1

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit Rule 206

ELECTRONIC CITATION: 2004 FED App. 0002P (6th Cir.)

File Name: 04a0002p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

_________________

BROWNELL COMBS, II,

Administrator C.T.A. of the

Estate of LESLIE COMBS, II,

Deceased,

Plaintiff-Appellant,

v.

INTERNATIONAL INSURANCE

COMPANY,

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 

Before: KEITH, BATCHELDER, and CLAY, Circuit

Judges.

_________________

COUNSEL

ARGUED: John H. Dwyer, Jr., PEDLEY, ZIELKE &

GORDINIER, Louisville, Kentucky, for Appellant. Louis G.

2 Combs v. Int’l Ins. Co. No. 01-6493

Corsi, LANDMAN, CORSI, BALLAINE & FORD, New

York, New York, for Appellee. ON BRIEF: John H.

Dwyer, Jr., Lawrence L. Pedley, PEDLEY, ZIELKE &

GORDINIER, Louisville, Kentucky, for Appellant. Louis G.

Corsi, Eileen H. de Callies, LANDMAN, CORSI,

BALLAINE & FORD, New York, New York, David R.

Monohan, WOODWARD, HOBSON & FULTON,

Louisville, Kentucky, for Appellee.

CLAY, J., delivered the opinion of the court, in which

KEITH, J., joined. BATCHELDER, J., concurred in Part IV

only.

_________________

OPINION

_________________

CLAY, Circuit Judge. Plaintiff, Brownell Combs, II,

Administrator C.T.A. of the Estate of Leslie Combs, II,

deceased, appeals an order granting Defendant, International

Insurance Company, summary judgment against Plaintiff’s

action in diversity, brought pursuant 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 Defendant’s duty to

defend under the insurance policy. For the reasons set forth

below, we AFFIRM the district court. 

FACTS

DecedentfoundedSpendthrift Farm (“Spendthrift”) in 1937

with 120 acres of land near Lexington, Kentucky. By the

early 1980s, the farm encompassed 1800 acres and housed

forty-three stallions, including the last two Triple Crown
No. 01-6493 Combs v. Int’l Ins. Co. 3

1

The parties never define “stallion management,” but evidently prices

at Spendthrift Farm are as high as $1 million per visit.

2

Plaintiff is Decedent’s son and administrator of Decedent’s estate.

winners. Decedent developed the principal method of stallion

management used today.

1

 

By 1981, Decedent was over eighty years old and became

interested in planning his estate so that Spendthrift would

continue after his death. During the early 1980s, Decedent

tried several different methods to broaden Spendthrift’s

ownership. Initial efforts to take the company public failed

when the farm could not locate a suitable investment bank.

A 1982 effort to distribute forty percent of the ownership

interest in Spendthrift failed because of disputes between

Plaintiff2 and potential investors. 

Eventually, the farm developed and implemented a private

stock placement plan described in a Private Placement

Memorandum (“PPM”). The PPM made clear that Decedent

and Plaintiff, not Spendthrift, retained exclusive control over

the private placement:

All sales are subject to the discretion of the Sellers

including the right to accept each unit as purchased or

none until the entire offering is purchased. Sellers

reserve the right, in their absolute discretion, to accept or

reject any offer to purchase, and/or to withdraw the

offering either partially or in its entirety. 

(J.A. at 842.) Furthermore, the lawyers involved in both the

private placement (Charles Hembree, Decedent’s long-time

personal counsel), and the contemplated initial public offering

(“IPO”) (Frank Wheat of Gibson, Dunn & Crutcher),

distinguished between the Combs family and Spendthrift

Farm. Wheat took steps “to keep Spendthrift out of this

4 Combs v. Int’l Ins. Co. No. 01-6493

private placement” to “protect Spendthrift against claims that

might arise out of the placement.” (J.A. at 748.) 

Through the PPM, the farm sold blocks of stock to certain

investors already involved in the thoroughbred industry,

thereby creating a pool of shareholders who could create a

board of directors and lead Spendthrift after Decedent’s death.

Decedent completed the stock sale in 1983. Decedent

personally received $17.5 million from the transaction and

Plaintiff received another $17.5 million.

 The thoroughbred industry, including Spendthrift,

prospered during the early 1980s. Later in the decade,

however, the industry suffered a downturn from which it did

not fully recover until the mid-1990s. Spendthrift’s problems

in the mid-to-late-eighties upset many of the investors in the

private placement. 

In January of 1984, Defendant issued excess policy no.

524-029517-1, which provided directors’ and officers’

liability coverage to Spendthrift for claims made against the

farm from November 17, 1983 through November 17, 1986.

The policy provided coverage as follows:

1. INSURING CLAUSE

If during the policy period any claim or claims are

made against the Insured (as herinafter defined) or

any of them for a Wrongful Act (as hereinafter

defined) while acting in their individual or

collective capacities as Directors or Officers, the

Insurer will pay on behalf of the Insureds or any

of them, their Executors, Administrators, Assigns

95% of all Loss (as hereinafter defined), which the

Insureds or any of them shall become legally

obligated to pay in excess of the retentions stated

in Item IV (a) and (b) of the Declarations, not

exceeding the limit of liability stated in Item III of

the Declarations. 
No. 01-6493 Combs v. Int’l Ins. Co. 5

(J.A. at 34-35.) The policy defined “Wrongful Act” as “any

actual or alleged error or misstatement or breach of duty by

the Insureds while acting in their individual or collective

capacities, or any matter not excluded by the terms and

conditions of this Policy claimed against them solely by

reason of their being Directors and Officers of the Company.”

Id.

In 1986, while the policy was in effect, Fred L. Fredricks

sued Decedent, Plaintiff, and other co-defendants “in their

individual capacity and as agents and employees of defendant

Spendthrift Farm, Inc.” (J.A. at 1049.) The Northern District

of California consolidated the Fredericks case with seven

other cases involving substantially similar claims (hereinafter

the consolidated “CaliforniaLitigation”). Approximately half

of the California Litigation plaintiffs sued Spendthrift Farm

itself for the alleged misrepresentations of its officers,

directors and agents with respect to the private placement.

The other half sued only the individual agents of the farm

involved in the private placement. 

Regardless, the substance of all the claims focused

primarily on representations made in the PPM regarding the

farm’s financial condition and the value of its assets.

Specifically, the plaintiffs in the California Litigation made

two allegations: (1) that the PPM relied upon financial

statements prepared on a current value basis rather than a cost

basis; and (2) that the current value presentation misled the

plaintiffs because it failed to include any provision for income

taxes, thereby overstating the value of Spendthrift’s assets by

the amount of tax liability that would result from attempting

to realize the assets’ full value. According to the plaintiffs,

the asset valuations were “substantially inflated and based on

unrealistic assumptions about the quality, confirmation and

other characteristics of the horses.” Id. The plaintiffs sought

rescission pursuant to Section 12 of the Securities Act of

1933, 15 U.S.C. § 77, along with damages for the allegedly

fraudulent misrepresentations. 

6 Combs v. Int’l Ins. Co. No. 01-6493

In a letter dated November 14, 1986, Paul Renne, Plaintiff’s

counsel in San Francisco, California, notified Defendant that

the plaintiffs filed eight complaints against Defendant.

Renne’s letter sought reimbursement under the policy and

Renne requested that Defendant communicate with him about

Decedent’s coverage demand. 

In Defendant’s response, Defendant’s New York counsel

explained, inter alia, that the wrongful conduct alleged

against Decedent did not involve acts solely in his capacity as

a director or officer of Spendthrift, but rather conduct in his

individual capacity as a shareholder selling his shares in

Spendthrift for his personal gain (and Plaintiff’s personal

gain) of $35 million:

The wrongful conduct alleged against the [Plaintiff and

Decedent] in the [California Litigation] arises from the

sale of their Spendthrift stock. International has

observed from a review of the Private Placement

Memorandum dated April 1, 1982 (“PPM”), which was

distributed along with a supplement thereto dated July

27, 1983 (“PPM Supplement”), in connection with a

“private placement” distribution of shares of Spendthrift

by the [Plaintiff and Decedent] that the [Plaintiff and

Decedent] offered shares in Spendthrift, in units of

twenty at $1.75 million per unit, for a total offering of

$35 million. All of the proceeds of the offering went to

the [Plaintiff and Decedent], and none of the proceeds

went to Spendthrift. The PPM states that [Decedent] is

selling the portion of stock for the purpose of estate

planning, and that [Plaintiff] is selling his portion of

stock for estate planning and to diversify his interests. . . .

As indicated above, the directors and officers of

Spendthrift are insured only for loss incurred by them

solely in their respective capacities as directors and

officers. The wrongful conduct alleged against the

[Plaintiff and Decedent] in the [California Litigation]

does not involve them solely in their capacity as directors
No. 01-6493 Combs v. Int’l Ins. Co. 7

or officers but rather in their capacity as individuals who

are selling their shares in Spendthrift for their own

personal gain. Accordingly, International declines to

afford coverage for any loss incurred by the [Plaintiff and

Decedent] in connection with the [California Litigation].

(J.A. at 108-09.) Defendant addressed this letter to Renne, in

California, as well as to certain defense counsel (located in

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

Policy because they represented other defendants. 

Decedent settled some of the claims against him for $2

million in a court-approved settlement. The trial court

dismissed numerous other claims. A few issues reached a

jury, which returned a verdict in favor of the defendants. In

a comprehensive opinion explaining the California Litigation

in detail, the Ninth Circuit affirmed. See McGonigle v.

Combs, 968 F.2d 810 (9th Cir. 1992). When the California

Litigation concluded in 1992, Decedent had spent $770,000

in attorney’s fees in addition to the $2 million he paid to settle

certain claims. 

With respect to the court-approved settlement, Decedent

submitted an extensive evidentiary record to persuade the

district court that he had only a personal role in the disputed

transactions: 

(1) there is no evidence that [Decedent] wrote any part of

the offering memos or that he was even consulted as to

their text; (2) there is no evidence that [Decedent]

consciously did anything wrong, or that he is guilty of

any moral turpitude in this action; and (3) there is no

evidence that [Decedent] personally misled anyone or

sought to mislead anyone. [Decedent] is in these cases

for one reason only: he was a seller, and there is a claim

for recission to which he must respond although there is

no evidence of scienter on his part. 

8 Combs v. Int’l Ins. Co. No. 01-6493

(J.A. at 379-80.) The evidence Decedent submitted to the

district court in the California Litigation included a due

diligence memorandum prepared by counsel following a July

26, 1983 meeting with Decedent and Plaintiff. This

memorandum distinguishes between the conduct of Decedent

and Plaintiff as sellers, and their conduct as officers or

directors for Spendthrift:

On Tuesday morning, July 26, we met with [Plaintiff] to

discuss with him the timing of the private placement.

[Plaintiff] informed us in rather blunt terms that he had

no intention of delaying the private placement. He

informed us that he was willing to accept the risks of lack

of full disclosure and non-compliance with state

securities laws. I advised [Plaintiff] that the risks of lack

of going forward could be rather significant as it was my

view that prudence called for a delay of the private

placement of at least two weeks. [Plaintiff] informed the

group that he knew each of the investors personally and

had conducted a significant amount of business with

them in the past. He informed us that he would give

back any monies if the investors complained about the

adequacy of the disclosure or non-compliance with Blue

Sky laws.

(J.A. at 716-20.) Decedent’s factual submission to the district

court in the California Litigation also established that

Decedent “was only interested in [the private placement]

being done and having his check delivered to him and

[Plaintiff] was supposed to take care of everything.” (J.A. at

395.) Decedent quoted Plaintiff as stating that “his father had

reached the point in his life where he would not have an

attention span sufficient to go through complex legal

documents or, for that matter, a conversation that lasted more

than five minutes.” (J.A. at 413.) Plaintiff did not dispute

any part of the factual record submitted to the district court in

support of the settlement in the California Litigation. 
No. 01-6493 Combs v. Int’l Ins. Co. 9

3

Plaintiff evidently does not contest this conclusion on appeal. 

