Jupiter Aluminum v. Home Insur Co ( 2000 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 99-2935
JUPITER ALUMINUM CORPORATION,
an Illinois Corporation,
Plaintiff-Appellant,
v.
HOME INSURANCE COMPANY and
HARTFORD STEAM BOILER INSPECTION
AND INSURANCE COMPANY,
Defendants-Appellees.
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 96 C 3060--Robert W. Gettleman, Judge.
Argued March 31, 2000--Decided August 22, 2000
Before POSNER, RIPPLE and ROVNER, Circuit Judges.
RIPPLE, Circuit Judge. Jupiter Aluminum Corp.
("Jupiter") operates an aluminum mill in Hammond,
Indiana. In March 1993, the drive motor for a
reducing stand at the aluminum mill failed, and
the motor was not returned to service until two
months later. At the time of the accident,
Jupiter held an insurance policy, issued by Home
Insurance Co. ("Home"), and reinsured by Hartford
Steam Boiler Inspection and Insurance Co. ("HSB")
(collectively, "the insurance companies"), that
covered the property damage and business
interruption loss resulting from the drive
motor’s failure.
Although Jupiter and the insurance companies
reached an agreement as to the amount of property
damage suffered by Jupiter, the parties could not
agree on the amount of Jupiter’s business
interruption loss. To resolve the dispute over
the amount of the business interruption loss,
Jupiter requested an appraisal in accordance with
the terms of the insurance policy. The insurance
companies agreed to the appraisal, which was
concluded in January 1996. The appraisal set the
total loss at $66,105.
Dissatisfied with the amount awarded in the
appraisal, however, Jupiter filed this action for
declaratory relief in April 1996, in an Illinois
circuit court to set aside the appraisal
award./1 The insurance companies removed the
action to federal district court. See 28 U.S.C.
sec. 1441(a)./2 The insurance companies asserted
a counterclaim against Jupiter for unjust
enrichment in order to recover the difference
between the appraisal award and an advance the
companies had paid to Jupiter while the parties
were attempting to settle their dispute over
Jupiter’s business interruption loss.
The insurance companies moved for summary
judgment on Jupiter’s claim and on their
counterclaim. The district court granted the
motion and entered judgment in favor of the
insurance companies. Jupiter now appeals. For the
reasons set forth in the following opinion, we
affirm the judgment of the district court.
I
BACKGROUND
A.
The facts as we describe them are largely not in
dispute, in part because Jupiter failed to
respond with an appropriate statement of material
facts to the summary judgment motion tendered by
the insurance companies./3 In response to the
summary judgment motion, Jupiter submitted a
document that simply identified, without
citations to the record, those paragraphs from
the insurance companies’ statement of facts that
Jupiter found acceptable or not acceptable. In
addition, Jupiter submitted a list of portions
from individual depositions that it believed to
be material to the case; Jupiter failed to
provide page citations to accompany some of the
references to the depositions. Because the
district court concluded that Jupiter’s
submission failed to comply with the requirements
of the local rule, the court accepted the facts
as set forth by the insurance companies.
Jupiter has not challenged the district court’s
enforcement of the local rule, and having
reviewed Jupiter’s submission ourselves, we agree
with the district court that Jupiter did not
comply with the requirements of the local rule.
"’An answer that does not deny the allegations in
the numbered paragraph with citations to
supporting evidence in the record constitutes an
admission.’" Michas v. Health Cost Controls of
Ill., Inc., 209 F.3d 687, 689 (7th Cir. 2000)
(quoting McGuire v. United Parcel Serv., 152 F.3d
673, 675 (7th Cir. 1998)). Therefore, we too have
accepted as true all material facts as submitted
by the insurance companies and not properly
contested by Jupiter./4
B.
Jupiter is incorporated in Illinois, but the
company’s principal place of business is Hammond,
Indiana. In 1993, Jupiter held an insurance
policy, issued by Home and reinsured by HSB, for
its Hammond aluminum mill and one other Jupiter
property in that city. The policy provided first
party property, boiler, machine, and business
interruption coverage. Jupiter obtained the
policy through a Chicago insurance broker,
Alexander & Alexander.
In March 1993, the drive motor for one of the
reducing stands at the aluminum mill failed, and
it was not returned to service until May 6, 1993.
On May 6, Jupiter filed a claim with the
insurance companies stating that it had suffered
a loss of over $100,000, including its business
interruption loss, as a result of the drive
motor’s failure. In response to this claim, the
insurance companies conducted an investigation,
and, after making an adjustment for Jupiter’s
deductible under the policy, the parties agreed
that the property damage portion of Jupiter’s
loss amounted to $12,270.
