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Filed: Patrick Fisher
Filed: Patrick Fisher
Filed: Patrick Fisher
MAR 21 2001
PATRICK FISHER
Clerk
No. 00-3050
(D. Kan.)
(D.Ct. No. 97-CV-4211)
Defendant,
---------------------ALLSTATE INDEMNITY COMPANY,
Garnishee-Appellee.
_____________________________
ORDER AND JUDGMENT *
Before BRORBY, ANDERSON, and EBEL, Circuit Judges.
Plaintiffs Marie Myrtha Mirville and Eclamene Mesca brought this nonwage garnishment action alleging garnishee Allstate Indemnity Company
This order and judgment is not binding precedent except under the doctrines of
law of the case, res judicata and collateral estoppel. The court generally disfavors the
citation of orders and judgments; nevertheless, an order and judgment may be cited under
the terms and conditions of 10th Cir. R. 36.3.
*
(Allstate) refused in bad faith and negligently to settle their personal injury
claims against Allstates insured. Utilizing Kansass choice of law rules, the
district court held New York, rather than Kansas, law provided the standard
regarding an insurers duty to defend and settle claims against its insured.
Mirville v. Allstate Indem. Co.
See
(granting summary judgment in part for Allstate). Plaintiffs appeal this holding
and the application of New York law in the subsequent bench trial, after which
the district court entered a final order in favor of Allstate.
See Mirville v.
I. Background
The facts necessary to resolve this appeal are undisputed:
This case arises from an automobile accident which occurred
near Topeka, Kansas, on July 9, 1996. Joseph Mirville was driving a
car on Interstate 70 which was struck from behind after he stopped
in a lane of traffic. The two passengers in the Joseph Mirville car,
1
] were both injured
plaintiffs Marie Mirville and Eclamene Mesca,[
in the accident. Joseph Mirville was a resident [and citizen] of New
York prior to, and at the time of, this accident. Joseph Mirville was
insured by the garnishee in this case, Allstate Indemnity Company ....
The insurance contract was entered into in New York.
Marie Mirville is Mr. Mirvilles wife and Eclamene Mesca is his niece.
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It is important to note this cause of action is one by the insured against the
insurer arising out of their contractual relationship. See Pavia, 626 N.E.2d at 26-27;
2
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The district court applied Kansass choice of law rules to resolve this
conflict of laws. See Mirville, 71 F. Supp. 2d at 1107-08. The court noted New
York law would govern under Kansass lex loci contractus rule (the law of the
state where the contract is made controls), unless application of New York law
would violate the settled public policy of Kansas (the public policy exception).
See id. at 1107. After reviewing Kansas Supreme Court case law and the facts in
this case, the district court concluded Kansass public policy exception did not
apply. See id. at 1107-08. Accordingly, based on its decision that New York law
governed the substantive issues in this case, the district court granted summary
judgment for Allstate as to plaintiffs negligence claims. See id. at 1108-09.
Glenn v. Fleming, 799 P.2d 79, 90 (Kan. 1990). The theory is an insured should not be
responsible for any judgment in excess of the insurance policy limits if the insurer acted
in bad faith in refusing a settlement offer within those limits. See Pavia, 626 N.E.2d at
26-27; Bollinger, 449 P.2d at 508. Although this claim can be brought by a third party as
a garnishment action under an assignment of rights and covenant not to execute, this does
not expand the cause of action beyond the relationship between the insured and the
insurer. See Pavia, 626 N.E.2d at 26-29; Glenn, 799 P.2d at 90-93. Accordingly, the
place of residency and citizenship of plaintiffs as third parties are immaterial to this case.
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At the subsequent bench trial on plaintiffs bad faith claims, the district
court held:
Although Allstate may have acted negligently, which was not an
issue before the court and will not be decided, the plaintiffs have
failed to show that Allstate acted in bad faith as that cause of action
is defined under New York law. Therefore, judgment will be entered
in favor of Allstate.
Mirville, 87 F. Supp. 2d at 1192.
On appeal, plaintiffs claim the district court erred in not applying Kansass
public policy exception to the lex loci contractus rule. 3 In other words, plaintiffs
argue Kansas, not New York, law should apply to this case.
In the district court, the parties agreed this is a contract interpretation case
invoking the lex loci contractus rule, which is how we will evaluate the issue on appeal.
See Mirville, 71 F. Supp. 2d at 1107. Plaintiffs raise, for the first time on appeal, an
alternative argument that the duty to defend and settle is a contract performance issue.
