Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca7-14-02694/USCOURTS-ca7-14-02694-0/pdf.json

Parties Involved:
Artisan and Truckers Casualty Company
Appellant
National American Insurance Company
Appellee

Document Text:

In the 

United States Court of Appeals 

For the Seventh Circuit ____________________ 

No. 14-2694 

NATIONAL AMERICAN INSURANCE COMPANY, 

Plaintiff-Appellee, 

v.

ARTISAN AND TRUCKERS CASUALTY COMPANY, 

Defendant-Appellant. 

____________________ 

Appeal from the United States District Court for the 

Northern District of Illinois, Eastern Division. 

No. 13 CV 1290 — Michael T. Mason, Magistrate Judge. 

____________________ 

ARGUED DECEMBER 9, 2014 — DECIDED AUGUST 6, 2015 

____________________ 

Before POSNER, RIPPLE, and KANNE, Circuit Judges. 

KANNE, Circuit Judge. This case provides a warning for 

insurance companies who refuse to defend their insureds. 

On August 23, 2010, Viktor Barengolts was driving a tractortrailer on Route 30 in Wheatland Township, Illinois. That 

same day, on that same road, Gustavo and Maria Bernal 

were driving in their pickup truck. Their fates joined when 

Barengolts’s tractor-trailer rear-ended the Bernals’ truck. SeCase: 14-2694 Document: 24 Filed: 08/06/2015 Pages: 15
2 No. 14-2694 

rious injuries and property damage resulted. The Bernals 

sued. 

Whom did they sue? Smartly, everyone. In their Second 

Amended Complaint, the Bernals first sued Unlimited Carrier—the company whose placard appeared on the tractor at 

the time of the accident—and Viktor Barengolts, the apparent driver.1 

They next sued, in counts 3 through 4, Unlimited Carrier 

and Eduard Gaidishev. Gaidishev was in the tractor with 

Barengolts during the accident. At the time the Bernals filed 

their complaint, it was unclear whether Gaidishev had been 

the driver instead of Barengolts. 

Notably, in each of these first four counts, the complaint 

alleged an agency relationship with either Viktor Barengolts 

or Eduard Gaidishev as the agent and Unlimited Carrier as 

the principal. 

Counts 5 through 8, by contrast, alleged an agency relationship with Michael Barengolts, Viktor’s father, who 

owned the tractor. 

 

1 Count 1 accounted for Gustavo’s injuries and Count 2 accounted for 

Maria’s injuries. The Bernals replicated this one-two step throughout 

their complaint, which alleged eight counts in total. 

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No. 14-2694 3

Specifically, counts 5 and 6 alleged that “Viktor Barengolts was operating a tractor ... as the agent and/or servant 

of Michael Barengolts[.]” Thus, in these counts, Michael 

Barengolts, not Unlimited Carrier, was the alleged principal. 

Counts 7 and 8 replicated this theory with one change: 

they alleged Gaidishev rather than Viktor Barengolts was 

operating the tractor. 

In summary, these latter counts ostensibly pled vicarious 

liability with either Viktor Barengolts or Eduard Gaidishev 

as the agent and Michael Barengolts as the principal. These 

counts also stated that “[a]t all times relevant ... Unlimited 

Carrier exercised authority and control” over the tractor. 

We’ll return to this point later. 

As soon as Viktor learned of the Bernals’ lawsuit, he contacted Appellant Artisan and Truckers Casualty Company 

(“Artisan”), his insurance provider, to determine coverage. 

Artisan denied him coverage. It told Viktor that the policy’s 

Contingent Liability Endorsement (“CLE”) excluded coverage because he was driving the tractor on behalf of Unlimited Carrier at the time of the accident. 

Some background. Artisan Policy 07572918-0 lists Viktor 

as an insured and Michael as an additional insured. So they 

ordinarily should be covered under the policy. Michael’s 

tractor is also covered; it is included in the “auto coverage 

schedule” in the policy agreement. At first blush, then, it 

would appear that Artisan was on the hook to cover and defend the Barengolts against the Bernals’ lawsuit. 

