Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca7-16-01677/USCOURTS-ca7-16-01677-0/pdf.json

Parties Involved:
Auto-Owners Insurance Company
Appellee
Dee Frye
Appellant
Lanhui Frye
Appellant

Document Text:

In the

United States Court of Appeals

For the Seventh Circuit ____________________

No. 16-1677

DEE FRYE and LANHUI FRYE,

Plaintiffs-Appellants,

v.

AUTO-OWNERS INSURANCE CO.,

Defendant-Appellee.

____________________

Appeal from the United States District Court for the

Northern District of Indiana, South Bend Division.

No. 3:13-CV-113 — Rudy Lozano, Judge.

____________________

ARGUED SEPTEMBER 21, 2016 — DECIDED JANUARY 3, 2017

____________________

Before FLAUM, KANNE, and WILLIAMS, Circuit Judges.

FLAUM, Circuit Judge. Dee Frye was injured in a car accident caused by an underinsured driver. Frye sued his insurance company for coverage, and the parties reached a partial 

settlement, but Frye thought he was entitled to additional 

payments under the policy. The district court disagreed, and 

awarded summary judgment to the insurer. Frye appeals, and 

for the reasons that follow, we reverse the decision of the district court.

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2 No. 16-1677

I. Background

In January 2011, Dee Frye was seriously injured in a car 

accident while driving for his job. The other driver admitted 

responsibility for the collision, and the latter’s insurance company agreed to pay Frye $100,000, the applicable per-person 

limit. Frye accepted the payment and offered to assign it to 

his lawyer and to his employer’s insurer, Auto-Owners Insurance Company, from which Frye had already received 

$692,895.79 in workers’-compensation benefits. Auto-Owners 

took $75,000 of the third-party payment (in partial satisfaction 

of a statutory lien), and the remaining $25,000 went to Frye’s 

attorney. See Ind. Code § 22-3-2-13.

Frye’s injuries were also covered by two other insurance 

policies—a commercial automobile policy, and a commercial 

umbrella policy—issued by Auto-Owners to Frye’s employer. 

The former policy required Auto-Owners to pay any compensatory damages Frye was legally entitled to recover for bodily 

injuries caused by an underinsured motorist, and defined the 

insurer’s per-occurrence limit of liability as the lesser of: 

(1) the difference between:

(a) the amount paid in compensatory damages ... to the injured person by or for 

any person ... who may be liable for the 

injured person’s bodily injury; and

(b) the “each person” limit for ... Underinsured Motorist Coverage stated in the 

Declarations [i.e., $1 million]; [and]

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No. 16-1677 3

(2) the difference between:

(a) the total amount of compensatory damages ... incurred by the injured person; 

and

(b) the amount paid by or for any person ... 

liable for the injured person’s bodily injury.1

The latter policy afforded follow-on coverage to the automobile policy, and stated with respect to the insurer’s limit of 

(excess) liability:

The most we shall pay under this [umbrella policy] in any one occurrence shall not exceed the 

Limit of Liability shown in the Declarations for 

... [t]he combined coverages of Uninsured Motorist and Underinsured Motorist ....

The declarations reflected an uninsured-and-underinsuredmotorist liability limit of $1 million. (The general limit for 

bodily injury was also $1 million when the umbrella policy 

was first issued in November 2007. Beginning in May 2010, 

however, the general limit was increased to $5 million per occurrence.) As to underinsured-motorist (or UIM) coverage in 

particular, the umbrella policy stated: 

For [such] coverage, our Limit of Liability shall 

be reduced by any amounts:

 1 We omit in this opinion the emphases originally included in the 

quoted policy provisions.

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...

2) Paid or payable for the same bodily injury covered under any workers compensation or similar law; and

3) Paid by or on behalf of any person ... 

who may be legally responsible for the 

bodily injury

which are in excess of the retained limit.

“Retained limit” was defined as the greater of:

(a) The highest applicable limits of liability of 

any and all underlying policy(ies); [and]

(b) ... $500,000 for bodily injury ....

In January 2013, Frye and his wife (collectively, “Frye”) 

sued Auto-Owners in Indiana state court, seeking payment

under the aforementioned policies for damages arising from 

Frye’s January 2011 car accident.2 Auto-Owners removed the 

suit to federal court, and the parties later reached a partial settlement, through which Auto-Owners agreed to pay Frye 

$1,282,314.21. This amount included: $900,000 under the automobile policy ($1 million in total coverage, less $100,000 

from the other motorist’s insurer3); and $382,314.21 under the 

 

2 Frye also sued Nationwide Mutual Insurance Company, the entity 

that had insured the car Frye was driving at the time of the collision. Nationwide was ultimately dismissed from the case, and is not a party to this 

appeal.