PROCEDURAL HISTORY

Decedent died in April of 1990, before the California

Litigation concluded. Decedent had not yet brought an action

against Defendant for his defense fees or the settlement

payments, and Plaintiff still had not done so on Decedent’s

behalf when the California Litigation terminated in 1992.

Decedent’s estate was closed four years later, on June 21,

1996. Neither the administrator of the estate at the time, P.

Keith Nally, nor the estate’s attorney, Charles Hembree,

considered commencing a claim against Defendant on

Decedent’s behalf. 

In the Spring of 2000, four years after Decedent’s estate

closed, Plaintiff reopened the estate and arranged to become

the administrator. On June 6, 2000, in the United States

District Court for the Eastern District of Kentucky, Plaintiff

commenced the action that is the subject of this appeal. Count

I of the complaint asserted a breach of contract claim; Count

II alleged a breach of the duty of good faith and fair dealing;

and Count III asserted a bad faith claim. 

Following discovery, Defendant moved for summary

judgment on July 2, 2001. Defendant argued (1) that New

York’s statute of limitations applied and barred Plaintiff’s

claims; (2) equitable estoppel barred Plaintiff’s claims; and

(3) the policy did not cover the Decedent’s role in the private

placement. On September 10, 2001, the district court granted

Defendant’s motion on the basis that the applicable statute of

limitations barred Plaintiff’s claims. See Combs v. Int’l Ins.

Co., 163 F. Supp.2d 686 (E.D. Ky. 2001). The district court

also suggested that the good faith and fair dealing claim and

the bad faith claim lacked merit.3 Id. at 695-96. 

On September 20, 2001, Plaintiff filed a motion under Fed.

R. Civ. P. 59(e) to amend the judgment to certify the statute

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

of limitations issue to the Kentucky Supreme Court. After

further briefing, the district court denied Plaintiff’s motion on

November 16, 2001. On November 29, 2001, Plaintiff timely

noticed his appeal. 

DISCUSSION

We conduct a de novo review of summary judgment.

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. 2001).

Summary judgment is appropriate when there is no genuine

issue of material fact such that the moving party is entitled to

a judgment 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 Supreme Court

explained that 

[t]he mere existence of a scintilla of evidence in support

of the plaintiff's position will be insufficient; there must

be evidence on which the jury could reasonably find for

the plaintiff. The judge's inquiry, therefore, unavoidably

asks whether reasonable jurors could find by a

preponderance of evidence that the plaintiff is entitled to

a verdict.

Id. at 322. The “mere possibility” of a factual dispute does

not suffice to create a triable case. Gregg v. Allen-Bradley

Co., 801 F.2d 859, 863 (6th Cir. 1986). To defeat summary

judgment, the plaintiff "must come forward with more

persuasive evidence to support [his or her] claim than would

otherwise be necessary." Matsushita Elec. Indus. Co. v.

Zenith Radio Corp., 475 U.S. 574, 586 (1986). If the

defendant successfully demonstrates, after a reasonable period

of discovery, that the plaintiff cannot produce sufficient

evidence beyond the bare allegations of the complaint to

support an essential element of his or her case, summary

judgment is appropriate. Celotex Corp. v. Catrett, 477 U.S.
No. 01-6493 Combs v. Int’l Ins. Co. 11

317, 325 (1986). When determining whether to reach this

conclusion, we view the evidence and draw all reasonable

inferences in the light most favorable to the non-moving

party. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157

(1970); Williams v. Int’l Paper Co., 227 F.3d 706, 710 (6th

Cir. 2000); Smith v. Thornburg, 136 F.3d 1070, 1074 (6th Cir.

1998). 

We must decide whether the district court properly ruled

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 uncertain area of state law, forcing us

to make an educated “Erie guess.” Plaintiff contends,

alternatively, (1) that the Kentucky judiciary would interpret

Kentucky’s borrowing statute so as to apply the statute of

limitations of the jurisdiction that, considering all the facts,

has the most significant connection with the disputed

transaction, and (2) even if the locus of accrual is the only

relevant consideration, this cause of action accrued in

Kentucky, making Kentucky’s statute of limitations

applicable. 

New York’s statute of limitations for breach of a written

contract is six years. N.Y. CIV. PRAC. LAW & RULES § 213.

Kentucky has a fifteen-year statute of limitations for the

breach of a written contract. KY. REV. STAT. § 413.090(2).

Defendant notified Plaintiff that it would deny coverage on

November 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. 

In accordance with Erie Railroad Co. v. Tompkins, 304

U.S. 64 (1938), when evaluating an undecided question of

Kentucky law, a federal court sitting in diversity must make

the “‘the best prediction, even in the absence of direct state

precedent, of what the Kentucky Supreme Court would do if

it were confronted with [the] question.’”Managed Healthcare

Assocs., Inc. v. Kethan, 209 F.3d 923, 927 (6th Cir. 2000)

(quoting Welsh v. United States, 844 F.2d 1239, 1245 (6th

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

Cir. 1988)). If the relevant state judiciary has not spoken to

the issue, courts sitting in diversity should consider “all

relevant data,” Kinglsey Associates, Inc. v. Moll Plastic

Crafters, Inc., 65 F.3d 498, 507 (6th Cir. 2000), including

jurisprudence from other jurisdictions, Lexington Insurance

Co. v. Rugg & Knopp, Inc., 165 F.3d 1087, 1090 (7th Cir.

1999).

The Seventh Circuit observed that federal courts “must

proceed with caution” when making pronouncements about

state law. Lexington, 165 F.3d at 1092. Sitting in diversity,

we are “not commissioned to take a position regarding the

advisability or fairness of the state rule to be applied, but

[must] determine the issue as would the highest court of the

state.” Kurczi v. Eli Lilly & Co., 113 F.3d 1426, 1429 (6th

Cir. 1997). This Court’s proper reluctance to speculate on

any trends of state law applies with special force to a plaintiff

in a diversity case, like this one, who has chosen to litigate his

state law claim in federal court. Torres v. Goodyear Tire &

Rubber, Inc., 867 F.2d 1234, 1238 (9th Cir. 1989); Shaw v.

Republic Drill Corp., 810 F.2d 149, 150 (7th Cir. 1987).

Furthermore, “[w]hen given a choice between an

interpretation of [state] law which reasonably restricts

liability, and one which greatly expands liability, we should

choose the narrower and more reasonable path.” Todd v.

Societe Bic, S.A., 21 F.3d 1402, 1412 (7th Cir. 1994) (en

banc);see alsoCity of Phila. v. Beretta, U.S.A., Corp., 126 F.

Supp.2d 882, 906 (E.D. Pa. 2000) (declining to broaden state

law nuisance doctrine in a diversity case). 

As the First Circuit explained, federal courts sitting in a

diversity case are in “a particularly poor position . . . to

endorse [a] fundamental policy innovation . . . . Absent some

authoritative signal 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.2d 690, 694 (1st Cir. 1984). Federal

courts hearing diversity matters should be extremely cautious

about adopting “substantive innovation” in state law. Rhynes
No. 01-6493 Combs v. Int’l Ins. Co. 13

v. Branick Mfg. Corp., 629 F.2d 409, 410 (5th Cir. Unit A

1980). Thus, we must handle this issue charily. 

I.

As noted, Plaintiff contends that the Kentucky Supreme

Court would interpret Kentucky’s borrowing statute so that

whenever substantive Kentucky law governs a claim

involving multiple jurisdictions, Kentucky will apply the

statute of limitations of the forum with the most significant

relationship to the dispute. 

A borrowing statute is a legislative exception from the

general rule that the forum always applies its statute of

limitation. Miller v. Stauffer Chem. Co., 581 P.2d 345, 348

(Idaho 1978) (“Borrowing statutes change the common law

rule governing choice of the applicable statute of limitation.”)

(citation omitted). Borrowing statutes vary somewhat, but all

provide that the forum state will apply the statute of

limitations from the foreign jurisdiction in which the cause of

action accrued. Kentucky’s borrowing statute provides:

When a cause of action has arisen in another state or

country, and by the laws of this state or country where

the cause of action accrued the time for commencement

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

than the period of limitation prescribed by the laws of

this state for a like cause of action, then said action shall

be barred in this state at the expiration of said shorter

period.

KY. REV. STAT. § 413.320. Thus, if a cause of action arises

in a foreign jurisdiction which has a shorter statute of

limitations than Kentucky for the same cause of action,

Kentucky courts must “borrow” the foreign jurisdiction’s

statute of limitations. Almost three-fourths of states have

statutes that resemble Kentucky’s. See Ibrahim J. Wani,

Borrowing Statutes, Statutes of Limitations and Modern

Choice of Law, 57 UMKC L. REV. 681, 690 (1989); Donna

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

Mae Endreson, Wisconsin’s Borrowing Statute: Did We

Shortchange Ourselves?, 70 MARQ. L. REV. 120, 122-27

(1986). 

Historically, local statutes of limitations governed. At

common law, statutes of limitation were procedural, not

substantive, a fact which the Second Circuit rightly termed

“an accident of history.” Bournias v. Atl. Mar. Co., 220 F.2d

152, 154 (2d Cir. 1955). In most civil law countries, the

statute of limitations applicable to an action would come from

the jurisdiction whose substantive law formed the action’s

basis. ERNST RABEL, THE CONFLICT OF LAWS: A

COMPARATIVE STUDY 511-16 (1964); Edgar H. Ailes,

Limitations of Actions and the Conflict of Laws, 31 MICH. L.

REV. 474, 478 (1933). Early English courts first confronted

with conflict-of-law problems acted to protect English law

from continental influence and thus took the opposite route.

Ernest H. Lorezen, The Statute of Limitations and the Conflict

of Laws, 28 YALE L.J. 492, 496 (1919). Carrying 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

jurisdiction’s substantive law. Id. at 328; see also Sun Oil

Co. v. Wortman, 486 U.S. 717, 722 (1988); Wells v. Simonds

Abrasive Co., 345 U.S. 514, 516-18 (1953); Townsend v.

Jemison, 50 U.S. (9 How.) 407, 413-20 (1850).

Before borrowing statutes, when a claim arose outside the

forum, courts handled the limitations problem in one of two

ways. First, if the forum’s rules barred the claim, the forum’s

courts would not hear the claim regardless of its status

elsewhere. See, e.g., Panhandle E. Pipe Line Co. v. Parish,

168 F.2d 238, 241 (10th Cir. 1948); Corrigan v. Clairol, Inc.,

126 F. Supp. 791, 792 (D. Conn. 1954). Second, the forum

would hear the claim as long as the local limitations period

had not expired, even if the limitations period applicable

where the claim arose had run. See, e.g., Filson v. Fountain,

197 F.2d 383, 384 (D.C. Cir. 1952) (per curiam); 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. Ark. 1959). In

essence, lex fori governed the determination of procedural

issues, including those associated with statutes of limitation.

Lex fori governs procedural rights, but under lex loci (the

law of the place), substantive rights are determined according

to the law of the place where the cause of action accrued. Lex

loci involves a concept of accrual similar to the idea of

vesting, which forms the basis for the vested-rights approach

to choice of law. Replacing nineteenth-century comity theory

but preceding contemporary choice of law paradigms, the

vested rights approach dominated the period from 1900 to

1950. EUGENE F. SCOLES, ET AL., CONFLICT OF LAWS § 2.7,

at 20 (3d ed. 2000). According to Professor Joseph H. Beale,

the main proponent of vested rights analysis, “[a] right having

been created by the appropriate law, that recognition of its

existence should follow anywhere.” JOSEPH H. BEALE, 3

CASES ON THE CONFLICT OF LAWS 517 (1901). As Justice

Holmes explained:

[W]hen . . . a liability is enforced in a jurisdiction foreign

to the place of the wrongful act, obviously that does not

mean that the act in any degree is subject 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 act is operative outside its own territory.

The theory of the foreign suit is that, although the act

complained of was subject to no law having force in the

forum, it gave rise to an obligation, an obligatio, which,

like other obligations, follows the person, and may be

enforced wherever the person may be found. But as the

only source of this obligation is the law of the place of

the act, it follows that that law determines not merely the

existence of the obligation, but equally determines its

extent.

