In the

United States Court of Appeals

For the Seventh Circuit

____________

No. 04-1220

ALLSTATE INSURANCE COMPANY,

Plaintiff-Appellant,

v.

JOHN TOZER, GEORGETTE TOZER,

LINDSAY TOZER, et al.,

Defendants-Appellees.

____________

Appeal from the United States District Court

for the Southern District of Indiana, Indianapolis Division.

No. 02 C 1189—Tim A. Baker, Magistrate Judge.

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ARGUED NOVEMBER 9, 2004—DECIDED DECEMBER 28, 2004

____________

Before FLAUM, Chief Judge, and CUDAHY and POSNER,

Circuit Judges.

FLAUM, Chief Judge. This is a declaratory judgment

action brought by Plaintiff-appellant Allstate Insurance

Company (“Allstate”). Allstate seeks a declaration that the

claims of Kristina and Nicholas Keltner for negligent infliction of emotional distress caused by witnessing their

brother’s death are subject to the same limit of liability applicable to the brother’s injuries. The district court granted
2 No. 04-1220

1 It is not clear from the record whether a lawsuit was actually

filed on this claim.

summary judgment in favor of the insureds, and Allstate

appealed. For the reasons stated herein, we reverse.

I. Background

On January 3, 2001, Lindsay Tozer was driving her parents’ car when the automobile struck a telephone pole. Riding in the car with Lindsay were Kyle Keltner and his two

siblings, Nicholas and Kristina. Kyle was severely injured

in the accident and eventually died. Kristina and Nicholas

sustained relatively minor physical injuries in the crash,

but allege that they suffered severe emotional distress witnessing their brother’s injuries and death.

Lindsay’s parents had insured the car (and therefore

Lindsay) through a policy issued by Allstate. That policy

limits Allstate’s liability for bodily injury claims to $100,000

for “each person” and $300,000 for “each accident.” After

Kyle’s estate sued (or threatened to sue)1

 Lindsay for wrongful death, Allstate settled the claim for $1.1 million. One

hundred thousand dollars of this sum was paid under the

Tozers’ automobile policy; the remaining one million was

paid under an umbrella policy that is not at issue in this

case.

On February 22, 2002, Nicholas and Kristina filed a complaint against Lindsay in Hamilton County Superior Court.

The complaint sought, among other things, damages for the

“emotional distress as the result of seeing the injuries and

death of their brother Kyle Keltner.” Allstate hired Smith,

Maley & Douglas to defend Lindsay in the state-court action, and the firm entered its appearance on March 21,

2002. The insurer did not issue a letter to Lindsay reserving

its right to deny coverage under the policy.
No. 04-1220 3

2 As discussed below, Shuamber is no longer good law. See Groves

v. Taylor, 729 N.E.2d 569, 573 (Ind. 2000).

On July 31, 2002, Allstate filed the instant suit in the

Southern District of Indiana, seeking a declaration that

Nicholas’s and Kristina’s emotional distress claims were

subject to the $100,000 “each person” limit of liability applicable to their brother’s injuries, and that Allstate had exhausted its liability for these claims by paying Kyle’s estate

$100,000 under the auto policy. At the close of discovery,

the parties filed cross-motions for summary judgment. The

district court ruled in favor of defendants, holding that the

siblings had asserted separate bodily injury claims under

the policy. The district court interpreted the policy’s

definition of bodily injury to include a claim for emotional

distress so long as the plaintiff sustained a physical impact

at the time of the event triggering the claim, even if that

impact did not cause the emotional distress. The court reasoned that this analysis would accord with the “modified

impact rule” applicable to negligent infliction of emotional

distress claims announced in Shuamber v. Henderson, 579

N.E.2d 452, 456 (Ind. 1991).2

 Because Nicholas and Kristina

each sustained physical trauma in the crash, the court held

their claims to be separate bodily injuries under the policy

and granted summary judgment in favor of the insureds.

Allstate appeals.