The parties could not reach an agreement as to
the amount of Jupiter’s business interruption
loss. In November 1993, the insurance companies
paid Jupiter a $100,000 advance as partial
payment for the agreed property damage loss and
Jupiter’s yet-unresolved claim for its business
interruption loss. Jupiter estimated that its
business interruption loss exceeded $500,000, and
in July 1994, it submitted a proof of claim to
the insurance companies in the amount of
$528,113. The insurance companies, however,
estimated the business interruption loss to be
closer to $100,000, after accounting for the
deductible.
With the parties at an impasse, Jupiter
requested a formal appraisal, in accordance with
the terms of the insurance policy, to determine
the amount of its loss. The policy’s appraisal
provision reads as follows:
If the Insured and the Company fail to agree as
to the amount of the loss, each shall, on the
written demand of either, made within sixty (60)
days after receipt of proof of loss by the
Company, select a competent and disinterested
appraiser and the appraisal shall be made at a
reasonable time and place. The appraisers shall
first select a competent and disinterested umpire
and, failing for fifteen (15) days to agree upon
such umpire, then on request of the Insured or
the Company, such umpire shall be selected by a
judge of a court of record in the county and
state in which such appraisal is pending. The
appraisers shall then appraise the loss in
accordance with the insurance conditions, stating
separately the amount of loss, and failing to
agree, shall submit their differences to the
umpire. An award in writing of any two (2) shall
determine the amount of loss. The Insured and the
Company shall each pay his or its chosen
appraiser and shall bear equally the other
expenses of the appraisal and the umpire. The
Company shall not be held to have waived its
rights by any act relating to appraisal.
R.89 (Policy TR 789281, sec. I, K). The insurance
companies agreed to the appraisal, and both
Jupiter and the insurance companies designated
their appraisers and selected the umpire in
accordance with the procedure set forth in the
policy. The parties agreed that the only matter
to be resolved by the appraisal would be the
total loss in production and sales that Jupiter
had suffered while the drive motor had not been
operational.
Both appraisers conducted an appraisal and then
submitted findings to the umpire. In January
1996, the appraisers met with the umpire, who
placed three of his own loss calculations on the
table. The umpire’s calculations were lower than
those of the appraisers for both Jupiter and the
insurance companies. The umpire then asked the
appraiser for the insurance companies to choose
one of the umpire’s three calculations on the
table. The insurance companies’ appraiser picked
the highest of the three, and both the umpire and
the insurance companies’ appraiser signed the
award in the amount of $66,105 for the total loss
($53,835 of that amount represented the business
interruption loss). Jupiter’s appraiser refused
to sign the award.
In April 1996, Jupiter filed suit in Illinois
state court seeking to vacate the appraisal
award. The insurance companies removed the action
to federal court, and they later added a
counterclaim for unjust enrichment in the amount
of $33,895, the difference between the $100,000
advance and the $66,105 awarded by the umpire.
C.
After the insurance companies moved for summary
judgment on both Jupiter’s complaint and the
insurance companies’ counterclaim, the district
court granted the motion and entered judgment in
favor of the insurance companies on both claims.
Because this is a diversity action, the district
court first had to determine which state’s
substantive law would govern this dispute. The
insurance policy does not contain a choice of law
provision. The district court looked to the
choice of law rules for Illinois, the forum
state, to ascertain the appropriate choice of law
rule. The district court observed that, in West
Suburban Bank of Darien v. Badger Mutual
Insurance Co., 141 F.3d 720, 724 (7th Cir. 1998),
a case involving a fire insurance contract, this
circuit regarded the situs of the insured
property as the deciding factor under Illinois’
conflict-of-laws rules. Following our approach in
West Suburban, the district court held that
Indiana law governed this action because both of
the properties insured by Jupiter’s policy were
located in Indiana.
Under Indiana law, the district court concluded,
the appraisal in this case was binding on the
parties. To reach this conclusion, the district
court relied on the decision of the Court of
Appeals of Indiana in Atlas Construction Co. v.
Indiana Insurance Co., 309 N.E.2d 810 (Ind. Ct.
App. 1974), in which the court held that an
appraisal is binding unless it can be
demonstrated that the appraisal was unfair or
unjust. The district court also looked to our
more recent application of Atlas in FDL, Inc. v.
Cincinnati Insurance Co., 135 F.3d 503 (7th Cir.
1998), in which we held that, under Atlas, the
parties were bound to their appraisal. In
Jupiter’s case, the district court explained,
Jupiter had not come forth with any objective
evidence to establish that the umpire had been
biased or partial; therefore, the district court
concluded, the appraisal was binding on these
parties./5
II
DISCUSSION
A.
