Snow v. Admiral Ins. Co.

• Decision Date: 25 June 1985
• Docket Number: Civ. No. 84-3003.
• Citation: 612 F. Supp. 206
• Parties: Bub SNOW d/b/a Bub Snow Water Well Drilling Company, Plaintiff, v. ADMIRAL INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Western District of Arkansas

612 F. Supp. 206

Bub SNOW d/b/a Bub Snow Water Well Drilling Company, Plaintiff, v. ADMIRAL INSURANCE COMPANY, Defendant.

Civ. No. 84-3003.

United States District Court, W.D. Arkansas, Harrison Division.

June 25, 1985.

Steven B. Davis, Harrison, Ark., for plaintiff.

Lynn F. Wade, McAllister & Wade, Fayetteville, Ark., for defendant.

MEMORANDUM OPINION

H. FRANKLIN WATERS, Chief Judge.

I. Introduction

The instant action arises from a dispute concerning the correct characterization of a contract of insurance. Plaintiff contends that the policy at issue is a "stated value" policy, under which the defendant is liable for the stated value of plaintiff's burned drilling rig at the time of contracting, less any depreciation thereon. Defendant asserts that the policy is an actual cash value policy, under which it is liable only for the cost to repair or replace the drilling rig which was destroyed by fire.

The parties apparently concede that the policy would be classified as a "stated value" policy under the laws of the state of Missouri, but would be viewed as an actual cash value policy under the laws of the state of Arkansas.

Thus, all agree that the "choice of law" determination largely governs the extent of defendant's liability on the policy itself. Further enhancement of liability by imposition of prejudgment interest, statutory penalties, and attorney's fees is also urged.

II. Background

To understand the circumstances surrounding plaintiff's procurement of the policy at issue, the roles of other participants must be considered, because there were no direct dealings between plaintiff and defendant.

Plaintiff contacted the All Risk Agency ("All Risk") in May, 1982, in Springfield, Missouri. All Risk is an insurance broker licensed in Missouri with a non-resident license in Arkansas. Plaintiff authorized All Risk to obtain price quotations for all of its insurance needs. After further communication with plaintiff regarding equipment values, All Risk contacted Bohrer, Croxdale & McAdoo, Inc. ("BC & M"), in June, 1982. BC & M is a Missouri corporation and an insurance broker for defendant with authority to accept applications on behalf of the defendant.

After All Risk contacted BC & M, BC & M contacted the defendant by telephone. Defendant approved the risk and set the rate. BC & M then contacted All Risk offering the coverage. All Risk obtained authority to accept the offer, and communicated the approval to BC & M on June 22, 1982.

On June 25, 1982, Bub and Thelma Snow, President and Secretary-Treasurer of the plaintiff, visited All Risk's office in Springfield, Missouri, and signed the contract documents, made a down payment on the premium, and arranged financing of the balance of the premium through the Commerce Bank of Springfield, Missouri, and Premium Finance Specialists of Kansas City.

The policy was prepared on July 23, 1982, at BC & M's offices in Springfield, Missouri, and countersigned with a signature stamp on defendant's authority. BC & M requested the premium balance from All Risk, and All Risk paid BC & M in Springfield, Missouri, on August 3, 1982. The policy was issued and delivered by BC & M to All Risk in Springfield, Missouri.

This policy was for a period of one year. In March, 1983, BC & M received approval from defendant to renew the policy at the same premium. BC & M conveyed the offer to renew to All Risk in May, 1983. Plaintiff gave All Risk authority to accept the renewal offer, and All Risk did so.

The documents were prepared and countersigned at BC & M's offices on June 23, 1983. On July 19, 1983, the insured drilling rig was destroyed by fire in the state of Kansas. Plaintiff reported the loss to All Risk which reported it to BC & M. BC & M investigated the loss through Parrett-Harris, Inc., of Joplin, Missouri. Parrett-Harris advised All Risk that the loss was total.

After the instant action was initiated, defendant paid CIT Corporation, a loss payee, the sum of $20,879.60, and deposited $75,400.00 into the registry of the court. Plaintiff was permitted to withdraw this sum by order of this court without prejudice to its claim for additional monies allegedly due under the terms of the policy.

III. Choice of Law

This court must follow the choice of law rules of the state of Arkansas. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 407, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). The decisions of the Arkansas Supreme Court have been characterized by a lack of consistency in choice of law rulings regarding contracts. Compare Worthington v. Worthington, 234 Ark. 216, 352 S.W.2d 80 (1962), with Peppers v. Pennsylvania Door & Sash Co., 171 Ark. 521, 285 S.W. 5 (1926).

