1 RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Six

th Circuit Rul e 206

ELECTRO NIC CIT

ATION: 2004 FED App . 0002P (6th C ir.) File Name: 04a00 02p.06


### UNITED STATES COURT OF APPEALS

FOR THE SIXT H CIR CUIT

_________________
B ROWNE LL C OMBS , II, Administrator C.T.A. of the Estate of L ESLI E C OMBS , II, Deceased, Plaintiff-

Appellant

,

v.

I NTER NAT IONAL I

NSURANCE C OMPANY , Defendant-Appellee. X

- - - -
> , - - - - - - - N No. 01-6493

Appeal from the United States District Court for the Eastern District of Kentucky at Lexington. No. 00-00217—Karl S. Forester, Chief District Judge.

Argued: June 11, 2003 Decided and Filed: January 6, 2004

Befor e: KEI TH, BAT CHELD ER, and CL AY, Circu

it Judges.

_________________ COUNSEL

ARGUED: John H. Dwy er, J r., PEDLEY, ZI ELKE & GORDI NIER , Louisville, Kentucky , for Appellant. Louis G. 2 Combs v. Int’l Ins. Co. No. 01-6493

Co r si, LANDMAN, CORSI , BALL AINE & F ORD, New York, New Yo rk, fo r Appellee. ON BRI EF: John H. Dwyer, Jr., Law

renc e L. Pedley, PEDLEY, ZI ELKE & GORDI NIER , Louisville, Kentucky , for Appellant. Louis G. Corsi, Eil een H. d e Ca ll ies , LAN DMA N, C ORS I, BALL AINE & FORD, New Yor

k, New York, Davi d R. Monohan, WOOD WARD, HOBSON & FULTON , Louisville, Kentucky , for Appellee.
CLAY, J., delivered the opinion of the court, in which KEITH, J., joined. BATCHELDER, J., concurred in PartIV
on ly.

_________________

OPINION

_________________ C LA Y, Ci rcu it Ju dge . P lai nt iff , Br own ell Co mb s, II, Administrator C. T.A . of th e Es tat e of

Lesl ie C om bs, II, deceased, appeals

an order granting Defendant, I

nternational Insurance Company, summary

judgmen t again st Plainti f

f’s actionin di versi ty, brough t pur suant to 28 U.S.C. § 1332, alleging breach of a

directors and officers liability insurance contract, breach of the implied contractual duty of good

faith and fair dealing, and bad faith denial of D efe nd ant’s dut y to defend under the insuranc e policy . For the reasons set forth below, we AFFIRM

the district court.

FACTS

Dece dent founded Spendthrift Far m (“Spendthrift”) in 1937 with 120 acres of

land near Lexington, Kentuc ky. By the early 1980s, the

farm encompasse d 1 800 acres and housed fo rt y- three stallions, including the last two Triple CrownNo. 01-6493 Combs v. Int’l Ins. Co. 3

1 The parti es never define “st alli on management, ” but evi dently prices at Sp end thrift Farm are as h igh as $ 1 millio n per visit.

2 Plaint iff

is Decedent ’s s on and adminis trat or of Decedent’ s est ate. winners. Decede

nt develo ped the pr incipal me

thod of sta

ll io n ma na ge me nt us ed to da y. 1
By 1981, Decedent was over eighty years old a

nd bec a me interested in pla nnin g his estate

so that Spe

ndthrift would contin ue after his death. During the early 1980s, Decedent tried several differ en t methods to broaden Spendthrift’s ownership. Initial ef

fort s to take the company public f ailed when the farm could not locate a suitable inv estment bank. A 1982 eff

ort to distr

ibute for ty p ercent

of the ow

nership interest in Spendt hrift failed because of disputes between Plaintiff

2 and potential investors.

Ev en tu al ly, the farm

developed

and imple

mented a private stock placeme nt pl an described in a Private Placement Memorandum

(“PPM”). The PPMmade clear that Decedent and Plaintiff, not Spendthrift, retained exclusive control over the priva te place ment:
All sales are subject to the discretion of the Sellers i ncluding the right to accept each unit as purcha s ed o r none unti l the entire offering is purchased. Sellers reserve the rig

ht, in their

absolute discretion, to accept or reject any offe r to purchase, and/or to withdraw the offering either partially

or in its entirety. (J.A. at842.) Furthermore, the lawy ers involved in both the private placement (Charles Hembree, De cede nt’s long -time personal counsel) , and the c ontemp lated initial pu blic offering (“IPO”) (Frank Wheat of Gibson, Dunn & C rutcher), distinguished

between the Combs family a nd Spen d thrift Farm. Wheat took

steps “to

keep Spe

ndthrift o ut of this 4 Combs v. Int’l Ins. Co. No. 01-6493

private placeme nt” to “protect Spendthrift against claims that might arise out of the placement.” (J.A. at 748.)

Throu gh the PPM, the fa

rm sold bloc

ks of stock to certain investors al re ad y in vo lv ed in th e t ho ro ug hb re d i nd us tr y, thereby creating a pool

of shareholders who could create a board of directors a

nd lead Spendthrift after Decedent’s dea th. Decedent comp l eted the stock sale in 1983. Decedent persona lly received $17.5 million fr om the transaction and Plaintiff received another $17.5 million.

The thoroughbred indu st ry, includin g Spendthrift
, prospered during t he earl y 19 80s. L ater in

the d ecade, however, the industry suffere d a downturn

from whic

h it did notfully recove

r until the mid-1990s. Spendthrift’s problems inthe mid-to-late-eighties upset many of the investors inthe private placement.

InJanuary of 1984, Def endant issued ex ces s policy no. 524-029517-1, which provided directors’ and of ficers’ liability coverage to Spendthrift for claims made a gainst the farm from November 17, 1983 through November 17, 1986. The polic y pr ovided coverag e as follows:
1. INSURING CLAUSE

If during the policy

period any claim or

claims are made against the Insure d

(as herinafter defined) or any of them for a Wrongfu l Act (as hereinafter defined ) while acting in their individual or collective c apa cities as Directors or Officers, the Insurer will pay on behal f of th e Insureds or any of them, their Exec

utors, Administrators, Assigns 95% of all L oss (as hereinafter defined), which the Insureds or any of the

m shal l be come leg ally obligated to pay in excess of

the retentions stated inI tem I V (a) and (b) of the Declar ations, not exceeding the limit

of l iab il it y sta ted in Item III of the Declarations.No. 01-6493 Combs v. Int’l Ins. Co. 5

(J.A. at 34-35.) The policy def ined “Wrongful Act” as “any actu al or al le ge d e rr or or mi ss ta te me nt or br ea ch of du ty b y the In sureds while acting in their individual or collective capaci ties, or any

matter no t exclu ded by the terms and
c onditions of this Polic

y c laimed against them

solely b y reason of their beingDirectors and Officers of the Company .” Id.

In1986, while the policy was in ef fect, F red L. Fredricks sued Decede nt, Plaintif

f, and other co-d

efenda nts “in t heir individual capaci

ty a nd as ag ents and employee s of defendant Spendthrift

Farm, Inc.”

(J.A. at 1049.) The Northern District of California consolidat edthe Fredericks case with seven other cases involving substantially similar c laims (hereinafter the consolidated “Califor

nia Litigat ion”). A pproximate ly half of the Calif ornia Litigation plaintif

fs su ed Spendthrift Farm itself for the a

lleged misrepre sentati ons of

its offic ers, directors and agents with respec t to the private plac ement. The othe r half sued only the individual ag ents of the farm involved in the private placement. Regar dless, the substance of all the claims focused primaril y on representations made in the PPM regarding the farm’s financi al condit

ion and the

value of

its assets

. Sp ec if ic al ly, the plaint if

fs in the California Litigation made two allegations: (1) that the PPM re l ied upon financial statemen ts prepared on

a curren t value ba sis rathe

r than a c ost basis; and (2) that

the current value presentation misled the plaintiffs because

it failed to include any

provision for inco me taxes, thereby ove

rstating the value of

Spendthrift’s assets by the amount

of tax liability that

would result from attempting to realize the assets’ full value. Acc or ding to the plaintif fs, the asset va

luations w ere “su

bstantial ly

inflated and based

on unreali stic assumptions about the quality, co nfirm ation and other characteristics of the horses.” Id . The plaintiffs sought rescissionpursuant to Section 12 of the Securities Act of 1933, 15 U.S.C. § 77, along w ith damag es for th e alleg edly fraudulent misrepresentations. 6 Combs v. Int’l Ins. Co. No. 01-6493

Ina letter dated November 14, 1986, Paul Renne, Plaintiff’s counsel in San Francisco, California, notified Defendant that the plaintiff

s fi led eig

ht compla

ints aga inst Defe ndant. Renn e’s letter sought reimbursement under the policy and Renne requested tha

t Defendant communicate with him about Decedent’s coverag e demand.

InDefend

ant’s re sp ons e, Defendant’s New York counsel explained, inter alia , that the wrongf ul conduct a llege d agains tDecede

nt did not in

volve acts solely

inhis capacity a s a director or off

icer of Spendthri f

t, but ra ther con

duct in his individual capaci

ty a s a share

holder se lling his sha res in Sp endthrift

for his personal gain (and Plaintiff’s per sona l gain) of $35 million:

The wrongful con duct alleged against the [Plaintiff and Decede nt] in the [Calif ornia Lit iga tion] a rises from the sale of their Spendthrift stoc k. International has observed fro m a re view of the Private Placement Memoran dum dated

April1, 1982 (“PPM”), which was distributed

along with a suppleme

nt thereto dated July 27, 1983 (“PPM Supplement”), in connection with a “privat e placement” distribution of shares of Spendthrift by the [Plainti ff and D eceden t] th at the [Plaintiff and Decede nt] offered shares in Spendthrift, i n units of twenty at $1.75 million per unit, for a tot al of fering of $35 million. All of the proceeds of the offe ring we nt to the [Plaintiff and Dece dent ], and none of the proceeds went to Spendthr

ift. The PPM

states tha t [Decede nt] is selling t he port ion of stoc k for the purpose o f estate planni ng, and that [Plaintiff] is selling his portion of stock for estate planning and to diversify his interests. . . .

As indicate d above, the direc tors and officers of Spendthrift

are i nsured only for loss incurre d by them solely in their respective capacities as directors a nd office rs. The wrongful conduct allege d against the [Plaint iff a nd Decedent] in the [California Litigation] does not involve

them solel

y in their ca pacity as directorsNo. 01-6493 Combs v. Int’l Ins. Co. 7

or officers but

rather in their c apacity

as individ

uals who
are selling

their sha

res in Sp en dthrift for their own personal gain. Accordingly , International declines to afford coverage for any

loss incurred by the [Plaintiff and Decede nt] inconnec tion with th e [Califor nia Lit iga tion]. (J.A. at 108-09.) Defendant address ed this let

ter to Ren ne, in California, as well as to c ertain d efense counsel ( located

in California, Ohio, and Kentucky ) who had an interest in the Policy because the

y repre sented other defendants.

Decedent settled some of the claims against him for $2 millio nin a court-approved settlement. The trial court dismissednumerous other claims. A few issue s reached a ju ry, whi ch r etu rne d a v erd ict in fav or o f th e de fen dan ts . In
a comprehensive opinion

explaining

the Calif ornia Litigation indetail, the Ninth Circuit affirmed. See McGonigle v. Combs
, 968 F.2d810 (9th Cir . 1992). Wh en the Ca lifornia Litigation concluded in 1992, Decedent had spent $770,000 inattorney’s f

ees in addition to the $2 million he paid to settle certain claims.

Withrespect to the court-approved settlement, Dec ed en t submittedan extensi

ve evide nti ary re cord to persuade the district court

that he had

only a persona

l role in the disputed transactions: (1) there is

no evidence that [Decedent] wrote any part of the offering memos or that he was even c ons ulted as to their text; (2) there is no eviden ce t hat [Dece dent]
consc iou sly

did anything wr

ong, or that he is guilty

of
a ny moral turpitude in this action; and (3) there i s n o evidence that [ Dece dent] pe rsonally misled any one or sought to mislead anyone. [Dece d ent] is in these cases for one reason only : he was a seller, and there is a claim for recission to which

he must re spond although the re is no evidence of scienter

on his part. 8 Combs v. Int’l Ins. Co. No. 01-6493

(J.A. at 379-8 0.) T he evidence Decedent submitted to the districtcourt in the Califor nia L it igat ion included a due diligence memorandum prepa red by counsel f ollowing a July 26, 1983 meeting with Dece dent and Plaint iff. This memorandum

distinguishes between the conduct of Decedent and Plaintiff as sellers, and thei r conduct as officers or directors for Spe

ndthrift:

OnTuesday

morning, July 26, we met wit h [Plaintiff

] to discuss with him the

timing of

the priva

te pla c ement. [Plaintiff] informed us in rather blunt terms that he had
no intention of delaying the private placement . H e informed us that he was willing to accept the risks of lack of fu l l disclosur

e and non -complia

nce with s tate securities laws. I advised [Plaintiff] that the risks of lack of going forwar d could be rathe r signif icant as it was my view that prud

ence ca lle d fo r a dela

y of the priva

te placement

of at least t wo week s. [Plaintiff] informed the group that he knew each of the investor s persona

lly and had conducte d a signi ficant a mount of bu siness wit

h themin the pa st. He informed us that he would give back any monies if the investors complaine d about the adequacy of the disclosure or non-compliance with Blue Sky l aws. (J.A. at 716-20.) Decedent’s factual submission to the district court in t he California Litigation also established that Deced ent “was only intere sted in [the private placement ] being done and

having his check deliver

ed to him and [Plaintiff] was supposed to take careof every thing.” (J.A. at 395.) Decedent quoted Plaintiff as stating that “his father ha d reached the point in

his life where he would not have an attentionspan sufficient to go through com ple x legal document s or, for that matter, a conversation that lasted more than five minut

es.” (J.A. at 413.) Pl aintiff d id not d isput e any part of the factua

l recor d submitted

to the distr

ict cour t in support of the settlement in the California Litigation.No. 01-6493 Combs v. Int’l Ins. Co. 9

3 Plain tiff evidently d oes n ot co ntest this co nclusio n on a ppe al.

PROCEDURAL HISTORY

Decedent died in April of 199 0, befor e the Cali fornia Litigation concluded. Decedent had not y et brought an action agains tDefendant for his defense fee s or the se ttlement pay ments , and Plaintiff still had not done so on Decedent’s behalf when the California Litiga tion termina ted in

1992. Decede nt’s estate was closed four y ears later, on June 21
, 1996. Neither the administrat or of the es tate at the time, P. Keith Nally, nor the esta

te’s attorney, Cha

rles Hembree, considered

commencing a claim against Def endant on Decedent’s behalf.

I n the Spring o f 2000, fo ur years af

ter Dec edent’s

estate closed, Plaintiff reopened the estate a

nd arra nged to become the administrator. On June 6, 2 000 , in the United States District Court for the Easte rn District of Kentucky , Plaintiff commenced

the action that

is the subject of this appeal. Count Iof the complaint asserted a breac h of contr act cla im; Count II alleged a breach of the duty

of good fa ith an d fair deali ng; and Count III asserted a ba d faith claim.

