James River Ins. Co. v. Fortress Sys., LLC
| Decision Date | 08 March 2012 |
| Docket Number | Case No. 11-60558-CIV-COHN/SELTZER |
| Parties | JAMES RIVER INSURANCE COMPANY, an Ohio corporation, Plaintiff, v. FORTRESS SYSTEMS, LLC, Nebraska limited liability company, and BODYWELL NUTRITION, LLC, a Florida limited liability company, Defendants. |
| Court | U.S. District Court — Southern District of Florida |
THIS CAUSE is before the Court upon Plaintiff James River Insurance Company's ("James River's") Motion for Choice-of-Law Determination [DE 27] ("Motion"). The Court has considered the Motion, Defendants Bodywell Nutrition, LLC ("Bodywell") and Fortress Systems, LLC's ("FSI's") Response [DE 28], Defendants' Notice of Scrivener's Error in the Response [DE 29], James River's Reply [DE 30], the record in this case, and is otherwise fully advised in the premises.
The Court has also considered Bodywell's Request for Oral Argument on Choice of Law Issue [DE 31], James River's Response [DE 32], and Bodywell's Reply [DE 33]. Because the parties have already thoroughly addressed the issue in their memoranda, the Court finds oral argument to be unnecessary. Therefore, the request for oral argument will be denied.
In this action, James River seeks a determination that it has no obligation to defend or indemnify FSI in an underlying lawsuit. In the underlying lawsuit, Bodywell Nutrition LLC v. Fortress Systems, LLC, Case No. 10-61646-CIV-COHN/SELTZER (S.D. Fla. filed Aug. 2, 2010), Bodywell, a sports nutrition and dietary supplement company, sued FSI, a dietary supplement manufacturer. Bodywell had retained FSI to manufacture a powder form drink, which was supposed to be soluble in liquid. However, the product was defective because the powder clumped together, turned hard, fused together, and became insoluble. Therefore, on August 2, 2010, Bodywell filed its complaint against FSI for breach of express warranty (Count I), breach of implied warranty for fitness for particular purpose (Count II), and breach of implied warranty of merchantability (Count III). On January 19, 2011, FSI filed a counterclaim for breach of contract, alleging that Bodywell failed to pay certain money owed under the manufacturing agreement. Finally, on February 20, 2011, Bodywell filed an amended complaint to add an additional claim for negligent shipping/transport of the product by FSI's subcontractors (Count IV).
During the relevant period, FSI had a Commercial General Liability Insurance Policy [DE 1-2] ("Insurance Policy") with James River, with a $5 million policy limit. Though FSI tendered the suit to James River on August 16, 2010, James River disclaimed coverage under the insurance policy.
On March 4, 2011, Bodywell and FSI entered into a settlement agreement in the underlying case, in which the parties agreed to the following terms: (1) they would file a stipulation of settlement and joint motion for entry of final judgment requesting that theCourt enter a final judgment in Bodywell's favor only on Count IV in the amount of $10,450,000; (2) Bodywell would dismiss with prejudice its remaining claims against FSI, and FSI would dismiss its counterclaim; and (3) FSI would assign its right to pursue its claim under the James River insurance policy to Bodywell. In the settlement agreement, the parties contemplated that, if by 5:00 p.m. on March 8, 2011, James River either accepted FSI's defense and agreed to provide coverage or agreed to pay Bodywell the $5 million policy limit, then the settlement agreement would be null and void and of no legal effect. When FSI brought this information to James River's attention, James River offered to provide FSI with a defense but reserved its right to dispute coverage. As FSI informed James River, such an offer was insufficient to invalidate the settlement agreement. Accordingly, the settlement agreement was binding and final. On March 14, 2011, Bodywell and FSI filed their settlement agreement under seal, and on March 17, 2011, they filed their Stipulation of Settlement and Joint Motion for Entry of Final Judgment. On March 18, 2011, the Court entered a Final Judgment in accordance with the parties' filings.
Meanwhile, on March 15, 2011, James River had filed this declaratory action against FSI and Bodywell. Then, on April 19, 2011, back in the underlying lawsuit, Bodywell sought to institute proceedings supplementary and to implead James River in that case. After the issues were fully briefed, United States Magistrate Judge Barry S. Seltzer recommended that the insurance coverage dispute be decided in this action, and the undersigned agreed.
