Keene Corp. v. Insurance Co. of North America

• Decision Date: 04 October 1984
• Docket Number: Civ. A. No. 78-1011.
• Citation: 597 F. Supp. 934
• Parties: KEENE CORPORATION, Plaintiff, v. INSURANCE COMPANY OF NORTH AMERICA, et al., Defendants.
• Court: U.S. District Court — District of Columbia

597 F. Supp. 934

KEENE CORPORATION, Plaintiff, v. INSURANCE COMPANY OF NORTH AMERICA, et al., Defendants.

Civ. A. No. 78-1011.

United States District Court, District of Columbia.

October 4, 1984.

COPYRIGHT MATERIAL OMITTED

Harold D. Murry, Jr., Clifford & Warnke, Eugene Anderson, Jerold Oshinsky, Arthur S. Olick, Anderson, Baker, Kill & Olick, Washington, D.C., for plaintiff.

Dennis M. Flannery, Wilmer, Cutler & Pickering, Washington, D.C., Michael R. Gallagher, Thomas E. Betz, Gallagher, Shrap, Fulton, Norman & Mollison, Cleveland, Ohio, Frank W. Gaines, Jr., Robert L. Hoegle, Olwine, Connelly, Chase, O'Donnell & Weyher, Washington, D.C., Gerald V. Weigle, Jr., Dinsmore, Shohl, Coates & Depree, Cincinnati, Ohio, John F. Mahoney, Jr., James E. Rocap, Stephen L. Nightingale, John P. Arness, William J. Bowman, Hogan & Hartson, Washington, D.C., for defendants.

MEMORANDUM OPINION

JUNE L. GREEN, District Judge.

This action is before the Court on three independent motions for partial summary judgment regarding punitive damages brought by defendant Insurance Company of North America ("INA"), defendant Liberty Mutual Insurance Company ("Liberty"), and defendant Aetna Casualty and Surety Company ("Aetna"); defendant Aetna's motion for partial summary judgment regarding plaintiff's claim of misrepresentation; plaintiff Keene Corporation's ("Keene") opposition thereto; defendants' replies; plaintiff's supplemental responses; and the entire record herein. The Court heard oral argument on these motions on June 4, 1984.

In its Third Amended Complaint ("Complaint"), Keene seeks punitive damages in potential excess of $150 million from INA, Liberty, and Aetna.¹ Complaint at ¶¶ 66, 112; Memorandum of INA in Support of its Motion For Summary Judgment as to Keene's Claims for Punitive Damages ("Motion of INA") at 1. Keene bases its claim for punitive damages on defendants' alleged "malicious breach of contract" and "tortious acts arising from defendants' breaches of their contracts and of their express and implied obligations and duties, with respect to the asbestos damage claim lawsuits brought against Keene." Complaint at 1. Defendants contend that under the laws of the applicable jurisdiction punitive damages may not be imposed against them.

The issue of whether punitive damages may lie in this case is governed by two threshold questions. First, which jurisdiction controls the punitive damages issue? Second, does the controlling jurisdiction's rule of law permit courts to impose punitive damages against insurance companies for "bad faith" dealing?

Summary judgment is appropriate under Rule 56 of the Federal Rules of Civil Procedure when no genuine issues of material fact exist and when the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56; Weiss v. Kay Jewelry Stores, Inc., 470 F.2d 1259, 1262 (D.C.Cir. 1972), quoting Traylor v. Black, Sivalls & Bryson, Inc., 189 F.2d 213, 216 (8th Cir. 1951).

Keene argues exhaustively on the merits of awarding punitive damages against defendants for their "bad faith" conduct in "blatantly switching to a manifestation interpretation of their comprehensive general liability ... insurance policies on a national scale" to "enable them to escape their recognized enormous potential financial liability for the asbestos lawsuits." Keene's Statement of Points and Authorities in Opposition to Motion of INA for Partial Summary Judgment as to Keene's Claims for Punitive Damages ("Keene Opposition to INA Motion") at 6-7; see Keene's Statement of Points and Authorities in Opposition to Motion of Liberty for Summary Judgment as to Counts III, IV and VI of Keene's Third Amended Complaint ("Keene Opposition to Liberty Motion") at 3-14; Keene's Statement of Points and Authorities in Opposition to Motion of Aetna for Summary Judgment as to Count IV and as to Keene's Claims for Punitive Damages in Counts III, IV and VI of Keene's Third Amended Complaint ("Keene Opposition to Aetna Motion") at 7-23. But the issue here is not the propriety of awarding punitive damages for defendants' alleged misconduct. Rather, the issues are choice of law and interpretation of the applicable law regarding Keene's punitive damages claim. The material facts that bear on these issues are not in dispute. Therefore, the punitive damages question is ripe for adjudication and may properly be considered for summary judgment.

The Court finds that Keene is not entitled to punitive damages against defendant INA as a matter of law. Thus, defendant INA's motion for partial summary judgment is granted. The Court defers final judgment on the motions of defendant Liberty and defendant Aetna as to punitive damages until further briefing is received from the parties.

