Home Insurance Company v. Hartford Fire Insurance, 358 F.3d 1306, 11th Cir. (2004)

358 F.
3d 1306
COLONIAL LIFE & ACCIDENT INSURANCE COMPANY,

and Colonial Companies, Inc., Plaintiffs-Appellants,
v.
HARTFORD FIRE INSURANCE COMPANY, Twin City Fire
Insurance Company, et al., Defendants-Appellees.
No. 03-11688.
United States Court of Appeals, Eleventh Circuit.

Filed February 5, 2004.
J. Ross Forman, III, Robert S. Given, Burr & Forman, Birmingham, AL,
for Plaintiffs-Appellants.
Michael S. Jackson, Beers, Anderson, Jackson & Smith, P.C., Judy B.
Van Heest, Montgomery, AL, James Stanley Witcher, III, Gladden &
Sinor, P.C., Birmingham, AL, for Defendants-Appellees.
Appeal from the United States District Court for the Middle District of
Alabama.
Before ANDERSON, BLACK and HILL, Circuit Judges.
BLACK, Circuit Judge:
Colonial Life & Accident Insurance Company, and Colonial Companies, Inc.
(collectively Colonial) appeal the district court's order partially dismissing their
lawsuit against Hartford Fire Insurance Company, Twin City Fire Insurance
Company, and Hartford Casualty Insurance Company (collectively Hartford).
The district court dismissed Colonial's breach of enhanced duty of good faith
claim solely because South Carolina classifies the breach of good faith and fair
dealing as a tort, and held Alabama law controls the remedy in contract claims
even though South Carolina controls the substantive claims. We reverse.1
I. BACKGROUND
Colonial sued Hartford for breach of contract, breach of the enhanced duty of
good faith, negligence, and bad faith, in a cross-claim and third party complaint.
These claims arose out of a reservation of rights defense provided by Hartford
and Hartford's failure to settle the Parker White lawsuit.2
While this case was pending, the Alabama Supreme Court, in response to a
certified question in a related case, held that a claim of breach of the enhanced
duty of good faith sounds in contract. Twin City Fire Ins. Co. v. Colonial Life &
Accident Ins. Co., 839 So.2d 614, 616 (Ala. 2002). Following briefs by the
parties, the district court conducted a hearing to discuss the impact of Twin City
on this case. Subsequently, the district court issued an order dismissing
Colonial's claim for breach of the enhanced duty of good faith. The court held
that under Alabama choice of law provisions and the decision in Twin City,
Colonial's breach of the enhanced duty of good faith claim sounds in contract
and is governed by South Carolina contract law. Because South Carolina
recognizes the breach of the duty of good faith and fair dealing as a tort claim,
rather than a contract claim, the district court dismissed Colonial's claim for
breach of the enhanced duty of good faith. The district court also found that,
while Colonial's contract claims are governed by South Carolina substantive
law, in the event contract liability exists, the remedy is governed by Alabama
law. The district court's interlocutory order certified the following holding for
immediate appeal:
In sum, this is what the court concludes. Alabama law mandates that Colonial's
"enhanced duty" claims be construed as contract claims. Because they are
contract claims, South Carolina law governs. When the court looks to South
Carolina contract law, these claims do not exist as contract claims. Under South
Carolina law, the claims are construed as tort claims. If the court were then to
apply Alabama law to these tort claims, this avails Colonial nothing because
under Alabama law, no such tort claims exist. See Twin City, supra. Therefore,
putting aside terminological problems, counts two and four of the cross-claim
and third party complaint [breach of the enhanced duty of good faith and bad
faith] must be dismissed because they do not exist as contract claims in South
Carolina or as tort claims in Alabama.
5 DISMISSAL OF THE BREACH OF THE ENHANCED DUTY OF GOOD

II.
FAITH CLAIM
A. Alabama Choice of Law
6
"A federal court in a diversity case is required to apply the laws, including
principles of conflict of laws, of the state in which the federal court sits."
O'Neal v. Kennamer, 958 F.2d 1044, 1046 (11th Cir.1992). This case was
brought in the Middle District of Alabama, and the district court did not err in
applying Alabama choice of law rules.
7
B. Application of South Carolina Substantive Law
Alabama applies the traditional doctrines of lex loci contractus to contract

