In the
United States Court of Appeals
For the Seventh Circuit
____________
Nos. 06-4019 & 07-1400
NAUTILUS INSURANCE CO.,
Plaintiff-Appellee,
v.
DAVID REUTER, Individually and as
Representative of the Estate of Shirley
Reuter, and JUSTIN L. CHRETIEN,
Defendants-Appellants.
____________
Appeals from the United States District Court
for the Northern District of Indiana, South Bend Division.
No. 05 C 30—Allen Sharp, Judge.
____________
ARGUED DECEMBER 7, 2007—DECIDED AUGUST 8, 2008
____________
Before EASTERBROOK, Chief Judge, and MANION and
KANNE, Circuit Judges.
KANNE, Circuit Judge. After numerous small corpora-
tions submitted claims to Nautilus Insurance Company
(“Nautilus”) for the insurer’s defense and indemnity for
lawsuits the small corporations were facing, Nautilus
sought a declaration that it did not owe such duties to the
small corporations for the underlying claims. The insur-
ance policies did not contain choice-of-law provisions; as
a federal court sitting in Indiana, the district court
2 Nos. 06-4019 & 07-1400
applied Indiana choice-of-law rules to choose which state
had the most intimate contacts with the contracts. After
deciding that Indiana law governed the interpretation of
the contracts, the district court granted summary judg-
ment in favor of Nautilus on the ground that Indiana
law does not contemplate insurance coverage for the
types of claims arising under the insurance policies held
by the insureds—claims for negligent hiring. The district
court correctly applied Indiana law to the insurance
policies involving two of the small corporations involved
in this appeal. However, for the insurance policies involv-
ing one of the corporations, Phoenix Imagery, there is
conflicting evidence about the small corporation’s prin-
cipal place of business. Because we cannot resolve the
conflict on the basis of the paper record, we remand this
particular choice-of-law determination to the district
court for further proceedings, such as an evidentiary
hearing.
I. HISTORY
This insurance-coverage case arose after several individ-
uals tragically suffered violent crimes committed by door-
to-door magazine salespersons. The assailants were
employees of small corporations associated with Ameri-
can Community Services (“ACS”), an Indiana-based
magazine clearinghouse that sells magazines by con-
tracting with small corporations that, in turn, hire and
employ their own door-to-door salespersons. The small
corporations that employed the violent offenders were
insured by Nautilus; ACS was listed as an additional
insured on each of the relevant Comprehensive General
Liability (“CGL”) policies. When numerous civil lawsuits
were brought against the small corporations and ACS by
Nos. 06-4019 & 07-1400 3
the victims of the crimes and their families, the insureds
submitted claims to Nautilus, requesting the insurer’s
defense and indemnification. Nautilus then filed this
suit in federal district court, under 28 U.S.C. § 1332,
seeking rescission of the contracts and a judgment de-
claring that it did not owe duties of defense or indem-
nification under the CGL policies. Nautilus explained
that the civil complaints alleged only negligent hiring
by the small corporations and ACS, but in Indiana, negli-
gent hiring and negligent supervision do not fall within
the ambit of traditional CGL coverage, where an “occur-
rence” is defined as an accidental event. See Erie Ins. Co. v.
Am. Painting Co., 678 N.E.2d 844, 846 (Ind. Ct. App. 1997).
Nautilus argued that Indiana law governed the insurance
contracts, because the small corporations were incorpo-
rated in Indiana and were mere “shells” of ACS.
The insurance policies secured by the small corporations
(in which ACS is listed as an additional insured) contain
no choice-of-law provisions. The small corporations were
all incorporated in Indiana, but Illinois addresses were
listed on their insurance applications. Accordingly, the
insurance policies listed the corporations’ locations at the
Illinois addresses. The insurer (Nautilus or its agent,
Jimcor) paid taxes on the policies in Illinois, and the
policies were stamped by the Illinois Department of
Insurance, in accordance with Section 445 of the Illinois
Insurance Code, which outlines the requirements for
“surplus line insurance” that insures an “Illinois risk.” 215
Ill. Comp. Stat. 5/445.
The choice-of-law determination is especially important
in this case because the substantive law in Indiana and
Illinois differs on the point of law at the heart of the
underlying lawsuits against the magazine-sale corpora-
4 Nos. 06-4019 & 07-1400
tions: whether negligent hiring can constitute an “occur-
rence” under an insurance policy. Under Indiana law,
allegations of negligent hiring do not trigger an insurer’s
duties to defend and indemnify the insured if the policy
defines “occurrence” as an accidental event. See Am.
