In the

United States Court of Appeals

For the Seventh Circuit

No. 10-1073

HAYES LEMMERZ INTERNATIONAL, INC.,

Plaintiff-Appellant,

v.

ACE AMERICAN INSURANCE COMPANY,

Defendant-Appellee.

Appeal from the United States District Court

for the Northern District of Indiana, South Bend Division.

No. 3:08-cv-288—Philip P. Simon, Chief Judge.

ARGUED JUNE 1, 2010—DECIDED AUGUST 31, 2010

Before BAUER, POSNER, and FLAUM, Circuit Judges.

POSNER, Circuit Judge. This appeal from a judgment

dismissing a diversity suit by a disappointed insured

against its insurance company presents issues of

Indiana insurance law.

The defendant, ACE Insurance Company, had issued

a “Workers Compensation and Employers Liability

Insurance Policy” to Hayes Lemmerz International, a

manufacturer of aluminum and steel wheels, and to
2 No. 10-1073

subsidiaries of HLI (as we’ll call the plaintiff). One of

those subsidiaries is Hayes Lemmerz International-Huntington (Huntington). A workers compensation and

employer liability policy is a standard liability insurance

policy designed to insure an employer primarily for

liability under workers’ compensation laws, but secondarily for liability for workplace accidents not covered by

such laws—for example, liability for a claim by an employee’s family member injured by a workplace injury

to the employee (as when an injury to a pregnant employee injures her fetus as well), or for claims for workplace injuries not covered by workers’ compensation,

such as injuries to farm employees or an injury to an

employee by a fellow employee motivated by spite. See,

e.g., Pomer v. Schoolman, 875 F.2d 1262, 1266-67 (7th

Cir. 1989); Forum Ins. Co. v. Allied Security, Inc., 866 F.2d

80 (3d Cir. 1989). Such insurance coverage fills gaps

in workers’ compensation law that sometimes allow an

employee to sue his employer in tort, bypassing the

limits on workers’ compensation relief. Schmidt v. Smith,

713 A.2d 1014, 1016-17 (N.J. 1998); La Jolla Beach & Tennis

Club, Inc. v. Industrial Indemnity Co., 884 P.2d 1048, 1052

(Cal. 1994).

In 2005 a worker injured in an accidental explosion at

a plant in Indiana owned by Huntington, and the widow

and estate of another worker killed in the explosion,

brought a tort suit against both HLI, the parent, and

Huntington, the subsidiary, in an Indiana state court.

The complaint alleged that the plant “was owned and

operated by [Huntington] and/or [HLI],” and that they

had failed to exercise reasonable care to prevent the

accident.
No. 10-1073 3

The complaint did not identify either company as an

“employer” of the accident victims and of course the

workers at a work site are often not employees of the

site’s owner. The plaintiffs would not have wanted to

describe either defendant as the employer, because the

exclusive remedy for workplace injuries is usually and

in this instance a claim under workers’ compensation

law, filed with an administrative agency, rather than a

conventional tort suit, which was the nature of the suit

against HLI and Huntington. Ind. Code. § 22-3-2-6;

Sims v. United States Fidelity & Guaranty Co., 782 N.E.2d

345, 349-50 (Ind. 2003). The plaintiffs had already filed a

workers’ compensation claim, naming both HLI and

Huntington as the employers of the accident victims, and

had received workers’ compensation, though whether

paid by both companies, and if so in what proportions,

we cannot determine. Had the tort suit named them as

employers, the court would at once have dismissed

them from the case.

No doubt the plaintiffs were hoping that not naming

either company as their employer would give them a

shot at obtaining common law damages, which are

more generous than workers’ compensation awards. This

was not necessarily a disreputable (though as we’re

about to see it was an ineffective) maneuver. If Huntington was their only employer, HLI might not (were it not

for a quirk of Indiana law discussed below) have the

protection of workers’ compensation law and might

therefore be liable in tort if, for example, it had influenced its subsidiary’s choice of safety measures. A parent

(like HLI) or other affiliate enjoys limited liability, but
4 No. 10-1073

this just means it isn’t liable for an affiliate’s torts (including torts covered by workers’ compensation)

just by virtue of the relationship. If however it plays

a causal role in the affiliate’s negligence, it is liable

directly rather than vicariously to the victim, and under

normal tort law rather than workers’ compensation law,

since the injured worker is the affiliate’s employee

rather than the parent’s. Forsythe v. Clark USA, Inc.,

864 N.E.2d 227, 240-41 (Ill. 2007); Gulfstream Land & Development Corp. v. Wilkerson, 420 So. 2d 587, 588-90 (Fla. 1982);

