to be determined by the substantive law of Georgia. See GEICO v....