Opinion
Cause No. IP97-1807-C-T/G.
June 6, 2000.
John B McCabe Clausen Miller Pc 10 South Lasalle Street Chicago, IL 60603-1098
Richard Norris Norris Choplin Schroeder 9th Floor 101 West Ohio Street Indianapolis, IN 46204
Donald L Dawson Kightlinger Gray Market Square Center, Suite 660 151 North Delaware Street Indianapolis, IN 46204
David T Kasper Locke Reynolds Boyd Weisell 1000 Capital Center South 201 North Illinois Street Indianapolis, IN 46204
William H Kelley Kelley Belcher Brown 301 West 7th St. Box 3250 Bloomington, IN 47402-3250
Jim A O'Neal Ice Miller Donadio Ryan One American Square Box 82001 Indianapolis, IN 46282-0002
ENTRY DISCUSSING NATIONAL UNION'S MOTION TO RECONSIDER AND MOTION FOR CERTIFICATION TO INDIANA SUPREME COURT
The Court issued its Entry Discussing Pending Motions ("May 18 Entry"), wherein the court granted a motion for summary judgment in favor of Third-Party Plaintiffs Elkins Constructors, Inc. ("Elkins") and Sweet Company, Inc. ("Sweet") on the issue of whether Third-Party Defendant National Union Fire Insurance Co. of Pennsylvania ("National Union") has a duty to defend Elkins and Sweet in this case's primary action. National Union moves the court to reconsider this ruling, arguing that it is based almost exclusively upon a misinterpretation of the following statement by the Indiana Supreme Court in Transamerica Insurance Services v. Kopko, 570 N.E.2d 1283, 1285 (Ind. 1991): "The duty to defend is determined solely by the nature of the complaint." National Union also moves the court to certify the following question to the Indiana Supreme Court: "May an insurer go beyond the face of the complaint against the insured and refuse to defend based on the factual underpinnings of the claim, and may a court, in determining the insurer's duty to defend, consider such factual underpinnings which go beyond the face of the complaint?" (Mot. for Certification to Ind. Supreme Ct. at 3.)
Briefly, the court will recount the pertinent facts. Tree of Life, Inc. ("Tree of Life") hired Elkins to expand an existing warehouse in Bloomington, Indiana. Elkins and Sweet were joint venturers on the project. In the primary action, Travelers Casualty Surety Company, f/k/a Aetna Casualty Surety Company ("Travelers") alleges that its subrogee, Tree of Life, sustained water damage to inventory as a result of the acts and/or omissions of Elkins' employees and/or its subcontractors. Specifically, Travelers alleges that the damage was caused when a sprinkler pipe in the Tree of Life warehouse, which had been left unprotected and unsupported, was broken by a mechanical lift that came into contact with the pipe.
In the May 18 Entry, the court found that National Union has a duty to defend Elkins and Sweet because a National Union policy, issued to the parent corporation of the sprinkler subcontractor on the Tree of Life project, provides coverage to Elkins and Sweet as "additional insureds" for the damage caused by the burst sprinkler pipe. In reaching this conclusion, the court relied solely upon the allegations in Travelers' First Amended Complaint (including the facts alleged therein). National Union now argues that if the court looked beyond the allegations of the First Amended Complaint, and considered the evidence National Union submitted in opposition to Elkins and Sweet's summary judgment motion, the court would find that the National Union policy at issue does not provide coverage to Elkins and Sweet and would therefore find that National Union does not have a duty to defend Travelers.
In deciding that it should rely solely upon the allegations of Travelers' First Amended Complaint (rather than upon the National Union's evidentiary materials), the May 18 Entry explained:
[U]nder the relevant Indiana law, this court determines the duty to defend solely from the allegations of the underlying complaint. See Transamerica Ins. Servs. v. Kopko, 570 N.E.2d 1283, 1285 (Ind. 1991); see also Huntzinger v. Hastings Mut. Ins. Co., 143 F.3d 302, 309 n. 8 (7th Cir. 1998) (noting that while the Indiana Court of Appeals has not always been consistent in its adherence to Kopko — by sometimes holding that the duty to defend may also be determined from factual submissions that go beyond the allegations of the complaint — a federal court interpreting Indiana law is nonetheless bound by the doctrine set forth by the Indiana Supreme Court in Kopko) (citing, inter alia, Fidelity Guar. Ins. Underwriters, Inc. v. Everett I. Brown Co., 25 F.3d 484, 489-90 (7th Cir. 1994)); Federal Ins. Co. v. Stroh Brewing Co., 127 F.3d 563, 566 (7th Cir. 1997) ("While Indiana's courts may use differing language to describe the standard, we believe there is essentially only one standard — that the allegations of the complaint, including the facts alleged, give rise to a duty to defend whenever, if proved true, coverage would attach."). Therefore, in deciding whether the facts of the underlying case give rise to a duty to defend, the court will not consider the parties' evidentiary submissions, but will rely upon the allegations of Travelers' First Amended Complaint.