Painting Co., 678 N.E.2d at 846. But under Illinois law,
negligent hiring can constitute an “occurrence” under
insurance policies that define the term as an accidental
event. See Am. Family Mut. Ins. Co. v. Enright, 781
N.E.2d 394, 398-400 (Ill. App. Ct. 2002).
Nautilus named as defendants in its declaratory action
ACS, the numerous small corporations that submitted
claims to Nautilus for defense and indemnification, and
the individual plaintiffs who had filed lawsuits against
ACS and the small corporations, including David
Reuter, individually and as a representative of the Estate
of Shirley Reuter, and Justin Chretien. Shirley Reuter,
David Reuter’s mother, was murdered by a door-to-door
salesman in her New Jersey home, and Justin Chretien
was assaulted by a salesman in Virginia. In their respec-
tive lawsuits, David Reuter sued ACS and the small
corporations Phoenix Imagery and G.O. Innovators;
Chretien sued ACS and the small corporation Unified
Stars.
The parties engaged in extensive discovery, which
included document production, interrogatories, deposi-
tions, and declarations. The gathered evidence—which
will be discussed more thoroughly below as it relates to
the choice-of-law analysis—showed that the states of
Illinois and Indiana both have contacts with the insur-
ance contracts.
Following cross-motions for summary judgment, the
district court granted summary judgment in favor of
Nos. 06-4019 & 07-1400 5
Nautilus. It concluded that Indiana law applied to the
insurance policies and consequently, that Nautilus had
no duty to defend or indemnify ACS or the small corpora-
tions in the civil lawsuits. The district court observed
that ACS is an Indiana corporation with its principal
place of business in Indiana. It labeled all of the small
corporations “Shell Corporations” of ACS, and found
that each had an Indiana registered agent. The court also
relied on the fact that ACS procured the insurance policies
for the small corporations from its base in Michigan City,
Indiana. On these facts, the district court decided: “All
of that is enough to get this court to the substantive law
of Indiana with regard to the key question about the
contents of the insurance contract here.”
II. ANALYSIS
Neither ACS, nor any of the small corporations, ap-
pealed from the judgment. Of the individually named
defendants, only Reuter and Chretien have appealed.
Reuter and Chretien have a strong pragmatic interest in
the application of Illinois law—so the insurer (with its
deep pockets) may be liable for costs attributable to the
allegedly negligent small companies (with their very
shallow pockets).1
1
Nautilus’s declaratory-relief action named numerous small
corporations as defendants. However, because Reuter and
Chretien are the only parties appealing the district court’s
decision, the only small corporations relevant to this appeal
are those implicated by Reuter’s and Chretien’s underlying
lawsuits: Phoenix Imagery, G.O. Innovators, and Unified
(continued...)
6 Nos. 06-4019 & 07-1400
Reuter and Chretien argue that the district court improp-
erly pierced ACS’s corporate veil by concluding that the
small corporations were “shells” of ACS, and that the
district court erred by deciding that the substantive law
of Indiana, and not Illinois, governed the construction of
the insurance policies. Reuter and Chretien contend that
Illinois law should have applied because Illinois had the
most intimate contacts with the insurance contracts. See
Restatement (Second) of Conflicts § 188 (1971). Reuter
and Chretien claim that the district court erred by
granting summary judgment in favor of Nautilus as a
result of its erroneous choice of law. Nautilus continues
to use the “shell” terminology for the small corporations,
and insists that the district court correctly applied Indi-
ana law to the insurance policies.
The selection of one state’s substantive law over another
in the event of a conflict presents a question of law that
is decided by the court. Gramercy Mills, Inc. v. Wolens, 63
F.3d 569, 571 (7th Cir. 1995). We review that selection de
novo. Tanner v. Jupiter Realty Corp., 433 F.3d 913, 915 (7th
Cir. 2006). The district court, sitting in diversity, used
(...continued)
Stars. Even though Reuter and Chretien are not parties to the
insurance contracts at issue, they have standing to appeal
because they were named defendants in the district court
action. See Essex Ins. Co. v. Kasten Railcar Servs., Inc., 129 F.3d
947, 948 (7th Cir. 1997). However, their standing is limited to
the extent that the district court decision harmed them, that is,
to the extent that it involves the corporations against whom
Reuter and Chretien brought lawsuits. See Chase Manhattan
Mortgage Corp. v. Moore, 446 F.3d 725, 727 (7th Cir. 2006) (ex-
plaining that if an appellant is not harmed by a judgment,
he lacks standing to appeal).
