U.S. Fidelity & Guar. Co. v. Liberty Surplus Ins., No. 08-10544.

• Decision Date: 02 December 2008
• Docket Number: No. 08-10544.
• Citation: 550 F.3d 1031
• Parties: UNITED STATES FIDELITY & GUARANTY COMPANY, Plaintiff-Appellant, v. LIBERTY SURPLUS INSURANCE CORPORATION, Defendant-Third-Party-Plaintiff-Appellee, United States Fire Insurance Company, Defendant, v. Allen Ironworks, Inc., et al., Third-Party-Defendants.
• Court: U.S. Court of Appeals — Eleventh Circuit

550 F.3d 1031

UNITED STATES FIDELITY & GUARANTY COMPANY, Plaintiff-Appellant, v. LIBERTY SURPLUS INSURANCE CORPORATION, Defendant-Third-Party-Plaintiff-Appellee, United States Fire Insurance Company, Defendant, v. Allen Ironworks, Inc., et al., Third-Party-Defendants.

No. 08-10544.

United States Court of Appeals, Eleventh Circuit.

December 2, 2008.

Alberta L. Adams, Eules A. Mills, Jr., Mills, Paskert, Divers, P.A., Tampa, FL, for Plaintiff-Appellant.

Dorothy Venable DiFiore, Andrew J. Lewis, Haas, Dutton, Lewis, P.L., Tampa, FL, for Liberty Surplus Ins. Corp.

Appeal from the United States District Court for the Middle District of Florida (No. 06-01180-CV-ORL-31-UAM); Gregory A. Presnell, Judge.

Before BLACK, PRYOR and COX, Circuit Judges.

Prior report: 2007 WL 3024345

PER CURIAM:

This appeal presents the question whether the law of the place of contracting, which is Massachusetts, or the law of the place of the insured's risk, which is Florida, governs a coverage dispute under an insurance policy for a commercial contractor. Liberty Surplus Insurance Corporation insures the operations of John T. Callahan & Sons, Inc., a commercial contractor, based in Massachusetts, that has construction projects in Florida and other states. Westlake Apartments, Ltd. obtained an arbitration award against Callahan for damages that arose from work performed by Callahan and its subcontractors on a project in Florida. Callahan subrogated its interests to United States Fidelity & Guaranty Company, and USF&G filed this action to recover under the insurance policies issued by Liberty, which provide comprehensive general liability coverage. The district court determined that the Supreme Court of Florida would apply the law of Massachusetts, under the doctrine of lex loci contractus, and the policies do not provide coverage for the claims. USF&G appeals and argues that the Supreme Court of Florida would apply the law of the situs of the insured risk and, under the law of Florida, the claims of defective workmanship by USF&G would be covered under the policies. Because we conclude that this appeal raises a question of state law that is unsettled, we certify the question to the Supreme Court of Florida to determine which law governs the insurance policy.

I. BACKGROUND

Callahan is a commercial contractor that primarily works in Massachusetts and Florida. Callahan is a Massachusetts corporation with its principal place of business in Massachusetts. In December 1999, Callahan entered a contract with Westlake Apartments, Ltd. for the construction of an apartment complex in Sanford, Florida. The agreement required Callahan to post a payment and performance bond. Callahan obtained the bond from USF&G. Callahan, as principal, and USF&G, as surety, issued the bond and named Westlake as an owner-obligee.

In 2001, Callahan applied for a commercial insurance policy from Liberty. Callahan submitted the application from its Massachusetts office to an insurance broker in Massachusetts. Before Liberty issued the policy, it investigated the operations of Callahan. That investigation revealed that Callahan was a "general contractor with work performed generally in [Massachusetts and Florida with] some work starting in" Connecticut.

The investigative file included a "Schedule of Contracts" that listed the active projects of Callahan, including the Westlake project. Liberty knew about the Westlake project in Florida. Laura Corwin, the underwriter for the Callahan policy, testified that Liberty was aware that Callahan "worked in Florida, had offices in Florida, and that Liberty `was being asked to insure operations in Florida.'"

