## In the



# U n ited S ta tes Co urt o f Ap p ea ls

F o rth eS e v e n th C ir cu it
N os. 11

- 2762 & 11

- 2771 A MERI S URE I NSURANCE C OMPAN Y,

Plai nt i f f

- Count e r - D e

f e ndan t

-Appe l l ant, v. N ATI ONA L S URETY C ORPO RA T I ON, D ef endant-Cross -Claim ant-App el lant,
v. S CO TT S DALE I NSURANCE C OMPAN Y, D efend a nt-C ross-C la im a nt-A pp ellee.
Appeals from the United States District Court fo r the S outhernDi stricto f Indian a, Indian apolisDiv isi on. No . 1:0 9-cv-00 86 6-WTL-DKL

—WilliamT. Lawrence , Judge .
A RG UE D J AN UA RY 18, 2012

— D ECI DE D A UGUS T 17, 2012

Befo re B AUER, M A NI ON, a nd W OO D , C ircu it Judges. W OO D , C ircu it Judge. T his li tiga tion arises out of a dis p ute o veri nsurance cove ra ge f orwork- re l ate d2 N os. 11

- 2762 & 11

- 2771 inj uries su staine d by the e m p loyee ofa sub con tracto r. In d ian a S te el Fa b ric at in g (ISF ) su b m itt ed an d w o n a bid to p erform th e steel f abrication w ork fora proj ect. I SF th en enga ged Ce nt ral Steel Erec t o rs as a sub con tracto r. I n the cour se of that w or k, Bri an Col i p, a Cent ra l Ste el em plo yee, fel lfro m a ro ofand i nj ured hi m sel f
. H e fi l ed sui t aga i nst I SF und er a theo ry of vi car i ou s li abi l i ty an d settled his clai m s for $2.9 m ill io n. N ow I SF’s i ns ur er s, Am er i su r e I ns ur an ce Co m pan y ( Am er i su r e) a nd N ati onalS urety Cor pora ti on ( N ati onal ) , and Centra l Steel’s ins ure r, Sc o t t s d a le In s u r a n c e C o m p a n y (S c o t t s d a le), ar e quar re l i ng o verwh i ch ofthem i s res p on sibl e for bear i ng the cost ofthat settl em ent. T he di str i ct c ourtr ule d that each o ne was liab le fora shar e: A m er i sure f or $1 m i l l i on, S cot tsdal e for$1 m i l l i on, and N atio nal f o r $ 9 0 0 , 0 0 0
. F o r th e r e a s o n s th a tf o l l o w, w e a ffi r m.
I InN ov em b er 20 05 , M ar k Sw an so n A ss oc iat es , In c ., hi r ed I S F t o c o m pl et e st ee lf ab r i ca ti o n wo r kf o r a c o nstr ucti on proj ect i n I nd i ana. In Octobe r 2006 , I SF hi re d CentralS tee lto perfor m the neces sar y s tee ler ecti on w or k. A s par t o ft h at a rr angem ent, I SF and Centra l St eelsi gned a subcontr act i n w hi ch Centra lS tee l expli ci tl y a gr eed to pro cure ad eq uate i nsurance and to “defen d , in dem ni fy a nd hol d harm l ess [ I SF ]
. . . fro m and a gainst al l cl ai m s, acti ons, j ud gm ents, d am age s, l oss es and expenses” re l ate d to the a gr eem ent. I n ord er to fulfi lli ts obligati ons , Ce nt ral S t eel pu rc h as ed two i nsurance pol i ci es fro m S cot tsdal e. The fi rs tN os. 11

