Payne v. Motorists' Mut. Ins. Companies

• Decision Date: 10 September 1993
• Docket Number: No. 92-6097,92-6097
• Citation: 4 F.3d 452
• Parties: Manford M. PAYNE and Sue Payne, Plaintiffs-Appellees, Canal Insurance Company and National Liability and Fire Insurance Company, Intervenors-Appellees, v. MOTORISTS' MUTUAL INSURANCE COMPANIES, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 452

4 F.3d 452

Manford M. PAYNE and Sue Payne, Plaintiffs-Appellees Canal Insurance Company and National Liability and Fire Insurance Company, Intervenors-Appellees, v. MOTORISTS' MUTUAL INSURANCE COMPANIES, Defendant-Appellant.

No. 92-6097.

United States Court of Appeals, Sixth Circuit.

Argued June 11, 1993.

Decided Sept. 10, 1993.

Charles E. Daniel (argued), Ward S. Whelchel (briefed), Knoxville, TN, for plaintiffs-appellees.

Weldon E. Patterson (briefed), Poore, Cox, Baker, Ray & Byrne, Knoxville, TN, for Canal Ins. Co.

Rebecca L. Ottinger, Greeneville, TN, for National Liability and Fire Ins. Co.

Dan D. Rhea (argued and briefed), F. Michael Fitzpatrick (briefed), Arnett, Draper & Hagood, Knoxville, TN, for Motorists' Mut. Ins. Companies.

Before: KEITH and RYAN, Circuit Judges; and WELLFORD, Senior Circuit Judge.

RYAN, Circuit Judge.

The defendant, Motorists' Mutual Insurance Companies, appeals following final judgment in favor of the plaintiffs, Manford and Sue Payne, in this diversity action for recovery on an automobile insurance policy. On appeal, the sole issue presented is whether the district court correctly concluded that it had personal jurisdiction over the defendant. Because the district court properly found that it had personal jurisdiction, we shall affirm.

I.

Motorists' Mutual, an Ohio insurance company based in Columbus, sold an automobile liability insurance policy to Karl Van Walsen, a locally-operating moving contractor also based in Columbus. The policy covered vehicles that Van Walsen leased from companies such as Hertz and Penske, and which he would in turn lease to his customers, usually on a month-to-month basis. Van Walsen's business did not require him to lease vehicles for use outside of Ohio, or even outside the general Columbus area. Instead, the record demonstrates, the business operated exclusively in Ohio. However, the lease agreements were made without limitation as to use of the vehicles throughout the United States and Canada.

The policy, too, explicitly provided coverage, without any territorial limitation, for the United States and Canada. Motorists' Mutual thus contracted to defend Van Walsen in lawsuits brought against him in any of the fifty states or Canada. The policy contained an exception, however, rescinding the coverage on any vehicle while it was driven by a man named Harold Hunter. Hunter was a friend and business associate of Van Walsen's, but because of a 1989 DUI conviction, Motorists' viewed Hunter as an unacceptable risk.

In April 1989, Van Walsen loaned Hunter one of the leased vehicles so that Hunter, along with two of Hunter's friends, could deliver some furniture to a "lady friend" of Van Walsen's in Florida. The trip was strictly personal, and had nothing to do with Van Walsen's business. Van Walsen paid the expenses for the trip, including fuel, truck expenses, and food, but paid the men no wages. All three men either had drivers' licenses or were eligible for them, and all three had permission from Van Walsen to drive the truck.

On their return from Florida to Columbus, the vehicle was involved in a car accident in east Tennessee. All three men were killed. The accident also injured the plaintiff, Manford Payne.

Motorists' denied coverage, alleging that Hunter was driving the vehicle at the time of the collision, and asserting that its policy therefore provided no coverage for the accident. The Paynes sued Van Walsen, as the vehicle's lessee, in federal court in Tennessee. They recovered a judgment in the total amount of $275,000, as compensation for personal injury and loss of consortium arising from the collision. The addition of subrogated property damage claims by another insurer against Van Walsen increased the claim to over $300,000. Motorists' did not defend that suit, since it had denied coverage.