Nos. 06-4019 & 07-1400 7
Indiana choice-of-law principles to determine “which
state’s substantive law governs the proceeding.” Id.; see
also Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496
(1941). “Indiana’s choice of law rule for contract actions
calls for applying the law of the forum with the most
intimate contacts to the facts.” Employers Ins. of Wausau v.
Recticel Foam Corp., 716 N.E.2d 1015, 1024 (Ind. Ct. App.
1999). This approach is embodied in the Restatement
(Second) of Conflicts, id., and calls for consideration of the
following factors: “(a) the place of contracting; (b) the
place of contract negotiation; (c) the place of performance;
(d) the location of the subject matter of the contract; and
(e) the domicile, residence, nationality, place of incorpora-
tion, and place of business of the parties,” id. (citing Eby
v. York-Division, Borg-Warner, 455 N.E.2d 623, 626
(Ind. Ct. App. 1983)); Restatement (Second) of Conflicts
§ 188 (1971).
In its choice-of-law analysis, the district court noted that
ACS is an Indiana corporation with its principal place of
business in Michigan City, Indiana. It then stated that
“most of the remaining defendants are so-called Shell
Corporations with an Indiana registered agent.” A shell
corporation is “ ‘a company that is incorporated, but has no
significant assets or operations.’ ” Shell (corporation)
Wikipedia Entry, http://en.wikipedia.org/wiki/
Shell_(corporation) (last visited June 26, 2008) (quoting
Barron’s Finance & Investment Handbook); see also Guid-
ance Memorandum from the Department of the Treasury,
Financial Crimes Enforcement Network 1 (Nov. 9,
2006), available at http://www.fincen.gov/statutes_regs/
guidance/pdf/AdvisoryOnShells_FINAL.pdf (stating
that shell companies “typically have no physical presence
(other than a mailing address) and generate little or no
8 Nos. 06-4019 & 07-1400
independent economic value”). Shell companies are not
in themselves illegal, see Guidance Memorandum, supra, at
1-2, but may be used by another corporation or entity to
advance fraud by way of the shell’s “front.” See HOK Sport,
Inc. v. FC Des Moines, L.C., 495 F.3d 927, 936 (8th Cir. 2007)
(“[P]iercing the corporate veil is appropriate if the corpora-
tion is a mere shell, serving no legitimate business pur-
pose, and used primarily as an intermediary to perpetuate
fraud or promote injustice.” (internal quotation omitted)).
The district court apparently assumed the small corpora-
tions were shells. Because there was no analysis in the
district court opinion to support the statement that the
small corporations were shells, we do not read the
court’s invocation of the “shell” terminology to be a
factual finding that the corporations existed as shams,
solely to facilitate ACS’s alleged fraud. The district court’s
dismissal of the plaintiff’s rescission claims as moot
supports our conclusion that the district court made no
finding of fact about the legitimacy of the small corpora-
tions. Had the court actually concluded that the small
corporations were shams that existed solely to further
ACS’s fraud, then Nautilus would have been granted
rescission of the insurance policies under either Illinois
or Indiana law. See Va. Sur. Co., Inc. v. Bill’s Builders, Inc.,
865 N.E.2d 985, 992 (Ill. App. Ct. 2007); Jesse v. Am. Cmty.
Mut. Ins. Co., 725 N.E.2d 420, 424-25 (Ind. Ct. App. 2000).
On the record before us, it is not clear that the small
corporations were illegitimate, sham corporations under
either Indiana law or Illinois law. Although it is evident
that the small corporations operated to the benefit of ACS,
that fact alone does not render the corporations alter egos
of one another. In fact, the record contains evidence that
the small corporations maintained operations independ-
Nos. 06-4019 & 07-1400 9
ent from their dealings with ACS. The Independent
Contractor agreements between the small corporations
and ACS provide that the small corporations are free to
work with other magazine clearinghouses. Lynne Harvey,
the President of Phoenix Imagery, attested that she was
not an employee of ACS, and that she alone controlled
the operations of Phoenix. She explained that Phoenix
reimbursed ACS for its insurance premiums, and that
Phoenix’s principal place of business was in Crete, Illinois.
