Industrial Indem. Ins. Co. v. U.S.
| Decision Date | 04 April 1985 |
| Docket Number | No. 83-4282,83-4282 |
| Citation | 757 F.2d 982 |
| Parties | INDUSTRIAL INDEMNITY INSURANCE COMPANY, a corporation, Plaintiff, and United States Fire Insurance Company, a corporation, Defendant-Counterdefendant-Appellee, v. UNITED STATES of America, Defendant-Counterclaimant-Appellant. |
| Court | U.S. Court of Appeals — Ninth Circuit |
David S. Fleming, John W. Morrison, Karon, Morrison & Savikas, Chicago, Ill., for appellee.
Peter R. Maier, U.S. Dept. of Justice, Washington, D.C., for the United States.
Appeal from the United States District Court for the District of Idaho.
Before WRIGHT, WALLACE *, and ALARCON, Circuit Judges.
The United States paid $5,218,015 to Union Pacific Railroad in compensation for losses from the collapse of the Teton Dam. It seeks reimbursement from Union Pacific's insurer, who claims that the action is time-barred and that the loss suffered, after depreciation is subtracted, was less than the policy deductible. The district court granted summary judgment for the insurer, finding the action time-barred.
On June 5, 1976, the Teton Dam collapsed during the first filling of the reservoir. Eleven persons were killed and $400 million in property damage was suffered.
Congress responded quickly, with the Teton Dam Disaster Assistance Act, Pub.L. No. 94-400, 90 Stat. 1211 (1976). The Act provided that those damaged by the collapse could receive compensation from the federal government, to the extent that the losses were uninsured. Id. Secs. 2, 3(b). Compensation for insured losses was provided if the claimant (1) filed an insurance claim that either was rejected or was not acted upon within six months and (2) assigned any rights under the insurance policy to the United States. Id. Sec. 3(g).
Union Pacific property valued at $6.2 million, including track, roadbed, and bridges, was destroyed when the dam collapsed. The property was insured by United States Fire Insurance Company (USFIC). Union Pacific's claim under the policy was denied because it did not exceed the $2.5 million policy deductible after USFIC calculated and subtracted depreciation.
Union Pacific applied for compensation from the Department of the Interior and received a partial payment of $5,159,485 in February 1977. In October 1978 after a final evaluation of the claim, payment of an additional $58,530 was made and Union Pacific formally assigned its rights under the USFIC policy to the United States.
USFIC filed suit against the United States to recover the amount that it had paid to its insureds as a result of the disaster. The United States counterclaimed to recover its payments to Union Pacific. This court dismissed the USFIC claims. Aetna Insurance Co. v. United States, 628 F.2d 1201 (9th Cir.1980), cert. denied, 450 On appeal here is a summary judgment for USFIC on the counterclaim, granted on the ground that no cause of action existed when the government acquired Union Pacific's rights. The district court concluded that under Idaho law the 12-month limitation period in the USFIC policy effectively extinguished any claim.
The United States is not bound by state statutes of limitation. United States v. Summerlin, 310 U.S. 414, 416, 60 S.Ct. 1019, 1020, 84 L.Ed. 1283 (1940); United States v. State of California, 655 F.2d 914, 918 (9th Cir.1980). When the government acquires a cause of action, the state statute of limitation ceases to run. United States v. Hartford Accident & Indemnity Co., 460 F.2d 17, 19 (9th Cir.), cert. denied, 409 U.S. 979, 93 S.Ct. 308, 34 L.Ed.2d 243 (1972); see United States v. Sellers, 487 F.2d 1268, 1269 (5th Cir.1973). At that time federal statutes of limitation become determinative. The federal six-year statute of limitation for contract actions would apply here. See 28 U.S.C. Sec. 2415(a).
We must determine whether the United States acquired a live cause of action when Union Pacific assigned its rights under the USFIC policy to the United States in October 1978. If the 12-month limitation period specified in the policy is valid, Union Pacific had no cause of action at that time.
