Home Insurance Company v. Hartford Fire Insurance, 358 F.3d 1306, 11th Cir. (2004)
Home Insurance Company v. Hartford Fire Insurance, 358 F.3d 1306, 11th Cir. (2004)
3d 1306
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.
"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
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
11
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
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
15
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
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 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.