Fo llowing discovery, De fendant moved for summar y judgment on July 2, 2001. Defendant argued ( 1) that New York’s st atute of limitations applied and barred Plaintiff’s claims; (2) equi

table es toppel ba

rred Pla intiff’s claims ; and (3) the policy did not cover the Dec edent’s

role in the

private placeme nt. On September 10, 2001, the district court granted Defendant’s motion on th e basis th at the ap plicable statute of limitations barred

Plaintiff ’s claims

. See Combs v. I nt’l Ins. Co. , 163 F. Supp.2d 686 (E.D. Ky. 2001). The district court also suggested that the good fa ith and fair dealing

claim and the bad f aith clai m lacked merit. 3 Id . at 695-96.

OnSeptember 20, 2001, Plaintiff filed a motion under Fed. R. Civ. P. 59(e ) to amend the judg ment to ce

rtify the statut e 10 Combs v. Int’l Ins. Co. No. 01-6493

of limitations

issue to the

Kentuck y Sup reme Cour

t. Afte r further briefing, the district court denied Plaintiff’s motion on November

16, 2001. On Novemb er 29, 20 01, Plainti ff timely noticed his appeal.

DISCUSSION

We conduct a de nov o revi ew of summary judgmen t. Eastman Kodak

Co. v. Image Technical Servs., Inc. , 504 U.S. 451, 466 n.10 (1992); Buckeye Cmty. Hope Found. v. City of Cuyhaoga Falls
, 263 F.3d 627, 633 (6th Cir. 2001); Johnson

v

. Econ. Dev. Corp. , 241 F.3d 501, 509 (6th Cir. 200 1)

. Summary judgment is appropriate when there is no ge n uin e issue of materia l fact suc h that the moving pa

rty is entitled t

o a judgme nt as a matter of law. Kocsis v. Multi-Care Mgmt

. , Inc. , 97 F.3d 876, 882 (6th Cir. 1996). In Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986), the Supre me Court explained that [t]he mere existence of

a scintill a

of evidence in support of the plaintiff's position

will be ins

ufficie nt; there must be evidence on which the jury could reasonably

find for the plaintiff

. The judg e's inqu

iry , theref ore, una voidably asks whether reasonable jurors could find by a preponderanceof

evidence that the plaintiff is entitled to a verdict.
Id

. at 322. T he “mere possibility” of a factual dispute does notsuffice to create a triable ca se. Gregg v. Allen-Bradley Co., 801 F.2d 859, 863 (6th Cir. 1986). To defeat summary judgmen t, the plaintiff

"must come forward with more persuasive evidence to support [his or her

] claim tha

n would otherwis e be necessary." Matsushit a El ec. Indus. Co. v. Zenith Radio Corp

. , 475 U. S. 574, 586 (1986). If the defen dant successfully de

monstrates , after a reasona ble perio d of dis covery , that the plaintiff cannot produce sufficient evidence beyond the bar e allegations of the com pla int to support an essen tial element of his orher case, summary judgment is appropriate. Celotex Corp. v. Ca trett , 477 U.S.No. 01-6493 Combs v. Int’l Ins. Co. 11

317, 325 (1986). When determining whethe r to re ach this conclusion, we view the eviden ce and draw all reasona ble inferences in the l ight most favorable to the non-moving pa rt y. Adick

es v. S.H. Kress &Co. , 398 U.S. 144, 157 (1970); Williams v. Int’l Pa per Co. , 227 F.3d

706, 710 ( 6th Cir. 2000); Smith v. Thornbu rg , 136 F.3d 1070, 1074 (6th Cir. 1998).

W e must decide whether the district court properly rul e d that under Ky. Rev. Stat. § 413.320, the Kentucky “

borrowing statute,” the New York statute of limitations bars Plaintiff’s action. This is a highly unce rtain area of state law, forcing us to make an educated “ Erie guess. ” Plainti ff c ontends, al te rn at iv el y, (1) that the K entucky judiciar y w ould interpret Kentucky’s

borrowi ng statute so as to apply the statute of limitations of the jurisdiction t hat , conside ring al l the fac

ts, has the most sign ificant connection with the disputed trans action, and (2) even if the locus of accrua l is the onl y r elevant consideration, this cause of action accrued i n Ke nt uc ky, making Kentucky ’ s statute of limitations applicable.

N ewYork’s st

atute of limitations

for bre ach of a

writt e n contract is six years. N.Y. C IV

. P RAC

. L AW & R ULES § 213. Kentucky has a fifteen-y

ear st atute of limitations for the breach of a written contract. K Y

. R EV

. S TAT . § 413.090(2). Defendant

notified Plaintiff that it would den y coverage on Nov e mber

14, 1986, and Plaintiff brought suit on June 6, 2000. Thus, if New York’s statute of limitations applies, as opposed to Kentucky’ s, Plaintiff’s claim is barred.

Inaccordance with Erie

Railroad Co. v. Tompkins , 304 U.S. 64 (1938), when evaluating an undecide d ques ti on of Kentucky law, a fe d eral court sitting in diversity must make the “‘the best prediction, even i n the abse

nce of di rect sta te preced ent, of what the Kentucky

Supreme C ourt would

do if it were confronted wi th [the] question.’” Man aged Hea lthcare Assocs., Inc. v. Kethan , 209 F.3d 923, 927 ( 6th Ci r . 2000) (quotin g Welsh v. United States , 844 F.2d 1239, 1245 (6th 12 Combs v. Int’l Ins. Co. No. 01-6493

Cir. 1988)). If the rele

vant state judiciar

y ha s not spoken

to the issue, court s sitting in diversity should con sider “a

ll relevant data,” Kinglsey Associates, Inc. v. Mo ll Plastic Crafters, Inc. , 65 F.3d 4 98, 507 (6 th Cir . 20 00), including jurisprudence from other jur isdictions, Lexington Insurance Co. v. Rugg &Knopp, Inc. , 165 F.3d 10 87, 1090 (7th Cir. 1999).

The Seventh Circuit ob served that fed eral co urts “must proceed with ca utio n” when making pronouncements about state law. Lexington , 165 F.3d at 1092. Sitting in di ve rs it y, we are “not commissioned to tak e a position regarding the advisabi lity

or fairness of the

state rul e to be applied, but [m ust] determine the issue as woul d the hig hest cour t of th e state.” Kurczi v. Eli Lilly & Co. , 113 F.3d 1 426, 1429 ( 6th Cir

. 199 7). This Court’s proper reluctance to speculate on any trends of state law applies w ithspecial force to a plaintiff ina diversity ca se, like this one, who has chose n to litiga te his state law claim in feder al co urt. Torres v. Goodyear Tire & Rubber, Inc. , 867 F.2d 1234, 1238 (9th Cir. 1 989); Sh aw v. Republic Drill Corp. , 810 F.2d

149, 1 50 (7th Cir. 1987). Fur ther more, “[w]hen given a choice between an interpre tatio nof [state] la w which r

easonab ly r

estricts li ab il it y, and one w

hich gr eatly expands lia

bility , we shoul d choose the narrower and more reasona ble path.” Todd v. Societe Bic, S.A. , 2 1 F.3d 14 02, 1412 (7th Cir. 1994) (en banc); see also City of

Phila. v. Beretta, U.S.A., Corp. , 126 F. Supp.2d882, 906 (E.D. Pa. 2000) (declining to broade n state law nuisance doctrine in a diversity case).

As the First Circuit explained, f eder al courts sitting in a diversity cas e are in

“a part icularly poor posit

ion . . . to endorse [a] fundamental policy innovation .

. . . Absent some authoritative sig nal from the legislature of the courts of [the state ], we see no basis for

even considering the pros and cons of innovative theories . . . .” Dayton v. Peck, Stow & Wilcox Co. (Pexto)
, 739 F.2 d 690, 694 (1st Cir. 1984). Federal courts hearing diversity

matters should be extremely ca utious about adopting “substan tive innov ation” in

state law. RhynesNo. 01-6493 Combs v. Int’l Ins. Co. 13

v. Branick M

fg. Corp

. , 629 F.2d 4 09, 410 (5 th Cir. Unit A 1980). Thus, we must handle this issue charily

. I.

As noted, Plaintiff contend s tha t the Kent ucky Supreme Court would interpret Kentucky ’s borrowing statute so that whenever substantive Kentucky law governs a claim involving mult iple jurisdictions, Kentucky will apply the statute of limitations of the f

o rum with the most significant relationship to the dispute.

A borrowing statute is a legislative exception from the general rule that the forum alway s applies its statute of limitation. Miller

v. Stau ffer Chem. Co. , 581 P.2d 345, 348 (Idah o 1978) (“Borrowing statutes change the common law rule governing

choice o f the app licable s tatuteof limitation.”) (citationomitted). Borrow ing stat utes var y so mewhat, but all provide that the f

orum state

will apply

the statute of limitations from the foreign jurisdiction in which the caus e of action a ccrued . Kentucky’ s borrowing stat ute provi des:

When a cau se of action has arisen in another state or
co un tr y, and by the l aws of this state or country where the caus e of action accrued the time for commence ment of an action thereon

is limited to

a shorte r period of time thanthe period of limitation prescribed b y the laws of this state for

a like ca use of ac tion, then said action shall be barred in this state at the expiration of s aid s horter period.

K Y

. R EV

. S TAT . § 413.320. Thus, if a cause of action arises ina foreign jurisdiction wh ich has a shorter statute of limitations than Kentucky f or the same cau se of action, Kentuc ky co urts must “borrow” the foreign jurisdiction’s statute of limitati ons . Almost three-fourths of states have statutes tha t resem ble Kentucky’ s. See Ibra him J. Wani, Borrowing

Statutes, Statutes o

f Limitations

and Mode

rn Choice of Law , 57 UM KC L. R E V

. 681, 690 (1989); Donna 14 Combs v. Int’l Ins. Co. No. 01-6493

Mae Endreson, Wisconsin’s Bor ro wi ng S ta tu te: Did

We Shortchange Ourselve

s? , 70 M ARQ

. L. R EV

. 1 20, 122-27 (1986).

Hi st or ic al ly, local statutes of limitations governed. At
commonlaw, statutes of limitation were procedural, not substantive, a fact which the Second C ircuit rightly ter

med “an accident of history .” Bournias v. Atl. Mar. Co. , 220 F.2d 152, 154 (2d Cir. 1955). In most ci vi l law countries, the statute of limitations applicable to an action would come from the juri sdiction whose substantive law formed the action’s basis. E RNS T RABEL , T HE C ONF LI CT O F L AWS : A C OMPARATI VE S TUDY 511-16 (1 964); Edg ar H. Ail es, Limitations of Actions and the Conflict of L aws , 31 M ICH

. L. R EV

. 474, 478 (1933). Early English cou

r ts first confronted with conflict-of-law problems acted to protect English law fr om continental influence and thus took the opposite route. Ernest H. Lorezen, The Statute

of Limitations and the Conflict of Laws , 28 Y ALE L. J. 492, 496 (1919). Carry ing the English tradition to America, in M’Elmoyle v. Cohen , 38 U.S. (13 Pet.) 312 (1939), the Supreme Court held that a state may treat statutes of limitations as procedural and thus may apply its own limitations law even when it must apply another j urisdiction’s substantive law. Id . at 328; see also Sun Oi l Co. v. Wortman , 486 U.S. 7 17, 722 (1 988); Wells v. Simonds Abrasive Co

. , 345 U.S. 51 4, 516-18 (1953); Townsend v. Jemison , 50 U.S. (9 How.) 407, 413-20 (1850). Before borrowing statutes, whe n a claim arose outside the forum, courts handled the limitations problem in one of two way s. First, if the forum’s rules barred the claim, the forum’s courts woul d no t hear the claim regardless of its status elsewhere. See, e.g., Panhandle E. Pipe Line Co. v. Pari sh
, 168 F.2d 238, 241 (10th Cir. 1948); Corrigan v . Clairol, Inc. , 126 F. Su pp. 791, 792 (D. Conn. 1954). Second, the forum would hear the claim as l ong as the local li mitatio ns period had not expi re d, even if

the limitat

ions peri od applic able where the claim arose had run. See, e. g., Filson v . Fountain , 197 F.2d 383, 384 (D.C. Cir. 1952)(per cu riam); Goodwin v.No. 01-6493 Combs v. Int’l Ins. Co. 15

Townsend
, 197 F.2d 970 (3d Cir. 1952); Jackson v. Cont’l S. Lines, Inc. , 172 F. Supp. 809, 812 ( W. D. A rk. 195 9). In essence, lex fori

governed th e determination of procedural issues, including those associated with statutes of limitation.

Lexfori governs procedural rig

hts, but under lex loci

(the law of the place), substantive rights are dete rmined according to the lawof the place where the cause of action accrued. Lex loci involves a concept of accrual similar to the idea of vesti ng, whichforms the basis for the vested-rights approach to choice of

law. Replacing nineteenth-century comity theory butpreceding contemporary choice of law paradigms, the vested right s approa

ch domina

ted the pe

riod fro m 1900 to 1950. E UGENE F. S COLES , ET AL ., C ONFLICT OF L AWS § 2.7, at 20 (3d ed. 2000). According to Professor Joseph H. Bea le, the main proponent of

vested rights analy sis, “[a] right having be en c reated

by t he appro priate la w, that re cogniti on of its existen c e should follow anywhere .” J OSEPH H. B EALE , 3 C AS ES ON THE C ONFLICT OF L AWS 517 (1901). As Justice Holmes explained: [W]hen . . . a liab ility

is enforced in a jurisdiction forei gn to the place of the wrongful act, obviously that does not mean tha t the act i n any degre e is subje ct to the lex fori
, with regard to either its quality or its consequences. On the other hand, it equally

little means that the law of the place of the ac

t is opera tive outsid

e its own te

rrit or y. The th eo ry of the foreign suit is that, although the act complained

of was su bject tono law having force in the forum, it gave

rise to an obligation, an obligatio , which, l ike other obl igation s, follows the pers on, and ma

y b e enforced wherever the person

may be found. But as the only source o f this oblig ation is th e law of the place of the act, it follows that

that law d

etermine s not mere ly

the existence of the obl igation , but equa lly d ete rm ines its extent.
Slater v. Mexican Nat’l R.R. Co. , 194 U.S. 120, 12 6 (19 04) (citations omitted). Beale served as the reporter for the 16 Combs v. Int’l Ins. Co. No. 01-6493

4
“ Lex fori ,” in this sentence, also refers to the place whe re the cause of act ion a ccrue d ( lex loci ), because borrowing statut es effect ively merge the two concept s. Borrowi ng st atut es are substanti ve laws that determine which state’s statute o f limitations (a pro ced ural rule ) will app ly. Restatement

of the Conflict of

Laws (1934), which reflected the vested right s app roach. Section 384 of the Restatement provide s, for ins tance: “ (1) [i]f a c ause of a ction in tor

t is created at the place of the wro ng, a cause of action will be

r ec ognized

in other s tates[;] (2)

[i]f no caus e of act

ion is created at the place of wrong, no recovery in tort can be had inany other sta te.” Ke ntucky adopted i

ts borrow ing stat ute in 1942, during the hey

day of the ve sted rights approach. After most states adopted borrowing statutes, problems

in the application of borrowi ng rules and a tor rent of s cholarl

y critici sm caused some state high courts to consider interpretingtheir state’s borrowi ng st atutes so the forum would “borrow” another state’s limitation rule only when the local forum lacked a

sign ificant connection to the dispute. Critics of borrowing statutes no te t hat this would be consistent with t he Res tatement (Second) on Conflict of Law s, w hich seeks to apply the law of the forum with the most significant relationship with the parties and the dispute. See R ESTA TEMENT (S ECOND ) OF C ONFLICT OF L AWS § 6 (1969). The “most significant relationship” test that guides the Second Restatement has at least arguable pol ic y advantages over

lex fori because the state with the mo st significant

relationship with the parties and the disput e is probably the state with the greatest interest in the action’s outcome. 4 In fact, one state, Minnesota , repea led its borrowingstatute in

1977. See M INN

. S TAT

. § 541.14 (1976), repealed by 1977 M INN

. L AWS ch. 187 § 1.

