Ruhlin v. New York Life Insurance
58 S. Ct. 860, 1938 U.S. LEXIS 1023, 304 U.S. 202 (1938)
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Rule of Law:
Under the doctrine of Erie R. Co. v. Tompkins, federal courts sitting in diversity jurisdiction must apply the substantive law of the state, including state court decisions, to resolve issues of contract interpretation, as there is no longer a 'general federal common law' for such matters.
Facts:
- On December 1, 1928, New York Life Insurance Company issued two life insurance policies to John G. Ruhlin.
- On July 7, 1930, the company issued three additional policies to Ruhlin.
- All five policies included provisions for disability and double indemnity benefits and contained an incontestability clause, which stated the policy was incontestable after two years 'except as to provisions and conditions relating to Disability and Double Indemnity Benefits'.
- New York Life later alleged that Ruhlin made false and fraudulent statements in his insurance applications.
- On November 1, 1934, more than two years after the issuance of all policies, Ruhlin submitted a claim for total and permanent disability benefits under each of the five policies.
Procedural Posture:
- New York Life Insurance Company filed a complaint in the U.S. District Court for the Western District of Pennsylvania seeking to rescind disability and double indemnity provisions in John G. Ruhlin's insurance policies.
- Ruhlin filed a motion to dismiss the complaint, arguing the suit was barred by the policies' incontestability clauses.
- The District Court denied the motion to dismiss.
- Ruhlin (appellant) appealed the District Court's order to the U.S. Circuit Court of Appeals for the Third Circuit.
- The Circuit Court of Appeals affirmed the District Court's decision.
- Ruhlin (petitioner) sought and was granted a writ of certiorari from the U.S. Supreme Court due to a conflict among the circuit courts on the interpretation of the incontestability clause.
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Issue:
In a diversity case concerning the interpretation of an insurance contract, must a federal court apply the substantive law of the state as declared by its courts, rather than a general federal common law?
Opinions:
Majority - Mr. Justice Reed
Yes. Federal courts hearing cases in diversity must apply the substantive law of the state where they sit, which includes state court decisions, rather than any general federal common law. The recent decision in Erie R. Co. v. Tompkins definitively settled that there is no federal general common law, and this principle governs the interpretation of insurance contracts. The prior practice of federal courts exercising independent judgment on matters of 'general commercial law' is no longer valid. Because the lower courts decided this case under the assumption that federal law applied, the correct remedy is to vacate their judgment and remand the case for a determination based on the applicable principles of state law.
Analysis:
This case is a direct and immediate application of the landmark decision in Erie R. Co. v. Tompkins, which was decided in the same term. It unequivocally extends the Erie doctrine to matters of contract interpretation, an area previously governed by 'general federal common law' under the Swift v. Tyson regime. The decision solidifies the principle that the outcome of a diversity case should not differ simply because it is heard in federal rather than state court. It also altered the Supreme Court's own certiorari criteria, clarifying that a conflict between federal circuits on a matter of state law is not, by itself, a reason to grant review.
