GAF Corp. v. County School Bd. of Washington County, Virginia

• Decision Date: 18 September 1980
• Docket Number: No. 80-1059,80-1059
• Citation: 629 F.2d 981
• Parties: GAF CORPORATION, a Delaware Corporation, Appellant, v. COUNTY SCHOOL BOARD OF WASHINGTON COUNTY, VIRGINIA, Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 981

629 F.2d 981

GAF CORPORATION, a Delaware Corporation, Appellant, v. COUNTY SCHOOL BOARD OF WASHINGTON COUNTY, VIRGINIA, Appellee.

No. 80-1059.

United States Court of Appeals Fourth Circuit.

Argued Aug. 20, 1980.

Decided Sept. 18, 1980.

Richard M. Thomas, Roanoke, Va. (William B. Poff, Woods, Rogers, Muse, Walker & Thornton, Roanoke, Va., on brief), for appellant.

William W. Eskridge, Abingdon, Va. (Wade W. Massie, Penn, Stuart, Eskridge & Jones, Abingdon, Va., on brief), for appellee.

Before RUSSELL, WIDENER and PHILLIPS, Circuit Judges.

JAMES DICKSON PHILLIPS, Circuit Judge:

On this interlocutory appeal defendant GAF Corporation challenges the district court's determination that plaintiff School Board properly invoked the provisions of Virginia's Unauthorized Insurers Process Act, Va.Code § 38.1-63 et seq., in serving process on defendant in this diversity action. We conclude that the Act is not applicable to GAF, reverse and remand to the district court, 478 F.Supp. 44, with instructions to quash the service of process.

I

GAF, a Delaware corporation registered to do business in Virginia, contracted with the School Board to supply roofing materials to contractors constructing two schools. The contracts contained a guarantee in which GAF agreed to repair damage to the roofing membrane and base flashing resulting from leaks caused by natural deterioration of the roofing membrane or base flashing, blisters, bare spots, fish mouths, ridges, splits not caused by structural failure, buckles and wrinkles, thermal shock, gravel stop breaks, plastic pans, workmanship in applying the membrane and base flashing, and slippage of the GAF products. The guarantee excluded leaks caused by natural disasters, structural defects, damage to the building and certain other events unrelated to any defect in GAF's products.

Contending that GAF failed to repair leaks, the School Board brought this diversity action against GAF and effected service of process under the Unauthorized Insurers Process Act ¹ on the theory that the guarantee constituted a contract of insurance. GAF contended that the guarantee was a warranty of its products and not a contract of insurance. The district court concluded that the guarantee was a contract of insurance, and GAF was, therefore, an insurer under Virginia's statutory scheme. Because GAF was not an authorized insurer in Virginia, service of process under the Act was held to be valid. The district court certified an interlocutory appeal under 28 U.S.C. § 1292(b).

II

Virginia extensively regulates insurance companies doing business within its borders. Insurers are required to obtain a license from the State Corporation Commission before transacting business in the state. Va.Code § 38.1-85. The Unauthorized Insurers Process Act provides a procedure for service of process on unlicensed insurance companies and requires such an insurer when sued under the Act to post a bond in an amount sufficient to secure any final judgment that might be rendered against it before a responsive pleading may be filed. Id. § 38.1-69. The Act allows attorneys' fees to be awarded to a prevailing plaintiff under some circumstances. Id. § 38.1-70. The School Board candidly concedes that it sought to effect service under these procedures solely to obtain these collateral benefits.

As noted by the district court, no reported Virginia case has squarely addressed the distinction to be made between a contract of insurance and a warranty accompanying the sale of goods. We therefore address the state law issue unaided by state court interpretation of this "jurisdictional-process" statute which incorporates the problem, or by state court consideration of the question in other contexts. ² In these circumstances we can only seek the rule of decision by resort to the usual sources to divine what the state's highest court would take as its rule. See Kline v. Wheels by Kinney, Inc., 464 F.2d 184 (4th Cir. 1972). We conclude that looking to general authorities, considering the practical implications of the rule contended for by the School Board, and applying basic canons of statutory construction, the state court would construe the Act to be inapplicable to the defendant on the facts of this case and accordingly, so hold.

Although "insurance company" is defined as "any company engaged in the business of making contracts of insurance," Va.Code § 38.1-1(8), "insurance contract" is not statutorily defined. In the absence of case law or statutory definition, the district court analyzed the exclusions and inclusions in the policy and applied the principle that a warranty covers defects in the article sold while insurance indemnifies against damage from perils outside the article. Because the guarantee covered leaks caused by faulty...