We review de novo the district court’s grant of
summary judgment. See West Suburban, 141 F.3d at
724. Summary judgment is appropriate when "the
pleadings, depositions, answers to
interrogatories, and admissions on file, together
with the affidavits, if any, show that there is
no genuine issue as to any material fact and that
the moving party is entitled to a judgment as a
matter of law." Fed. R. Civ. P. 56(c); see
Celotex Corp. v. Catrett, 477 U.S. 317, 322-23
(1986). The interpretation of an insurance policy
is a question of law that is an appropriate
subject for disposition by way of summary
judgment. See Hurst-Rosche Eng’s, Inc. v.
Commercial Union Ins. Co., 51 F.3d 1336, 1342
(7th Cir. 1995). We also review de novo the
district court’s choice of law determination. See
Gramercy Mills, Inc. v. Wolens, 63 F.3d 569, 572
(7th Cir. 1995).
B.
We begin our analysis by reviewing the choice of
law determination of the district court. Federal
courts sitting in diversity must look to the
conflict-of-laws rules of the forum state for the
applicable substantive law. See Klaxon Co. v.
Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941);
West Suburban, 141 F.3d at 724. The forum state
in this case is Illinois; therefore, we must look
to Illinois’ conflict-of-laws rules. When an
insurance policy lacks a choice of law provision,
Illinois courts employ a "most significant
contacts" test to determine the governing
substantive law for the contract. Under this
test:
Absent an express choice of law, insurance
policy provisions are generally governed by the
location of the subject matter, the place of
delivery of the contract, the domicile of the
insured or of the insurer, the place of the last
act to give rise to a valid contract, the place
of performance, or other place bearing a rational
relationship to the general contract.
Lapham-Hickey Steel Corp. v. Protection Mut. Ins.
Co., 655 N.E.2d 842, 845 (Ill. 1995) (quotation
marks and citation omitted). "While all these
factors must be considered in the choice of law
analysis, the location of the insured risk is
given special emphasis." Society of Mount Carmel
v. National Ben Franklin Ins. Co. of Ill., 643
N.E.2d 1280, 1287 (Ill. Ct. App. 1994) (citing
Restatement (Second) of Conflict of Laws sec. 193
(1971))./6 However, "the location of the subject
matter of the contract, such as the location of
the risk insured by an insurance policy, is
entitled to little weight when the subject matter
or risk is located in more than one state."
Employers Ins. of Wausau v. Ehlco Liquidating
Trust, 723 N.E.2d 687, 694 (Ill. Ct. App. 1999)
(citing the Restatement sec. 193).
Jupiter submits that, under Illinois’ "most
significant contacts" test, this case should be
governed by Illinois law. According to Jupiter,
Illinois has the most significant contacts with
this insurance policy. It emphasizes that the
policy was purchased, delivered and signed by an
Illinois company, the insurance broker that
obtained the policy for Jupiter was based in
Illinois, the loss was suffered by a company
incorporated in Illinois, and the suit was filed
originally in an Illinois court. Jupiter also
emphasizes that in Lapham-Hickey, which also
involved an insurance policy obtained by an
Illinois company, the Supreme Court of Illinois
applied the substantive law of Illinois even
though the insured property was not located in
Illinois.
Jupiter is correct in pointing out that the
policy at issue here was purchased, delivered and
signed by an Illinois company, that Jupiter
obtained the policy from an Illinois-based
broker, that the loss was suffered by an Illinois
company, and that Jupiter initially filed suit in
an Illinois court. Nevertheless, we cannot accept
the contention that the courts of Illinois would
apply Illinois law in resolving the merits of
this action. Both of the properties insured by
Jupiter’s policy are located in the same state--
Indiana. Thus, the situation in Lapham-Hickey is
inapposite, and the rationale of that case cannot
control the analysis here. The policy at issue in
Lapham-Hickey insured properties located in six
different states; had the Supreme Court of
Illinois ruled that it would interpret the policy
according to the law of the states in which the
insured properties were located, the same
insurance policy would have been subject to
different interpretations under the laws of six
different states. See Lapham-Hickey, 655 N.E.2d
at 845. The court in Lapham-Hickey applied
Illinois law in that case in order "to obtain a
consistent interpretation of the policy." Id. The
concern over obtaining different interpretations
of the same insurance policy, which animated the
court’s decision in Lapham-Hickey, simply is not
present in Jupiter’s situation.