- 2762 & 11

- 2771 3

was a $ 1 m i l l i o n c o m m er ci alg en er all i ab i l i typo l i cy( th e Sco tts dale CG L pol i cy) , and the seco nd w as a $2 m i l l i on u m b re lla in su ra n c e p olic y (t h e Sc ot ts d a le U m b re lla pol i cy)
. I SF al so car ri ed gene ra land um bre l l a co ver age . I t had purchased $1 m i l l i on in com m er ci alge nera l liab ilit y c ov er ag e fro m A m er isu re an d $7m illion in u m b re lla c ov er ag e fro m N at ion al. I n N ove m b er 2 006, o ne m onth a fterI SF hi re d C entr al St eel, Bri an Col i p ( one ofCentra lS tee l ’ s e m p loy ees ) w as ser i ousl y i nj ured at w or k w hen he fell 30 feet t h r ou gh a h ole in t h e ro of of a bu ild in g. C olip filed su it ag ain stISF, arg u in g t h at ISF ow ed h i m a n on -d ele ga b le d u ty of ca re an d w as th er efo re vic ar iou sly lia b l e for h is i nj ur i es . Co l i p ev en tu al l y se tt l ed th at su i t f o r $ 2. 9 m i l l i o n, an d the thr ee i ns ur an ce c om p ani es pa i d the s et tl ement am ount a ccor ding to the t er m s o fa fund i ng ag reem en t. That ag re em ent pr ovi ded thatS cot tsdal e wo uld pay $1 m i l l i on o ut o fthe Sco tts dale CG L p oli cy and $950, 000 ou t of th e Scottsd ale U m b rell a p oli cy, w hile A m erisure w oul d pay the re m ai ni ng $9 50, 000. In i ti al l y, N ati onal h ad n o ob liga tio n to co n tr ibu te . Th e a gr ee m en t e x p l i c i t ly r es er ve d the r i g ht s o fthe pa r ti es t o s ee kr ei m bur sem en t o r c o ntrib ut i o n fr o m e a c h o the r . Amer i s ur e t o o ka dva n ta ge of th at p ro vis ion an d filed su it a ga in st Sc ot ts d ale an d Ce nt r ali n the Uni te d S ta te s Di st r i ct Co ur t f o r the So ut h er n Dis tr i ct o fInd i ana. S cot tsdal e r esponded w i th counter
- and c ro ss- cl ai m s a gainst Am er i sure and N ati o nal. T he di st r i ctc o ur t di smi ss ed Cen tr alfr o m the l i ti gat i on a nd g ra nted sum m ar y j ud gm ent in f avo r of Sco tts dale , r uling tha t i t had no obl i gat ion t o pay u n d er its u m b re lla p o l i c y . I t t h u s a w ar d ed Sc ot ts d ale4 N os. 11

- 2762 & 11

- 2771 $50,000 from A m erisure (th ereby ex ha us ting A m erisure’s $1 m i l l i on pol i cy) and the re m ai ni ng $9 00, 000 from N atio n al. A m er isu re an d N at ion al n ow ap p ea l.

II T he p r im ary issue on ap p eal rel ates to Scott sd ale’s o bl i g ati o n t o c o nt r ibut e to Co l i p’ s se tt l ementunde r the S co tt sda l e Um br el l a po l i cy . S co tt sda l e ar g ue s th atthe U m bre l l a pol i cy conta i ns an e xpli c i t e xcl usi on that exem pts i t fro m payi ng; A m er i sure and N ati onalco unter th at Sc ot ts d ale is es to p p ed from rely in g o n t h at p ro visi on, and i n any eve nt i t doe s no t a pp l y her e.
A A s us ua l, i n ord er to reso lv e t he disp ut e w e m us t turn to the g o ve r ni ng p oli cy to s ee whati t sa y s. In the Sco tts dale U m bre l l a pol i cy, we fi nd a provi si on enti tl ed the “ Cross Li abi l i ty Ex cl usi on, ” which s ays that : Th i s i ns ur a nc e do e s n o ta pp l y t o ‘ b o di l y i nj ur y, ’ ‘ pr o per ty dam age ’ o r ‘ perso nalo r advert isin g inj ury’ ar i s i ngo uto fa c l a i m o r s ui tb r o ughtb y a nyi nsured a g a i ns ta no the r i ns ur e d. T h e p ar tie s a ll agr ee th at C olip su ffer ed “ b od ily inj u ry ,” a nd the y a l l a c c e pt tha t I S F a nd Co l i p a r e b o th “i nsure d” un d er policy. A m erisure an d N ationa l argu e, how ever, th at C olip’ s inj ury did not“a ri s[ e] o ut o fa cl ai m o r sui t.” A s they s ee i t, Col i p’s inju ryar i ses out ofa w or kpl ace acci dent, but the l i ab i l i ty f orthati nj ury ar i ses o ut o fN os. 11