Traditionally, because there is usually no fixed place for performance of insurance policies, the law of the place of making has been taken as determinative. Leflar, American Conflicts of Law § 153 at 314 (3rd ed. 1977). Where an insurer mails to the applicant a policy issued in accordance with the application, it has been held that the contract is "made" when and where the policy is mailed. State Mutual Fire Ins. Ass'n v. Brinkley Stave & Heading Co., 61 Ark. 1, 31 S.W. 157 (1895).

More recently, however, the Arkansas Supreme Court has applied the "most significant relationship" text to choice of law questions in contract cases. Standard Leasing Corp. v. Schmidt Aviation, 264 Ark. 851, 576 S.W.2d 181 (1979). In Schmidt the court said the place that the contract at issue was "finally consummated" was a "fortuitous fact" and was not of "controlling importance." Schmidt at 856, 576 S.W.2d 181. The court applied Arkansas law to the contract although the parties had agreed that the law of the state of Tennessee would govern, because the significant "contacts" with the state of Arkansas rendered the contract an "Arkansas contract."

This court held in Wright v. Newman, 539 F.Supp. 1331 (W.D.Ark.1982), rev'd on other grounds, 735 F.2d 1076 (8th Cir. 1984), that the Arkansas courts currently apply the "most significant relationship" test to actions ex contractu. The Court of Appeals for the Eighth Circuit has reaffirmed this position. Tiffany Industries v. Commercial Grain Bin Co., 714 F.2d 799 (8th Cir.1983) (applying Arkansas law).

Although neither the Schmidt, Wright nor Tiffany Industries cases involved contracts of insurance, the court is aware of no overriding consideration which mandates a different choice of law rule in the insurance context herein presented from that applicable to contract actions in general.

Very recently the Arkansas Supreme Court has addressed the choice of law issue with regard to contract cases involving usury. In Snow v. C.I.T. Corp. of the South, 278 Ark. 554, 667 S.W.2d 465 (1983), the court was faced with a transaction which had a direct connection with four states: the state of negotiation; the state wherein the contract documents were signed and the situs of the property; the state where the financier maintained its principal office, whose laws governed by agreement of the parties; and the state where the property was delivered and used. The court ultimately opted to apply the law of the state chosen by agreement because the transaction had significant contacts with all four states and the choice of the parties was not unreasonable.

In Grogg v. Colley Home Center, Inc., 283 Ark. 120, 671 S.W.2d 733 (1984), another usury case, the court found the contract to have "substantial connections" with both Arkansas and Oklahoma. The court applied the law of the state which would uphold the contract, in that case, Oklahoma.

Although usury cases present differing policy considerations from those present here, it is clear that the court has carefully scrutinized the various "contacts" with the different states in making the choice of law determinations.

Similarly, in Yarbrough v. Prentice Lee Tractor Co., 252 Ark. 349, 479 S.W.2d 549 (1972), a usury case, the court held that although the negotiations and execution of the contract took place in the states of Arkansas and Louisiana, and the equipment was delivered and used in Arkansas, none of the particular acts involved would establish one state's contacts as being more significant than the other. That being the case, the court applied Louisiana law so as to uphold the validity of the contract.

The Yarbrough, Schmidt, Snow and Grogg cases indicate that, regardless of the label applied or terminology employed, the court has first evaluated the nature and quantity of each state's "contacts" with the transaction at issue. This is also the conclusion of the Eighth Circuit Court of Appeals expressed recently in Williams v. State Farm Mutual Automobile Ins. Co., 737 F.2d 741 (8th Cir.1984) (interpreting Arkansas law).

Thus, where it is not clear which of several states has the "most significant relationship" to the transaction, the Arkansas Supreme Court has resorted to consideration of other factors in making a choice of law determination in contract cases. Yarbrough, supra (upholding validity of contract, presumed intent); Snow, supra (agreement of the parties); Grogg, supra ("sham" agreement to subvert Arkansas' usury laws, public policy).

With these principles in mind, this court must examine the various "contacts" of the state of Missouri and the state of Arkansas with the instant transaction.

Plaintiff initiated the transaction by contacting All Risk in Springfield, Missouri, in May, 1982. All Risk is a broker licensed in Missouri. All Risk, acting as "agent" for plaintiff, contacted BC & M in June, 1982. BC & M is a Missouri corporation acting as an insurance broker for defendant in Missouri. After defendant approved the issuance of the policy, BC & M contacted All Risk in Missouri to offer the coverage. After All Risk obtained authority to accept the offer, it communicated its acceptance to BC & M in Springfield, Missouri. Shortly thereafter, Bub and Thelma Snow visited All Risk's office in Springfield and there signed the...