In the

United States Court of Appeals

For the Seventh Circuit

Nos. 11-2762 & 11-2771

AMERISURE INSURANCE COMPANY,

Plaintiff-Counter-Defendant-Appellant,

v.

NATIONAL SURETY CORPORATION,

Defendant-Cross-Claimant-Appellant,

v.

SCOTTSDALE INSURANCE COMPANY,

Defendant-Cross-Claimant-Appellee.

Appeals from the United States District Court 

for the Southern District of Indiana, Indianapolis Division.

No. 1:09-cv-00866-WTL-DKL—William T. Lawrence, Judge.

ARGUED JANUARY 18, 2012—DECIDED AUGUST 17, 2012

Before BAUER, MANION, and WOOD, Circuit Judges.

WOOD, Circuit Judge. This litigation arises out of a

dispute over insurance coverage for work-related
2 Nos. 11-2762 & 11-2771

injuries sustained by the employee of a subcontractor.

Indiana Steel Fabricating (ISF) submitted and won a bid

to perform the steel fabrication work for a project. ISF

then engaged Central Steel Erectors as a subcontractor.

In the course of that work, Brian Colip, a Central Steel

employee, fell from a roof and injured himself. He filed

suit against ISF under a theory of vicarious liability

and settled his claims for $2.9 million. Now ISF’s

insurers, Amerisure Insurance Company (Amerisure) and

National Surety Corporation (National), and Central

Steel’s insurer, Scottsdale Insurance Company (Scottsdale),

are quarreling over which of them is responsible for

bearing the cost of that settlement. The district court ruled

that each one was liable for a share: Amerisure for

$1 million, Scottsdale for $1 million, and National

for $900,000. For the reasons that follow, we affirm.

I

In November 2005, Mark Swanson Associates, Inc.,

hired ISF to complete steel fabrication work for a construction project in Indiana. In October 2006, ISF hired

Central Steel to perform the necessary steel erection

work. As part of that arrangement, ISF and Central

Steel signed a subcontract in which Central Steel

explicitly agreed to procure adequate insurance and to

“defend, indemnify and hold harmless [ISF] . . . from

and against all claims, actions, judgments, damages,

losses and expenses” related to the agreement.

In order to fulfill its obligations, Central Steel purchased two insurance policies from Scottsdale. The first
Nos. 11-2762 & 11-2771 3

was a $1 million commercial general liability policy (the

Scottsdale CGL policy), and the second was a $2 million

umbrella insurance policy (the Scottsdale Umbrella

policy). ISF also carried general and umbrella coverage.

It had purchased $1 million in commercial general

liability coverage from Amerisure and $7 million in

umbrella coverage from National.

In November 2006, one month after ISF hired Central

Steel, Brian Colip (one of Central Steel’s employees)

was seriously injured at work when he fell 30 feet

through a hole in the roof of a building. Colip filed suit

against ISF, arguing that ISF owed him a non-delegable

duty of care and was therefore vicariously liable for his

injuries. Colip eventually settled that suit for $2.9 million,

and the three insurance companies paid the settlement

amount according to the terms of a funding agreement.

That agreement provided that Scottsdale would pay

$1 million out of the Scottsdale CGL policy and $950,000

out of the Scottsdale Umbrella policy, while Amerisure

would pay the remaining $950,000. Initially, National

had no obligation to contribute. The agreement explicitly

reserved the rights of the parties to seek reimbursement

or contribution from each other. Amerisure took advantage of that provision and filed suit against Scottsdale

and Central in the United States District Court for the

Southern District of Indiana. Scottsdale responded with

counter- and cross-claims against Amerisure and National. The district court dismissed Central from the

litigation and granted summary judgment in favor of

Scottsdale, ruling that it had no obligation to pay

under its umbrella policy. It thus awarded Scottsdale
4 Nos. 11-2762 & 11-2771

$50,000 from Amerisure (thereby exhausting Amerisure’s

$1 million policy) and the remaining $900,000 from National. Amerisure and National now appeal.

II

The primary issue on appeal relates to Scottsdale’s

obligation to contribute to Colip’s settlement under the

Scottsdale Umbrella policy. Scottsdale argues that the

Umbrella policy contains an explicit exclusion that

exempts it from paying; Amerisure and National counter

that Scottsdale is estopped from relying on that provision, and in any event it does not apply here.