- 2762 & 11

- 2771 5 Col i p’s l aw sui t. Ergo , theyco ncl ud e, th e Excl usi on does n ot ap ply to Col i p’s case , eve n though i t m i ght apply if a l andlo rd were i nj ured wh i l e t ry i ng per sonal l y t o ev ict a te n an t, or if so m eo n e w e r e t o s lip an d fall w h ile fi l i ng papers with a co urt. Thi s do es no t st r i k e us as a se ns ibl e r ea d ing of the p olic y l a n gu ag e; in st ea d , i t is a st ra in ed effo rtto av oid th e n a t u r a l me a n i n g o f th e wo r d s wh i l e a t th e s a me t i me prese rv i ng j u st enough t o avo i d m aking the pro vi si on i l l usor y. The appel l ants str i dentl y a rgue thatbe c au se thi s l i ti gat i on i s between i nsurance com panie s, w e m ust const rue the S cot tsdal e Um bre l l a pol i cy fro m “a neutr al sta nce, ” Indi ana Lumbe r m e ns M ut
. Ins . Co. v. St at e s m an Ins . Co. , 29 1 N
. E.2 d 897, 89 9 ( I nd
. 19 73)
. Fro m t h at , they r ea so n tha t th e r i sko fa ny dr aftinge r r o r g o es t o the dra ft e r . Bu te v e n i fwe a g r e e d wi th the m t hat Sco tts dale ’ s pol i cy i s uncl ear, thei r concl usi on does not f o l l o w fr o m Ind ia na Lu m berm ens. Wh a t t h e S u p r e me Court of I nd i ana a ctual l y r equi re s in thi s type o f c on tr ac t litig at ion, a n d w h at w e w ill ac c or d in gly d o, is t o “ s e e ko u tthe ge ne r a li n t e n to fth e c o n t r a c tfr o m a neutra lst ance. ” Id. at89 9; se e a l so Burke t tv. Am e r i ca n Fam. Ins . Grp. , 7 37 N
. E
. 2d 4 47, 452 -53 (Ind
. Ct
. A p p . 2000). H er e, the s tr ai g ht f o r war d way t o r ea d the po l i cye xc l u s i o n i s a s o n e th a t a p p l i e s t o l a ws u i t s b et wee n t wo parti es covere d bythe sam e insurance

— oras the pol i cy pu ts i t, “a cl ai m o r sui t br ought bya nyi ns ur e d aga inst anothe r i nsured .” ( Em phasi s a dd ed. ) Thi s m ake s s ense. W i th o utthe Exc l us i o n, p ar ti es i ns ur ed unde r the sa m e poli cywoul d ha ve no di sinc en ti ve t o s ue o ne a n-6 N os. 11

- 2762 & 11

- 2771 ot h er , sin c e o n ly th e in s u r a n c e c om p an y w ou ld u ltim at ely bear th e co sto fthe j udg m en t. Thi s se ts up w hat i s kno wn t o e c o no mi s t s a s a mo r a lh a z a r d, be cause the pa r tyt ak i ngthe r i skwi l lno t be arthe cos ts ofit s behavi or . The Exclusi on co untera cts that p rob le m by eli m inating th e po ssibil ity ofa third p arty’s s ub s i di z a t i o n o fs uc h a l a ws ui t . S ee M illerv. St
. Paul M er cu ry Ins . Co. , 6 8 3 F
. 3 d 8 7 1 , 8 7 2 ( 7 th C i r . 2 0 1 2 )
. We ar e s ati sfi ed that the Excl usi on’ s l anguage

— i n c l u d i ng its t itle , wh i ch cl ar i fi es that i t a pp l i es to i nstance s o f cro ss- l i abi l i ty

— r efl ec ts the i nt en t o fS co tt sdal e an d Ce n tr alS tee lnotto purchase i nsurance that w oul d cove r perso nali nj u ryl aw sui ts between i nsured par ti es und er the Um bre l l a pol i cy. Inres p on se , A m er isu re an d N at ion al a rg u e t h at it is thi s r eadi ng o fthe C ro ss Liab i l i ty Ex cl usi on that im p erm issibly m akes th e p o lic y i ll us ory, becau se it pu rport s to gr ant cove ra ge f or Central St eel ’ s indem ni ty o b l i g a t i o ns t o I S F , b utthen i tdo e s n o ta c t ua l l y p r o v i de any s u c h c overa ge. But thi s doe s no t do the pol i cy j usti ce . The r e ar e m an y i ns ta nc es i n whi cha c o m pan y m i ght ne ed to cal lo n i ts com m er cial gener all i abi l i ty in su rance ( oran um bre l l a e xtensi on o fthati nsurance) w h er e t h ird p ar tie s a re inv olv ed . B y e x c lu d in g on ly cove ra ge f orsui ts between two nam ed i nsured p ar ti es, the pol icy r em ai ns i n fullf or ce forcas es that i nvol ve a thi rd- party( e.g., de l i v e r y pe o pl e , v i s i t o r s t o the si te, o r o th erc o nt r ac to r s no t i nv o l ve d in the s te elw ork )
. The wor sto ne mighti m ag ine i s th at, b y a g r ee i ngt o the C ro ss L iab ility E x c lu s i o n, C en tr al St ee l failed to fu lfill its obli g a t ion to I SF un d er the su bcon tract to p rocu reN os. 11