II. Discussion

Summary judgment is appropriate “if the pleadings, depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, show that there is no

genuine issue of material fact and that the moving party is

entitled to judgment as a matter of law.” Fed. R. Civ. P.

56(c). “Where there are no genuine issues of material fact,

contract interpretation is particularly well-suited for sum-
4 No. 04-1220

mary judgment.” Anstett v. Eagle-Picher Indus., Inc., 203

F.3d 501, 503 (7th Cir. 2000). We review a district court’s

grant of summary judgment de novo. Sullivan v. Ramirez,

360 F.3d 692, 696 (7th Cir. 2004).

This appeal raises two issues: (i) whether the siblings’

claims of emotional distress are subject to the “each person”

limit of liability applicable to their brother’s injuries; and

(ii) whether Allstate is estopped from raising the argument

because it assumed control over Lindsay’s legal defense in

state court. The parties agree that Indiana law governs both

issues. We look first to Indiana Supreme Court precedent.

Because we have located no case on point, “decisions of the

state appellate courts control, unless there are persuasive

indications that the state supreme court would decide the

issue differently.” Lexington Ins. Co. v. Rugg & Knopp, Inc.,

165 F.3d 1087, 1090 (7th Cir. 1999). “In the absence of

[Indiana] authority, we may consider decisions from other

jurisdictions.” Id.; see also Valerio v. Home Ins. Co., 80 F.3d

226, 228 (7th Cir. 1996); Foster v. Cont’l Can Corp., 783

F.2d 731, 733-34 n.3 (7th Cir. 1986).

A. The “Each Person” Limit of Liability

Allstate contends that Nicholas’s and Kristina’s emotional

distress claims are subject to the $100,000 “each person”

limit of liability applicable to their brother’s injuries and

death. Because it has already paid Kyle’s estate $100,000 to

settle his wrongful death claim, Allstate argues that it has

exhausted its liability for the siblings’ emotional distress

claims. Defendants assert that the emotional distress

claims constitute separate bodily injuries entitled to additional coverage under the policy.

Despite the absence of Indiana Supreme Court precedent

on this precise issue, settled principles of Indiana law guide

our analysis. Under that law, the question of whether the

siblings’ claims fall under the “each person” limit of liability
No. 04-1220 5

applicable to Kyle’s claim is an issue of contract interpretation. See Bowers v. Kushnick, 774 N.E.2d 884, 887 (Ind.

2002) (“Contracts of insurance are governed by the same

rules of construction as other contracts.”). “If the policy

language is clear and unambiguous, it should be given its

plain and ordinary meaning.” Id. (quoting Eli Lilly & Co. v.

Home Ins. Co., 482 N.E.2d 467, 470 (Ind. 1985)). Indiana

courts “will not find coverage under [an] insurance policy

unless the language of the contract admits liability.” Am.

Family Mut. Ins. Co. v. Hall, 764 N.E.2d 780, 784 (Ind. Ct.

App. 2002); see also, e.g., Ramirez v. Am. Family Mut. Ins.

Co., 652 N.E.2d 511, 515 (Ind. Ct. App. 1995); Allstate Ins.

Co. v. Kepchar, 592 N.E.2d 694, 697 (Ind. Ct. App. 1992);

City of Muncie v. United Nat’l Ins. Co., 564 N.E.2d 979, 982

(Ind. Ct. App. 1991). Accordingly, we look to the terms of

the policy to ascertain the scope of its coverage.

The policy provides that “Allstate will pay damages which

an insured person is legally obligated to pay because of . .

. bodily injury.” (R.1, Ex. A at 6.) The policy defines bodily

injury, subject to exceptions not relevant here, as “physical

harm to the body, sickness, disease, or death.” (Id., Ex. A at

3.) Allstate limits its liability to $100,000 for “each person,”

up to a maximum of $300,000 for “each accident.” (Id., Ex.

A at 1.) The policy defines these limits as follows:

The limits shown on the Policy Declarations are the

maximum we will pay for any single accident involving

an insured auto. The limit stated for each person for

bodily injury is our total limit of liability for all damages because of bodily injury sustained by one person,

including all damages sustained by anyone else as a result of that bodily injury. Subject to the limit for each

person, the limit stated for each accident is our total

limit of liability for all damages for bodily injury.