Additionally, ACS denied that it operated as a single
business enterprise with the small corporations.
On the other hand, there is evidence in the record that
supports Nautilus’s shell theory. The address provided
by Lynne Harvey for Phoenix’s principal place of busi-
ness is actually the residential address of ACS’s founders.
Phone numbers listed for some of the small corporations
overlap with phone numbers for ACS. ACS personnel
are listed as contact persons for some of the small corpora-
tions in insurance documents and marketing materials.
Additionally, the record is devoid of Independent Con-
tractor agreements between G.O. Innovators and ACS,
and between Unified Stars and ACS, and neither of
those two small corporations responded to Nautilus’s
discovery requests.
With the conflicting evidence regarding the nature of the
small corporations, we are not comfortable piercing ACS’s
corporate veil and declaring the small corporations to be
“shells” that existed solely to allow ACS to perpetrate
insurance fraud. To resolve that conflict at this
point—where there are factual disputes surrounding the
nature of the small corporations and their relationships
with ACS—would effectively relieve Nautilus of its
burden (under either Illinois law, see Pederson v. Paragon
10 Nos. 06-4019 & 07-1400
Pool Enters., 574 N.E.2d 165, 167 (Ill. App. Ct. 1991), or
Indiana law, see Cmty. Care Centers, Inc. v. Hamilton, 774
N.E.2d 559, 564-65 (Ind. Ct. App. 2002)) of proving that
the small corporations and ACS were alter egos of one
another, and that they should be treated as the same
entity for all purposes, including for choice-of-law deter-
minations surrounding insurance policies.
One of the factual disputes at the heart of Nautilus’s
“shell” argument mirrors the dispute at the heart of the
choice-of-law determination—that is, whether the
small corporations’ principal places of business are in
Indiana, or alternatively, in Illinois. The first four factors
outlined in § 188 of the Restatement (Second) of Conflicts
do not conclusively call for application of the substan-
tive law of either Indiana or Illinois, so the domicile,
residence, nationality, place of incorporation and place
of business of the parties is particularly important. See
Restatement (Second) of Conflicts § 188. We turn now to
the Restatement factors to decide whether Indiana had the
most intimate contacts to the facts of the insurance con-
tracts with each of the three small corporations.
A. Place of contracting
The comment to § 188 instructs that the place of con-
tracting is “the place where occurred the last act neces-
sary, under the forum’s rules of offer and acceptance, to
give the contract binding effect . . . .” Restatement (Second)
Conflicts § 188 cmt. e. The place of contracting, standing
alone, is often insignificant. Id. In several recent Indiana
cases dealing with contractual negotiations between
insureds, their agents, and insurers in different states, the
place of contracting was deemed “indeterminate” by the
Nos. 06-4019 & 07-1400 11
Indiana Court of Appeals. See Am. Employers Ins. Co. v.
Coachmen Indus., Inc., 838 N.E.2d 1172, 1178-79 (Ind. Ct.
App. 2005); Recticel, 716 N.E.2d at 1023; Travelers Indem. Co.
v. Summit Corp. of Am., 715 N.E.2d 926, 932 (Ind. Ct. App.
1999); Hartford Accident & Indem. Co. v. Dana Corp., 690
N.E.2d 285, 293 (Ind. Ct. App. 1997). In Recticel, the insured
sometimes listed its address in Indiana, and other times
in New York, but the insured “managed its insurance
affairs” in Indiana. Even so, the Indiana Court of Appeals
decided that the place of contracting was “not deter-
minative.” 716 N.E.2d at 1023.
From the testimony of Tina Green, ACS’s office manager,
it appears that ACS initially procured the insurance
policies on behalf of the affiliated small corporations,
from its location in Indiana. Thereafter, ACS charged the
cost of the insurance to the small corporations’ accounts
with ACS. Lynne Harvey, of Phoenix Imagery, confirms
that she “reimbursed” ACS for the cost of Phoenix’s
insurance premium.
The insurance agent with whom ACS communicated,
John Damiani, worked for Sun Insurance in New Jersey.
The policies were ordered from and underwritten by
Jimcor, a Pennsylvania insurance agency. The ultimate
insurer, Nautilus, is incorporated in Arizona, and has its
principal place of business there. The policies were
stamped by the Illinois Department of Insurance, in
accordance with Section 445 of the Illinois Insurance Code,
which outlines the requirement for “surplus line insur-
ance” that insures an “Illinois risk.” 215 Ill. Comp. Stat.