(May 18 Entry at 10-11 (emphasis in original).) Also, a footnote contemporaneous with this discussion elaborated:
National Union cites to Monroe Guaranty Insurance Co. v. Monroe, 677 N.E.2d 620, 624 (Ind.Ct.App. 1997), for the proposition that factual submissions beyond the allegations of the complaint may be examined in determining an insurance company's duty to defend. However, the Seventh Circuit in Huntzinger expressly rejected Monroe in holding "that `[t]he duty to defend is determined solely by the nature of the complaint,' as opposed to the facts of the underlying suit." 143 F.3d at 309 n. 8 (quoting Kopko, 570 N.E.2d at 1285). The Seventh Circuit stated:
In Fidelity Guar. Ins. Underwriters, Inc. v. Everett I. Brown Co., 25 F.3d 484, 489-90 (7th Cir. 1994), we opined that the Indiana Supreme Court's holding in Kopko (i.e., that `[t]he duty to defend is determined solely by the nature of the complaint,' as opposed to the facts of the underlying suit) `appears to be a dramatic departure from prior cases decided by the Indiana Court of Appeals,' and went on to note that Trisler v. Indiana Ins. Co., 575 N.E.2d 1021 (Ind.Ct.App. 1991), an Indiana Court of Appeals opinion issued after Kopko, was inconsistent with Kopko. Notwithstanding the inconsistency, we explained that this Court was `bound to rely on the [Kopko] decision of the Indiana Supreme Court.' Everett, 25 F.3d at 490. While the Indiana Court of Appeals has not been as consistent in its adherence to Kopko since our decision in Everett, see Indiana Farmers Mut. Ins. Co. v. Ellison, 679 N.E.2d 1378, 1382 (Ind.Ct.App. 1997) (`The duty to defend is determined from the allegations of the complaint and from the facts known or ascertainable by the insurer after an investigation has been made.'); Wayne Township Bd. of Sch. Comm'rs v. Indiana Ins. Co., 650 N.E.2d 1205, 1208 (Ind.Ct.App. 1995) (citation omitted) (`The insurer may go beyond the face of the complaint and refuse to defend based upon the factual underpinnings of the claims against its insured.'); see also Monroe Guar. Ins. Co. v. Monroe, 677 N.E.2d 620, 624 (Ind.Ct.App. 1997) (citations omitted) (noting `most recent cases ignore or do not discuss Kopko'), it is not within our province as a reviewing federal appellate court to make federal law, much less state law. We, therefore, continue to be bound by the doctrine set forth in Kopko. Id.
(May 18 Entry at 10-11 n. 8.)
National Union now argues that in Kopko (when the Indiana Supreme Court stated, "The duty to defend is determined solely by the nature of the complaint," 570 N.E.2d at 1285 (emphasis added)), the court "inadvertently substituted" the word "complaint" for the word "claim". (Br. in Supp. of National Union's Mot. to Reconsider at 8-9.) National Union arrives at this conclusion because after making this statement, the Kopko court cited to Cincinnati Insurance Co. v. Mallon, 409 N.E.2d 1100 (Ind.Ct.App. 1980). In Mallon, the court stated that "[t]he insurance company may go beyond the face of the complaint, and refuse to defend based upon the factual underpinnings of the claim." Id. at 1105 (citing U.S. Fidelity Guaranty Co. v. Baugh, 146 Ind. App. 583, 257 N.E.2d 699 (1970)). The Mallon court then stated:
This view does not relieve the insurance company of its contractual duty to defend unfounded, false or fraudulent suits based upon risks it has insured. Its duty to defend is still broader than its coverage liability. But when the underlying factual basis of the complaint, even if proved true, would not result in liability under the insurance policy, the insurance company can properly refuse to defend. In other words, it is the nature of the claim and not its merits that determines the duty to defend.Id. (citations omitted). National Union interprets the above-quoted language in Mallon to mean that while the "nature of the claim" determines the duty to defend, an insurer may determine the "nature of the claim" by going "beyond the face of the complaint."
Therefore, National Union argues, when the Kopko court said, "[t]he duty to defend is determined solely by the nature of the complaint," 570 N.E.2d at 1285 (emphasis added)), and then cited to Mallon, the Indiana Supreme Court must have meant to say that `the duty to defend is determined solely by the nature of the claim.'
