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GUIDA v. UNDERWRITERS AT LLOYD'S

March 4, 1983

Louis P. GUIDA
v.
UNDERWRITERS AT LLOYD'S Subscribing to Policy Nos. 13/711/79 and 13/774/79 and Barry Epstein Rhulen Agency, Inc. and The Zinman Group



The opinion of the court was delivered by: MCGLYNN

 McGLYNN, District Judge.

 On August 17, 1978, the plaintiff, Louis Guida, entered into an agreement with the defendant Barry Epstein ("Epstein"), Cynthia, Irving and Joanne Epstein to purchase a 25% interest *fn1" in a Standardbred horse named Sonsam, a proven winner as a pacer at the track. Because it was the intention of the parties to this agreement *fn2" that Sonsam would eventually stand at stud, they made the agreement "conditioned upon SONSAM satisfactorily passing a comprehensive stallion fertility test to be conducted . . . under the supervision of a panel of veterinarians . . . ." The agreement further provided that if Sonsam failed to pass the fertility test, "all moneys and payments made are to be returned to the respective parties . . . as if this agreement never existed." *fn3"

 Guida also hedged his bet by seeking insurance against the risk that Sonsam would fail the fertility test. He first contacted the defendant, the Rhulen Agency ("Rhulen") in this quest. *fn4" Plaintiff then arranged for the third-party defendant, the Zinman group, to act as a clearinghouse for policy documentation on insurance placed by Rhulen and as a depository for premium receipts and disbursements. Rhulen, meanwhile, arranged for two policies which were written by the defendants, Underwriters at Lloyd's ("the Underwriters"), through the broker, W.A. Stickland & Co. ("Stickland"). The first policy, No. 13/711/79, was effective as of May 3, 1979 in the amount of $225,000; the second, No. 13/774/79, was effective on September 3, 1979 and was for an additional $57,500 of coverage. *fn5"

 In January of 1980, the inevitable happened -- Sonsam failed the fertility test. *fn6" As a result, Guida made a claim under these policies which the Underwriters have refused to pay. Guida has now moved for summary judgment.

 Summary judgment is appropriate where "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Because it is a drastic remedy, the court must resolve all doubts against the moving party and draw all inferences from the facts in favor of the parties opposing the motion. Federal Laboratories, Inc. v. Barringer Research Ltd., 696 F.2d 271, 274 (3d Cir.1982); Brown v. Caterpillar Tractor Co., 696 F.2d 246, 255 n. 19 (3d Cir.1982).

 It is undisputed that the Underwriters issued and delivered to the plaintiff the two policies in question and that a loss took place under these policies. Nor is it contested that if plaintiff is successful, he will be entitled to a total of $282,500 as the agreed value of these policies except for any set-off to which the Underwriters may be entitled. In addition, I have previously ruled that plaintiff had an insurable interest in Sonsam. See Order dated August 31, 1982. The Underwriters do, however, assert they are not liable on the policies in whole or in part based on the following three theories: (1) that Guida either directly or through his agent made material misrepresentations and non-disclosures which render the policies void; (2) that plaintiff has made the enforcement of a salvage clause in the policies impossible thus relieving the Underwriters of any liability; and (3) that if plaintiff is permitted to recover, that the Underwriters are entitled to set-off all amounts plaintiff received by selling shares of Sonsam to others after the Underwriters denied his claims.

 A threshold issue is to determine which law applies. As a federal court sitting in a diversity action, I must apply the laws of the forum including the forum's choice of law decisions. Klaxon Co. v. Stentor Electric Manuf. Co., Inc., 313 U.S. 487, 61 S. Ct. 1020, 85 L. Ed. 1477 (1941). In 1964, the Supreme Court of Pennsylvania in Griffith v. United Air Lines, Inc., 416 Pa. 1, 203 A.2d 796 (1964), a tort case, adopted a combination of Professor Currie's "interest analysis" and the Restatement (Second) of Conflict of Laws "grouping of contacts" theory. The approach is a flexible one and permits the court to consider and weigh both the quality and quantity of contacts between all the potentially interested states and the parties in addition to each state's particular interest in and policies about the subject matter of the litigation. Although this approach has not yet been applied by the Pennsylvania Supreme Court in a contract case, it is the opinion of our Court of Appeals that it will. Melville v. American Home Assurance Co., 584 F.2d 1306 (3d Cir.1978).

 In the submissions all parties apparently have assumed the law of Pennsylvania applies. However, I note that the Underwriters had suggested with respect to an earlier motion by Rhulen for partial summary judgment that New York law would be more appropriate. Therefore, I believe some inquiry is prudent.

 To begin, plaintiff is a citizen and resident of Pennsylvania. *fn7" In addition, third-party defendant Zinman is a Pennsylvania corporation with its principal place of business in the Commonwealth. The insurance policies at issue were delivered by Rhulen to Zinman in Pennsylvania who, in turn, forwarded at least one of them to plaintiff. On the other hand, Epstein is a Kentucky citizen. Rhulen is a New York corporation. Lastly, the Underwriters are in a syndicate of insurance underwriters located in the United Kingdom.

 In reviewing these contacts, it appears that of these jurisdictions, Pennsylvania has the most significant relationship with the matter before me. At the very least, no other state has any stronger ties. Thus I will apply Pennsylvania law.

 The Underwriters' first defense to plaintiff's claims is that plaintiff made material misrepresentations and omissions when he applied for the insurance. Plaintiff counters with two positions which he says entitles him to summary judgment. First Guida asserts that Pa.Stat.Ann. tit. 40, ยง 441 (Purdon 1971), bars the Underwriters from introducing any evidence on the issue. This statute provides:

 
All insurance policies, issued by stock or mutual insurance companies or associations doing business in this State, in which the application of the insured, the constitution, by-laws, or other rules of the company form part of the policy or contract between the parties thereto, or have any bearing on said contract, shall contain, or have attached to said policies, correct copies of the application as signed by the applicant, or the constitution, by-laws, or other rules referred to; and, unless so attached and accompanying the policy, no such application, constitution, or by-laws, or other rules shall be received in evidence in any controversy between the parties to, or interested in, the policy, nor shall such application, constitution, by-laws, or other rules be considered a part of the policy or contract between such parties. *fn8"

 When plaintiff arranged for the coverage under the two policies here, he did not fill out or sign a formal application. Thus no application could have been attached to the policies when delivered to plaintiff. The question becomes then whether this statute bars the admission of evidence of oral and other written statements ...


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