Boggs v. Blue Diamond Coal Co., 590 F.2d 655, 662-63 (6th

Cir. 1979). That is just a special instance of the general

principle that a nonemployer can be sued in tort for injury

to a worker without regard to workers’ compensation law,

though the worker’s remedy against his employer is given

exclusively by that law. E.g., Turner v. Richmond Power &

Light Co., 756 N.E.2d 547, 552-53 (Ind. App. 2001); Campbell

v. Eckman/Freeman & Associates, 670 N.E.2d 925, 929-30 (Ind.

App. 1996); Reboy v. Cozzi Iron & Metal, Inc., 9 F.3d 1303,

1304-05, 1308 (7th Cir. 1993) (Indiana law).

HLI and Huntington knew of course that Huntington

was the employer of the accident victims and that

HLI, the parent corporation, was not. But the lawyer

handling the tort suit for the two companies seems not

to have known (maybe the plaintiffs didn’t know either)

that in 2001 Indiana, reacting negatively to a decision

by the Indiana Supreme Court confirming the understanding of affiliate liability set forth above, McQuade v.

Draw Tite, Inc., 659 N.E.2d 1016, 1020 (Ind. 1995), had

amended its workers’ compensation law to provide that “a
No. 10-1073 5

parent corporation and its subsidiaries shall each be

considered [for purposes of workers’ compensation

law] joint employers of the corporation’s, the parent’s, or

the subsidiaries’ employees.” Ind. Code § 22-3-6-1(a).

Hence HLI was insulated from tort liability to the

victims of the explosion: by virtue of being deemed a

joint employer, its liability to them was governed exclusively by workers’ compensation law even if in other

states it could have been sued as a tortfeasor had it contributed to the injuries to its affiliate’s employees.

HLI promptly notified ACE of the tort suit and asked

it to acknowledge coverage. The insurance policy entitled

ACE to take control of HLI’s defense to the suit, if it

wanted to. See Paint Shuttle, Inc. v. Continental Casualty

Co., 733 N.E.2d 513, 520-21 (Ind. App. 2000); Transport

Ins. Co. v. Post Express Co., 138 F.3d 1189, 1193 (7th Cir.

1998). Evidently it didn’t want to. Instead it agreed to

pay half the combined litigation expenses of HLI and

Huntington. HLI argues, and we accept for purposes of

this appeal, that ACE believed that Huntington was the

only employer of the accident victims, as indeed it was

in the usual sense (both legal and lay) of the word “employer”: it had hired them and directed their work and

paid them, though (as is not uncommon) they received certain benefits under an ERISA plan that covered

employees of other Hayes Lemmerz affiliates as well.

One might think that ACE would have known that HLI

would be deemed an employer under Indiana’s workers’

compensation law; and if so and it had assumed the

defense of both defendants it would if alert have moved
6 No. 10-1073

to dismiss the suit because both were employers of the

accident victims by virtue of the 2001 amendment. But

the amendment was recent and, though it seems clear

enough, apparently there was some doubt about its

meaning. Carol Modesitt Wyatt, “Recent Survey of

Worker’s Compensation Law,” 34 Ind. L. Rev. 1115, 1124

(2001). Indeed, the Indiana trial court initially ruled

that HLI was not an employer of the accident victims.

In any event ACE was not handling the defense.

HLI did tell ACE that it disagreed with ACE’s decision

to pay only half the companies’ litigation costs, but it

did not pursue the issue and instead tried for the next

two years to persuade the state court that it was not an

employer of the accident victims and therefore (though

there was no “therefore,” since an injurer can be liable

in tort to someone else’s employee) it could not be liable

to them. In the course of this futile effort it incurred attorneys’ fees and related litigation expenses of some

$267,000, which ACE refused to reimburse, precipitating

this suit to recover them. HLI would have avoided most

of the expense had it moved to dismiss the suit on the

basis of the amendment. Eventually it did wake up and

as part of a settlement was dismissed from the suit with

prejudice, on the ground that it was indeed an employer

under the amended workers’ compensation law.