Plaintiff cites a number of law

review articles arguing

that borrowing statutes should be repealed entirely or interpreted to incorporate a “most significant relationship” test. See, e.g., Ibra him J. Wani, Borrowing S

tatutes, S tatutes of Li

mitations,No. 01-6493 Combs v. Int’l Ins. Co. 17

and Modern Choice of Law ; 5 7 UM KC L. R EV . 681 (1989); Donna Mae Endreson, Wi

scons in’s Borro wing Statute : Did We S hortchang

e Ourselv es? , 70 M ARQ

. L. R EV . 120 (1986); Samuel J. Morl ey, Applying t he Signific

ant Relati onships Tes t to Florida’s

Borrowing S

tatute , 59 F LA

. B AR

. J. 17 (198 5) ; Donald R. Rigone, The Impact of Significant Contacts on the Pen nsylv ania Borrowing S tatute , 72 D ICK

. L. R EV . 598 (1968); David H. Vernon, Statutes of L imitation in the Conflict of Laws: Borrowing Statutes , 32 R OCKY M TN

. L. R EV

. 287 (1960). However, none of these law re view articles
are bin ding on this Court. For that reason, we will conduct our own inquiry.

II.

Plaintiff highlights fi ve s tates whose judiciaries have, according to Plaint iff, interpre

ted borr owing st atutes to i nc orporat

e a most sig

nifican t relationship test d

espite statutory language essentially

indistinguishab le from Kentucky’s bor

rowing statute.

A. Beginning

with Wyom ing , Plaintiff claims tha

t BHP Petroleum v. Texaco Expl orati on Production , 1 P.3d 1253 (Wyo. 2000), “ address es precise ly the question befor e t he Courtin this case.” (Pl.’s Br. at 32) (Plaintiff’s emp has is ). In BHP , the Wyoming Supreme C ourt c onsidere d a dispute between two oilcompanies, each with offices located in both Texas and Colora do. Id

. at 1255. BHP and Texaco had an ongoi n g relationship in which they shar ed royalties fr

om minerals extracted in Wyoming. Id

. BHP alleg ed ly made an off er to Texaco to change the formula by w hich the c ompanies

calcula ted royalties. Id

. B HP sent that letter from Texas to Colorado. Id . Texaco allegedly accepted in a

response sent fro m Colorado

back to BHP’s office in Texas. Id

. Later, Texaco sent another letter from Texas to Colorado that disclaimed any intention t o 18 Combs v. Int’l Ins. Co. No. 01-6493

recalcu l ate royalty

payments. Id. Wyoming’s borrowing statute states tha

t “[i]f by the laws o f th e state or country where the cause of

action a rose the action is b arred, it

is also barred in this state.” W YO

. S TAT

. ANN . § 1-3-117. Colorado had a shorter statute of

limi tations that would have barred BHP’s action; B HP thus a r gued that Wyoming ’s longer limitati ons per iod should apply. 1. P.3d at 1256. The Wyoming court, applying

the borrowingsta tute, found that “the breach occurred in Colorado wher e BHP re cei ved the letter.” Id . at 1258.

We note s everal

points abo

ut BHP . First, the BHP

court provides scant det ail on t he natur e of the breach. Not only does the court

appear skeptical that

any brea ch occurred, the
c ourt never defines the dispute with precision. From th e fac ts , it appears the case involved BHP’s attempt to modify the terms of a

n existi ng transac

tio n—something different than P l aintiff’s request

that Def endant r emit (or p ledge t

o remit)
ce rtain m onies allegedly

in accordance with the terms of a Directors and Officers (hereinafter “D & O”) insurance contract. Second, BHP urg ed the co urt to ado

pt the Wy

omi n g li mitations period because, according to BHP, the cour

t should “focus[] upon the location of the subject matter of the contract.” Id

. at 1256. Thus , the plai ntiff in B HP argu

ed in favor of the limitation period associated with the forum of the subject matter (the Wyoming r

esources), while the defendant argued for the limitation period

associated with the forum of the breach. BHP evidently did not disag ree that if the breach
was the only

releva nt conside

rati on, the brea

ch occu rred in Colorado, as oppos ed to Texas, where Texaco posted the letter. The latte

r scena rio, howe ver, is muchmore akin to the issue we presently

face. Plaintiff’s counsel sent a letter from Californ ia to Defendant’s New York office, a nd the N ew York office replied with a letter sent to lawyers in thre e states—Ca

lif or nia, Kentuck

y a nd Ohio. Th

us, as the origin of the letter that allegedly

constituted the breach, New York is the analogue of

T exas in BHP , not Colorado. No oneNo. 01-6493 Combs v. Int’l Ins. Co. 19

argues in the instan t cas e that the California statute of limitations might apply.

Fi na ll y, BHP

never adopted th e “substantial relationship” test. According to the BHP decision:

The thread of

the argument presented

by B HP is tenuo

us. The essential premise is that in Stanbury

v. Larsen, 803 P.2d349, 355 (Wyo. 1990 ), thi s Court adopted Re state ment

(Second) Conflict of Laws § 188 (1971)

. BHP then contends that since that provision utilizes the “most significant relationship” test, the cause of action
ar ose in Wyoming because the subject matter of t

h e contract is Wyoming minerals. The elements articulated inthe “most significant relationship” test include “(a) the place of contrac ting, (b) the place of negotiation of the contract, (c) the place of

performance, (d) the location of the subject ma

tter of the contra

ct, and (e) the

domicil, residence, nationality, place of inc orpo ration and place of business of th e parties.” R ESTA TEMENT (S ECOND ) C ONFLICT OF L AWS § 188 at 575.

BHP , 1 P.3d at1256. After considering its Stanbury

decision, the court concluded t

hat “[w]e d

o not unde

rstand th at this Courtadopted [in Stanbury ] the ‘m ost significant relationship’ test of Re statemen t (Second ) Conflic t of La ws § 188. . . . [W]e invoked the Restate ment provision only as containing examples of factors to be considered in making the determination

as to where the cause of action ar ose. ” Id . at 1257. Thu s, BHP

does not indicate that the Kentucky Supreme Courtwould adopt the most substantial relation ship test.

B.

P lainti ff next cites New York law and Global Financial Corp. v. Triarc Corp. , 715 N.E.2d 482 (N.Y. 1999). Global Financial involved an action brought in New York for the payment of consulting fees by

a corporate plaintiff

located in 20 Combs v. Int’l Ins. Co. No. 01-6493

5 If De ced ent’s res idenc e were the only rel evant consi derat ion under Kentucky law, then t

he Kentucky statut e of limit ations would apply and Plain tif f’s action could proceed. Although we must weigh Global Fin ancial when making our Erie guess, t he case represents only one
source amo ng ma ny. A s alr ea dy observed, we consider “all rel evant data,” Kinglsey Ass ociates , 65 F. 3d at 507, when attempting to asce rtain what a s tate co urt migh t do in a particu lar situatio n. M oreo ver, t h e autho rity of Glo bal F inan cial is somewhat li mited because, although the court does support “a rule re quirin g the sing le dete rmina tion of a plaintiff’s resi dence,” 715 N.E.2d at486 , the co urt also s ays that “[w]he n
an alleged injury

is purely economic, the place of injury is usual ly where the plaintiff

resides and sust

ains the e conomic i mpact of the loss. ” Id. at 485 (emphasis added). This notion is tr oubling becau se on e can easily envi sion a situation where the plaintiff resides i n a di ffe rent f orum than the one in which he sus tains the economi c impact of the l oss; f

or ins tance, a busi ness inc orporat ed in one ju ris dict ion but with its prin cipal plac e of business in anot

her. I t is unclear how Ne w Y ork’s ru le wou ld ap ply to such a situat ion. Delaware against a corporate defe nd ant a lso locate d in Delaware but with its principal place of b u siness in Pe nn syl va nia. Id . at 484-8 5. Statute s of limitat ions in both Delaware and Pennsylvania bar red the action, but the s

uit could proceed under

New York’s longer limitations period. Id

. at 484 . New Yo rk has a borro wing sta tute simila r to Kentucky’s. See id

. The court concluded

that the breach occurred

in Delaware because, under Ne

w York’s borrowin

g sta tut e, “a cause of actionaccrues at the time an d in the place of injury ,” and “[w]hen an alleged injury is purely economic, the

p lace of injury is usua lly

where the plaintiff resides and sustains the economic impact of the loss.” Id . at 485 (citations omitted). The Global Financial

court did not ado

pt a “most substantial rel ati onship” ana lysi s of

New Yor k’s bor row in g st atu te. In fact, the court rejected the more holistic “ce nter of gr av it y” test, writing

that the g oals of Ne

w York’s borrowing statut e are “better

served by a

rule requiringthe single determination of a plaintiff’s residence than by a rule dependent on

a litany of events relevant to the ‘center of g ravity’ of a

contract dispute.” 5 Id . at 486.No. 01-6493 Combs v. Int’l Ins. Co. 21

6 Th is case pres ents an unusua lly tricky pro blem beca use it invol ves
an econ omic injury. If, for instan ce, a d efend ant’s tort ious conduct causes a General M otors plant to exp lode , one c an ea sily locate the i njury. But General Mo tors is corp orate entity— in effect, a st ate- creat ed le gal fi cti on with asset s, empl oyee s, cu stomers and shareholders around the world—which make s finding th e locu s of an inta ngible loss diff icult. I f

a breach o f contract causes G eneral M otors’ stock t o decline
, determining where the co mpa ny “got h urt” is no t so eas y. Cf . L er oy v . Gr

eat W. United Corp. , 443 U.S. 173, 185 (1979) (noting the “occasionall y fict ive assumption” that cl aims arise i n one place only). Equally important
, the notion that the cause of action
accrues w here the

injury is sustaine d is not par ticularl y helpful in this cas e because it begs the question of where the plaintif f sust ained the injury. Plaintiff’s ac tion involves an abstract injury —by allege dly breach ing its pr omise to pay

in
a letter Defendant mailed from New York to thre e jurisdict ions, Decede

nt was not r

eimburse d for litig atio n expenses accumul ated pri marily in Califor

nia but related to a Kentucky enterprise. Asking where Decedent “ got hurt” does not help us

. 6

C. Citing National He

ritage Life

Ins. Co. v. Frame , 41 S.W.2d 544 (Mo. C t . App. 2001), Plaintiff claims Missouri interpreted

its b orrow ing s tat ute in a fashion similar to New York. National

Heritage involved a suit brought by a Texas plaintiff based on a gua ranty allege dly breached by

Missouri d efenda nts. Id . at 54 6-48. Miss ouri’ s borr owing statut e states that “[w]henever a cause of action ha s been fu

lly barred by the laws of the state, ter ritory or countr

y in which it originated, said bar shall be a complete defe nse to any action thereon, brought in any

of the courts of this state.” M O

. R EV

. S TAT

. § 516.190. Missouri courts anal yz e the “origination” of a cause of action just as they analyze its accr

ual for purposes of

beginning the limitations period. Nat’l Heritage
, 41 S.W.2d at 55 2; see also Penalos a Coop. Exch. v. A.S. PolonyCo. , 754 F. Supp. 722, 733 (W.D. Mo. 1 991); Alvardo 22 Combs v. Int’l Ins. Co. No. 01-6493

v. H & R B lock, Inc. , 24 S.W.3d 236 , 242 (Mo. Ct. App. 2000). Since the guaranty required the gu arantors to make their payment to the

plaintiff in Texas, the National Heritage court found that the cause of action “originated” there. 41 S.W.2d at 553. Following this rule, however , has not le d Missouri c ourts to always conc lude that a ca use o f action “originates” in the forumwhere the injury

appears to occur. I

n Finne gan v. Squire Publishers, Inc. , 765 S.W.2d 703 (Mo. Ct. App. 1989), for inst ance , the Missouri Court of Appeals applied Missouri’s borrowing statute in a libel case. Id . at 704. Finnegan forced the court to determine whether the cause of actio n fo r libel “accrue[d] in Kansas where the newspape r containing the defamatory stat em ents was first published, [or] inMissouri where [the plaintiff] is licens e d to practice law and where damages to his pr ofessi onal reputation were sustained.” Id . Applying Missouri’s borr o wi ng statute, the court found tha t plaintif f’s cau se of

action “originated” where the defendant initially published the def amatory re

marks, not where the plaintiff actually suf fered the gre atest

injury. Id . at 706-07. This is in tension with Plaint i ff’s claim that if we properl y interpret Kentucky ’s borrowing statute, New York’s statute of limitati ons cannot bar his claim bec ause he suffered no injury in New York.

The Finnegan court

reache d its conclusi on in part because the “[p]laintif

f’s rep utation int

erest is i nvaded a t th e time of publication, and arg

uably that is the

time when

his damag e is sustained.” Id . at 706. Thus, at le ast in Missouri, the location of the wron g is determined by whe

re the plaintiff first sustains any damage, no t where he sustain s the most da mage. A lso signific ant, t he Fi nnegan decision recog nized the problems inher ent in attempting to determine the location of a n intangi ble injury, like an injury

to reputation. Id . at 7 06-0 7. The court re fused “t

o adopt the assumption that an attorney’ s reputation

can only be injured in the state where theattorney is licensed to practice law.” Id . at 706. Rhetorically, the court wondere d, “[w]hat would resu lt i f plai ntiff is licensedNo. 01-6493 Combs v. Int’l Ins. Co. 23

7 Under Missouri’ s rul e, Plaintiff could have le arned of D efend ant’s decis ion at any

mome nt af

ter Defenda nt ma de it s choi ce. Sinc e, f or inst ance, one o f Plaintiff’s attor neys in California or Kentucky could have contact ed Defendant’s New Yo rk office by t elephone (or fl ow n to New inmo re th an on e s ta te or by a fe de ra l c ou rt or ag en cy? Should a c ou rt lo ok to th e p la ce of fi rs t i nj ur y, any

injury, or the place of greatest injury ?” Id

. This discussion shows that Missouri court s seem se nsitive to t

he pitfa lls inhere nt in determining accrual based o n where

the injury

purporte dly occurred.

