In Fidelity & Guaranty Co. v. Liberty Surplus Ins. Co., No. 08-10544 (11th Cir. Dec. 2, 2008), the United States Court of Appeals for the Eleventh Circuit certified to the Florida Supreme Court the question of whether the law of the place of contracting or the law of the place of the insured's risk governs a coverage dispute arising from a commercial general liability (“CGL”) policy.

In Liberty Surplus, the insurer determined that a commercial contractor worked primarily in Massachusetts and Florida before issuing a CGL policy to the contractor.  The CGL policy provided liability coverage for negligent conduct constituting a covered “occurrence” in Massachusetts, Florida, or any other state in which the insured operated.

The insured sought coverage under the CGL policy after defects were discovered at an apartment complex it had constructed in Florida.  The insurer ultimately denied coverage.  The insured settled, assigning its rights against the insurer to a surety that had issued a payment and performance bond for the construction of the apartment complex.

The surety sued the insurer for breach of contract under the CGL policy.  The insurer argued for the application of Massachusetts law, which the parties agreed would bar coverage.  The surety argued, however, that Florida was the correct choice of law and that the CGL policy provided coverage under Florida law.  The district court applied the rule of lex loci contractus, found that Massachusetts law applied, and granted summary judgment in favor of the insurer.

On appeal to the Eleventh Circuit, the surety maintained that Florida courts would apply the Restatement (Second) of Conflicts of Laws and hold that the law of the situs governs liability policies that insure risks related to fixed property in more than one state.  The surety argued that because Florida was the situs of the construction defects, Florida law governed the interpretation of the CGL policy, which specifically insured risks related to fixed property in both Florida and Massachusetts.

The Eleventh Circuit acknowledged that Florida courts generally apply the doctrine of lex loci contractus and hold that the law of the state where a contract was made or was to be performed governs the interpretation of the contract.  The court noted, however, that Florida courts have departed from the rule in “limited instances” to protect Florida citizens and enforce a paramount rule of public policy.  The Eleventh Circuit previously found that the Supreme Court of Florida would apply the Restatement (Second) to hold that Florida law governs a policy that insures a risk with an “unchanging” location in Florida.  The Liberty Surplus court observed, however, that the Florida Supreme Court had recently restated its rejection of the Restatement (Second)’s “most significant relationship” test and “unequivocally” reiterated its adherence to the rule of lex loci contractus in determining which state's law applies to the interpretation of contracts.

The Eleventh Circuit concluded that the Liberty Surplus appeal presents an unsettled question of Florida law determinative of its decision, and certified the following question to the Supreme Court of Florida:

DOES THE DOCTRINE OF LEX LOCI CONTRACTUS APPLY TO A DISPUTE ABOUT COVERAGE THAT INVOLVES A POLICY FOR COMPREHENSIVE GENERAL LIABILITY INSURANCE, MADE OUTSIDE OF FLORIDA, THAT INSURES THE OPERATIONS OF A CONTRACTOR ON A PROJECT LOCATED IN FLORIDA?

For a copy of the decision, please click here.