- 2762 & 11

- 2771 7 ad eq ua te ind em nity cove r a g e. T ha t qu estion, how ever, i s no t be f o r e us . W e ar e sa tisfi ed bo ththa t th e Ex cl usi on a pp l i es t o th i s ca se and that thi s doe s no t re nd erthe pol i cy i l l usor y.
B H avi ng es tabl i shed that the Cro ss Liab i l i ty Ex c l usi on sa ve s Scotts d al e fr o m a ny o bl i g at i o n t o dr aw o n the U m bre l l a pol i cy to fund Col i p’s set tl em ent, we m ove o n to th e s ec on d qu es tio n th e p ar tie s h av e ra ise d : D id S co tt sda l e wai t to o l o ngt o a ss er t i ts right s unde r the E x c lu sio n ? A m er isu re an d N at ion al a rg u e t h at Sc ot ts d ale di d not bringup th e Exclus i o n un ti lt o o l at e i n the ga m e, an d th at t h i s la te as se rt ion co n st itu te s a n u n fair at te m p t b y Sc ot ts d ale to “m en d its h old .” T h e me n d

- th e - h o l d do c t r i n e ( wh i c h a c q u i r e d i t s n a me from a ni netee nth-c enturywrestl i ng te rm , se e Har b or Ins . Co. v. Co ntin enta l Bank Corp. , 92 2 F
. 2d 357, 36 2 ( 7th Cir
. 19 90) ) pre vents a de fen dant i n contr act l i ti gat i on fr o m “ ch an g [ i ng ] i ts de fens es ” m i dst r ea m wi th o uta ny r ea so n for d oin g s o. Rye rs on Inc . v. Fe de r al Ins . Co. , 67 6 F. 3d 610, 61 4 ( 7th Ci r. 201 2). A pp el l ants ar gue that Sco tts dale ’s l ett ero fJ une 24, 20 08, and other pre- tr i al co m m un ications, did not alert them to Scottsd ale’s i ntent to rely on the Exclusi on; i nstea d, they say, Sc ot ts d ale m en tio n ed on ly a n u m b er of ot h er , m at er ially differ ent, d efenses. Thi s s hi ft in str ate gy, theyas ser t, p rej udi ce d the m . W e fi nd thi s ar g um en t una va i l i ng f orse ver alr eas ons.8 N os. 11

- 2762 & 11

- 2771 I n the first pl ac e, i t i s no t ata l lc l ea r tha t th e I ndi an a co ur ts ha ve a ny i nt en ti o n o fa do ptingo r a ppl ying th e m end-the

- hol d doctrine. W e ca n fi nd o nl y o ne deci si on by any Ind i ana s tat e co urt that m enti ons i t, and that case was d ecided ove r ei ght deca des ag o, i n 192 8. S ee Nat i onal Ham e& Chai n Co. v. Rob e r t s on , 1 6 1 N. E. 8 5 1 ( I nd
. Ct. A pp . 19 28)
. Ind ee d , a t pr ese nt the doctr i ne i s a pp l i ed in only a m inority ofthe sta tes. See Robert H
. Si tkoff, Com m ent, ‘M e nd t heHol d’an d E rie : Why an O b s cu r eContr a c ts D o ctrin e Sh o uld C o ntro l in Fed eral D iversity C a ses , 6 5 U. C HI . L. R EV . 1 05 9, 1 06 8- 77( 19 98 )
. Abs en t an y i ndi ca ti o n tha t th e I ndi an a co ur ts woul d a ppl y the d octrine atal l, we see no w ar ra nt f orta ki ng the i ni ti ati ve to use i t her e. Bute ve n i fw e t ho ug httha t th e I ndi an a co ur ts might bor ro w the d oc tri ne fro m thei r nei ghbor s in I l l i noi s, o r ifanot he r form of estop p el m ight ap p ly, A m erisure’s and N ati onal ’ s s ubstanti ve ar gum ents ar e unavai l i ng. S co tt sda l e’ s J une 2 4 l et te r i s no t as c o ns tr aini nga s th e ap p ella n ts u rg e. In fa c t, Sc ot ts d ale n oton ly sp ec ifica lly sta ted i ts “posi ti on” that the Sco tts dale U m bre l l a co ve r a g e wa s s u b o r d i n a t e t o th e Ame r i s u r e p o l i cy , b ut it al so exp li citly reserved Scottsd ale’s “ri gh t to assert defe nses re gar ding any of t h e o therte rm s, co nd i ti ons, or ex c lu sio n s o ft h is p olic y.” T h u s, th e p ar tie s h ad am p le n ot ice of Sc ot ts d ale ’s in te n t t o “ as se rtall defe nses to c ov e r a ge av aila b le t o it u n d er th e p olic y” (em p h as is add ed). A nd al though i t i s t rue that Sco tts dale did not s p e c i fica lly in vo ke th e C ro ss L iab ility E x c lu sio n in these p re - tr i alco m m unica ti ons, we re centl y s ai d that
“ men d the h o l d d o e s n o tf orbi d the de fe nd a ntt o a ddN os. 11