In Count IV of the Complaint, Keene states a cause of action for fraudulent misrepresentation to support in part its claim for punitive damages against defendants. The cause of action is based on defendants' representations as to the extent of coverage of Keene's insurance policies. Keene seeks compensatory and punitive damages. Complaint at ¶¶ 113-15. Defendant Aetna seeks dismissal of the fraud claim.

The appropriateness of the misrepresentation claim raises the same threshold questions as that of the punitive damages claim concerning choice of law and interpretation of the controlling jurisdiction's rule of law. As these questions raise no genuine issues of material fact, the Court properly may rule on the appropriateness of the misrepresentation claim on a motion for summary judgment. Fed.R. Civ.P. 56.

The Court finds that Keene's claim of fraudulent misrepresentation against Aetna must be dismissed and, therefore, grants defendant Aetna's motion for partial summary judgment as to Count IV of Keene's Third Amended Complaint.

I. Punitive Damages

A. Choice of Law

To determine the applicable law in a diversity case, a Federal court first must determine whether Federal or State law applies. Procedural issues are determined under Federal law, while substantive issues must be decided under State law. Erie Railroad v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). Since choice of law is a substantive issue under the Erie doctrine, a Federal court sitting in diversity must apply the choice-of-law rules of the forum in which it sits. Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 496-97, 61 S.Ct. 1020, 1021-22, 85 L.Ed. 1477 (1941); Steorts v. American Airlines, Inc., 647 F.2d 194, 196-97 (D.C.Cir.1981). This Court, therefore, must apply the choice-of-law rules of the District of Columbia to determine which State's law governs the punitive damages issue.

District of Columbia courts employ an "interest analysis" approach which was originally applied to tort actions in Tramontana v. S.A. Empressa De Viacao Aerea Rio Grandense, 350 F.2d 468, 471-73 (D.C.Cir.1965), and to contract actions in Fox-Greenwald Sheet Metal Co. v. Markowitz Bros. Inc., 452 F.2d 1346, 1353-54 (D.C.Cir.1971). See Mazza v. Mazza, 475 F.2d 385, 388 (D.C.Cir.1973); see also Semler v. Psychiatric Institute, 575 F.2d 922, 924 (D.C.Cir.1978). In Mazza v. Mazza, the United States Court of Appeals stated that "the relevant inquiry focuses on the relationship of the ... jurisdictions to the controversy, the interests involved, and whether application of foreign law would offend a strong and clearly defined local policy." Mazza v. Mazza, 475 F.2d at 391 (D.C.Cir. 1973).

The process involves two steps. First, the Court must determine which States have an interest in the controversy at hand. Second, the Court must decide, from those found to have a conflicting interest, which State's policy would be advanced by application of its law. See Gaither v. Myers, 404 F.2d 216, 222 (D.C.Cir.1968). "The state with the `most significant relationship' should also be that whose policy would be advanced by application of the law, i.e., the state with the greatest interest in applying its law to the issue." In Re Air Crash Disaster at Washington, D.C., 559 F.Supp. 333, 342 (D.D.C.1983); see also Semler v. Psychiatric Institute, 575 F.2d at 924.

Keene's allegations of "bad faith" dealings by defendants arise from the insurance contracts between the parties. Keene, however, seeks punitive damages for defendants' tortious misrepresentations and misconduct. Complaint at ¶¶ 104-08.

In applying the "interest analysis" approach to tort claims, District of Columbia courts have considered the factors set forth in section 145 of the Restatement (Second) of Conflict of Laws. See Hitchcock v. United States, 665 F.2d 354, 360 (D.C.Cir. 1981). These factors are:

(a) the place where the injury occurred,

(b) the place where the conduct causing the injury occurred,

(c) the domicile, residence, place of incorporation and place of business of the parties, and

(d) the place where the relationship, if any, between the parties is centered.

Restatement (Second) of Conflict of Laws § 145(2) (1971). The Restatement emphasizes that these contacts are not to be applied mechanically, but "are to be evaluated according to their relative importance with respect to the particular issue." Id. Therefore, the Court will examine not the general interests of various states, but the precise interests in the specific issue involved. In Re Air Crash Disaster Near Chicago, Illinois, 644 F.2d 594, 611 (7th Cir.1981); In Re Air Crash Disaster at Washington, D.C., 559 F.Supp. at 341.

In the instant case, the issue is punitive damages. States' interests in compensatory damages differ from those involved in punitive damages. E.g., James v. Powell, 19 N.Y.2d 249, 279 N.Y.S.2d 10, 16-17, 225 N.E.2d 741, 746-47 (1967) (Puerto Rico law applies to compensatory damages; the law of New York governs punitive damages.). When the primary purpose of a rule of law is to deter or punish conduct, the States with the most significant interests are those in which the conduct occurred and in which the principal place of...