Another case, Harris-Laboy v. Blessing Hospital, Inc. , 972 S.W.2d 522 (Mo. Ct. App. 1998), further exemplifies the
manner in which Missouri courts apply the state’ s borrowing statute. Harris -Lab oyinvolved a Missouri resident who b rought a malpractice action against an I llinois hospital an d three Illinois physicians after she discovered the doctors left
a surgical sponge in her abdomen. Id . at 523. At the time of the surgery , the plaintiff lived in Illinois, but she did no t discover the probl em until she

mo ved to Missouri several years la ter. Id . The defenda

nts arg ued that M issouri sho

uld borrowIllinois’ statute of limitations, which would bar the plaintiff’s action. Id . at 523-2 4. The co urt a greed

because, under Missouri law, an action originates when and where an injury can b e asc erta

ined , and “[d ]amage is sustained and capable of asce rtainmen t when it can be discovered or made known, not when the plaintiff actually discover

s the injury

or wrongful conduct.” Id . at 52 4 (cit ing Carr v. An di ng , 793 S.W.2d 148, 150 (Mo. Ct. App. 1990)) (emphasis in original). Co ns eq ue nt ly, the plaintiff’s “damage was sustained and was capable of as cert ainment immediately after the sponge was left inside her in Illinois.” Id

. at 525. Whatever the merits of this rule, it does not

appear to help Plaintiff because, apply ing H a rris-Laboy
, Plaintiff suffered an injury the moment Defendant

dr af te d i ts re sp on se to Pl ai nt if f’ s c ov er ag e i nq ui ry, as opposed

to when Plaintiff actually lea rned what Defendant would do. 7 Viewed overall, Missouri jurisprudencedoes not 24 Combs v. Int’l Ins. Co. No. 01-6493

York) and le arned that D efend ant did not pla n to co ver P la i ntiff’s li ti gati on expenses, that shows t he inj ury occur

red in New York—just as the plainti ff i n Harri

s-Laboy was in

jured i n Ill inois becau se th at was where sh e could have, a t least theo retically, first lear ned of her inj ury. Harri s-Laboy , 972 S.W .2d a t 525

. In fact, the in stant cas e seem s a little easier, because the plainti ff i n Harri s-Laboy had n o rea son to investiga te whether doctors had l eft surgi cal equip men t in her body until y ears later, when she be gan to suffer co mplic ations fro m the sp onge

. Plai ntiff expressl y request ed that Defendant a nnounce whet her it would cover Plain tiff’s litigation ex pen ses, so P laintiff knew D efend ant was abo ut to form ally decide whether it would abide by the te rm s o f th e D & O policy as Pl ain ti ff

saw th em. necessa rily focus on t

he place of injury , nor has i t explicitly endorsed the “most signifi cantcontact s” test. I n fact, Missouri has twice rejected express invitations to reinterpret Missouri’s borrowing statute to exclude s ituat ions in which Missouri does hav e the “mo st signif icant contacts .” S

ee Dorrisv. McClanahan , 725 S.W.2d 870, 872 (Mo. 1987) (en banc) (“[T]he Missouri legislature [through its bo rr owing statute] preempts an analy sis of 2d Restatement significant contact s in this case.”), overrule d on other grounds by Thompson v. Crawford

, 833 S.W.2d 86 8 (Mo. 199 2); Trzecki v. Gruen ewald

, 532 S.W.3d 209, 211 (Mo. 1976).

D.

Plaintiff next empha sizes I llinois la w and Employe rs Insurance of Wausau v. Ehlco Liqu idating Trus t , 723 N.E.2d 689 (Ill . Ct. App. 19 99) ( Ehlco II ), an Illinois Court of Appeals opinion issued on remand from the I llinois Supr

eme Court’s decision in Em ployer s Insurance Co. v. Ehlco Liquidating

Trust , 708 N.E.2d 1 122 (Il l. 1999) ( Ehlco I ). Elhco II dealt with one portion of a complex insurance
covera ge dispute. 723 N.E.2 d at 691. E hlco was a trust created by order of

the Dela ware Cha ncery Court to r esolve the contingent liabilities of the E dw ard Hines Lumber Company (“Hines”), a dissolved D el aware corporation, and variou s affi liated businesses. Id . at 690. Plaintiff Wausau i nstituteda declaratory

judgment action against Ehlco seekin gNo. 01-6493 Combs v. Int’l Ins. Co. 25

a declaration, inter alia , that it had no defen se or inde mnity obligations under certain insurance polici es in connection with a lawsuit filed against Ehlco relating to acontaminated industrial site in W yom i ng. Id . Elhco fi led a cou ntercla im against Wausau

alleging that the insurer brea ched its duty to defend and i ndemni fy

Ehlco in c onnectio n with contaminationat anothe

r site in Arkansas. Id. The Elhco II opinion deals exclusively with the counterclaim. Id . at 692.

In1982, pursuant to the Comprehens ive E nvironmental Response, C ompe nsation, and Liability Act of 1980 (“CERCLA”), 42 U.S.C. §§ 9601-967 5, th e United States E nvironmental Protection Agenc y ( “EPA”) s ent Hines

a letter notifying Hines th at it faced potential liability for c leanup costs at the Arkansas site. 723 N.E.2d at 692. Hines, based inChicago, notifi edWausau that the EPA would assert liability agains tHines. Id

. The insurer responded, appearing to deny cover age based on various policy exclusions. Id

. Hines’ counsel t

hen wrot e to Wausautwice, once in 1982 and
once in March

of 1983, e ach time

“formally”

requesting that it defend H ines ag ainst the E PA’s proc eeding s. Id . Wausau replied seve r al weeks after the March letter w ith a memorand

um that refe rred to Wa

usau’s f irst resp onse but a

lso requested “a copy of the [EPA] action or corre spondence .

. . [and] copies of any

complaints or summons.” Id

. No further
commu ni cationoccurred until 1987, when Hines informed Wausau that the company ha d almost reached a “final agree ment”with the EPA. Id . W ausa u responded immediat el y, a gain re counting its prior r

eserva tion of rig

hts and request ing the d etails of the proc eeding s. Id . The Illinois court noted that “[t]he submissions of the parties do not show that either Hines or its counsel responded to Wausau’s [two]
re quests for information.” Id . at 692-93. In 1988, the E P A filed suit against Hines in Arkansas federal district court and simultane ously

proposed a consent decree. Id . at 693

. Wausaureceived

news of that filing from a source other than Hines. Id

. 26 Combs v. Int’l Ins. Co. No. 01-6493

Illinois has a borrowing statute similar to Kentucky’s. Like Kentuck y’ s, the Illinois statute

states that “[w]hen a cause of actionhas arisen in a state or territor y ou t of this Sta

te, or in
a foreign country , and, by the laws there of, an action thereon cannot be maintained by re asonof the lapse of time, an action thereon shall notbe mainta

ined in this

State.” 735 I LL

. C OMP

. S TAT

. 5/13-210. Arkansas’ statute of limitations b arred Ehlco’s action, b

ut Ehlco c ould

proceed under I llinois’ longer limitations period. 723 N.E .2d at 692. The court relied heavily on the Restatement (Second) of Conflict of Laws and considered

numerous connections between Illinois and the disp ute in cludi ng:
the issuance of the insurance policies to Hines in Illinois, the location of Hin es's pr incipal p lace of

business i

n Illino is, and the licen sing of Wa usau to do b

usiness in Illinois. Additiona

l contac ts with

Illinois include the fact that correspondence relative to the EPA lawsu it was directed to Hines in Illinois; Hines's requests to Wausau for defense originated

in Illi nois ; Wau sau's response s to those request s were sent

to Hi nes in Illino is; an d Hine s's legal counsel that p rovid ed Hin es's defense with respect to the EPA pr

oceedin gs was l ocated i

n Illi nois and w ould have billed its d ef

en se fe es to Hi ne s i n Il li no is . F in al ly, any monies fo und to be owing Hines by Wausau as

a result of the counter

claim wou

ld have be en due Hi

nes in Illinois.

Ehlco II , 723 N.E. 2d at 696-97 (citi ng R ESTATEMENT (S ECOND ) C ONFLICT OF L AWS § 1 88(2) (1971)). The court thus found that Illinois’ statute of limita tions would

apply because Illinois uses the limitation period of the forum

“that bears the most sig

nifican t r elat ionship to the contract dispute,” id. at 723 N.E.2d at 695, althoug h Illi nois law is just
one factor among many

we must con sider when making an Erie guess. Furthermore, the Ehlco II

court wa s caref

ul to “note

that the inquiry as to where the cause of action arose presupposes thatNo. 01-6493 Combs v. Int’l Ins. Co. 27

the cause of

action ha s in

fact arisen.” 723 N.E.2d at 693. In Ehlco I , the I llinois Supr

eme Court “he ld

that Wausa

u’s duty to defend was trigger

ed by t he filing of the EPA

lawsuit in

the federal district c ourt in Ar kansas s eeking entry

of the proposed consent decree.” Id

. (citing Ehlco I , 708 N.E.2d at 1130). The I llinois Supr eme Court

“als o foun d that notwithstanding the trig gering event of the filing

of th e lawsuit, Wausau would not have had a duty to defend Hines inthe EPA action unless Hi ne s tender ed the la wsuit to Wausaufor def

ense or Wausau had actual notice of the laws uit .” Id . (cit ing Ehlco I , 708 N.E.2d at 1131). The Illinois Supreme Court remanded the notice issue to the trial
co urt with instru

ctions tha

t the par

ties “be given the opportuni ty to ame nd th eir pl eadin gs t o address the actual notice i ssue.” Eh lco I

, 708 N.E. 2d at 1131 -32. The Illinois Courtof Appea

ls, however, explained

that “notwithstanding t h e mandate d examinati on of the n otice issu e by the [trial] court, we should, in the interest of judicial economy and our mandate fr om th e Supreme Court, proceed to consider the questions of whether a cause of action arose and the residency of the parties.” Ehlco II

, 723 N.E.2d at 694. Thus, the entire decisionin Ehlco II

assumed, with out dec iding, that the plaintiff had a cause of action.

This assumption , requir

ed by the I llinois Supr

eme Court , probably had the unintended

effect of obscuring the

potential significance of the forum in whic h the cau se of acti o n accrued. According to the I llinois Sup r eme Court , no caus e of action a rose agains tWausau unless and until Wausau had actual notice of the “trigger[],” which was the EPA law s uit. Eh l co I , 708 N.E.2d at 1130-31. Therefore, the triggering event was the filing of the EP A’s suit i n Arkansas, and the
cause of action did not arise unti l Wausau, t he defe ndant, received “actual notice” of

the lawsuit. Conceivably, Wausau 28 Combs v. Int’l Ins. Co. No. 01-6493

8 Neither decisi on discus ses wher e Wausau may have rec eived not ice of the su it, wh ich i s what the Il lin ois Supreme Court ordered the tri al court to inves tigate. There is no published his tory aft er Ehlco II , so
resea rch d oes n ot reve al what th e trial co urt dete rmine d.

It is also un clear th at the rea soning of Ehlco II is sound und er a “most sig nif ican t re lat ions hip” analysis. T he Illino is Co urt of A ppe als applied Illinois’ statute of limitations even though, assu m ing a caus e of a cti on
accrue d
, the EPA “tr igg ered t he poss ibi li ty of ac crual ” in Arkan sas by fil ing suit there, see Ehl co I, 708 N.E.2d at 1130, and the plai nti ff ’s acti on relat ed to insurance obligat ions in connection wi th an Arka nsas cle anup ope ration. could h ave r eceive d that notic e any where— even Ar kansas. This casts doubt on Ehlco II ’s reas onin g. 8

Ad di ti on al ly, the Ehlco II Court noted that “the location of the subject matter of the contract, such as the location of the risk insured by an insuranc e policy, is entitled to little weight when the subject matter or risk is loc ated in more than one state.” 723 N. E.2d a t 694 (citi ng Lapham-Hickey Steel Corp.

v. P rot. Mu t. Ins. Co. , 655 N.E.2d 842, 845 (Ill. 1995) and R ESTATEMENT (S ECOND ) OF C ONFLICT OF L AWS § 193, cmt. b (1971)). As a consequence, thecourt gave the location of the risk le ss salienc e in its “mo st signif icant re lationship ” analy

sis b ecause the plain

tiff’s Com

prehens ive Gene

ral L iabili t y Policy (“CGL ”) cove

red envi ronmenta l risk s in multiple states. Similarly, Dece dent’s D & O policy covere d certa

in D & O litigation-related expenses whereve r they might occur. This counsels

agains texcessively focusing our inquiry on the locus of the policy’s “ subject matter.”

As already

alluded to, it is hard to determine where the risks a D & O policy

insures against are located. I t would be simplisti c to conc lude that a risk is always loc ated in the insured’s state of residence because insuranc e protects on l y agains t financial loss, which is ultimately felt at a pe rson’ s residence or a corporation’s headquarters. A policy can cover risks in multiple states, as the Second Re statemen t sugg ests,
see R ESTA TEMENT (S ECOND ) OF C ONFL IC T O F L AWS § 193,No. 01-6493 Combs v. Int’l Ins. Co. 29

9 The Bishop Co urt exp lained the issue b efore it:

The District

Court of Appeal, First Distr ict, af firmed the rul ing of the tri al c ourt

bu t certif

ied the foll owing question for our consideration: cmt. b (1971), and the Second Restatement cautions agains t focusingon the locationof the risk when risks are dispersed
acrossforum boundaries, see id. , which means the residence of someone i nsured under a D & O policy like the one Decedent held should make little di fferenc e. This is further underscored

by the fac

t that many D & O

policies co ver multiple directors and of

ficers, each po tentially

residing in different fora. The limite d importan ce give n to risk location inthe Ehlco litigation does not support the outcome Plaintiff urges.
E.

Florida is the final jurisdiction whose law Plaintiff asks us to consider. Like Kentucky , Flori da’ s borrowing stat ute provides that “[w]hen the cause of action a rose i n another state or territory of

the United States, or

in a fo reign co un tr y, and its laws forbid the maintenan c e of the action because of lapseof time, no action shall be maintained in this state.” F LA

. S TAT

. § 95.10. Pla intiff fir st cites Bates v. Cook, 509 So.2d1112 (Fla. 1987), fo r the proposition that Florida applies a “most significant relation ship” tes tto its borrowing statute when the cause of action so unds in tor

t. Plaintif

f is partly correct—Florida adopted the “mo st significant relationship” test in Bis hop v. Florida Speciality Paint Co.
, 389 So.2d 999, 1001 (Fla. 1980), but that case did not involve Florida’s borr owi ng statute. Rather, Bishop adopted the Second Re st at em en t’ s a pp ro ac h o nl y withrespect to the determination

of what substantive law would apply to torts. Id. at 1000. The cou

rt s aid nothing about statutes of limitations
, which are procedural. T he cou rt also remained silent abo ut contra ct dispute s. 9 Id

. 30 Combs v. Int’l Ins. Co. No. 01-6493

Does the lex loc i delicti r ule go vern the right s and liabi lit ies of the parti es in tort actions, precludi ng consi derat ion by the Fl oridacou r ts of other r elevant considera tions, such as the poli cies a n d p urposes underlying the conf

li cti ng l aws of

a foreign juri sdic ti on where the tort occurre d, and the relat ionship of the

occurrence and of the parties t o such policies and purp oses ?