Slater v. Mexican Nat’l R.R. Co., 194 U.S. 120, 126 (1904)

(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 where the cause

of action accrued (lex loci), because borrowing statutes effectively merge

the two concepts. Borrowing statutes are substantive laws that determine

which state’s statute of limitations (a procedural rule) will apply. 

Restatement of the Conflict of Laws (1934), which reflected

the vested rights approach. Section 384 of the Restatement

provides, for instance: “(1) [i]f a cause of action in tort is

created at the place of the wrong, a cause of action will be

recognized in other states[;] (2) [i]f no cause of action is

created at the place of wrong, no recovery in tort can be had

in any other state.” Kentucky adopted its borrowing statute

in 1942, during the heyday of the vested rights approach. 

After most states adopted borrowing statutes, problems in

the application of borrowing rules and a torrent of scholarly

criticism caused some state high courts to consider

interpreting their state’s borrowing statutes so the forum

would “borrow” another state’s limitation rule only when the

local forum lacked a significant connection to the dispute.

Critics of borrowing statutes note that this would be

consistent with the Restatement (Second) on Conflict of

Laws, which seeks to apply the law of the forum with the

most significant relationship with the parties and the dispute.

See RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 6

(1969). The “most significant relationship” test that guides

the Second Restatement has at least arguable policy

advantages over lex fori because the state with the most

significant relationship with the parties and the dispute is

probably the state with the greatest interest in the action’s

outcome.4 In fact, one state, Minnesota, repealed its

borrowing statute in 1977. See MINN.STAT. § 541.14 (1976),

repealed by 1977 MINN. LAWS 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.,

Ibrahim J. Wani, Borrowing Statutes, Statutes of Limitations,
No. 01-6493 Combs v. Int’l Ins. Co. 17

and Modern Choice of Law; 57 UMKC L. REV. 681 (1989);

Donna Mae Endreson, Wisconsin’s Borrowing Statute: Did

We Shortchange Ourselves?, 70 MARQ. L. REV. 120 (1986);

SamuelJ.Morley, Applying the Significant Relationships Test

to Florida’s Borrowing Statute, 59 FLA. BAR. J. 17 (1985);

Donald R. Rigone, The Impact of Significant Contacts on the

Pennsylvania Borrowing Statute, 72 DICK. L. REV. 598

(1968); David H. Vernon, Statutes of Limitation in the

Conflict of Laws: Borrowing Statutes, 32 ROCKY MTN. L.

REV. 287 (1960). However, none of these law review articles

are binding on this Court. For that reason, we will conduct

our own inquiry. 

II.

Plaintiff highlights five states whose judiciaries have,

according to Plaintiff, interpreted borrowing statutes to

incorporate a most significant relationship test despite

statutory language essentially indistinguishable from

Kentucky’s borrowing statute. 

A.

Beginning with Wyoming, Plaintiff claims that BHP

Petroleum v. Texaco Exploration Production, 1 P.3d 1253

(Wyo. 2000), “addresses precisely the question before the

Court in this case.” (Pl.’s Br. at 32) (Plaintiff’s emphasis). In

BHP, the Wyoming Supreme Court considered a dispute

between two oil companies, each with offices located in both

Texas and Colorado. Id. at 1255. BHP and Texaco had an

ongoing relationship in which they shared royalties from

minerals extracted in Wyoming. Id. 

BHP allegedly made an offer to Texaco to change the

formula by which the companies calculated royalties. Id.

BHP sent that letter from Texas to Colorado. Id. Texaco

allegedly accepted in a response sent from Colorado back to

BHP’s office in Texas. Id. Later, Texaco sent another letter

from Texas to Colorado that disclaimed any intention to

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

recalculate royalty payments. Id. Wyoming’s borrowing

statute states that “[i]f by the laws of the state or country

where the cause of action arose the action is barred, it is also

barred in this state.” WYO. STAT. ANN. § 1-3-117. Colorado

had a shorter statute of limitations that would have barred

BHP’s action; BHP thus argued that Wyoming’s longer

limitations period should apply. 1. P.3d at 1256. The

Wyoming court, applying the borrowing statute, found that

“the breach occurred in Colorado where BHP received the

letter.” Id. at 1258. 

We note several points about BHP. First, the BHP court

provides scant detail on the nature of the breach. Not only

does the court appear skeptical that any breach occurred, the

court never defines the dispute with precision. From the

facts, it appears the case involved BHP’s attempt to modify

the terms of an existing transaction—something different than

Plaintiff’s request that Defendant remit (or pledge to remit)

certain monies allegedly in accordance with the terms of a

Directors and Officers (hereinafter “D & O”) insurance

contract. 

Second, BHP urged the court to adopt the Wyoming

limitations period because, according to BHP, the court

should “focus[] upon the location of the subject matter of the

contract.” Id. at 1256. Thus, the plaintiff in BHP argued in

favor of the limitation period associated with the forum of the

subject matter (the Wyoming resources), while the defendant

argued for the limitation period associated with the forum of

the breach. BHP evidently did not disagree that if the breach

was the only relevant consideration, the breach occurred in

Colorado, as opposed to Texas, where Texaco posted the

letter. The latter scenario, however, is much more akin to the

issue we presently face. Plaintiff’s counsel sent a letter from

California to Defendant’s New York office, and the New

York office replied with a letter sent to lawyers in three

states—California, Kentucky and Ohio. Thus, as the origin

of the letter that allegedly constituted the breach, New York

is the analogue of Texas in BHP, not Colorado. No one
No. 01-6493 Combs v. Int’l Ins. Co. 19

argues in the instant case that the California statute of

limitations might apply. 

Finally, BHP never adopted the “substantial relationship”

test. According to the BHP decision:

The thread of the argument presented by BHP is tenuous.

The essential premise is that in Stanbury v. Larsen, 803

P.2d 349, 355 (Wyo. 1990), this Court adopted

Restatement (Second) Conflict of Laws § 188 (1971).

BHP then contends that since that provision utilizes the

“most significant relationship” test, the cause of action

arose in Wyoming because the subject matter of the

contract is Wyoming minerals. The elements articulated

in the “most significant relationship” test include “(a) the

place of contracting, (b) the place of negotiation of the

contract, (c) the place of performance, (d) the location of

the subject matter of the contract, and (e) the domicil,

residence, nationality, place of incorporation and place of

business of the parties.” RESTATEMENT (SECOND)

CONFLICT OF LAWS § 188 at 575. 

BHP, 1 P.3d at 1256. After considering its Stanbury decision,

the court concluded that “[w]e do not understand that this

Court adopted [in Stanbury] the ‘most significant

relationship’ test of Restatement (Second) Conflict of Laws

§ 188. . . . [W]e invoked the Restatement provision only as

containing examples of factors to be considered in making the

determination as to where the cause of action arose.” Id. at

1257. Thus, BHP does not indicate that the Kentucky

Supreme Court would adopt the most substantial relationship

test. 

B.

Plaintiff 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 Decedent’s residence were the only relevant consideration under

Kentucky law, then the Kentucky statute of limitations would apply and

Plaintiff’s action could proceed. Although we must weigh Global

Financial when making our Erie guess, the case represents only one

source among many. As already observed, we consider “all relevant

data,” Kinglsey Associates, 65 F.3d at 507, when attempting to ascertain

what a state court might do in a particular situation. Moreover, the

authority of Global Financial is somewhat limited because, although the

court does support “a rule requiring the single determination of a

plaintiff’s residence,” 715 N.E.2d at 486, the court also says that “[w]hen

an alleged injury is purely economic, the place of injury is usually where

the plaintiff resides and sustains the economic impact of the loss.” Id. at

485 (emphasis added). This notion is troubling because one can easily

envision a situation where the plaintiff resides in a different forum than

the one in which he sustains the economic impact of the loss; for instance,

a business incorporated in one jurisdiction but with its principal place of

business in another. It is unclear how New York’s rule would apply to

such a situation.

Delaware against a corporate defendant also located in

Delaware but with its principal place of business in

Pennsylvania. Id. at 484-85. Statutes of limitations in both

Delaware and Pennsylvania barred the action, but the suit

could proceed under New York’s longer limitations period.

Id. at 484. New York has a borrowing statute similar to

Kentucky’s. See id. 

The court concluded that the breach occurred in Delaware

because, under New York’s borrowing statute, “a cause of

action accrues at the time and in the place of injury,” and

“[w]hen an alleged injury is purely economic, the place of

injury is usually where the plaintiff resides and sustains the

economic impact of the loss.” Id. at 485 (citations omitted).

The Global Financial court did not adopt a “most substantial

relationship” analysis of New York’s borrowing statute. In

fact, the court rejected the more holistic “center of gravity”

test, writing that the goals of New York’s borrowing statute

are “better served by a rule requiring the single determination

of a plaintiff’s residence than by a rule dependent on a litany

of events relevant to the ‘center of gravity’ of a contract

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

6

This case presents an unusually tricky problem because it involves

an economic injury. If, for instance, a defendant’s tortious conduct causes

a General Motors plant to explode, one can easily locate the injury. But

General Motors is corporate entity—in effect, a state-created legal fiction

with assets, employees, customers and shareholders around the

world—which makes finding the locus of an intangible loss difficult. If

a breach of contract causes General Motors’ stock to decline, determining

where the company “got hurt” is not so easy. Cf. Leroy v. Great W.

United Corp., 443 U.S. 173, 185 (1979) (noting the “occasionally fictive

assumption” that claims arise in one place only).

Equally important, the notion that the cause of action

accrues where the injury is sustained is not particularly

helpful in this case because it begs the question of where the

plaintiff sustained the injury. Plaintiff’s action involves an

abstract injury—by allegedly breaching its promise to pay in

a letter Defendant mailed from New York to three

jurisdictions, Decedent was not reimbursed for litigation

expenses accumulated primarily in California but related to a

Kentucky enterprise. Asking where Decedent “got hurt” does

not help us.

6

 

C.

CitingNational Heritage Life Ins. Co. v. Frame, 41 S.W.2d

544 (Mo. Ct. App. 2001), Plaintiff claims Missouri

interpreted its borrowing statute in a fashion similar to New

York. National Heritage involved a suit brought by a Texas

plaintiff based on a guaranty allegedly breached by Missouri

defendants. Id. at 546-48. Missouri’s borrowing statute

states that “[w]henever a cause of action has been fully barred

by the laws of the state, territory or country in which it

originated, said bar shall be a complete defense to any action

thereon, brought in any of the courts of this state.” MO.REV.

STAT. § 516.190. Missouri courts analyze the “origination”

of a cause of action just as they analyze its accrual for

purposes of beginning the limitations period. Nat’l Heritage,

41 S.W.2d at 552; see also Penalosa Coop. Exch. v. A.S.

Polony Co., 754 F. Supp. 722, 733 (W.D. Mo. 1991); Alvardo

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

v. H & R Block, Inc., 24 S.W.3d 236, 242 (Mo. Ct. App.

2000). Since the guaranty required the guarantors 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 led Missouri courts

to always conclude that a cause of action “originates” in the

forum where the injury appears to occur. In Finnegan v.

Squire Publishers, Inc., 765 S.W.2d 703 (Mo. Ct. App. 1989),

for instance, 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

action for libel “accrue[d] in Kansas where the newspaper

containing the defamatory statements was first published, [or]

in Missouri where [the plaintiff] is licensed to practice law

and where damages to his professional reputation were

sustained.” Id. Applying Missouri’s borrowing statute, the

court found that plaintiff’s cause of action “originated” where

the defendant initially published the defamatory remarks, not

where the plaintiff actually suffered the greatest injury. Id. at

706-07. This is in tension with Plaintiff’s claim that if we

properly interpret Kentucky’s borrowing statute, New York’s

statute of limitations cannot bar his claim because he suffered

no injury in New York. 

The Finnegan court reached its conclusion in part because

the “[p]laintiff’s reputation interest is invaded at the time of

publication, and arguably that is the time when his damage is

sustained.” Id. at 706. Thus, at least in Missouri, the location

of the wrong is determined by where the plaintiff first sustains

any damage, not where he sustains the most damage. Also

significant, the Finnegan decision recognized the problems

inherent in attempting to determine the location of an

intangible injury, like an injury to reputation. Id. at 706-07.