Suing as third-party beneficiaries of Van Walsen's insurance contract, the Paynes sued Motorists' in federal court in Tennessee for breach of contract. Motorists' moved to dismiss for lack of personal jurisdiction, arguing that it had no contacts with the state of Tennessee. Motorists' claimed it had done no business of any kind in Tennessee since February 1987, and was not licensed or authorized to do so; that it maintained no office or agent in Tennessee, that it did not maintain a bank account there; and that Van Walsen's policy was issued in Ohio to a citizen of Ohio and covered motor vehicles registered in Ohio. The district court, however, denied the motion, relying on decisions from the Ninth and the Fourth Circuits, which it interpreted as having "held that due process is not offended by subjecting a motor vehicle liability insurance carrier to suit in the forum in which the insured motor vehicle was involved in a collision."

At trial, Motorists' defended on the sole ground that Hunter was driving, and that there was, as a result, no coverage. The jury, however, decided otherwise, and rejected Motorists' proffered defense. Motorists' was, accordingly, held liable by the court to the extent of the policy's $300,000 limit.

Motorists' Mutual filed this timely appeal.

II.

Challenges to a court's exercise of personal jurisdiction present a question of law, founded on the due process clause. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 471-73, 105 S.Ct. 2174, 2181-82, 85 L.Ed.2d 528 (1985). We review such challenges de novo. Tobin v. Astra Pharmaceutical Products, Inc., 993 F.2d 528, 542 (6th Cir.1993).

III.

A.

Motorists' characterizes its contractual agreement to defend Van Walsen in any suit as an "alleged and purely executory duty." (Emphasis omitted.) It concedes, however, that the object of the insurance contract was to protect Van Walsen from the consequences of lawsuits that may have been brought against him anywhere in the United States, and further concedes that "an automobile liability insurer expects to be called to defend its mobile customers in all 50 states." Motorists' nonetheless contends that it has taken no action that could be construed as purposeful availment of the privilege of conducting activities in Tennessee, and attempts to draw a distinction between the expectation of defending its insured when he gets haled into court, and the lack of expectation of being haled into court itself, as a named defendant.

B.

Because subject matter jurisdiction in this case is based on diversity of citizenship, the law of the forum state, Tennessee, governs whether the court may exercise personal jurisdiction over nonresident defendants. See Omni Capital Int'l v. Rudolf Wolff & Co., 484 U.S. 97, 105, 108 S.Ct. 404, 410, 98 L.Ed.2d 415 (1987). The Tennessee long-arm statute, Tenn.Code Ann. Sec. 20-2-214(a)(6), has been interpreted as coterminous with the limits on personal jurisdiction imposed by the due process clause. Masada Investment Corp. v. Allen, 697 S.W.2d 332, 334 (Tenn.1985). Thus, the jurisdictional limits of Tennessee law and of federal constitutional law of due process are identical.

This court has devised a three-part test for determining when the exercise of personal jurisdiction is appropriate in the absence of a continuous relationship between the forum and the defendant. Southern Machine Co. v. Mohasco Indus., Inc., 401 F.2d 374 (6th Cir.1968). The so-called "outer limits of in personam jurisdiction based on a single act" are as follows:

First, the defendant must purposefully avail himself of the privilege of acting in the forum state or causing a consequence in the forum state. Second, the cause of action must arise from the defendant's activities there. Finally, the acts of the defendant or consequences caused by the defendant must have a substantial enough connection with the forum state to make the exercise of jurisdiction over the defendant reasonable.

Id. at 381.

The Ninth Circuit's approach is the same, as illustrated by Farmers Insurance Exchange v. Portage La Prairie Mutual Insurance Co., 907 F.2d 911 (9th Cir.1990), a case relied on by the district court in its decision. Farmers involved a single-vehicle accident in which both Farmers and Portage were obligated to provide coverage. Farmers was a California insurer doing business in Montana, while Portage was a Canadian insurer that issued no policies in Montana and had no agents there. The accident occurred in Montana. The driver was insured under a policy issued by Farmers in Montana, while the vehicle's owners, Canadian...