509 So.2 d at 1 000

. Withrespect to contract disputes, Plaintiff cites Lumberman’s Mutual Casu alty Co. v. Aug

ust , 530 So.2d293 (Fla. 1988). Lumberman’s involved a Massachu sett s driver i n sured by a policy

with uninsured motorist benefits. Id . at 294. The plaintiff signed the policy in

Massachusetts before having an accident

with an uninsured motorist in Florida. Id

. She then brou

ght suit a gainst h er insurer for benefits after Massach usetts’ l imitations period expired but before Florida’s terminated. Id . The court found Fl orida’s statute of limitations governed

the action because “the lex loci contractus rule determines the choice of law for interpretation of pr ovisions of

uninsure d motorists

clauses in automob ile insurance policie s ju st as it applies to other issues of automobile

coverage.” Id . at 295. This is because, according to the cour

t, the lexloci contractus rule dic tates tha t the cau se of action arises in the place where the contra ct is ex ecu ted. Id

. at 296 (citi ng Colhoun v. Greyhound Lines, Inc. , 265 So.2d 18, 21 (Fla. 1972)).

Flor ida courts continue to apply the “ most significan t relationship” test to torts only, not contract actions. See, e.g., Allstate Ins. Co. v . Clohessy , 32 F. Supp.2d 1328, 1333 (M.D. Fla. 1998) (refusing to apply the “most signifi can t relations hi p” test to a contract dispute). Although Plaintiff does not argue that the Kentucky statute of limitations should govern his sui t solely because Decedent executed the insurance contract there, one should recognize in passing that Florida’s rule is pr

oblematic because it offers no guida nce inNo. 01-6493 Combs v. Int’l Ins. Co. 31

situations where the contract dispute involves the failure t o e xecutea contract or when the parties executed the c ontra c t ina forum where the defendant is not amenable to process.

Most i mportant for the purposes of the instant Erie problem, in Pledger v. B u rnup & Sims, Inc

. , 432 So.2d 1323 (Fla. D ist. Ct. App. 1983), the Florida District Court of Appeals declined to construe the Bishop decision that applied the “most significant relationships” to substantive conflict of laws determinations as also covering procedura l matters like th e sta tute of limitations determination implicated by Florida’s borrowing statute. Id . at 1330. The Florida District Co ur t o f A pp ea ls pr es en te d t he is su e t hi s w ay:
Unq ue st io na bl y, Florida

has the mo st signif

ic ant contact s with the issue presented . .

. . Appellant has presented a question on whichhe has ci ted no aut hority , in Florida or elsewhere: that is, in v

iew of the

[Flo rida ] Supreme Court’s adoption of Restatement (Second) Conflict of Laws § 145, did the c ause of action arise in New York,
or in Florida, which h as the most significant relationship?

Id

. The cour

t found Ne

w York’s limi tat ions peri od would apply because th e F lo ri da le gi sl at ur e, no t t he ju di ci ar y, should make the decision that the “most significant relation ship” tes t should apply to Florida’s borrowing statute. Id . The Pledger court explained:

The Legislature has notamended [the borrowing statute] since the [Florida] Supreme Court opinion in Bishop

. We ha ve no hint of th e legislat ive will onthe quest

io n o f determining

where a cause of action arises

. T hey may have assumed the Bishop conflicts rule would determine where a cause

of action arises . They

might eq ually have assumed that Bishop , a case

dealing exclusive ly

with the rightsand liabilities of the parties, had nothing t o do with the procedural borrowing statute. 32 Combs v. Int’l Ins. Co. No. 01-6493

10 The “accru al app roac h” is a conci se moni ker f or th e in ter

pret ati on Defendant advo cates— a jud icial focu s exclus ively on wher e th e caus e of action accru ed, no t which sta te has “the mos t significant re lationsh ip.” Id

. at 1330-31 (emphasis added). Thus, Florida does not use the test Plaintiff

advocates and one Florida court emphasized that modify ing a bo rrowing

statute is a legis la ti ve prerogative. A federal court forced to make a n Erie g uess shoul d pause before reinterpreting

a state st atute if the state law is one that is better modified legislatively . Whether or not the Kentucky courts could reinterpret Kentucky ’s borrowingstatute instead of t h e Kentucky

legislature despite the separation of powers concerns expressed in Pl edger , the rei nterpre tive proc ess raises much more problematic federal ism concerns when a federal court construes a state statute.

Alth ough Plaintiff’s citations to Wyoming, New York, Missouri, Illinois and

Flori da law are som ewhat illu minat ing,
none of this inf

ormation makes cle a r that the Kentucky Supreme Court woul d interpr

et Kentuc ky’ s borrowing stat

ute as Plaintiff suggests.

III.

As cited above, Plaintiff references va rious scholarly works that ur ge courts to construe borrowing statutes in a mann e r that incorpor ates the “most sig

nifican t r elationsh

ip” test. Desp ite t hese academic exhortations, we recog nize that borrowingstatutes interpreted in accordance with the accrual approac h produc e sever

al meanin gful pol icy

advanta ges. 10
First, borrowing statutes imped e forum shopp ing. As one federal court sitting in diversity explained, the ob jective of Pennsylvania’sborrowing statute is “simply to insure that a plain tif f who sues i

n Pennsy lvania ob tains no g

reater rights thanthose gi

ven in the state where his cause of action arose.” Wilt v. Smac k
, 147 F. Sup

p. 700, 704

(E.D. Pa. 1957); see also Stuart v. Am. Cyanamid Co. , 158 F.3d 622, 627 (2d Cir.No. 01-6493 Combs v. Int’l Ins. Co. 33

1998) (“[T]he purpose of the borrowing statute—preventing forumshopping by plaintiffs see king the h ol y gr

ail of the longer period—is best serve d by app lying the pe riod of the forei gnstate, regardless of how it is denominated.”); F aig in

v. Doubleday Dell Publ’g Group, Inc. , 98 F.3d 2 68, 271 (7 th Cir. 1996) (ob serving

“the ant ipathy to forum sh

o pping reflecte d in Wisconsin's borrowing statute (in all such statutes, really

)”); Siegemund v. Shapland, 247 F. Supp. 2d. 1, 6 n.17 (D. Me. 2003) (“Borrowing sta tutes, enacted by

states to preve nt forumshopping, ‘enable the forum to borrow and
use the statute of limitations of another state in determ inin g the timeliness of an action.’”) (quoting Hossler v. Barry , 403 A.2d 762, 765 (Me. 1979) ); Flowers v . Carville
, 112 F. Supp. 2d 1202, 1208 (D. Nev. 2000) (“Borrowing statutes are designed to prevent forum shopping.”).

Anaccrual-based approach makes forum shopping i mpossible

because the statute of limitations that gover ns i n the forum where the cause of action acc rued will apply no matter where t he plaintiff files suit. In contrast, allowing plaintiff s to file su

it in any state tha t has sig nifican t contac ts with the dispute encourages p laintiffs to shop for the forum with the longest statute of limitations. Although limiting the operation of a borrow ing stat ute to only

those instances where
a state has the most

significa nt connec tion with th e lawsuit helps make for

um shopping

somewha

t more dif fic ult, many modern commercial transactions transcend state bou ndaries

. If a contract is negotiated in Mich igan be tween a n Ohio
co mpany and a Kentucky

company, with perf

ormance scheduled in T ennessee, determining which state has the “most”significant

contacts becomes difficult and subjective enough for enterprising

attorne ys t o capitalize on differences between limitations periods. State cou rt s’ desire to disco urage forum shop ping is significant enough that in at least one instance, the New Jersey Supreme Court applied a forei gnjurisdiction’s limitation per iod e ven though New Jersey does not have a borrowing statute. See Heavner v

. Uniroyal, Inc. 305 A.2d 412, 418 (N.J. 1973) (applying N ew 34 Combs v. Int’l Ins. Co. No. 01-6493

11 Borrowing statut es apply to both foreign s tatutes of limit ation and sta tut es of

repo se, be cause both kinds o f laws serv e to limit the perio d in which a plain tiff may initiate an action

. Statutes of limitations and repo se
are frequent ly confus ed, bu t bot h ser ve si mil ar pur

poses. “A st atut e of limit ations focuse s on ti me measured from an injury; a statute of repo se rests on the time f

rom some initiati ng event unrelat ed to an injury.” Roskam Ba king Co

., Inc. v. Lanham Mach. Co., Inc. , 288 F. 3d 895, 903- 04 (6th Ci r. 2002). Thus, a st atut e of li mitat ions mi ght bar an injured plaintiff from bringing a product li abilit y action more than thr ee years afte r he discove red his injur y, whe reas a s tat

ute of repose would bar the action three ye ars after th e ma nufactu rer pr odu ced the pro duc t. Hampshire statu te of limitation despite lack of borrowing statute in New Jersey, in part to pre vent forum shopping). Second, st rictly enforc ing borr

owing st atutes be st serves th e purpose of statutes of limitat ion and repose. 11 Most state s, including Kentucky, have t olling statutes that stall the running of the appli cable lim

itations pe

riod if a caus e of action
accrues agains t a

state resident

not present in the jurisdiction when the cause of action

accrues. Kentucky law

explains that “[i]f, at the t ime any ca

use of action mentioned in Ky . Rev. Stat. 413.090 to 413.160 accr ues agai nst a res ident of th is state, he is absent from it, the period limited for the commencement

of the action a

gainst h im shall be computed fromthe time of

his retur n to this s ta te.” K Y

. R EV

. S TAT

. § 413.190(1). Furthermore,

When a cause

of action me

ntioned in

KRS 413.090

to 413.160 accrue s again st a resident of this state, and he by abscondingor concea ling h imself or by any other indirect means obstr

ucts the prosecution of the action, the time of the continuance of the absence from the s tate or ob structionshall not b e compute d as any part of the period within which the action shall be commenced.

Id

. § 413.190(2). S ince tolling statutes eliminate a defendant’s ability to flee the jurisdiction and return after

the statute of limitati ons expire s, tolling statutes can inadver

tentl y create perpetu al lia bi li ty for a de fendant

legall y r esiding inNo. 01-6493 Combs v. Int’l Ins. Co. 35

Kentucky accused of a

tort or breach of

contract that occurred i nanother

jurisdict ion. I f the def

endant is not prese

nt i n Kentucky when the cause of action a ccrues agains t h im, he will face lia

bility upon his re

turn to the

St ate even i f he

r etu rns decades later. See id. The bor rowing statute minimizes this problem by using the foreign state’s statute of limitations when the cause of action accrue s in the f ore ign state, thereby e liminating the problemof perpe tual liabi lity

in those circumstances. See Geor ge v. Douglas Aircraft Co.
, 332 F.2d 73, 78 ( 2d Cir. 1 964) (discussing the problem of perpetual liability); Cvicich v. Giardino , 99 P.2d 573, 574-75 (Cal. Ct. App. 1940) (same). Relieving potentia

l defend ants of un certain ty is one of the historical purposes of statutes of limitations. As the Supre me Courtexplained, “[s]tatutes of limitations, like the equit able doctrine of lache s, in their conclusive effec ts are de signed t o promote justice by preve

nting surprises through the revival of claims t hat have be en allowe d to slumbe r until evi dence is lost, memories have faded, and witnesses have disappeared.” Order of R.R. Telegraphers v. Ry. Express Agency , 321 U.S. 342, 348- 49 (1944) . Earlie r, the Supr

eme Court

wrote tha t:

It is a well- settled pr

inciple that a statute of limitations is the law of the forum, and operates upon all whosubmit themselves to it s j ur is di ct io n.

. . . O f l at e ye ars, the courts, in England and in this country , have considered statutes of limitati ons more f avorabl y than fo rm er ly. They rest upon so und policy, and tend to the pea ce and

w elfa re of socie

ty. The cour

ts do not now , unless compelled

by the force of former decisions, give a strained constructionto evade the effec t of those statutes. By requiring those who complai n of injuries to seek redres s by ac tion at law, within a reasonable time, a salutary vigilance is impos e d, andan end is p ut to litigation. McCluny v. Silliman
, 28 U.S. (3 Pet.) 270, 276-77 (1830). Statutes of

limitations andrepose t

hus serve both the in

terest 36 Combs v. Int’l Ins. Co. No. 01-6493

inencouraging

expeditious dispute r

esolution and the in terest incr ea ti ng co nf

id en ce th at lo ng byg one inc idents will not suddenly reemer ge in liti gation i

nitiated a t some u nknown future time. Interpreting Ke ntucky’s borr

owing statute in a
manner more like ly to

create instances of lengthy or perpetual liability does a disservice to these obje ctives. Third, borr owi ng statu tes refl ect res

pect for state
so ve re ig nt y. A cause

of actio n is an atte

mp t b y the plaintiff to vindicate wh a t he believes is a legal right or oblig ation
owe d. Leg al righ

ts and obli gations

vest whe n the last e

ven t necessary to create the cause of action occ urs. The law of

the state where the final event occursdetermines the p arties’ rightsand responsibilities at that pointbecause each state has soverei gnty

over that which occurs within in its territory. See, e.g., R ESTAT EMEN T OF C ONFLI CT OF L AWS §§ 377-388. As discussed, the application of the law of the place of the injury is why this sy

stem is sometimes called the lex loci approach. Justice Story argued

, [E]very na ti on po ss es se s a n e xc lu si ve so ve re ig nt y an d jurisdiction within its own territory. . . . Th e direct consequence of this rule is, tha t the laws of ever y st ate affec t, and bind directly all prop erty , whether real or persona l, within its territory; and all persons, who a re resident within it . . . ; and als o all contracts made, and acts done within it.

J OSEPH S TORY , C OMMENTARI ES ON THE C ONFLICT OF L AWS , F OREI GN AND D O M EST IC 18 (2d ed. 1841) (hereinafter “C OMMENTARIES ”); see also Renfroe v. Eli Lilly & Co. , 686 F.2d 642, 647 (8th Cir. 1982) (“[T]he cause arises where as wellas when t

he final signific ant eve nt that is essential to a suable claim occurs.”) (citing Mac k Trucks, Inc. v. BendixWest inghouse Auto. Air Brake Co. , 372 F.2d 18, 20 (3d Cir. 1966)). The notion of vested rights, therefore, depe nds on ideas of territoriality a

nd sovereignty

.No. 01-6493 Combs v. Int’l Ins. Co. 37

Borrowing

statu tes em body the i dea th at the forei gn jurisdi cti on’s law should control out of respect for that jurisdiction’s t err itorial sovereignty

. See, e.g., Devine v. Rook
, 314 S.W.2d 932, 935 (Mo. Ct. A pp. 1958) (“ It is fundamental that the la

w of the p lace wh ere the cause of actionfirst c a me to life controls the substantive law of the cause, since the

cause owes its existence, and

the character of its existence , to that pla

ce.”). State s, in turn, should respect each ot her s’ s ove rei gn r igh ts . In his classic explanation of the comity arg

ument, Justice Story wrote:

The true fou

ndati on of which the administration of international law must r

est is that the rules which are to govern are t hose w hich arise from mutual interest and ut il it y, from a sense of the inconvenienceswhich wou ld result froma contrary

doctrine, and from

a spirit of moral necessi ty to do justice, in order

that justice may be done to us in return.