They claim Kansas applies the place of performance rule, as opposed to lex loci
contractus, to such issues. However, they have not attempted to articulate a reason for
us to depart from the general rule that a federal appellate court does not consider an issue
not passed upon below. Walker v. Mather (In re Walker), 959 F.2d 894, 896 (10th Cir.
1992) (quoting Singleton v. Wulff, 428 U.S. 106, 120 (1976)). Therefore, we decline to
consider their alternative argument. See id.
3
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Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir. 1998). Summary judgment is
appropriate if there is no genuine issue of material fact and the moving party is
entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(c). When there is
no genuine issue of material fact, we must determine whether the district court
correctly applied the substantive law. See Applied Genetics Intl, Inc. v. First
Affiliated Sec., Inc., 912 F.2d 1238, 1241 (10th Cir. 1990).
IV. Discussion
In a diversity of citizenship case, the district court must apply forum state
law including its choice of law rules. See Klaxon Co. v. Stentor Elec. Mfg. Co.,
313 U.S. 487, 496 (1941). In Kansas, an action alleging an insurer breached the
duty to settle arises under contract law. See Glenn, 799 P.2d at 90. Kansas
follows the lex loci contractus rule when there is a conflict of laws dealing with
the interpretation of an insurance contract, which means the law of the state
where the insurance contract is made controls. Safeco Ins. Co. v. Allen, 941 P.2d
1365, 1372 (Kan. 1997); see supra note 3. As an exception to the lex loci
contractus rule, Kansas will not apply another states law if it violates the settled
public policy of Kansas. See id.; Barbour v. Campbell, 168 P. 879, 880 (Kan.
1917) ([W]here the contract contravenes the settled public policy of the state
whose tribunal is invoked to enforce the contract, an action on that contract will
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not be entertained.).
In this case, we must determine whether the application of New York law
violates the settled public policy of Kansas. To resolve this issue, we must
identify: (1) the conflict of laws between New York and Kansas, and (2) the
settled public policy of Kansas applicable to this type of case.
Cas. Co. v. G.A. Nichols Co., 173 F.2d 830, 832 (10th Cir. 1949)). 4
However, New York does not permit ordinary negligence to be a basis for
liability, while Kansas does. Compare Pavia, 626 N.E.2d at 27 ([E]stablished
precedent clearly bars a bad faith prosecution for conduct amounting to ordinary
negligence.), with Bollinger, 449 P.2d at 508 ([L]iability may be imposed
against the insurer on either theory. In other words, the insurer, in defending and
settling claims against its insured, owes to the insured the duty not only to act in
good faith but also to act without negligence.). Thus, New Yorks refusal to
include ordinary negligence as a basis for an insurers liability under this cause of
action represents the conflict of laws in this case.
To the extent plaintiffs argue the bad faith standards of New York and Kansas
differ, we disagree. Although the Kansas Supreme Court has not explicitly said so, we
believe its explanation of what does not constitute bad faith mirrors New Yorks
deliberate or reckless requirement with regards to the insurers alleged failure to take
the insureds interests into equal consideration with its own:
4
Where the insurance company acts honestly and in good faith upon
adequate information, it should not be held liable because it failed to
prophesy the result. Something more than mere error of judgment is
necessary to constitute bad faith. The company cannot be required to
predict with exactitude the results of a trial; nor does the company act in
bad faith where it honestly believes, and has cause to believe, that any
probable liability will be less than policy limits.
Bollinger, 449 P.2d at 514 (citations omitted).
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To the extent the Kansas Supreme Court distinguishes between settled and
non-settled public policy, we assume without deciding these considerations reflect the
settled public policy of Kansas. Cf. Riddle v. Wal-Mart Stores, Inc., 998 P.2d 114, 119
(Kan. Ct. App. 2000) (Before courts are justified in declaring the existence of public
policy, it should be so thoroughly established as a state of public mind so united and so
definite and fixed that its existence is not subject to any substantial doubt.) (quoting
Palmer v. Brown, 752 P.2d 685, 687-88 (Kan. 1988)).
5
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acknowledge, a mere difference in the law of each state is not sufficient to justify
the application of the exception.
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The Kansas Supreme Court has invoked Kansass public policy exception
when application of the other states law would thwart or defeat the public policy
objectives underlying the Kansas law at issue.
Co. v. International Playtex, Inc.