Indeed, Artisan expressly agreed to “pay damages ... for 

bodily injury, property damage, and covered pollution cost 

or expense, for which an insured becomes legally responsiCase: 14-2694 Document: 24 Filed: 08/06/2015 Pages: 15
4 No. 14-2694 

ble because of an accident arising out of the ownership, 

maintenance or use of an insured auto.” 

But not so fast, says Artisan. It points to the CLE, which 

states: 

Except as specifically modified in this Endorsement, all provisions of the Commercial Auto Policy 

Apply. 

... 

Liability coverage for an insured auto described in 

the Declarations is changed as follows: 

1. These coverages do not apply when the insured 

auto is being operated, maintained or used for or 

on behalf of anyone else or any organization 

whether or not for compensation. 

Because the tractor displayed placards for Unlimited Carrier 

at the time of the accident, Artisan construed it as being 

“used for or on behalf of” Unlimited Carrier—an organization, and a use, not covered by the policy. So Artisan refused 

to defend Viktor and Michael Barengolts against the lawsuit. 

For example, counsel for Unlimited Carrier wrote to Artisan on January 7, 2011, demanding that it defend Viktor and 

Michael. Artisan refused. On April 8, 2011, counsel for the 

Barengoltses tendered the defense to Artisan. Counsel also 

requested the evidence on which Artisan based its decision 

to deny coverage. Artisan refused to defend and refused to 

offer any such evidence. Counsel for the Barengoltses again 

wrote to Artisan, this time on August 18, 2011. That letter 

also provided notice that counsel would seek reimbursement 

from Artisan for defense costs, attorney’s fees, and any money judgments stemming from the lawsuit. Artisan once again 

refused. 

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No. 14-2694 5

Then Viktor and Michael exposed a fact that they 

thought could change Artisan’s decision: Michael Barengolts, 

the owner of the tractor, did not actually sign a lease with 

Unlimited Carrier for use of the tractor until eight days after 

the accident. To be sure, the placard for Unlimited Carrier 

was displayed on the tractor at the time of the accident. But 

the absence of the signature on the lease agreement seemed 

to at least create a question as to whether Artisan should 

cover Viktor and Michael for the Bernals’ lawsuit. Consequently, on February 17, 2012, counsel for the Barengoltses 

sent another letter to Artisan, again tendering the defense 

and seeking indemnity for Viktor and Michael. Counsel enclosed a copy of the lease agreement with the letter. Artisan, 

unflappable, said the lease issue did not change its position 

with respect to the CLE. It again refused to defend. 

While Artisan was busy refusing to defend, Appellee National American Insurance Company (“NAICO”) was busy 

defending. It had issued a policy to Unlimited Carrier on 

December 7, 2009, and that policy was in effect on the date of 

the accident. Interestingly, besides covering and defending 

Unlimited Carrier, NAICO also agreed to defend Viktor and 

Michael Barengolts. Its policy with Unlimited Carrier stated 

that it would cover “[a]nyone ... while using with your permission a covered ‘auto’ you own, hire, or borrow[,]” subject 

to some exceptions. The NAICO policy further provided 

coverage for an “agent or driver of the lessor [of a covered 

‘auto’] while the ‘auto’ is leased to you under a written 

agreement[,]” subject to some conditions. Perhaps recognizing some uncertainty regarding application of the policy, 

NAICO defended Viktor and Michael under a reservation of 

rights. But defend it did. 

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6 No. 14-2694 

The case ultimately settled at mediation on November 1, 

2012. Pursuant to the settlement agreement, NAICO paid 

$50,000 to Gustavo Bernal and $48,750 to Maria Bernal on 

behalf of Viktor and Michael Barengolts, Eduard Gaidishev, 

and Unlimited Carrier. Also in accordance with the settlement agreement, Viktor and Michael assigned to NAICO 

their rights to recover under the Artisan Policy. 

That assignment brings us, finally, to this lawsuit. On 

February 19, 2013, NAICO filed a four-count complaint 

against Artisan in the Northern District of Illinois. In count 1, 

NAICO sought a declaratory judgment against Artisan, asserting that: (1) Artisan had a duty to defend and indemnify 

Viktor and Michael in the Bernal case; (2) Artisan breached 

that duty; and (3) Artisan is now estopped from raising policy defenses to its duty to defend and indemnify Viktor and 

Michael. Counts 2 and 3 raised claims of equitable and contractual subrogation, respectively, and Count 4 sought equitable contribution. 