C OMMENTARIES , at 34. If Kentucky fai ls t o respec

t that a
cause of action accrues in a f

or eign jurisdiction, like New York, altho ugh t he final event necessary for the cause of actionoccurr

ed in New York, Kentucky

shows disrespect for NewYork’s territoriality in de rogation of comity principles that the Kentucky Supre

me Court may value.

Without a borrow ing statute, New York could establish a
cause of action to remedy

a particul ar wro ng, but reach a legislative judg ment about the significance of the problem and the importance of finality , and choose to attach a short statute of limitati ons to the new c ause of action. By failing to
reco gniz e New Yor

k’s deci sion, Ken

tucky would ef fective ly undermine a quasi-substantive c omp onent of New York law—not something we should

lightly assume the Ke

ntucky Supreme Court would choose to do. Thus, despi te Plaintiff’s attempt to capitalize on the scholar ly pressur e to inter pret Ken tucky ’s borrowing sta

tute
as ineffective when Kentucky do es not hav e the “mo st 38 Combs v. Int’l Ins. Co. No. 01-6493

significant

relationship” with the dispute, adopting Plaintiff’s approach might encou rage forum shopping, work against the purposes of statute s of lim ita tions and repose, and demonstr ate an inappropriate disregard for another state’s sovereignty

. IV.

Ina diversity ca se, the Kentuck y st atute of limitations

will be applied as interpreted by this Court. Atkins v. Schmutz Mfg. Co. , 372 F.2d 762, 763 (6th Cir. 1967). Kentuc k y would not apply a “most signific ant rel ation ship” ana lys is when applying K

entucky’s borr

owing statute to the instant
case.
A.

The statu tory langu age supports Defendant’s position. The “fundamental rule of statutory construction” in Ke

ntucky “is to determine the intent of

the leg islature , conside

ring the evil the law was intended to remedy .” Beach v . Commonwe

alth
, 927 S.W.2d 826, 828 (Ky . 1996); see also Kelly v. M arr , 185 S.W.2d 945, 949 (Ky. 1945). To ascert ain leg islative i

ntent, Kentucky courts must refer

to "the words used

inenacting the st at ute rather than surmising what may have been intended butwas not ex pressed." Flying J Tr avel Pl aza v. Commonwealth
, 928 S.W.2d 344, 347 (1 996) ( citi ng Ky. Assoc. of C

hiropract ors, Inc. v. Jefferson County Med. Soc.
, 549 S.W.2d 817 (Ky. 1977)). To reiter ate, Ken tucky’s borrowin g statut e states:
When a cause of actio n has arisen in another state or
co un tr y, and by the laws of thi s state or country whe re the cause o f actio n accrued the time for the
c omm encement

of an action thereon is limited to a shorter period of time than t

he pe riod of limitation prescribed

by the laws of this state for a like cause of action, then said

action shall be ba

rred in th is state at the expiration of said shorter period.No. 01-6493 Combs v. Int’l Ins. Co. 39

K Y

. R EV

. S TAT . § 413.320 . Nowher e in the st

a tutory langua ge does the “most

significant relationship” test appear. We are “no t at l ibert y to add or subt ract fr om th e legi slati ve enactment

nor discover

meaning not reas onably

ascert ainable fromthe language used.” Commonwealth v. Gaitherwright
, 70 S.W.3d 411, 413 (Ky. 20 02) (citi ng Commonwealth v. Frodge
, 962 S.W.2d 864, 866 (Ky. 1998)). N evertheless, we certain ly acknowledge Plaintiff’s ar gumen t that othe

r state supreme c ourts have read elements of a “most significa nt
re l ationship” test into borrowing statutes that lacked such express language.

B. Kentucky last amended its borrowing statute i n 1942, at a time when Kentucky

still followed the vested r ights approach to substantiv e choice

of law questions. See K Y

. R EV

. S TAT

. § 413.320. Prior to 1967, all Ke n tucky case law applied lex l oci

. See, e.g., Ansback

v. Gree nsberg , 256 S.W.2d 1 (Ky

. 1967) (appl ying lex loci

to anaut om obi le a cci den t ca se) . In
a series o f cases

in the late

1960s, however, Kentucky be gan to depart from the lex loci approach to torts. See Foster v. Leggett, 484 S.W .3d 827, 828-29 (Ky. 1972); Arnett v. Thompson
, 433 S.W.2d 109, 112 (Ky. 1968); Story v. Burgess , 420 S.W.2d 548, 548 (Ky. 1967); Wess ling v. Par is , 417 S.W.2d 259, 260- 61 (Ky . 1967). T he Kentu cky Supreme Cou rt, h owever, did not make the same change with respect to contract cases.

In Lewis v. Ameri

can Famil y Ins. Group , 555 S.W.2d 579 (K y. 1977), an Indiana

resident driver

insured in Indiana was involved in an accident in Kentucky with an uninsure d Kentucky drive

r. Id . at 580. T

he I ndiana dr iver file d suit in Kentucky against his insurer

for unins ured motorist

covera ge and the court app lied Indiana substantive law. Id . at 581. Under Lewis , the rights vested in the place of insurance, whichwas Indiana, not Kent uck y, where

the accident occurred. More rece nt ly, in State FarmMutual Aut omobile Insurance Co. v. TennesseeFarmers Mutual Insurance Co.
, 40 Combs v. Int’l Ins. Co. No. 01-6493

785 S.W.2d 520 (Ky. Ct. App. 1990), theKentucky Court of Appeals refused to apply

Ken tu ck y substantive law to a Tennessee insuranc e contra ct following an a

utomobile accident in Kentucky b etween

a Kentuck y driver a

nd a Tennessee driver. Id . at 521. As long as Kentuc ky c ourts continue to apply the vested rig hts approach

to contracts, and insurance contracts in parti cular, t his Court, s it ting i n di ve rs it y, lacks a b asis to predict that the Kentucky Supreme Court would take a different route.

C.

Willit s v. Peabody Coal Co. , Nos. 98-5458, 98-5527, 1999 WL 701916 (6 thCir. Sept. 1, 1999) (unpublished), is the only
caseto deal with questions like those Plaintiff presents in the context of Kentucky’ s borrowing statute. Although Willit s is an unpublished opinion, its reasoning is instructive.

In Willit s , the plaintiffs asserted a breach of contr act cla im alleg ing, inter alia , improper calculation of roy alties unde r coal mining agreements. 1999 WL 701916 , at *11. The parties origina

lly executed the contr act in Ka nsas. Id . at *13. The def endantscalculated

royalty payments in Missouri and thenmailed the

m to variou s states, including Kentucky

. Id

. Missou r i’s shorter limitations period would have barred the plaintiff s’ claims. Id . at *1 2. Bot h part ies agr e ed that Kentucky’s

borrowing statute controlled the case. Id . at *11. The Willit

s Court explained how it would apply the borrowing statute:

The Kentucky borr

owing statute requires a three step anal ysi s: (1) we must determine whether the cause of actionaccrued in another state; (2) if the cause of action did accrue in a nother state, we must determine whether that state's statut e of limitati ons for th e partic ular ca use of actio n is s horte r than Kentu cky's ; (3) i f the accrual state 's statue of limitati ons is shor ter than Kentuck y' s, we apply the statute of limitations of the acc rual state; however, if the statute of limitations for the cause ofNo. 01-6493 Combs v. Int’l Ins. Co. 41

12 Signi ficantly, Willits als o ment ions the proble ms pres ente d by defining acc r ual in a m anne r related to whe re the p laintiff or pla intiffs suff er damages. The Willits Court wrot e:

To the ext ent t

hat t he calcu lati ons and th e res ultin g paym ents
were a breach of Peabod y’s obliga tion, th at bre ach o ccurr ed in the offi ce in M issouri. It wo uld b e un wo rkab le and irration al to hold that the cau se of action accru ed wh ereve r eac h P laintiff happened to receive his or her defici ent check.

199 9 W L 70 191 6, at *13 (emp hasis ad ded ). actionin that stat e is longe r than Ke ntucky 's, we a pply Kentucky' s shorter statute.

Id

. at *12. The second and third parts of this process are fairly simple: if the cause of action accrued in a foreign state
, thendetermine that state’s statute o f limitations, and if the forei gnstate has a shorter limitations per io d t ha n K en tu ck y, borrowthe foreign state’s shorter rule. The trouble occurs i n reachi ng th e s ec on d a nd th ir d c om po ne nt s o f t he an al ys i s because
, as Wi llits correctly observed, “there is little or no law in Kentucky

concer ning where

a breach of contract action accrues.” Id . (emphasis in original).

To help a sce rtain how the Kentucky judiciary might determine where a cause of action accrues, Willit

s noted that Kentucky’s

statute of limit ation s for contracts of sale under the Uniform Commercia

l Code (UCC ) provides: “‘A cause of
a ct ion accrues when the breach oc curs, regardless of the aggrieved party’s lac

k of knowledge of

the breach.’” Willit

s , 1999 WL 7019 16, at *13 (q uoti ng K Y

. R EV

. S TAT

. § 355.2- 725(2)). This supports the conclusion, relevant to Plaintiff’s lawsuit, “ that a breach can occur before th e aggriev

ed party

ac tually knows of it a nd is damag ed by it .” Id. (emph asi s added). This supports Willit s ’ decision that the breach occurred in Missouri , “wher

e [the def

endant] imp

roperly calculated

the roy alties an d from whe

nce [the d

efenda nt]

m ailed out the roya

lty p ay ments to the

Plaintiff s in thei r various states of residence.” 12 Id . at *14. 42 Combs v. Int’l Ins. Co. No. 01-6493

Plaintiff offers three challenges to the reasoni ng offe red in Willit s and to the application of Willit s to the matter pr

esently before us. First
, Plaintiff notes that the district court applied Willit s to t he instan

t action in

part bec ause of Wi sconsin jurisprudence the district c ourt foun d useful. Wisconsin

has
a borrowing statute similar to Kentuck y ’s, but Plaintiff complains that the Wisconsin cases cited by

the district court do no t c le ar ly e stabli sh what the Kentucky Supreme Court would do. The distr

ict cour t initially cites Abraham v. General Cas. Co. of W

isconsin , 576 N.W.2d 4 6 (Wis. 1998). In Abraham , the Wisco nsin Supre me Court he ld that a c ause of action is “foreign”when “the final significant event giving rise to a suable claim occurs outside the state of Wisconsin.” Id

. at 53- 5 4. Plaintif

f dispute s Abraham ’s persuasive value bec au se Abraham involved a set of fa

cts in whic

h all significant

ev ents oc curred in Wisconsin. See id. at 54-55 (B ra dl ey, J., concurring). Yet even assuming the Abraham decisiondepended on significantly diff erentfacts than the
casepresented

here, Abraham still reinforces the vested rights theory that a cause of action a ccr ues wher ever the “last act” necessary to create the claim occurs.

The district c ourt also

relied on Ristow v. Th readnee dle Ins. Co ., 583 N. W.3d 452 (Wis. Ct. App. 1998). In Ristow , a Wisconsin

resident sued

a South Carolina insurer because he
never received a

settlement

check after suf

fering an injury in South Carolina. Id . at

453. Significantly, Ristow found that the final event creating the cause of action was the defendant’s failure to issue the chec k from its So

uthCarolina
o f fice, not the pla

intiff’s failure to rece ive the check in Wisconsin. I

d . at 45 5. Ci ting Western Union Tel. Co. v. Lacer , 93 S.W. 34 (Ky. 190 6) , Plaintiff claims the district court should not have relied on Ristow because Kentucky courts would hav e reached a dif ferent conclusi on if fac ed with the Ristow facts. The Lacer court had to decide whether a
caus e of a ction against Western Union accrued in I ndiana, where the compa

ny a ffixed the wrong a ddress to a telegraph,
or in Kentucky, whe

re the company

failed to promptly

deliver the message. Id . at

35. Although Lacer

found tha

t the cau seNo. 01-6493 Combs v. Int’l Ins. Co. 43

13 Plaint iff

also cites Allst

ate Insur

ance Co. v. Napier , 505 S. W.2d 169 (Ky. 1974) and Louis vil le Gas and Elec. Co. v. Employ er’s Mut. Li ab. I ns. Co. , 548 S.W.2d 843 (Ky. Ct. App. 1977). Both cas es concer n substanti ve choice of

law dis putes i n the cont ext of int erpreti ng ins urance of action accrued in Kentucky, that conclusion does not aide Plaintiff much bec aus e the Lacer plaintiff

expressly contracted

for Weste

rn Unio n to “expeditiously deliver the correct message to the addressee at the point addr essed.” Id

. at 35. Neither Ristow nor Plaintiff’s case involves a contract that specified a deli very point. More important, Lacer requires a differe nt “last a ct” ana lys is than Ristow because the Lacer Plaintiff could not have sued Western Union until the company failed to promptly deliver the messag e, whereas the Ristow plaintiff could have sued the defendant insurer whenever (and however) hediscovered that the defenda nt did not mail him his settlement check.

