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Tuesday, December 28, 2004

Indiana Decisions - 7th Circuit posts three today

Allstate Insur Co v. Tozer, John (SD Ind., Tim A. Baker, Magistrate Judge)

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
summary judgment in favor of the insureds, and Allstate
appealed. For the reasons stated herein, we reverse. * * *

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
REVERSE and REMAND with instructions to enter summary
judgment in favor of Allstate.

Fidelity & Deposit v. Rotec Industries Inc (ND Ill.)
Before FLAUM, Chief Judge, and CUDAHY and POSNER,
Circuit Judges.
POSNER, Circuit Judge. The appeal in this diversity suit
governed by Illinois law requires us to examine a doctrine
of contract law known as “divisibility.” * * *

But what if, as the plaintiffs argued unsuccessfully to the
district court, the contract was divisible into two parts and
the first, having been fully executed by Atkinson, had not
been rejected when Atkinson rejected its executory contracts?
Then it would be as if there were two separate
contracts, one performed, one executory, with only the
second having been rejected in bankruptcy and the first
having passed to the plaintiffs in the sale to them of
Atkinson’s contract rights. * * *

No trial is necessary here in any event, if only because
Atkinson has failed to indicate what if any evidence it might
wish to present at a trial, beyond the documents constituting
the contract, that would bear on the issue of divisibility. All
the pertinent evidence is thus before us and as it supports
only one conclusion—that of indivisibility—there is no
occasion for a trial. The judgment in Rotec’s favor is
AFFIRMED.

Sutter Insurance Co v. Applied Systems Inc (ND Ill.)
Before BAUER, POSNER, and ROVNER, Circuit Judges.
POSNER, Circuit Judge. This is a diversity suit, governed by
Illinois law, for breach of contract. (Certain other claims
have dropped out.) The plaintiff, Sutter, is an insurance
company that purchased the “Diamond System,” a computer
software program, from the defendant, Applied, which
designs and sells business applications software. Sutter had
to replace its existing software because the provider had
announced that it would soon cease providing updates. The
district judge, after a bench trial, rejected Sutter’s claims but
also Applied’s counterclaim; only Sutter has appealed. * * *

But this is not to say that the district judge’s ruling was
necessarily wrong. Some of the evidence that we have referred
to in support of Sutter’s interpretation was contested
and the judge did not indicate which side he believed.
Although the language of the contract and the economic
setting favor Sutter, there may conceivably be enough contrary
evidence, depending on the resolution of the conflicts
in it, to support the judge’s decision. However, because his
findings do not trace a clear path from the evidence to the
judgment, we are constrained to vacate the judgment and
remand the case for further proceedings. * * * On
remand the judge can if he wishes conduct a further evidentiary
hearing. And since the total amount of money at stake
in this case is modest by the standards of modern federal
litigation, maybe this opinion will provide sufficient
guidance to enable the parties to settle the case.
VACATED AND REMANDED.

Posted by Marcia Oddi on December 28, 2004 01:30 PM
Posted to Ind. (7th Cir.) Decisions