The court refused “to adopt the assumption that an attorney’s

reputation can only be injured in the state where the attorney

is licensed to practice law.” Id. at 706. Rhetorically, the

court wondered, “[w]hat would result if plaintiff is licensed
No. 01-6493 Combs v. Int’l Ins. Co. 23

7

Under Missouri’s rule, Plaintiff could have learned of Defendant’s

decision at any moment after Defendant made its choice. Since, for

instance, one of Plaintiff’s attorneys in California or Kentucky could have

contacted Defendant’s New York office by telephone (or flown to New

in more than one state or by a federal court or agency?

Should a court look to the place of first injury, any injury, or

the place of greatest injury?” Id. This discussion shows that

Missouri courts seem sensitive to the pitfalls inherent in

determining accrual based on where the injury purportedly

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-Laboy involved a Missouri resident who

brought a malpractice action against an Illinois hospital and

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 not

discover the problem until she moved to Missouri several

years later. Id. The defendants argued that Missouri should

borrow Illinois’ statute of limitations, which would bar the

plaintiff’s action. Id. at 523-24. The court agreed because,

under Missouri law, an action originates when and where an

injury can be ascertained, and “[d]amage is sustained and

capable of ascertainment when it can be discovered or made

known, not when the plaintiff actually discovers the injury or

wrongful conduct.” Id. at 524 (citing Carr v. Anding, 793

S.W.2d 148, 150 (Mo. Ct. App. 1990)) (emphasis in original).

Consequently, the plaintiff’s “damage was sustained and was

capable of ascertainment 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, applying

Harris-Laboy, Plaintiff suffered an injury the moment

Defendant drafted its response to Plaintiff’s coverage inquiry,

as opposed to when Plaintiff actually learned what Defendant

would do.7 Viewed overall, Missouri jurisprudence does not

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

York) and learned that Defendant did not plan to cover Plaintiff’s

litigation expenses, that shows the injury occurred in New York—just as

the plaintiff in Harris-Laboy was injured in Illinois because that was

where she could have, at least theoretically, first learned of her injury.

Harris-Laboy, 972 S.W.2d at 525. In fact, the instant case seems a little

easier, because the plaintiff in Harris-Laboy had no reason to investigate

whether doctors had left surgical equipment in her body until years later,

when she began to suffer complications from the sponge. Plaintiff

expressly requested that Defendant announce whether it would cover

Plaintiff’s litigation expenses, so Plaintiff knew Defendant was about to

formally decide whether it would abide by the terms of the D & O policy

as Plaintiff saw them.

necessarily focus on the place of injury, nor has it explicitly

endorsed the “most significant contacts” test. In fact,

Missouri has twice rejected express invitations to reinterpret

Missouri’s borrowing statute to exclude situations in which

Missouri does have the “most significant contacts.” See

Dorris v. McClanahan, 725 S.W.2d 870, 872 (Mo. 1987) (en

banc) (“[T]he Missouri legislature [through its borrowing

statute] preempts an analysis of 2d Restatement significant

contacts in this case.”), overruled on other grounds by

Thompson v. Crawford, 833 S.W.2d 868 (Mo. 1992); Trzecki

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

D.

Plaintiff next emphasizes Illinois law and Employers

Insurance of Wausau v. Ehlco Liquidating Trust, 723 N.E.2d

689 (Ill. Ct. App. 1999) (Ehlco II), an Illinois Court of

Appeals opinion issued on remand from the Illinois Supreme

Court’s decision in Employers Insurance Co. v. Ehlco

Liquidating Trust, 708 N.E.2d 1122 (Ill. 1999) (Ehlco I).

Elhco II dealt with one portion of a complex insurance

coverage dispute. 723 N.E.2d at 691. Ehlco was a trust

created by order of the Delaware Chancery Court to resolve

the contingent liabilities of the Edward Hines Lumber

Company (“Hines”), a dissolved Delaware corporation, and

various affiliated businesses. Id. at 690. Plaintiff Wausau

instituted a declaratory judgment action against Ehlco seeking
No. 01-6493 Combs v. Int’l Ins. Co. 25

a declaration, inter alia, that it had no defense or indemnity

obligations under certain insurance policies in connection

with a lawsuit filed against Ehlco relating to a contaminated

industrial site in Wyoming. Id. Elhco filed a counterclaim

against Wausau alleging that the insurer breached its duty to

defend and indemnify Ehlco in connection with

contamination at another site in Arkansas. Id. The Elhco II

opinion deals exclusively with the counterclaim. Id. at 692.

In 1982, pursuant to the Comprehensive Environmental

Response, Compensation, and Liability Act of 1980

(“CERCLA”), 42 U.S.C. §§ 9601-9675, the United States

Environmental Protection Agency (“EPA”) sent Hines a letter

notifying Hines that it faced potential liability for cleanup

costs at the Arkansas site. 723 N.E.2d at 692. Hines, based

in Chicago, notified Wausau that the EPA would assert

liability against Hines. Id. The insurer responded, appearing

to deny coverage based on various policy exclusions. Id.

Hines’ counsel then wrote to Wausau twice, once in 1982 and

once in March of 1983, each time “formally” requesting that

it defend Hines against the EPA’s proceedings. Id. Wausau

replied several weeks after the March letter with a

memorandumthatreferred to Wausau’s first response but also

requested “a copy of the [EPA] action or correspondence . . .

[and] copies of any complaints or summons.” Id. No further

communication occurred until 1987, when Hines informed

Wausau that the company had almost reached a “final

agreement” with the EPA. Id. Wausau responded

immediately, again recounting its prior reservation of rights

and requesting the details of the proceedings. 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]

requests for information.” Id. at 692-93. In 1988, the EPA

filed suit against Hines in Arkansas federal district court and

simultaneously proposed a consent decree. Id. at 693.

Wausau received 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

Kentucky’s, the Illinois statute states that “[w]hen a cause of

action has arisen in a state or territory out of this State, or in

a foreign country, and, by the laws thereof, an action thereon

cannot be maintained by reason of the lapse of time, an action

thereon shall not be maintained in this State.” 735 ILL.COMP.

STAT. 5/13-210. Arkansas’ statute of limitations barred

Ehlco’s action, but Ehlco could proceed under Illinois’ 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

dispute including:

the issuance of the insurance policies to Hines in Illinois,

the location of Hines's principal place of business in

Illinois, and the licensing of Wausau to do business in

Illinois. Additional contacts with Illinois include the fact

that correspondence relative to the EPA lawsuit was

directed to Hines in Illinois; Hines's requests to Wausau

for defense originated in Illinois; Wausau's responses to

those requests were sent to Hines in Illinois; and Hines's

legal counsel that provided Hines's defense with respect

to the EPA proceedings was located in Illinois and would

have billed its defense fees to Hines in Illinois. Finally,

any monies found to be owing Hines by Wausau as a

result of the counterclaim would have been due Hines in

Illinois. 

Ehlco II, 723 N.E.2d at 696-97 (citing RESTATEMENT

(SECOND) CONFLICT OF LAWS § 188(2) (1971)). The court

thus found that Illinois’ statute of limitations would apply

because Illinois uses the limitation period of the forum “that

bears the most significant relationship to the contract

dispute,” id. at 723 N.E.2d at 695, although Illinois law is just

one factor among many we must consider when making an

Erie guess. 

Furthermore, the Ehlco II court was careful to “note that the

inquiry as to where the cause of action arose presupposes that
No. 01-6493 Combs v. Int’l Ins. Co. 27

the cause of action has in fact arisen.” 723 N.E.2d at 693. In

Ehlco I, the Illinois Supreme Court “held that Wausau’s duty

to defend was triggered by the filing of the EPA lawsuit in the

federal district court in Arkansas seeking entry of the

proposed consent decree.” Id. (citing Ehlco I, 708 N.E.2d at

1130). The Illinois Supreme Court “also found that

notwithstanding the triggering event of the filing of the

lawsuit, Wausau would not have had a duty to defend Hines

in the EPA action unless Hines tendered the lawsuit to

Wausau for defense or Wausau had actual notice of the

lawsuit.” Id. (citing Ehlco I, 708 N.E.2d at 1131). The

Illinois Supreme Court remanded the notice issue to the trial

court with instructions that the parties “be given the

opportunity to amend their pleadings to address the actual

notice issue.” Ehlco I, 708 N.E.2d at 1131-32. The Illinois

Court of Appeals, however, explained that “notwithstanding

the mandated examination of the notice issue by the [trial]

court, we should, in the interest of judicial economy and our

mandate from the 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

decision in Ehlco II assumed, without deciding, that the

plaintiff had a cause of action. 

This assumption, required by the Illinois Supreme Court,

probably had the unintended effect of obscuring the potential

significance of the forum in which the cause of action

accrued. According to the Illinois Supreme Court, no cause

of action arose against Wausau unless and until Wausau had

actual notice of the “trigger[],” which was the EPA lawsuit.

Ehlco I, 708 N.E.2d at 1130-31. Therefore, the triggering

event was the filing of the EPA’s suit in Arkansas, and the

cause of action did not arise until Wausau, the defendant,

received “actual notice” of the lawsuit. Conceivably, Wausau

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

8

Neither decision discusses where Wausau may have received notice

of the suit, which is what the Illinois Supreme Court ordered the trial

court to investigate. There is no published history after Ehlco II, so

research does not reveal what the trial court determined. 

It is also unclear that the reasoning of Ehlco II is sound under a “most

significant relationship” analysis. The Illinois Court of Appeals applied

Illinois’ statute of limitations even though, assuming a cause of action

accrued, the EPA “triggered the possibility of accrual” in Arkansas by

filing suit there, see Ehlco I, 708 N.E.2d at 1130, and the plaintiff’s action

related to insurance obligations in connection with an Arkansas cleanup

operation. 

could have received that notice anywhere—even Arkansas.

This casts doubt on Ehlco II’s reasoning.

8

 

Additionally, 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 insurance policy, is entitled to little weight

when the subject matter or risk is located in more than one

state.” 723 N.E.2d at 694 (citing Lapham-Hickey Steel Corp.

v. Prot. Mut. Ins. Co., 655 N.E.2d 842, 845 (Ill. 1995) and

RESTATEMENT(SECOND) OF CONFLICT OF LAWS § 193, cmt. b

(1971)). As a consequence, the court gave the location of the

risk lesssalience in its “most significant relationship” analysis

because the plaintiff’s Comprehensive General Liability

Policy (“CGL”) covered environmental risks in multiple

states. Similarly, Decedent’s D & O policy covered certain

D & O litigation-related expenses wherever they might occur.

This counsels against excessively 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. It would be

simplistic to conclude that a risk is always located in the

insured’s state of residence because insurance protects only

against financial loss, which is ultimately felt at a person’s

residence or a corporation’s headquarters. A policy can cover

risks in multiple states, as the Second Restatement suggests,

see RESTATEMENT (SECOND) OF CONFLICT OF LAWS § 193,
No. 01-6493 Combs v. Int’l Ins. Co. 29

9

The Bishop Court explained the issue before it: 

The District Court of Appeal, First District, affirmed the ruling

of the trial court but certified the following question for our

consideration:

cmt. b (1971), and the Second Restatement cautions against

focusing on the location of the risk when risks are dispersed

across forum boundaries, see id., which means the residence

of someone insured under a D & O policy like the one

Decedent held should make little difference. This is further

underscored by the fact that many D & O policies cover

multiple directors and officers, each potentially residing in

different fora. The limited importance given to risk location

in the Ehlco litigation does not support the outcome Plaintiff

urges.

E.

Florida is the final jurisdiction whose law Plaintiff asks us

to consider. Like Kentucky, Florida’s borrowing statute

provides that “[w]hen the cause of action arose in another

state or territory of the United States, or in a foreign country,

and its laws forbid the maintenance of the action because of

lapse of time, no action shall be maintained in this state.”