3 Frye claimed damages exceeding $1 million, so Auto-Owners maintained that it owed no more than $900,000 under the automobile policy—

which, as already noted, capped the insurer’s liability at the lesser of: 

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No. 16-1677 5

umbrella policy ($1 million in UIM coverage, less $617,685.79 

in net workers’-compensation payments4).

Auto-Owners asserted that the settlement amount exhausted its obligations under the relevant policies, but Frye 

disagreed. According to Frye, Indiana statutory law required 

Auto-Owners to provide through its umbrella policy UIM

coverage in an amount equal to the policy’s general liability 

limit: $5 million (as of May 2010). Moreover, said Frye, the setoff for workers’-compensation payments was impermissible—both under the umbrella contract’s terms, and also as a 

matter of Indiana public policy. The district court rejected 

both arguments, and awarded summary judgment to AutoOwners. Frye appeals.

 

[the per-person limit ($1 million)] –

[amounts paid by the liable party ($100,000)] = $900,000;

and

[total damages ( > $1 million)] –

[amounts paid by the liable party ($100,000)] = > $900,000.

Frye objected to this calculation before the district court, but has not renewed his objection on appeal.

4 It is unclear how Auto-Owners obtained this figure. Frye received 

$692,895.79 in workers’ compensation; and, as noted above, $75,000 of that 

amount was returned to his employer’s insurance carrier (also Auto-Owners)—thus yielding a net compensation payment of $617,895.79, not 

$617,685.79. We also question whether the net payment amount should 

not also reflect (i.e., be further reduced by) the $25,000 that went to Frye’s 

attorney. See Tunny v. Erie Ins. Co., 790 N.E.2d 1009, 1012, 1015–17 (Ind. Ct. 

App. 2003) (concluding that amounts assigned to an insured’s lawyer under Indiana Code § 22-3-2-13 were not amounts retained by the insured). 

As Frye does not object to the insurer’s calculation, however, we assume 

for present purposes that this calculation is correct.

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II. Discussion

We review de novo a district court’s grant of summary 

judgment, construing all facts and drawing all reasonable inferences in favor of the non-moving party—here, Frye. See

C.G. Schmidt, Inc. v. Permasteelisa N. Am., 825 F.3d 801, 805 (7th 

Cir. 2016) (citation omitted). Summary judgment is appropriate where there are no genuine issues of material fact and the 

movant is entitled to judgment as a matter of law. Fed. R. Civ. 

P. 56(a).

A. The UIM Coverage Limit

Frye argues that § 27-7-5-2 of the Indiana Code obligates 

insurers who provide UIM coverage to provide such coverage 

in amounts equal to the limits of liability for bodily injury in 

general. Thus, says Frye, although the umbrella policy here 

purported to cap Auto-Owners’s UIM liability at $1 million, 

the statute required a UIM liability limit equal to the policy’s 

general per-incident limit of $5 million. 

Section 27-7-5-2 states:5

(a) Except as provided in subsection (d), the insurer 

shall make available, in each automobile liability or motor vehicle liability policy ... insuring against loss resulting from ... bodily 

 

5 Unless otherwise noted, we refer to the 2009 version of the statute, 

which was in effect when Auto-Owners renewed the umbrella policy for 

Frye’s employer. Frye argued in the district court that the 2009 version did 

not apply here, as the umbrella policy was first issued in 2007. The district 

court disagreed, and Frye has abandoned the issue on appeal. The quoted 

language from 2009 (with one immaterial exception) still appears in the 

current version of § 27-7-5-2.

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No. 16-1677 7

injury ... arising from the ... use of a motor 

vehicle, ... the following types of coverage:

(1) ... for the protection of persons ... entitled to recover damages from owners or 

operators of uninsured or underinsured 

motor vehicles because of bodily injury 

[or] injury to or destruction of property ...; or

(2) ... for the protection of persons ... entitled to recover damages from owners or 

operators of uninsured or underinsured 

motor vehicles because of bodily injury ....

The uninsured and underinsured motorist 

coverages must be provided by insurers ... 

in limits at least equal to the limits of liability 

specified in the bodily injury liability provisions 

of an insured’s policy, unless such coverages 

have been rejected in writing by the insured....

...

(d) An insurer is not required to make available the 

coverage described in subsection (a) in a commercial umbrella or excess liability policy ....

Ind. Code § 27-7-5-2 (emphases added). In construing a state 

statute, we must interpret the statute as we think the state’s 

highest court would interpret it. United States v. Mohamed, 759 

F.3d 798, 804 (7th Cir. 2014) (citing Laborers Local 236, AFL-CIO 

v. Walker, 749 F.3d 628, 634 (7th Cir. 2014)). Indiana courts employ the basic tools of statutory interpretation: Statutes are 

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read as a whole, and words are given their plain and ordinary 

meaning. See id. (explaining that the plain language of the 

statute is the best evidence of legislative intent) (citations 

omitted); see also Ellis v. CCA of Tenn. LLC, 650 F.3d 640, 651 

(7th Cir. 2011) (same) (quoting Estate of Moreland v. Dieter, 576 

F.3d 691, 695 (7th Cir. 2009)). 