At issue in the pending Motion is the parties' dispute over which state law applies to the interpretation of the insurance policy. See Mot. at 1. James River contends that Nebraska law applies, because Florida adheres strictly to the doctrine of lex loci contractus, and the insurance policy was executed in Nebraska. Id. Defendants respond that Florida law applies, because a "Service of Suit" provision in the insurance policy mandates that the law of the forum state applies. See Resp. at 6. In accordance with the discussion below, the Court concludes that Nebraska law governs the interpretation of the insurance policy.
"In determining which law applies, a federal district court sitting in diversity must apply the choice of law rules of the forum state." Trumpet Vine Invs., N.V. v. Union Capital Partners I, Inc., 92 F.3d 1110, 1115 (11th Cir. 1996); see also Klaxon Co. v. Stentor Elec. Mfg Co., 313 U.S. 487, 496-97 (1941); Rando v. Gov't Emps. Inc. Co., 556 F.3d 1173, 1176 (11th Cir. 2009). Therefore, this Court applies the choice-of-law rules of Florida.
Florida courts follow the rule of lex loci contractus when deciding which state's law governs the interpretation of an insurance contract. State Farm Mut. Auto. Ins. Co. v. Roach, 945 So. 2d 1160, 1163 (Fla. 2006); Sturiano v. Brooks, 523 So. 2d 1126, 1129 (Fla. 1988) (). Lex loci contractus dictates that "the law of the jurisdiction where the contract was executed governs the rights and liabilities of the parties in determiningan issue of insurance coverage." Id. (citing Sturiano, 523 So. 2d at 1129). In other words, an insurance policy is construed according to the laws of the state "in which the contract is made, i.e., where the last act necessary to complete the contract is done." Fioretti v. Mass. Gen. Life Ins. Co., 53 F.3d 1228, 1235 (11th Cir. 1995). The last act necessary to execute a policy is "the receipt and acceptance of the polic[y] by the named insured." Indus. Chem. & Fiberglass Corp. v. The N. River Ins. Co., 908 F.2d 825, 829 n.3 (11th Cir. 1990).
James River represents that the insurance policy in this case was both issued and delivered to FSI in Nebraska. See Commercial General Liability Policy Declarations, Insurance Policy [DE 1-3 at 1] ("Declarations Page"); Mot. at 1, 6. Defendants present no evidence and make no arguments to the contrary. See Resp. The declarations page contains a Nebraska address for FSI, see Declarations Page at 1, and Bodywell's complaint in the underlying lawsuit lists FSI as a "Nebraska limited liability company with its principal place of business located [in] . . . Nebraska," see Bodywell's Complaint [DE 1 in Case No. 10-61646-CIV]. James River also attaches to its Motion the Nebraska Secretary of State website listing for FSI [DE 27-1], which confirms a Nebraska address. Therefore, because it appears that the insurance policy was executed in Nebraska, under lex loci contractus, Nebraska law governs the interpretation of the insurance policy.
In their Response to James River's Motion, Defendants do not dispute the applicability of lex loci contractus under Florida law, nor do they dispute that the insurance policy was executed in Nebraska. Rather, Defendants rely on a "Service of Suit" provision in the insurance policy to argue that Florida law applies instead ofNebraska law. In pertinent part, the provision states as follows:
Common Policy Conditions, Insurance Policy [DE 1-3 at 37-38] ("Policy Conditions") ¶ 6. As explained below, Defendants' argument is meritless because the Service of Suit provision is inapplicable, and even if it were applicable, it would not change the Court's conclusion that Nebraska law governs.
As an initial matter, the Service of Suit provision does not apply to this case because James River, the insurer, filed this lawsuit against its insured.1 By its plain language, a Service of Suit clause such as the one at issue in this case only applies when an insured files suit against the insurer, not vice versa. For instance, in International Insurance Co. v. McDermott Inc., 956 F.2d 93 (5th Cir. 1992), another coverage dispute between an insured and an insurer, the court explained, Id. at 95-96. Defendants concede that McDermott stands for the proposition that a Service of Suit provision is inapplicable where an insurer first files suit. See Resp. at 16("McDermott does not state that the clause is 'void' or 'unenforceable'; it merely says that it is not applied where the insurer files first."). James River points to a variety of other federal and state cases that have agreed with McDermott. See, e.g., Ace...
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