FLA. STAT. § 95.10. Plaintiff first cites Bates v. Cook, 509

So.2d 1112 (Fla. 1987), for the proposition that Florida

applies a “most significant relationship” test to its borrowing

statute when the cause of action sounds in tort. Plaintiff is

partly correct—Florida adopted the “most significant

relationship” test in Bishop v. Florida Speciality Paint Co.,

389 So.2d 999, 1001 (Fla. 1980), but that case did not involve

Florida’s borrowing statute. Rather, Bishop adopted the

Second Restatement’s approach only with respect to the

determination of what substantive law would apply to torts.

Id. at 1000. The court said nothing about statutes of

limitations, which are procedural. The court also remained

silent about contract disputes.

9

 Id. 

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

Does the lex loci delicti rule govern the rights and

liabilities of the parties in tort actions, precluding

consideration by the Florida courts of other relevant

considerations, such as the policies and purposes

underlying the conflicting laws of a foreign jurisdiction

where the tort occurred, and the relationship of the

occurrence and of the parties to such policies and

purposes? 

509 So.2d at 1000. 

With respect to contract disputes, Plaintiff cites

Lumberman’s Mutual Casualty Co. v. August, 530 So.2d 293

(Fla. 1988). Lumberman’s involved a Massachusetts driver

insured 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 brought suit against her insurer for benefits after

Massachusetts’ limitations period expired but before Florida’s

terminated. Id. The court found Florida’s statute of

limitations governed the action because “the lex loci

contractusrule determines the choice of law for interpretation

of provisions of uninsured motorists clauses in automobile

insurance policies just as it applies to other issues of

automobile coverage.” Id. at 295. This is because, according

to the court, the lex loci contractus rule dictates that the cause

of action arises in the place where the contract is executed.

Id. at 296 (citing Colhoun v. Greyhound Lines, Inc., 265

So.2d 18, 21 (Fla. 1972)). 

Florida courts continue to apply the “most significant

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 significant

relationship” test to a contract dispute). Although Plaintiff

does not argue that the Kentucky statute of limitations should

govern his suit solely because Decedent executed the

insurance contract there, one should recognize in passing that

Florida’s rule is problematic because it offers no guidance in
No. 01-6493 Combs v. Int’l Ins. Co. 31

situations where the contract dispute involves the failure to

execute a contract or when the parties executed the contract

in a forum where the defendant is not amenable to process. 

Most important for the purposes of the instant

Erie problem, in Pledger v. Burnup & Sims, Inc., 432 So.2d

1323 (Fla. Dist. 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 procedural matters like

the statute of limitations determination implicated by

Florida’s borrowing statute. Id. at 1330. The Florida District

Court of Appeals presented the issue this way:

Unquestionably, Florida has the most significant contacts

with the issue presented . . . . Appellant has presented a

question on which he has cited no authority, in Florida or

elsewhere: that is, in view of the [Florida] Supreme

Court’s adoption of Restatement (Second) Conflict of

Laws § 145, did the cause of action arise in New York,

or in Florida, which has the most significant

relationship?

Id. The court found New York’s limitations period would

apply because the Florida legislature, not the judiciary, should

make the decision that the “most significant relationship” test

should apply to Florida’s borrowing statute. Id. The Pledger

court explained:

The Legislature has not amended [the borrowing statute]

since the [Florida] Supreme Court opinion in Bishop. We

have no hint of the legislative will on the question of

determining where a cause of action arises. They may

have assumed the Bishop conflicts rule would determine

where a cause of action arises. They might equally have

assumed that Bishop, a case dealing exclusively with the

rights and liabilities of the parties, had nothing to do with

the procedural borrowing statute. 

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

10The “accrual approach” is a concise moniker for the interpretation

Defendant advocates— a judicial focus exclusively on where the cause of

action accrued, not which state has “the most significant relationship.”

Id. at 1330-31 (emphasis added). Thus, Florida does not use

the test Plaintiff advocates and one Florida court emphasized

that modifying a borrowing statute is a legislative prerogative.

A federal court forced to make an Erie guess should pause

before reinterpreting a state statute if the state law is one that

is better modified legislatively. Whether or not the Kentucky

courts could reinterpret Kentucky’s borrowing statute instead

of the Kentucky legislature despite the separation of powers

concerns expressed in Pledger, the reinterpretive process

raises much more problematic federalism concerns when a

federal court construes a state statute. 

Although Plaintiff’s citations to Wyoming, New York,

Missouri, Illinois and Florida law are somewhat illuminating,

none of this information makes clear that the Kentucky

Supreme Court would interpret Kentucky’s borrowing statute

as Plaintiff suggests. 

III.

As cited above, Plaintiff references various scholarly works

that urge courts to construe borrowing statutes in a manner

that incorporates the “most significant relationship” test.

Despite these academic exhortations, we recognize that

borrowing statutes interpreted in accordance with the accrual

approach produce several meaningful policy advantages.

10

First, borrowing statutes impede forum shopping. As one

federal court sitting in diversity explained, the objective of

Pennsylvania’s borrowing statute is “simply to insure that a

plaintiff who sues in Pennsylvania obtains no greater rights

than those given in the state where his cause of action arose.”

Wilt v. Smack, 147 F. Supp. 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

forum shopping by plaintiffs seeking the holy grail of the

longer period—is best served by applying the period of the

foreign state, regardless of how it is denominated.”); Faigin

v. Doubleday Dell Publ’g Group, Inc., 98 F.3d 268, 271 (7th

Cir. 1996) (observing “the antipathy to forum shopping

reflected 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 statutes, enacted by states

to prevent forum shopping, ‘enable the forum to borrow and

use the statute of limitations of another state in determining

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.”). 

An accrual-based approach makes forum shopping

impossible because the statute of limitations that governs in

the forum where the cause of action accrued will apply no

matter where the plaintiff files suit. In contrast, allowing

plaintiffs to file suit in any state that has significant contacts

with the dispute encourages plaintiffs to shop for the forum

with the longest statute of limitations. Although limiting the

operation of a borrowing statute to only those instances where

a state has the most significant connection with the lawsuit

helps make forum shopping somewhat more difficult, many

modern commercial transactions transcend state boundaries.

If a contract is negotiated in Michigan between an Ohio

company and a Kentucky company, with performance

scheduled in Tennessee, determining which state has the

“most” significant contacts becomes difficult and subjective

enough for enterprising attorneys to capitalize on differences

between limitations periods. State courts’ desire to

discourage forum shopping is significant enough that in at

least one instance, the New Jersey Supreme Court applied a

foreign jurisdiction’s limitation period even though New

Jersey does not have a borrowing statute. See Heavner v.

Uniroyal, Inc. 305 A.2d 412, 418 (N.J. 1973) (applying New

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

11Borrowing statutes apply to both foreign statutes of limitation and

statutes of repose, because both kinds of laws serve to limit the period in

which a plaintiff may initiate an action. Statutes of limitations and repose

are frequently confused, but both serve similar purposes. “A statute of

limitations focuses on time measured from an injury; a statute of repose

rests on the time from some initiating event unrelated to an injury.”

Roskam Baking Co., Inc. v. Lanham Mach. Co., Inc., 288 F.3d 895, 903-

04 (6th Cir. 2002). Thus, a statute of limitations might bar an injured

plaintiff from bringing a product liability action more than three years

after he discovered his injury, whereas a statute of repose would bar the

action three years after the manufacturer produced the product. 

Hampshire statute of limitation despite lack of borrowing

statute in New Jersey, in part to prevent forum shopping). 

Second,strictly enforcing borrowing statutes best servesthe

purpose of statutes of limitation and repose.

11 Most states,

including Kentucky, have tolling statutes that stall the running

of the applicable limitations period if a cause of action

accrues against a state resident not present in the jurisdiction

when the cause of action accrues. Kentucky law explains that

“[i]f, at the time any cause of action mentioned in Ky. Rev.

Stat. 413.090 to 413.160 accrues against a resident of this

state, he is absent from it, the period limited for the

commencement of the action against him shall be computed

from the time of his return to this state.” KY. REV. STAT.

§ 413.190(1). Furthermore, 

When a cause of action mentioned in KRS 413.090 to

413.160 accrues against a resident of this state, and he by

absconding or concealing himself or by any other

indirect means obstructs the prosecution of the action, the

time of the continuance of the absence from the state or

obstruction shall not be computed as any part of the

period within which the action shall be commenced. 

Id. § 413.190(2). Since tolling statutes eliminate a

defendant’s ability to flee the jurisdiction and return after the

statute of limitations expires, tolling statutes can inadvertently

create perpetual liability for a defendant legally residing in
No. 01-6493 Combs v. Int’l Ins. Co. 35

Kentucky accused of a tort or breach of contract that occurred

in another jurisdiction. If the defendant is not present in

Kentucky when the cause of action accrues against him, he

will face liability upon his return to the State even if he

returns decades later. See id. The borrowing statute

minimizes this problem by using the foreign state’s statute of

limitations when the cause of action accrues in the foreign

state, thereby eliminating the problem of perpetual liability in

those circumstances. See George v. Douglas Aircraft Co.,

332 F.2d 73, 78 (2d Cir. 1964) (discussing the problem of

perpetual liability); Cvicich v. Giardino, 99 P.2d 573, 574-75

(Cal. Ct. App. 1940) (same). 

Relieving potential defendants of uncertainty is one of the

historical purposes of statutes of limitations. As the Supreme

Court explained, “[s]tatutes of limitations, like the equitable

doctrine of laches, in their conclusive effects are designed to

promote justice by preventing surprises through the revival of

claims that have been allowed to slumber until evidence 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). Earlier, the Supreme Court wrote that:

It is a well-settled principle that a statute of limitations is

the law of the forum, and operates upon all who submit

themselves to its jurisdiction. . . . Of late years, the

courts, in England and in this country, have considered

statutes of limitations more favorably than formerly.

They rest upon sound policy, and tend to the peace and

welfare of society. The courts do not now, unless

compelled by the force of former decisions, give a

strained construction to evade the effect of those statutes.

By requiring those who complain of injuries to seek

redress by action at law, within a reasonable time, a

salutary vigilance is imposed, and an end is put to

litigation. 

McCluny v. Silliman, 28 U.S. (3 Pet.) 270, 276-77 (1830).

Statutes of limitations and repose thus serve both the interest

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

in encouraging expeditious dispute resolution and the interest

in creating confidence that long bygone incidents will not

suddenly reemerge in litigation initiated at some unknown

future time. Interpreting Kentucky’s borrowing statute in a

manner more likely to create instances of lengthy or perpetual

liability does a disservice to these objectives. 

Third, borrowing statutes reflect respect for state

sovereignty. A cause of action is an attempt by the plaintiff

to vindicate what he believes is a legal right or obligation

owed. Legal rights and obligations vest when the last event

necessary to create the cause of action occurs. The law of the

state where the final event occurs determines the parties’

rights and responsibilities at that point because each state has

sovereignty over that which occurs within in its territory. See,

e.g., RESTATEMENT OF CONFLICT OF LAWS §§ 377-388. As

discussed, the application of the law of the place of the injury

is why this system is sometimes called the lex loci approach.

Justice Story argued, 

[E]very nation possesses an exclusive sovereignty and

jurisdiction within its own territory. . . . The direct

consequence of this rule is, that the laws of every state

affect, and bind directly all property, whether real or

personal, within its territory; and all persons, who are

resident within it . . . ; and also all contracts made, and

acts done within it.

JOSEPH STORY,COMMENTARIES ON THE CONFLICT OF LAWS,

FOREIGN AND DOMESTIC 18 (2d ed. 1841) (hereinafter

“COMMENTARIES”); see also Renfroe v. Eli Lilly & Co., 686

F.2d 642, 647 (8th Cir. 1982) (“[T]he cause arises where as

well as when the final significant event that is essential to a

suable claim occurs.”) (citing Mack Trucks, Inc. v. BendixWestinghouse Auto. Air Brake Co., 372 F.2d 18, 20 (3d Cir.

1966)). The notion of vested rights, therefore, depends on

ideas of territoriality and sovereignty. 
No. 01-6493 Combs v. Int’l Ins. Co. 37

Borrowing statutes embody the idea that the foreign

jurisdiction’s law should control out of respect for that

jurisdiction’s territorial sovereignty. See, e.g., Devine v.

