US Fire Ins. Co. v. Goodyear Tire & Rubber Co., 3-89 CIV 494.

• Decision Date: 04 December 1989
• Docket Number: No. 3-89 CIV 494.,3-89 CIV 494.
• Citation: 726 F. Supp. 740
• Parties: The UNITED STATES FIRE INSURANCE COMPANY, Evanston Insurance Company, First State Insurance Company, and Old Republic Insurance Company, Plaintiffs, v. GOODYEAR TIRE & RUBBER COMPANY, Defendant.
• Court: U.S. District Court — District of Minnesota

726 F. Supp. 740

The UNITED STATES FIRE INSURANCE COMPANY, Evanston Insurance Company, First State Insurance Company, and Old Republic Insurance Company, Plaintiffs, v. GOODYEAR TIRE & RUBBER COMPANY, Defendant.

No. 3-89 CIV 494.

United States District Court, D. Minnesota, Third Division.

December 4, 1989.

Faegre & Benson by Scott W. Johnson, Minneapolis, Minn., for plaintiffs The U.S. Fire Ins. Co. and Evanston Ins. Co.

Moss & Barnett by Thomas J. Shroyer, and Scott Herzog, Minneapolis, Minn., for plaintiffs First State Ins. Co. and Old Republic Ins. Co.

Dorsey & Whitney by Daniel P. O'Keefe, Minneapolis, Minn., for defendant.

ORDER

ALSOP, Chief Judge.

The above entitled action comes before the court on cross motions for summary judgment. Two issues, which are inextricably intertwined, are presented to the court. The first is whether Minnesota or Georgia law should apply to this action. The second is if Minnesota law applies, whether Minnesota public policy bars insurance coverage for a punitive damage award against Goodyear which was a result of a products liability claim which arose and was tried in Minnesota.

I. FACTS

The facts necessary for the resolution of this motion are not in dispute. On December 19, 1981, Dale Hodder, a Minnesota resident, was seriously injured when the metal rim of a truck tire explosively separated as he was working on it. The rim that exploded was a KWX multi-piece rim (K-Rim) made by Goodyear. Hodder sued Goodyear and its subsidiary, Motor Wheel Corporation, in Minnesota state court. A jury found Goodyear and Motor Wheel negligent on a failure to warn theory and awarded Hodder $3.3 million in compensatory damages and $12.5 million in punitive damages. On review, the Minnesota Supreme Court found that the jury verdict based on Goodyear's failure to warn was sustained by the evidence. Hodder v. Goodyear Tire & Rubber Co., 426 N.W.2d 826 (Minn.1988). The Court also exercised its close control over the imposition and assessment of punitive damages and reduced the punitive award to $4 million. Id. at 837. The United States Supreme Court subsequently denied Goodyear's petition for a writ of certiorari which challenged the imposition of punitive damages in that case. Hodder v. Goodyear Tire & Rubber Co., ___ U.S. ___, 109 S.Ct. 3265, 106 L.Ed.2d 610 (1989).

The present lawsuit represents the next stage of the Hodder litigation. At the time of the accident to Dale Hodder, Goodyear had insurance coverage with the insurers who are the plaintiffs in this action. The policies purchased by Goodyear collectively provided Goodyear with $25 million in coverage per accident, subject to a $1.5 million deductible to be paid by Goodyear. Goodyear contends that this coverage was intended to cover extremely large awards, including punitive damages, and that over the years it had paid millions of dollars in insurance premiums in return for this anticipated catastrophic coverage. These policies were negotiated, issued, and paid for in Georgia. Goodyear claims that Georgia law should apply in this action and that the policies provide coverage for the Hodder punitive damage award. The insurers claim that Minnesota law applies and that Minnesota public policy prohibits insurance for punitive damages. Goodyear is not headquartered in Minnesota, nor does it have manufacturing facilities here, but does do business in this state, as well as all others.

II. CHOICE OF LAW

A. Does a Conflict of Law Exist

A federal court which has jurisdiction of a case by virtue of diversity must apply the choice of law principles of the state in which it sits. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021-22, 85 L.Ed. 1477 (1941). The first step in Minnesota's approach is to determine whether there is an actual conflict between the substantive laws of Minnesota and of the foreign state. American Casualty Co. v. Bank of Montana System, 675 F.Supp. 538, 544 (D.Minn.1987). Hague v. Allstate Ins. Co., 289 N.W.2d 43, 47 (Minn. 1979), aff'd, 449 U.S. 302, 101 S.Ct. 633, 66 L.Ed.2d 521 (1981). The reason for this is obvious. It makes no sense to go through a choice of law analysis if there is no difference as to which law applies.