The parties agree that the plain language of § 27-7-5-2(d) 

exempts insurers from having to provide UIM coverage in 

their commercial umbrella policies. The present dispute instead turns on the extent to which subsection (d) creates a 

carve-out. Auto-Owners argues that § 27-7-5-2(d) permits insurers issuing (or renewing) commercial umbrella policies to 

selectively dispense with any requirements set forth in subsection (a) of that statute. In other words, not only may insurance companies abstain from providing UIM coverage in the 

first place, but if they do provide such coverage, they may 

provide it in any form they choose. In Frye’s view, subsection 

(d) allows insurers to omit from commercial umbrella policies 

any UIM coverage, but if such coverage is included, it must 

otherwise comply with the limit-of-liability requirements set 

forth in subsection (a). Frye’s reading is the more sensible one.

Section 27-7-5-2(d) states that insurers are not required to 

make available in commercial umbrella policies “the coverage 

described in subsection (a).” Ind. Code § 27-7-5-2(d). And subsection (a) defines “coverage” as one of two things: UIM protection against bodily injury and property damage; or UIM 

protection against bodily injury only. Id. § 27-7-5-2(a). Subsection (a) then states that these “coverages must be provided ... 

in limits at least equal to the limits of liability [for] bodily injury” generally. Id. (emphasis added). So the limit-of-liability 

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No. 16-1677 9

requirement is modifying the “coverage” already described; 

the liability requirement is not part of the description itself.

Auto-Owners nevertheless insists that the liability requirement must be part of the “coverage described in subsection (a)”—and that subsection (d) therefore exempts insurers 

from satisfying that requirement—because this is what the Indiana legislature intended in adding subsection (d) to the statute. We disagree. Initially, § 27-7-5-2 contained no affirmative 

exceptions to the UIM-coverage mandate (though the insured 

could still reject such coverage in writing). See Ind. Code

§ 27-7-5-2 (1995). So if an insurance policy was an “automobile 

liability” or “motor vehicle liability” policy—the types of policies to which the statute applied, see id. § 27-7-5-2(a)—then 

Indiana law required that the policy cover all injuries caused 

by underinsured motorists, see United Nat’l Ins. Co. v. DePrizio, 

705 N.E.2d 455, 457–463 (Ind. 1999) (interpreting § 27-7-5-2 to 

impose the UIM-coverage requirement on umbrella policies 

insuring against motor-vehicle-related liability). In DePrizio, 

the Indiana Supreme Court made clear that if the state legislature wished to exclude any specific types of insurance contracts from the UIM-coverage mandate, only an explicit statutory carve-out would suffice. See id. at 463–64. Subsection 

(d), which was added to the statute in 2009, effected just such 

an exemption for commercial umbrella policies; and, because

of that exemption, insurers need not include in such contracts

any UIM coverage at all. Nothing in the language of subsection (d), however, permits insurance companies—to the extent they do include UIM coverage in their commercial umbrella policies—to provide that coverage in any manner they 

like.

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That the Indiana legislature did not intend such a result is 

further evidenced by later amendments to the same statute. 

Section 27-7-5-2(h), which appears in the current version of 

the statute, provides that insurers are not required to make 

available in personal (as distinguished from commercial) umbrella or excess liability policies “the coverage described in 

subsection (a).” Ind. Code § 27-7-5-2(h)(1) (2013). So subsection (h), like subsection (d), exempts insurers from having to 

include UIM coverage in certain types of insurance contracts. 

But subsection (h) also states that, where an insurer does include such coverage, the insurer “may make available the coverage in limits determined by the insurer,” and “is not required 

to make available the coverage in limits equal to the limits specified in the personal umbrella or excess liability policy.” Id.

§ 27-7-5-2(h)(3) (emphases added). We must therefore assume 

that the exception for commercial contracts in subsection (d)—which (still) contains no such language—grants no 

such permission. Otherwise, the permission explicitly afforded in subsection (h) would be redundant. See, e.g., Buelna 

v. State, 20 N.E.3d 137, 142 (Ind. 2014) (“We read statutes as a 

whole—avoiding an interpretation that makes any part of the 

statute superfluous.” (citing City of Carmel v. Steele, 865 N.E.2d 

612, 618 (Ind. 2007)); Marquez v. Weinstein, Pinson & Riley, P.S., 

836 F.3d 808, 811 (7th Cir. 2016) (“It is a cardinal principle of 

statutory construction that a statute ought ... to be so construed that, if it can be prevented, no clause, sentence, or word 

shall be superfluous, void, or insignificant.” (quoting TRW 

Inc. v. Andrews, 534 U.S. 19, 31 (2001); United States v. Michalek, 

54 F.3d 325, 335–36 (7th Cir. 1995))) (internal quotation marks 

omitted).