Rook, 314 S.W.2d 932, 935 (Mo. Ct. App. 1958) (“It is

fundamental that the law of the place where the cause of

action first came to life controls the substantive law of the

cause, since the cause owes its existence, and the character of

its existence, to that place.”). States, in turn, should respect

each others’ sovereign rights. In his classic explanation of the

comity argument, Justice Story wrote:

The true foundation of which the administration of

international law must rest is that the rules which are to

govern are those which arise from mutual interest and

utility, from a sense of the inconveniences which would

result from a contrary doctrine, and from a spirit of moral

necessity to do justice, in order that justice may be done

to us in return.

COMMENTARIES, at 34. If Kentucky fails to respect that a

cause of action accrues in a foreign jurisdiction, like New

York, although the final event necessary for the cause of

action occurred in New York, Kentucky shows disrespect for

New York’s territoriality in derogation of comity principles

that the Kentucky Supreme Court may value. 

Without a borrowing statute, New York could establish a

cause of action to remedy a particular wrong, but reach a

legislative judgment about the significance of the problem

and the importance of finality, and choose to attach a short

statute of limitations to the new cause of action. By failing to

recognize New York’s decision, Kentucky would effectively

undermine a quasi-substantive component of New York

law—not something we should lightly assume the Kentucky

Supreme Court would choose to do. 

Thus, despite Plaintiff’s attempt to capitalize on the

scholarly pressure to interpret Kentucky’s borrowing statute

as ineffective when Kentucky does not have the “most

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

significant relationship” with the dispute, adopting Plaintiff’s

approach might encourage forum shopping, work against the

purposes of statutes of limitations and repose, and

demonstrate an inappropriate disregard for another state’s

sovereignty. 

IV.

In a diversity case, the Kentucky statute of limitations will

be applied as interpreted by this Court. Atkins v. Schmutz

Mfg. Co., 372 F.2d 762, 763 (6th Cir. 1967). Kentucky

would not apply a “most significant relationship” analysis

when applying Kentucky’s borrowing statute to the instant

case. 

A.

The statutory language supports Defendant’s position. The

“fundamental rule of statutory construction” in Kentucky “is

to determine the intent of the legislature, considering the evil

the law was intended to remedy.” Beach v. Commonwealth,

927 S.W.2d 826, 828 (Ky. 1996); see also Kelly v. Marr, 185

S.W.2d 945, 949 (Ky. 1945). To ascertain legislative intent,

Kentucky courts must refer to "the words used in enacting the

statute rather than surmising what may have been intended

but was not expressed." Flying J Travel Plaza v.

Commonwealth, 928 S.W.2d 344, 347 (1996) (citing Ky.

Assoc. of Chiropractors, Inc. v. Jefferson County Med. Soc.,

549 S.W.2d 817 (Ky. 1977)). To reiterate, Kentucky’s

borrowing statute states:

When a cause of action has arisen in another state or

country, and by the laws of this state or country where

the cause of action accrued the time for the

commencement of an action thereon is limited to a

shorter period of time than the period of limitation

prescribed by the laws of this state for a like cause of

action, then said action shall be barred in this state at the

expiration of said shorter period. 
No. 01-6493 Combs v. Int’l Ins. Co. 39

KY. REV. STAT. § 413.320. Nowhere in the statutory

language does the “most significant relationship” test appear.

We are “not at liberty to add or subtract from the legislative

enactment nor discover meaning not reasonably ascertainable

from the language used.” Commonwealth v. Gaitherwright,

70 S.W.3d 411, 413 (Ky. 2002) (citing Commonwealth v.

Frodge, 962 S.W.2d 864, 866 (Ky. 1998)). Nevertheless, we

certainly acknowledge Plaintiff’s argument that other state

supreme courts have read elements of a “most significant

relationship” test into borrowing statutes that lacked such

express language.

B.

Kentucky last amended its borrowing statute in 1942, at a

time when Kentucky still followed the vested rights approach

to substantive choice of law questions. See KY. REV. STAT.

§ 413.320. Prior to 1967, all Kentucky case law applied lex

loci. See, e.g., Ansback v. Greensberg, 256 S.W.2d 1 (Ky.

1967) (applying lex loci to an automobile accident case). In

a series of cases in the late 1960s, however, Kentucky began

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); Wessling v. Paris,

417 S.W.2d 259, 260-61 (Ky. 1967). The Kentucky Supreme

Court, however, did not make the same change with respect

to contract cases. 

In Lewis v. American Family Ins. Group, 555 S.W.2d 579

(Ky. 1977), an Indiana resident driver insured in Indiana was

involved in an accident in Kentucky with an uninsured

Kentucky driver. Id. at 580. The Indiana driver filed suit in

Kentucky against his insurer for uninsured motorist coverage

and the court applied Indiana substantive law. Id. at 581.

Under Lewis, the rights vested in the place of insurance,

which was Indiana, not Kentucky, where the accident

occurred. More recently, in State Farm Mutual Automobile

Insurance Co. v. Tennessee Farmers Mutual Insurance Co.,

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

785 S.W.2d 520 (Ky. Ct. App. 1990), the Kentucky Court of

Appeals refused to apply Kentucky substantive law to a

Tennessee insurance contract following an automobile

accident in Kentucky between a Kentucky driver and a

Tennessee driver. Id. at 521. As long as Kentucky courts

continue to apply the vested rights approach to contracts, and

insurance contracts in particular, this Court, sitting in

diversity, lacks a basis to predict that the Kentucky Supreme

Court would take a different route.

C.

Willits v. Peabody Coal Co., Nos. 98-5458, 98-5527, 1999

WL 701916 (6th Cir. Sept. 1, 1999) (unpublished), is the only

case to deal with questions like those Plaintiff presents in the

context of Kentucky’s borrowing statute. Although Willits is

an unpublished opinion, its reasoning is instructive. 

In Willits, the plaintiffs asserted a breach of contract claim

alleging, inter alia, improper calculation of royalties under

coal mining agreements. 1999 WL 701916, at *11. The

parties originally executed the contract in Kansas. Id. at *13.

The defendants calculated royalty payments in Missouri and

then mailed them to various states, including Kentucky. Id.

Missouri’s shorter limitations period would have barred the

plaintiffs’ claims. Id. at *12. Both parties agreed that

Kentucky’s borrowing statute controlled the case. Id. at *11.

The Willits Court explained how it would apply the

borrowing statute:

The Kentucky borrowing statute requires a three step

analysis: (1) we must determine whether the cause of

action accrued in another state; (2) if the cause of action

did accrue in another state, we must determine whether

that state's statute of limitations for the particular cause

of action is shorter than Kentucky's; (3) if the accrual

state's statue of limitations is shorter than Kentucky's, we

apply the statute of limitations of the accrual state;

however, if the statute of limitations for the cause of
No. 01-6493 Combs v. Int’l Ins. Co. 41

12Significantly, Willits also mentions the problems presented by

defining accrual in a manner related to where the plaintiff or plaintiffs

suffer damages. The Willits Court wrote:

To the extent that the calculations and the resulting payments

were a breach of Peabody’s obligation, that breach occurred in

the office in Missouri. It would be unworkable and irrational to

hold that the cause of action accrued wherever each Plaintiff

happened to receive his or her deficient check.

1999 WL 701916, at *13 (emphasis added). 

action in that state is longer than Kentucky's, we apply

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,

then determine that state’s statute of limitations, and if the

foreign state has a shorter limitations period than Kentucky,

borrow the foreign state’s shorter rule. The trouble occurs in

reaching the second and third components of the analysis

because, as Willits correctly observed, “there is little or no

law in Kentucky concerning where a breach of contract action

accrues.” Id. (emphasis in original).

To help ascertain how the Kentucky judiciary might

determine where a cause of action accrues, Willits noted that

Kentucky’s statute of limitations for contracts of sale under

the Uniform Commercial Code (UCC) provides: “‘A cause of

action accrues when the breach occurs, regardless of the

aggrieved party’s lack of knowledge of the breach.’” Willits,

1999 WL 701916, at *13 (quoting KY. REV. STAT. § 355.2-

725(2)). This supports the conclusion, relevant to Plaintiff’s

lawsuit, “that a breach can occur before the aggrieved party

actually knows of it and is damaged by it.” Id. (emphasis

added). This supports Willits’ decision that the breach

occurred in Missouri, “where [the defendant] improperly

calculated the royalties and from whence [the defendant]

mailed out the royalty payments to the Plaintiffs in their

various states of residence.”12 Id. at *14.

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

Plaintiff offers three challenges to the reasoning offered in

Willits and to the application of Willits to the matter presently

before us. First, Plaintiff notes that the district court applied

Willits to the instant action in part because of Wisconsin

jurisprudence the district court found useful. Wisconsin has

a borrowing statute similar to Kentucky’s, but Plaintiff

complains that the Wisconsin cases cited by the district court

do not clearly establish what the Kentucky Supreme Court

would do. The district court initially cites Abraham v.

General Cas. Co. of Wisconsin, 576 N.W.2d 46 (Wis. 1998).

In Abraham, the Wisconsin Supreme Court held that a cause

of action is “foreign” when “the final significant event giving

rise to a suable claim occurs outside the state of Wisconsin.”

Id. at 53-54. Plaintiff disputes Abraham’s persuasive value

because Abraham involved a set of facts in which all

significant events occurred in Wisconsin. See id. at 54-55

(Bradley, J., concurring). Yet even assuming the Abraham

decision depended on significantly different facts than the

case presented here, Abraham still reinforces the vested rights

theory that a cause of action accrues wherever the “last act”

necessary to create the claim occurs. 

The district court also relied on Ristow v. Threadneedle 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 suffering 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 check from its South Carolina

office, not the plaintiff’s failure to receive the check in

Wisconsin. Id. at 455. Citing Western Union Tel. Co. v.

Lacer, 93 S.W. 34 (Ky. 1906), Plaintiff claims the district

court should not have relied on Ristow because Kentucky

courts would have reached a different conclusion if faced with

the Ristow facts. The Lacer court had to decide whether a

cause of action against Western Union accrued in Indiana,

where the company affixed the wrong address to a telegraph,

or in Kentucky, where the company failed to promptly deliver

the message. Id. at 35. Although Lacer found that the cause
No. 01-6493 Combs v. Int’l Ins. Co. 43

13Plaintiff also cites Allstate Insurance Co. v. Napier, 505 S.W.2d

169 (Ky. 1974) and Louisville Gas and Elec. Co. v. Employer’s Mut. Liab.

Ins. Co., 548 S.W.2d 843 (Ky. Ct. App. 1977). Both cases concern

substantive choice of law disputes in the context of interpreting insurance

of action accrued in Kentucky, that conclusion does not aide

Plaintiff much because the Lacer plaintiff expressly

contracted for Western Union to “expeditiously deliver the

correct message to the addressee at the point addressed.” Id.

at 35. Neither Ristow nor Plaintiff’s case involves a contract

that specified a delivery point. More important, Lacer

requires a different “last act” analysis than Ristow because the

Lacer Plaintiff could not have sued Western Union until the

company failed to promptly deliver the message, whereas the

Ristow plaintiff could have sued the defendant insurer

whenever (and however) he discovered that the defendant did

not mail him his settlement check. 

Plaintiff’s second direct challenge to the application of

Willits to the instant problem depends upon Kentucky venue

jurisprudence. Plaintiff cites a series of cases interpreting

Kentucky’s venue statute, Ky. Rev. Stat. Ann. § 452.450.

See, e.g., T.C. Young Constr. Co. v. Hartford Accident &

Indem. Co., 441 S.W.2d 781 (Ky. 1969); Prudential Ins. Co.

of Am. v. Terry, 95 S.W.2d 1109 (Ky. 1936); Ins. Co. of N.

Am. v. Hopper, 69 S.W.2d 728 (Ky. 1934); Torrent Lodge v.