NAICO’s complaint alleged facts it uncovered during its 

discovery in the Bernal case. First and foremost, NAICO alleged that Viktor Barengolts “was not under dispatch or in 

the process of picking up a load” for Unlimited Carrier at the 

time he hit the Bernals, implying he was not in the course of 

some purported agency relationship. Second, and as we noted above, Michael Barengolts did not sign an equipment 

lease with Unlimited Carrier until August 31, 2010—eight 

days after the accident. The day after Michael signed the 

lease, Viktor signed his remaining employment documents. 

And finally, in light of the outstanding paperwork, Viktor 

and Michael did not have authority to display the Unlimited 

Carrier placard on the trailer until September 1, 2010. 

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No. 14-2694 7

More important, NAICO’s complaint alleged that Artisan’s duty to defend sprang from counts 5 through 8 in the 

Bernals’ underlying complaint. Recall those counts pled vicarious liability with Michael Barengolts named as the principal—not Unlimited Carrier. And if Michael Barengolts was 

the principal, then Artisan’s duty to defend would be triggered. See Menard, Inc. v. Country Preferred Ins. Co., 992 

N.E.2d 643, 648 (Ill. App. Ct. 2013) (holding duty to defend 

applies when “the underlying complaint alleges facts that 

fall within, or potentially within, the policy’s coverage”). 

Consistent with its approach in the underlying action, 

Artisan denied all liability in its Answer. It then filed a counterclaim seeking a declaratory judgment that it owed nothing for the Bernals’ settlement. NAICO eventually filed a 

motion for summary judgment regarding (1) Artisan’s duty 

to defend and indemnify Viktor and Michael, and (2) application of estoppel. Artisan responded, and then filed a crossmotion for summary judgment. 

The parties consented to dispositive proceedings before 

U.S. Magistrate Judge Michael T. Mason. On May 15, 2014, 

Magistrate Judge Mason found that Artisan had a duty to 

defend against the Bernals’ lawsuit, and that it breached that 

duty. Nat’l Am. Ins. Co. v. Progressive Corp., 43 F. Supp. 3d 873, 

888 (N.D. Ill. 2014). Given the breach, Judge Mason estopped 

Artisan from asserting defenses under its policy with Viktor 

and Michael Barengolts, and granted summary judgment 

(with reimbursement and costs) in favor of NAICO. Progressive Corp., 43 F. Supp. 3d at 888. 

Artisan appeals that decision. In its statement of the issues, it challenges Judge Mason’s ruling regarding its duty to 

Case: 14-2694 Document: 24 Filed: 08/06/2015 Pages: 15
8 No. 14-2694 

defend and indemnify. It also challenges the estoppel ruling.2 

Artisan argues that it had no duty to defend Viktor and 

Michael because, even if one assumes counts 5 through 8 

sufficiently pled Michael as vicariously liable for the accident, those same counts also pled that Unlimited Carrier 

“exercised authority and control” over the tractor. In its 

view, that fact meant that the tractor was used for, or on behalf of, Unlimited Carrier—an exclusion contemplated by 

the CLE. Michael Barengolts’s agency relationship to the 

driver, Artisan concludes, is therefore immaterial to the outcome of ultimate liability and coverage. 

We review a district court’s grant of summary judgment 

de novo. Hanover Ins. Co. v. N. Bldg. Co., 751 F.3d 788, 791 (7th 

Cir. 2014). Summary judgment is appropriate where the admissible evidence reveals no genuine issue of any material 

fact. Fed. R. Civ. P. 56(c); Lawson v. CSX Transp., Inc., 245 F.3d 

916, 922 (7th Cir. 2001). A fact is “material” if it is one identified by the law as affecting the outcome of the case. Anderson 

 

2 Artisan does not challenge the reasonableness of the settlement agreement or the calculation of reimbursement to NAICO, which totaled 

$140,154.04. It focuses instead on its alleged duty to defend, understanding the disposition of that claim impacts whether it must reimburse 

NAICO for defense and indemnification costs in the underlying action. 