5/445. Illinois law provides that it is “unlawful for an
insurance producer to deliver any unauthorized insurer
contract unless such insurance contract is countersigned
by the Surplus Line Association of Illinois.”
12 Nos. 06-4019 & 07-1400
With all of the different parties involved in these particu-
lar insurance contracts—ACS, Sun Insurance, Jimcor,
Nautilus, the small corporations, and the Illinois Depart-
ment of Insurance—it is impossible to pinpoint the place
of contracting. Under Illinois law, the contract could not
be delivered, and thus could not come into effect, until it
was approved by the Surplus Line Association of the
state. That fact weighs in favor of applying Illinois law
to the contracts. On the other hand, the Indiana Court of
Appeals has downplayed the significance of counter-
signatures that are required by state law as indicators of
the place of contracting—at least where the countersigna-
tures are of the insurer’s registered agent. See Dana Corp.,
690 N.E.2d at 293. Like the Indiana Court of Appeals in
Coachmen, “we cannot conclusively point to [Illinois or
Indiana] as being the state where ‘the last act necessary’ to
give the contract binding effect occurred . . . .” Coachmen,
838 N.E.2d at 1179. So we conclude that this factor is not
determinative.
B. Place of negotiation of contract
Normally, the place of a contract’s negotiation is a
“significant contact.” Restatement (Second) of Conflicts
§ 188 cmt. e. The state where contract negotiations occur
has an interest in the legality of the negotiations them-
selves, as well as the ultimate agreement. See id. However,
“[t]his contact is of less importance when there is no one
single place of negotiation and agreement, as for example,
when the parties do not meet but rather conduct their
negotiations from separate states by mail or telephone.” Id.
The testimony of ACS’s office manager confirms that
ACS negotiated for the insurance policies on behalf of
Nos. 06-4019 & 07-1400 13
the small corporations. Those negotiations took place by
phone, between an ACS employee in Indiana, and John
Damiani, at Sun Insurance in New Jersey. In turn, Damiani
worked with Jimcor, the Pennsylvania Insurance
agency—the communications between Damiani and Jimcor
seemed to have occurred by fax and e-mail. In Coachmen,
the Indiana Court of Appeals noted that because some of
the negotiations were done by mail, fax, or phone be-
tween individuals in different states, “there [was] not a
single place of negotiation.” Id. The court could not say
the place of negotiation was conclusive, and found the
factor indeterminate. Id. Likewise, we cannot identify a
particular place of negotiation because the evidence
shows that parts of the negotiations took place in Indiana,
New Jersey, and Pennsylvania. Notably, none of the
negotiations took place in Illinois.
C. Place of performance
The place of performance “is the location where the
insurance funds will be put to use.” Id. at 1180. If a con-
tract is to be performed in a particular state, that state
has “an obvious interest in the nature of the performance
and in the party who is to perform.” Restatement (Second)
of Conflicts § 188 cmt. e. However, the place of perfor-
mance will not significantly affect the choice-of-law
analysis when “(1) at the time of contracting it is either
uncertain or unknown, or when (2) performance by a
party is to be divided more or less equally among two or
more states with different local law rules on the particular
issue.” Id. The “performance” at issue in these insurance
contracts is the insurance of a corporation that sells maga-
zines door-to-door in numerous states. The actual incidents
for which the small corporations submitted claims to
14 Nos. 06-4019 & 07-1400
Nautilus occurred in New Jersey and Virginia. At the
time of contracting, the specific states from which in-
surance claims would arise was not known, so, this
factor also is indeterminate of which state’s law to
apply. See id.
D. Location of the subject matter
The subject matter of the insurance policies at issue is not
a tangible object, the location of which could be limited
to one state. However, it should be noted that the insurer’s
compliance with requirements with Illinois law for pro-
viding surplus line insurance indicates that Nautilus,
through Jimcor, intended to insure risks located, to some
extent, in Illinois.
Additionally, the insurance policies themselves sug-
gest that Nautilus committed to insuring risks in Illinois.
The policies for each corporation identify the name and
address of the insured. The policy period is listed, and is
followed by the phrase “at your mailing address shown
above.” The addresses shown above are Illinois addresses.
Further, the policies ask for the “location of all premises
you own, rent, or occupy,” and the policies state, “same
as mailing address,” again, all of which are listed in
Illinois.