A

As usual, in order to resolve the dispute we must turn

to the governing policy to see what it says. In the

Scottsdale Umbrella policy, we find a provision entitled

the “Cross Liability Exclusion,” which says that:

This insurance does not apply to ‘bodily injury,’ ‘property damage’ or ‘personal or advertising injury’

arising out of a claim or suit brought by any insured

against another insured.

The parties all agree that Colip suffered “bodily injury,”

and they all accept that ISF and Colip are both “insured”

under policy. Amerisure and National argue, however,

that Colip’s injury did not “aris[e] out of a claim or suit.”

As they see it, Colip’s injury arises out of a workplace

accident, but the liability for that injury arises out of
Nos. 11-2762 & 11-2771 5

Colip’s lawsuit. Ergo, they conclude, the Exclusion does

not apply to Colip’s case, even though it might apply if

a landlord were injured while trying personally to

evict a tenant, or if someone were to slip and fall while

filing papers with a court.

This does not strike us as a sensible reading of the

policy language; instead, it is a strained effort to avoid

the natural meaning of the words while at the same time

preserving just enough to avoid making the provision

illusory. The appellants stridently argue that because

this litigation is between insurance companies, we must

construe the Scottsdale Umbrella policy from “a neutral

stance,” Indiana Lumbermens Mut. Ins. Co. v. Statesman

Ins. Co., 291 N.E.2d 897, 899 (Ind. 1973). From that, they

reason that the risk of any drafting error goes to the

drafter. But even if we agreed with them that

Scottsdale’s policy is unclear, their conclusion does not

follow from Indiana Lumbermens. What the Supreme

Court of Indiana actually requires in this type of

contract litigation, and what we will accordingly do, is

to “seek out the general intent of the contract from a

neutral stance.” Id. at 899; see also Burkett v. American

Fam. Ins. Grp., 737 N.E.2d 447, 452-53 (Ind. Ct. App. 2000).

Here, the straightforward way to read the policy exclusion is as one that applies to lawsuits between two

parties covered by the same insurance—or as the policy

puts it, “a claim or suit brought by any insured against

another insured.” (Emphasis added.) This makes sense.

Without the Exclusion, parties insured under the

same policy would have no disincentive to sue one an-
6 Nos. 11-2762 & 11-2771

other, since only the insurance company would ultimately bear the cost of the judgment. This sets up

what is known to economists as a moral hazard,

because the party taking the risk will not bear the

costs of its behavior. The Exclusion counteracts that

problem by eliminating the possibility of a third party’s

subsidization of such a lawsuit. See Miller v. St. Paul

Mercury Ins. Co., 683 F.3d 871, 872 (7th Cir. 2012). We

are satisfied that the Exclusion’s language—including

its title, which clarifies that it applies to instances of

cross-liability—reflects the intent of Scottsdale and

Central Steel not to purchase insurance that would cover

personal injury lawsuits between insured parties under

the Umbrella policy.

In response, Amerisure and National argue that it is

this reading of the Cross Liability Exclusion that

impermissibly makes the policy illusory, because it purports to grant coverage for Central Steel’s indemnity

obligations to ISF, but then it does not actually provide

any such coverage. But this does not do the policy justice. There are many instances in which a company

might need to call on its commercial general liability

insurance (or an umbrella extension of that insurance)

where third parties are involved. By excluding only

coverage for suits between two named insured parties,

the policy remains in full force for cases that involve

a third-party (e.g., delivery people, visitors to the site,

or other contractors not involved in the steel work). The

worst one might imagine is that, by agreeing to the

Cross Liability Exclusion, Central Steel failed to fulfill

its obligation to ISF under the subcontract to procure
Nos. 11-2762 & 11-2771 7

adequate indemnity coverage. That question, however,

is not before us. We are satisfied both that the

Exclusion applies to this case and that this does not

render the policy illusory.

B

Having established that the Cross Liability Exclusion

saves Scottsdale from any obligation to draw on the

Umbrella policy to fund Colip’s settlement, we move on

to the second question the parties have raised: Did

Scottsdale wait too long to assert its rights under the

Exclusion? Amerisure and National argue that Scottsdale

did not bring up the Exclusion until too late in the

game, and that this late assertion constitutes an unfair

attempt by Scottsdale to “mend its hold.”