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No. 14-2694 9

v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). An issue of material fact is “genuine” if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” 

Anderson, 477 U.S. at 248. We “construe all facts and reasonable inferences in the light most favorable to the non-moving 

party.” Apex Digital, Inc. v. Sears, Roebuck, & Co., 735 F.3d 962, 

965 (7th Cir. 2013). On cross-motions for summary judgment, 

we draw inferences “in favor of the party against whom the 

motion under consideration was made.” McKinney v. Cadleway Props., Inc., 548 F.3d 496, 500 (7th Cir. 2008). 

In diversity cases, we apply federal procedural law and 

state substantive law. Allen v. Cedar Real Estate Grp., LLP, 236 

F.3d 374, 380 (7th Cir. 2001) (citing Erie R.R. v. Tompkins, 304 

U.S. 64, 78 (1938)). Questions of insurance-policy 

interpretation are substantive. Alexander v. Erie Ins. Exch., 982 

F.2d 1153, 1157 (7th Cir. 1993). So our interpretation of this 

insurance policy must be according to state law. Both parties 

agree that the applicable state law is the law of Illinois. 

Under Illinois law, courts liberally construe both the 

terms of an insurance policy and the allegations in the 

underlying complaint in favor of the insured. State Farm Fire 

& Cas. Co. v. Perez, 899 N.E.2d 1231, 1235 (Ill. 2008) (“[A]ny 

doubts and ambiguities are resolved against the insurer.”). 

An insurer’s duty to defend is broad; it exists when a 

complaint alleges facts that are “potentially within” the 

scope of the insurance policy’s coverage. Menard, 992 N.E.2d 

at 648. With these principles, we turn to the facts at bar. 

Counts 1 through 4 allege that either Viktor Barengolts or 

Eduard Gaidishev “was operating the tractor ... as an agent 

and/or employee of Unlimited Carrier.” If these counts 

represented the entirety of the Bernals’s underlying 

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10 No. 14-2694 

complaint, we think Artisan would be on a solid footing. For 

the CLE excludes coverage “when the insured auto is being 

operated, maintained or used for or on behalf of anyone 

else,” (i.e., an uninsured) or an organization such as 

Unlimited Carrier. 

But the complaint has four other counts. Those counts 

allege that either Viktor Barengolts or Eduard Gaidishev 

“was operating the tractor as the agent and/or servant of 

Michael Barengolts.” Michael Barengolts is an additional 

insured under the Artisan policy. So is the subject tractor, for 

that matter. Under the theory pled in counts 5 through 8, 

then, we agree with the district court these allegations 

“potentially fall within the scope of coverage.” Nat’l Am. Ins. 

Co., 43 F. Supp. 3d at 882. They name an insured as the 

principal, which is enough to establish a theory of vicarious 

liability. 

Importantly, it does not matter that some of the counts 

fall within Artisan’s exclusion. In Md. Cas. Co. v. Peppers, 355 

N.E.2d 24 (Ill. 1976), the Supreme Court of Illinois addressed 

a three-count complaint that alleged some theories that were 

covered by a policy and some theories that were not. The 

court found the insurance company had a duty to defend the 

lawsuit despite the presence of a proscribed theory of 

recovery. Peppers, 355 N.E.2d at 28 (“This duty to defend 

extends to cases where the complaint alleges several causes 

of action or theories of recovery against an insured, one of 

which is within the coverage of a policy while the others 

may not be.”). That is what happened here. 

Additionally, we note that counts 5 through 8 are 

consistent with the Illinois presumption that the driver of a 

vehicle is an agent of the vehicle’s owner. Bell v. Reid, 454 

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No. 14-2694 11

N.E.2d 1117, 1119 (Ill. App. Ct. 1983). Although that 

presumption is rebutted where the owner has leased the 

vehicle to a third party who then provides it to a driver, 

Gann v. Oltesvig, 491 F. Supp. 2d 771, 775 (N.D. Ill. 2007), here 

it is undisputed that the lease was not signed at the time of 

the August 23, 2010, accident. 