(Id., Ex. A at 8.) (emphasis added and deleted).

Under the plain language of the policy, Allstate’s liability

for bodily injuries suffered by Kyle and “damages sustained
6 No. 04-1220

by anyone else as a result of” his injuries is limited to a

total of $100,000. It is clear that Nicholas’s and Kristina’s

emotional distress claims are for “damages sustained . . . as

a result of” Kyle’s injuries: their state-court complaint

alleges that they suffered emotional distress “as a result of

seeing the injuries and death of their brother Kyle Keltner.”

Accordingly, these claims are subject to the $100,000 cap

applicable to Kyle’s injuries.

Stated otherwise, the siblings’ claims do not amount to

separate “bodily injuries” under the policy. A reasonable

interpretation of the policy’s definition of bodily injury—

“physical harm to the body, sickness, disease, or death”—

does not include emotional distress, at least where, as here,

the distress is not caused by physical trauma.

Indiana caselaw confirms this reading. In Wayne

Township Board of School Commissioners v. Indiana

Insurance Co., 650 N.E.2d 1205, 1210 (Ind. Ct. App. 1995),

the Court of Appeals of Indiana held that a policy defining

bodily injury to include “sickness or disease” was broad

enough to encompass a child’s claim that she suffered emotional distress after being sexually molested. Id. at 1210-11.

The court reasoned that the emotional harm “results from

a physical intrusion upon the child’s body and therefore is

bodily injury.” Id. at 1211. It carefully limited its holding,

however: “[T]he term ‘bodily injury’ does not include emotional damage that does not arise from a bodily touching.”

Id. at 1210. See also Armstrong v. Federated Mut. Ins. Co.,

785 N.E.2d 284, 293 (Ind. Ct. App. 2003) (“ ‘bodily injury’, as

used in certain insurance policies, might include . . .

emotional harm . . . but only if said injury was the result of

a direct physical impact upon the [party seeking] recovery”).

Although Nicholas and Kristina suffered minor physical

injuries in the crash, they do not allege that these injuries

caused their emotional distress. As stated above, the

siblings’ emotional distress claims arise out of witnessing
No. 04-1220 7

3 A cause of action is “derivative” if it may be brought only where

a separate, related claim is actionable. Durham v. U-Haul Int’l,

745 N.E.2d 755, 764 (Ind. 2001). An “independent” cause of action

may be brought irrespective of the merits of an accompanying tort.

City of Anderson v. Weatherford, 714 N.E.2d 181, 185 (Ind. Ct.

App. 1999).

their brother’s death. Thus, even under Wayne Township’s

broad reading, the siblings’ claims are not separate bodily

injuries.

Seeking to avoid this result, defendants point to cases

from other jurisdictions holding that emotional distress qualifies as a separate bodily injury under policies similar to

the one at issue in this case. See, e.g., Pekin Ins. Co. v. Hugh,

501 N.W.2d 508, 511-12 (Iowa 1993); Anthem Cas. Ins. Co.

v. Miller, 729 A.2d 1227, 1228 (Pa. Super. Ct. 1999); State

Farm Mut. Auto Ins. Co. v. Ramsey, 368 S.E.2d 477, 478

(S.C. Ct. App. 1988). These cases frame the issue as whether

the underlying tort—negligent infliction of emotional distress—is an independent or derivative cause of action.3

Because negligent infliction of emotional distress is an independent tort in those jurisdictions, that line of authority

reasons that a claim of emotional distress also constitutes

a separate “bodily injury” under the terms of an insurance

policy. As long as the party suing the insured has stated a

claim for negligent infliction of emotional distress, those

courts obligate the insurer to defend and indemnify.

Defendants assert that the Indiana Supreme Court would

follow this line of reasoning and, given that negligent infliction of emotional distress is an independent tort in

Indiana, Weatherford, 714 N.E.2d at 185, hold that the siblings’ claims are separate bodily injuries under the policy.