claims and lex loci delicti to tort claims. The doctrine of lex loci contractus
governs the validity, interpretation, and construction of the contract. Cherry,
Bekaert & Holland v. Brown, 582 So.2d 502, 506 (Ala. 1991). The doctrine
states that "a contract is governed by the laws of the state where it is made
except where the parties have legally contracted with reference to the laws of
another jurisdiction." Id. The doctrine of lex loci delicti, on the other hand,
requires the court to "determine the substantive rights of an injured party
according to the law of the state where the injury occurred." Fitts v. Minnesota
Mining & Mfg. Co., 581 So.2d 819, 820 (Ala.1991).
The breach of the enhanced duty of good faith sounds in contract. Twin City,
839 So.2d at 616. The doctrine of lex loci contractus, therefore, applies to
Colonial's breach of the enhanced duty of good faith claim. The parties agree
the insurance contracts at issue were made in South Carolina, and thus, South
Carolina law applies to any contract claims. The district court did not err in
finding Colonial's breach of the enhanced duty of good faith claim should be
decided under South Carolina law.
10
C. Breach of the Enhanced Duty of Good Faith
11
In Alabama, insurers have an enhanced duty of good faith to defend their

insured under a reservation of rights. L & S Roofing Supply Co. v. St. Paul Fire
& Marine Ins. Co., 521 So.2d 1298, 1303-04 (Ala.1987). South Carolina does
not have a cause of action identical to Alabama's breach of the enhanced duty of
good faith under L & S Roofing, but has a similar cause of action for breach of
the duty of good faith and fair dealing. See Trimper v. Nationwide Ins. Co., 540
F.Supp. 1188, 1193 n. 2 (D.S.C.1982) (explaining that insurers have an
enhanced duty to act in good faith and that South Carolina courts have imposed
a duty of good faith and fair dealing). A breach of the duty of good faith and
fair dealing is a tort in South Carolina.3 Tadlock Painting Co. v. Maryland Cas.
Co., 322 S.C. 498, 473 S.E.2d 52, 54-55 (1996).
12
The district court dismissed the breach of enhanced duty claim because South
Carolina characterizes a breach of the duty of good faith and fair dealing as a
tort claim rather than a contract claim. We have never addressed whether a
claim should be dismissed because another state characterizes the claim

differently. In a related case, Twin City Fire Ins. Co. v. Colonial Life &
Accident Ins. Co., Civ. A. No. 99-D-935-N (M.D.Ala. Aug. 16, 2002),
however, District Judge Ira De Ment faced the same issue and reached a
different conclusion than the district court in this case. As in the matter sub
judice, Hartford argued that Colonial had no cause of action because the claim
is classified as a contract in Alabama and a tort in South Carolina. In rejecting
this argument, Judge De Ment held:
13
Twin City draws attention to the fact that South Carolina treats the claim as
tortious rather than contractual.... [T]he court notes that Twin City has not
offered any persuasive reason why this fact should matter. Conflicts rules
frequently dictate the application of laws that are different both in form and
substance from the laws of the forum state. These differences lend
significance to conflicts analyses, but they do not permit Twin City's logical
contortions. There is no Catch 22 for one simple reason: the court's application
of Alabama's choice of law rules entails that it is concerned solely with
Alabama's characterization of the claim. Whether South Carolina bases an
analogous cause of action in tort, contract, or statutory law is irrelevant.
Alabama recognizes the duty as arising in contract, thus requiring reference to
South Carolina law to determine the scope of that duty.
14
There is persuasive authority supporting this conclusion. In Waddoups v.

Amalgamated Sugar Co., 54 P.3d 1054, 1059-61 (Utah 2002), the Supreme
Court of Utah noted that under Idaho law, wrongful termination in violation of
public policy is a contract-based cause of action, and under Utah law, the same
cause of action is tort-based. The court employed Utah choice of law analysis
to find Idaho law applicable to the wrongful termination claim, and then
dismissed the action because the wrongful termination claim pled under Utah
law did not state a claim under Idaho law. The court did not dismiss the action
because the cause of action was characterized differently in the two states, but
because plaintiffs pled the wrongful termination claim under Utah law. Id.; see
also Backar v. Western States Producing Co., 382 F.Supp. 1170, 1174-75
(W.D.Tex.1974) (holding that the law of the controlling state, New York,
would determine whether an interest in oil leases was classified realty or
personal, regardless of the fact the forum state, Texas, classified the interest
differently).
15
Additionally, the Restatement (Second) of Conflict of Laws leads us to Judge

De Ment's conclusion. It provides that choice of law rules "do not themselves
determine the rights and liabilities of the parties, but rather guide decision as to
which local law rule will be applied to determine these rights and duties."
Restatement (Second) of Conflict of Laws 2 cmt. a(3) (1971). The