HLI’s basic position is simple: because it was an employer, ACE was obliged by the terms of the insurance

policy to defend it either directly or by reimbursing its

defense costs. ACE ripostes that HLI was not named as

an employer in the suit. But neither was Huntington, yet

ACE agreed to reimburse the companies for half the cost
No. 10-1073 7

of their defense; and HLI asked ACE to acknowledge

coverage of both companies. The tort claims against HLI

fell within the scope of the insurance policy; that they

had no possible merit, because of the amendment to

the workers’ compensation law, was irrelevant. “The

insured who has bought a liability policy that entitles

him to defense as well as indemnification wants to be

defended against claims of liability regardless of their

merit.” Scottsdale Ins. Co. v. Subscription Plus, Inc., 299

F.3d 618, 622-23 (7th Cir. 2002); see Trisler v. Indiana Ins.

Co., 575 N.E.2d 1021, 1023 (Ind. App. 1991); National Fire &

Casualty Co. v. Norris ex rel. West, 107 F.3d 531, 534-35

(7th Cir. 1997) (Indiana law).

But we must consider what exactly triggers the duty

to defend. A much-criticized (but never overruled) decision by the Indiana Supreme Court states that the “duty

to defend is determined solely by the nature of the complaint.” Transamerica Ins. Services v. Kopko, 570 N.E.2d

1283, 1285 (Ind. 1991). This could be interpreted to

mean that the insurance company only has to read the

complaint. But that interpretation is not inevitable;

“nature of the complaint” might refer to the allegations

of the complaint plus additional facts known or reasonably ascertainable by the insurer. This interpretation

has support in Indiana law, Monroe Guaranty Ins. Co. v.

Monroe, 677 N.E.2d 620, 624 (Ind. App. 1997); Indiana

Farmers Mutual Ins. Co. v. North Vernon Drop Forge, Inc.,

917 N.E.2d 1258, 1268-69 (Ind. App. 2009); cf. Auto-Owners

Ins. Co. v. Harvey, 842 N.E.2d 1279, 1291 (Ind. 2006),

reflecting the “modern trend” in insurance law. 14 Couch

on Insurance § 200:17 (3d ed, 2007); see, e.g., Scottsdale Ins.

Co. v. MV Transportation, 115 P.3d 460, 466 (Cal. 2005);
8 No. 10-1073

Advantage Homebuilding, LLC v. Maryland Casualty Co., 470

F.3d 1003, 1007-08 (10th Cir. 2006) (Kansas law); Columbia

Union Nat’l Bank v. Hartford Accident & Indemnity Co., 669

F.2d 1210, 1214-15 (8th Cir. 1982) (Missouri law). A

readily ascertainable fact in this case was that HLI is an

employer by virtue of the 2001 amendment to Indiana’s

workers’ compensation law.

HLI admits it made a dreadful mistake in denying in

the tort suit that it was an employer. It blames its law

firm for the mistake, and has sued the firm for malpractice. We cannot understand why any part of the costs

of that mistake should be shifted to ACE. HLI did not

ask ACE to handle its defense against the tort suit, but

only for reimbursement of its legal expenses. The duty

of reimbursement is limited to reasonable expenses, Employers Ins. of Wausau v. Recticel Foam Corp., 716 N.E.2d

1015, 1027 (Ind. App. 1999), as otherwise the insured

would have no incentive to economize; and HLI’s expenses were unreasonable—that indeed is the premise of

its malpractice suit. It is reduced to arguing that ACE

should have told it that its law firm was making a

dumb defense—that it had only to invoke the 2001 amendment to the workers’ compensation law to quash the

suit. But a liability insurer that does not control the

defense of the suit against its insured is not obliged to

give advice to the insured on legal strategy, whether in

the name of “good faith” or any other doctrine of insurance law. That way madness lies; any time an insured

lost a tort suit it would accuse its insurer of having failed

to intervene with correct legal advice, thus making the

insurer jointly liable with the insured’s law firm for the

latter’s malpractice. We’re not surprised to find no previ-
No. 10-1073 9

ous case in which an insured has made so audacious a

claim for defense costs.

Because HLI was, by virtue of Indiana law, a joint

employer, ACE was contractually obligated to reimburse the reasonable expense of HLI’s getting itself dismissed from the tort suit. But HLI is not claiming that

ACE has refused to pay that modest amount. It is complaining that ACE breached its duty to defend by failing

to advise HLI that HLI’s law firm was not defending

the suit properly. ACE had no duty to provide its

insured’s lawyers with legal advice.

AFFIRMED.

8-31-10