- 2762 & 11

- 2771 9

a defen se a fte r b eings ue d” be ca us e “[ t] o r equi r e a p o te ntial d efend an t to com m it irr evoc ably to d efense s b e fore he i s su ed w o uld be un reason able to the p oint of abs urdity. ” Rye rs on , 67 6 F
. 3d at 614. Finally, w e d ou bt th at A m erisure an d N ational w e re unfai rl y surpri sed or prej ud i ced by the a l l ege dly“e l eve nth hour” as serti on o fthe Cross Li abi l i ty Ex cl usi on a t l i ti gation. Ju s t as Scottsd ale had w arn ed i t w ou ld d o before the c om m encem ent o fthi s l i ti gat i on, i ts com p l ai nt st ate d i ts i nt en ti o n t o rel y o n the e xc l us i o ns c o nt aine d i n the S c o t t s da l e Umbr e l l a pol i c y . T he a pp e l l a nt s c o nc e de th atthe y ha d a cc es s to the c o m pl et e t erm s o fthe S co tt sda l e Um br el l a po l i cythr o ug ho utthi s l i ti g at i o n. A m er i sure a nd N ati onalea si l y c oul d have uncov er ed the Cro ss Liab i l i ty Ex cl usi on a nd prep ar ed f ori ts eve ntu al in tr oducti on in the dist ri ct c ourt . W e decl i ne, und erthes e ci rcum sta nces, to fi nd t h at the appell ants w er e pr ej ud i ced by Sco tts dale ’ s l i ti gat i on co nd uct.
C Lastl y, A m er i sure and N ati onalar gue that the m end-the

ho l d do ct r i ne pr ev en ts S co tt sda l e fr o m r ec o ve r i ng any m or e than $45 0, 000 ( ra therthan $950 ,00 0), because i t i na dve r te nt l y ty p ed a “ 4” i ns te ad o fa “ 9” i n the fi rs t co l um n i n so m e o fi ts fil i ngs. A l though thi s doe s str i ke u s as quit e a car el ess er ro r

— th e 4 k eyo n a no r m alk eybo ar d i s no wher e ne arthe 9 k ey, e ve n o n the num er i c pad

— w e d ec l i ne to hol d that these i sol ate d er r o r s l i m i t S co tt sda l e’ s av ai l ab l e sc o pe o f reli ef
. As the d i str i ct c ourtnot ed, S cot tsdal e’ s t ri alfi l i ngs r epeate d ly10 N os. 11

- 2762 & 11

- 2771

re fl ect i ts i ntenti on t o re cou p allpaym ents m ade under i ts um bre l l a pol i cy. Sco tts dale ’ s “St ate m ent ofSp ec i al Dam age s, ” a d oc u m ent r equi re d und erthe dist ri ct c ou rt ’s C as e M an ag em en t P lan fo r t h is litig at ion, clea rly sta ted thati t was se eking “N in e H und re d Fi fty Tho us an d a nd No Cen ts Do l l ar s ( $950 , 00 0. 00 )
. ” Re ading th e fil e as a w h ole , th er e is n o d ou b t th at S c ot ts d ale w as tr yi ng to r eco verthe full$9 50, 000 th at it h ad been r e q u i r e d t o c o n t r ib u t e fr o m th e U mb r e l l a p o l i c y . We agr ee w i th the di str i ct c ourtthatS cot tsdal e was ent itle d to r ec o up the se funds pur su an t to the po l i cy ’ s te r m s an d that ther e a re no eq uit abl e ba rs to S cot tsdal e’ s r eco very o fa l ls uchpa y m en ts i t h as m ade
. The j udg m en t i s A FFI RMED .

8- 17- 12