The mend-the-hold doctrine (which acquired its name

from a nineteenth-century wrestling term, see Harbor

Ins. Co. v. Continental Bank Corp., 922 F.2d 357, 362 (7th

Cir. 1990)) prevents a defendant in contract litigation

from “chang[ing] its defenses” midstream without any

reason for doing so. Ryerson Inc. v. Federal Ins. Co., 676

F.3d 610, 614 (7th Cir. 2012). Appellants argue that

Scottsdale’s letter of June 24, 2008, and other pre-trial

communications, did not alert them to Scottsdale’s

intent to rely on the Exclusion; instead, they say,

Scottsdale mentioned only a number of other, materially

different, defenses. This shift in strategy, they assert,

prejudiced them. We find this argument unavailing

for several reasons.
8 Nos. 11-2762 & 11-2771

In the first place, it is not at all clear that the Indiana

courts have any intention of adopting or applying the

mend-the-hold doctrine. We can find only one decision

by any Indiana state court that mentions it, and that

case was decided over eight decades ago, in 1928. See

National Hame & Chain Co. v. Robertson, 161 N.E. 851 (Ind.

Ct. App. 1928). Indeed, at present the doctrine is applied

in only a minority of the states. See Robert H. Sitkoff,

Comment, ‘Mend the Hold’ and Erie: Why an Obscure Contracts Doctrine Should Control in Federal Diversity Cases,

65 U. CHI. L. REV. 1059, 1068-77 (1998). Absent any indication that the Indiana courts would apply the

doctrine at all, we see no warrant for taking the initiative to use it here.

But even if we thought that the Indiana courts might

borrow the doctrine from their neighbors in Illinois, or

if another form of estoppel might apply, Amerisure’s

and National’s substantive arguments are unavailing.

Scottsdale’s June 24 letter is not as constraining as the

appellants urge. In fact, Scottsdale not only specifically

stated its “position” that the Scottsdale Umbrella coverage was subordinate to the Amerisure policy, but

it also explicitly reserved Scottsdale’s “right to assert

defenses regarding any of the other terms, conditions,

or exclusions of this policy.” Thus, the parties had ample

notice of Scottsdale’s intent to “assert all defenses to

coverage available to it under the policy” (emphasis

added). And although it is true that Scottsdale did not

specifically invoke the Cross Liability Exclusion in

these pre-trial communications, we recently said that

“mend the hold does not forbid the defendant to add
Nos. 11-2762 & 11-2771 9

a defense after being sued” because “[t]o require a potential defendant to commit irrevocably to defenses before

he is sued would be unreasonable to the point of absurdity.” Ryerson, 676 F.3d at 614.

Finally, we doubt that Amerisure and National were

unfairly surprised or prejudiced by the allegedly “eleventh

hour” assertion of the Cross Liability Exclusion at litigation. Just as Scottsdale had warned it would do before

the commencement of this litigation, its complaint stated

its intention to rely on the exclusions contained in the

Scottsdale Umbrella policy. The appellants concede

that they had access to the complete terms of the

Scottsdale Umbrella policy throughout this litigation.

Amerisure and National easily could have uncovered

the Cross Liability Exclusion and prepared for its

eventual introduction in the district court. We decline,

under these circumstances, to find that the appellants

were prejudiced by Scottsdale’s litigation conduct.

C

Lastly, Amerisure and National argue that the mend-thehold doctrine prevents Scottsdale from recovering

any more than $450,000 (rather than $950,000), because

it inadvertently typed a “4” instead of a “9” in the

first column in some of its filings. Although this does

strike us as quite a careless error—the 4 key on a

normal keyboard is nowhere near the 9 key, even on the

numeric pad—we decline to hold that these isolated

errors limit Scottsdale’s available scope of relief. As the

district court noted, Scottsdale’s trial filings repeatedly
10 Nos. 11-2762 & 11-2771

reflect its intention to recoup all payments made under

its umbrella policy. Scottsdale’s “Statement of Special

Damages,” a document required under the district

court’s Case Management Plan for this litigation, clearly

stated that it was seeking “Nine Hundred Fifty

Thousand and No Cents Dollars ($950,000.00).” Reading

the file as a whole, there is no doubt that Scottsdale

was trying to recover the full $950,000 that it had been

required to contribute from the Umbrella policy. We

agree with the district court that Scottsdale was entitled

to recoup these funds pursuant to the policy’s terms and

that there are no equitable bars to Scottsdale’s recovery of all such payments it has made. The judgment

is AFFIRMED.

8-17-12