Nevertheless, Artisan seeks refuge in the additional 

allegations found in counts 5 through 8. Recall that after 

describing the agency relationship with the principal, 

Michael Barengolts, these counts then stated that “Unlimited 

Carrier exercised authority and control over” the tractor. In 

Artisan’s view, this language trumps any liability of Michael 

Barengolts because it evokes the federal scheme of placard 

liability. Artisan argues that insurance should cover the 

party who is “ultimately liable,” and that ultimate liability is 

determined by whose placard appeared on the vehicle. 

Because Unlimited Carrier’s placard appeared on Michael 

Barengolts’s tractor here, it is ultimately liable for the 

accident. And if Unlimited Carrier is ultimately liable, 

Artisan concludes, it had no duty to defend the Barengolts. 

We reject this argument. 

Artisan treats the duty to defend as if it were 

coterminous with the duty to indemnify. Significantly, the 

duty to defend is far broader than the duty to indemnify. 

Transcontinental Ins. Co. v. Nat’l Union Fire Ins. Co., 662 N.E.2d 

500, 508 (Ill. App. Ct. 1996). Under Illinois law, “the duty of 

an insurance company to defend against a suit against its 

insured is determined by the allegations of the complaint in 

that suit rather than by what is actually proved[.]” Taco Bell 

Corp. v. Cont’l Cas. Co., 388 F.3d 1069, 1073 (7th Cir. 2004) 

(citing Dixon Distrib. Co. v. Hanover Ins. Co., 641 N.E.2d 395, 

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12 No. 14-2694 

398 (Ill. 1994)) (emphasis added) (additional citations 

omitted). 

By contrast, the duty to indemnify is determined once 

liability has been affixed. Outboard Marine Corp. v. Liberty 

Mut. Ins. Co., 607 N.E.2d 1204, 1221 (Ill. 1992). While 

Artisan’s concept of “ultimate liability” may translate to its 

duty to indemnify the Barengolts, it has no application to its 

duty to defend them. The pleadings, together with the terms 

of the policy, determine that duty. L.A. Connection v. PennAm. Ins. Co., 843 N.E.2d 427, 430 (Ill. App. Ct. 2006). 

Second, the overarching purpose of placard liability3 is to 

provide an injured party with a quickly “identifiable and 

financially accountable source of compensation.” R. Clay 

Porter & Elenore Cotter Klingler, The Mythology of Logo 

Liability: An Analysis of Competing Paradigms of Lease Liability 

for Motor Carriers, 33 Transp. L.J. 1, 7 (2005) (quoting Carolina 

Cas. Ins. Co. v. Ins. Co. of N. Am., 595 F.2d 128, 137 (3d Cir. 

1979)). Sometimes called “logo liability,” this doctrine 

“hold[s] federally authorized carriers ... that are licensed by 

the United States Department of Transportation (USDOT) 

and display their USDOT certificate number on their trucks, 

 

3 Placard liability finds its roots in the Interstate Commerce Act, as 

amended by Pub. L. No. 84-957, reprinted in 1956 U.S.C.C.A.N. 1163. 

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No. 14-2694 13

vicariously liable for the negligence of drivers operating 

under a lease.” U.S. Bank v. Lindsey, 920 N.E.2d 515, 525 (Ill. 

App. Ct. 2009) (citations omitted). 

But placard liability is not exclusive. Just because a 

plaintiff can quickly identify and sue the company whose 

placard appeared on the vehicle that struck him does not 

mean that the same plaintiff cannot sue—and recover 

from—others who may also be at fault. The placard is a good 

starting point for a plaintiff, see Great W. Cas. Co. v. Nat’l Cas. 

Co., 53 F. Supp. 3d 1154, 1179 (D.N.D. 2014) (noting the 

regulatory scheme does not “supplant, diminish, or 

otherwise provide safe harbor from existing tort liability of 

carriers and lessor-operators under state law”), and we have 

no doubt that in many cases it may also be the ending point. 

But whatever the case may be, plaintiffs are free to raise 

claims against other alleged tortfeasors, be they joint or solo, 

and if those claims raise a possibility for coverage under a 

policy, then insurance companies deny coverage at their 

“peril.” Peterson Sand & Gravel v. Md. Cas. Co., 881 F. Supp. 

