Mitchell v. State Farm Fire & Cas. Co.
| Citation | 902 F.2d 790 |
| Decision Date | 25 April 1990 |
| Docket Number | No. 89-1192,89-1192 |
| Parties | Richard MITCHELL; Larry Cotten; First National Bank of Fort Smith, Arkansas, Plaintiffs-Appellees, v. STATE FARM FIRE & CASUALTY COMPANY, Defendant-Appellant. |
| Court | United States Courts of Appeals. United States Court of Appeals (10th Circuit) |
Phillip S. Figa (Emily Kahn Kemme with him on the briefs) of Burns & Figa, P.C., Denver, Colo., for plaintiffs-appellees.
Alan Epstein of Hall & Evans (William J. Hunsaker of Makris and Hunsaker, with him on the briefs), Denver, Colo., for defendant-appellant.
Before BRORBY, EBEL, Circuit Judges, and JOHNSON *, District Judge.
Defendant-appellant State Farm Fire and Casualty Company (State Farm) appeals the trial court's grant of partial summary judgment to plaintiffs-appellees on the ground that Arkansas law, rather than Colorado law, governs determination of the amount due to plaintiffs under an insurance policy issued by State Farm on a Colorado property destroyed by fire. We reverse.
The following facts are undisputed unless otherwise noted:
On September 6, 1976, State Farm, an Illinois corporation, issued an insurance policy for fire and extended coverage (Policy) on a property described as Units 1, 2, 3 and 4, Westerly Condominiums (Property) in the town of Mt. Crested Butte, Colorado. The insureds under the Policy, which was issued and serviced out of State Farm's office in Englewood, Colorado, were Colorado residents. In late 1981, the Policy was assigned to plaintiffs-appellees Larry Cotten and Richard Mitchell in connection with their acquisition of the Property. Both Cotten and Mitchell are Arkansas residents. Plaintiff-appellee First National Bank of Fort Smith, Arkansas B, which is the mortgagee on the Property and hence the principal Policy beneficiary, is also an Arkansas resident. The Policy does not indicate what state law governs issues regarding its operation and effect.
On May 27, 1985, the Property was totally destroyed by fire. Under the terms of the Policy, Mitchell and Cotten were entitled to the following recovery for this loss:
1. Replacement cost.
a. Unless otherwise specified, loss shall be adjusted on the basis of the replacement cost value of the property insured hereunder, but the limit of liability of the Company shall not exceed the least of:
(1) the full cost of replacement of such property at the same site with new material of like kind and quality, without deduction for depreciation;
(2) the cost of repairing the insured property within reasonable time;
(3) the limit of liability under this policy applicable to such property at the time of loss; or
(4) the amount actually and necessarily expended in repairing or replacing such property or any part thereof.
b. The Company shall not be liable for payment of loss on a replacement cost basis unless and until actual repair or replacement is completed.
Unless the time is extended by the Company in writing, loss to the property not repaired or replaced within one year after the loss will be settled on an actual cash value basis rather than on a replacement cost basis.
State Farm Policy No. 96-83-8571-2. The Property was not repaired or replaced within one year after the fire, allegedly because zoning and building ordinances adopted by the town of Mt. Crested Butte prior to the Property's destruction did not permit it to be rebuilt on its original foundation. State Farm's limit of liability under the Policy at the time of the fire was $450,000.
After the parties failed to reach an agreement as to the amount due to Mitchell and Cotten under the Policy, plaintiffs initiated this action against State Farm in the United States District Court for the Western District of Arkansas. This action was subsequently transferred to the federal district court for the District of Colorado pursuant to 28 U.S.C. Sec. 1404(a).
In their complaint, plaintiffs alleged, among other things, that they were entitled to payment of $450,000, the maximum permitted under the Policy, rather than to the amount of the Property's actual cash value or replacement cost as stated in the Policy. In a March 31, 1988 motion for partial summary judgment on this issue, plaintiffs argued that this result was required by Arkansas' Valued Policy Statute, which states in pertinent part:
A fire insurance policy, in case of a total loss by fire of the property insured, shall be held and considered to be a liquidated demand and against the company taking the risk, for the full amount stated in the policy, or the full amount upon which the company charges, collects or receives a premium....
Ark.Code Ann. Sec. 23-88-101 (1987) (formerly Sec. 66-3901).