At this point we must decide whether to apply federal or state law. District court jurisdiction was founded on 28 U.S.C. Sec. 1346 (). 1 To determine the applicable law, we must balance the federal interest in controlling the law applied against the state interest in preserving its control over local concerns. United States v. State of California, 655 F.2d at 917. State law generally should be applied unless a "significant conflict between some federal policy or interest and the use of state law" is demonstrated, Wallis v. Pan American Petroleum Corp., 384 U.S. 63, 68, 86 S.Ct. 1301, 1304, 16 L.Ed.2d 369 (1966), or the state rule is "aberrant or hostile." United States v. Little Lake Misere Land Co., 412 U.S. 580, 596, 93 S.Ct. 2389, 2398, 37 L.Ed.2d 187 (1973).
The federal interest includes recovery of the money paid by the government to Union Pacific. However, there is no significant threat to federal interests posed by the interpretation of insurance contracts between private parties pursuant to state law. In contrast, the state has a substantial interest in having contracts construed according to established law, as the original private parties would intend.
The Act provides that in determining compensation, "[e]xcept as otherwise provided herein, the laws of the State of Idaho shall apply." Pub.L. No. 94-400, Sec. 3(a), 90 Stat. 1211. The Act evidences no Congressional intent to control the interpretation of insurance policies. Application of state law is appropriate.
Idaho has adopted the Restatement rule that the law governing interpretation of a contract is the local law of the state that has "the most significant relationship to the transaction and the parties." Restatement (Second) of Conflict of Laws Sec. 188(1) (1971) (hereinafter cited as Rest. 2d); Rungee v. Allied Van Lines, Inc., 92 Idaho 718, 449 P.2d 378, 382-83 (1968). The relevant contacts include:
(c) place of performance (d) location of the subject matter of the contract, and
(e) domicile, residence, place of incorporation, and place of business of the parties.
The relationships are evaluated based on these relevant factors:
(f) certainty, predictability, and uniformity of results, and
(g) ease in determining and applying the law chosen.
The insured property was located in Idaho, Montana, Nevada, Oregon, Utah and Wyoming. The dam was in Fremont County, Idaho. It was to block a tributary of the Snake River and its collapse would result in property damage toward the south and west, the direction of the flow of the river. That damage was primarily, if not exclusively, in Idaho. See 43 C.F.R. Sec. 419.0-5(o) (1984) ().
The insurance policy was issued in Illinois. The address for Union Pacific in the policy was originally Nebraska and was changed to Utah. The address for USFIC was New York and its principal place of business was New Jersey.
USFIC argues that Illinois is the state with the most significant contacts. We disagree. The place of contracting is relatively insignificant when there is no other significant relationship between the transaction and that place. Rest.2d Sec. 188 comment e. None has been shown here.
When insurance is involved, the principal location of the insured risk normally is the state whose law applies. Rest.2d Sec. 193. That state has a natural interest in the issues that arise. Id. comment c. The significance of the location of the risk is less here, where risks in several states were insured. Id. comment b. None of the insured property, however, was located in Illinois.
Statutes of limitation traditionally were considered procedural in nature and were controlled by the law of the forum state. E. Scoles & P. Hay, Conflict of Laws Sec. 3.9 (1982). The Restatement adopts the traditional rule, providing that an action may be maintained if it is not barred by the forum statute of limitation, even if it is barred by the statute of limitation of another state. Rest.2d Sec. 142(2). The only exception is if the right and not just the remedy would be barred by a statute of limitation in the state whose law would otherwise be applied. Id. Sec. 143. The exception is almost invariably limited to causes of action created by the statute. Id. comment c. It does not apply here.
Under the circumstances, Idaho has the most significant relationship to the statute of limitation issue. Idaho is the forum state. The damage occurred there and it has a particularly strong interest in regulating statutes of limitation. See Idaho Code Sec. 29-110 (1980) (). The contacts here were so diverse that choosing any other state's law would have to be a random decision.
Idaho Code Sec. 5-216 (1979) establishes a five-year statute of limitation for contracts, including insurance policies. See Harding v. Mutual Benefit Health & Accident Association, 55 Idaho 131, 39 P.2d 306, 307 (1934). Idaho Code Sec. 29-110 prohibits any condition in a contract that would reduce that period.
USFIC has argued that the Idaho legislature endorsed a one-year statute of limitation for insurance policies when it enacted Idaho Code Sec. 41-2401 (1977). That section requires that fire insurers issue policies only on the "New York standard [form] as revised in 1943." Id. The form includes a clause specifying a...
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