Defendants rely on a footnote from Wayne Township as

support for this prediction. The footnote mentioned that the

court’s reading of the insurance policy was “in harmony
8 No. 04-1220

with Indiana law governing causes of action for infliction of

emotional injury . . . . [requiring that] one must sustain a

physical impact but need not suffer a physical injury.”

Wayne Township, 650 N.E.2d at 1211 n.3 (citing Shuamber

v. Henderson, 579 N.E.2d 452, 456 (Ind. 1991)). Defendants

argue that this language signaled the court’s approval of

the analysis articulated in the Hugh-Miller-Ramsey line of

cases.

We disagree. First, Wayne Township’s analysis focused on

the language of the policy, and the court was willing to

conclude that certain types of mental anguish would constitute bodily injury only because the policy was broadly

worded. The court’s reference to Indiana tort jurisprudence

was mere dictum, and its statement of that law is no longer

correct. See Groves v. Taylor, 729 N.E.2d 569, 573 (Ind. 2000)

(overruling Shuamber). Second, and more fundamentally,

accepting the approach advocated by defendants would require us to ignore the settled principle of Indiana law that

the construction of an insurance policy is a matter of contract interpretation. E.g., Bowers, 774 N.E.2d at 887; Hall,

764 N.E.2d at 784; Ramirez, 652 N.E.2d at 515; Kepchar,

592 N.E.2d at 697; City of Muncie, 564 N.E.2d at 982.

Other cases from the court of appeals reveal that the

characterization of a claim as derivative or independent is

irrelevant to whether the claim qualifies as a separate

bodily injury under an insurance policy. In Medley v. Frey,

660 N.E.2d 1079, 1080-81 (Ind. Ct. App. 1996) the court

held that a claim for loss of consortium did not amount to

a separate bodily injury, where bodily injury was defined in

the policy as “bodily harm, sickness or disease, including

death that results.” Id. at 1080. Even though consortium is

a derivative tort under Indiana law, Durham, 745 N.E.2d at

764, the court made clear that its conclusion was governed

only by the language of the policy:

Where the automobile liability policy includes loss of

consortium or loss of services in the definition of “bodily
No. 04-1220 9

injury,” courts have logically concluded that the deprived-spouse’s loss of consortium claim is a distinct

“bodily injury” and is not subject to the per person liability limit applicable to the injured-spouse, but is a

separate “bodily injury” within the meaning of the policy.

Medley, 660 N.E.2d at 1081 n.1.

Similarly, in Armstrong, the court found that a claim of

loss of love and companionship did not constitute a separate

“bodily injury,” defined in the policy at issue as “bodily

harm, sickness or disease, including death that results.”

Armstrong, 785 N.E.2d at 292. It is clear that the result in

Armstrong did not turn on underlying tort jurisprudence.

The insureds in that case presented an argument, similar

to the one advanced by the defendants here, that the court

“should look beyond the four corners of this particular

insurance policy to ascertain whether ‘bodily injury’ carries

a broader meaning under Indiana case law.” Id. The court

disagreed: “[W]e may not look beyond the contract itself to

ascertain the meaning of a term unless that term is ambiguous.” Id.

Medley and Armstrong merely reiterate in this specific

context what is generally true throughout Indiana insurance law: the extent of an insurer’s liability is a matter of

contract interpretation governed by the terms of the policy.

The policy issued to the Tozers does not define “bodily

injury” or the “each person” limit of liability with reference

to whether the underlying claim is an independent or derivative tort action, or on whether the Keltner siblings state a

valid claim of negligent infliction of emotional distress.

These underlying questions of tort law are, therefore, irrelevant. See, e.g., Galgano v. Metro. Prop. & Cas. Ins. Co., 838

A.2d 993, 997 (Conn. 2004) (“How the law defines particular

claims does not control. Rather, we must look to the

relevant policy language and apply the limits of liability as

provided in the policy.”); see also Estate of Gocha v. Shimon,
10 No. 04-1220

573 N.W.2d 218, 220 (Wis. Ct. App. 1997); Mullen v.

Walczak, 653 N.W.2d 529, 532 (Wis. Ct. App. 2002). Because the policy caps Allstate’s liability for all damages

“resulting from” Kyle’s injuries at $100,000, and Nicholas’s

and Christina’s emotional distress result from his injuries,

the insurer’s liability for these claims is exhausted.