Nautilus argues that the Illinois addresses are shams, and
that it would not have insured the small corporations
had it known the truth about their relationships with
ACS. This contention brings us to the next § 188 fac-
tor—if the small corporations are truly Indiana corpora-
tions, then Indiana law should apply. If, on the other hand,
they are Illinois corporations, then Illinois law should
apply.
Nos. 06-4019 & 07-1400 15
E. Domicile, residence, nationality, place of incorporation and
place of business of the parties
Because the first four factors are so inconclusive, this
factor becomes pivotal. All of the insureds—Phoenix
Imagery, G.O. Innovators, and Unified Stars—are incorpo-
rated in the state of Indiana. However, “[a]t least with
respect to most issues, a corporation’s principal place of
business is a more important contact than the place of
incorporation, and this is particularly true in situations
where the corporation does little, or no, business in the
latter state.” Restatement (Second) of Conflicts § 188 cmt. e.
ACS, the additional insured on each of the policies, has its
primary place of business in Indiana. The determination
of the primary places of business for the three small
corporations is more difficult.
Lynn Harvey, President of Phoenix Imagery, stated in a
declaration that the principal place of business for the
corporation from the date of its formation until June 2004,
was in Crete, Illinois. However, the address she provided
for Phoenix’s principal place of business is that of the
residential home of ACS’s founders, in Crete. The phone
number Phoenix Imagery provides to customers is the
Indiana number for ACS. These pieces of evidence to-
gether are suspicious—does Harvey work out of somebody
else’s home? Is Phoenix Imagery truly a separate entity
from ACS? Harvey’s declarations that she is the sole
decision-maker and manager of Phoenix, and that
Phoenix Imagery’s principal place of business is in
Illinois, appear to conflict with other evidence sug-
gesting that Phoenix is, in fact, an alter ego “shell” of ACS,
operating out of Indiana. By failing to respond to Nauti-
lus’s requests for admission, Phoenix Imagery admitted
(via Fed. R. Civ. P. 36) to using the mailing address for
16 Nos. 06-4019 & 07-1400
ACS, in Indiana; obtaining its insurance through its
contacts with ACS; allowing ACS to “terminate” its
salespersons in the event of complaints of misconduct
from customers; accepting advisement from ACS relating
to the accounting, record keeping, and management of its
business; and allowing its employees to wear ACS iden-
tification badges when selling magazines door-to-door.
Ultimately, we cannot tell from the evidence whether
Phoenix Imagery principally operates out of Illinois, or
whether the corporation is a shell of ACS. Its links with
Illinois are established by its President’s declaration and
by its Independent Contractor agreement with ACS. But
that evidence is weakened by other evidence that sug-
gests the small corporation is not an independent entity
and that its business address in Crete, Illinois, is a sham.
As for G.O. Innovators and Unified Stars, these two small
corporations did not respond to Nautilus’s complaint—
they failed to file answers or to otherwise defend against
the lawsuit. The record does not contain Independent
Contractor agreements between ACS and these corpora-
tions (as it does for Phoenix Imagery), which would
have been useful for identifying the corporations’ prin-
cipal places of business. All we know about G.O. Innova-
tors and Unified Stars with respect to this factor of § 188
is that they are both incorporated in Indiana and
have registered agents in Indiana, but they listed their
addresses on the insurance-policy materials in Illinois.
These small corporations may have operated out of
Illinois, but they also may have operated out of Indiana.
The only definite evidence linking them to Illinois appears
in their insurance materials. For the purposes of this § 188
factor, the scale tips in favor of applying Indiana law,
because G.O. Innovators and Unified Stars are incorporated
in Indiana.
Nos. 06-4019 & 07-1400 17
F. Choice of law determination
After considering the various Restatement factors, we
find that “none of the § 188 factors is compelling or con-
clusive.” Coachmen, 838 N.E.2d at 1181. So, we will con-
sider the “overall number and quality of contacts,” id., to
decide whether we agree that the district court should
have applied Indiana law to the insurance policies. The
first factor—place of contracting—while not determinative,
involved the states of Indiana (ACS), New Jersey (Sun
Insurance), Pennsylvania (Jimcor), and Illinois (Illinois
Department of Insurance). The negotiations for the
contracts—factor two—took place over the phone and
through other means of long-distance communication,
between the parties in Indiana, New Jersey, and Pennsylva-
nia. The place of performance was unknown at the time
of contracting because the magazine-sales corporations
conducted their business in various states. The fourth
factor—location of the subject matter—tips the analysis
slightly in favor of the application of Illinois law, because
the insurance policies indicate that they are for a certain
time period, “at” the specified locations in Illinois. Addi-
tionally, Jimcor referred to the policies as “IL policies” in
some of its communications, which indicates an intention
to insure risks in Illinois. Finally, under the fifth factor, we
identified a factual dispute about Phoenix Imagery’s
principal place of business; we could not determine the
principal places of business of G.O. Innovators and
Unified Stars, both of which are incorporated in Indiana.