Section 27-7-5-2(d) allowed Auto-Owners to abstain from 

providing UIM coverage in the umbrella policy issued to 

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No. 16-1677 11

Frye’s employer. Once the insurance company elected to afford such coverage, however, it was required under 

§ 27-7-5-2(a) to provide that coverage in limits equal to or 

greater than the policy’s general liability limit: $5 million. We 

thus agree with Frye that the latter limit applies here by operation of statutory law.

B. The Workers’-Compensation Set-Off

The district court interpreted the umbrella policy to permit Auto-Owners to reduce its UIM liability limit by the 

amount of Frye’s previous workers’-compensation payments.

Frye argues that the set-off was contrary to both the contractual language and Indiana public policy. We do not reach the 

latter issue, as we agree with Frye that the set-off violated the 

contract’s terms.

We generally interpret insurance policies as we do other 

types of contracts, though a few “specialized” rules of construction apply. See Justice v. Am. Family Mut. Ins. Co., 4 N.E.3d 

1171, 1176 (Ind. 2014) (citing Holiday Hosp. Franchising, Inc. v. 

AMCO Ins. Co., 983 N.E.2d 574, 577 (Ind. 2013); Everett Cash 

Mut. Ins. Co. v. Taylor, 926 N.E.2d 1008, 1012 (Ind. 2010); Wagner v. Yates, 912 N.E.2d 805, 811 (Ind. 2009)). Where a policy’s 

terms are ambiguous, for example, we construe them in favor 

of the insured. See id. (citing Am. States Ins. Co. v. Kiger, 662 

N.E.2d 945, 947 (Ind. 1996)). We otherwise give to clear and 

unambiguous policy language its plain and ordinary meaning. See id. (citing Am. Econ. Ins. Co. v. Motorists Mut. Ins. Co., 

605 N.E.2d 162, 164 (Ind. 1992)); Holiday Hosp., 983 N.E.2d at 

577 (citing Colonial Penn Ins. Co. v. Guzorek, 690 N.E.2d 664, 667 

(Ind. 1997)).

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12 No. 16-1677

Paragraph 4(b)(1)(c) of the umbrella policy provides that 

the insurer’s limit of liability for UIM coverage “shall be reduced by any amounts”:

...

2) Paid or payable for the same bodily injury covered under any workers compensation or similar law; and

3) Paid by or on behalf of any person ... 

who may be legally responsible for the 

bodily injury

which are in excess of the retained limit.

(emphasis added). “Retained limit” is in turn defined (in paragraph 1(a)(3)) as the greater of:

(a) The highest applicable limits of liability of 

any and all underlying policy(ies); [and]

(b) ... $500,000 for bodily injury ....

The parties agree that “the highest applicable limit” of the relevant underlying policy—i.e., the automobile policy issued to 

Frye’s employer—is $1 million, thus making $1 million (which 

exceeds $500,000) the “retained limit” under the umbrella 

contract.

Frye’s workers’-compensation payments were “in excess 

of” this limit, argues Auto-Owners, because Frye also received $900,000 from that insurance company under the automobile policy, as well as an additional $100,000 from the underinsured motorist’s own insurer. This is not quite right. Because “retained limit” is defined in the umbrella policy as 

simply a dollar amount (here, $1 million), the policy in effect 

states that Auto-Owners’s liability “shall be reduced by 

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No. 16-1677 13

[workers’-compensation payments and payments made by or 

on behalf of the underinsured motorist] which are in excess of 

[$1 million].” However, the workers’-compensation payments 

that Frye received—even when considered in combination

with the $100,000 obtained from the other motorist’s insurer—

did not exceed $1 million; so no portion of those payments

may be subtracted from Auto-Owners’s liability cap.

This is not to say that the workers’-compensation payments may never be taken into account under the umbrella 

contract. Paragraph 4(b)(1)(b) of that policy makes clear that 

coverage exists only for damages “in excess of” the retained 

limit and, among other things, amounts paid under any workers’-compensation laws. Thus, Auto-Owners need not pay anything under the umbrella policy unless and until Frye’s compensable damages have exceeded at least $1,617,685.79

(which includes the $1 million retained limit, plus $617,685.79 

in net workers’-compensation payments). Should his damages clear that threshold, Auto-Owners is liable for the difference, up to $5 million. What Auto-Owners seeks to do here is 

to also decrease that $5 million cap. But such a reduction is not 

permitted in this case, as explained above.

III. Conclusion

For the foregoing reasons, we REVERSE the judgment of the 

district court and REMAND for further proceedings consistent 

with this opinion.

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