Barbour ,
1269. The Kansas Supreme Court declared the objective behind the Kansas law
is to prevent wrongful acts against citizens of the State of Kansas through
deterrence by making the culprit feel the pecuniary punch, not his guiltless
guarantor. St. Paul , 777 P.2d at 1269 (quotation marks omitted). Accordingly,
the supreme court affirmed the trial courts use of the public policy exception to
defeat the application of Delaware law, because refusal to apply the Kansas law
would thwart the purposes for which the policy was adopted.
1270.
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Id. at 1269,
Supreme Court noted the objective of the Kansas statute is to prevent frauds and
perjuries, and applying Idaho law would open the door to all manner of frauds
and encourage the baldest sort of perjury.
Idaho statute would defeat the Kansas public policy objective underlying the
Kansas statute. Accordingly, the supreme court invoked the public policy
exception, applied the Kansas statute, and refused to enforce the alleged oral
contract. See id.
On the other hand, the Kansas Supreme Court did not apply the public
policy exception when an automobile liability insurance policy provision was
consistent with the Kansas public policy objective behind a Kansas statute.
See
Safeco , 941 P.2d at 1373. In Safeco , the insured was a Missouri resident, the
insurance policy was issued in Missouri, and the car accident occurred in Kansas.
See id. at 1366. The issue was whether the insurer was entitled to subrogation
for payments it made to its insured for his medical expenses.
The insurer was not entitled to subrogation if the policys medical expenses
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coverage and Missouri law applied, but was if the supreme court determined
Kansass statutorily mandated personal injury protection benefits eliminated the
policys coverage.
medical payment provision of the Missouri policy does not violate Kansas public
policy but, to the contrary, is consistent with the stated policy of [the Kansas
Automobile Injury Reparations Act] by promptly compensating its insured for
personal injuries.
between the parties to the insurance policy, and held they were bound to the
terms of the policy and Missouri law in order to ensure that the insured received
the benefit of his bargain.
Id.
We conclude New Yorks bad faith standard is consistent with the Kansas
public policy objectives underlying the cause of action in this case, and, unlike
the situations in St. Paul and Barbour , does not thwart or defeat them. In light of
the consistent objectives and the fact the insurance policy was made, entered, and
issued in New York to a New York citizen, we believe the application of New
York law does not violate Kansass settled public policy objectives as described
above. We hold this case reflects nothing more than a mere difference in the law,
which is not sufficient to justify the application of the Kansas public policy
exception to its lex loci contractus rule. See Alexander , 952 F.2d at 1223-24; cf.
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Additionally, New Yorks bad faith standard and Kansass bad faith or
negligence standard emanate from and seek to serve the same public policy
objectives: protecting the insureds interests in light of his relinquishment of
control of the case to the insurer, encouraging settlements, and preventing
unnecessary litigation merely because an insurance company decides to try all
cases as a matter of policy.
the bad faith doctrine is the fact that insurers typically exercise complete
control over the settlement and defense of claims against their insureds.),
Pinto v. Allstate Ins. Co. , 221 F.3d 394, 399 (2d Cir. 2000) (applying
and
Pavia )
(The availability of a bad faith cause of action encourages settlements that are in
the insureds best interests, and also discourages insurance companies from
refusing to settle as a matter of policy. (citation omitted)),
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See
Bollinger , 449 P.2d at 509 (While the terms negligence and bad faith are not
synonymous or interchangeable in a strict legal sense, they share common hues in
the insurers spectrum of duty.).
Further, the only connection to Kansas in this case is that the car accident
occurred there.
See supra
Part I. The cause of action is based on their contractual relationship, which was
entered into in New York.
court:
The issue essentially boils down to whether applying the standard of
care concerning the settlement of insurance claims established by the
New York courts to a contract entered into in the state of New York,
between a New York resident and his insurance company, would
violate Kansas public policy. The court finds that it would not.
Mirville , 71 F. Supp. 2d at 1108. We agree.
With respect to the portion of the district courts opinion from which we quote,
plaintiffs argue [t]here is no basis in law or equity for the district courts exclusion of
non-residents from protection of the Kansas public policy at issue. We do not read the
6
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We hold the district court correctly concluded the Kansas public policy
exception does not apply in this case. Accordingly, we affirm the district courts
application of New Yorks bad faith standard to this case in both its summary
judgment and final orders.
V. Conclusion
The judgment of the United States District Court for the District of Kansas
is AFFIRMED .
district courts choice of law ruling in this way, nor should our order and judgment be so
interpreted. Like the district court, we are simply making the point that the facts of this
case are more closely aligned to Safeco than St. Paul or Barbour, and our holding should
reflect this difference.
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