When we have applied Illinois’ "most significant
contacts" test to other insurance policies
covering properties or risks located in one
state, we have held that the law of the state in
which the insured property can be found will
usually govern. See West Suburban, 141 F.3d at
724; Massachusetts Bay Ins. Co. v. Vic Koenig
Leasing, Inc., 136 F.3d 1116, 1122-23 (7th Cir.
1998); GATX Leasing Corp. v. National Union Fire
Ins. Co., 64 F.3d 1112, 1115 (7th Cir. 1995).
Because Jupiter’s policy insured against property
damage and business interruption loss for
properties located only in Indiana, we shall
follow our previous application of Illinois’
"most significant contacts" test. Therefore, we
apply the substantive law of Indiana to this
case.
C.
1.
Having determined that Indiana law governs this
action, we next address Jupiter’s contention that
it should not be bound by the appraisal award.
"The Courts of Indiana will not hesitate to set
aside an appraisal award if it is tainted with
fraud, collusion or partiality for appraisers,
though selected by the respective parties, ’must
act free from bias, partiality, or prejudice in
favor of either of the parties.’" Atlas, 309
N.E.2d at 813 (quoting Insurance Co. of N. Am. v.
Hegewald, 66 N.E. 902, 905 (Ind. 1903)). "When,
however, the award is uninfected with such
unfairness or injustice, it is not to be set
aside and replaced by the subjective judgment of
a reviewing court." Id. The Supreme Court of
Indiana has endorsed the approach taken by the
Court of Appeals of Indiana in Atlas. See Carroll
v. Statesman Ins. Co., 509 N.E.2d 825, 827 (Ind.
1987) (adopting the Atlas holding as applied by
the Court of Appeals of Indiana in Carroll v.
Statesman Ins. Co., 493 N.E.2d 1289 (Ind. Ct.
App. 1986)).
Applying the holding in Atlas to the present
dispute, the district court held that Jupiter and
the insurance companies were bound by the
appraisal award because, like the parties in
Atlas, they had submitted voluntarily to the
appraisal as provided by the insurance policy. We
agree with the district court’s assessment. Under
Indiana law, an appraisal is binding unless it
can be shown that the appraisal is infected with
unfairness or injustice. See Atlas, 309 N.E.2d at
813. This was also our holding in FDL, Inc. v.
Cincinnati Insurance Co., 135 F.3d 503 (7th Cir.
1998). See id. at 505.
Jupiter contends that the policy does not state
that an appraisal would be binding and that it
never agreed to a binding appraisal. Jupiter also
insists that our decision in FDL, Inc. is
inapplicable to the present case because the
appraisal clause in FDL, Inc. explicitly stated
that the appraisal would be binding. We cannot
accept Jupiter’s argument. Under Indiana law as
set forth in Atlas, an appraisal is binding even
if the appraisal provision does not state
explicitly that the appraisal will be binding.
The appraisal clause for the insurance policy at
issue in Atlas did not state that the appraisal
would be binding; nevertheless, the court ruled
that the parties were bound by it absent a
showing of unfairness or injustice. See 309
N.E.2d at 813. In fact, the language in the
appraisal provision in Atlas is strikingly
similar to the one in Jupiter’s policy. The
appraisal provision in Atlas stated:
"’Appraisal. In case the insured and this Company
shall fail to agree as to the actual cash value
of the amount of loss, then, on the written
demand of either, each shall select a competent
and disinterested appraiser and notify the other
of the appraiser selected within twenty days of
such demand. The appraisers shall first select a
competent and disinterested umpire; and failing
for fifteen days to agree upon such umpire, then,
on request of the insured or this Company, such
umpire shall be selected by a judge of a court of
record in the state in which the property covered
is located. The appraisers shall then appraise
the loss, stating separately actual cash value,
and loss to each item, and, failing to agree,
shall submit their differences, only, to the
umpire. An award in writing, so itemized, of any
two when filed with this Company shall determine
the amount of actual cash value and loss. Each
appraiser shall be paid by the party selecting
him and the expenses of appraisal and umpire
shall be paid by the parties equally.’"
Atlas, 309 N.E.2d at 811-12 (quoting the policy)
(court’s emphasis omitted). Just as in the policy
at issue in Atlas, the strongest indication in
Jupiter’s policy that the appraisal would be
binding can be found in the statement that the
appraisal award "shall determine" the amount of
the loss. R.89 (Policy TR 789281, sec. I, K).
These two appraisal provisions are not
distinguishable in a principled manner. Under
Atlas, therefore, Jupiter and the insurance
companies are bound by the appraisal that they
voluntarily undertook--unless Jupiter can
establish that the appraisal was unfair or unjust
as defined by the court in Atlas.