In further support of its argument, National Union points to three Indiana Court of Appeals cases, Wayne Township Bd. of Sch. Comm'rs v. Indiana Ins. Co., 650 N.E.2d 1205, 1208 (Ind.Ct.App. 1995), Terre Haute First Nat'l Bank v. Pacific Employers Ins. Co., 634 N.E.2d 1336, 1339 (Ind.Ct.App. 1993); and, Trisler v. Indiana Ins. Co., 575 N.E.2d 1021, 1023 (Ind.Ct.App. 1991), which each indicate that "in evaluating the factual basis of a claim and the insurer's concomitant duty to defend, this court may properly consider the evidentiary materials offered by the parties to show coverage."
Wayne Township Bd. of Sch. Comm'rs, 650 N.E.2d at 1208 (citing Terre Haute First Nat'l Bank, Trisler, and Mallon). In addition, National Union points to Colip v. Clare, 26 F.3d 712 (7th Cir. 1994), wherein the court stated that "under Indiana law, `in determining whether it has a duty to defend on behalf of an insured, an insurance company may go beyond the face of the complaint and refuse to defend based upon the factual underpinnings of the claim.'" Id. at 716 (quoting Southbend Escan Corp. v. Federal Ins. Co., 647 F. Supp. 962, 966-67 (N.D.Ind. 1986) (citing, inter alia, Mallon)).
None of these cases make any reference to Kopko.
Finally, National Union cites to an unpublished two-page order issued by Chief Judge Barker, stating that an insurer may undertake discovery to determine the factual underpinnings of the plaintiff's claim, "[u]nder the authority of Colip v. Clare." Heritage Mut. Ins. Co. v. Advanced Polymer Tech., Inc., No. IP 96-0542-C-B/S, slip op. at 2 (S.D.Ind. Feb. 14, 1997). In light of this caselaw, National Union argues that the two Seventh Circuit cases cited by this court in the May 18 Entry, Huntzinger and Brown, mistakenly interpret Kopko, and "[a]side from Huntzinger and Brown, the whole of Indiana law is consistent . . . — an insurer may go beyond the face of the complaint." (Br. in Supp. of National Union's Mot. to Reconsider at 9-10.)
On the basis of the above argument and caselaw, National Union urges this court to reconsider the May 18 Entry by looking beyond the allegations of Travelers' First Amended Complaint and considering National Union's evidentiary submissions while determining National Union's duty to defend. Although National Union's argument is logical (if not correct), the Seventh Circuit has already considered this issue on multiple occasions. First, in Brown, the court stated:
In what appears to be a dramatic departure from prior cases decided by the Indiana Court of Appeals, the Indiana Supreme Court held in Kopko that an insurance company's `duty to defend is determined solely by the nature of the complaint. . . .
The Brown Company does alert us to two troubling aspects arising from the Kopko decision. First, the Indiana Supreme Court cites Cincinnati Ins. Co. v. Mallon, . . . for the proposition that `[t]he duty to defend is determined solely by the nature of the complaint.' However, certain language in the Mallon case may be read to support the opposite conclusion. For instance, the Mallon case states that `[t]he insurance company may go beyond the face of the complaint, and refuse to defend based upon on the factual underpinnings of the claim.' Yet, the Mallon case does say that `it is the nature of the claim and not its merits that determines the duty to defend.'
Also giving rise to some confusion is Trisler v. Indiana Ins. Co., an Indiana Court of Appeals case decided only two and one half months after Kopko. There, the Indiana Court of Appeals stated the following:
The insurer's duty to defend is determined from the allegations of the complaint coupled with those facts known to or ascertainable by the insurer after reasonable investigation. Accordingly, in evaluating the factual basis of a claim and the insurer's concomitant duty to defend, this court may properly consider the evidentiary materials offered by the parties to show coverage or exclusion. If the pleadings fail to disclose a claim within the coverage limits or one clearly excluded under the policy, and investigation also reveals the claim is outside the coverage of the policy, no defense will be required.
However, even if these two Indiana Court of Appeals cases are in fact inconsistent with Kopko, we are bound to rely on the decision of the Indiana Supreme Court.
We therefore conclude that F GIU was entitled to rely on the theory of the Halls' complaint in determining whether it had a duty to defend the Brown Company.