In this case, it is undisputed that under Georgia law, insurance coverage for punitive damages is perfectly legitimate. The parties disagree, however, as to the insurability of punitive damages under Minnesota law. This court must therefore initially determine Minnesota law regarding the insurability of punitive damages.

In Casperson v. Webber, 298 Minn. 93, 213 N.W.2d 327 (1973), the Minnesota Supreme Court first expressed its reluctance to allow insurance coverage for punitive damage awards. In that case, the Court held that policy language which stated that an insured would be covered for "all sums" the insured became legally obligated to pay did not include coverage for punitive damages. Casperson, 213 N.W.2d at 331. The Court next addressed the issue of insurance for punitive damages in Wojciak v. Northern Package Corp., 310 N.W.2d 675 (Minn.1981). The Court in Wojciak quoted at length and quite favorably the leading case holding that punitive damages are not insurable—Northwestern Nat'l Casualty Co. v. McNulty, 307 F.2d 432 (5th Cir. 1962). The court then listed cases from other jurisdictions which had held either for or against the insurability of punitive damages and concluded that:

We are satisfied that in most instances public policy should prohibit a person from insuring himself against misconduct of a character serious enough to warrant punitive damages.

Wojciak, 310 N.W.2d at 680. Although the Court in Wojciak held that a treble damage award for a wrongful discharge claim was an exception to this rule, the general policy was clearly set forth.

The next Minnesota case discussing punitive damages awards was Perl v. St. Paul Fire & Marine Ins. Co., 345 N.W.2d 209 (Minn.1984) (Perl I). Although the Court in a footnote indicated that the precise issue of whether punitive damages were insurable was not before it, it did hold that an insurance policy provision which purported to cover a forfeiture of attorney fees based on a breach of fiduciary duty was not valid. Id. at 216.¹ In coming to this decision, the Court again reiterated that in most instances, Minnesota policy prohibited insurance against punitive damages.

This line of cases shows that although the Minnesota Supreme Court has never specifically held that punitive damages are uninsurable, there is clear public policy in this state against their insurability. This policy is that "in most instances public policy should prohibit a person from insuring himself against misconduct of a character serious enough to warrant punitive damages." Perl I, 345 N.W.2d at 216; Wojciak, 310 N.W.2d at 680 (emphasis added). The court therefore finds that as a general rule, insurance coverage for punitive damages is void as against Minnesota public policy.

The court additionally finds that nothing about the facts of this case qualify it as an exception to the general rule. The fact that Goodyear is a large non-Minnesota corporation which could possibly be subjected to multiple punitive damage awards in products liability actions does not render it an exception. That a company has many products in a state only strengthens the Minnesota policy to make that manufacturer responsible for those products: the more products that exist, the more chance there is for an injury occurring from one of those products.

The fact that Goodyear is a non-Minnesota corporation doing business in all 50 states also is not exceptionable. Although Goodyear may have different expectations when it does business in other states, when it does business in Minnesota, it must expect the same treatment as would be given a Minnesota corporation. If a Minnesota entity is not allowed to insure itself against punitive damages, it would be unfair to allow a foreign corporation to do so merely because it did not expect Minnesota law to govern its affairs. Additionally, Minnesota's policy is not designed to control only Minnesota corporations, the policy is designed to punish and deter conduct which is willfully indifferent to the safety of others. See Hodder, 426 N.W.2d at 837. That punishment and deterrence must apply to whomever does business in this state, not just those who reside here.

Because Minnesota law would not consider this case exceptional, Goodyear could not insure against its conduct in this situation. There is therefore a conflict between the laws of Georgia and the law of Minnesota. In such instances, Minnesota courts turn to Leflar's "choice influencing considerations" to determine which state's law applies. Milkovich v. Saari, 295 Minn. 155, 203 N.W.2d 408 (1973). The choice of law considerations include: 1) predictability of results; 2) maintenance of interstate and international order; 3) simplification of the judicial task; 4) advancement of the forum state's governmental interest; and 5) application of the better rule of law. Milkovich, 203 N.W.2d at 412.

B. Choice Influencing Considerations

1. Predictability of Results

The plaintiff insurance companies claim that in a situation such as this, the predictability factor deserves little consideration. Their argument is that this action involves mixed issues of tort and contract law. In such cases, Minnesota courts have stated that the unplanned nature of such accidents make predictability less important than in normal contract cases. See, e.g., Hague v. Allstate Ins. Co., 289 N.W.2d 43, 48 (Minn.1979), aff'd, 449 U.S. 302, 101 S.Ct. 633, 66 L.Ed.2d 521 (1981); Hime v. State Farm Fire & Casualty Co., 284 N.W.2d 829, 833 (Minn.1979).

Goodyear disagrees with plaintiffs' assessment and argues that the predictability factor weighs heavily in favor of application of Georgia law. It argues that this suit is a contract dispute and that in contract cases predictability is of...