Plaintiff’s sec ond direct challenge to the application of Willit s to the instant problemdepends upon Kentucky ve

nue jurisprudence. Plaintiff cites a series of cases inter pret ing Kentucky’s

venue sta

tu te , K y. Rev. Stat. Ann. § 452.450. See, e.g., T.C. You ng Constr. Co . v. Hartfo rd Accide nt & Indem. Co. , 441 S.W.2d 781 (Ky . 1969); Prudential Ins. Co. of Am. v. Te

rry , 95 S.W.2d 11 09 (Ky . 1936); Ins. Co

. of N. Am. v. Hopper , 6 9 S .W .2 d 7 28 (K y. 1934); Torrent Lodge v. Nat’l Sur. Co. , 21 S.W.2d 4 39 ( Ky . 1929). T hese ca ses, however, mer ely

address the quest

ion of ven

ue for a suit based on an insurance policy , not where a cause of act ion
accrues under Kentucky ’s borrowing statute. Under Kentucky’s

venue sta

tue, plaintiffs must bring lawsuits for breach of contr act ag ainst a c orporat

ion in the county where either (1) the c orporat

ion is present ; (2) its a

gent re sides; (3) the contract was made; or (4) the parties were to perform the contract. K

Y

. R EV

. S TAT

. § 452-450. The planned place of perfor mance is a possibly

appropr iate venue, bu t t ha t s ays little about wher e a cau se of action accrues pursuant to the borrowing statute. 13 44 Combs v. Int’l Ins. Co. No. 01-6493

policy provisions, not decidi ng argu ments over w hich st ate’ s st atut e of li mit ati on woul d appl y. B oth parties t o this acti on agree on the substanti ve choice- of-l aw questi on—K entucky’ s bor rowin g statute app lies, not tha t of som e othe r state. Third, in an atte

mpt to minimize the importance of Willit s as applied to the f

acts of h is case, Plaintiff

present s us with this hy pothetic al: Buyer buys a us ed car f

rom Seller using a contract that calls for a full-sized spare and shortens the statute of limitations to one y

ear (a s allo wed b y [Ky . Rev. Stat.] 355

. 2-725). The contract also provides a one y ear warr anty for all electrical components, which requires Bu yer to submit a claim form for any r epair. Eleve n months later, the altern

ator fa ils, and B uye

r submi ts a warran ty c laim form. Two months after

that, Buyer

has
a flat a nd disc overs that there is no spare at all. Three months after the flat, the warran ty c ompany

deliver s a letter claiming th at the alternator is not an electrical componen

t. Buyer ’s breach action

for the lack of a spar e fails be cause the breach occurred

at delivery, a s Seller could have put the spare in at any

time unt il then. Buyer could have discovered

the spar e within th e year, but

did not and

is ba rred. By not re quiring actual knowledge, the stat ut e [of lim itations] places the burden on Buyer to examine the goods on delivery , and limitations begin at the point he should have known of the

breach . This con cept of accrual when the

plain tiff should

have known of the injury is found bo thinother limi tations sta tutes and case law

. See [K

Y

. R EV

. S TAT

. ANN .] 413.140(2); Ky. Titl e Trust Co. v. Weil

, 136 S.W.2d 1097 (Ky. 1939). Buyer ’s action for breach

of the warranty , however, does notaccrue unde r the statute until he receives the letter denying his claim, sixteen months after the purchase, and five months after the alternator failed. Buyer co uld notNo. 01-6493 Combs v. Int’l Ins. Co. 45

sue the warr

anty company

when th e a lternator failed because he had not complied with t he condition precedent of submitting the claim form at that point. The breach is only disco vered w hen the Buyer receives the let ter deny ing the c laim and, under the statute [o f limita tions ], the cause accrues at that point i n time and (under the analy sis in Willit s ) space. (Pl.’s Br. at 18-19) (emphasis in original). This hypothetical is somewhat deceptive.

Plaint iff implies tha

t the war ranty in this hy

pothetic al is like the D & O p olicy. Presumably , Plaintiff intends the hypothet ical to demonstrate the difference betwee n the breach of contract a cti on based on the spare tire (which the hypothetical

concedes the statute of limitations would b a r) and t he breach of warranty action based on the failed alternator. Plaintiff

’s analy sis of the spare tire issue is correct because Buy er could have disc overed t

he brea ch at any time after the sale and brought suit acc o rdingly. Of course, Plaintiff could (but does not) explain it this way: as soon as Seller sold the car without the spare tire, the breach of contract claim “accrued” because selling the car without the spare was the final act necessary to create the cause of action.

Plaintiff wants us to con f

use the “final act” notion of accrualwith a discovery c oncep t mo re favorable to his positi on in th is case. In the hy pothetical, Plaintiff assumes that Buyer had no warran

ty action until he received

the letter fromthe warr

anty company declaring that an alternator does notqualify

as an ele ctrical

componen

t. On ly then, arg

ues Plaintiff, did Buy

er disco ver his cause of action. Yet the final act necessary

to create the cause of action was the w arrant y company’s

decision to deny the cla

im—ajudgment

that most likely tr an sp ir ed wh er e t he co mp an y p ost ed the letter, not where Buyer

received it. Quoting one of this Court’s earlier decision s, Willit

s notes that

“‘[t]he final

act which tra

nsforms the liab il it y i nto a cause of action necessarily has aspects of time and plac e. I

t o ccurs at a cer

tain time a

nd in a ce

rtain 46 Combs v. Int’l Ins. Co. No. 01-6493

geographical spot.” 199 9 WL 701 916, at *1 2 (empha sis
a dded) (q uoti ng Helmers v. Anderson , 156 F.2d 47, 51 (6th Cir. 1946), aff’d sub nom. Cope v. Anderson
, 331 U.S. 461 (1947)). As discussed

above, Willit

s concluded “that a breach
can occur before the agg rieved p arty

actually knows of it and is damaged by

it.” 1999 WL 701916, at *13.

Alth ough Willit

s is an unpublished opinion that constitutes only persuasive authority
, Willit s s up ports Defendant, not Plaintiff.

D.

As already

discu ssed, the judicial activity in other states does not constitute particularly per suasive evidence that the Kentucky Supreme Court would reinterpret Kentucky ’s borrowingstatute to limit its function when Kentucky has the “most significant relationship” to the di spute d transaction. Alth ough a few sta

te judicia

ries h ave inte

rprete d their borrowingstatutes somewhat prog r essively, Plaintiff’s references to the law in other jurisdictions are too equivocal to form a sound basis for an Erie guess.
To summarize , Wyoming has not ad opted the Second Restatement’s approach. See BHP , 1 P.3d a t 1256. New York’s “place of injury

” test is different fro m the “most signifi cant

relation ship” tes t and not pa rticular ly h elpful w

he n the injury is intangible, as in this case

. See Global Financial
, 715 N .E.2d at 486. Plaintiff also points to Missouri , bu t Missouri has twice rejected i nvit ations to apply the Second Restatement’s approach

to its borrowing statute. See Dorris , 725 S.W.2d at 87 2; Trzecki , 532 S.W.3d at 211. And despi te Plaintiff’s attempt to use Florid a law to his advantage, the Florida Court of Appe als declined to adopt the Second Restatement

approach without a clear

legislative instruction. See Pledger , 432 So.2d at 1330 -3 1. That le aves Illinois, whichapplied the “most significant relationship” test in Ehlco II , although that case’s unusual procedural posture lessens it s precedential value.No. 01-6493 Combs v. Int’l Ins. Co. 47

14 In 1966, Pe nnsylvani a’s borrowing stat ute had language similar to that in Kentucky’s borrowing provisi on: “When a cause of action h a s been full y barr ed by the law s of t he sta te or count

ry i n which it a rose, such bar s hall

be a complete def

ense t o an action thereon brought in any of t he cour ts of t his commonweal th. ” 12 P A

. C ONS

. S TAT . § 39

. T here is also re levant in formation from jur isdictio n s Plaintiff neglects to mentio n. Minnesota repeal ed its bor row ing statute, b

ut a fede ral cour t sitting i n diversi ty dutifully ap pl ied Minnesota’s borrowing statute before the Minnesota

legislature rev okedit. See Devine v. RayetteFaberge, Inc. , 285 F. Supp. 1006, 1008 (D. Minn. 1968) (finding plaintiff’s ac t ion time-barred by using Minnesota’s borrowingstatute to apply New Yor k ’s more restrictive statute of limitations). More important, in Mack Trucks, Inc.

v. Bendix-Westinghouse Auto. Air Brake Co. , 372 F.2d 18 (3d Cir. 1966), the Third Circuit expressly declined a plaintiff’s invitation to interpret Pennsylvania’ s borrowingstatute so as to apply “th e law o f the p lace ha ving t he mos t sign ifican t contact s w i th the relevant transactions and with the parties rather than by the law of the

place of the wrong.” 14 Id . at

20- 21.

The opinions from other

jurisdictions that Plaintiff cites do notmake a c omp elli ng case upon which we can make a judicious Erie guess. If a nything, deve lopments el sew here tend to affirmatively indica

te tha t t he Kentu

cky Supreme Courtwould not

limit the application of

its borrow

ing stat ute to those si tuatio ns in which Kentuck

y ha s the “mos t significant relationship” with the dispute.

E.

Alth ough the Kentu cky Supreme Court mig ht heed the scholar ly criticism of borrowing stat u tes inter

preted i n accordancewith the accrua l t heory, the Ken tucky Supreme Courtmight just

as easily choose to respect the strong

policy interest s borrowing statutes serve: they impede f

o rum 48 Combs v. Int’l Ins. Co. No. 01-6493

sho ppin g, effectuate the goals of statutes of limitations and repose, and demonstrate respect for other st at es ’ s ov er ei gn ty.
This Court has a

circumsp ect role

when sitti

ng in dive rsity and should not u

nduly specula te about what a state court might conclude, nor should we impose whatever rule we think best. Given(1 ) the borrowing statute’s languag e; (2) Kentucky’s f

ocus on vested rights in interstate contract litigation; (3) our unpublished Willit s decision; (4) Plaintiff’s inability to construct a strong argument base d on the law of ot her jurisdictions; and (5) the policy intere sts supported b y leavingKentuck

y’ s borrowing st at ute unadulterated by the Second Restatement , we con clude tha t the Kent ucky Supreme Courtwould apply the borrow ing statute

by focusing

only on where the cause

of action accrued, not on which state has the greatest interest in the dispute.

V. Havingdecided

that the K

entucky Supreme C ourt would determine the ap p licable s tatute of limitations

by l ooking only to where the cause of action accrued, we must now attempt to apply that rule to the fa

cts of the case before us.

A.

Where an insurance policy is breac h ed depends in part on

w hether the contr

act is a li ability

policy or an inde

mnit y po li cy. “[U]nder a

liability poli cy a c a use of action accrues when liability attaches, wher

eas under a

n i ndemnification poli cy there is n

o cause o f action

until the li ability

has b ee n disch arged, as by pay

ment of the judgment by

the insure d. ” Quinlan v. Liberty Bank & Trust Co. , 575 So.2d 336, 355 (La. 1990).

Plaintiff’s D & O policy defines “loss” as “any

amount whichIns ur ed s a re le ga ll y o bligat ed to pay for a claim or claims against them for Wrongful Acts.” (J.A. at 16.) As theNo. 01-6493 Combs v. Int’l Ins. Co. 49

Eighth Circuit described a similarly-word ed D & O policy issued by America n Casualty

Company :
The definitio

n of "Loss" une quivocal ly in cludes de fense costs, and seems to require American Casualty to pay thesecosts whe

n the insur

eds are "lega ll y obligat

ed to pa y" them, i.e., when the costs are incurred, and not, as American Casualty

appears to sugg est, whe

n the laws uit is finally disposed o f and Ame rican Ca su alty

has determined

that the claims were covered. This is cle arly
a liability policy , despite

Ameri can Cas ualty's attempt to treat it as an indemnity policy . The significance o f this distinction is that under a liability policy
, whenever a covered "loss" oc cu rs (i.e. , the insur eds are "lega lly obligat edto pay" ), American Casualty must pay that amount—payment

by t he insure r is not conditioned upon
a pre vious pay

ment by the insur ed, as in a

n indemnit y policy.

McCuen v. Am. Cas. Co. , 946 F.2d 14 01, 1 406-07 (8th Cir. 1991); see also Little v. MGIC Indem. Corp. , 836 F.2d 789, 793 (3d Cir. 19 87) (“A

‘loss’ is defined as an amount that the insured is ‘leg ally

obligat ed to pay .’ Althoug

h this section [of the policy] does not explicitly speak t o the t iming of the insurer’s duty

to pay, the only

reasonable interpretation is that the duty arises a t the ti me the insured b ecomes ‘ legall y obligated to pay .’”); Okada v. MGIC Indem. Corp. , 823 F.2d 276, 280 (9th Cir

. 1986) (“In a liability contract, the insurer agrees to cover liability for damages. I f the insured is liable, the insurance company

mus t pay

the damages. I

n an indemnity

contract, by

contras t, the insu

rer ag rees to reimburs e expenses t

o the insur

er that the insure d is liable to pay and ha s paid .”) (qu otin g Cont’l Oil Co. v. BonanzaCorp. , 677 F.2d 455, 459 (5th Cir.1982)). Plaintiff, therefore, held a liability policy, not an indemnity policy

. Assumi ng Defendant had an obligation to pay under th e policy’slanguage, D efe ndant had no responsibility before Decedent hi ms el f b ec am e “ le ga ll y ob li ga te d t o p ay” 50 Combs v. Int’l Ins. Co. No. 01-6493

15 No te h ow Renne uses the future t ense: “[My client ] wil l l ook to you . . . for re imbu rsem ent.” (J.A . at 102 ) (emp hasis ad ded ).

16 The phrases “anticip atory b reach ,” “antici patory repudiation,” and “renunciati on” are used intercha ngea bly. See 17B C.J.S. Con tracts § 534, at 19 6 (1 999 ). attorney’sfees, settlements, or other related sums. The twopa ge letter se

nt from Pla

intiff’s Californ

ia counse l t o Defendant

is simply a list of the eight di ffere nt lawsuit s filed inth e Ca li for ni a Li tigati on. Renne , Plaintiff ’s Califo rnia counsel
, ma de clea

r in the text that “this

letter c onstitutes

a claim by [the officers a

nd directors of Spendthrift] under the terms of the above-captioned policy and they

will lookto you [Defenda nt] for reimbursement of all cos ts an d damages whichmay

be assessed against them.” 15 (J.A. at 102 .) Thus, at the moment Defendant received Renne’s letter, Defendant had no obligation

to rei mburse Decedent—the letter did not include an y demand for the r eimburse ment of a

specific amount of money. Rather, it notified De fendant that the Spendthri f

t directors wo uld attempt to recoup from Defendant “allcosts and damages which may be a ssessed against them.” Id

. B.

Since Defendant renounced the D & O policy

(with respect to the California Litigation) bef ore De fendant had any obligation

to make pa

yme nts pursua

nt t o th e p ol ic y, Defendant’s beh avior co nstituted a n anticip ato r y repudiation. 16 As the Supreme Court explai ned, “[i]t has al wa ys been the law that where a pa rt y d elibera

tely i ncapacitates himself or renders performance of his contract impossible, hi s a ct am ou nt s t o a n i nj ur y t o the oth er pa rt y, whichgives the other par ty a caus e of action for breach of contract.” Roehm v. Horst , 178 U. S. 1, 1 8 (1900); see a lso Hoc hster v. De la Tour , 2 El. & Bl. 678 (1853). “The disclaimer

of a contrac t ual duty is a brea ch of contract evenNo. 01-6493 Combs v. Int’l Ins. Co. 51

if th e time specified in the contract for perfor ming the d

ut y has not yet arrive d. It is what is called anticipatory breach.” Wis. Power & Light Co. v. Century Indem . Co. , 130 F.3d 787, 793 (7th Cir. 1 977); see also Quivirian Dev. Co. v. Poteet , 268 F.2d 433, 439 (8th Cir. 1959) (“An a ntici patory repudiation

is decla

red to ex ist when a promisor, not otherwis e in default, engages in making , without justificat ion
, a po sitive statement to the promisee, or other person having
a right unde r the contract, indica ting tha t the promi sor will
no t or cannot substantially per form his contract duties.”). Kentucky has recognized the doctrine of anticipatory breach. See, e.g., Jo rdon v. Nic

kell
, 253 S.W.2d 237, 239 (1952); Fid. & Deposit Co. of Md. v. Brown , 20 S.W.2d 28 4, 286 (Ky . Ct. App. 1929); Paducah Cooperage Co. v. Ark. Stave Co. , 237 S.W. 412, 413 (1922).