Nat’l Sur. Co., 21 S.W.2d 439 (Ky. 1929). These cases,

however, merely address the question of venue for a suit

based on an insurance policy, not where a cause of action

accrues under Kentucky’s borrowing statute. Under

Kentucky’s venue statue, plaintiffs must bring lawsuits for

breach of contract against a corporation in the county where

either (1) the corporation is present; (2) its agent resides;

(3) the contract was made; or (4) the parties were to perform

the contract. KY. REV. STAT. § 452-450. The planned place

of performance is a possibly appropriate venue, but that says

little about where a cause of action accrues pursuant to the

borrowing statute.13

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

policy provisions, not deciding arguments over which state’s statute of

limitation would apply. Both parties to this action agree on the

substantive choice-of-law question—Kentucky’s borrowing statute

applies, not that of some other state. 

Third, in an attempt to minimize the importance of Willits

as applied to the facts of his case, Plaintiff presents us with

this hypothetical:

Buyer buys a used car from Seller using a contract that

calls for a full-sized spare and shortens the statute of

limitations to one year (as allowed by [Ky. Rev. Stat.]

355.2-725). The contract also provides a one year

warranty for all electrical components, which requires

Buyer to submit a claim form for any repair. Eleven

months later, the alternator fails, and Buyer submits a

warranty claim form. Two months after that, Buyer has

a flat and discovers that there is no spare at all. Three

months after the flat, the warranty company delivers a

letter claiming that the alternator is not an electrical

component.

Buyer’s breach action for the lack of a spare fails because

the breach occurred at delivery, as Seller could have put

the spare in at any time until then. Buyer could have

discovered the spare within the year, but did not and is

barred. By not requiring actual knowledge, the statute

[of limitations] 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 concept of

accrual when the plaintiff should have known of the

injury is found both in other limitations statutes and case

law. See [KY. REV. STAT. ANN.] 413.140(2); Ky. Title

Trust Co. v. Weil, 136 S.W.2d 1097 (Ky. 1939).

Buyer’s action for breach of the warranty, however, does

not accrue under the statute until he receives the letter

denying his claim, sixteen months after the purchase, and

five months after the alternator failed. Buyer could not
No. 01-6493 Combs v. Int’l Ins. Co. 45

sue the warranty company when the alternator failed

because he had not complied with the condition

precedent of submitting the claim form at that point. The

breach is only discovered when the Buyer receives the

letter denying the claim and, under the statute [of

limitations], the cause accrues at that point in time and

(under the analysis in Willits) space. 

(Pl.’s Br. at 18-19) (emphasis in original). This hypothetical

is somewhat deceptive. 

Plaintiff implies that the warranty in this hypothetical is

like the D & O policy. Presumably, Plaintiff intends the

hypotheticalto demonstrate the difference between the breach

of contract action based on the spare tire (which the

hypothetical concedes the statute of limitations would bar)

and the breach of warranty action based on the failed

alternator. Plaintiff’s analysis of the spare tire issue is correct

because Buyer could have discovered the breach at any time

after the sale and brought suit accordingly. 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 confuse the “final act” notion of

accrual with a discovery concept more favorable to his

position in this case. In the hypothetical, Plaintiff assumes

that Buyer had no warranty action until he received the letter

from the warranty company declaring that an alternator does

not qualify as an electrical component. Only then, argues

Plaintiff, did Buyer discover his cause of action. Yet the final

act necessary to create the cause of action was the warranty

company’s decision to deny the claim—a judgment that most

likely transpired where the company posted the letter, not

where Buyer received it. Quoting one of this Court’s earlier

decisions, Willits notes that “‘[t]he final act which transforms

the liability into a cause of action necessarily has aspects of

time and place. It occurs at a certain time and in a certain

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

geographical spot.” 1999 WL 701916, at *12 (emphasis

added) (quoting 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, Willits concluded “that a breach

can occur before the aggrieved party actually knows of it and

is damaged by it.” 1999 WL 701916, at *13.

Although Willits is an unpublished opinion that constitutes

only persuasive authority, Willits supports Defendant, not

Plaintiff. 

D.

As already discussed, the judicial activity in other states

does not constitute particularly persuasive evidence that the

Kentucky Supreme Court would reinterpret Kentucky’s

borrowing statute to limit its function when Kentucky has the

“most significant relationship” to the disputed transaction. 

Although a few state judiciaries have interpreted their

borrowing statutes somewhat progressively, 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 adopted the Second

Restatement’s approach. See BHP, 1 P.3d at 1256. New

York’s “place of injury” test is different from the “most

significant relationship” test and not particularly helpful when

the injury is intangible, as in this case. See Global Financial,

715 N.E.2d at 486. Plaintiff also points to Missouri, but

Missouri has twice rejected invitations to apply the Second

Restatement’s approach to its borrowing statute. See Dorris,

725 S.W.2d at 872; Trzecki, 532 S.W.3d at 211. And despite

Plaintiff’s attempt to use Florida law to his advantage, the

Florida Court of Appeals declined to adopt the Second

Restatement approach without a clear legislative instruction.

See Pledger, 432 So.2d at 1330-31. That leaves Illinois,

which applied the “most significant relationship” test in Ehlco

II, although that case’s unusual procedural posture lessens its

precedential value. 
No. 01-6493 Combs v. Int’l Ins. Co. 47

14In 1966, Pennsylvania’s borrowing statute had language similar to

that in Kentucky’s borrowing provision: “When a cause of action has

been fully barred by the laws of the state or country in which it arose,

such bar shall be a complete defense to an action thereon brought in any

of the courts of this commonwealth.” 12 PA. CONS. STAT. § 39. 

There is also relevant information from jurisdictions

Plaintiff neglects to mention. Minnesota repealed its

borrowing statute, but a federal court sitting in diversity

dutifully applied Minnesota’s borrowing statute before the

Minnesota legislature revoked it. See Devine v. RayetteFaberge, Inc., 285 F. Supp. 1006, 1008 (D. Minn. 1968)

(finding plaintiff’s action time-barred by using Minnesota’s

borrowing statute to apply New York’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 borrowing statute so as

to apply “the law of the place having the most significant

contacts with 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

not make a compelling case upon which we can make a

judicious Erie guess. If anything, developments elsewhere

tend to affirmatively indicate that the Kentucky Supreme

Court would not limit the application of its borrowing statute

to those situations in which Kentucky has the “most

significant relationship” with the dispute. 

E.

Although the Kentucky Supreme Court might heed the

scholarly criticism of borrowing statutes interpreted in

accordance with the accrual theory, the Kentucky Supreme

Court might just as easily choose to respect the strong policy

interests borrowing statutes serve: they impede forum

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

shopping, effectuate the goals of statutes of limitations and

repose, and demonstrate respect for other states’ sovereignty.

This Court has a circumspect role when sitting in diversity

and should not unduly speculate about what a state court

might conclude, nor should we impose whatever rule we think

best. Given (1) the borrowing statute’s language;

(2) Kentucky’s focus on vested rights in interstate contract

litigation; (3) our unpublished Willits decision; (4) Plaintiff’s

inability to construct a strong argument based on the law of

other jurisdictions; and (5) the policy interests supported by

leaving Kentucky’s borrowing statute unadulterated by the

Second Restatement,we conclude that the Kentucky Supreme

Court would apply the borrowing statute by focusing only on

where the cause of action accrued, not on which state has the

greatest interest in the dispute. 

V.

Having decided that the Kentucky Supreme Court would

determine the applicable statute of limitations by looking only

to where the cause of action accrued, we must now attempt to

apply that rule to the facts of the case before us. 

A.

Where an insurance policy is breached depends in part on

whether the contract is a liability policy or an indemnity

policy. “[U]nder a liability policy a cause of action accrues

when liability attaches, whereas under an indemnification

policy there is no cause of action until the liability has been

discharged, as by payment of the judgment by the insured.”

Quinlan v. Liberty Bank & Trust Co., 575 So.2d 336, 355

(La. 1990). 

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

which Insureds are legally obligated to pay for a claim or

claims against them for Wrongful Acts.” (J.A. at 16.) As the
No. 01-6493 Combs v. Int’l Ins. Co. 49

Eighth Circuit described a similarly-worded D & O policy

issued by American Casualty Company: 

The definition of "Loss" unequivocally includes defense

costs, and seems to require American Casualty to pay

these costs when the insureds are "legally obligated to

pay" them, i.e., when the costs are incurred, and not, as

American Casualty appears to suggest, when the lawsuit

is finally disposed of and American Casualty has

determined that the claims were covered. This is clearly

a liability policy, despite American Casualty's attempt to

treat it as an indemnity policy. The significance of this

distinction is that under a liability policy, whenever a

covered "loss" occurs (i.e., the insureds are "legally

obligated to pay"), American Casualty must pay that

amount—payment by the insurer is not conditioned upon

a previous payment by the insured, as in an indemnity

policy. 

McCuen v. Am. Cas. Co., 946 F.2d 1401, 1406-07 (8th Cir.

1991); see also Little v. MGIC Indem. Corp., 836 F.2d 789,

793 (3d Cir. 1987) (“A ‘loss’ is defined as an amount that the

insured is ‘legally obligated to pay.’ Although this section [of

the policy] does not explicitly speak to the timing of the

insurer’s duty to pay, the only reasonable interpretation is that

the duty arises at the time the insured becomes ‘legally

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. If the insured is liable,

the insurance company must pay the damages. In an

indemnity contract, by contrast, the insurer agrees to

reimburse expenses to the insurer that the insured is liable to

pay and has paid.”) (quoting Cont’l Oil Co. v. Bonanza Corp.,

677 F.2d 455, 459 (5th Cir.1982)). Plaintiff, therefore, held

a liability policy, not an indemnity policy. 

Assuming Defendant had an obligation to pay under the

policy’s language, Defendant had no responsibility before

Decedent himself became “legally obligated to pay”

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

15Note how Renne uses the future tense: “[My client] will look to

you . . . for reimbursement.” (J.A. at 102) (emphasis added). 

16The phrases “anticipatory breach,” “anticipatory repudiation,” and

“renunciation” are used interchangeably. See 17B C.J.S.Contracts § 534,

at 196 (1999). 

attorney’s fees, settlements, or other related sums. The twopage letter sent from Plaintiff’s California counsel to

Defendant is simply a list of the eight different lawsuits filed

in the California Litigation. Renne, Plaintiff’s California

counsel, made clear in the text that “this letter constitutes a

claim by [the officers and directors of Spendthrift] under the

terms of the above-captioned policy and they will look to you

[Defendant] for reimbursement of all costs and damages

which may be assessed against them.”15 (J.A. at 102.) Thus,

at the moment Defendant received Renne’s letter, Defendant

had no obligation to reimburse Decedent—the letter did not

include any demand for the reimbursement of a specific

amount of money. Rather, it notified Defendant that the

Spendthrift directorswould attempt to recoup from Defendant

“all costs and damages which may be assessed against them.”

Id. 

B.

Since Defendant renounced the D & O policy (with respect

to the California Litigation) before Defendant had any

obligation to make payments pursuant to the policy,

Defendant’s behavior constituted an anticipatory

repudiation.16 As the Supreme Court explained, “[i]t has

always been the law that where a party deliberately

incapacitates himself or renders performance of his contract

impossible, his act amounts to an injury to the other party,

which gives the other party a cause of action for breach of

contract.” Roehm v. Horst, 178 U.S. 1, 18 (1900); see

also Hochster v. De la Tour, 2 El. & Bl. 678 (1853). “The

disclaimer of a contractual duty is a breach of contract even
No. 01-6493 Combs v. Int’l Ins. Co. 51

if the time specified in the contract for performing the duty

has not yet arrived. It is what is called anticipatory breach.”

Wis. Power & Light Co. v. Century Indem. Co., 130 F.3d 787,

793 (7th Cir. 1977); see also Quivirian Dev. Co. v. Poteet,

268 F.2d 433, 439 (8th Cir. 1959) (“An anticipatory

repudiation is declared to exist when a promisor, not

otherwise in default, engages in making, without justification,

a positive statement to the promisee, or other person having

a right under the contract, indicating that the promisor will

not or cannot substantially perform his contract duties.”).

Kentucky has recognized the doctrine of anticipatory breach.

See, e.g., Jordon v. Nickell, 253 S.W.2d 237, 239 (1952); Fid.

& Deposit Co. of Md. v. Brown, 20 S.W.2d 284, 286 (Ky. Ct.