Liberty issued Callahan a commercial general liability insurance policy effective from January 1, 2002, to January 1, 2003. The policy was mailed to Callahan in Massachusetts. Liberty issued a second policy effective from January 1, 2003, to January 1, 2004. The policies provided Callahan with liability coverage for negligent conduct that constituted a covered "occurrence" and occurred in "Massachusetts, Florida, or any other state in which [Callahan] operated. The policies did not provide casualty insurance for the real property on which [Callahan] was conducting its construction activities."

Problems arose at Westlake Apartments, and after repeated attempts to correct the defects, Westlake demanded arbitration with Callahan and USF&G. Liberty acknowledged the arbitration demand, reserved its rights under the policy, and provided counsel to Callahan to respond to the arbitration demand. Before the arbitration, Liberty informed Callahan's counsel that it would no longer participate in the defense of Callahan. USF&G, as surety for the project, and Callahan entered a settlement agreement with Westlake. Under the settlement agreement, USF&G was "subrogated to the position of Callahan against Liberty[,]" and Callahan and Westlake assigned their rights against Liberty to USF&G.

USF&G brought this action for breach of contract against Liberty to recover the full amount of the settlement. USF&G argues that the law of Florida governs and the damage to the Westlake apartments, caused by the defective work of subcontractors, is covered by the Liberty policies. Liberty asserts that the law of Massachusetts applies and bars coverage under the policies. The parties filed cross-motions for partial summary judgment and disputed the applicable state law. The district court applied the rule of lex loci contractus and held that the law of Massachusetts governed the interpretation of the insurance policies. Based on the application of the law of Massachusetts, the district court later granted summary judgment in favor of Liberty.

II. DISCUSSION

When it exercises jurisdiction based on diversity of citizenship, 28 U.S.C. § 1332, a federal court must apply the choice of law rules of the forum state to determine which substantive law governs the action. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85 L.Ed. 1477 (1941). This diversity action was commenced in Florida. This Court "must determine which state's substantive law the Florida Supreme Court would choose to govern interpretation of the [Callahan] polic[ies], as [it is] `bound to decide the case the way it appears the state's highest court would.'" Shapiro v. Associated Int'l Ins. Co., 899 F.2d 1116, 1118 (11th Cir. 1990) (quoting Towne Realty, Inc. v. Safeco Ins. Co. of Am., 854 F.2d 1264, 1269 n. 5 (11th Cir.1988)).

Florida courts traditionally have applied the doctrine of lex loci contractus and held that the law of the state where the contract was made or to have been performed governs the interpretation of the contract. Id. at 1119. This doctrine was recognized as early as 1856 in Perry v. Lewis, 6 Fla. 555 (1856). The Supreme Court of Florida stated, "The general principle by civilized nations is, that the nature, validity, and interpretation of contracts are to be governed by the laws of the country where the contracts are made or are to be performed . . . ." Id. (internal quotation marks omitted). Since then, Florida courts have adhered to the rule of lex loci contractus in most contractual disputes, including those that involved automobile insurance policies, see Sturiano v. Brooks, 523 So.2d 1126, 1129 (Fla. 1988), and uninsured motorist policies, see Lumbermens Mut. Cas. Co. v. August, 530 So.2d 293, 295 (Fla. 1988).

Florida courts have departed from the rule of lex loci contractus in limited instances. Under the public policy exception, Florida courts depart from the rule of lex loci contractus "`for the purpose of necessary protection of [Florida] citizens [and to enforce] some paramount rule of public policy.'" State Farm Mut. Auto. Ins. Co. v. Roach, 945 So.2d 1160, 1164 (Fla.2006) (quoting Herron v. Passailaigue, 92 Fla. 818, 110 So. 539, 542 (1926)). Florida courts also have departed from the rule of lex loci contractus in disputes that involve contracts related to the conveyance or devise of real property. See In re Estate of Swanson, 397 So.2d 465, 466 (Fla.Dist.Ct.App.1981); Kyle v. Kyle, 128 So.2d 427, 429 (Fla.Dist.Ct.App. 1961). As this Court noted, "In Florida, . . . the validity of a contract to convey an interest in real estate is governed by the law of the state in which the real estate lies." Xanadu of Cocoa Beach, Inc. v. Zetley, 822 F.2d 982, 985 (11th Cir.1987).

In Shapiro, we held that the Supreme Court of Florida would depart...