B. Estoppel

Defendants contend that Allstate is estopped from arguing that the limits of the policy have been exhausted because

the insurer assumed Lindsay’s defense in the Hamilton

County action without issuing a letter to her reserving its

right to deny coverage. The general rule in Indiana is that

“the doctrines of estoppel and implied waiver are not available to create or extend the scope of coverage of an insurance contract.” Transcon. Ins. Co. v. J.L. Manta, Inc., 714

N.E.2d 1277, 1280 (Ind. Ct. App. 1999). One exception to

this rule applies, however, “where ‘an insurer defends an

action on behalf of an insured, with knowledge that would

provide a defense to coverage, but without a reservation of

rights.’ ” Id. at 1281 (quoting Nationwide Mut. Ins. Co. v.

Filos, 673 N.E.2d 1099, 1104 (Ill. App. 1st Dist. 1996)).

Defendants assert that because Allstate recognized the

nature of the siblings’ claims by the time it entered its appearance on Lindsay’s behalf in the state-court action, it is

estopped from arguing that the siblings’ claims are not

“bodily injuries.”

Allstate rejoins that the doctrine of estoppel bars only

claims of non-coverage. It argues that estoppel does not prevent it from asserting that its liability for an admittedly

covered claim has been exhausted. Although Indiana has

not addressed the question, several jurisdictions have accepted Allstate’s position. See Faber v. Roelofs, 250 N.W.2d

817, 825 (Minn. 1977) (holding that by assuming the defense

of its insured, insurance company was estopped from as-
No. 04-1220 11

serting non-coverage, but was free to argue that the policy’s

limits had been exhausted); see also Martin v. United States

Fid. & Guar. Co., 996 S.W.2d 506, 511 (Mo. 1999) (estoppel

does not bar argument that liability has been exhausted);

Gambino v. Lamulle, 715 So.2d 574, 576 (La. Ct. App. 1998)

(same).

We need not resolve the exact contours of Indiana’s estoppel doctrine, however, because defendants’ argument

fails for an independent reason. An insurer seeking to avoid

a claim of estoppel by its insured has two options: “(1) file

a declaratory judgment action for a judicial determination

of its obligations under the policy; or (2) hire independent

counsel and defend its insured under a reservation of

rights.” Gallant Ins. Co. v. Wilkerson, 720 N.E.2d 1223,

1227 (Ind. Ct. App. 1999). Allstate chose the first option by

filing this lawsuit. Its failure to exercise the second option

does not, therefore, estop it from arguing that the policy

limit has been exhausted. Stated alternatively, Allstate

prevented any prejudice to the insureds by filing this suit

and clarifying its legal obligations. See Terre Haute First

Nat’l Bank v. Pac. Employers Ins. Co., 634 N.E.2d 1336,

1338 (Ind. Ct. App. 1993) (insured asserting estoppel must

establish prejudice). Moreover, this is not a case in which

prejudice may be presumed from the lengthy period of time

between the insurer’s realization that it has a defense to

coverage and its communication of that defense to the insured. Cf. Manta, 714 N.E.2d at 1282. Allstate is therefore

free to argue that its policy limits have been exhausted.

III. Conclusion

The doctrine of estoppel does not prevent Allstate from

asserting that Nicholas’s and Kristina’s emotional distress

claims are subject to the “each person” limit of liability

applicable to their brother’s bodily injuries. Since we conclude that Indiana law would accept plaintiff’s position, we
12 No. 04-1220

REVERSE and REMAND with instructions to enter summary

judgment in favor of Allstate.

A true Copy:

Teste: 

 ________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit 

USCA-02-C-0072—12-28-04