The repudia

tion must be

absolute or unequ ivocal. Thunder Basin Coal Co . v. Southwestern Pub. Serv. Co. , 104 F.3d 1205, 1213 (10th Cir. 1997); Sys. Council EM-3, Int’l Bhd. of Elec. Work

ers, AF L- CI O v . A T & T, 972 F. Supp. 21 (D.D.C. 1997); Brownsboro Rd. Rest., Inc. v. Jerrico, Inc. , 674 S.W.2d 40, 42 (Ky. Ct. A pp. 1984) (citing 17 A M

. J UR

. 2d Contracts § 448 (196 4)). Co urts determine whether anticipatory

repudiation

has occurred on

a case- by- case ba sis, dep ending on the particular contract language involved. Truman L. Flatt

& Sons Co., Inc. v. Schupf

, 649 N.E.2d 990, 994 (Ill. App. Ct. 1995). No prec ise set of words is necessary to constitute an unequivocal repudiation. Ewing v. Von Nieda
, 76 F.2d 177, 182 (8th Cir. 1 935). Ne verthel ess, Defendant’s reply to the Renne inquiry explained

in detail why Defend ant would

not reimbu

rse Pl ain tiff for expenses related to the California Litigation. The five-page letter made complete ly

clear that Defendant

“decli nes to afford covera ge for any loss incur

red by the [Plainti ff and D eceden t] in connection with the [California Litigation].” (J.A. at 109.)

There is some di sag reement as to whether the doctrine of anticipatory

repudiation applies only to bilatera l co n tracts, see, e.g., Sae

witz v. Eps tein , 6 F. Supp. 2d 151 (N.D. N.Y. 52 Combs v. Int’l Ins. Co. No. 01-6493

17 Warren v. Conf

e derat ion Li

fe As s’n. , 401 F.2d 48 7, 489 (1st Cir. 1968) (“A life insu rance polic y is a unilater al contract – the appli cant may pay the premi um, or

not, a s he cho oses; h e is und er no legal o bligatio n to do so.”); Winte rs v . St

ate Farm & Cas. Co. , 35 F. Supp. 2d 842, 845 (E. D. Okla. 1999) (“despite the many acts to be done by the insured under a fire insur ance polic y, the fire co ntract is a u nilateral c ontra ct.”); Wal-M a rt Stores, Inc. Assocs . Heal th & Welfa re Pla n v. S cott , 27 F. Supp. 2d 1166, 1170 (W.D. Ark. 1998 ) (“it is a unilater al con tract of ins uranc e”); Int’l Ad m’r s., Inc. v. Li

fe I ns. Co. , 541 F. Supp. 1080, 1083 ( N.D. Il l. 1982) (“But an offer f

or a unilatera l contra ct–like this one–maybe ‘a ccept ed’ by rendering performance . Placement of th e insu

rance wi th LINA const itu ted such perfo rman ce.”); Continental Cas. Co. v. Nat’l S teel Corp. , 533 F. Supp. 369 , 3 73 ( W.D. Pa. 1982) (“The ins urance contract was a uni late ral contract”); Ho me Ins. C o. v. Ae tna Cas. & Sur. Co. , 197 7 U .S. D ist. LEX IS 13726, at *16 (S.D.N.Y. 1977) (“ insur ance polic ies are g enera lly unil ateralcont ract s pre pared by th e insure r”); SouthTrust Bank v. Wi llia ms , 775 So . 2d 184, 188 (Ala. 2000) (“all f orm s of insurance are presumed to be unilateral contracts.”) (quo ti ng Wi nt er s v . S ta te Far

m & Fir e Cas. Co. , 35 F . Sup p. 2d 842 , 845 (E.D . Okla . 199 9)); Lo ndo n Assurance Corp. v . Thompson , 170 N.Y

. 94, 100 (1902) (“The general rule is t hat .

. . insur ance poli cies are uni late ral contracts prepared by the insurers”).

18 The insured has not made any prom ise but, rather, has pe rfor med. Thu s, the co ntract fits within the stand ard d efinition o f a unila teral

con tract:

A unilatera l contra ct con sists of a promis e or group of promises made by one of

the co ntracting parties only, usually ass ented to by the o ther. The re are many c ases in w hich suc h an as sent is not required. A bilateral contract con sists of mutual promises, mad e in exchange f

or each oth er by eachof the two contract ing parties. In the case of a uni lateral contract, t here is onl y one promisor.

. . . In a bilat eral cont ract, both part ies are promisors 1998) (citing 4 A RTHUR L. C ORB IN , C ORBI N ON C ONTRAC TS § 962 (1951)), or to both bilateral and uni lateral contracts, see, e.g., Pla cid Oil

Co. v. Humphrey , 244 F. 2d 184 (5th Cir. 1957). Insurance policies a re gener ally unilater al contr acts. 17 A D & O insurance policy is a unilateral cont

ract—t he insure d has alre ady

perfor med by pay ing the premium in exch ange for the insurance company ’s promise to provide insu rance

. 18 Nevertheless, there is ample authority for theNo. 01-6493 Combs v. Int’l Ins. Co. 53

and bo th parties are pro misees.

1 A RTHUR L. C O R B IN , C ORBI N ON C ONTRACTS § 1.23, at 87 (1993 ). proposit ion that the promising party can anti cipator

ily repudia te a unilateral contract. See, e.g., Dingley v. Oler , 117 U.S. 490, 502-04 (1886) (ev a luating a claim that defendant had anticipatorily repudia

ted a unilateral co ntrac t without mentioning the conte

ntion that a

nti c ipatory repudia

tion might notapply to u

nilater al contr

acts); Xebec Dev. Partners, Ltd. v. Nat’l Union Fire Ins. Co. , 15 Cal. Rpt r. 2d 726, 740 (Cal. Ct. App. 1993) (finding that caselaw does not “establish that there can never be an anticipatory repudiation of an insurance contract”); Cameron v. Eynon , 3 A.2d 423, 423-25 (Pa. 1939) (recognizing an anticipatory breach of a unilateral contract).

To limit a

nti cipator y r epudiati on to bilate

ral cont racts makes little sense. The theory , presuma bly , is that if

the first party has already

performed when

the second party

announces his intention to breach, the firs t p ar ty (the injured party ) has nothing to gain through an immediate action for dama ges based on anticipatory

breach. Yet “[t]he harm caused to the pla intiff is equally gr

eat [whether or not he has already perf orme d]; and it seems strange to deny to a p laint iff a remedy [for antic ipatory

breach] merely

on the ground

that he has already

fully perfor

med as hi s cont ract required.” 9 A RTHUR L. C ORB IN , C ORBI N ON C ONT RACTS § 962, at 767 (interim ed. 1979).

Further more, courts have frequently recognize d anticipatory

repudiation in insurance coverage disputes, and insurance policie s are unilateral agree ments. See, e.g., N.Y. LifeIns. Co . v. Viglas , 297 U.S. 6 72 (1936) ; Lovell v. St. L ouis Mut. Life Ins. Co. , 111 U.S. 2 64 (1884) ; Caminet ti v

. Manierre , 142 P.2d741 (Cal. 1943); Scott v. Li fe & Cas. Ins. Co. , 129 S.E. 3 03 (Ga. 1 925); Van Werden v. Equitab le Life Assurance Soc’y of

the Unite

d Stat es , 68 N.W. 892 (Iowa 1896); Ebert v. Mut. Res. Fund L. Ass’n , 83 N.W. 506 (Minn. 54 Combs v. Int’l Ins. Co. No. 01-6493

1 900); McKee v. Phoenix Ins. Co. , 28 Mo. 383 (1859) ; G arland v. Jefferson Standard Life Ins. Co. , 101 S.E. 616 (N.C. 1919); Fischer v. Hope Mut. Life Ins. Co. , 69 N.Y. 161 (1877); Am. Ins. U

nion v. W

oodward , 247 P. 398 (Okla. 1926); Gaskill v

. Pittsburg

h Life & Trust Co. , 104 A. 775 (Pa. 1918); Mut. Rese

rve Fund Life Ass’ n v. Taylor , 37 S.E. 854 (Va. 1901); Merrick

v. Northwestern Nat’l

Life Ins. Co. , 102 N.W. 593 (W is. 1 905). The lo ng list of cases involving the alleged anticipatory re

p udia tion of an insurance contract includes disputes, like this one , that involve the alleged renunciation of a

D & O policy

. See, e.g., Fed. Sav. & Loan Ins. Corp. v. Olde nburg , 671 F. Supp. 720, 724 (D. Utah 1987) (find ing insurer had anticipit orily repudiated a D & O insurance contract through letter that “was a de finitive statement of an intentnot to per

form sen t to the insu

red while there was a cla

im pending”); Xebec , 15 Cal. Rptr. 2d at 740 (find ing, in litiga

tio n over a directors and officers insurance policy, that case la

w does not “establish that there can never be an antic ipa to ry rep udi ati on o f an in sur anc e co nt rac t”) . If
a bre ach oc curred, Defendant’s response to the Renne letter breached the insurance contract

by anticipatorily

repudiating Defendant’s allege d obliga tions. We mus tnext

ask where the breach (or the repudiation) occur red.

C.

We acknowledge that

the question of

where an anticipatory repudiation

occurs “ ha[s] not y et been clearly settled.” 9 A RTHUR L. C ORB IN , C ORBI N ON C ONT RACTS § 988 , a t 851 (interim ed. 1979) . Never

theless , ther e are a few cases in vol ving disputes over where a repudiation occurre d when the repudiating party

sent the renu

nciat ion from one jurisdiction to th e n on -r ep ud ia ti ng pa rt y i n a second jurisdiction. The limited available juri s prudenc e strongly sugge st s that a repudiation occurs in the place where the repudiator

posts the renunciation, not where the ot her pa rty received not i ce. See Auglaize B ox Bd. Co. v. Kansas Ci ty Firbre Box Co. , 35 F.2d 8 22, 823 (6th Cir. 1923) (holding actionto have arisen in jurisdiction where repudiationNo. 01-6493 Combs v. Int’l Ins. Co. 55

occurred, not place of perf ormance ); Wester v. Casein Co. of Am. , 100 N.E. 488, 513-14 (N.Y. 1912) (concluding, wh e n anticipatory

repudiation was cabled from New York, addressed to and later received by

the other par ty in

South America, that the breach o ccurre d in New Y ork, bec ause “[t]he breach of the contract occur red in t his case upon delivery of the cablegram to the telegr aph company, a

nd constituted

a breach, not only

at th at time, but also at that place.”); Kum ar v. Embassy Kosher Tours, Inc. , 696 So.2d 393, 394 (Fla. Dist. Ct. App. 1997) (“[A]n anticipatory bre ach is deemed to ‘accrue,’ if

at all, in the county . . . from which the ‘breac hor’ tra nsmits the repudiation, rather than where the ‘breachee’ receiv es it.”); Karson Indus., Inc. v. S up erior Court , 77 Cal. Rptr . 714, 716 ( Cal. Ct. App. 1 969) ( decid ing, i na dispute

where a letter c ancellin

g a con tract f or mobil e homes was posted

in one county but rec eived in another, “that the weight of authority

and the better reasoned

cases support the rule that repudiation by le tter is a breach at the time when and the place where the letter is dispatched” ).

Thesecases ultimately der ive their ho ldings from a series of ninetee nth-cen tury British and Irish decisions that reached similar conclusion s. In Cherry v. Thompson , 7 Q.B. 573 (1872), for instance, the court found that the a nticipa tory breach of a contract to marry

occurred in Germany

when the defendant mailed a letter from Germany withdrawi ng from the engagement. As Judge B lackburn explained:

Inthis case the receipt of the lette r by the plain tiff in England furnished him with evidence that the defendant had in Germany r

enounced [their] relati on. Had hi s letters followed him to Ireland he would ha ve rec eived the evidence in Ire land. But the ac t which he had the option to treat as a breach t ook place in Germany, and in Germany alone

. Id

. at 57 9 ( em ph as is ad de d) . S im il ar ly, in Hamilton v . Barr , [188 6] 18 L.R . Ir. 297, the p laintiff made a c ontr act i n Scotland with the de fendant

to act as the defe ndant’s a gent in 56 Combs v. Int’l Ins. Co. No. 01-6493

Ireland. Late

r, the de fendant

mailed a l etter to h

is agent in Scotland abrogating their ag

reeme nt in advance. As Chancellor

Naish expl ained , “I consider that the dismissal took place in Glasgow by

the posting of the letter in Glasgow. The dropping

of the letter in to t

he post off ice there was, I think, the act of di smissa l.” Id . at 301. Chancellor Porter agreed that the contract en de d “the moment the notice of dism iss al had left

the hands

and contr

ol of the d

efenda nt, which it did in Glasgow.” Id . at 302.

In Holland v

. Bennet t , 1 K.B. 867 (1902), the proprietor of
a peri odical who resided in France employ ed a London
corres pondent. Th e p roprietor discharged the plaintiff in a letter mailed fr

om Ital y . Justice Williams concluded that “[t]he effec t is that the

re was a comple te breach

of the contract when the letter giving notice of dismissal was posted abroad.” Id

. at

869. Finally, Matthews v. Alexander , [1873] Ir. R.-C.L. 573, involved a wholesale tea d ealer residing in London who hire d a sales man and se nt him to Ireland. Id . at 575. The salesman received a letter of dismissal bef ore he could begin his work. Id . at 576. T he messa ge arr ived in Dublin, but the letter was posted in London. Id . According to Judge Whiteside , “[t]h e act in th is case w as done in England. The letter informs the Plaintiff that the Defend a nt inEngland had renounced the rela tion thathad su

bsisted between th em; an d if that was a breach of contract, it took pla ce in England.” Id . at 579. This view is shared by t h e Restatement

of Contra cts, which explains that the repudiation
occurs “as of

the time when

and the place where the letter or telegram is dispatched.” RESTA TEME NT OF C ONTRAC TS § 321. Williston also felt that repudiation by letter is a breach “as of the time when an d the place where the letter or telegram is dispatched.” 11 W IL LI STO N ON C ONTRAC TS § 1332, at 174 (3d ed. 1968). Thus, although the jurisprudence is fairly sparse, the availab le informat

i on strongly indica

tes that an anticipatory breach occurs w

here the breach in g p arty posts its letter ofNo. 01-6493 Combs v. Int’l Ins. Co. 57

19 Th is rule n icel y avoids the p r oblem of dete rmini ng where an anti cipator

y breach occurred when t he let ter is post ed in one ju ris dict ion but received in multiple places. renunciation. 19 Since Defendant posted the message in New York, the breach occurred inNew York. Under Kentucky ’s borrowingstatute, Ky. Rev. Stat. § 413.320, the Ke n tucky Supreme Court would apply New Yor k’s statute of limitations
, render

ing Plain tiff’s c laim eig

ht y ears la

te

. Co ns eq ue nt ly, the district co ur t p ro pe rl y ru le d t ha t u nd er Ky. Rev. Stat. § 413.320, the New York statute of limitations bars Plaintiff’s action.

For the a forem entioned reasons, we AFFIRM the district court’s decision.