2.
In an effort to establish that the appraisal was
unfair and unjust, Jupiter claims that the
appraisal should not be binding because of the
umpire’s "[m]isfeasance." Appellant’s Br. at 21.
According to Jupiter, the appraisal should be
cast aside because the umpire allowed the
insurance companies’ appraiser to pick the award
amount, never visited Jupiter’s aluminum mill,
and made other mistakes in his appraisal. At the
very least, Jupiter submits, it should be able to
explore these alleged problems at trial and,
"[i]f true," the problems would make the
appraisal nonbinding. Appellant’s Br. at 22.
Although making these assertions, Jupiter has
not provided sufficient evidence to substantiate
them. Its most concrete argument, and one that is
supported by the record, is that the umpire
allowed the insurance companies’ appraiser to
"pick" the award amount. Jupiter’s allegation in
this regard, however, does not establish a
question of material fact regarding the propriety
of the appraisal; each of the umpire’s three
independent calculations were lower than those
submitted by the appraisers for Jupiter and the
insurance companies. Standing alone, the fact
that the umpire’s calculations were all lower
does not suggest that the umpire was somehow
partial or prejudiced. Because Jupiter has failed
to provide sufficient record evidence to support
its assertions of misfeasance, the appraisal is
binding, and the amount of Jupiter’s business
interruption loss has been set. Thus, summary
judgment in favor of the insurance companies was
proper on both Jupiter’s claim and the insurance
companies’ counterclaim.
Conclusion
For the foregoing reasons, we affirm the
judgment of the district court.
AFFIRMED
/1 An amended complaint was later filed in January
1998. The amended complaint sought damages under
the policy.
/2 This action falls within the district court’s
diversity jurisdiction, 28 U.S.C. sec. 1332(a),
because the parties are of diverse citizenship
and because the amount in controversy exceeded
the $50,000 minimum required in 1996, when the
action was removed to federal court. See Cook v.
Winfrey, 141 F.3d 322, 326 (7th Cir. 1998). The
statutory minimum for establishing diversity
jurisdiction has since been increased to an
amount in excess of $75,000.
/3 On a motion for summary judgment, Local Rule
12(N) for the Northern District of Illinois
required the non-moving party to submit a
response "to each numbered paragraph in the
moving party’s statement [of uncontested facts],
including, in the case of any disagreement,
specific references to the affidavits, parts of
the record, and other supporting materials relied
upon." No. Dist. Ill. Local Gen. R. 12(N)(3)(a).
Local Rule 12(N) further provided that "[a]ll
material facts set forth in the statement
required of the moving party will be deemed to be
admitted unless controverted by the statement of
the opposing party." No. Dist. Ill. Local R.
12(N)(3)(B).
We note that, effective September 1, 1999, the
Northern District of Illinois amended its local
rules. Local Rules 12(M) and 12(N) have been
replaced by Local Rule 56.1. The parties in this
case made their filings under the former
designation, and we have used that nomenclature
for the sake of clarity.
/4 See, e.g., Schneiker v. Fortis Ins. Co., 200 F.3d
1055, 1057 (7th Cir. 2000) (approving of the
district court’s enforcement of a comparable
local rule and accepting as true all facts not
properly contested by the non-moving party);
Brasic v. Heinemann’s Inc., 121 F.3d 281, 284
(7th Cir. 1997) (enforcing Local Rule 12(N) of
the Northern District of Illinois and accepting
those facts not properly contested).
/5 In its complaint, Jupiter claimed that the
appraisal clause was not binding under section 12
of the Uniform Arbitration Act, 710 ILL. COMP. STAT.
5/12. The district court held, however, that the
Uniform Arbitration Act was not applicable under
Indiana law because this case involved an
appraisal and not an arbitration. In its
submissions to this court, Jupiter has not
questioned the district court’s ruling regarding
the applicability of the Uniform Arbitration Act;
consequently, Jupiter has forfeited this issue.
/6 The Restatement states:
The validity of a contract of fire, surety or
casualty insurance and the rights created thereby
are determined by the local law of the state
which the parties understood was to be the
principal location of the insured risk during the
term of the policy, unless with respect to the
particular issue, some other state has a more
significant relationship under the principles
stated in sec. 6 to the transaction and the
parties, in which event the local law of the
other state will be applied.
Restatement (Second) of Conflict of Laws sec.
193. The commentary to this section further
states: "The location of the insured risk will be
given greater weight than any other single
contact in determining the state of the
applicable law provided that the risk can be
located, at least principally, in a single
state." Id. sec. 193 cmt. b.