In a cross-motion for partial summary judgment filed soon thereafter, State Farm responded that Colorado rather than Arkansas law governed determination of the amount due under the Policy and, further, that Colorado law required enforcement of the Policy as written and hence limited Mitchell and Cotten's recovery to the actual cash value of the Property. Both parties apparently agree that this value is approximately $200,000.
After a hearing, the district court granted plaintiffs' motion for partial summary judgment and denied State Farm's motion upon ruling that Arkansas law governs this action and requires State Farm to pay plaintiffs the $450,000 limit of liability under the Policy. Order of November 7, 1988. On May 4, 1989, the district court granted the parties' stipulated motion for certification for appeal of its interlocutory order pursuant to 28 U.S.C. Sec. 1292(b). This appeal followed upon our grant of State Farm's petition for leave to appeal.
We review choice of law determinations de novo. See Zipfel v. Halliburton Co., 832 F.2d 1477, 1482 (9th Cir.1987), cert. denied, 486 U.S. 1054, 108 S.Ct. 2819, 100 L.Ed.2d 921 (1988). Any findings of fact underlying such determinations are reviewed under the clearly erroneous standard. Id. We will affirm the district court's grant of partial summary judgment on the choice of law issue only if it is clear from the record that there are no genuine issues of material fact and that plaintiffs are entitled to judgment as a matter of law. Willner v. Budig, 848 F.2d 1032, 1033-34 (10th Cir.1988), cert. denied, --- U.S. ----, 109 S.Ct. 840, 102 L.Ed.2d 972 (1989).
The parties assert that either Arkansas or Colorado law governs determination of the amount due to plaintiffs under the terms of the Policy and the circumstances of this case. It is undisputed that the law of these two states are in conflict on this issue and that the parties have not effectively chosen which state's law applies. Accordingly, we must determine which state's law governs this dispute. See Coldwell Banker & Co. v. Karlock, 686 F.2d 596, 599-600 & n. 4 (7th Cir.1982). Because this diversity case was initiated in federal district court in Arkansas, Arkansas choice of law rules apply. See Van Dusen v. Barrack, 376 U.S. 612, 639, 84 S.Ct. 805, 820, 11 L.Ed.2d 945 (1964).
Arkansas generally applies the "most significant relationship" test to determine the applicable law in a conflicts situation. See Standard Leasing Corp. v. Schmidt Aviation, Inc., 264 Ark. 851, 576 S.W.2d 181, 184 (1979); Williams v. Carr, 263 Ark. 326, 565 S.W.2d 400, 403-04 (1978); Williams v. State Farm Mut. Auto. Ins. Co., 737 F.2d 741, 743 (8th Cir.1984) (applying Arkansas law), cert. denied, 469 U.S. 1159, 105 S.Ct. 910, 83 L.Ed.2d 923 (1985); Roofing & Sheet Metal Servs., Inc. v. La Quinta Motor Inns, Inc., 689 F.2d 982, 994 (11th Cir.1982) (summarizing Ark. law). This test, as stated in section 6 of the Restatement (Second) of Conflict of Laws (1971) (Restatement), requires consideration of the following general principles in determining the state law applicable to a particular issue:
(f) certainty, predictability and uniformity of result, and
(g) ease in the determination and application of the law to be applied.
Id.; see Williams v. Carr, 565 S.W.2d at 404.
In a case such as this one, involving interpretation and enforcement of a contract that does not contain a choice of law provision
the contacts to be taken into account in applying the principles of [the most significant relationship test] to determine the law applicable to an issue include:
(d) the location of the subject matter of the contract, and
(e) the domicil, residence, nationality, place of incorporation and place of business of the parties.
These contacts are to be evaluated according to their relative importance with respect to the particular issue.
Restatement Sec. 188; see Williams v. State Farm Mut. Auto. Ins. Co., 737 F.2d at 743 (); Roofing & Sheet Metal Servs., 689 F.2d at 994-95 (same).
As suggested above, a particular contact may play an especially important role in determining the state having the most significant relationship to issues arising out of certain kinds of contracts. For contracts of fire, surety or casualty insurance, that contact is "the principal location of the insured risk during the term of the policy." Restatement Sec. 193. Thus, in jurisdictions following the "most significant relationship" test, the law of the state in which the insured property, object or other risk is located normally governs issues concerning the validity or effect of the insurance contract, see id.; Industrial Indem. Ins. Co. v. United States, 757 F.2d 982, 986 (9th Cir.1985); Diamond Int'l Corp. v. Allstate Ins. Co., 712 F.2d...
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