Brown, 25 F.3d at 489-90 (citations omitted). Next, in Federal Insurance Co. v. Stroh Brewing Co., 127 F.3d 563 (7th Cir. 1997), the court stated:
The parties dispute how an insurer must determine whether the duty to defend has been triggered. Federal relies on Wayne Township Bd. of Sch. Comm'rs v. Indiana Ins. Co., an Indiana Court of Appeals decision which holds that `[i]f the pleadings disclose that a claim is clearly excluded under the policy, no defense is required. . . . When the underlying factual basis of the complaint, even if proved true, would not result in liability under the insurance policy, the insurance company can properly refuse to defend.' Heileman prefers an Indiana Supreme Court statement that `[t]he duty to defend is determined solely by the nature of the complaint.' Transamerica Ins. Servs. v. Kopko; see also Wayne Township (quoting Terre Haute First Nat'l Bank v. Pacific Employers Ins. Co.) (`It is the nature of the claim and not its merits that determines the duty to defend.').
This is not the first time we have tangled with the variously framed pronouncements of the Indiana courts on this issue. See Fidelity Guar. Ins. Underwriters, Inc. v. Everett I. Brown Co. While Indiana's courts may use differing language to describe the standard, we believe there is essentially only one standard — that the allegations of the complaint, including the facts alleged, give rise to a duty to defend whenever, if proved true, coverage would attach.Id. at 566 (citations omitted). Finally, the Seventh Circuit again addressed the issue in the passage from Huntzinger quoted above. See Huntzinger, 143 F.3d at 309 n. 8 (indicating that Kopko held "that `[t]he duty to defend is determined solely by the nature of the complaint,' as opposed to the facts of the underlying suit," and despite pronouncements from the Indiana Court of Appeals — citing Trisler and Wayne Township Bd. of Sch. Comm'rs among others — that are "inconsistent with Kopko, . . . it is not within our province as a reviewing federal appellate court to make federal law, much less state law. We, therefore, continue to be bound by the doctrine set forth in Kopko.").
Given these three Seventh Circuit cases, it is clear that the Seventh Circuit has amply considered this issue, including Kopko's citation to Mallon, and the Indiana Court of Appeals' subsequent failure to adhere to Kopko (or at least to the Seventh Circuit's interpretation of Kopko). National Union has cited to no authority that was not available to the Seventh Circuit in both Huntzinger and Stroh Brewing Co. Neither Huntzinger nor Stroh Brewing Co. mention Colip (the prior Seventh Circuit case indicating that under Indiana law, "in determining whether it has a duty to defend on behalf of an insured, an insurance company may go beyond the face of the complaint and refuse to defend based upon the factual underpinnings of the claim," 26 F.3d at 716), and it is clear that among the three cases, the two more recent cases, Huntzinger and Stroh Brewing Co., more thoroughly consider the relevant caselaw (Colip only cites to a single case, Southbend Escan Corp. v. Federal Ins. Co., 647 F. Supp. 962, 966-67 (N.D.Ind. 1986), which, in turn, relies upon Mallon — fairly weak underpinnings).
Given that there has been no new pronouncement on this issue by the Indiana Supreme Court (or even Indiana Court of Appeals) more recent than Huntzinger, the issue becomes whether this court is bound by the Seventh Circuit's prediction of how the Indiana Supreme Court would rule in this situation (regardless of whether this court is persuaded by National Union's reading of the relevant Indiana cases). When dealing with issues of federal law, the general rule, of course, is that this court is bound by the decisions of the Seventh Circuit: "Ours is a hierarchical judiciary, and judges of inferior courts must carry out decisions they believe mistaken. A district judge who thinks . . . [a] better argument `refutes' one of our decisions should report his conclusions while applying the existing law of the circuit." Donohoe v. Consolidated Operating Prod. Corp., 30 F.3d 907, 910 (7th Cir. 1994) (quoting Gacy v. Welborn, 994 F.2d 305, 310 (7th Cir.), cert. denied, 510 U.S. 899 (1993)).
But is this rule different in cases decided under state law, when the critical inquiry for both the circuit court and the district court is how the highest court of that state would decide the issue? Cf. Huntzinger, 143 F.3d at 308 (duty of federal court applying state law is to determine how the dispute would be resolved by the state's highest court). If the state's highest court issues a definitive statement of the law after the circuit court's most recent "Erie prediction", the district court would have little hesitation in following the most recent ruling of the state's highest court, even if it conflicts with the circuit court's prior "Erie prediction". But, as indicated above, nothing has changed in relevant Indiana law since the Seventh Circuit's Huntzinger opinion.