App. 1929); Paducah Cooperage Co. v. Ark. Stave Co., 237

S.W. 412, 413 (1922).

The repudiation must be absolute or unequivocal. 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. Workers, AFL-CIO v. AT & T, 972 F. Supp. 21 (D.D.C.

1997); Brownsboro Rd. Rest., Inc. v. Jerrico, Inc., 674

S.W.2d 40, 42 (Ky. Ct. App. 1984) (citing 17 AM. JUR. 2d

Contracts § 448 (1964)). Courts determine whether

anticipatory repudiation has occurred on a case-by-case basis,

depending 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 precise set of words is necessary

to constitute an unequivocal repudiation. Ewing v. Von

Nieda, 76 F.2d 177, 182 (8th Cir. 1935). Nevertheless,

Defendant’s reply to the Renne inquiry explained in detail

why Defendant would not reimburse Plaintiff for expenses

related to the California Litigation. The five-page letter made

completely clear that Defendant “declines to afford coverage

for any loss incurred by the [Plaintiff and Decedent] in

connection with the [California Litigation].” (J.A. at 109.)

There is some disagreement as to whether the doctrine of

anticipatory repudiation applies only to bilateral contracts,

see, e.g., Saewitz v. Epstein, 6 F. Supp. 2d 151 (N.D. N.Y.

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

17Warren v. Confederation Life Ass’n., 401 F.2d 487, 489 (1st Cir.

1968) (“A life insurance policy is a unilateral contract – the applicant may

pay the premium, or not, as he chooses; he is under no legal obligation to

do so.”); Winters v. State 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

insurance policy, the fire contract is a unilateral contract.”); Wal-Mart

Stores, Inc. Assocs. Health & Welfare Plan v. Scott, 27 F. Supp. 2d 1166,

1170 (W.D. Ark. 1998) (“it is a unilateral contract of insurance”); Int’l

Adm’rs., Inc. v. Life Ins. Co., 541 F. Supp. 1080, 1083 (N.D. Ill. 1982)

(“But an offer for a unilateral contract–like this one–may be ‘accepted’ by

rendering performance. Placement of the insurance with LINA constituted

such performance.”); Continental Cas. Co. v. Nat’l Steel Corp., 533 F.

Supp. 369, 373 (W.D. Pa. 1982) (“The insurance contract was a unilateral

contract”); Home Ins. Co. v. Aetna Cas. & Sur. Co., 1977 U.S. Dist.

LEXIS 13726, at *16 (S.D.N.Y. 1977) (“insurance policies are generally

unilateral contracts prepared by the insurer”); SouthTrust Bank v.

Williams, 775 So. 2d 184, 188 (Ala. 2000) (“all forms of insurance are

presumed to be unilateral contracts.”) (quoting Winters v. State Farm &

Fire Cas. Co., 35 F. Supp. 2d 842, 845 (E.D. Okla. 1999)); London

Assurance Corp. v. Thompson, 170 N.Y. 94, 100 (1902) (“The general

rule is that . . . insurance policies are unilateral contracts prepared by the

insurers”).

18The insured has not made any promise but, rather, has performed.

Thus, the contract fits within the standard definition of a unilateral

contract:

A unilateral contract consists of a promise or group of promises

made by one of the contracting parties only, usually assented to

by the other. There are many cases in which such an assent is

not required. A bilateral contract consists of mutual promises,

made in exchange for each other by each of the two contracting

parties. In the case of a unilateral contract, there is only one

promisor. . . . In a bilateral contract, both parties are promisors

1998) (citing 4 ARTHUR L. CORBIN, CORBIN ON CONTRACTS

§ 962 (1951)), or to both bilateral and unilateral contracts,

see, e.g., Placid Oil Co. v. Humphrey, 244 F. 2d 184 (5th Cir.

1957). Insurance policies are generally unilateral contracts.17

A D & O insurance policy is a unilateral contract—the

insured has already performed by paying the premium in

exchange for the insurance company’s promise to provide

insurance.

18 Nevertheless, there is ample authority for the
No. 01-6493 Combs v. Int’l Ins. Co. 53

and both parties are promisees.

1 ARTHUR L. CORBIN, CORBIN ON CONTRACTS § 1.23, at 87 (1993).

proposition that the promising party can anticipatorily

repudiate a unilateral contract. See, e.g., Dingley v. Oler, 117

U.S. 490, 502-04 (1886) (evaluating a claim that defendant

had anticipatorily repudiated a unilateral contract without

mentioning the contention that anticipatory repudiation might

not apply to unilateral contracts); Xebec Dev. Partners, Ltd.

v. Nat’l Union Fire Ins. Co., 15 Cal. Rptr. 2d 726, 740 (Cal.

Ct. App. 1993) (finding that case law 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 anticipatory repudiation to bilateral contracts

makes little sense. The theory, presumably, is that if the first

party has already performed when the second party announces

his intention to breach, the first party (the injured party) has

nothing to gain through an immediate action for damages

based on anticipatory breach. Yet “[t]he harm caused to the

plaintiff is equally great [whether or not he has already

performed]; and it seems strange to deny to a plaintiff a

remedy [for anticipatory breach] merely on the ground that he

has already fully performed as his contract required.”

9 ARTHUR L. CORBIN, CORBIN ON CONTRACTS § 962, at 767

(interim ed. 1979). 

Furthermore, courts have frequently recognized

anticipatory repudiation in insurance coverage disputes, and

insurance policies are unilateral agreements. See, e.g., N.Y.

Life Ins. Co. v. Viglas, 297 U.S. 672 (1936); Lovell v. St.

Louis Mut. Life Ins. Co., 111 U.S. 264 (1884); Caminetti v.

Manierre, 142 P.2d 741 (Cal. 1943); Scott v. Life & Cas. Ins.

Co., 129 S.E. 303 (Ga. 1925); Van Werden v. Equitable Life

Assurance Soc’y of the United States, 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

1900); McKee v. Phoenix Ins. Co., 28 Mo. 383 (1859);

Garland 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. Union v. Woodward, 247 P. 398 (Okla.

1926); Gaskill v. Pittsburgh Life & Trust Co., 104 A. 775 (Pa.

1918); Mut. Reserve Fund Life Ass’n v. Taylor, 37 S.E. 854

(Va. 1901); Merrick v. Northwestern Nat’l Life Ins. Co., 102

N.W. 593 (Wis. 1905). The long list of cases involving the

alleged anticipatory repudiation 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. Oldenburg, 671 F. Supp. 720, 724 (D. Utah

1987) (finding insurer had anticipitorily repudiated a D & O

insurance contract through letter that “was a definitive

statement of an intent not to perform sent to the insured while

there was a claim pending”); Xebec, 15 Cal. Rptr. 2d at 740

(finding, in litigation over a directors and officers insurance

policy, that case law does not “establish that there can never

be an anticipatory repudiation of an insurance contract”). If

a breach occurred, Defendant’s response to the Renne letter

breached the insurance contract by anticipatorily repudiating

Defendant’s alleged obligations. We must next ask where the

breach (or the repudiation) occurred. 

C.

We acknowledge that the question of where an anticipatory

repudiation occurs “ha[s] not yet been clearly settled.” 9

ARTHUR L. CORBIN, CORBIN ON CONTRACTS § 988, at 851

(interim ed. 1979). Nevertheless, there are a few cases

involving disputes over where a repudiation occurred when

the repudiating party sent the renunciation from one

jurisdiction to the non-repudiating party in a second

jurisdiction. The limited available jurisprudence strongly

suggests that a repudiation occurs in the place where the

repudiator posts the renunciation, not where the other party

received notice. See Auglaize Box Bd. Co. v. Kansas City

Firbre Box Co., 35 F.2d 822, 823 (6th Cir. 1923) (holding

action to have arisen in jurisdiction where repudiation
No. 01-6493 Combs v. Int’l Ins. Co. 55

occurred, not place of performance); Wester v. Casein Co. of

Am., 100 N.E. 488, 513-14 (N.Y. 1912) (concluding, when

anticipatory repudiation was cabled from New York,

addressed to and later received by the other party in South

America, that the breach occurred in New York, because

“[t]he breach of the contract occurred in this case upon

delivery of the cablegram to the telegraph company, and

constituted a breach, not only at that time, but also at that

place.”); Kumar v. Embassy Kosher Tours, Inc., 696 So.2d

393, 394 (Fla. Dist. Ct. App. 1997) (“[A]n anticipatory breach

is deemed to ‘accrue,’ if at all, in the county . . . from which

the ‘breachor’ transmits the repudiation, rather than where the

‘breachee’ receives it.”); Karson Indus., Inc. v. Superior

Court, 77 Cal. Rptr. 714, 716 (Cal. Ct. App. 1969) (deciding,

in a dispute where a letter cancelling a contract for mobile

homes was posted in one county but received in another, “that

the weight of authority and the better reasoned cases support

the rule that repudiation by letter is a breach at the time when

and the place where the letter is dispatched”).

These cases ultimately derive their holdings from a series

of nineteenth-century British and Irish decisions that reached

similar conclusions. In Cherry v. Thompson, 7 Q.B. 573

(1872), for instance, the court found that the anticipatory

breach of a contract to marry occurred in Germany when the

defendant mailed a letter from Germany withdrawing from

the engagement. As Judge Blackburn explained:

In this case the receipt of the letter by the plaintiff in

England furnished him with evidence that the defendant

had in Germany renounced [their] relation. Had his

letters followed him to Ireland he would have received

the evidence in Ireland. But the act which he had the

option to treat as a breach took place in Germany, and

in Germany alone. 

Id. at 579 (emphasis added). Similarly, in Hamilton v. Barr,

[1886] 18 L.R. Ir. 297, the plaintiff made a contract in

Scotland with the defendant to act as the defendant’s agent in

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

Ireland. Later, the defendant mailed a letter to his agent in

Scotland abrogating their agreement in advance. As

Chancellor Naish explained, “I consider that the dismissal

took place in Glasgow by the posting of the letter in Glasgow.

The dropping of the letter in to the post office there was, I

think, the act of dismissal.” Id. at 301. Chancellor Porter

agreed that the contract ended “the moment the notice of

dismissal had left the hands and control of the defendant,

which it did in Glasgow.” Id. at 302. 

In Holland v. Bennett, 1 K.B. 867 (1902), the proprietor of

a periodical who resided in France employed a London

correspondent. The proprietor discharged the plaintiff in a

letter mailed from Italy. Justice Williams concluded that

“[t]he effect is that there was a complete 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 dealer residing in

London who hired a salesman and sent him to Ireland. Id. at

575. The salesman received a letter of dismissal before he

could begin his work. Id. at 576. The message arrived in

Dublin, but the letter was posted in London. Id. According

to Judge Whiteside, “[t]he act in this case was done in

England. The letter informs the Plaintiff that the Defendant

in England had renounced the relation that had subsisted

between them; and if that was a breach of contract, it took

place in England.” Id. at 579. This view is shared by the

Restatement of Contracts, which explains that the repudiation

occurs “as of the time when and the place where the letter or

telegram is dispatched.” RESTATEMENT OF CONTRACTS

§ 321. Williston also felt that repudiation by letter is a breach

“as of the time when and the place where the letter or

telegram is dispatched.” 11 WILLISTON ON CONTRACTS

§ 1332, at 174 (3d ed. 1968). 

Thus, although the jurisprudence is fairly sparse, the

available information strongly indicates that an anticipatory

breach occurs where the breaching party posts its letter of
No. 01-6493 Combs v. Int’l Ins. Co. 57

19This rule nicely avoids the problem of determining where an

anticipatory breach occurred when the letter is posted in one jurisdiction

but received in multiple places.

renunciation.19 Since Defendant posted the message in New

York, the breach occurred in New York. Under Kentucky’s

borrowing statute, Ky. Rev. Stat. § 413.320, the Kentucky

Supreme Court would apply New York’s statute of

limitations, rendering Plaintiff’s claim eight years late.

Consequently, the district court properly ruled that under Ky.

Rev. Stat. § 413.320, the New York statute of limitations bars

Plaintiff’s action. 

For the aforementioned reasons, we AFFIRM the district

court’s decision.