309, 313 (N.D. Ill. 1995). 

To the extent that Artisan suggests placard liability is the 

sole means of recovery for plaintiffs like the Bernals, we 

disagree. The case it advances for this proposition, Occidental 

Fire & Cas. Co. v. Padgett, 446 N.E.2d 937 (Ill. App. Ct. 1983), 

expressly states that the federal regulatory scheme (i.e., 

placard liability) is “not controlling.” Id. at 940. What is 

more, that case does not discuss the duty to defend as it 

relates to allegations pled in a complaint. Artisan’s reliance 

on Occidental, therefore, is misplaced. 

Artisan’s remaining point that Unlimited Carrier’s 

“authority and control over” the tractor somehow renders 

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14 No. 14-2694 

the agency relationship with Michael Barengolts immaterial 

is unavailing. The terms of the CLE do not exclude coverage 

when a person or organization exercises “authority and 

control over” the tractor. Instead, the CLE excludes coverage 

when the tractor “is being operated, maintained or used for 

or on behalf of” an uncovered person or any organization. 

This distinction is important at the duty to defend stage, 

because it suggests at minimum a possibility that the 

accident was within the scope of the policy’s coverage. And 

that puts Artisan on notice. Assuming for the sake of 

argument that the language regarding “authority and 

control” muddled the vicarious liability alleged against 

Michael Barengolts, the liberal construction mandate applies 

and weighs in favor of defending Viktor and Michael. Perez, 

899 N.E.2d at 1235. Context shows these counts were plainly 

different from the first four, which expressly alleged 

vicarious liability against Unlimited Carrier. 

In sum, Artisan had a duty to defend. By repeatedly 

refusing to defend Michael and Viktor Barengolts against the 

Bernals’ lawsuit, Artisan breached that duty. Artisan’s other 

arguments to the contrary are without merit. 

That brings us to the doctrine of estoppel. Once a 

complaint is filed against an insured like Viktor or Michael 

Barengolts, and that complaint alleges claims that may fall 

within the scope of policy coverage, an insurer (such as 

Artisan) refusing coverage faces three courses of action: (1) 

defend the lawsuit under a reservation of rights like NAICO 

did here; (2) seek a declaratory judgment excluding 

coverage; or (3) do nothing and refuse to defend. Peterson 

Sand & Gravel, Inc., 881 F. Supp. at 313. If the insurer does not 

defend under a reservation of rights or seek a declaratory 

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No. 14-2694 15

judgment, then “it will be estopped from later raising policy 

defenses to coverage.” State Farm Fire & Cas. Co. v. Martin, 

710 N.E.2d 1228, 1231 (Ill. 1999). Estoppel incentivizes action 

over inaction, which ultimately inures to the benefit of the 

insured. By defending under a reservation of rights or 

seeking a declaratory judgment, an insurance company can 

eliminate the risk of estoppel altogether. 

Here, Artisan gambled and lost. It did not defend 

Michael and Viktor Barengolts under a reservation of rights. 

And it did not seek a declaratory judgment in the 

underlying action. Instead, it refused—on at least seven 

occasions—to defend. Because “[a]n insurer that believes an 

insured is not covered under a policy cannot simply refuse 

to defend the insured[,]” Mt. Hawley Ins. Co. v. Certain 

Underwriters at Lloyd’s, 19 N.E.3d 106, 111 (Ill. App. Ct. 2014) 

(quoting A-1 Roofing Co. v. Navigators Ins. Co., 958 N.E.2d 

695, 700 (Ill. App. Ct. 2011)), the district court did not err in 

estopping Artisan from raising policy-coverage defenses. 

Accordingly, we hold that Artisan is estopped from asserting 

any coverage defenses under its policy with Michael and 

Viktor Barengolts. And because it cannot assert such 

defenses, it must reimburse NAICO the amount authorized 

by the settlement agreement, including costs for NAICO’s 

efforts in defending and indemnifying Michael and Viktor 

Barengolts in the Bernals’ lawsuit. 

The judgment of the district court is AFFIRMED. 

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