The fact that we know nothing about the principal
places of business of G.O. Innovators and Unified Stars
makes it difficult for us to conclude that anything other
than Indiana law applies to their insurance policies. What
we know about these two corporations ties them to
18 Nos. 06-4019 & 07-1400
Indiana—except for the Illinois addresses that were used
on the insurance applications, which are not corroborated
by any other documentation or evidence. They are incorpo-
rated in Indiana and ACS procured the insurance con-
tracts on their behalf from its base in Indiana. If we were to
apply Illinois law for the insurance policies involving
these two corporations, we would effectively replace
the multi-factor approach outlined in § 188 with a single-
factor determination by which the law of the state identi-
fied on the insurance policy would automatically govern a
contract dispute, absent a choice-of-law provision. We
agree with the district court that, based on the factors
enunciated in § 188, the state of Indiana had the most
intimate contacts with the insurance policies of G.O.
Innovators and Unified Stars. And, the district court
correctly interpreted Indiana law to preclude coverage
under the CGL insurance policies for claims of negligent
hiring, see Am. Painting Co., 678 N.E.2d at 846. Sum-
mary judgment in favor of G.O. Innovators and Unified
Stars was proper.
With respect to Phoenix Imagery, on the other hand,
there is evidence suggesting that the small corporation
might be legitimate, and that it might have its principal
place of business in Illinois. Though, conflicting evidence
calls into question the truthfulness of Lynne Harvey’s
declaration to that effect. We, as an appellate court, cannot
resolve this factual dispute. Because the district court
decides as a preliminary matter which substantive law
to apply, see Gramercy Mills, Inc., 63 F.3d at 570, we are of
the opinion that the district court must also resolve
factual disputes that bear on the choice-of-law determina-
tion. See Vaz Borralho v. Keydril Co., 696 F.2d 379, 386 (5th
Cir. 1983) (upholding judicial resolution of facts affecting
Nos. 06-4019 & 07-1400 19
choice-of-law determination); but cf. Marra v. Bushee, 447
F.2d 1282, 1284-85 (2nd Cir. 1971) (deciding that resolution
of factual issues bearing on choice-of-law determination
belonged to jury). In this case, the district court needs to
decide whether Phoenix Imagery is a legitimate corpora-
tion operating out of Illinois—if it is, then Illinois law
should govern its insurance policies. The most direct
way to make such a determination would be for the dis-
trict court to hold an evidentiary hearing to assess the
veracity of Lynne Harvey’s statements.
It might seem odd to charge the district court with
resolving a factual dispute that could affect the rights and
liabilities of the litigants—such disputes are ordinarily
within the province of the jury. But, presenting the choice-
of-law factual issue to a jury in this instance is even more
problematic. As we pointed out in Gramercy Mills, “it
would make little sense to let a jury decide which facts
are true and then to say that there was never a dispute to
begin with.” Id. And, as we noted recently in Pavey v.
Conley, 528 F.3d 494, 496-97 (7th Cir. 2008), “not every
factual issue that arises in the course of a litigation is
triable to a jury as a matter of right.” We explained that
matters of subject-matter jurisdiction, personal juris-
diction, venue, and abstention are often decided by the
judge “even if there are contestable factual questions
bearing on the decision.” Id.
Without knowing which state’s substantive law governs
this dispute, the case cannot move forward. But without
resolving the contested issues of Phoenix’s corporate
status and its principal place of business, the choice-of-law
determination cannot be made. Thus, we vacate in part
and remand for the district court to make factual findings
about Phoenix Imagery, and then to reconsider the choice-
of-law analysis based on the results of its inquiry.
20 Nos. 06-4019 & 07-1400
III. CONCLUSION
For the foregoing reasons, we AFFIRM in part and VACATE
in part the district court’s judgment, and REMAND for
further proceedings.
8-8-08