Given these circumstances then, what the Seventh Circuit said in Huntzinger is controlling upon this court. See Lexington Ins. Co. v. Rugg Knopp, Inc., 165 F.3d 1087, 1092 (7th Cir. 1999) ("In any diversity case, what we say lacks any precedential force for state courts. . . . [But] it is controlling upon federal district courts until gainsaid by a higher state court. . . ."); cf. Shandwick Holdings, Ltd. v. Carver Boat Corp., 93 F. Supp.2d 1043, ___, No. 99-C-285, 2000 WL 545356, at *4 (E.D.Wis., May 2, 2000) ("[A district] court must follow the prediction of the Seventh Circuit Court of Appeals, unless the parties have suggested reasons why intervening events would persuade the Seventh Circuit to overrule its earlier pronouncement."); Hultz v. Federated Mut. Ins. Co., 817 F. Supp. 59, 62 (C.D.Ill. 1993) ("[A]s a matter of precedent, this Court is bound to follow the Seventh Circuit's prediction of what the Illinois Supreme Court would decide."); Bageanis v. American Bankers Life Assurance Co. of Fla., 783 F. Supp. 1141, 1149 (N.D.Ill. 1992) ("Although we are still inclined to agree with the reasoning expressed in [two prior district court cases] . . . it is inescapable that Kush [a Seventh Circuit case predicting that the Illinois Supreme Court would rule in a certain manner] is directly on point. That being so, we are not at liberty to question or disagree with the Seventh Circuit's decision. Only that court, the United States or Illinois Supreme Court or the Illinois legislature may properly do so under these circumstances. We, therefore, conclude that we are compelled to follow Kush.").
Given that this court is bound by what the Seventh Circuit said in Huntzinger, National Union's Motion to Reconsider (which is premised entirely on the argument that the relevant portion of Huntzinger was wrongly decided) is DENIED.
National Union also asks the court to certify to the Indiana Supreme Court the question of whether the duty to defend may be determined from factual submissions that go beyond the allegations of the underlying complaint. Indiana Rule of Appellate Procedure 15(O), which authorizes district courts to certify questions to the Indiana Supreme Court, provides:
When it shall appear to . . . any circuit court of appeals of the United States . . . or to any United States District Court sitting in Indiana that there are involved in any proceeding before it questions or propositions of the laws of this state, which are determinative of the said cause, and there are no clear controlling precedents in the decisions of the Supreme Court of this state, such federal court may certify such questions or propositions of the laws of this state to the Supreme Court of this state for instructions concerning such questions or propositions of state law which certificate the Supreme Court of this state, by written opinion, may answer.
Rule 15(O) requires the court to find that "there are no clear controlling precedents in the decisions of the [Indiana] Supreme Court" before certifying a question. However, as discussed above, Huntzinger, Stroh Brewing Co., and Brown all found (at least implicitly) Kopko to be a "clear controlling precedent" on this issue. Moreover, the Seventh Circuit opted not to certify this issue on three previous occasions, despite being fully aware the cases relied upon by National Union in making its argument. Cf. Brownsburg Area Patrons Affecting Change v. Baldwin, 137 F.3d 503, 508 n. 10 (7th Cir. 1998) (noting that Seventh Circuit may certify a question to the Indiana Supreme Court sua sponte, on a motion from a party). Therefore, the court finds that the prerequisite to certification pursuant to Rule 15(O) (i.e., that there be no "clear controlling precedents" from the Indiana Supreme Court) is absent in this case. National Union's Motion for Certification to Indiana Supreme Court is DENIED.
Although the court hesitates to read meaning into the Indiana Supreme Court's discretionary decision to deny transfer of a case, it is worth noting that the Indiana Supreme Court denied transfer in United Services Automobile Association v. Caplin, 656 N.E.2d 1159 (Ind.Ct.App. 1995), trans. denied, which contains the following discussion:
Our supreme court's decision in Transamerica Insurance Services v. Kopko controls. The Kopko court held that an insurer's duty to defend is determined solely by the nature of the complaint. [Citing, inter alia, Fidelity and Guaranty Insurance Underwriters, Inc. v. Everett I. Brown Company, L.P., 25 F.3d 484, 489 (7th Cir. 1994).] . . . The Fidelity court pointed out that our decision in Trisler v. Indiana Insurance Company conflicts with the Kopko decision on the present, dispositive issue. The Fidelity court correctly concluded that the decision of our supreme court controls. Thus, we are not at liberty to apply Trisler despite the Caplins' claim that Trisler has `more rational and reasonable results.' Id. at 1162 n. 1.
In conclusion, National Union's Motion to Reconsider and Motion for Certification to Indiana Supreme Court are each DENIED.
ALL OF WHICH IS ORDERED this 6th day of June 2000.