Restatement further provides "[t]he classification and interpretation of local law
concepts and terms are determined in accordance with the law that governs the
issue involved." Restatement (Second) of Conflict of Laws 7(3) (1971).
16
We agree with Judge De Ment's holding that whether South Carolina classifies
the breach of the duty of good faith as a tort is irrelevant.4 Colonial may or may
not have pled sufficient facts for a South Carolina breach of the duty of good
faith claim in its complaint and the pretrial order.5 The district court erred,
however, in dismissing the claim solely because South Carolina classifies the
breach of good faith and fair dealing as a tort.
III. REMEDY
17
The district court also held that, while South Carolina law will govern any
claims arising under contract law, Alabama law will govern the remedy in the
event liability exists. The district court cited two older decisions of the
Alabama Supreme Court, Jones v. Jones, 18 Ala. 248, 250 (Ala.1850) and
Macey v. Crum, 249 Ala. 249, 30 So.2d 666, 669 (1947), to support this
conclusion.6
18
More recently, however, the Alabama Supreme Court has held the law of the
state governing the substantive law must be applied when considering the
damages resulting from a breach of contract. Shelter Mut. Ins. Co. v. Barton,
822 So.2d 1149, 1158 (Ala.2001). The court held, "[b]ecause we have held that
the Shelter policy must be construed in accordance with Missouri law, we
likewise hold that Missouri law must be applied when considering the damages
that resulted from a breach of that contract." Id. We hold, pursuant to Shelter
Mutual, that any remedy for a claim sounding in contract should also be
decided under South Carolina law.
IV. CONCLUSION
19
We reverse and remand for the district court to determine whether Colonial
pled a South Carolina breach of the duty of good faith and fair dealing claim.
We also reverse the district court's holding that Alabama law will control the
remedy in any contract claims.
20
REVERSED AND REMANDED.
Notes:
Notes:
1
Although the district court certified only the breach of the enhanced duty of
good faith conflict of laws question, "[w]hen a court of appeals has jurisdiction
on interlocutory appeal pursuant to 28 U.S.C. 1292(b), the scope of appellate
review is not limited to the precise question certified by the district court
because the district court's order, not the certified question, is brought before
the court."Aldridge v. Lily-Tulip, Inc. Salary Retirement Plan Benefits Comm.,
40 F.3d 1202, 1207 (11th Cir.1994). We choose to address the remedy question
even though it was not specifically mentioned in the district court's
interlocutory order. We choose not to address Colonial's additional claims that
the district court erred in restricting its bad faith claim to a breach of the
enhanced duty of good faith claim, and in holding, as a matter of law, there
could not be bad faith failure to settle.
The Parker White lawsuit was filed by an independent representative against

Colonial seeking damages for mental anguish, sickness, illness, physical harm,
lost commissions, and lost benefits
The breach of the duty of good faith and fair dealing and bad faith are not
separate causes of action in South CarolinaOcean Winds Council of CoOwners, Inc. v. Auto-Owners Ins. Co., 241 F.Supp.2d 572, 577 (D.S.C. 2002).
The district court citedIn re Korean Air Lines Disaster of Sept. 1, 1983, 117
F.3d 1477 (D.C.Cir.1997), for the proposition that even in heart wrenching
circumstances, there is nothing unusual about a choice of law provision
precluding claims in one forum that are available in another forum. That case,
however, dealt with a case where the cause of action was available in one
forum and not in the other. Hartford cites Thompson v. Acceptance Insurance
Co., 689 So.2d 89 (Ala.Civ. App.1996), but similarly, that case deals with a
cause of action not recognized in the other jurisdiction. In this case, the cause
of action, though named differently, is available in South Carolina, but as a tort
claim rather than a contract claim.
If the district court finds that Colonial pled sufficient facts for a breach of the
duty of good faith claim, Hartford's conduct should be measured by South
Carolina's "simple" duty of good faith and not Alabama's "enhanced" duty
Jones states:
It is a principle of law, admitted by all courts, that the lex loci contractus must
govern as to the validity, interpretation, and construction of the contract. But
the remedy to enforce it, or to recover damages for its breach, must be pursued
according to the law of the forum where the suit is brought.
18
Ala. at 250Macey provides "[t]he lex loci controls the validity and construction
of the contract but the lex fori operates on the remedy to enforce it." 30 So.2d at
669.

Home Insurance Company v. Hartford Fire Insurance, 358 F.3d 1306, 11th Cir. (2004)

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358 F.

COLONIAL LIFE & ACCIDENT INSURANCE COMPANY,

United States Court of Appeals, Eleventh Circuit.

5 DISMISSAL OF THE BREACH OF THE ENHANCED DUTY OF GOOD

B. Application of South Carolina Substantive Law

Alabama applies the traditional doctrines of lex loci contractus to contract

C. Breach of the Enhanced Duty of Good Faith

In Alabama, insurers have an enhanced duty of good faith to defend their

claim should be dismissed because another state characterizes the claim

There is persuasive authority supporting this conclusion. In Waddoups v.

Additionally, the Restatement (Second) of Conflict of Laws leads us to Judge

Restatement (Second) of Conflict of Laws 2 cmt. a(3) (1971). The

REVERSED AND REMANDED.

The Parker White lawsuit was filed by an independent representative against

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